RealEstateCashFlow.ca

(CREATED 15/10/08)

The number of properties listed via the MLS® systems of Canada’s major markets was down from its peak in the third quarter of 2008, according to statistics released by The Canadian Real Estate Association (CREA). This caused the balance of sales-to-new-listings in the market for resale homes to tighten on a quarter-over-quarter basis for the first time since the beginning of 2007.

New MLS® residential listings in Canada’s major markets numbered 146,637 units on a seasonally adjusted basis in the third quarter of 2008. This is 3.3 per cent below the highest level on record, set the previous quarter. New listings eased most in Edmonton and Calgary in the third quarter, followed by declines in Vancouver and Montreal.

The balance between sales and new listings has stabilized in many major resale housing markets in recent months. The trend stands out most in Edmonton and Calgary, where a sharp drop in new listings and rising sales activity has firmed up the resale housing market considerably since the beginning of the year.

“Informed buyers and informed sellers look at the facts. And the facts right now indicate the real estate resale market is stabilizing in many markets,” says Calvin Lindberg, the President of The Canadian Real Estate Association.

“There have also been a number of initiatives that will have an impact going forward, including the government’s decision to invest $25 billion in insured mortgage pools, the recent drop in the Bank of Canada rate, and the new rules reducing the maximum amortization to 35 years instead of 40,” the CREA President adds. Those new mortgage rules go into effect October 15th. “The third quarter MLS® statistics and these developments are more factors showing the Canadian market is not following U.S. housing trends.”

Seasonally adjusted MLS® residential home sales in Canada’s major markets edged 1.5 per cent lower on a quarter-over-quarter basis to 76,391 units in the third quarter of 2008. The small decline in activity reflected fewer sales in Vancouver, which more than offset a rebound in activity in Edmonton and Calgary.

Seasonally adjusted transactions rose on a month-over-month basis in the majority of major markets in September 2008. Some 25,680 homes traded hand via the MLS® systems of Canada’s major markets on a seasonally adjusted basis in September, an increase of three per cent from levels recorded in August. The increase may reflect an influx of buyers prior to the elimination of mortgage insurance availability for those with less than a five per cent down payment.

Unadjusted (actual) sales activity was on par with September of last year, but remains below levels one year ago in some of the Canada’s most expensive housing markets. Lower sales activity in higher priced markets pulled the overall major market MLS® residential average price down by 6.2 per cent year-over-year in September, despite year-over-year average price gains in 17 of 25 major markets.

Lower activity in some of Canada’s pricier markets has weighed on the overall average price trend this year due to a decline in their weight in the average price calculation compared to last year. The price trend is similar but less dramatic for the weighted average price, in which the proportion of privately owned housing stock in each market is taken into account.

“Price declines in some of Canada’s more expensive housing markets will outweigh further price gains in other markets and continue pulling the national average price lower over the rest of the year and into 2009,” said CREA Chief Economist Gregory Klump. “Global financial market turmoil and the resulting slowdown in global economic growth will continue weighing on Canadian exports and economic growth.”

“As the Canadian housing market and pricing environment cools, the number of days on market for sales is likely to rise. By and large, Canadian home sellers are under no financial duress to sell, and a number may decide to take their home off the market should it remain unsold when the listing expires. The resulting decline in listings limits the extent to which the balance of sales and new listings will realign. Canadian homebuyers should not expect to see the kind of price correction that’s underway in the U.S., where overly indebted homeowners are selling into a housing market where foreclosures and the number of newly constructed unoccupied homes are increasing.

(CREATED 15/10/08)

(CREATED 21/10/2008)

The Bank of Canada lowered its benchmark overnight lending rate by one quarter of a percentage point to 2.25 per cent at its setting on October 21st. The trend-setting Bank rate, which is set 0.25 percentage points above the overnight lending rate, declined to 2.5 per cent.

The Bank also lowered its policy interest rate by half a percentage point on October 8th, as part of a coordinated cut in interest rates with other central banks. Combined with the interest rate cut on October 21st, the Bank has cut its overnight lending rate by three quarters of a percentage point since it last met to set its policy interest rate on September 3rd.

The Bank’s decision to cut interest rates aims to support Canadian economic growth. The Bank recognized the impact that the global credit crunch is having on global economic growth, indicating “the global economy appears to be heading into a mild recession, led by a U.S. economy already in recession.”

