Please Look Past the Headlines

A couple of days ago, the Globe and Mail published an article entitled "Home Sales Plunge, Market 'clearly' in Correction Mode"

For the average Joe, looking at this headline without reading the details would likely result in misinterpretation, drawing incorrect assumptions and generally cause panic among homeowners.  

Again, this article focuses on “National” numbers.  As I have always said, the “Canadian” real estate market is non-existant….it is made up of tens of thousands of markets and submarkets.   Yes, other markets may feel a slight ‘domino effect’ resulting from neighbouring markets dropping in value, but the market in Yorkton, Saskatchewan, for example, will generally not be affected by a slump in the Vancouver or Toronto markets – an entirely different set of factors are at play in Yorkton namely oil, potash and other commodities that are the backbone of the economy.

For real estate investors and even the average home owner, this article should all be ignored – even if you live in Vancouver and Toronto (the 2 markets that are feeling the worst effects of the ‘correction’).   Again, focus on your own sub-market.

If you read further into the article, you find that, not only have prices not dropped….they have actually increased by 1.6% from December 2011!  But you won’t see that in any article headings – it’s not what they want you to see.  They want you to see the shocking numbers – the double digit declines – that will sell newspapers and cause panic among regular folk. 

While I don’t disagree that the market will go through some sort of correction over the next year or two, I understand that this will likely be restricted to the markets that are at the highest risk and have the highest inventory of high priced homes (Toronto and Vancouver).  For all other homeowners, please ignore this article and focus on your own market and submarket because I can guarantee that if prices are dropping in one area, they are going up in another.

Beans before Steak

The New Year is upon us and 'tis the season for resolutions that we have no chance of keeping!

While I won't bore you this year with my resolutions and goals, what I will say is that our entire nation...and most other nations need a hard dose of reality....maybe we can tie this into a New Year's resolution?

With consumer debts at an all time high, the "fiscal cliff" issues and entire nations hopelessly in debt...here is a quote written by Kevin O'Leary in his recent book "Men, Woman and Money".....

"Beans before steak"

Simple as that.  He speaks of an older gentleman in Winnipeg who immigrated in Canada in the 50s with nothing to his name.  Slowly, but surely he amassed a huge real estate portfolio of income properties by paying down the mortgages as fast as possible by saving as much money as possible.  In his own words he "ate nothing but beans for years".

How much truth is there to this story?  I don't know.  Can someone really survive on beans alone?  I don't know that either.

What I do know is that this quote can relate to everything in life.  Do you NEED that new car?  Do you NEED that new pair of shoes?  Do you NEED that new coat?....or do you WANT them?  If you save the money that you would have spent and invested it...will you be better off in the future?  The answer is probably yes.

Eat beans now so you can have your steak later.  Not only will you have much more steak to eat in the future, you will appreciate it that much more because of all the beans that got you to that point!

Do You Need a Fake Address?

OK, so the title is a bit deceiving....I'm not talking about a fake address that one would use to try to hide from the Mafia or some other type of shady outfit!

What I am talking about is getting an 'alternative' mailing address, namely a "PO box", in order to protect you and your family from those bad-apple tenants.

For those who don't know, a "PO box" or "Post Office box" is a uniquely addressable lockable box located on the premises of a post office station.  This is different from a safety deposit box that is located in a bank, which is not capable of receiving inbound mail.

In the land lording world, it is not out of the realm of possibility to have tenants get mad at you.....REALLY mad at you.  This could be for a variety of reasons including evictions, lack of maintenance, perceived unfairness....the list could go on forever.

The last thing I want is a tenant-from-hell to come knocking on my front door when he feels he is looking to give me his two cents.  Worse yet, he decides to vandalise my house, vehicle or personal possessions.

For this reason, I rented a PO box from Canada Post.  It is only about $12 per month and you have the security of knowing that your tenants will have great difficulty tracking you down!  Yikes! I sound like I'm a slumlord!  Rest assured..this is NOT THE CASE! :)

I plan to use this "fake address" for all business purposes whether it is a Lease Agreement, Option Agreement, Agreement of Purchase and Sale, or receiving cheques.

Does anyone else use this type of system for their real estate investments?

How Much can Your Landlord Raise Your Rent?

I came across this article on Moneyville.ca today and thought I would post my thoughts on my blog seeing as I am not registered with Moneyville.

http://www.moneyville.ca/article/1283748--rental-condos-new-bidding-war-battleground

It is actually scary how little people know about the rental industry and what some of the rules are.

