Will it ever end? The Canadian Centre for Policy Alternatives just came out with their report that states ”Canada is experiencing, for the first time in the last 30 years, a synchronized housing bubble across the six largest residential real estate markets in Canada.” You can find the full 24 page report at www.policyalternatives.ca.
The author of the report, David MacDonald, provides three different scenarios a) a market correction through straight pricing deflation of homes b) a deeper and longer crash over several years with prices dropping each year, or c) a rapid and steep decline similar to the US. The biggest problem I see with this report is that it is grouping all the cities together and all having the same issues.
Due to Canada’s size and diversity, what happens in one region doesn’t necessarily affect another. Alberta as an example always lags behind other provinces initially as overall economic growth increases. Then due to our energy based economy it surges above and beyond the other economies after the demand factor increases. Ontario on the other hand often starts strong due to increasing manufacturing. As for specifically Vancouver, it seems to operate under its own set of universal laws as there is no way people can afford to buy homes there, yet it continues merrily along.
Now, having said that, we are also all tied together with certain aspects, such as mortgage rates, which David also says will play a factor. I absolutely agree with him that if mortgage rates return close to historic norms too quickly it will have a dramatic affect on affordability. This is why I have been surprised by the previous two rate hikes the Bank of Canada already instituted this year. It’s also something that the finance minister is paying very close attention to at this point.
They are very aware that if they continue to consistently increase rates, even at a slow pace, it will dramatically affect the entire economy. As I have pointed out in previous articles, Canada had been the only G7 country to increase rates and we were only able to do so due to our quick recovery from the global slowdown. This was predominately due to many of the economic policies Canada had in place along with our stricter lending practices. Many other mortgage rate watchers, as well as myself, believe that if we do see further increases they will be very minimal and rates will stay very close to where they are currently at for a while. The caveat being if the economy starts to grow like crazy, increasing rates will just keep everything in balance.
Overall, he makes many good points and provides several possible outcomes. The unfortunate points being he doesn’t look at any of the positive signs we see out there which point to the market possibly dropping still a bit more, but regaining strength as we move into the end of 2010 and into a positive looking 2011.
Just to close off, the same day the above mentioned report came out, a report from C.D. Howe also came out. It took the stance that there is no indication that Canada will suffer a US style housing crash. Also a good read, it just didn’t get much press because it may perhaps have been to positive and positive headlines just don’t sell!
If you follow the Real Estate markets or own rental property it is incredibly easy to get depressed about the current market situation. As you scan the Real Estate headlines and find out sales have dropped 41% from the last year. Or as you can talk to Realtors, who will tell you about the huge amount of inventory currently for sale or you can even talk to your tenants about how they feel you need to lower rents because there are so many vacancies out there. The last trap was the one I fell into with my tenants help.
With this many options and this many negatives, it’s easy to get worried and it’s important to understand where your sources of information come from. My mistake began with talking to a tenant of mine, who was requesting a rent reduction due to the changing market. I am aware there are more vacancies and I know the market is a bit more competitive, I also know what a headache it can be to move. But they were good people so I caved in and ended up offering her a $75 reduction, which wasn’t good enough for her. So I agreed to switch to month to month while they explored their options, without doing any rent reduction!!.So now, here is how the trap unfolded.
When I collected the last monthly rent check, I listened to her story about how she felt bad for landlords like me, since there were so many vacancies out there and so many choices for renters, I may be vacant for quite a while. It was all rather depressing really.
To help elevate the potential depression, I also had another property that was just getting some renovations completed and was currently vacant, plus two more vacancies coming up. It all looked rather glum.
Next, came the reality versus what I had been told by the wrong source, or at least a source with a different agenda. Late one evening as I stressed about how long I would have empty properties, I finally had my ads all written and proceeded to post them online with less than stellar expectations. Much to my surprise by mid morning, I already had my first viewing booked for that day. Then another one came for the following day. Then two more for the other property, then a friend’s son came out of the woodwork interested in the third.
