Archive for the ‘Real Estate Investing’ Category

We have so much to share at this Member Event we don’t even know where to start.  

Facebook Advertising, Economic Updates, Member Hot Seats, Accountant Updates around Corporations, Trust Agreements and Joint Venture Agreements and CRA Updates plus three brand new announcements for members.  Hold on…this is going to be fun.  

If you’re a member of ours and have not registered yet (it’s included with your membership) email or call our office today!

And you know what makes these so special…YOU!  Can’t wait for it…see you there!

This post is not about “student rentals”, it’s about the day I realized that making assumptions using the most obvious observations or appearances can cost you money…enjoy!  Oh yeah, it was cold and Nick had a close call with a car that was driving by!

 How fun is this?

The Government changes some mortgage rules, the newspapers have fresh “meat” for their headlines and Canada gets whipped up into a frenzy.

I’m sure it sells newspapers.  It definitely drives visits to our websites, we noticed quite a spike on Tuesday!

And it sure does create a bit of excitement doesn’t it!

We’ll spare you the details of the announcement as we’re sure you’ve read about the different mortgage changes announced earlier this week – several times.

We’d rather make a few observations about the reaction to it all.

As always, we fundamentally believe if everyone is panicking about something there’s opportunity knocking for those who choose to find it.

And we believe that Canadians were VERY VERY lucky with the announcements made and we’ll explain why a little further down.  

Stage 1:   The most common first reaction to ANY news of almost ANY kind, but especially to something they perceive as negative, is pure panic.  Sky is falling kind of stuff.  And that’s what is happening right about now, sheer panic by some.

Some will even blame the Government for everything from their own situations to the state of the single-family home rental market in Canada.

We’re definitely past that.  Recently we actually found ourselves getting our hopes up for the power of government when the Conservatives kinda/sorta promised the end of capital gains taxes if you re-invested within a set time – but we were quickly brought back down to earth when it didn’t materialize.

Stage 2:  In about a week you’ll start to hear things like this, “Wow, it was sure nice is those old days when you could get that easy financing.  I guess we’ll have get a little more imaginative in how we secure financing, maybe we’ll finally have to get serious about those Joint Ventures.”

Stage 3:  The world moves on as it always has.  Alternative financing options pop-up because of the vacuum created.  The economy hates vacuums and when there is a need apparent someone will fill it.  Mark these words.

1. It was not that long ago that investors had to put 25% down for investment property.  Shocking we know, but 100% true.  And this was less than three years ago if memory serves correctly.  There was one mortgage program for small investment property that we knew of offered by GMAC that allowed 15% down payments.  There were likely others, as there always are, that we weren’t aware of at the time.
2. After some time Genworth decided to offer a 10% down investment program.  Then some B-players, like Xceed Financial, offered 5% down on an investment property.  Then CMHC announced similar products and ate their lunch.  Now that CMHC is gone will other mortgage products begin to pop-up again? Likely.
3. No one will want to hear this but putting more money down on property does increase the cash flow.  Your ROI is less, but your cash flow is higher and we like cash flow.
4. Investors who already own property and plan to grow their portfolio of cash flowing assets will have less competition.  In other words, the amateurs get shaken out of the market.  Harsh but true.

For many Canadian investors this news really doesn’t change much at all.  At some point in everyone’s investing career you’re faced with having to put down 20% on your next investment.

That’s been the reality for as long as we can remember.  And it was 25% down before it was 20%.

This doesn’t change.

And investors with a few properties under their belt have had to raise at least 20% for some time and likely began their investing careers by investing with 25% or 20% down.

What does change is the investor who was just starting out now has to get creative like the rest of us!

The three most common ways that investors have been financing have been:

A. Saving up enough money to put the down payment together themselves.

B. Finding Joint Venture partners.  Either active partners or silent money partners.

C. Searching high and low for the one off bank and/or credit union that allows 10% down payments with a 10% second.  These actually still exist today.

OK, you want the upside to all of this?

Here’s the news that the government does not want to admit to…

They really haven’t cooled the real estate market with this at all.

They’ve actually almost done nothing.

ZERO.

They have put a dent in condo speculation for sure.  We actually know some investors who purchased 45 brand new pre-construction condo units in a single building in Toronto.  

