June Sales Jump

June Real Estate Market Update

The June Real Estate market’s numbers are out and they are interesting to say the least. There are a couple statistics though, that seem to be drawing all the attention.

The one getting the biggest headlines is about the increase in sales versus last year’s numbers.  In the single family market, there was a 32% increase in the number of homes sold for the month. This is quite a significant increase and is a very good indicator that the mood of the buyers out there has shifted.

The other interesting number that accompanies this increase is that while sales were up, the average price of a home for the Calgary region dropped marginally. The drop itself wouldn’t even really be of note, as it was one third of a percent decrease, if it wasn’t for the sales increasing so much.

So what’s behind these numbers? Obviously, the stability of the economy has played a big factor in buyer’s confidence. As the prospect of long term employment and growth in our economy continues to look rosy for the province, it’s providing more buyers with the confidence to enter the market.

There is also the concern that interest rates may start rising again, potentially as early as the fall, which is likely putting pressure on people. Perhaps more importantly though, the weather started participating!

The rain actually let up for several days at a time, the city and surrounding area looks greener than it has in years and the fair weather home buyers started to get out more and to look at properties. Properties with lush grass and blooming flowers that instantly became more appealing.

In a normal year, April and May are significant months due to the spring buying fever and although they were fine this year, many purchases were likely pushed back due to the gloomy wet weather. This likely pushed many of this current crop of buyers back into June and contributed to the surge in sales.

The slight decrease in median sales price and average sales price also indicates that many of these buyers were also purchasing properties in the starter category or more properly defined as affordable homes. Much of this relates directly back to the renewed confidence in the economy around us and the optimism that accompanies it.

The big question coming up though is whether this will be a continuing trend or was June just a pleasant blip in the market. July and August tend to be much slower markets around here. With so many summer distractions like kids, holidays, and other activities there is less time for home shopping and this usually shows in the sales numbers.

On the plus side though, we have also seen a trend of lower inventory levels of properties for sale this year compared to last year which has helped the market transition closer to being balanced. Obviously, this has helped contribute to the activity as well, but we are now seeing more and more for sale signs pop back up in neighbourhoods.

As more sellers jump into the market and test the waters, this could also slow down activity as it pushes inventory levels back up. I would really like to see July and August continue to grow, but more likely things will return to normal for a couple of months at least. Come September though, we should be seeing even more optimism, more activity and more happy headlines.

Investor Perspective

So now what, should the investors take the summer off and wait until September? Well, if you are thinking of buying an investment property summer may be a great time for you.

As the inventory levels creep up due to slower sales, there may be some great opportunities for the good negotiators out there. If properties are languishing on the market during a slower summer prospective sellers may be easier to work with, thus becoming motivated sellers. And in this business motivated sellers are far easier to deal with than someone testing the waters!

Junes jump in sales is likely just the early signs still of our next growth spurt, so there is plenty of time to take action if you want to profit from a long term Real Estate strategy.

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What To Do With Your Variable Rate Mortgage

Should You Lock Your Variable Rate Mortgage?

Wondering when to lock in your variable rate mortgage, or what your lock in options are? If that is one of the mortgage questions you have right now you might find this video over at the Globe and Mail helpful.

Help, I Have A Variable Rate Mortgage

The other interesting thought to take from this is that variable rate mortgages typically have a payout penalty of only three months payments. Think about how you can leverage that to reduce any payout penalties (maybe these should really be called mortgage profit centres instead of payout penalties) if you want to get great rates and you are unsure how long you will stay in a property.

Investor Perspective – Variable Rate Mortgages

As an investor myself I think variable rate mortgages are ideal. They lower my payment, they increase my cashflow and more of my payment goes towards the principal instead of interest.

The downside, rates will increase at some point and my payments will go up, my cashflow will go down and slightly less of my principal will get paid down.

There is a way you can offset this though. Virtually all the banks allow you to increase the mortgage payment amount by at least 10%. If your variable rate payment is currently $1,100 per month, and your cash flow permits it, simply boost the payment by 10% (or more if allowable and the property still works) to $1,210 per month.

If rates increase, you have already built in a cushion, so you won’t feel the hit. If rates stay where they are you still win. You’ll just want to confirm that the banks apply the extra payment directly to principal, which is to your advantage,  and not to prepay interest, which is to their advantage. This can shave years off your mortgage by getting the principal paid down that much quicker.

Creating wealth with Real Estate is a long term strategy and knowing how to position yourself early can help fulfill that strategy just a little bit sooner!


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Canada vs. Alberta vs. Your District

Canada Is One Vast Country

If you haven’t noticed, we are one darn large country. With over 9 million square kilometres of land, almost 10 million square kilometres of total area and over 156 thousand miles of border we take up a lot of space.

This vast amount of space also comes with an impressive amount of diversity from East to West, from province to province and even from city to city. This actual diversity provides challenges some interesting for our country and due to this size, also areas of confusion when talking nationally.

We have some areas of the country dependent on manufacturing for growth. We have other areas dependent on fishing, some on forestry and of course areas dependent on energy and resources. From coast to coast, province to province and district to district these needs dependencies change and while some require others to grow, others struggle when one prospers.

This diversity causes problems when we start to see reports of what is happening “nationally”. You see, rarely there is any single event that affects every area the same. This is no more apparent in any area than Real Estate.

Real Estate Varies By Area

That is why regionally we see home prices in Vancouver breaking $800,000 on average and in Fredericton; they are just over $150,000. With such vast differences in numbers, our national “average” price is around $365,000 which means nothing if you are in the top end, or the bottom end of these averages.

Even provincially, there is disparity from one region to another. Whether it’s comparing Calgary at $413,000, approximately, versus Edmonton at $368,000 or Fort McMurray at $729,000 versus Lethbridge at less than $250,000 there are huge variances dependent on regional and local economies.

This can even be seen on a very local scale. You can often see huge differences in prices from one district in a city to the next. Of course if you live in the city, you have a better idea of why properties in Forest Lawn are less than properties in Tuscany.

