Thursday, January 29, 2009

Energy Efficiency Example


Hot water tank

Amerispec rebate on hot water on demand system installation $500

Cost for hot water on demand each month $37.50 (rental)

Cost per hot water tank per month $15.00 (rental)

If you own an investment triplex, it would be in your best interest to research the Amerispec program to try and lower your month carrying cost. This system add $2500 value to the appraisal of your property.

It does not seem like much, but if you can find other small renovations - spray foam in basements (cutting heating costs), increased insulation in the attic, window replacements, etc - this could add significant value to your investment property.

Good management adds significant value to properties!

Ottawa Home Values Over Time

Wednesday, January 28, 2009

Energy Efficiency grants

My wife and I have been contemplating some home renovations, you know the usual - extra insulation in the attic, new exterior door, some exterior EIFS, etc.

The Federal government introduced a 15% tax credit upto $1350 between now and February 1 2010 for home renovations. This is a huge bonus for home owners and a chance to stimulate the construction industry.

This is big news in the media currently, but largely unknown to the average person is the Amerispec program. A good friend of mine (and a very successful investor) introduced me to a company that does blow tests in your home.

A blow test is where a smoke is released in your home and the technician analyses where the smoke exits your home. Then you renovate your home to eliminate or minimize these deficiencies and make your home more energy efficient and therefore lower your utility costs.

Upon successful completion of these renovations and a successful subsequent retest, you are credited back a portion of the renovation costs. These rebates can be as high as 40% of the cost of the renovation.

Please check this out:

Federal Budget 2009

Yesterday, federal Finance Minister Jim Flaherty tabled the federal budget. Several measures affect Canada's housing and mortgage industry.

· Temporary home renovations tax credit of up to $1,350 for eligible home renovations and alterations

· Increase in the home buyers RSP plan, withdrawal limit increased to $25,000 from the current $20,000

· A new first time home buyers tax credit that will provide up to $750 in tax relief for closing costs

· Broad based personal tax reductions including an increase in the personal exemption and increases to the limits for the two lowest tax brackets

Housing bubbles?

I hear people asking about housing bubbles, so I did some research on major markets in Canada. Interesting stuff

Vancouver - 100% increase in housing prices over past 6 years - 17%/yr
Calgary - 44% increase in housing prices over past 3 years - 15%/yr
Edmonton - 57% increase in housing prices over the past 2 years - 29%/yr
Toronto - 61% increase in housing prices over the past 8 years - 7%/year


Ottawa - 21% increase in housing prices over the past 5 years - 4%/yr

Keep smilin'

Relief for home buyers and renovators

The other major pieces of tax relief are addressed at prospective and existing home buyers. The budget is raising the amount that first-time home buyers can withdraw from an RRSP to $25,000 from the previous $20,000. And first-time home buyers will also benefit from a new non-refundable tax credit of $5,000 for qualified homes that close after January 27, 2009. That $5,000 equates to $750 in tax savings, Ms. O'Hagan calculates.

Those who already homes will benefit from a temporary Home Renovation Tax Credit (HRTC), worth 15% on home renovation projects between $1,000 and $10,000. O'Hagan says this is worth up to $1,350 on a $10,000 project, which is 15% of $9,000. Note that this is a short-term stimulus that applies on work performed or goods acquired after Budget Day and before Feb. 1, 2010. It's a non-refundable tax credit, which means it can reduce taxes payable but there is no refund if your taxes are reduced below zero.

Tuesday, January 27, 2009

Area's housing market defies national price drop - Ottawa Citizen - January 27 2009

Area’s housing market defies national price drop

Capital ‘continues to be a sound and stable city’: report

By Paula McCooey, The Ottawa CitizenJanuary 27, 2009

OTTAWA — The city's resale housing market remains resilient even while sales and prices are dropping in other Canadian markets, according to a survey by a major real estate firm. Citing “solid” year-over-year price gains, the report from Royal LePage Real Estate Services says Ottawa “continues to be a sound and stable city for homeowners and investors alike to invest.”
The national average for detached bungalows dipped by 4.8 per cent to $319,640 at the end of 2008, said the report, which was released Monday.
Condos across Canada decreased by 5.2 per cent to $233,230, year-over-year, and two-storey properties fell by 6.3 per cent to $376,140.
Ottawa prices remained below Canadian averages, but increased in all sectors.
Of three Ottawa house types examined, the average price of a standard condominium had the highest increase, rising 5.2 per cent to $207,167. The average rise of a standard two-storey home rose 3.5 per cent to $317,083, year-over-year. The average detached bungalow appreciated by 4.1 per cent to $321,333.
Of six Ottawa markets surveyed, the highest increase for two-storey homes was in Orléans, where an average two-storey rose six per cent to $281,000.
The same house rose 5.6 per cent to $283,000 in south Ottawa, 4.5 per cent to $350,000 in west Ottawa, 4.4 per cent to $446,000 in central Ottawa, 3.9 per cent to $266,000 in east Ottawa and 2.3 per cent to $294,500 in Kanata.
The average bungalow rose 6.8 per cent to $267,000 in Orléans, five per cent to $263,000 in east Ottawa, 4.7 per cent to $265,000 in south
Ottawa, 4.4 per cent to $500,000 in central Ottawa, 3.2 per cent to $320,000 in west Ottawa and 1.3 per cent to $313,000 in Kanata.
For condominiums, Orléans had the biggest increase, 7.2 per cent, bringing the average to $179,000. The average condo rose 6.4 per cent to $250,000 in west Ottawa, 6.2 per cent to $171,000 in east Ottawa, 5.8 per cent to $181,000 in south Ottawa, 5.3 per cent to $280,000 in central Ottawa and 2.8 per cent to $186,000 in Kanata.
Pierre de Varennes, broker owner at Royal LePage Performance Realty in Ottawa, said Ottawa’s “thriving job market” helped invigorate the housing market in 2008. He noted that balanced supply and demand in the fourth quarter ensured it was neither a buyer’s nor seller’s market.
© Copyright (c) The Ottawa Citizen

Rates to go down further?

