Archives for February 2015

Questions arise about obligation to disclose whether property has stigma

original post on http://www.movesmartly.com/

I have seen this question come up a lot around grow-ops, I would disagree with the writer of this article in terms of grow ops that have been properly remediated specifically.  If a home was renovated and certified by a city licensed remediator – then the property is in most cases in better shape than it was before the grow op ever existed.  To have realtors out there needlessly narrowing the pool of buyers for these properties is just not necessary.

To your success,

Tim R

TD predicts the average price of a Calgary home will fall from $459,500 to $439,500 in 2015 (-4.4%) and then to $424,500 in 2016 (-3.4%).    Sales are expected to plummet by -47% this year and -1.9% next year.

The report goes on to say: “Calgary and Edmonton have already experienced a sudden and abrupt turn, and by January, existing home sales had already slumped by 45% and 30% from peak levels reached last year, respectively. Meanwhile, annual average existing-home price growth slid into negative territory.”

It’s too bad TD is focusing entirely on the average price which is a volatile and misleading measure in the context of the following facts:

• The median price was up 1.08% y/y in January
• Benchmark price was up 7.69% y/y in January
• Teranet HPI which tracks repeat home sales was up 7.1% y/y in January
• Luxury sales ($1M+) in January were down -42% y/y

If the Calgary real estate market continues on this path, price declines are obviously expected.  However, I think TD is jumping the gun by stating that prices have already slid into negative annual growth by referencing only the average price.

The above is an excerpt frohttp://calgaryrealestatereview.com/2015/02/12/td-calgary-edmonton-housing-markets-likely-to-correct/

This type of media attention is exactly the kind that can cause panic in the market place.  There have been layoffs in the oil sectors over the last few months with others expected to continue over the next 6 months, this will certainly have an effect on the average sale price in Calgary and the area but what that impact will truly be is yet to be seen.  There are still many people moving to Calgary for work – not just on the oil rigs but in construction and other sectors as well which are still doing well and are not as impacted as the oil patch and related industries.  I think that this correction was on the horizon for a number of months now and was going to happen no matter what the oil prices did, the oversaturation of high priced homes was incongruent with the buying power of your average Albertan.  I am speaking of the true buying power of the average Albertan and not the influx of buyers that are only buying due to the historically low-interest rates and are going to be in trouble in 5-8 years when the rates start to increase.  The media plays a large role in public perception of how a province is doing fiscally and they of course sensationalize the little things to sell advertising – the true fundamentals have not yet to greatly decline in Alberta from what I have seen so far, based on that I say again that it is too soon to tell on whether or not this current market blip will end up resulting in a downward trend.

To your success

Tim R

There are many self-help books and personal improvement books that teach a lot of great things, today I want to shift gears from real estate facts and information to touch on a very important point about what gets a person out of bed each morning.  I for one need something to inspire me to great things, this is a fact of life that I see written in a lot of those books I mention as well as there is some significance here because if you see something repeated in book after book written by many different successful people from vastly different backgrounds and industries then there just HAS to be a silver thread of truth in all that noise that surrounds us today.  There are a lot of reasons that I get out of bed personally: one, of course, is to pay the bills and keep the roof over my head and the power running to my house so I can write these articles – but unfortunately for most, this is where those motivations stop except for some consumer goods such as that new shiny TV someone may want and often that is bought with money that they don’t actually have! I use my credit cards to be sure, but I use them as effectively as I can and mostly for business activities and not leveraging my lifestyle.  I feel that many people out there dream big dreams of having financial freedom but I hear all too often the objections that they have placing restrictions on their lives for the most untrue reasons.  Phrases such as “when I win the lottery I’ll get into real estate” “the only way rich people get to the top is by stepping on the little guy” “I am not smart enough” just make me want t shake the heck out of those people and tell them that all they need to do is change their perspective a little bit, get off the couch and DO SOMETHING about their future and they can gain all the things in their lives they spend so much time complaining about not having.  The only person in life that cares about your success in life at the end of the day is YOU and the sooner someone comes to terms with that the better off they will be in every area of life.  Imagine if half the time spent complaining about things was spent working on fixing those things? I bet we could have found a way to fly or time travel by now! Most of these people do not have a clear vision of what they actually want in life, if they did then they would be able to formulate a plan to actually get them there and stop talking about it and take action.  The things that we only casually want to have in our lives are likely to never happen because there is no burning desire motivating us day after day to get there.  The famous author Napoleon Hill points out that once you have a thought in your mind of what you want to create or accomplish in this world as clearly as you are already using that creation or living that success in your every day then eventually your subconscious mind will show you the answers to the problems/obstacles that stand in your path to getting there.  It is no coincidence that his famous book was called “Think and grow rich” and I could not stand behind that advice more – once you think you can do something then you can, if you constantly create mental mountains to climb then it is hard to believe you will ever reach the paradise on the other side of the challenges in life.  With a crystal clear picture of what your life will be like when you reach your goals, not just having your fancy car or not having to report to a boss is nowhere near enough detail…actually being able to feel what it is like to achieve that freedom, have that time with you family, see the view from your villa in the south of France as the sun is setting, or whatever it is for you.  Having those types of end results to strive for WILL get you out of bed on a rainy day, stop you from procrastinating and watching TV instead of working toward your WHY.  There has to be balanced in all things to have true success, you need time for entertainment, your health, family, giving back to the community so working on your goals most of the time is critical but enjoying your journey is as well.  In closing, find what truly inspires you to do great things and if that is not what you do for most of the time maybe you need a different financial vehicle to get you there, and for me, that is real estate.

