Archives for 2015

I am sure that everyone has heard over the last few years that real estate crash in the US was caused mostly by sub-prime lenders, and to a large extent this was not the case according to a very interesting interview that I hard on satellite radio (this has not been sourced and verified) now when I hear an opinion of these world changing events I most certainly take them with a grain of salt- and I think you should to.  However being a natural skeptic I did think that this researcher had some interesting perspectives and I wanted to share that with the Canadian community.

The first item of significant note was that the break down of the lending landscape looked far different during the years leading up to the crash than most would think- the sub prime lenders only made up less than 20% of the total amount of mortgages in the US at that time with around 60% of the total loans being issued by traditional or large institutional lenders.  This is rather shocking to think that well over half of the “bad loans” that were issued were from the big banks and they were taking risks that were out of line with good lending practices.

It is always easy to look back and blame the lenders for complex issues, but as we know there are a multitude of factors that lead up to a correction of that magnitude.  What happened to the other 20% some might ask – the remainder was made up of regional and community banks and during the boom times they made bad decisions just like the big boys…the sub prime lending issue definitely played a role in the crash but the recession appeared to be on its way for a while based on the fundamentals of what was happening in the US at that time.

The take-away here is that the sub prime lenders were demonized in the media as being the sole culprit and the big banks that needed to be bailed out (and others that didn’t) seem to have played a larger role than many may have realized.

This phenomenon and others really drive home the point that what the media is reporting about and what unfortunately becomes the common consensus is not necessarily a reflection of what is really going on – so don’t believe everything that you hear especially when it comes from the media!

Respect the hustle

Tim Reid

The changing climate of real estate in Calgary sure has a lot of real estate investors shaking their heads about what to do next to continue to make money amid changing winds.  How can I keep my cash flow above water with rental prices dropping all over town? How can I flip this house without large risks when the prices are falling? What is the best way to find wholesale deals right now?

These are the questions that Investors have been asking me on a daily basis – and not surprisingly one of the requests I have been getting a lot more lately is whether or not I have any leads on tenant buyers or investors interested in doing a JVP for Rent to own in Calgary.  This strategy works very well to buoy you sinking rental rates and with a lot of current home owners losing jobs or having fear that they could be laid off – creates a large influx of potential tenant buyers into the marketplace.

The resurgence of rent to own is certainly taking place in Calgary and area, which was almost a barren wasteland for this particular strategy over the last few years with soaring house prices making it very difficult to find owners willing to even consider rent to own as a good strategy to solve their problem.  There have been increased foreclosures in Calgary by about 30% in the last 60 days and the trend will likely continue over the coming months with layoffs still happening with many going unreported in the main stream media – which is always a few laps behind what is really going on in the marketplace.

This is a great time to be able to help struggling families out of their problems and make an excellent profit for your real estate business at the same time, rent to owns may not have the hustle and bustle of flipping or wholesaleing but it still produces when executed properly an average of around 30% return on investment (ROI) – that is much better than any traditional investment that I can think of.  The weather has changed over the last few days in calgary and the real estate climate has some changes to match – but if you know what to look for and are willing to provide some creative solutions to your motivates sellers that that changing climate could mean a hurricane of dollars rushing into your bank account or saving that rental of yours from a negative cash flow position!

Respect the Hustle

Tim Reid

1. Paying too much for the house – When a lot of new investors (and even some experienced ones) look at a house with potential they worry about losing the opportunity and just pay market price for the property.  The money is made in the BUY when flipping houses and you need to get the property for below market value – even if that is only a 15% discount based on as-as comparables.

2. Over renovating for the area – Just because you see granite counter tops and brand new kitchens going into houses on TV does not mean that is what makes sense for the area your project house resides in.  The worst thing you can do is end up as the nicest house on a bad street!  This will mean your house will appear far too expensive priced right for your profit margins and will sit on the market longer than necessary costing you money in holding costs or “burn rate”.

3. Paying retail for materials and labor – Please avoid paying 15% markup for materials by trades/sub trades, and any time you can avoid buying something at home depot/Rona – always do it! The markup on some of their products such as screws/fasteners can be as high as 1000%.  Wholesale outlets are the way to go, you can set up cash accounts at any of these places with a company name/address giving you normally a 30% or more discount on their regular prices.

