Wednesday, March 24, 2010

Conditions Removed On One Property

Monday was the deadline to remove conditions on the two conditional offers. Of the two conditional offers we made we only removed conditions on the one property and decided not to go ahead with the second deal. That means we have money to invest in a second property so we'll probably be looking at another property in the fall.

The property we didn't choose was not a bad property (obviously otherwise we wouldn't have made a conditional offer) there were just fairly long list of fixes that would need to be done: New floors in one room, bracing of the foundation, New Furnace, addition of more clay to the surrounding of house to change grading so water slopes away, Eavestroughs needed to be repaired and extensions added, handrails missing or needing fixing, stairs needing fixing, direct wired smoke alarm needed to be added, along with a few other even more minor things... but because we're not actually there to do the work and would have to hire someone to do it the costs would've been prohibitive and risky (After seeing enough episodes of Holmes on Homes... it's scary enough when you're there watching... if you're not... then what?!)... meanwhile the fixes were conservatively estimated between 5K and up to 10K (Though our real estate agent was doubtful it would be 10K). We thought 10K into a 150K house might be a bit excessive seeing as getting like 10 or 20K more we would have the downpayment for another house.

It was still an interesting learning experience to have one of each happen. With the conditional offer that we didn't go through with we had to sign a form that stated we would NOT be removing conditions on the offer and so they could put it back on the market(Notification Conditions Have Not Been Satisfied Or Removed In Writing). With the property we did take it was an almost identical form except the wording was different to reflect the fact we would be removing the conditions and that the sale could go ahead (Notice to Remove Conditions On Residential Contract Of Purchase And Sale).

Since the lady that owns the property we're buying is planning on moving back to Ontario and our property manager won't really have time to schedule fixes till almost Summer we decided on closing the property in May instead of earlier.

Some new things to teach. The City of Regina (like many other municipalities) allows you to pay your property taxes automatically and in installments. (I do this in Yellowknife and I'm assuming most other places have the same system in place) Regina's system is called "TIPPS" or Tax Installment Payment Plan Service. This is a must for out of town investors like me obviously since I won't come back into town just to pay for taxes and it's probably outside the scope of service for your property manager to do this for you. Also since it is automated you know it is done. Only problem is they need a chequing account and I was hoping instead to just use an ING account (higher interest than regular banks)... I'll get the details and see if it is possible to set this up with a non-chequing account.

I will also need insurance which I'm still working on... I might need a commercial package since it is an investment property (which is probably different rates than a residential) Again I'll keep you posted.

Tuesday, March 23, 2010

CREA Changes rules on MLS

Just saw some links from REIN (Real Estate Investment Network) about the new changes CREA (Canadian Real Estate Association) have made to the MLS (Multiple Listing Service) because of the competition bureau breathing down there neck.

What I would love as a buyer is to be able to data mine the MLS... most of these links are talking about sellers and listing on their own to save fees. As a buyer I want to be able to manipulate the data and figure out things like comparable sales (what did units that are comparable to what I want to buy selling for)... trends in prices (are people paying a lot under asking, mostly around asking or starting to pay 10's of thousands over asking... can see if market is getting over-inflated or is starting to take off)

Anyways just thought some of you might be interested in what the experts thought of the CREA suggested changes.

Monday, March 22, 2010

Response: Why buying a house is a bad investment

I just reread this Canadian Business Article on Why buying a house is a bad investment and I agree with it almost totally. I read it online first, then I got my magazine finally in the mail and reread it again. It might sound weird for a blog that talks about property investment to be agreeing that buying a house is a bad investment. Hear me out and I'll explain.

The article is mainly talking about a persons primary residence. They have a wonderful quote by Adam Smith in the first paragraph ""a dwelling-house, as such, contributes nothing to the revenue of its inhabitant." When speaking of a primary residence this is very true... unless you also rent out extra rooms or your basement you get no revenue from your property and in fact it is faced with a large list of expenses (Property tax, fuel, maintenance, mortgage payments, insurance). At the end of the day your primary residence can be considered a liability... it is an ongoing expense to keep a residence that you will have to pay for until you no longer own the house.