Obviously there are differences and rather than continue to throw up numbers it’s time to get to the point. Whenever we talk about national averages or the Canadian statistics, we have to understand that using national numbers or trends often doesn’t equate to what is occurring in every region.

This is why the recent story of a Canadian housing bubble about to burst is more of a headline than an actuality for us. In this report, they talk about how housing valuations have lost touch with fundamentals, which translates into people over spending on properties versus their earnings, at least according to Capital Economics, the creator of the report.

Perhaps part of the problem is the majority of these types of stories come from the center of the Canadian universe (Toronto if you haven’t been told) and focus on situations in that market. As I’ve tried to point out, these types of comparisons are useless and often provide false information compared to local markets.

Alberta as a whole and the majority of the regions within the province have some extremely sound fundamentals coming into place that will cause us to be relatively insulated from what is occurring in these other “universes”.  The strength of our energy sector and the demand for energy changes the rules.

So instead of rather than comparing Canadian averages, or looking at National results, my word of advice is to see what’s happening locally and use that for the real story.

Investor’s Perspective – The Local Economy

So while it’s important to understand the values in many parts of Ontario are flat due to a slowdown in manufacturing and it’s interesting to understand that a portion of Vancouver’s higher priced Real Estate is being driven by foreign buyers, we also have to understand things are different here. Alberta was slow going into the recession and extremely slow coming out, all because our economy is different.

This is the same economy that causes us to live the boom and bust lifestyle. We watch energy prices skyrocket and drag our economy and lives along, we then see the fall of energy demand and it hits us hard.

Understanding these cycles can give you an incredible edge in capitalizing on Real Estate investments. Timing the market is for heroes and for people who are jumping on the bandwagon. These will be the same people who will buy into the Real Estate market after it’s taken off once again and then complain about what a bad investment Real Estate was for them.

Reading headlines about a “National” housing bubble gives those who study the real local economy almost an unfair advantage. While others live in fear of this pending crash now, years later they also refer to how lucky you were for buying when you did. Yes lucky, rarely smart or well informed, but rather pinning all your homework and knowledge on pure luck.

As an investor (or even a casual observer), read the headlines, understand the true impact of the story and then move forward with what works in your area. Nuff said!

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Bing, Bang, Boom

Here is an assortment of topics and items that were on my mind and occurring around us last week.

Bing – Interest Rates May Be Stable For a While!

There are some rumours out there the Bank of Canada may not actually raise rates now until next year. With the continued instability of the world economies any rate changes too soon, may slow down any of the current economic growth Canada has seen and cause us to spiral back again.

This could change at any time and they may very well raise rates in the fall, but it should remind you to keep an eye on what is happening out there. I’m still a big fan of variable rate mortgages, even if the rates do start going up.

Investor Perspective – Variables Rate Mortgages Rock

There are some great deals on variable rate mortgages out there and even if rates do increase a couple of percent over the next few years you will still be ahead. I have asked a mortgage associate friend to help put an article together for me outlining more of this and breaking it down for you.

Hopefully we can have something up for you in a couple weeks to show why I think variable rate mortgages rock!

Bang – Banks Are Still Digging Into Your Pockets

Yes, I am still pretty positive about the market, but I’m still culling some of our properties to make managing them easier. We just sold a property and it was another reminder of why banks are profitable and why you have to keep an eye on your pennies when you are selling.

Our mortgage was up for renewal in mid August this year, which is why we started selling it in the spring. We wanted to minimize any hefty mortgage payouts and avoid having to go through some painful renewal process. The property closes June 30th, mortgage was due on August 15th. What would you expect a reasonable payout penalty to be for 46 days on a mortgage payment less than $2,000 a month?

Apparently, it’s over $3,100 or over a month and a half of mortgage payments. Ironically, they make more money off of me by me selling it a month and a half early than if I sold it exactly on the day it closes. Guess that’s why banks have all the money.

Investor Perspective – It Gets Harder & Harder to Like Banks

Before anyone gets on my case about honoring a contract, I understand what I signed up for, but shouldn’t there be some flexibility when it comes to selling your property, especially when the mortgage is almost up? You cannot tell me I cost this lender $3,100 is losses by selling a month and a half early.

This just turns into a pure profit center for them and if lenders weren’t already making billions in profits I could see why they would need to do this, but really? Couple of extra lessons, if you are selling your property, it doesn’t hurt to position the sale date after your mortgage payment if possible as this may help reduce the payout marginally and second, don;t forget to calculate how much of a hit it may be on your even profits!

Boom – We’re Back!!!!!

Now, let’s get back to back to the market and the province’s future which is appropriately titled boom. The stories keep popping up about everything that is happening in the province.

Prices in the majority of the province have decreased enough that Alberta is quite affordable based on our provinces average wages these days and our average wages keep going up! I’m seeing more Sold signs appearing and with it, more For Sale signs as well.

The summer is a horrible time to sell properties, so there is a good chance many properties could sit on the market for a while, but this could lead to a bit more activity in the fall. People may be receptive to low offers if their property has sat quietly unsold for two months.

It’s 2012 that should be the real story though. Migration to the province has picked up, unemployment has dropped significantly and energy companies are opening their pocket books to start up new projects, increase drilling and generally grow.

Our region gets dragged kicking and screaming with the energy industry and it appears we are set for another little boom. Hope we are better prepared for it this time around.

Investor Perspective – How Rosy Is The Future For Alberta?

I know I keep looking at all the positive things going on out there and I do understand there are some negative stories as well. I’ll leave the negative stories for all the depressed people to bitch and moan about.

Alberta does still have some challenges to watch out for over the next few years, but there are so many more positive aspects that we have to be aware of that they overwhelm the fears. I’m seeing it already in my shared accommodations.

I’m barely advertising right now and still getting calls for rooms every day. The majority of which are individuals coming to Calgary for work. Their story seems to be very consistent, they cannot find work in Ontario, areas of BC, the Maritimes etc. and are coming here because they have something lined up before they even arrive. This is extremely reminiscent of 2005 and 2006 when we last saw the arrivals of new workers.