The rules for rental increase, as per the Ontario Landlord and Tenant Board (LTB) are as follows:

- Each year, the landlord can raise your rent by the standard guideline, as set out by the Province of Ontario. 
- Until last year, the increase was based partially on the Consumer Price Index (CPI), until this backfired in 2012 with an increase of 3.1% (too much according to most pro-tenant groups)......seems as though they all forgot that the 2011 increase was only 0.7%
-  Now.....the minimum increase is 1% and the maximum is 2.5%
- Landlords may apply for an Above the Guideline Increase (AGI) if they have done capital work to a building that would be considered more than general repairs and maintenance (most landlords are actively pursuing this option to make sure they maximize returns).

Now for the BIG ONE that relates to the article mentioned above:

*****If the building was built after November, 1991, rent restrictions DO NO APPLY*****

I suggest that if you are currently renting a fancy new condo, that you re-read that. 

Yes, this means that if you are paying $1500 per month this year, your rent could go up to $3000 next year and there is little you can do.

I'm not saying that all landlords will do this as most like to have long-term tenants who care for their property, but it pays to be informed and this might be something that you will want to think about before making the choice between and older rental building and a fancy new condo.

Thoughts?

Do YOU have enough??

I read this ARTICLE a few weeks ago and was not really surprised.  More and more there are reports that Canadians are working into retirement – many because they simply have not saved enough.

Of the 53% mentioned in the article, I’m sure some of them are working because they choose to do so….but how many are working because they HAVE too?

I was lucky to have learned the value of a dollar at a young age and started saving quite early in my life, but many Canadians do not learn any sort of financial literacy until well into their working years and, by then, it may be too late.

There are countless financial calculators out there, but here is just a sample of how just a little money each month can make the difference between working through retirement and retirement bliss:

$300 per month savings + 8% interest + 40 years = $1,007,211

That’s right if you can get an 8% return, putting just $10 per day away starting at age 25 could make you a millionaire by 65. 

Bump that to $500 per month and you can be a millionaire in 34 years!!

I am a realistic person and maybe everyone  cannot save $300 per month….but come on….even at $100 savings per month, you will have $335,000 in 40 years.

There are two keys to this though:

1.       Starting early – This formula doesn’t make much sense if you start at age 40

2.       Keeping on track – You don’t need those new pair of Nike sneakers…put that $100 in savings

This blog post will probably fall on many deaf ears…and I realize that this exact same thing has been preached for years….it’s putting it into practice that is the hardest part.

I think about retiring quite a bit.  However, my version of retirement will involve working because I want to stay active and stay engaged.  I plan to work as long and as hard as I want, but after age 50 my goal is that working will be an OPTION.

Think this will happen for me?  Check my blog in 20 years to find out!

Well, well, well

This just in!!!....same old same old.

http://www.theglobeandmail.com/report-on-business/economy/interest-rates/bank-of-canada-softens-stand-on-rate-hike/article4630682/

This morning, Mark Carney informed us of what we already know.  Canada's hands are tied when it comes to interet rates.

With the US printing money like it is growing on trees (it might as well be)....and the world economic outlook looking more like doom and gloom each day, is anyone surprised?

The Canadian dollar is hovering at - or above - parity.

The US economy is limping along.

The economy is in the tank over seas.

The bottom line is that everyone is trying to trash their currency to boost their economy.

My only wish?....that I could go back in time and change ALL my mortgages to variable. 

Bump up You Mortgage Financing Without Bank Approval!

Many of us would like to purchase a rental property or two, however with the minimum down payment for an investment property now 20%, investors are stuck with having to come up with a large down payment

For example, you would like to make an offer on a property that is listed for $250,000.  If you pay full price, and want to avoid CMHC insurance, you will need a 20% down payment of $50,000….not exactly chump change.

However, your realtor has informed you that the vendor is motivated and will likely take $230,000.  Great news!!  However, with a 20% down payment, you would need $46,000….really not much of a difference!

What if I said there was a way to pay $230,000 and only put up $30,000 (12%) without paying the CMHC insurance fee?....Here is how to do this:

Offer the vendor full price (that’s right…FULL PRICE), however ask for $20,000 cash back at closing.  You are essentially going to pay the vendor the $230,000 that was expected, without having to outlay the full $50,000

Yes, you will need to initially put up the $50,000 down payment for the offer, but after your $20,000 cash back at closing, you will be left with only $30,000 out of your own pocket.   Now you can either take that $20,000 and put it back into the mortgage or you can keep it and treat it as an ‘extra’ loan at the going bank rate….much lower than a line of credit!

For those visual learners, here is a chart for reference:

	$250,000 offer	$230,000 offer	$250,000 offer with $20,000 cash back
down payment	$50,000	$46,000	$50,000 - $20,000 cash back = $30,000
mortgage amount	$200,000	$184,000	$200,000
Loan-to-Value	80%	80%	13%
CMHC fee	0	0	0

 Thoughts?