To your success in all things!

Tim R

I recently saw in the blogosphere something that bothered me a little – it was an article written by a realtor who was cautioning home buyers to not use the rent to own as a way to buy home and citing an example of how one of these deals had gone badly for one of their previous clients.  I will come right out and say rent to own as a business has the worst reputation in real estate – now this is for several reasons.  Firstly this is the scenario that most new investors get into without proper legal advice and not in many cases knowing how to properly analyze the deal both for the TRO company as well as the tenant-buyer.  This is really unfortunate because some well-intentioned newer investors could be inadvertently setting up their clients to not be able to close the deal because they did not have the numbers right from the beginning, now there is a solution to this: you can extend the term for another year or more to make sure the tenants can bump up their credit and be able to get a conventional loan.  There are some bad apples in every business and real estate is no exception with an above-average concentration of bad actors in real estate in RTO because it looks like easy money to put unsuspecting tenant-buyers in a home that they could never afford, take their deposits, not keep an eye on them and then disappear into the night.  That could happen with any business investment on either side of the RTO fence line buyer and owner alike – when you are thinking about getting into a rent to own with any company you need to do your homework getting the contracts looked at by a lawyer (a creative real estate lawyer so send me a note if you do not know the difference) and do some digging into how long the rent to own company is in business, how much checking up on you they plan to do over the term, is there an option to extend if something happens, and how long the mortgage broker they deal with has been in the business. The realtor previously mentioned has of course bias in this debate such that she suggested that you just save up the 5% down payment and go to your bank to get a standard mortgage which is great for her -because she gets to make a standard sale without doing any extra work or thinking outside of the box.  The main benefit of RTO is that you do not have to save up the whole down payment to start your path to homeownership not to mention if you have damaged credit you can’t get a loan from the banks these days.  I think all realtors could benefit greatly from helping the tenant buyers out there know that this is also a good option for their buyers who can’t get qualified right away for 3 reasons:

1. They get their client into a house faster getting referrals and the eventual sale of they sell down the road

2. Referrals for their mortgage brokers which helps their relationship

3. Standard sales through tenant first rent to own investors!!

Rent to own gets a bad rap, and in some rare cases they deserved it… but more often than not this is a great strategy that helps both buyers and sellers get what they want sooner.

To your success!

Tim R

The quality of the team that you have around you will ultimately determine your success in any business and real estate is no exception.  Picking all the members of your team is a very meticulous process that involves both personal criteria (working with someone you get along with) as well as business criteria such as their ability to frame a house or find the next up and coming neighborhood to invest in.  All professionals are not created equal because they are people just like you and I and they value different things – realtors are looked at by a lot of people as the real estate experts because they deal in real estate every day but as is true for a lot of industries just because someone deals in a certain thing every day does not mean they can deliver on what you are personally looking for.  Realtors are at the heart of things salespeople and the top 5% of salespeople are generally making all the money in any industry and the rest are performing at a modest level or lower.  Sales is a tough business but also the highest-paid second only to the entertainment industry (which includes pro Athletes) and there is a reason that most realtors do not make it past the third year in real estate it is very difficult to gain traction in this business and gain the skills to become a top performer.  There are a lot of great realtors out there just like other members of your team their style, goals, personality,  or punctuality may not fit with what your business is trying to accomplish.  Finding a top performer to fill any spot on your power team’s bench can and should take some thorough due diligence.  Make sure that the missing puzzle piece for your new team member fits into YOUR bigger picture!

To your success!