So people obviously know Alberta is a place for jobs. We are also seeing some nice announcements over the last nine months of many of the oil sands projects moving forward. These generally take a few years to get into full project mode and already we are seeing increased demand for workers, what will it be like in two years?

Oil actually went down in price over the last week, this is also a great thing. Much of the recent pricing has been speculative and the increased costs put extra pressure on worldwide economic growth. With the US’s release of some of it’s reserve supply into their markets, it’s taken a  bite out of the speculative price point and pushed it closer to a true market price.

With oil hovering around $90 to $100 a barrel this is great for world demand, as it gets into the triple digits it can actually slow demand. So while higher prices look good on paper, would you rather sell a billion barrels at $90 or 300 million at $110?

All of this still points to quite a rosy future here. If you are a property owner or own some local investment property we are in for some more profitable times. I’d love to hear your thoughts on this, whether you agree or not, so please leave a comment or send me an email to tell me what you think!

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Dealing With Professional Tenants

Professional Tenants Understand the System

If you aren’t familiar with the term, you would think a professional tenant is just someone with no intent on ever owning and intending on staying a tenant forever. Talk to a landlord who has had a professional tenant and it’s an entirely different story.

I don’t know if it’s the state of the economy over the last couple of years, or just how people are changing, but I’m talking to more and more landlords who are dealing with tenants who understand the system so well, they work it to get months of free rent. These tenants have gone pro at abusing the system and using whatever methods they can to take advantage of sympathetic landlords and either avoid being evicted or simply stall and drag out the eviction process and in doing so stay rent free for as long as possible.

Now we aren’t talking people who are simply down on their luck, these are individuals who simply know the system so well they can stall, intimidate and even scare landlords into allowing them to stay longer. And since morals seem, to have little to do with it, they have very little problems lying about anything along the way.

On the simpler side I’ve had landlords tell me of tenants lying in court about receiving eviction notices to the extremes where one tenant had his niece move in (without the landlord’s consent) and told the landlord if he didn’t leave him alone he would have the niece charge him with sexual assault. What type of individual would do that, never mind even think of it?

I now have dozens of different stories I have heard from landlords that range from basement suite tenants disabling water and power to faking medical issues to cause delays. Earlier this week a landlord who lived in the upper suite of his property informed me his basement suite tenant jammed his locks so the landlord couldn’t even get into his own residence!

The problem is once landlords have these types of tenants in place the only option is to go through the process of evicting them. Since they are so well versed on the process they know exactly how to create a string of appeals and objections for the hearing process , and additional stalls and questionable tactics along the way. Without proper coaching, this can result in weeks and months of frustrations and delays before you get control of your property back. (Self promotion time! I do have a guide to evictions available at this site, The Alberta Eviction Process)

You see the biggest problem is they managed to get in the property in the first place. Unfortunately, the majority of the time, this seems to occur to landlords who took shortcuts when it came to filling their vacancies. This could mean not calling all the references, not verifying previous rental history or simply because they tried to help someone out who appeared to be down on their luck. Whatever the case, once they have been let in the property, it’s too late.

Now there is no guarantee by doing all the due diligence prior to letting a tenant in that you still cannot get stuck with one of these professional tenants, but it can drastically reduce the odds of it happening. Even by simply mentioning in your advertisements that you do credit checks will typically be enough to discourage many of them from contacting you. They understand there are easier pickings out there and that is whom they prefer to target.

As a landlord, it is in your best interest to ensure you have the best possible tenants in place and that you do everything to check into the people who will be staying in your property. Good tenants will make being a landlord enjoyable and profitable, bad tenants will just cause you frustration, so do your homework and be a happy landlord!

Investor’s Perspective – Screening Tenants

A bad tenant can cost you a month of rental income, a bad professional tenant can cost you several months and thousands in expenses. It makes the hour or two you have to spend properly screening tenants and completing your due diligence rather inconsequential, doesn’t it.

Not all tenants are out to screw you, in fact the majority are good people and if you have good properties you will find these people or they will find you! Neglecting to properly screen just opens the potential door for the wrong people to enter.

The majority of the stories I see on my eviction site all have to do with tenants who would never have passed a strict screening process. Unfortunately most of the landlords I have talked with let their emotions rule the process rather than the systems and this can be the fastest path to problems for any real estate investor.

If you plan on running your real estate like a business you need to create procedures, checklists and processes that will specifically protect you from bad tenants amongst other things. I’ve already created a free guide to screening tenants for my readers, but I am also working on a new product which will help landlords find quality tenants.I’ll be looking for a few proof readers who will receive free copies of the book/guide, so if this interests you let me know!

I don’t have a time frame for when it will be done, but feel free to pressure me!

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Why The US Housing Market Won’t Correct Itself In the Near Future

US Housing Market Set To Suffer For Several Years

The US Real Estate market seems to be a constant source of conversations lately. With the meltdown the market went through over the last several years, many areas of the US have seen prices drop drastically and in many cases, they can only be best described as steals when compared to prices just five years ago.

Now I cannot deny that the prices are incredible, especially when you make a direct comparison between properties in our region of Alberta with say Scottsdale Arizona. Just doing a quick search on the internet, I found numerous 3 bedroom, 2,000 square foot properties in the Phoenix area around the $200,000 mark. They even include swimming pools! Similar properties here would be worth two, three or even four times that amount.  It’s the proverbial “no-brainer”, or so it appears.

I cannot argue that the values are low, but Real Estate, just like any market, is driven by supply and demand and this is why having a brain is important. In this case, the demand simply isn’t high enough to justify the prices being higher in Arizona. Perhaps more importantly, this will likely be the case for quite a few more years. This means we will see very little change in pricing during that time.

The great deals that are available now will still be there later. The issue is that the problem still isn’t over in the U.S.

According to a recent study by Harvard’s Joint Center for Housing Studies, as recently as March of 2011, there were over 2 million home loans at least 90 days delinquent in the US. Those numbers are staggering enough, but on top of that there are another 2.2 million properties stuck in the foreclosure process with no action being taken. Of those 2.2 million properties, 67% of the homeowners haven’t made any payments in the last year and 31 percent haven’t made any payments in two years.