“Slowing global economic growth continues to reduce demand and prices for energy and other commodities,“ said CREA Chief Economist Gregory Klump. “The Bank now expects core inflation to remain below its target of two per cent until the end of 2010, so it can further cut interest rates without worrying about causing inflation to spiral upward.”

To stabilize credit markets in the aftermath of the U.S. sub-prime mortgage market meltdown, the Bank has cut the overnight lending rate by 2.25 percentage points from December 2007 to October 2008.

The Bank reduced its forecast for Canadian economic growth. When announcing further interest rate cuts, it said, “The Bank expects growth to be sluggish through the first quarter of next year, then to pick up over the rest of 2009 and to accelerate to above-potential growth in 2010 supported by improving credit conditions, the lagged effects of monetary policy actions and stronger global growth. The recent sizeable depreciation of the Canadian dollar will also provide an important offset to the effects of weaker global demand and lower commodity prices. Overall, the Bank projects average annual growth in real GDP of 0.6 per cent in both 2008 and 2009, and 3.4 per cent in 2010.”

The Bank had earlier revised its forecast for economic growth downward in its July Monetary Policy Report. Remarks in its October announcement to cut interest rates suggest that it will likely cut interest rates further when it meets to set its policy interest rate on December 9th.

When the Bank cut interest rates on October 21st, the advertised conventional five-year conventional mortgage rate stood at 7.2 per cent. This is virtually unchanged from where it stood a year ago, and 0.35 per cent above where it stood when the Bank made its previous interest rate announcement on September 3rd. Competition among mortgage lenders remains stiff, but discounts off advertised mortgage interest rates remain small and in some cases have been eliminated due to the U.S. subprime mortgage meltdown and resulting global credit crunch. These continue to elevate banks’ cost of funds.

“National resale housing sales activity continues to ease from its peak last year,” said Klump. “Buyers are taking more time to shop. Unlike the U.S., Canadian homeowners are by and large under no pressure to sell, so many unsold listings are being taken off the market. New listings are coming off their peak, which is stabilizing the Canadian resale housing market.”

(CREATED 21/10/2008)

Frequently the issue of any new investor is: where to start ?

First of all you should assess your CASH situation. CASH is a combination of “real” cash, committed friends and family’s cash and a HELOC (Home Equity Line of Credit) or short: LOC. On a LOC you have to pay interest only on the portion you use, which is good. So don’t use it all immediately to buy a yacht or a fancy condo in Hawaii. Research the market, decide what AREA of the world you wish to invest in and then what type of property.

This is a big world, so is it Lower Mainland, Edmonton and area, S-Alberta, rural SK east of Saskatoon, Northern Manitoba, Florida, Phoenix, Vietnam, Singapore, Venice, Turkey, … ?

Any area takes time (and a little bit of money for driving time, flying there, donuts, lunches, research material ..) to research. The bigger the area the bigger the time commitment .. BC takes more time to research than Lower Mainland which takes more time than Greater Vancouver which takes more time than North Shore which takes more time than North Van east of Hwy 1 which takes more time than Deep Cove.

I suggest you start with a VERY VERY small area .. say a suburb of one of the Top 10 REIN towns in BC, AB or ON.

Then, decide on a TYPE of property: townhouses ? condos with oceanview ? single family homes older than 50 years ? new sub-divisions ? pre-sales ? acreages ? horsefarms ? trailer parks ? office buildings in crappy parts of town ? high end luxury condos with high end finishings ? land with sub-division potential ? strip malls ? defunct shopping centres ? warehouses ? storage facilities ? fixer upper homes ? ANY of these property types allow you to make money once you know what you are doing.

Then spend a TON OF TIME BECOMING AN EXPERT the property type in an area. THEN AND ONLY THEN should you start writing offers and buying.

And yes, better several smaller properties than one huge ones. Many properties allow you to sell one if you have to. One mistake in a big project .. and this could be the end of this property and possibly the one securing the HELOC.

The market right now (late spring 2008) is NOT so hot in most markets .. so take your time ! Better to pass on a “deal” than realizing 6 months in your paid too much for it and it is both a money and time drain.

For each piece of real estate you have to hang in financially and emotionally.

