Here We Go 2012!!!

I can’t believe where the time has gone.  It seems like just yesterday that I was sitting around in my pyjamas waiting for the world to end New Year’s Eve in 1999.  Yikes!

2011 was a great year for my professional life and personal life as well.  I started a blog, took a new position with private REIT in Guelph (awesome company!), purchased a lease-to-own investment property and got engaged!

Yes it was a whirlwind year full of change, opportunity and a ton of stress! 

What’s on the agenda for 2012?  Lately, I have been focusing on attainable goals because I’m sure you all know how it goes when you set too many or unattainable goals.   Nothing ever gets accomplished!

So for 2012 I have set two goals:  Lose 10 pounds (cliché I know, but in the last 6 months, I have been so busy with work and renovations that I have gotten away from my typical healthy routine….but I’ve actually already lost 3 of these pounds since Jan 1^st!).  My second goal is to purchase another investment property.  I’m not sure exactly what type of property, but given my recent rent-to-own deal, I think I am in the market for another!  I have had a couple of interesting of near-miss deals here so I think another one is definitely on the horizon.

So what are your goals for 2012?  If there is one thing I have learned is that keeping them high, yet realistic, will go a long way in attaining them! 

Good luck! J

Fractional Reserve Banking....Legal or Ponzi Scheme?

late September, the U.S. Justice Department filed a civil suit against Full Tilt Poker, an online gambling site.  They claim that thousands of online poker players were defrauded out of more than $300 million that is still owed to them. The government said that, in total, the 23 owners of the site had taken out $444 million in distributions over the years.

According to the Wall Street Journal…..On March 31, 2011, Full Tilt owed approximately $390 million to players around the world, but the company had just $60 million in its bank account, the government said in its filing Tuesday.  (Quick math…this is about 15% money on hand vs what is owed).

Credit: chadelliot.com

Enter “Fractional Reserve Banking”.

For those that do not know, Fractional Reserve Banking is a form of banking where banks maintain reserves (of cash and coin or deposits at the central bank) that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction (called the reserve ratio) of the quantity of deposits as reserves.  Typically the reserve ratio is 10%, meaning that for every $1 that the bank has in the system, they can create loans for up to $10. 

Funny how this is legal, yet Full Tilt Poker is a Ponzi Scheme.

Now I know that these examples are different.  The owners of Full Tilt Poker were clearly stealing the money, however if they were intending on putting this money back into the “pool”, should this have been allowed? 

Canadians ought to know that the banking system has their own set of rules.  Sometimes this is a benefit and sometimes it can build a foundation for a catastrophe (see “Lehman Bros.”)

Thoughts?

Whack-a-Mole your stress away!!

Every once in a while, things happen in the real estate business that seem to put a damper on things…a really big damper.  

The game of real estate is an ever changing battle with unforeseen events popping up all around you….much like the game of “Whack-a-mole”.  They key is to whack the mole as quickly as possible and then be on the lookout for the next one!

I’m here to tell you to hang in there!!

Even the most seasoned investor has times where he thinks “Man, things are getting tough….maybe I’m not cut out for this.”…..but the seasoned investor quickly puts these worries aside and fixes the problem… and then move onto the next one……Whack a mole!!

Credit: smartboardgoodies.com

The thing they don’t tell you is every time you deal with a problem, the better you are equipped to deal with the next one.

Speaking from experience, I often look back and laughed at what I considered “stressful”.  The problems I have faced in the past seem smaller and smaller each time something comes up!  Things like a leaking tap or broken stove seemed to be keeping me up at night.  Now it is a phone call and a $50 repair bill.  No big deal. 

As I have said in the past, being able to handle stress is a competitive advantage.  And the more stress you can handle will give you the fortitude to drive forward in the face of adversity!

Hang in there everyone!! And one day real estate may set you free!!

Fire Prevention – Document , Document, Document

In my real world job, I recently went through a fire at one of my properties.  The fire was in late August and I am still dealing with the fallout today.  Luckily almost everything was in place and there was limited push back from the Fire Department. …..luckily….

The main point I want to get across is that you NEED TO DOCUMENT EVERYTHING.  I cannot stress this enough and this goes for the smallest landlords to the biggest landlords.

When it comes to big landlords, there are numerous things to organize and take care of.

Typically for smaller landlords, there are only a few things, however having your affairs in order and properly documented can make all the difference.

photo credit: westperth.com

For those out there with smaller properties, here are some things to think about:

1.       Smoke detectors:  These have a 10 year life span at max and the batteries should be changed every year.   Having the detector hardwired is much better and you don’t have to change batteries…just push the button to test it.  These also come in a battery-backup version.  Remember: document all of your inspections, tests and battery changes including dates and times.

2.       CO detectors:  Even if you don’t have a gas burner appliance or wood stove, it is a good idea to have at least one of these.  Again, test it frequently and document this.

3.       Fire extinguishers: Make sure these are charged properly and have an inspection tag if possible that is updated monthly.