4. Not having a plan or having a plan and not sticking to it – Always have a well detailed scope of work, even if you are doing a lot of the work yourself (which I don’t recommend long term) you need to stay on track and on budget and deciding to make even small changes throughout the project can negatively affect your timeline/expenses very easily.  When working with contractors this will greatly simplify the process and avoid disputes over the bill if everything is well documented

5. Doing it yourself when you shouldn’t – Unless you are a professional in a particular area it will always be more cost efficient and save you time to hire out the work you need done, after all the speed to getting the house back on the market is what really counts especially in a market like Calgary right now when prices are shifting quickly.

Respect the hustle,

Tim Reid

I recently attended an event that very aptly illustrated the point that most investments do not keep pace with inflation.  The average return that stocks will yield over a 20+ year period is around 9% – now depending on who you believe the real rate of inflation is around 7-8%.  I know what some of you are thinking – there is no way it’s that high! So, let’s say for the sake of argument that the rate is only 3% per year – if you subtract 9%-3% you get 6%/year is what most investments will get you over the long haul.  This event in particular was about gold – and taught you that the same brick of gold today has the same buying power today that a brick of gold had 2000 years ago – thus a hedge against inflation.  Now, in so far as commodities such as gold, silver, diamonds will always be a hedge against inflation compared to paper currency I would agree – I in fact have invested in precious metals at times where the prices were artificially low with the intent to sell high at a future date: sounds a lot like what you are supposed to do in real estate yes?  I feel that the true way to get ahead and become successful is to have investments that track with/far surpass the rate of inflation – like real estate!! The value of real estate compared to paper currency is always just about the same: normally doubling in value every 10 years, for example a 100K house today will be worth around 200K 10 years down the road which would be a 100% return on investment compared to securities style investments (IE stocks).  That said inflation devalues your money over that same 10 year span, so real estate is just as good a hedge as commodities to hide from the monster of inflation trying to eat your wealth! I don’t know if I am crazy for thinking along these lines…but here goes: I would rather have cash flowing assets that out pace inflation by over 1000% than having a large percentage of my wealth in gold, silver, diamonds (pick one) sitting in a safe that I can’t spend in a store/service provider to obtain the things in life that I want.  Call me crazy for not wanting a hedge to hide behind and would rather have an income/net worth that is constantly growing so fast that inflation is only a distant spec in my rear view mirror while hurtling toward success.

Tim R

When we as real estate investors (and entrepreneurs at large for that matter) have our noses the the grindstone working hard on our core strategy we may be losing out on other opportunities in our investor networks.  When we are at at a networking meeting often the focus is telling other investors or potential clients what we have on the books at any moment in time as well as what types of properties/deals that we are looking for that fit squarely within our standard wheel house.  However, this could be limiting your profits in a huge way – often we may hear of a very large deal that a more experienced investor may be working on, or speaker, or partner of someone we do business with on a semi-frequent basis and dismiss that information as “nice to know” and file in a deep dark corner of our memory (or forget the project all together an hour later).  These deals that could very well beyond the scope/resources of your company could be exactly what your next meeting (or their partners may be looking for) and you could get paid a referral that could be huge money just by keeping track of what other people are looking for! This strategy is not new in real estate or business in general lawyers/accountants are champions of this tactic to multiply their number of clients for both of their respective business – they are obviously complimentary services but there are these same parallels in the real estate game.  Just think of  a rent to own company and a busy mortgage broker – these two are like two peas in a pod for how their clients need the opposite services.  There are many other pairings in real estate just like a fine wine and the right cheese! So I think it is very important to keep track (make some notes) of what your network of investors is up to because you can keep your ear to the ground and find the deal that has nothing to do with your core strategy that one of the people you have met could have been desperately searching for over the last few months or even years and trust me they WILL pay you for that connection! Therefore I say take a break from your core strategy just long enough to stay privy to the other deals you can’t execute on that you can put into the hands of another investor for huge profits and very little effort on your part!

To your success!