There may be a percentage of people in the first group who will recover, but this will likely be a very small percentage. As for someone who hasn’t made a payment in over a year? We can assume they won’t suddenly be flush with cash and running to the bank to catch up.

This leaves over 4 million homes that will be need to enter the market at some point, likely at significant discounts, just so the bank can get them off of their books. You have to understand, this won’t have a very positive effect on market pricing and will just help keep prices deflated.

When you also throw in that 15% of all homeowners already owe more on their property than they are currently worth, it paints a very sad portrait and is just one more dagger into the market’s ability to recover any time soon. Some areas have definitely been hit harder than others, and there are areas that will with stand the underlying problems, but these areas are also not going to provide what appears to be the deal of the lifetime that people are looking for.

Perhaps the best way to look at this is to reflect on prices locally here through 2008 to 2010. There were significantly more homes up for sale than there were buyers, this placed us firmly in a buyer’s market and at times, there were as much as 12 to 16 month’s worth of inventory for sale. This took us several years to recover from and we still aren’t completely there. Thank goodness, our resource based economy is pulling us along and allowing us to recover so quickly.

In comparison, some areas of the US, have over 40 months worth of inventory! If it took us three years with a good economy to start to recover, imagine how long it will take that inventory to get chewed through with a stagnant or dying economy? The important point to remember, if you are considering purchasing in the US, is that you will see very little return on your investment for a very long time and if you were to wait a few more years there should still be plenty of opportunity, it simply won’t disappear overnight.

Investors Perspective – Buying US Property

I’ve said this a few times, so I hope it doesn’t get to repetitive, but if you are buying in the US for an investment, you will be waiting for a long time to get anywhere. It’s not impossible to make some money, but there will be many challenges.

There are so many roadblocks in the way of the US economy recovering, your entire focus would need to be on cash flow. This may make it initially appear viable, but after all the headaches of buying out of the country and paying managers to deal with day to day issues and having to deal with tax issues both in the US and Canada, it may not be worth it. Do your homework on this.

Especially when there are so many opportunities locally here right now. It might cost you a little more, but over the next three years the market outlook is definitely much rosier right here. It should be quite possible we see values increase by at least 15% in the next three years as the economy continues to gain steam and that translates into a $90,000 increase , (ooops I made a horrible math error here, that should read like this, thanks to Nasreddine for pointing that out!) a $45,000 increase on a $300,000 property.

In three years that would allow you to sell your property here and be able to buy your property in the US at most likely the same price as today, but with a very sizable down payment amount in hand. Perhaps it’s something to think about, before you get sold on how much greener the grass is south of the border?

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BoC Interest Rate Announcement

Bank of Canada Interest Rates Stay at 1%

Sort of. On Tuesday, the Bank of Canada made its rate announcement and kept the rate unchanged at 1%. This is the rate at which banks borrow their money and base their variable rate mortgages on and signals another couple of months of incredible interest levels for those considering a variable rate mortgage. With the caveat that nothing lasts forever!

At the same time they made this announcement though (here comes the caveat) , they also signalled that there will be another rate hike coming and most insiders are projecting this to take place in the fall. This will likely be a small increase, but still it would affect variable rates and even lines of credit.

The Bank of Canada is facing a few challenges right now due to our extremely strong dollar and the threat of inflation. In a typical scenario, the government can deal with rising inflation by raising interest rates or in an effort to increase economic activity they can lower (or in our current case maintain) interest rates. The problem is they are caught in a delicate balancing act with opposing forces currently taking place.

We’ve seen the prices of just about everything increase in the last few months and this is putting direct pressure on the inflation numbers. Earlier in the year, inflation was being called subdued by the central bank, but in the recent announcement, it is now being termed “relatively subdued”. This change in wording is one of the indicators analysts are pointing to as an indication of pending rate increases to help keep inflation subdued.

The other part of the balancing act is the Canadian dollar. While the strength of our currency is a boon for travellers, it puts us at a disadvantage when we export products. As the dollar rises, the costs of our goods increase due to the exchange rates. If our exported goods become too expensive, the demand drops and our economy slows down.

The central bank would normally lower interest rates which would cause our currency to decrease in value and help stimulate more exports. Which brings us back to the balancing act as this also sets the stage for higher inflation.

Rather than do anything drastic, they are now just sitting on the sidelines and watching to see how the world economy fares over the next couple of months which will likely indicate where our rates will head. If they see further slowdown in the US economy and more economic concerns in Europe, rates will likely stay exactly where they are for a while longer.

If however, the world economy starts to gather more steam, this will put more pressure on the effect of inflation and leave the bank little choice but to start raising rates.  The next scheduled announcement is coming up in July and then September, so the summer months will be very influential in where we go from here.

Investor Perspective – Mortgages

From my viewpoint, right now a Real Estate investor has to focus on cash flow, while at the same time protecting their future. With interest rates close to the lowest point we have seen there is nothing wrong with fixed rate mortgages.

However by looking at a variable rate you can typically save over 1.5% off your rate and perhaps more.  I’ve seen some recent variable rates of around 2.2% lately which is incredible. While it’s not impossible, it’s quite unlikely that rates will increase 1.5% in the next couple of years, so this will give you a nice jump on getting your principle paid down while increasing your cash flow.

On the other hand if the thought of rates increasing cause you to break out into a cold sweat, go get yourself a fixed rate!

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When You Are On a Roll

Thanks for all the great feedback and comments on my previous article about When Being a Landlord Sucks. I was thinking about calling this post “When Being an Investor Sucks”, but the jury is still out.

To set up the story, I’ll need to go back a bit. Although I have multiple properties I own and manage and have investors partnered with us, I am also a silent partner on a six unit townhouse complex in the Central Alberta Region.

This property was a piece of land with a house on in back in 2006 and we set up a partnership with another investor who was going to have the property on it demolished and then build a building with townhouses on the land. He was managing the build, bringing in another set of partners who would provide cash and financing and we supplied the land. A typical Joint Venture scenario.