The response took me off guard as I was expecting a disappointing response, but it quickly became better and better. Now the key from my viewpoint is as follows, we like to keep our properties well maintained and updated and this is an example of this tactic paying off. Here we are not even a week later and I have all three properties lined up with new tenants. One will be vacant for less than 24 hours!
When chatting with the actual tenants looking for new places, the real view of the market emerged versus the one I was fed by the current tenant. Yes, there are a significant amount of rental properties out there, many at very low monthly rates. However, it appears there is a reason many of them are languishing on the market and steadily reducing rates and it has nothing to do with an over abundance of vacancies. Rather it has to do with tenants having options of where they want to live and they don’t want to live in dumps!
Resoundingly the tenants informed me that a majority of the “cost effective” properties were not places they would choose to live if they had options. During the economic boom earlier in the decade, people took what they could get, now the landlord and property owners that took advantage of tenants and just pocketed all the profits are feeling the results of their decisions.
So the real message behind this article? You really need to talk to the right people to get the real answers. The neighbour, or the tenant or the Realtor may have an opinion, but you have to do your own research to find out how valid their opinion really is and what is actually happening in the market.
In a report by the Real Estate Investment Network (REIN) in early August, Calgary was ranked the number 1 city in Canada for Real estate investments. With the slower and shaky economy, the high price of home ownership, forecasts for a slowdown in housing prices increasing interest rates this has come as a surprise to many people.
So where does this type of report get its basis from? First off, the group is basing its pick of Calgary from now until 2015. So while presently it may seem less glamorous to look at Real Estate as an investment, it’s over time that it shines.
REIN bases their decision on several factors that directly affect the value of property. These key factors are population growth, job growth and increasing average incomes. Whoa, you might say! Isn’t Calgary losing population, hasn’t there been layoffs and how could average income be increasing?
This is where the long term five year view comes into play. As the global energy markets continue to stabilize over the next several years and the US continues to increases its dependency on the “dirty oil” coming directly from the Alberta oil sands, Calgary will see its economic stability ramping up. Of course as the energy industry thrives so does the rest of the provincial economy.
Although we are currently seeing a slowdown in inter provincial migration, as more jobs become available and the economy grows, this will once again turn around. Now we aren’t talking 2005/2006 out of control growth, but definitely stronger than we have seen the last three years.
Now the majority of people first moving here are not likely to be home buyers. They tend to be renters who are initially more intent on getting a good job and less concerned about buying of they are unsure how long they will stay. This is what many people who are disregarding the report are missing.
From a home owner’s standpoint, with an average price of over $450,000 for a property that may not be able to increase much is not be a good investment. On the other hand, a $300,000 suited bungalow in a rental neighbourhood that generates $2,200 a month in gross income versus a $1,070 monthly mortgage payment could be a great investment from a Real Estate investor’s viewpoint.
What are your thoughts? Is Don Campbell going out on a limb or does he have a firm grasp on what’s happening out there?
Just noticed a story out of the city council meeting last night where the council has erased zoning restrictions on secondary suites designated for narrow properties. So what does that mean?
For some reason if doesn’t change anything for older districts that have the nice large lots (the example they use is Haysboro and University Heights) which are more suitable to add secondary suites. It does however affect areas where they cram homes in like Martindale, certain areas of Tuscany, McKenzie Towne, in all about 18% of Calgary homes.
These areas can now have legal basement suites. There are still certain rules to follow, but it cannot be denied due to zoning for these areas now which should take some pressure off landlords hoping to not get reported.
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!
First off, I missed this entirely. From everything I was seeing and hearing the economy was cooling. The housing markets had already stalled a bit after the recent changes to mortgage qualifying requirements in April, oil prices had dropped almost $10 from a few weeks ago, our dollar has dropped a nickel against the US, the crisis in Greece still has some huge ramifications and the general consensus is not much is happening right now as people wait for everything to play out.
Then again I don’t run the central bank, perhaps I missed something? I did see a report from the OECD predicting the Canadian economy has rebounded vigorously, but I don’t think vigorous was exactly the correct word? Really we aren’t doing bad, all things considered.