Tim R

Some new investors in real estate start off with only a small amount of their own capital, also we all only have so much credit in the eyes of the banks/credit unions.  This invariably leads to the need to meet other investors to build relationships which will (hopefully) lead to joint venture partnerships.  The most important thing that the investor on the other side of the table wants to know from you the new/seasoned investor is: “What will be the benefit for me if I work with you?”.  Now, this can be a difficult thing to nail down in the beginning of your investing career, what do they want to really know – should you amp up the safety of real estate? Really beat the drum of the strategy you intend to use? What if this investor does these types of deals on their own – why would the need you? There are a lot of these types of questions that I have heard many times over the years (and asked a few of them myself) but today I would really like to zero in on what the most critical points are to get across to those investors with the cash/credit you need for your deals.  Essentially, at the end of the day most successful investors or successful people with money that you are coveting are primarily concerned about (and will understand this point the best) are the numbers! They want to know what is my ROI or return on investment, how much money/credit do you need and for how long?.  If what you are doing supports the numbers you are presenting then the rest is really just a matter of details for the investors that you will be talking to.  The second most important thing they will want to know is what is the risk/how you will be mitigating the risk- this is a common place where you will have to do some education on why/how real estate is the best investment vehicle to build wealth, because a lot of people read the newspaper and watch the news on TV and are often swayed by the media’s interpretation of “the market” now I put in that in quotes to illustrate the fact that what the market is actually doing based on the fundamentals and what the news says about it are as different as night and day.  It would also be wise to show your investor the best, worst, and typical case scenario on how the deal could play out, this gives them the confidence that you have considered the possibility that not everything will always go perfectly according to plan and that you are ready for possible changes in the market which are out of your control.  Finally, the investors will want to know about how the project will go/the strategy you intend to use and why it will make the profits expected that you illustrated so well in your numbers section of your presentation.  The real benefit to the investor/partner is the ability to make higher than average returns on their money and have control of their investment unlike stocks/mutual funds.  Have all your ducks in a row, focus on what is in it for the investor sitting across the table, know your risk and how to present them being mitigated as best as possible and you will start getting more partners on board with your ideas/projects faster!

To your success!

Tim R

There are real estate opportunities/deals lurking around every corner in Canada. I was just in BC in the beautiful Shuswap area and on the way there and back I saw multiple lots for sale and abandoned businesses in prime with prime highway frontage. There are many investors that never see these deals because they can’t break off those “Market Manacles” that lock their profits/potential profits to an area that does not exceed a 30 minute drive from their front door! There are good deals in every city in Canada if you have the eyes to look – but just because it is convenient does not mean it is the right deal for you to maximize your profits…there could be a similar deal somewhere else in Canada that could 2x, 3x, or even 10x your profits.  Now, it might take a plane ticket or a few extra phone calls out to your network of investors to make it happen but so what? Is that really so much harder than keeping it in your back yard? I certainly do not believe that it is, so long as you are willing to ask for some help here and there and go a little beyond your comfort zone – which we all have to do at some point in our real estate careers. Of course you have to build relationships with people in other major/minor centers to create the facility for these deals to be possible – but all highly successful real estate investors operate in more than 1 market. Once you start to get to know some of these top players you can begin to leverage their teams on the ground so you do not have to do all that work yourself not to mention the time/money involved with building that team abroad. Why try to re-invent the wheel? Leverage is key in all aspects of real estate, not just in the financial realm of getting your deal funded.  Start putting those relationships to work to broaden your horizons in both profits and amount of deals that you can execute on in the same amount of time. Are you struggling to find deals? Maybe you need to dig out the keys to those “Market Manacles” and get some fresh market perspective!

To your success!

Tim R

I was walking in the park the other day as we are having an amazing spring this year here in Calgary, which is quite frankly a rare site! Normally I don’t consider even booking my summer tire swap until just about the beginning of June due to the threat of a huge snowfall! As I was walking in the park I was just thinking how amazing the dandelion plant is, how even before the grass has had its first thought of turning green there are thousands of of these plants that have grown, polinated (with what insects and how I will never know) and seeded – truly amazing! This make me think a lot about how these plants are similar to real estate investing in both Calgary and abroad.  There has been an economic shake up in Alberta as well as a new majority government put into power, but guess what? The dandelions don’t care about any of that; here they are to welcome in spring before there are leaves on any of the trees. Real estate investing is very similar in that the houses don’t really care what political climate or economic climate that the rest of society is currently in.  There are of course different strategies that will work best in each of those climates, but at the end of the day a house is a house and if you buy on the fundamentals then what it happens to be worth on the market does not matter one little bit. Similar to the dandelions real estate in term of passive income is a lot like the seeds you see flying all over the place in the spring, if you planted 1 dandelion on your back yard you better believe you will have 10 more the next year – buying passive income properties will give you the cash flow for years to come and eventually (not as fast as the dandelions to be sure) you can leverage that house to be able to buy more (plant another real estate seed) if you structure things properly.  Real estate is also a patience game, a lot like gardening or the forestry business – you need to think long term and be able to set up your cash flow to be able to weather the economic storms that will come and go over a 10-15 year period.  Those that are currently buying up properties on the expectation that they will make money on appreciation only will be unpleasantly surprised when the market tides change.  Enjoy the weather here in Cowtown or wherever else you happen to be in Alberta this spring the outlook for real estate is looking especially bright in our opinion, much like the forests little yellow plants on all the medians all the parks around this city!