Fast forward a couple years and the six unit building was finished in 2008. There were some cost over runs, which were to be expected, and the economy was under some pressure, but by building the property, a good chunk of equity was created. Everything looked good. Or so it seemed.

Part of our philosophy of being an investor and partnering with people is to provide updates on the properties, some type of annual, bi-annual or even quarterly reporting and generally being responsible. Perhaps Karen and I take it too far at times as we believe it is our responsibility to look after that money that has been put in our care and have paid out investors numerous times over the years who wanted out for whatever reason, all involving significant costs to ourselves.

Apparently, we are doing it wrong.

Since the building was finished in 2008, we have received a total of only one report on the status of the building and we had to send it back because it was wrong. The only reason we received the report was because I refused to pay the second cash call that came up until I had some sort of financial picture regarding the property.

Perhaps, because I know what we provide to investors, I am a bit more difficult to deal with as I have expectations. Not lofty expectations by any means, just the expectation that I should know what’s going on. Perhaps I am just being naïve?

Due to my rather lofty expectations, I have been painted numerous times by the partner who built the property and is “managing” it as being difficult and causing problems. I guess trying to understand what is happening with your investment is too much to expect.

There is a multitude of extraneous stories to go with this, but to fast forward to Monday night, I received an email from an RRSP investor on a totally unrelated property. Apparently, a Tax Recovery Notification was passed on to her about one of the units being behind in its taxes (so not only is the individual not reporting to us, but he also isn’t paying taxes, great).

Now I have a whole new set of issues. I have an investor who has been spooked unnecessarily by a lender. I have a lender denying any responsibility for what appears to be mixed up files and I still haven’t heard from the property mangler/partner on this project (no that wasn’t a typo).

There is another half dozen issues I could continue with, but it will just frustrate me more to go on, so I’ll wrap up with the point of all this. Do your due diligence on partners and make sure everything is written up in contracts with clear and precise steps laid out to allow people to exit and or to correct problems.

Investors Perspective – JV Partners

In this example, I made plenty of mistakes and I hope by writing about it, that it will help you avoid similar issues, or at least make you aware of what can occur. At this juncture, I am pretty biased about partners, I’m not sure if it shows….

If you are partnering with someone do your homework, talk to other people who invest with them. Get the real scoop on how the partner deals with correspondence, how they deal with paperwork and how they interact with other partners. Make sure you have a good idea of their character and don’t rely on hearsay. I don’t care if they are neighbours, golden boys or people you have dealt with prior, always do your homework, money really does change everything.

Finally, make sure you have your own legal representation. You need your own lawyer who is looking after your interests to review the documents before you sign, no matter how much time pressure there may be. I hate to say this, but it is becoming more and more apparent to me that so many people look after themselves first and worry about others later.

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When Being a Landlord Sucks

The Police Called About a Tenant

It was about 11:30 this morning when the police officer called me. I had already signed one new tenant into a shared accommodation and another out and was in the process of fixing two locks when the call from a “private number” appeared on my phone.

He informed me he was with the City Police and as soon as he announced this all sorts of problems flashed before me. With shared accommodations you never know what can happen, I’ve had SWAT shut down several blocks around my property due to a potential suicide, I’ve had tenants assault or threaten to assault tenants, basically a whole laundry list of problems over the years, but I wasn’t ready for this one.

Apparently one of my former tenants had passed away and I was one of the numbers in his cell phone, so the officer was just calling to find out how I knew Eddie. The story doesn’t end there though, you see I had just asked Eddie to leave a couple of days before because he couldn’t pay me. I know I cannot take responsibility for what happened to him, but it really sucks to kick someone out and find out he his dead less than 24 hours after you last saw him.

Eddie had a bit of a drinking problem and although this may have had something to do with his passing, it did appear to be natural causes and could have easily happened in my property. I had been trying to contact him for the last several days and couldn’t contact him on his cell, so I had left a message in his room on Wednesday and then when I still hadn’t heard from him Thursday I went to see if my note was gone and it was, so he had been by.

The room was a mess, clutter and junk all over the place and I was dreading a major cleanup issue and problem, then a couple hours later Eddie called and said he had been having phone problems. At that point I informed him I needed rent Saturday morning or he needed to pack and leave. He said he would be able to borrow some money, so I left it until Saturday.

During my Saturday morning collection the property Eddie was in was my last stop and I was expecting him to not be around and to be stuck with the mess. I knocked on his door and no answer, so I unlocked the door and was absolutely shocked!

The room was exactly how it was when he moved in, there might have been a couple minor spots on the carpet, but the bed was made, it looked like it had been wiped down and it was good to go. The only problem being, the keys were not there.

Never being sure of whether they wash the sheets or not, I pulled them off to take home anyway and headed out to my vehicle. I was going to make one last quick call when suddenly Eddie rolls up on his bike from the alley.

We have a quick chat and he apologizes for not having the money and explains he started moving stuff at 6:30 this morning from the room to a buddies place. He gave me the keys, we talked a bit about his alcohol problems (I often end up not just a landlord, but sometimes an amateur councilor at times it feels like), where he was going and what he was going to do with his life. He wasn’t a young guy, he had just turned 56 last month and he knew he had to turn things around.

After we talked he asked if I could buy him a burger or something as he didn’t have any money, but this is a rabbit hole I won’t go down anymore and simply said no sorry. So he thanked me for putting him up for the few weeks, apologized again and took off on his bike.

24 hours later he is now gone forever.

Landlord Perspective

Getting news like this is never pleasant, sure Eddie may not have been the perfect citizen and we all fall down at times, but he was a reasonably good guy when he was sober. It’s just very sad that I kick him out, essentially on the street, and he dies within a day. If he stayed, would he have lived, we will never know.

As a landlord it can be tough kicking someone out, but where do you draw the line. Given the same circumstance I would repeat exactly what I did. Ultimately I am responsible for my property and although I feel bad for Eddie, he may the choices that led down this path.

On the other hand, it really sucks being a landlord sometimes.