When you look at the horrors still facing the US (trillions in deficits, billions of pending foreclosures, huge unemployment rates) we are pretty stable. When you see what’s happening in Europe and how countries like Greece are becoming financially unstable, once again our situation doesn’t seem so bad.
I just think the rate hike may be a bit premature, our economy needs some more legs underneath it. The important part to remember is there is no additional indication of this being the trend. We all understand rates only have one way to go, but if it’s done gradually the impact should be minimal, only time will tell though.
How does the rate change affect you? Did you lock in your rate before today for an upcoming mortgage? Are you wondering whether it’s time to switch from variable to a fixed rate mortgage due to this? Ask me some questions and I will tell you my thoughts, even if I got this one wrong!
For long distance landlords, property management is essential to their business model and having great property managers can often make the difference between a satisfying experience and a nightmare. Managing remotely can be done, but it can make life a bit more taxing.
For landlords with property nearby, it can be quite a dilemma whether to give up the additional cashflow that you receive for managing your own properties versus freeing up your time by not having to deal with tenants. What a conundrum!
Fortunately, I’ve just been approached by another individual who has recently written a great article covering the pros and cons of property managers. If you are currently exploring whether hiring a property manager is right for you, this may be quite helpful, so be sure to take a read through.
To add to this I would love to get some feedback from anyone who is currently using property managers on the positives and negatives that you could share with the other readers.
The Economist magazine just released another article about an upcoming second dip in the pricing of homes in the US. I had previously explained a bit about the new round of Adjustable Rate Mortgages (ARM’s) coming up and bringing with it a new round of foreclosures in a previous posting, but this article also goes into details about some of the federal programs coming to an end.
These programs helped to artificially stabilize the housing market and now that they are set to expire, interest rates are set to rise and the US labor market continues to be so soft it is setting the stage for another substantial drop in values. Consider this another warning for you if you are looking at potentially purchasing an “investment” property in the US due to current low prices. These investments are actually much more speculative and will require much longer time frames to turn into wealth building opportunities.
Another aspect to consider regarding this is the Canadian market is still significantly different than the US market, the next wave of price drops South of the border do not translate into the same occuring here. As evidenced with the global recession while pricing did move downward in Canada, it was no where near as significant as it was in the US. We have already had our government change some of the qualifying and mortgage rules in anticipation of potential future problems. Whether that will be enough only time will tell.
If you missed it, Garth Turner was in Calgary recently forecasting for Calgary’s bubble to burst another 20% in the near future. As always he had a loyal following turnout, but it appears he managed to hit a couple of nerves with some Realtors and other folks in the Real Estate industry.
So just for some perspective about why things may not be as bad as he is projecting check out this article from the Herald by Marty Hope,
As a side note, anytime anyone seems to post anything bad about Garth his supporters bash the individuals soundly, it will be interesting to see if Marty gets some backlash.
First off, you need to understand if you are searching for a foreclosure property in Alberta on the MLS either to buy as a home for yourself or to flip you will most likely be disappointed with the results. By the time it has reached the MLS and has been labelled as a foreclosure, it’s typically beyond the point where you can negotiate a profitable deal and it will be priced at full pop.
People have been given the impression the foreclosures are priced much lower than other properties, can be a great deal and are a great way to get started in Real Estate. From our experience, it’s not exactly accurate. To get a better
understanding here is some information on how the foreclosure procedure works.
During a foreclosure process, the homeowners go through several stages. Initially they are behind on a payment or two whi
ch is when the foreclosure process starts. If you can somehow locate or contact people in this phase, it is an optimum time to negotiate or at least make them aware of you.
The next phase is a court appearance where the judge typically grants them several months to catch the outstanding payments back up, to sell the property or to give up. The length of time granted to the home owner is usually determined by the equity in the property. If there is significant equity, the judge is very lenient and will allow quite a bit of time as there is little risk of loss to the banks and plenty of options for the homeowner to get back on track. Typically they are given at least three months and usually six months to get on track.
The final phase is when the homeowners have been unable to get caught up and the judge is forced to put the property up for sale. This is when the property becomes listed in the local papers and on the MLS. Unfortunately, this is when the wheels fall off for an investor as the pricing is set by the judge based on a current appraisal.