As well, I do believe many Canadians are out there putting 5% down and buying the biggest house they can afford because of this mistaken belief that their house is an investment and that the outsized appreciation gains of the past decade are going to keep going ("real estate always goes up"). History has shown that real estate appreciation lags equity markets and while leverage can help in this regard magnifying the smaller gains... leverage can also have the reverse effect of magnifying your losses.

So why do I invest in real estate if it is such a bad investment? Well, buying investment property is different. Ya ya BS I can hear you all say. How is it different? First of all when you buy investment property you're buying it to rent out! REVENUE ... cashflow... passive income... whatever you want to call it... you are getting money from your tenants that is covering your mortgage and expenses while giving you a bit of extra cashflow as well (hopefully)

Of course like any investment you have to do your due diligence. Just like all other investment types you must do your homework and know what you're doing to be successful at it. AND just like any investment there are no guarantees. People have gone bankrupt investing in real estate (Just take the states as an example).

There are many things I love about real estate as an investment. The most important is control. You get to pick the city, area, street, etc. you want to invest in (you get to do the research and make your own choices about where the trends show you a good investment). You also get to negotiate... whether it is on price, terms, conditions or even things like financing (vendor take back mortgages, cashback deals). If a deal doesn't work for you after you've done your analysis you get to walk away. Again you make your money when you buy... and you get to decide when you do that, when the conditions are just right for you. Even after you've bought the property you have the ability to develop it further... whether you do something like subdivide a double lot and sell one... develop it... or just improve a rundown house so that it attracts higher rents(I love watching that show Income Property on HGTV where they show your expected rents after a renovation)... you have control over how you add value to your property or get value out of it. (You don't get this type of control over a publically traded stock... it's more a buy and pray... I do invest in stocks as well...I try and use the Couch potato portfolio... since I have no control over the market I might as well buy the market and make market returns)

Second is leverage. The banks are willing to loan you 5 dollars for every dollar you put down. Leverage obviously magnifies gains... if you put down 30K on a 150K house and this house goes up 10% you've made 50% because of leverage (15K). Of course if the house drops by 10% you also lose 15K... thing is if you're buying this property for the long term... AND you're renting it out for say 1100 a month... this easily covers your mortgage and other expenses and you're just looking at cashflow any appreciation is a bonus and not your primary motivation.

Quick numbers (Being conservative, all numbers rounded up, but coming from one of the properties I'm buying in Regina)
120K (150K - 30K downpayment) at 5% for 25 years is about $700/month
Property management $95 / month
Property Taxes $65 / month
Insurance $45 / month

Cashflow $195 / month
Yearly $2340 / year

Or about 7.8% cash return on your original 30K investment. You can of course get even more cashflow if you say locked in with a lower interest rate. (ING Direct Unmortgage is at 5 year fixed 3.89% reducing your payment to ~$625 / month with a rate of return of 10.8%) How about if you spread out your amortization to 35 years with that ING rate? ~$525 / month... rate of return of 14.8%(or $4440/ year). Again it is all under your control and it all depends on what you want... whether it is paying off the principal or keeping a high cashflow to supplement your income. At the end of 5 years you can relook at your investment... if the property has appreciated a lot... you might think of selling it for the appreciation value... if it hasn't moved you can keep it for the cashflow... or even if it has appreciated the cashflow covers the property... so in 25 to 35 years it will have paid itself off.

Meanwhile as long as rents keep up with inflation you have a passive income that is basically indexed to inflation. Your own Defined Benefit pension plan =)

So while your primary residence that you live in yourself IS a liability (though a fully paid off residence is useful to leverage the equity off of for investing... but that's for another time heh)... investment properties that are cashflow positive can definitely be a very good investment in my opinion.

What do you guys think?

Wednesday, March 17, 2010

Finding Properties in Regina

When I first started looking at properties in Regina I used the website. It links to the other Regional Multiple Listing Services around the country (and it looks like maybe other parts of the world). The Front page has the option of looking at Residential and Commercial with the commercial site linking you to

The Commercial site can be used to quickly find multi-family properties that might not be listed in the Residential site. Great for 4-plexes and above.

The Residential site gives you a number of options to narrow down by number of bedrooms, bathrooms, price range and number of storey's . You can even search in a particular "MLS Zone" if you know the name of the zone. (I tried Broders Annex and it brought all those up). Also I just found you can limit your search to newer listings specifying a date. It's a pretty decent starting search.