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Has Spring Finally Thawed? And Will The Real Estate Market Too?

Did everyone make it through the winter intact? Because I believe, it may actually be spring. It’s been a few weeks since we actually saw snow and the warmer temperatures have allowed the huge snow piles to all finally melt away.

All this moisture is even allowing a significant amount of green to start appearing on lawns again. If I can be bold enough to loudly announce, “Spring is Here!” I may also be able to announce the spring jump in Real Estate activity won’t be far behind. Even though it was delayed.

To be fair there are still some challenges in front of us, but with all the economic activity taking place throughout the province there is a significant amount of positive news in place. Employment is up, unemployment is down, in-migration is up and rental vacancies are down, all of which are incredible indicators of things to come.

Couple this with the delayed spring fever that occurs once Alberta comes out of the extended winter and we could have a very interesting couple of months leading into the summer. Historically the activity starts increasing in the market in March and this year wasn’t an exception, but it wasn’t until after the snow melted and after the Federal Election that things really appeared to heat up.

While much of the market is still being driven by first time buyers, some interesting numbers came out of April’s statistics. The most important one I saw was a $20,000 increase in the median price of properties to $420,000. The median is the middle sales number of all properties sold in an area and to me is a more accurate indicator of what is happening with values than average home prices.

A $20,000 increase is showing us that there is more activity taking place in higher priced homes, or at least higher than $420,000. So what does this tell us? First off, it is a good indicator that we have moved past the stage where the market is being driven solely by first time buyers rushing in to purchase before they get priced out.

Homes in excess of $400,000 are not your typical first time purchase and are more likely second or third homes. For a homeowner to be looking at this type of investment it reflects their confidence in their job security, the prospect of the market at least maintaining its value and belief that the worst may be over.

If we are seeing renewed confidence due to these factors, it is just a matter of time before it continues to spread. Couple this with all the other activity taking place relating to employment and in-migration and we could well find ourselves in a even more active market as available rental properties start disappearing  and rents again start increasing.

Once rents hit a certain point, the affordability of owning becomes more of a reality, especially when concerns about job security are drastically reduced. Right now, it really is starting to look like 2005 all over again. Let’s just hope this time we see a bit more restraint!

Investor Perspective – The Spring Real Estate Market

We are so tied to the energy markets around here that it’s scary. The other side of the coin though is that because we are so tied in, we should be able to see the writing on the wall when oil prices are back up around $100 a barrel. We still tend to play it conservatively though, until all hell breaks loose and the Real Estate market explodes.

Of course that’s when everyone else jumps in and over saturates the market. We make the big leap from investing to speculation and that inevitably leads to our downfall.

If you currently own a rental property, keep a very close eye on the rental market over the next year. Rents will be going up, we are already seeing decreases in apartment vacancies and single family home rentals, what is going to happen when even more people return to the province?

There will be some good opportunity to increase your rents to keep pace with the market and it will become even more important to be diligent with your screening. Try to keep leases to six months for now as it will give you the flexibility to potentially raise rents more often. You are limited by law to raise rents once a year for your tenants, but if they move in six months you can alwys start at a new higher price.

If you are looking at buying investment property, there really isn’t a better time. Except all the smart investors are currently out there buying up what they can as they see what is happening. Many rental properties being sold right now are great deals and will provide some very great returns, especially over the next several years.

My last observation is the huge increase in luxury home sales. This is a very solid sign the people at the top of the market are feeling quite comfortable about the economy right now. If they are comfortable, it’s only a reflection on where they think the market is heading.

Final note, we just sold one of our investment properties (conditions came off last Friday), in total we had five offers on it. First offer fell through due to financing issues, second one disappeared after waiting for the first offer to fail, third offer fell through as the investor didn’t want to do the extra work at this time, fourth offer was the ticket and a fifth offer came in as a back up offer and was actually higher than any of them, but was dependent on the fourth falling through.

These are signs people! Signs the market is moving in a great direction, so what are you doing about it!

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Politics, Housing & The Future

The Effect of Of Politics on the Housing Market

The recent statistics for April’s Real Estate market for the Calgary region have just come out and surprisingly, the sales numbers have actually decreased compared to the year before. When you consider the economy has been gaining steam, the provincial outlook is good and there is definitely a new stream of people moving back into Alberta, this decrease caught many people off guard.

So what could be the reason behind the backwards movement? There are likely thousands of different answers available, but I believe it comes down to two factors. First, our extended winter this year has delayed much of the early activity in the market. With snow seemingly showing up in every forecast, spring seemed to trickle in this year with barely anyone noticing.

Normally by this time of year, we’ve had numerous beautiful days and the first signs of spring fever would have hit the current crop of potential home buyers. This year however, while spring fever (or more likely cabin fever) has started to settle in, until we get a few more nice days strung together it really won’t take hold. Of course, when it does, I am sure it will suddenly get quite hectic out there.

As for the second factor that likely slowed the sales pace, we have to turn to the recent election. With the countries electoral outcome in flux, many citizens seemed to be holding off on major decisions until they saw the outcome. Would we be stuck in another minority government with continued disharmony and potential changes to tax structures, potential economic damage and a negative overall environment? Or would we be able to achieve a majority government that could potentially keep Canada’s economic engine chugging along?

Well as we just saw, the public seemed to give us the answer they were looking for by voting for a majority government.  Hopefully this is enough impetus for the economy to continue to strengthen and to continue to provide an extremely positive outlook not just for Alberta, but for the rest of the country as well.

So where does the Real Estate market head now? All indicators are definitely still pointing upwards. Although April’s sales slowed down, so did the amount of overall inventory available for sale. With the number of new listings decreasing by 25% versus the same time last year, a positive outlook on the economy, increased in-migration, a delayed spring rush and a newly defined government in place, we could be at the beginning of a very solid future.

Investor Perspective – Calgary Real Estate Market 2011 & Beyond

I’m quite confident the Conservative government is going to be very good for the West. Sure they have to understand where the largest share of the vote come from, but at the same time they also understand where the golden goose lives.