So rather than purchasing a property under value, you are now looking at a property selling for its current value, which also will have extra stipulations as part of the sale. Some of these stipulations may consist of buying the property “as is” which is forcing the purchaser being asked to give up any recourse if defects are found in the property after the fact. Sometimes you are not even allowed to view the interior of these properties which turns this into a higher risk gamble, although in these cases the prices are considerably lower due to the damage, but how can you properly assess the repair costs without access?
Additionally, you are now negotiating with the courts or the bank directly, rather than a homeowner, so it all comes down to dollars and cents and who offers the best price. Also if it is a court sale through the paper, you must submit your bid with a certified check or bankdraft for 10% of the purchase price and wait for a month or longer to find out if you won (and sometimes when you win you still lose!) or just to get your money back.
So while there is money to be made in properties going into foreclosure, the secret is to get to them while the homeowner still has control. If you see someone advertising access to foreclosed properties, make sure they are not just grabbing the latest foreclosures from the MLS as this is not the best strategy to make money in Real Estate!
I’ve spent the last couple of weeks preparing another of our rental properties for sale and I was handed another reminder of why tenants are not a landlord’s friend. I don’t want this to be taken the wrong way, I am not saying you cannot be friendly and I am not saying you need to create a hostile environment, but you do need to remember a landlord/tenant relationship is a business arrangement.
The Tale of Two Tenants
So, in this property one of the tenants had been with us for almost three years. During this time we had some hiccups, they had fallen behind a few times, managed to catch up, fallen behind again due to the economy and both being laid off, and then eventually caught up again. I even took them to the RTDRS to protect myself, but recommended a Cinderella or Stay order so they could be put on a payment plan rather than a straight eviction which I could easily have obtained. According to any definition, I went above and beyond to help them.
These particular tenants had a couple of dogs as we allowed pets in this property. We had run into some issues during their stay as we had a yard service come through and cut the lawns on a weekly/biweekly basis as there would be evidence of the dogs on the lawn (I will let you figure that out). In these cases, the lawn folks would do the front and leave the back, pretty simple really.
Anyway, now they are gone, they found an incredible opportunity to move to an acreage for less rent and off they went. It was all pretty quick, they gave me about two weeks notice and they actually didn’t even catch up on the money they were behind until after they were out and it involved applying the security deposit to make it balance. For the record, this is not how a landlord should ever use the damage deposit, but this is an example of being too friendly with tenants and should be taken as a lesson.
So once they were gone, I do the tour (no exit walk through as per our systems, once again when you don’t follow your systems, you lose money!) and find the place is looking rough. No, it’s not vandalized; it just wasn’t kept up that well. There is the little stuff, like the dust on the fan blades in the living room that looks like feathers on the edges it’s so thick, the ripped and torn screens on the windows and the patio possibly from the dogs looking out. There are the dust bunnies that are lying in the corners, hanging from the ceiling and on every cold air intake and fan. The sign that it has been months or possibly even years since a good cleaning was done behind furniture and it has only become apparent once furniture was removed from the property.
Then there are slightly more annoying things, like the three kitchen knobs broken off or missing, the myriad of wall anchors and dents in the walls that need patching, the missing and removed closet doors. Finally, there is the badly worn hardwood floor that needs refinishing due to possibly a rocking chair with a nail or staple that dug into the floor damaging it quite severely along with a myriad of scratch marks throughout the floor from animals and moving furniture. Oh and I mustn’t forget the large burn mark on the deck railing (the deck needs to be replaced anyway, but still).
I’ve already spent about fifteen hours patching and painting walls, I’ve brought a contractor in to get the entire front deck replaced, new windows are on order and I am preparing to get the entire floor refinished and as I am doing all of this, I have plenty of time to reflect. Especially as I paint, and it hit me the one day, this is not how a friend would leave your place. At least a friend you want to keep.
Tenants as a generality are just renting space, they get to move on and leave the wealthy landlord (whether he is wealthy or just scraping by, he owns property so renters like to assume he is wealthy) with the place when they move on. I’m not saying all tenants are like this, but I am reminding you of why you need to treat it like a business, and as a counter point let’s look at tenant number two!
