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 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.
In previous articles, I have mentioned it is too early to jump into the US housing market unless you have a very long term plan. This latest article in Business Week seems to concur with my thoughts.
2009 was a record year for foreclosures in the US with an increase in the number of foreclosures of 21% versus 2008 and they believe 2010 will be worse. The majority of this is all related to the adjustable rate mortgages resetting to higher interest rates causing payments to increase on many properties by double or more.
With any equity in the property wiped out, it doesn’t make sense for many homeowners to continue to make payments on a house they owe $100,000 or more above its actual value. With the ability in the US for mortgage holders to just walk away from this loss without the lender being able to come after them, it is exactly what they are doing.
So what does this mean to potential buyers? Well, as more of these foreclosed properties hit the market it will continue to drag prices downward, or at the very least leave prices very flat until all the inventory burns through and demand ramps up. So while that four bedroom home just outside Phoenix with the pool sounds like a bargain now at $200,000, in six months it may be more of a bargain.
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!
As a REIN member and an investor I am a big fan of Don Campbell and here is a clip for an excellent interview Don just had regarding Real Estate and what is coming up for 2010.
Don has some great points in here about investors starting to spread investments from just stocks and into more Real Estate investments. He also talks about viewing Real Estate as a longer term investment, not a get rich quick scenario. What are your thoughts on the interview? Did he make sense to you?
I had a few inquiries yesterday whether I was packing it in, this is far from what is happening. We are actually simplifying and this involves getting rid of quite a few of our current properties.
Most of them are rooming houses which although they have been a huge source of income for us over the last five years, have also been a drag on our morale. Originally there was three of us working together doing all the required work, but over the last nine months I have been dealing with all the tenants basically alone and it has just worn me out.
So we are simplifying things by getting out of all but three of these units currently. For someone willing to put in the work and eager to get some great cash flow it will be a tremendous opportunity. I just wouldn’t recommend renting out 48 rooms to tenants all on your own!
As for some of our other properties, perhaps we are just getting lazy, but we have the one property in the NE (Marlborough Park) we are selling and then we have another couple coming up over in Bowness as well. These properties are both about a 45 minute commute for us, we have made our money off of them and are ready to pass them on to someone else looking for a great deal and who will profit for many years to come.
We will spend the next several months re-balancing our lives, simplifying and/or removing our headaches and then come back harder and faster than ever. We have some fairly simple plans for 2010 which involve getting back to our original business model which allowed us to be successful for so long.
2010 will involve plenty of Real Estate and there will be many new opportunities for people to become involved with us for short term investments and more Joint Venture partnerships. If you want to jump on our bandwagon and come along for the ride be sure to contact us, be sure to follow my postings and be sure to buy me a coffee!
Let’s start 2010 off with a bang. For you investors reading this I have two properties I need to sell. One is a traditional rental with an upper suite and a non-conforming lower suite along with a detached garage. It is located over in Marlborough Park and currently has tenants in the upper unit and for the garage.
The upper suite has three bedrooms and one bath, while the lower is a single bedroom with bath. There is a shared laundry setup and along with the street parking, there are two gravelled spots in the back beside the garage.
The fence between the properties should be replaced in the spring or summer and it will need a new roof within the next couple of years. Those are the only major expenditures coming up. There is some work to be completed in the basement, apparently a couple hours worth of painting and sanding. Pricing is still being confirmed, but currently I believe it will be around the $325,000 mark which puts it as the second lowest priced property in the neighbourhood which would give someone a heck of a deal. If this interests you, contact me right away.
The second property is all about the cash flow. It is our biggest rooming house. Now this property has been a source of pain and suffering for me over the last six months, but it has also been our largest source of pure cash flow. With the ability to generate over $2,000 cash flow per month with vacancies or almost $4,000 when completely full, you can see why it is attractive and so lucrative.