As Don Campbell likes to point out, the world is going to be demanding the three F’s for the foreseeable future. These are Food, Fuel and Fertilizer, which are all in abundance in Alberta and Saskatchewan and even B.C.

These resources will lead to more jobs, more in-migration and an economy that will drive the rest of Canada to prosperity. Which makes Calgary an ideal area to invest.

Investing in Real Estate is not a quick ticket to riches, it takes time and that is why it’s so important to look to the future and see where the road is guiding us. Right now the road looks clear and straight.



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Homeowners Frustrations When Selling Their Home

Home Selling Frustrations

It’s tough out there right now if you are trying to sell a property. There are still significant amounts of inventory for buyers to choose from and it’s putting buyers in the driver’s seat. Couple this with the uncertainty of the market and you find many people trying to sell their property in quite a bind.

I’m personally selling one of my rental properties right now and going through the process (and the frustrations) is reminding me of the stress that can be involved. The worry about pricing too low, the worry about how long it will stay on the market, how to counter any offers, whether to counter offers and the list goes on!

Normally, I am in a slightly different situation, as I can usually separate myself emotionally from the decision of buying or selling a property. This one however is a bit different as it is one of our first properties we purchased as an investment almost seven years ago. It’s hard letting your first ones go.

When homeowners (and apparently me too) have a long history with a property there is bound to be a slightly more elevated emotional ownership involved. Emotional attachment and the baggage associated with it that makes it harder to first sell the home and second harder to accept a) that it’s not selling b) that it’s not worth the value you believe it is and c) people would have the audacity to submit low offers for your valued home.

Unfortunately in today’s market people may have to accept all of the above if they truly want to sell their property. Starting with properly pricing their home, which is usually the biggest sticking point.

Pricing is always important, but when the market is slower and there is plenty of competition around, you need to ensure you are in a position where you are attracting not just viewings, but offers.

With the property I am selling right now, we started with a reasonably aggressive price, but after a couple weeks we slashed it even further. This resulted in us attracting quite a bit of action, creating a multiple offer situation and as of this moment we are sitting waiting for conditions to be removed.

Of course to get here we also went through many frustrations. These included a couple lowball offers, being held up by a potential buyer and even a price reduction request after the home inspection. Going into this however, we had a very good idea of what we needed to sell it for, what our bottom dollar value was and by knowing this ahead of time it made it easier to take most of the emotion out.

If you are a homeowner and are currently trying to sell your home, perhaps you too need to start in reverse and determine what you need from the home, dollar wise. If you get too caught up in the emotions and the frustration that come with selling your home, turning it into non-emotional dollars and cents can help relieve the stress. This won’t work for everyone, but for those that follow it, it may help reduce weeks of living on edge!

Investor’s Perspective – Selling Investment Property

I’ve had numerous questions about why I would sell now, it’s obviously not the best market and from my previous posts I am pretty bullish on the next couple of years. So why sell now?

I have multiple reasons, first and foremost, the mortgage is due this summer, with my previous history with secondary lenders I’m being pro-active and taking action now before I discover they want to pull the rug out from me.

Second, I have held this property for seven years, I made some money! Sure I could make more by waiting, but sometimes it’s time to just let go.

Third, travel time, this property is about a forty minute one way trip for me and because it involves monthly/weekly furnished rentals in the lower unit, it can take multiple trips in a week which just kills my productivity.

Overall, selling now just makes my life easier, so I’m taking action. This is something all investors should look at and make their own decisions on. The extra $5,000 to $15,000 I may or may not make by hanging on a couple more years just doesn’t balance out against the extra headaches, the extra time involved and the options I have now.

Realistically it’s better to sell now and leave something on the table for a wise investor than to hang on and try to eke out every penny, so that’s what I’ve done!


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Landlord Challenges

What Are Your Landlord Challenges?

$100 oil seems to be rather good for the economy. The economic activity created by this surge in prices is rippling through the province and is only in the early stages of generating increased job creation, leading to increasing wages and in this article, additional landlord challenges.

The last few years have been considerably harder on many of the local landlords than the middle of the decade. With property values dropping, more potential tenants leaving the province and what appeared to be non-stop layoffs occurring, many landlords found themselves with vacant properties, non-paying tenants and even properties that were under water. This represented the ultimate challenge many landlords.

To try and understand more of the challenges many landlords were facing, I recently had a group of my online readers complete a survey about some of the biggest challenges they were seeing and the results were quite interesting to me. In hindsight though, it really shouldn’t be surprising.

The Number One Landlord Challenge?

So what was the number one challenge? In my rather informal survey, for over 62% of the respondents, the biggest challenge they had was finding quality tenants. The number two challenge, which was far behind at only 20%, was screening tenants.

Obviously having a quality tenant in your property takes considerable pressure off of the property owner, by why is it such a challenge to find them? There has to be some quality tenants, they didn’t all just turn into homeowners! In fact, to hear many landlords there are no good tenants out there and that is just wrong.

Perhaps understanding where many of the landlords out there acquire their information sheds some light on part of the problem. Fortunately, I also included this question in my survey, all in an effort to get a better indication of how these property owners learned their landlording skills.

Surprisingly, or perhaps obviously, 73% of the respondents never took any serious training. They were simply self-taught with a majority of them learning information off of the internet (60%). Now the internet can be a great source of information, but is it truly the best place to learn how to manage an expensive asset?

This topic is a double edged sword for me as I personally have hundreds of articles and tips I’ve written and shared on various websites and forums out in cyberspace. If people were not actively looking for information online, much of the help and support I have provided would have been wasted, yet I know it has helped many people over the years.

Still, people should not solely depend on the internet for their education.  While the internet can be a great resource, landlords should be looking at other sources such as Real Estate investment groups, mentoring, and even books. Personally, my wife and I used all of these (including the internet) to increase our education.

In our case, the most effective method was becoming involved with one of these investment groups (in our case it was the Real Estate Investment Network or REIN). It provided us with the information we needed to rapidly accelerate our learning curve and it exposed us to multiple other investors who became our mentors and guides along the way. While the cost to join a good program was an initial deterrent, the impact was life changing and the costs paid for themselves in no time.