The Other Tenant
So now, I am onto the tenants in the lower suite of the same property. These folks moved to Alberta a year ago from Ontario and owned their own home, but weren’t going to purchase here yet until they determined it was where they wanted to be.
During the time they were with us, they never missed a payment or fell behind. They called us a couple of times when there were any property problems and updated us right away so we were able to send out the necessary repair people or take appropriate actions to remedy the problems before they became serious. When their lease was coming up, they gave us two months notice they were moving as their job was located in the deep South and the property was in the NW. The commute was killing them, although they loved the suite, so moving made perfect sense.
When I arrived to do the exit walk through, the place was virtually spotless, not a burnt out light in the place, and the battery was even working in the smoke detector (not so true upstairs as they had removed the battery there!). The only problem was a couple of large anchors in the wall in one room where they had attached part of a desk. In comparison to the upstairs unit that was insignificant!
Comparison Time, What Was The Difference?
So what was the difference, or differences? Well the lower tenants had owned their own home and I have to assume took more responsibility for their place. The upper tenants had become “friends” (not the type I invite over for dinner or call to chat with, but possibly more the type who take advantage of you once or twice before you push them away) and possibly felt I could take care of their mess.
They were done with the space and simply wanted away, so they left. With the damage deposit applied as rent, I had no payments from them at a minimum of a thousand dollars of cleanup, wall repairs and painting. It’s true that I would have painted anyway after having a tenant in for that long, but it’s the tenant’s responsibility to leave the property in the same shape as they originally occupied it.
The Lesson
You really have to focus on your business as a landlord. When you let relationships get in the way of business, it can cost you money. Sure times have been tough the last couple of years for people, but if you let your tenants get to close, times can be tough for you too as you take responsibility for their actions, or lack of actions. There has to be a line between helping people out and ensuring you and yours are taken care of. Sometimes it’s a fine line, other times it can be very definitive, it depends on your emotional makeup to a degree, but remembering this is a business can hopefully help you ensure you are standing on the correct side of the fine line! It comes down to this, tenants are not your friends, they are your business partner in a rental property and you need to treat them as this.
Have any of you tried to help someone who was a tenant? Or do you feel a tenant took excessive advantage of you? Share some of your stories here to help remind others of where that line is. I look forward to hearing from you.
Think about that one for a moment, money makes Real Estate investing easy. When Karen and I started out, we had a small line of credit, a bit of cash saved up and some huge goals. Along the way, we created bigger piles of cash, extended lines of credit and created even larger goals, but it wasn’t always easy.
When we look back at those initial purchases, many months were a struggle, every purchase a creative process to stretch our dollars and expand our portfolio. We delved into vendor take back mortgages to learn how to reduce the amount of cash we needed. We came up with ideas to extend closing periods and obtaining early access to properties to get a head start on renovation projects. We leveraged our credit cards and other people’s money (OPM) to extend our ability to purchase new properties.
Along with this we learned about joint venture partners, hard money with obscene interest rates, RRSP second mortgages that we could apply to our properties and pay investors double digit interest rates and short term higher interest loans. We also became adept at educating friends and family about how they could utilize their own lines of credit to obtain returns of 10% or higher from us.
We continued this way for the first several years and as the market values increased and our hard work eventually started paying off, we saw more and more money start to fill our bank accounts. As quickly as the money would come in though, we would turn it back into back into more properties. Eventually as the money continued to flow in, it became easier and easier to make more money in Real Estate and to purchase property without being as creative.
2006 and 2007 were very heady times. It seemed no matter what you bought, no matter how slow your renovations, no matter how you set up your financing, it became too easy to make money. With values going up several percent per month if you couldn’t get contractors in quickly it just meant more back end profit as values increased. You didn’t have to work at buying smart, you just had to buy.
You didn’t need to be creative with vendor take back mortgages, you didn’t really need extended closing times, and it simply became easier and easier to buy just with money alone. Now, here we are several years later and many of the rules have been reset back to our starting days and perhaps even a bit further back!