This property is located in Ogden, has eleven furnished rooms and will include not only all of the furnishings, but we will also provide all of our systems to the lucky purchaser. We originally bought this property from another person running it as a rooming house and had to bring all of our systems in to make it work. You will be able to skip this step.
It is a full duplex with six rooms on one side and five rooms on the other. All rooms are furnished with beds, dressers, TV’s and linens. The two full kitchens and two partial kitchens are all complete with everything one needs to prepare meals, cook meals and serve meals. Also, the living rooms come complete with furniture and TV’s. To supply just the furnishings for the property would run close to $15,000 without taking into account the time and energy required to acquire and install them.
The property also is one title and is not currently subdivided. This will allow the owner to have a secondary exit plan of building a couple of infills or potentially a newer fourplex which they can sell off once they decide to sell, or they can pass on the building as a rooming house to the next individual.
We are looking at a purchase price of $525,000 currently on this. It was appraised at $500,000 for the building only, a year ago and you are aware prices have managed to crawl upwards from then, plus we are including furniture and our unique systems to streamline your operation. Once again, if this is of interest, please contact me as soon as possible. We will also have a couple smaller rooming properties coming up as we move forward this quarter so this could be the door to having your own fleet of shared accommodations and the accompanying cash flow.
I can be reached via email at bill@housez.ca or via phone at 403-870-4663, I look forward to hearing from you!
Back to the self promoting stage again. For those of you living in Calgary you have a great opportunity to check out an art show in the district of Tuscany that my wife Karen’s art group, the Riverview Artists are putting on. This is a double bonus for us as this particular showing is taking place at a property we bought a few years ago as a flip project (yes right about when the market started to tank!) that we have recently sold. We had it rented out to carry us during the market slowdown and now we were fortunate enough to sell it with a close date just a few weeks after the tenants have left.
So here we are, left with this beautiful 2600 square foot executive home just before Christmas, so why not stage a massive art sale? This sale has works from over a dozen local Calgary artists (visit their site at http://www.riverview-artists.com to see some of the beautiful pieces that will be on display).
If you live in the NW, are looking for a piece of artwork (or two) this is a great opportunity. The weather forecast has relaxed a bit for today so skip out early anyway and stop to see what’s up. Ask for Karen and tell her Bill sent you! It might score me some Christmas points. The map, the address are all available off the Riverview site, so enjoy!
Sorry for the delay on these, but here are the stats for single family and condo sales and new listings from October 21st.
Calgary Metro – Single Family Sales Oct. 1-21st, 2009
Year 2009 2008
Sales 877 537
New Listings 1,294 1,629
Inventory 3,107 5,711
Calgary Metro Condo Sales Oct. 1-21st, 2009
Year 2009 2008
Sales 394 267
New Listings 629 751
Inventory 1,563 2,764
As you cna see the number of sales is up considerably over last year and as I mentioned in the last post, the gap between sales and new listings is shrinking. The pace appears to be slowing from the week of the 14th, but still quite good over all. The positive number is the difference in inventory from a year ago to now. Sales up, inventory down, that creates a great environment for anyone looking at stable or increasing property values!
It appears I am having some formatting issues and the columns are not lining up on all browsers and screen resolutions, hopefully it makes sense!
Just the other day I received an email from a colleague with REMAX’s Western Canada’s news release from September. I guess I’m not on their mailing list if I am getting it passed on to me, I wonder who I will have to talk to?
There was two big announcements in the release. The first was that the “Canadian housing markets buck recession and trend upwards”. This release went on to say with the worst of the recession over, that residential real estate markets in the major Canadian cities are poised for growth in the final quarter.
I think that’s great news, but I think it may be a bit too optimistic. While it’s true many of the major cities have seen significant growth in sales percentages, much of it has been stimulated by the increased affordability brought forward by low interest rates. Nationally house values have increased by 0.5% which doesn’t exactly sound earth shattering, but then when you compare it to the US we have done phenomenal.