At the end of the day though it pales in comparison to the website that realtors have access to. This is where having a buying agent comes in handy. They can do a quick search of all MLS in the city... narrow it down by regions... or exclude certain regions (The more rundown shadier regions) and do all the rest of the filtering that I would love to be able to do on my own. Data on sold comparables can be found, regional data on number of listings sold in an area or the whole city... price sold versus asking... volume... etc. Basically a stats geeks dream... and everything you would need to make a competitive offer.

For Sale By Owner (FSBO) sites are becoming more and more popular in Canada and two in particular seem to have established themselves in Regina and Property Guys. I found it was more difficult to contact FSBO sellers and many of them seemed like they were just posting to see what interest they would get and weren't really serious in selling. Thing is though these sites are less trafficked and less competition on these listings. They also don't have the treasure trove of MLS data to use to glean a proper sales price giving the possibility of a good deal to be found. One of the properties I bought was originally a FSBO but they later hired an agent to represent, I originally found it on the SKHomes4Sale site. You do have to have patience when dealing with FSBO because most of them have day jobs and some of their properties have tenants...and it seemed difficult to arrange times to view the properties.

I just really wish the MLS was opened up so that data geeks like me can mine the data for good properties in a more efficient manner. Unfortunately that doesn't seem to be in the cards.

Happy House Hunting!

Saturday, March 13, 2010

Regina Investing Lessons Learned

Much of Regina is basically built on clay and old swamp land. Unlike Yellowknife which is on the Canadian Shield... so nice solid rock foundation. Also the city is very old with a tonne of older houses (some 100+ years old). It is very different inspecting property here in Regina than what I'm used to in Yellowknife. (with houses usually only like 30-40 years old at the max and no real shifting apart from regular settling that will occur)

The basement/foundations in Regina that I've seen are mainly concrete or block. (Blocks of poured concrete it looks like) Concrete is preferred as it is one solid piece unlike block where each block can and will move. Concrete is much easier to "brace" using steel bars placed about 4ft apart on each wall. Block basements need to be placed about 2 ft apart and to be safe another concrete pony-wall also has to be poured after bracing (pricier obviously and taking up more of your useable space).

From the sounds of it all houses in Regina will be subject to some movement and foundations will crack so bracing is something that will occur at some point in the life of the house. Some areas are worse than others obviously, but one of the big things to watch out for is Do It Yourselfers trying to make fixes to their foundation. We found houses whose bracing was not standardized... some steel braces were 2 ft apart... others were like 4ft on the same wall... another house looked like they were trying to use 2x4 as a brace which would never hold.

Another thing to watch for is of course the roof. Peeling shingles, missing eavestroughs, icicles being built up do to moisture not probably being dealt with.

If you are an out of town/province investor remember you will need an SK lawyer and you will have to meet with the lawyer in person so they can verify your identity. Remember to bring two pieces of ID that they can photocopy (I used Drivers license and my Visa card). Your Real estate agent will also have to verify your ID. If you are buying remotely and can't see these people in person you will need a Notary Public to sign and verify your identity.

The city of Regina will charge a disbursement of $3 per $1000 purchase price to change land titles, but there is also some other fees that I can't remember ($150 and $100 I'd have to ask my lawyer again what those are) so for a $200K house expect to pay $850 in Disbursements. My own lawyer charges a flat fee of $950 + $95 (GST+PST). So for a $200K purchase legal will be $1895. If the owner has a Real property report (otherwise called an Surveyor's certificate) then you don't necessarily need Title Insurance as it should show all buildings are within the property lines of your property. Though for $200 to $229 it might be a good idea anyways.

Our real estate agent told me that in Regina your deposit amount is key to your sincerity. Remember to bring your chequebook AND have $5000 to $10000 in your account for the deposit. Also budget about $350 for a house inspection. If the furnace is old another $80 to $95 for a furnace inspection. A Septic/Sewer inspection is also recommended for those older properties as tree roots can start getting between the joints of pipes and block up the sewers. Remember to ask for the Property Condition Disclosure Statement (Basically what the owner self declares and knows that there are possible problems with)

Hope that was interesting and educational. Happy Investing ;)

Friday, March 12, 2010

Regina,SK - 2 Conditional Offers Accepted!