The last couple of years have put a severe dent on the entire market and have managed to turn Real Estate into much more of a challenge for many people. We’ve seen deflating prices, the uncertainty of the economy and certainly a significant amount of fear in the market. The easy money has certainly disappeared.
All of this change though has created a new environment of opportunity for many investors out there and as one of my earlier posts mentioned; many new investors are starting to appear, eager to get into the Real Estate business. A majority of these folks will be coming in with lofty ambitions and some optimistic goals. I’m here to say with the proper amount of work and determination thrown in these same types of successes can be recreated by anyone.
Sure having access to cash makes it easier, but if it was easy, everyone would do it!
With the recent headlines about the new mortgage rules you may have thought there were going to be some sweeping changes, fortunately these changes have only resulted in minor tightening.
If you haven’t been paying attention, here are the changes the Finance Minister has implemented. The biggest change will be that consumers will need to qualify for five year fixed rates even if applying for a lower interest variable rate or lower shorter term rate. This is an effort to protect consumers from rising interest rates, although from recent statistics, it appears 76% of Canadians who acquired mortgages in the last six months are currently locking in 5 year rates already. So this will have relatively little impact.
Another change of note, when refinancing consumers will now only be able to refinance up to 90% of the homes current value versus the former 95%. This is meant to protect ourselves from turning our homes into ATM’s which occurred heavily in the US where homeowners were using equity in their homes to finance their lifestyle, trips and vehicles. This is a wise move as it will protect some consumers from potential financial disaster.
The last major change is non-owner-occupied properties will require a minimum 20% down payment. This ranges from rental properties to properties which are intended to be flipped. For the majority of investors who purchase rentals, this will be nothing new as typically anything financed higher than 80% results in properties that don’t properly cash flow anyway. Its main intent though is to reduce speculators who purchase property with the only goal being appreciation from overheating the markets. In my opinion, this could have the most affect on prices over the next couple of years in several cities. Notably those with very active condo markets.
Previously there had been talk of increasing the minimum down payment required for purchasers and even a shortening of the amortization period of a mortgage, but neither of these came true. This is most likely the biggest positive for prospective new homeowners. They will still only require a 5% down payment, but with the tighter qualifying, they now have to be able to afford potentially higher five year term payments.
If the new changes had included an increased down payment amount this would have blocked out a significant number of potential homebuyers from entering the market as they would have to wait until their saving essentially doubled. The double whammy would have been shortening amortization periods from the current maximum of 35 years back down to 25 years.
This would have pushed affordability completely out of the window for a much larger group of individuals and would have led to a much longer term stagnation in the housing markets. Wisely this time, the government only implemented a couple of measures to curb the market versus completely stifling it.
Our current economic recovery depends largely on the housing markets to continue to grow as Real Estate creates everything from service jobs to construction jobs which help continue to stimulate the economy. The housing market is so tightly tied into economic recovery that anything to aggressive could have easily led us back into a recession, so thankfully with these minor changes we should continue to see our continued economic recovery and continued growth in residential values.
I’ve been off the posting wagon here for the last little bit and haven’t put anything up new for a whole week, don’t worry, I haven’t disappeared, I’ve just been busy. It appears that over the last month, more and more people are getting on the Real Estate bandwagon and this has taken some of my time up.
We have met with six different sets of people who are starting to get the Real Estate bug and have either been referred to us as people who are easy to talk to and helpful. It’s great to see the enthusiasm from people out there just looking to get started and it helps to light a little bit of a fire under us as well.
If you have just been lurking on the pages and reading along, it’s really not a problem contacting us if you ever have questions. I try to answer everyone’s questions and perhaps I meet with too many people, but it’s all working out so far. Some of you are already starting to read some of these posts and adding to some of the discussions with your comments and observations which I really appreciate.
If you have any topics you would like me to touch on here send me an email or a comment and I will do my best to provide you with some helpful information to guide you along.
I follow a fellow by the name of Bill Gray who is known as “The Landlord Doctor”. He is a seasoned debt collector and has some great advice about screening tenants in the following article. I’ve mentioned some of this previously, but it’s always great to get a fresh perspective.
