What better experience for a cautionary tale than to experience it yourself and then to tell others. Hopefully by sharing some of our experiences with you, it better prepares you if you also invest, or are thinking about it. So with that, here begins some of our current experiences with Real Estate investing in Calgary.

My wife and I have been actively buying rental properties and reselling properties we renovate since 2003, well before the economy took fire. So by the time things did take off, we were fairly well entrenched. The problem we ran into was financing and this is the brick wall many investors run into.

Once you start getting up to a certain number of properties, it tends to get harder to get financing from the main banks like TD, Scotia or RBC. Sure, you can still get them through the B lenders, such as GMAC, Exceed and numerous others of the same format.

The downside is that since they understand your options are slightly limited (from their side they are also dealing with riskier opportunities, but that is what their business model is built on) there are different challenges you face. These include higher interest rates on the mortgages, usually higher setup fees, you are restricted to using certain lawyers they have on their approved list (who also tend to charge more) and you generally have fewer options with terms.

These challenges and extra expenses however are worth it if the property analysis shows the property will work as a good long term investment. Thorough analysis of the property, evaluating the costs to purchase, operate and maintain the property along with properly managing it to make those numbers work is part of what makes successful investors. Unless the rug gets pulled out from under you that is.

When the economy turned in 2007, we actually stopped purchasing properties after picking up five in the spring and early summer and thought it was best to just manage the properties through the downturn and make what we had work. So here comes 2010, Canada seems to be recovering nicely, at least according to all the statistics, the housing market seems to be fairly steady and things are turning around.

This is the where the surprises start to come up for us. We have two properties whose mortgage terms are coming due this year. The first property we purchased in 2005 and came due at the end of May and the other is one of the properties we purchased in 2007 whose term comes up at the beginning of July.

Well much to our surprise and delight (this is meant in the most sarcastic way possible), we discovered that the lender, GMAC, has decided to get out of the mortgage business and are no longer accepting new mortgages. This has actually worked out for us quite well as we did purchase the property five years ago, we have sold it for more than we hoped for and we have one less property in our portfolio, but it could have been worse if we hadn’t held it for so long.

This brings us to property number two which we have only held for three years, bought just before the downturn and is now worth less than we originally paid. This property was mortgaged for us by Exceed mortgage at a higher rate of 6.8%, with huge fees, we never missed a payment and it cash flowed positively. Yet Exceed informed us a couple of months ago that they are not renewing many mortgages now and for the most part are getting out of rental properties. So we have either to get new financing or sell it to pay off their mortgage.

Currently this particular property is worth about the same amount as the mortgage due to the decreases in value. Although depressing, it’s something we can normally live through as it does pay for itself and creates positive cashflow. However to get new financing now, we would need to put down another 25% of the value and suddenly it becomes a poor investment with all the money stuck in the property. Our other option is to sell it, which is the route we have chosen.

Unfortunately, for us, since the values are down, after all the commissions for realtors, lawyer’s fees, and other miscellaneous expenses, we will have to pay out a considerable amount just to sell it. We understand there is a risk with Real Estate and because of the dollars involved sometimes it can be a costly risk.

It’s just disappointing to us that our position is being dictated by lenders who have profited so handsomely from us, who we never missed a payment to, and who originally targeted this segment of the market when it was most profitable for them and now are bailing when it doesn’t suit them anymore. Perhaps this is just a whine, but hopefully it is also a cautionary tale to others out there with mortgages potentially coming due.

So if you also have some mortgages coming due with some of these B lenders, have a plan in place in case you need to get other financing or if you need to prepare to sell a property. With potentially rising interest rates, another option may be to check in advance to see if perhaps you can take advantage of a blended rate and get an extension on the term at the same time! By being proactive you may get a great rate set up for several more years, rather than finding out in six months they too are getting out of the rental market!

Wow, the banks sure have things stacked in their favor. Yet again, we are dealing with another bank who is effectively taking advantage of us in my opinion.

So if you are just sitting on the sidelines wondering what’s up, here is a quick recap from my perspective. When the boom was on and people were getting mortgages hand over fist for everything from homes to investment properties to recreational properties the banks had their hands out to lend a hand and their wallets open to rake in all their profits.

You had companies like GMAC (yes this was originally an auto financing company), Exceed mortgage, and numerous others lining up to provide mortgages and rake in profits from interest, set up fees and anything else they could profit from. Now with the downturn and profits not necessarily so abundant they are dropping off like flies.