This direct access to similar minded people who we could turn to for advice, guidance and best practices quickly helped rid us of many of the challenges we formerly faced and is why we highly recommend this method as the quickest way to success for landlords. That along with the quality training and education that REIN provided of course.

Many of the challenges landlords face are only challenges because we don’t yet have the answers, don’t understand the process or simply haven’t been educated in how to avoid them. Following the footsteps of others and using that knowledge to leverage your growth will help reduce many of those challenges.

Investor Perspective

One of the quickest ways to success is to find someone else who has been successful doing what you want to do and then repeat their process. As you often hear, “Success leaves clues!”.

Mentors, trusted sources, investment groups these all help contribute to learning those steps. Hopefully my information that I provide is also included in this group. If you’re just following along and not actively participating in Real Estate investments, it’s fine to continue to gather information. If you truly want to get serious about investing in Real Estate (or actually becoming serious about any field!), you need to get some serious training and groups or clubs are some of the best methods.

Now not all are of the same calibre, so you need to do your homework, but if you start surrounding yourself with like minded people, you will eventually start experiencing like minded results.

Over the next couple of months I am going to put together some courses and reports on how to be a better landlord, I’ll keep everyone in the loop as they become available, so if you have any questions you feel should be included or any areas of landlording that should be covered, I would love to hear it.

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Buying A Condo In The U.S?

Purchasing US Property – A Caveat

I had an excellent conversation with one of my readers the other day regarding purchasing a condo in Las Vegas and it reminded me of some very interesting points that many buyers don’t think about. Initially, he was quite excited about the idea of buying some US property as an investment after attending a recent seminar on US properties.

With the strong Canadian dollar and the ability to buy properties at significant discounts, it looked like an excellent opportunity to get in at a very cost effective price. I’m not entirely against purchasing property in the US, but my recommendation for him was to go into it with his eyes wide open.

My biggest personal concern about the US housing market is how long it will actually take to recover. Although there are stories about Canadians (specifically Albertans) flocking to buy properties in the US, this is more speculative than economically driven and speculation doesn’t create a healthy market. Speculation causes prices to go up, but usually shortly afterward, the bottom falls out as there is nothing to sustain the values.

For values to increase in a healthy way, there needs to be an underlying economic engine driving the growth. This usually is directly related to a market with an increase in employment and local demand. These factors draw more workers, families and services to an area and as we saw in Alberta not so long ago create a strong housing market. Usually with a longer stability cycle than sheer speculation.

For this particular fellow his initial thoughts were to look at a condominium he could rent out due to the large cash flow that was being promoted at the seminar. On paper this appears to be a great solution, but there are several issues out of a condo owner’s control. I’ve owned multiple condos over the years and even sat on condo boards, so I have a clear idea of how a condominium is supposed to work and one of their biggest drawbacks.

Condo Fees – The Bane of Investors

This drawback was condo fees. Not just having to pay them each month, but the potential for them to increase drastically over the next few years. This would particularly be apparent in complexes with multiple units in foreclosure. If the foreclosed unit owners are not making mortgage payments, it is likely they aren’t paying condo fees either and condo fees are integral to the property being maintained and properly managed.

This could result in extra cash calls to fill up the condominiums coffers or to pay additional costs that can be incurred due to deferred maintenance. The conundrum here is that the lowest priced condos will also likely have the most units in the complex vacant, up for sale and/or in foreclosure, making the initial savings a ticking time bomb of potential future expenses. Basically there is a reasons they are priced at significant discounts!

Furthermore, depending on what the condo fees cover, energy and utility costs will also be a factor. Costs for electricity, heating (although not quite the same issue in Vegas as Alberta) and water will continue to increase causing condo fees to have to increase as well. These increases and potential cash calls to top up reserves could quickly put a dent into any cash flow that would be recognized.

This along with several other topics my conversation partner hadn’t thought of became enough to make him rethink about rushing to buy an investment property right away. He now was going to go in a bit slower and with his eyes quite a bit more open.

Investors Perspective on US Real Estate

Another big point to take from this is this person was looking at this as an investment, not a recreational property. Short term, the US market and the US economy still doesn’t have the legs to make sense as an investment in Real Estate for several more years. They simply have too much baggage right now to start turning things around in the near future.

Yes, values will likely go up eventually, but wouldn’t you rather have your money working for you now, rather than sitting there doing nothing for up to five years? People are overlooking the promise of what we have right around us. Alberta has so many positives that we have become accustomed to, we aren’t seeing the opportunities right in front of us.

What are your thoughts?

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More Potential US Real Estate Worries

US Mortgage And Foreclosure Issues

I’ve talked a few times about how the US Real Estate market still has plenty of turbulence to go through before it recovers. This recent 60 Minutes report points out some new issues that may create an even more of a problem for the market in the very near future.

The extra fraud questions this brings about could have repercussions on the US mortgage market for years and the reputation of the very lenders in charge of the market. It’s stories like these that remind us that the Canadian banking industry (although far from perfect) is so tightly regulated in comparison that it’s no wonder we escaped the meltdown with minimal damage compared to the US.

Real Estate Investor Perspective

How will this affect an investor? If you are purchasing in the US this could have a drastic affect on the financial industries for the next several years and potentially lead to another meltdown South of the border.

If tens of thousands of mortgage documents are found to be fraudulent and leave the banks holding the bag this could create a new wave of bailouts, shutdowns and panic. This doesn’t sound like just a couple banks, it sounds like it was rampant and may cause a general lack of trust in the banking industry ( a well founded lack of trust apparently).

For Canadian investors this could be a very positive experience, if they keep their money in Canada. If it appears the US market is looking at another setback, more of the investment capital out there will look to safe havens (woohoo Canada) to park their money while the ramifications play out.

Watch for even more foreign capital to be diverted to Canada from the US which will lead to jobs, a growing economy, RE values to increase and even more optimism. Of course this will be tempered by our largest trading partner potentially reducing even more imports, so watch any investing you do in manufacturers that export only to the US!

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