Forty-Five!

But everyone with property right now will likely see some continued appreciation right across the country because interest rates are still at ALL TIME record LOWS.

This will drive the market and raise prices.

So all those speculators out there are lucky because they won’t get creamed like they did in the early 1990’s when the Bank of Canada raised rates aggressively … we’re talking multiple percentage points in a single month.

All those property owners that were buying to “flip for cash” for quick cash got very very lucky.

If the Bank of Canada raised interest rates or the government raised CMHC down payment minimums to 10% these speculators would have had heart attacks.

All those buyers that they were going to “flip” to would suddenly have gone bye-bye.

That’s what happens when you don’t buy for cash flow.

Ask us how we know!

And that’s what happens when you buy starter condos for prices that really aren’t that “starter”.  $400,000 for a few hundred square feet on the second floor sounds a little bit off, no?

So by not making any real structural changes to the mortgage market they have allowed it (rightly or wrongly) to plow ahead.

And the reality is that they CAN’T raise interest rates right now.  

The Bank of Canada has their hands tied.

It’s really an amazing situation.

(Aside: We’re going to be explaining this in details at our upcoming Quarterly Income for Life Member’s Event, if you’re an Income for Life Member register now by contacting our office!)

So they come up with these types of small mortgage announcement to try and put some psychological brakes on the market.

Our first reaction to the announcement on Tuesday was, “Wow, they sure left a lot of meat on the bone.”

Meaning that the government didn’t raise down payment amounts, they didn’t shorten amortization periods and they didn’t raise interest rates.

They actually did next to nothing to cool the market.

Even the announcements they made this week don’t take effect until mid-April (with some banks likely acting sooner).

Want some more good news?

Well, we could have what our friends in the U.S. have right now.

As one U.S. investor shared on our Rock Star VIP Member call earlier this month, “There’s blood on the streets down here.”

30% depreciation across the board.

And 30% required as the minimum down payment for almost any property.  And some banks are asking for all cash offers.

Appreciation not expected in his market for another 24 months.

So much government paper work that to even buy good deals you have to fight the bureaucratic machine.

He even went on to say that he himself is not buying properties in his area of Florida and wouldn’t recommend any to us.

And it was recently reported that 60% of the rising personal bankruptcy trend in the U.S. is due to medical bills.  (Source: CNN Money)

How’s that for fun?

It kinda makes 20% down payments, with super low interest rates, in an appreciating market, where you and your tenants have health care seem like a dream.

Things may not be perfect but perspective is everything.

And remember, when everyone around you is running around screaming the sky is falling then there’s an opportunity to sell umbrellas.

What’s the opportunity in this for you?

Look for it, it’s there.

Until next time … be a Renegade!

 Who can you call an expert?

And how do you find them?

This week two separate incidents reminded us of several crazy experiences we’ve had ourselves trying to track down “experts” over the years that would help us make money.

About ten years ago, after some real estate training courses that we had taken, we were all jacked up to “go make some easy money” flipping properties.

Nick somehow found some guy who promised he could find us great real estate deals that we could “fix-n-flip” for some huge returns.

So we go down to this guys office and warning #1 pops up.

The office is on the second floor of a two storey strip mall that was extremely run down.

Not exactly the kind of place that instilled confidence.

The hallway carpet was oozing some sort of strange gooey substance as we walked on it.

When we make it inside the office there’s very little furniture and the guy Nick spoke with is sitting behind a very old and very bare wooden desk.

He had a ton of gold bracelets on and huge gold chains around his neck.

And I swear, if memory serves me correctly, he even had a gold tooth.

He could have been cast as the gangster in any Scorsese flick.

When we told him we were super eager to buy real estate, fix it up and sell it quickly for big cash he kinda chuckled to himself and then abruptly threw a print out of a property at us.

Apparently this was some property that he was involved in somehow.  The actual Seller wasn’t him but we could get it for a deal and make a killing.

He really didn’t offer any more detail than that.

And even with all these obvious warning signs we still got excited enough to drive by and check out the property.

I can’t exactly recall what happened next but we must have not liked the place because we didn’t proceed.

About five or six months later I was driving by that same strip mall and decided to stop in.