GMAC was bought up by MCAP which is owned by Bank of Montreal. Now due to the “dangers” of mortgages they are getting out of mortgages, completely. If you have a mortgage coming due with them, you cannot renew, you simply have to get a new mortgage with someone else. Top that off with the tightening of acquiring new financing on rental properties and it turns into a real nightmare for anyone with one of their mortgages. I know this personally as we are having to sell one of our properties due to this. The positive spin is we have held the property since 2005, so we are ahead.

Exceed was another mortgage company many investors used for rental properties. Guess what they are doing? They aren’t exactly getting out of mortgages, but they are bumping up their interest rates and shortening terms. For one of my current mortgages coming due I can get a pleasant 8% interest rate for a term of one and a half years. I’m sure by the time we get to the end of that term it will be even more unpleasant.

The killer part, since it’s tougher to get new financing and since this property is now financed higher than 80% due to us purchasing it just as the market fell out, it will be next to impossible for me to get new financing without having to put up potentially $30,000 more to pay off the current mortgage and get it down to about 75% LTV. If I can even qualify for that.

So reluctantly I am stuck with a property I cannot sell (without a big loss), cannot refinance (without coming up big out of pocket) and I have to succumb to the banks exorbitant interest rates (which pisses me off). All in all a great start to a wonderful week!

There are some positive things happening, but why oh why do they have to offset themselves so much! Do they even have an inkling as to how much this impedes our eventual plans of selling everything and retiring to an island?

Do you have a bank story you want to share? Love to hear about it, so leave a comment or just email me back directly and tell me your tale.

We're Number 1!

I just received my copy of REIN’s Top Investment Towns in Alberta for 2010 and Calgary has been tagged as the Top Town in the province over the next 3-5 years. How exciting! Except that I am selling some of our properties, but in that case how exciting for the lucky purchasers!

Now to help clarify this a bit more. Investing in Real Estate is only a get rich quick plan on TV shows. In reality it is a slow and steady race (think Tortoise and The Hare) where persistence and a long term plan work in harmony.

What Don Campbell’s report shows is that after Calgary’s predictable correction of the last couple years we are at a point now where we have more affordable housing conditions, a stabilized economy and renewed optimism. This all bodes well for the next three plus years for Calgary to see above average growth in property values, in-migration and general happiness for Real Estate investors.

So if you are currently investing, planning on investing or are considering investing this is some great news. Oh for Edmonton readers you are in position two this year after multiple years of being top dog!

So many books to read, so little time

I know, third post in as many days, what’s going on? Well as the New Year has started, the flood gates of information have started as well.

I have been getting inundated with all types of information regarding what 2010 will be like, some like the Don Campbell interview I have passed on, other less valuable information I have read myself and will incorporate into future posts.

One of the pieces of information I recently received was a link to Seth Godin’s new FREE ebook that is a compilation of thoughts from over 70 different authors. Most of the people you may have never heard of, but you may want to learn more about them once you read some of their views and thoughts.

The book is called What Matters Now and provides you many things to think about for this year. Here is the link for you to access this, Seth Godin – What Matters Now ebook.

If you haven’t read anything else of Seth’s, I highly recommend you pick up a couple of his books either at Chapter’s or the library, or you order them online from Amazon here, Seth Godin book’s. One of my favorites was The Dip, which talks about the inevitable dip in a growing business and helps guide you to whether you need to quit or push forward before you waste to much time. Lily, this may be for you!

Two others you may also want to check out (although they are all good!) are Purple Cow, and Meatball Sundae. He does like unique titles! There are numerous other titles as well, but these would make an excellent start, especially for anyone involved in marketing.

Just to help introduce you slowly you can download his other recent book Tribes as a free audio file to play on your iPod or other MP3 player. It is available through a service called Audible.com and as a warning they require you to load some software on your computer to properly download the audio book. The direct link for this is as follows, Tribes: We Need You to Lead Us – Seth Godin Free Audio Book.

If anyone has already heard this I would love to get your thoughts, (Harold, did you end up listening to it?). I thought it had some very valuable points in there and I am trying to apply several of them, some right in this post!

Growing a successful Real Estate business, or any business for that matter, requires a willingness to learn and Seth Godin has many ideas for people to learn. So if you have read any of his books, would you recommend them? If so, could you tell the tribe why, because remember if it helped you, it may help someone else to read it as well?