4.       Fire Safety Plan: This is usually reserved for bigger properties (ie, larger than 10 units) however those buildings with fewer units should still have a plan.  This plan should be put to the test with quarterly fire drills and practiced escape routes.

5.       Letters of acknowledgement:  All of the above should be signed off by the tenant at the property…not just the landlord…and have this witnessed by a third party.  This insulates the landlord from any potential lawsuit.

Does anyone else have any other tips for fire prevention??  Comments welcome!!

Enough Already!!!....and Thanks Rock Star

Lately I have been sick and tired of the negativity that has surrounded me.  It seems as though I cannot escape the people bitching, complaining and telling stories of hard times and how “tough it is out there”.  These have been typically people in their 40s and 50s who are well into their working lives and still several years from “retirement”. 

I have one request of these people…..Please keep the negativity to yourselves. 



photo credit: http://www.daimanuel.com/



Why?  Negativity breeds negativity….and I have had just about all I can handle recently.  Everyone is dealt a different deck of cards and some have got the short end of the stick…..but there are people out there who have been wildly successful having been dealt a very poor hand (think Robert Herjavec).

Lucky for me, I recently read an inspiring blog post on the Rock Star Real Estate Blog entitled “Two Monks Lost in Corporate Communist Canada”.

Basically the jist of this story is that…..as Rolf Potts puts it…. “We end up spending (as Thoreau put it) “the best part of one’s life earning money in order to enjoy a questionable liberty during the least valuable part of it.”

However, the guys at Rock Star do a good job of motivating people who follow their blog.

Their response to this?

“Keep reading, keep saving, keep investing, keep building.

It may seem like slow progress at first but each little step you take towards personal independence will pay off.

Stay focused.  Stay disciplined.  Don’t get frustrated and give up – it’s too easy to do that.

Find people that are doing what you want to be doing.  Go and hang out with them.  Listen to their language, watch their actions, examine their results.

And one day you’ll wake up realizing that all those little steps have taken you to an entirely new world.  One where you’re the boss.”

Thanks for the much needed motivation Rock Star Team.  I needed that one.

Bathroom Reno Pics

Hi All,

I finally got around to painting the trim and getting some pictures taken so I would like to share the before and after pics of the new bathroom!  Here are the before and after shots:

A ton of work went into this reno and I am very happy with the results!  I'm not sure I ever want to do it again though! :)

Comments?

Fixed vs Variable (And Why I Now appreciate my Economics Professor)

I always cringe when I see this heading in an article.  “Here we go….another article about fixed vs variable…..”  What else could they say this time that hasn’t been said a thousand times before?

Until recently, I was quite content going with a fixed mortgage as I told myself that I wanted to sleep at night, knowing my rates were not going through the roof.  I got my first mortgage in 2009 and second in 2010, so needless to say, there was some serious turmoil in the markets and people had begun to look at the low variable rates as something that simply could not go on much longer.

Well here we are in 2011, and the most recent news is that the US has promised to keep interest rates at their current levels until at least 2013.  Suddenly my fixed rates that I took out in 2009 and 2010 are costing me money…..and lots of it.  Had I gone with variable for both, I would have close to $300 in extra cash flow per month.  For arguments sake, I will say that I will have lost out on 36 months of this cash flow….which comes to over $10,000 that I will have left on the table.

Stupid right?  Well, hindsight is 20/20…..and at the time, I thought I was making a smart decision…..and part of me still thinks this was the right decision as I was a new investor and the thought of vacancy loss, repairs and management of my first properties was stressful enough, let alone if I had to watch the ticker everyday looking for signs that interest rates were on the rise.

Overall, I am happy with the returns I have seen over the last couple of years, but with more experience comes the appetite for more risk….

My most recent lease –to-own deal which closed in August, is a variable mortgage at prime – 0.65, which works out to 2.35%.  Because this is a relatively short term, 3 year, investment, I thought I would give it a shot.  I could have gone with a 3.35 fixed, however the cash flow would have been $100 less per month. 

My rational for this choice was as follows:

-         US recent announcement that interest rates would be held until 2013

-         Fact that Canada mirrors the US very closely…whether we like to or not

-         If Canada raises rates, we risk inflating our dollar even further as new foreign investment comes to Canada

-         My cash flow on my three properties combined is very strong and so a fluctuation in rates on one of the mortgages will not land me in the poor house

-         I remember Garth Turner’s book Greater Fool when he said….”If you are going to borrow……borrow like a man”…(funny how these types of comments resonate in your brain….I read this book almost 4 years ago)

You know, I never thought my university economics classes would ever be beneficial.   Who cares what happens to the dollar or interest rates?  What does it matter that foreign investment is coming to Canada?.......well now it matters to me…..in a BIG WAY. 

When you run a real estate business……and it IS a business no matter what anyone tells you…..you have to be conscious of all market factors, both MACRO and MICRO.  Just be sure you are getting the best information you can from the most reputable sources.