Not sure why.

By then I had decided the guy behind the desk didn’t care for our best interests but for some reason I couldn’t resist stopping by.

And to my surprise the office was completely empty.  

Even the old furniture was gone.

The door wasn’t even locked so perhaps they had just made their quick escape minutes earlier, who knows.

Since that time we’ve had many run-ins with so called “experts”.

And just this week these two situations came up:

#1 A very good guy from Ottawa, Ontario, who is about to get started investing, emailed us for our opinion on how to find a good Realtor that knew how to work with investors.

One of the agents he was considering had told him, “he could make them more money than anyone!”

In our books, that’s red flag number one.

And I’m not 100% certain of the exact words that were used but that type of talk scares us.

Any “expert” who thinks he is the best and “only one” usually turns out to be a dud.

#2 Another investor from north of Toronto officially got word that his super complicated condo-conversion project finally blew up.  The mortgages got called in (Power of Sale) and he lost $150,000.

Ouch.

He had done his due diligence and had believed that he was working with someone who knew what they were doing.

Here’s what we have found to be pretty universal traits of real experts:

1. True experts are focused on PRINCIPLES and NOT TECHNIQUES.

After years of watching and being involved with our father’s construction business and generally be surrounded by different investors and owners of property it’s amazing that we didn’t figure this out earlier.

Embarrassing I guess.

But now we finally get it.

True experts focus on principles.

Real Estate beginners are almost always focused on techniques.

“I can make $45,000 easy with this new investment strategy thingy … all you do is use these fancy dancy clauses in this agreement with a special closing date that I can change anytime with my super duper power of attorney control over a corporation where I own Special B Class shares.”

We know this type of thinking, because we’ve been there!

Instead, you should be focusing on the details of the property.

What condition is it in?  Where is it?

And more importantly, how will this type of investment look if the worst happens and the tenants leave, the economy turns, unemployment sky rockets and/or interest rates go up by 5%?

What then?

Before making any investment double check your fundamentals.

Are you focused on the techniques, the “sexiness” of the deal or the fundamentals?

If it’s the former, get an objective opinion from someone with experience.

And that brings us to our next point…

2. True experts have seen the Good, the Bad and the Ugly.

They have enough war scars and have fought enough battles that they know what “could” happen and they plan accordingly.

They don’t get pulled into the latest condo conversion project around the corner because although prolonged appreciation has carried the last five projects successfully (and made them look easy) the sixth could be the one that bombs.

And because of that they’re extra hard on the numbers.  And while hoping for the best they are planning for the worst.

They ask that one question about the deal that no one else could.

And they can only do that because of their experience.

They could only do that because they’ve likely suffered losses themselves.

3. True experts know that they don’t know it all.

Have you ever spoken with someone who claims to know all the answers?  Or gives the impression they do?

And they almost get insulted if you disagree with them about anything.

They instantly doubt your loyalty to them and even flash you a bit of cold shoulder.

Yeah, we’ve come across many of those.

They scare us.  We run from them.  Fast.

But every once in a while you come across someone with a wealth of experience but is humble enough to welcome new ideas.

They value their own experience and can back up their claims with facts but recognize it’s impossible to know everything.

They’re the gems.

Keep those ones close.

So how do you find these people?  The good ones.

Well, for us, it’s like dating.

You keep your eyes open for good candidates at all times!

Then you get to know them a little bit.

And it’s better if you work by referral.

By getting all your experts by referral you’re saving yourself time and money.

And you let the relationship begin slowly.

You get to know each other.

You do a little deal together.  Nothing major.

You value their time.  You pay them what their asking.  If they’re good, they’re worth it.

Over time you’ll begin to develop some rapport with them and eventually you’ll earn each other’s TRUST.  

Once you have that type of relationship you’re set.

You’ve found a key member of your team that you’ll be able to lean on for advice over and over again.

They will save you tens of thousands of dollars, even hundreds of thousands.

They’ll save you a lot of grief too.  

You may not even realize how much they’re saving you.

And once you develop this trust with a real expert you end up moving a lot faster.  Accomplishing more in less time than you ever had before.

You begin to find that big deals don’t scare you anymore and you can sleep easy – even if they have a gold tooth.