This means realistic assessment of cash situation (inc. closing costs, vacancies, upgrades required in addition to “normal” expenses like: mortgage payment, taxes, utilities, condo fees, insurance, management fees ..). It also means realistic assessment of mental “toughness” or time commitment. Vacancies will arise. Basements will flood. Tenants occasionally have to be evicted. Maybe the police gets involved. Boilers break .. sometimes at mid-night. Get used to it .. or anticipate it. Be prepared to handle those things yourself, or preferably, hire a property manager that does it for you, but then be prepared to pay this person or company well. So, ask yourself: who will manage this property impeccably ?

Cash to close comes in 2 forms: real cash and a mortgage. To get a mortgage, you need various documents including property documents and personal documents showing the bank that you are credit-worthy. REIN calls this the “networth binder”. Spend A LOT OF TIME preparing this document, find a mortgage broker to get you a mortgage, or at least tell you what kind of mortgage you can get roughly, depending on the type of property listed above. Horse farms are treated differently than trailer parks than condos ..

Before closing ensure you have someone in that market to manage the property impeccably. That could be you, yourself, although a professional with in-depth market insight, knowledge of legalities and local knowledge is likely better. Spend some significant time finding that special someone, as good property managers are VERY hard to come by.

Once the deal makes sense .. you got the money (cash + mortgage) .. and the manager .. ask yourself if you will be able to hang in emotionally and financially .. if so: CLOSE.

Happy Hunting !

P.S.: many hours are wasted when hunting and walking through the mud or underbrush .. many more hours just waiting in the right spot .. but then one day: BAMM .. ! Hopefully you were awake then … as sometimes that moment is short .. and perhaps the opportunity passed or a better prepared hunter got to the target first. So, be prepared .. and ready when you should be ready!

Occasionally I speak at events and people ask me about real estate investing or making money in general.

There are really only 5 ways .. and you can do all 5 in time .. but you have to take them all seriously !

1) You work

This is the most common way to start. You work, i.e. you exchange your time for money. The more time you give, the more money you get. A pretty linear relationship. Proven though through centuries !

Many people fail at that stage already. They don’t take it seriously. They show up late. They chat with friends online. They do personal business on the side. They don’t understand the business they’re in. They don’t give 110%. Maybe 50% or 85% .. or 35%.

Yes, you can hide for a few days or a few weeks. Most employers realize after a while who is an excellent performer and who isn’t. If you work hard at your job, you get ahead. Give the extra 10% or the extra 4-5 hours every week. Read up on your industry. Go to industry conferences. Seek a mentor. You get promoted. You get more $s per hour. If you have more skills, you get more $s. So, yes, formal and informal education helps. If you work hard, and get more $s than you spend, you can save some $s. Hence:

2) You invest your own $s.

You buy real estate or mutual funds or stocks or GICs or bonds or whatever seems to fit your risk tolerance, skills and timeline. Like 1) it takes time to find out what a good invetsment looks like. Take it seriously. This investment could be more passive (say a stock or mutual fund) or more active (say real estate or active stock trading)

3) You invest other people’s money.

Once you’ve mastered 2) you have the right to ask for OPM (other people’s money) such as JV partners or money partners or mortgages or lines-of-credit to invest, for example in real estate: Usually a combination of your own time, your own money and OPM (mortgage, LOC, JV money or all 3). You borrow money at, say 6%, and invest it for 12% to 150% ! This assume a modest degree of risk as you must pay the rate your agreed with OPM but invest at a more uncertain, yet frequently much higher rate. This assume 1) and 2) is in ship-shape !

4) You use other people’s time / employ other people

You have a small or large business where you pay people a wage/salary/hourly wage and then use their time to make money for yourself. This works usualy only if you’re good at 1) 2) and 3) as usually your have to work hard too to lead by example and have some (of your own or other folks’) money at risk.

5) You have Intellectual property (IP)

Intellectual property or royalties make money for you once you have created them: maybe you have written a book. Maybe you have written lyrics or songs or music. Maybe you have painted a picture and it is copied widely for a fee. Maybe you have invented a name and copyrighted it. Maybe you have a patent or a system that can be used for a fee. Elton John makes money in his sleep today - but he was very good at 1) in the beginning of his career.

So, there you have it in a nut shell: 5 ways to make money. Are you aiming to fire on 5 cylinders ? Or is it only 1/2 ? Try harder .. or try different ways .. but usually they go in that order of: 1, 2, 3, 4 5 ..

Did I forget something ?
Anyone out there with success in 3) or 4) or 5) and who did not work hard at 1) or 2) first ?