Also, when you consider during this last year of the recession that Real Estate has held its value it is kind of heartening. This was just an average of course and only represents the last twelve months of which I am painfully aware as I have several properties I am waiting on as they slowly recover their original values. We still have to wait a few more years before the local markets can recover back to the peaks we had seen in 2007 for local Real Estate pricing.
The second big part of the announcement for me was that they quoted an Angus Reid Omnibus Survey that asked, “In which do you feel more comfortable investing your money, the stock market or Real Estate? A surprising 77% of respondents all chose Real Estate, that is a pretty surprising number for me. Although when you get down to it, many people talk about investing in Real Estate, it’s just a chosen few who actually take action and actually do invest on their own or pursue someone to help them like ourselves. It will be interesting to see how that unfolds over the next year and how many actually jump in the waters so to speak.
As for my take on the announcement being perhaps a bit optimistic? Our Real Estate market has been incredibly tricky for anyone to forecast for quite a while now, but at the same time, it’s also been quite consistent through the last quarter of the year. As we move closer to the holiday season and as winter sets in, people aren’t thinking about a new home or even moving as much. Traditionally both sales and listings slow down and during December are the lowest of the year for both new listings and sales. My thoughts are that this year may include a bit more belt tightening than normal as people aren’t quite ready to call the recession over, no matter what press releases they read.
People just seem to be a bit more cautious right now and are filled with even more uncertainty about what will happen over the next few months. Will rates go up? Australia
This is where some will end up
was the first major nation to announce an increase in bank rates, so there is a possibility that Canada could also follow this route. It’s unlikely, but it does make people think. Other questions are will the federal government blow up and how could this affect the economy? Or will the Alberta government beat them to it? So many questions and so many concerns, all with no real answers.
Now I’m not saying the markets are going to start declining again, far from it. I just sense it will be slower again for the next few months until we move into the New Year. Sort of a rest period as the market coasts along for a little while and grabs a breather. Once we move into 2010 though I am expecting some positive market growth.
By that time, we should be feeling even more upbeat about the economy, we should have a better idea about where interest rates may be, or may be heading and we will see even more renewed optimism in the province and the country. I personally cannot wait for 2010, it’s going to be a wonderful time of new growth, new opportunities and newfound enthusiasm for those willing to embrace it.
I’ve always felt the last couple of years have been a weeding out process. It’s provided an opportunity for people to review where they are and what they have been doing (sometimes by corporate decisions out of their control) and make some incredible changes. A dear friend of ours was just let go after 20 years at the same job. Can you imagine what that’s like?
First off 20 years is amazing in this day and age, but the important part is she is taking advantage of this time, this opportunity in our eyes, to find out what she really wants to do. It’s something more people should be doing, but they get so caught up in their day to day life they miss the positives that are right out their in plain site if you have the right mindset.
Now it appears I have gone off topic a bit here, but it’s back to my point that 2010 is
While others will end up here!
going to be a very important time. By all indications it will be the resurgence of the economy with the potential for the recessionary period to be officially over. Right now and over the next year there are going to be so many opportunites for people as business picks up that I just don’t want people to look back and say it surprised them.
I know many of my readers are already investors, some who invest in their own properties and many who are even investors with us in our properties. So some of my thoughts coming up will be of interest or even concern for many of you.
It can be a scary ride
First off, we have to realize that the incredible years we had in Real Estate during the mid part of this decade were an aberration. Yearly increases in property values of 30-40% are not healthy, not common, and not easily replicable except when everything comes together perfectly as it did for several years in a row here in Alberta. I’m ecstatic that I was able to be heavily involved with various Real Estate investments during that time and I am excited that I was able to drag friends and family along with us for the ride.
Whenever a great ride like that comes along, there also has to be a slide back down the slope after the fact and that is what we have been going through for the last couple of years. The recession, world credit crisis, and general economic malaise have helped drag this out far longer than it should of, but that’s part of the cycle sometimes.