Tim R

I have seen a lot of investors over the past couple years very interested in commercial and multi unit residential properties, which is the best place to be in real estate especially in the end game.  The reason that multi tenant buildings are so desirable is that you have multiple streams of income and if you have a vacancy you do not lose out on the whole profit for that month.  There are also other great things about multi tenant buildings such as charging for multiple parking spaces as well as laundry and in some cases other amenities such as pools and gyms if they exist in the building.  One of the largest barriers to getting into these types of buildings is often the price – I recently saw a 4 unit apartment building in Calgary listed for over 1.2 million dollars! This property has the zoning to build a 12 unit building on the land but this is just an example of how high the prices can be in some of the large markets like Calgary and Edmonton.  The standard cap rate that someone should generally be looking for in an apartment building (depending on their goals of course) is around 8% and of course greater where possible.  This is impossible in the Calgary market at the current time and most smaller centers near Calgary due to the price increases we have seen over the last 24 months.  This causes a dilemma for those trying to make the move into multi tenant properties, now you could look in other provinces to be sure but there is a better bang for your buck if you are willing to open you mind to smaller towns in other parts of Alberta!  There are a precious few investors that would even think about buying an apartment building in a “small” town – why? I personally do not understand their objections: its not in a major center, there is no job growth there, what if the factory closes.  Now, the factory closing argument has some merit in some cases but only if 40% or greater of the whole town’s population works there and its closing would mean nobody could pay rent.  If the numbers make sense and the fundamentals are there such as vacancy rates being low and having more than one industry that fuels the job market then why not take a look at a small town? I know of a deal right now that is off market for a 12 unit building with an 8% cap rate that is only 83000/door and is only 2 hours from Calgary!  There are lots of these deals out there just waiting to be snapped up by savvy investors that know a deal is a deal no matter it’s location – not I know it is nice to invest in your backyard or close to a major city in your province but sometimes a major center means major prices that just don’t make sense when compared to some of the other options in the market.  That deal I mentioned is off market as well so there are deals that a lot of the conventional world just does not see so keep networking to find those pocket deals that never hit the MLS.

To your success!

Tim R

The most talked about goal in real estate and how it can make you wealthy is passive income – normally this means buying a home renting it, then collecting rents to gain your profit.  I have seen many investors over the years that have many properties and they insist on self-managing them bemoaning management companies as all being crooks and not adding any value.  This certainly true for some property management firms out there – but there are a bad apples in more businesses that you can shake a stick at! There are many very skilled and proficient management companies out there and one of the main benefits they provide which is often over looked is the screening on the tenants so you don’t have to and dealing with evictions if that ever became necessary. Finding a good property manager can take some time but once found they are worth their weight in gold so ask around your network for someone that you know uses and have used for a long time with great success, trust me it is worth the effort.  Having a bad tenant is one of the worst things that can befall a buy and hold investor – you could end up with a grow op in your home which you would be on the hook for remediation with the city so not getting the rent cheque could be the least of your worries! A great property manager lets you really focus on growing your portfolio and doing your due diligence on new properties so you don’t have to worry about slow sinks, broken washers, plugged toilets, and doing tenant interviews!  How much time do you spend on these tasks each month today? Let’s say you self managers out there spend 20 hours per month dealing with these sorts of issues, that is as much as a part time employee works in a week so you are losing a half a week each month – how much is that time worth to you? How often do you want to be doing high-leverage activities day to day? I say find a system that gets you to the place that you are ONLY doing high leverage tasks each day.

To your success!

Tim R

Wholesaling is by far the most popular real estate strategy for new investors (with sandwich lease option being a close second) because it seems like one of the least complicated routes to make some money in the start when you don’t have money for down  payments, renovation costs, or like many that take their first real estate course – often do not even own their own home.  I would disagree in many ways that the wholesaling world is the best thing to foray into right out of the gate.  There is no doubt that on paper it would be one of the simplest ways to get some cash in your pocket – find a great deal, get it under contract, and then sell that contract to another more experienced investor for a profit.  There are some inherent issues there however – you would need to have some experience with other investors and analyzing deals to make SURE it’s a good deal before you run out there and get that home under contract.  Having a contract is great, but if you make great claims to the owner of that property that you will be closing on it in two week or less and you never remove conditions (which is fine in concept) letting the deal drop this could annoy them – which again in theory is fine but if you do this to a hundred people in the first 3 months of doing real estate you may be building a reputation and image that you don’t want for your company long term.  The image and brand that you have in business is one of your most important assets and its very difficult to repair once damaged.  Some mistakes are going to happen in your first year in real estate and that’s OK, but it is very important to have a strategy to make sure you have a winner of a deal before you tie it up with a contract and have a buyers list  of whom you know exactly what they are looking for before sending them deals that will waste their time and yours.  Is this an excellent strategy? Yes – is it an easy one to execute in the beginning? I think not – network like crazy with experienced investors in your local market, pick a few that have similar profiles then find deals that suit them.  One of the most important things I feel you should remember in the wholesale game: don’t try to be all things to all people – focus your due diligence on 1 type of deal then go from there!

To your success!

Tim