Decided to start a blog and document my learning experiences of investing in Real Estate. This is my first entry. Just got back from the Real Estate agents office (currently about 9pm). Put in offers this afternoon on two properties after looking through about 8 properties.

A little background. I am not from Regina, SK but am investing in properties there because of the amazing potential for positive cashflow AND appreciation from the whole Saskaboom(They have what everyone needs food, fuel, fertilizer). I am actually an investor from Yellowknife, NT.

Coming from out of town I basically had to build my team here from the ground up, finding people through the internet, magazines and word of mouth.

Of course to properly evaluate the value of a property you have to know the potential rents of various areas you will be buying in. For that I found a property management company that seems amazingly competent and through the references they gave me I'm confident they are a company that is experienced and has integrity. After getting an idea from them that rents vary from $800 to $1400 at the highest(for 2 to 3 bedroom homes) I knew that for single family homes I would have to stick to under 200K in order to have a chance to cashflow.

My ideal property is one that cashflows at 6.5% interest with 20% down and a 25 year amortization. This would give me a safety net (since interest rates are less than 5% for a fixed rate 5 year mortgage... I think ING has a 5 year mortgage for 3.89%?)... unfortunately I really couldn't find any properties that were in good condition that met this criteria in the short amount of time I was here (one week). There were a number of sketchy properties that had what looked like amazing cashflow... and they are still available for sale. Below is my analysis:

2041 Edgar Street ($111,500 asking)
This property looked amazing on paper... priced to sell, previous tenant rented at $875. However the foundation looked like it would need work, even though it looked like it had been braced... our agent wasn't sure it was professionally done since the bracing was uneven... though it was within the 4 ft per brace it should be. This was a somewhat major fixer upper which someone with the right contacts and skills could take on, but being a remote owner I prefer a more move-in ready unit.

119 Osler ($140,000 asking)
Currently renting for $1200 per month. This again obviously cashflows, but it was very suspicious that the owner signed a lease for 2 years AFTER listing the property for sale. Still cashflow is cashflow. So we took a second look at the property with our soon to be property manager. He pointed out a few things such as the fact the block basement would probably have to be braced soon (You could tell cracks and heaving on some walls) and though it looked like one wall was possible already reinforced because of the very thick windows... we couldn't be sure how good a job was done since it was all covered by the drywall which was not 100% "true"... Plus the eaves troughs were missing from half the house and the other half was frozen up with icicles (possible condensation). With a family staying here it would be difficult to do basement work... and refinishing would be expensive.

During this week, 2 of the properties we were scheduled to look at had conditional offers placed on them. Meanwhile in all of Regina there are only about 400 listings... only 362 single family homes excluding condos... only 299 properties outside of the Washington Park area... and of those there were probably 12 properties in the price range I was looking for.

I excluded Washington Park from our search because our soon to be property management company does not manage properties in that area. Sketchy part of town. Also General Hospital Area and downtown core. It's funny how in Regina one street down can make all the difference. Anyways there are a tonne of properties in the Washington park area for sale at rock bottom prices (that's what originally attracted me to Regina in the first place... looking at the MLS and seeing all these under 100K houses and knowing the average rent in Regina is like $863). If I actually lived in Regina and could afford to manage them myself I probably would check them out, but if the professional agency doesn't want to manage them I'd have to take their word for it that it's more hassle than it's worth. (Another agent told me there are other companies that would manage this area, but I agreed that it wasn't worth the hassle)

Anyways real estate is starting to pick up again in this city. Some listings are already getting multiple offers and selling within a day. Meanwhile there is almost no supply at the moment, though our agent expects listings to pick up here in Spring and Summer. (Normal is around 800 to 1200) There are after all about 300 agents... at the moment that means it's like 1 or 2 listings per agent... sparse.

Starting to build a good team.

Real Estate Agent - Check
Property Manager - Check
Lawyer - Check
Mortgage Broker - Check (just the bank)

Now I need an insurance agent. Would be nice to have a general contractor on the team and also a real mortgage broker who deals with multiple lending agencies. I can still work with the team I have though... and just build as I need.

I'll discuss my reasons why I chose Regina specifically in another entry. I'll also do a breakdown analysis of the properties I bought once all conditions are waived. If I don't get sidetracked and never write again... then this would become another of the blogging worlds one entry blogs. =)