We’ve always been optimistic about Real Estate and honestly, we have had our concerns about the markets the last year. You can only get continually hammered by negative news before it starts to wear you down. During the last year plus, when the markets didn’t recover as we anticipated we were concerned, often times anxious and many times frustrated with how the Real Estate market was behaving.
We have to face it, our livelihood, our dreams and our plans all revolve around what happens with our Real Estate investments. To make the burden even more over bearing, we also have many investors who we have brought on board who are also having to deal with concerns about their investments with us. Values are down and they just aren’t rebounding as fast as we would hope. While we still have positive cashflow from properties and mortgages are getting paid down each month, appreciation is such a huge positive and it has been sorely lacking.
Fortunately, we have always taken a longer term outlook with our Real Estate investments and we all just have to realize we will all see our money start to grow yet again. It just won’t be at the crazy levels previously seen. Currently it is increasing at a snail’s pace, but considering the reverse trend we had been seeing, single digit yearly growth doesn’t seem that bad in the big picture. As always the great aspect of Real Estate is we have cash flow and mortgage paydown at the end of the day and a long term view.
That’s where we sit. The problem I see that will be occurring over the next couple of years (or even faster) is going to revolve around the problems the bigger players have created for us.
As Real Estate investments currently go, with smaller deals it revolves around Joint Venture agreements. This is what we deal with when bringing investors in on a single property. When you move up the chain of Real Estate investments, you start getting into Limited Partnerships, Syndications and the officious sounding Offering Memorandums. This is where significant problems have arisen over this last year.
In certain provinces there are regulations requiring a certain dollar amount of currently held investments and/or yearly earnings to even become involved with these type of offerings. Sort of a rich get richer scenario as it appears only the rich are allowed to play.
Of course, with Alberta being part of the wild west we have been outside of these
The Wild West
boundaries. Unfortunately though, with the recent goings on with companies like Concrete Equities, Shire Investments, Bridgecreek and who knows who else will be added to the list in the next six months, we have to expect this to change. This is part of my upcoming conspiracy theory!
As more details of investors getting bilked through ponzi schemes, Real Estate developers over estimating returns and numerous other problems, it will lead to the government jumping in with both feet to “help” out the investors. This will lead to nothing but additional regulations, lengthier more stringent requirements for individuals to invest in anything “off the grid” of bank stocks and mutual funds and more hoops for the little guy like ourselves.
At the same time, banks and investment advisors will be in an even more profitable situation as other investment options will dry up for the middle income families. On the other end of the spectrum, the parties that take advantage of the loop holes and work the system, and their will be plenty of loop holes initially, will not necessarily have the best intent of the investors in mind, but will most likely be concerned about getting as much investment capital as quickly as they can before that door becomes closed. This can make a very precarious situation for someone with smaller amounts of investment dollars.
So here is your warning, there will be change in the industry, in the opportunities and the way Real Estate investments will be allowed or structured. It most likely won’t be overnight, but it will take place in the near future. For small investors the ones who can adapt to the change and already have great systems in place it will be an easier transition. For investors who have been flying by the seat of their pants this will probably bring a quick demise to their careers.
Now is the opportunity for any landlords out there actively pursuing Joint Venture partners to ensure all their systems and procedures are documented and ready to go. This will help streamline any regulatory changes that do come about and also provide a place to start when moving forward. It may also be an opportune time to purchase additional properties prior to the rules of the game changing.
For potential investors, it will be even more important to do all of their due diligence and to be vocal if it appears they may be locked out of the opportunities afforded the bigger investors with larger pockets. Currently many financial advisors are changing their approaches with clients and coming up with creative ways to access more investment capital. By backing any regulations that block investment with smaller Real Estate investors it will just benefit them as alternatives get reduced.
Whatever your situation, watch for changes to come. Just be aware that not all the change will necessarily be benefiting the proper people, but perhaps protecting the financial industries instead. This is a great topic to get feedback from you on, so I would really appreciate any thoughts you may have on this. Feel free to comment ont his post, or email me directly at bill@housez.ca.
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.