To you success!

Tim R

There are always some anomalies in real estate markets in all areas of Canada, and right now Toronto is one of those things that just doesn’t belong in a world based on the fundamentals.  According to Christy’s international sales of luxury real estate in this city rose by around 37% last year.  How does that make sense in a province that is supposed to be a “have not ” area of the country at this time? This does show that there are always places in this country and others that do not follow the rules – and also that those people successful enough to own a multi-million dollar home generally stay that way in all economic climates and many of those hard working people did so with real estate.  Toronto happened to beat out a lot of other “sexy” markets such as miami, san francisco, LA, london, and new york in luxury sales last year, not something you normally see – which is great for the realtors in that area.  They also did not have to work very hard for it seeing average days to sale averaging only 1 month which is about 1/5 the normal amount of time to sell a luxury property.  In contrast to this Calgary and other areas of Alberta were hit very hard due to the downturn in the oil and gas sector over the last few months.  The exorbitant prices that we saw in 2014 have swiftly crashed down to earth, and the high end real estate always gets pummeled first when the high ticket execs get moved back to the US where they originally came from after all the projects dry up and engineers and middle managers are scrambling for work.  These employees were not often here in Calgary to stay so they are downsizing, moving back home, or panicking now that they can’t make the payments on their homes/cars they bought when times were booming here in Calgary.  This trend is normal when times get tough, the luxury end tanks first, then you see the high end drop second, then a slow third you will see the prices of mid and lower priced homes start to slide.  Calgary is not new to the boom and bust cycles in real estate, this happens roughly every 10 years or so on average and real estate investors that can see the signs/opportunities in every part of the real estate cycle are gearing up to reap some huge profits when prices start to drop and sales become harder to come by with less buyers in the market.  The winds are changing in Calgary real estate, and I for one have an eye out for the deals that are quick upon the real estate horizon!

To your success!

Tim R

There are lots of houses that look amazing in the pictures online either on MLS or for sale by owner websites.  Professional photographers and even hobbyists are able to do magical things through post production these days.  When looking at houses to renovate, rent, rent to own or any other strategy in real estate – looks can certainly be deceiving.  The ability to confirm comparables is also severely affected by these factors – because your realtor is just looking at the same square footage and beds and baths to give you a comparative market analysis. They might be basing those numbers of fancy pictures that do not really tell the whole story of value for the home you are thinking of buying.  One of the ways around this is to ensure that the realtor has been inside at least a couple of the homes in the area – or you may want to consult another realtor who is an area expert because they would have actually seen some of the comps in your target area first hand. Experienced real estate investors will make a point to go and see some of the homes for sale in the area to get a feel for things such as the quality of finishings, solid as opposed to hollow doors, color of appliances used, gas/electric range, flooring that is common, and the types of fixtures used in the bathrooms and kitchens to confirm the after repair values.  These items can all look very different in the pictures – also the layout of the rooms and their sizes can not be truly experienced unless in the home, some houses are just plain awkward in how they are laid out and this is rarely something you can determine from the photos. How a house feels within the first 10 feet of walking inside will be what turns your buyer/renter on or off so that awkwardness drops the value of a house considerably which could be an opportunity for you if you can think of a way to change the layout to something more attractive.  Having an experienced real estate team that knows what is going on in a certain area can help greatly reduce the time you spend looking at properties to buy – ultimately putting more money in your pocket! Think about taking a closer look at that property that you think needs about 20,000 in improvements it could very well be a mangy alley cat in lions clothes!
To your success!

Tim R