The Bank of Canada overnight lending rate is expected to drop another 50 points in March. This being said the variable rate should drop 25-50 points. This move is already fully discounted by the market and will not have any significant impact on long-term rates (4 year and 5 year fixed mortgage rates).

Renovation Credit

The Harper government has been floating the idea of a TAX CREDIT FOR HOME RENOVATIONS - an idea that could deliver significant stimulus for Canada's residential construction industry in the Jan. 27 budget. The tax credit for home renovations will be a short term credit (1-2 years) .

With the rates approaching historical lows it would be a great time to renovate your existing home and take advantage of the upcoming tax credit. This will improve your equity position in your home.

Monday, January 26, 2009

Ranting, Rates and renting

I was thinking about renters today, while speaking to a good friend of mine. He was mentioning how he is interviewing a tenant for a property of his that is approved upto $400,000. He was ranting how this person should be buying a house. Then he stopped, his facial expression changed and he said, this is the type of person who is making me financially free.

I spoke to him about how the variable rate is now 3.45% and the fixed 5 year is now 3.99%. These rates are fantastic. To illustrate, for every $1000 you borrow on your mortgage you are paying just $4 per month.

For example:

An average house in Ottawa is $288,000 (approx.), this house would cost you $1152 per month (plus taxes).

Taking that $400,000 mortgage approval, the monthly costs to carry this home would be $1600, whereas 6 months ago this same house would have cost you $2,200 per month. That is a savings of $600 per month!

My friend smiled and said it is the best time to buy real estate. Rates are at their lowest levels in 37 years and their is some consumer confidence issues. He is in a buying frenzy, looking at income properties, trying to get his passive monthly income from his rental properties up to $10,000 per month.

Flipping houses is tough....

All too often I find watching TV, there are a plethora of shows proclaiming the success stories of people buying houses in US cities and with minor renovations, turning them around for six digit profits. Well, on second thought, not so much anymore. When these shows were on TV they made it seem like anyone can take a flip and make it profitable. In my opinion, that is not the case. These people would buy seemingly any property and turn six figures.

When I first got into real estate, I heard the line, “You make your money on the purchase, not the sale”. It sounded simple, but I did not really understand what these people were saying to me. In order to make money you have to buy the property right, especially in Ottawa, where margins are much smaller on flips. We have the highest average education and the highest ‘pc’ use per capita in North America. As the Auditor General’s report stated, many of the cities employees are using the internet to surf real estate. Here are the steps I use to make flipping more of a science and less of an art form.

The Science - I have developed rules on flipping that I think can lead you down the right path and keep you away from negatives of flipping (ie losing money)

#1 – Use of top down approach – When seeking a property, you have to look at the end and work backwards. What I mean by this, you need to engage a professional real estate agent with excellent property valuation skills and the ability to visualize the end product. Paint the picture of your plans for the house and have the real estate agent provide the selling price of the property once you have done your renovations.

#2 – Selling price – It is important to remember that days on market will directly negatively impact your return. If you retain the property for an extra two months, you will be paying out two mortgage payments, two more city tax instalments, condo fees and utilities. When I have been working with flippers, we usually take the going market value then deduct 5 to 10% off for the projected selling price. This will ensure a quick sale.

#3 – Establish the buying price – By reaching a projected selling price, you can now establish an offer price to buy. The biggest problem many novice flippers make is buying a house they think is “underpriced”. The price a property is listed at is irrelevant. To establish the price you can purchase the property for, it is now necessary to deduct your renovation expenses, your fees (legal and real estate) and your profit margin. This establishes your offer price.

Using this simple three step formula should help you to produce the margin necessary for success in your flip. Of course the help of a professional, experience real estate agent is recommended.

Saturday, January 24, 2009

Why condos?

I often see this question when I am discussing investment real estate. It is a common thought in the Ottawa market place. Over the years, singles families and town homes have dominated the sales numbers. If you analyze the city of Ottawa critically, this trend makes sense.

In the late 1970s and early 1980s there was a huge tennis craze. Tennis clubs opened across the country. Tennis shops were booming. People were eating, breathing and enjoying tennis. Why? The common thought at the time was it was exciting; you had McEnroe and Connors, tennis arch enemies. What people missed at the time was the fact that there were more 20 year olds on the planet than at any time since.
Ever noticed all the golf courses in Ottawa? Ottawa has the third highest amount of golf courses per capita in North America (behind Myrtle Beach and Mont Tremblant). Why? Tiger and Phil? It is demographics again. Now all those 20 year olds are 50 and they are playing golf because it is a more passive sport. There is a society wide movement to passive sports, with golf leading the way, due to the reduced rigours on your body.

There is a huge baby boom population in Ottawa, the highest per capita of any city in Canada. Canada also has the second highest amount of baby boomers per capita of any country in the world (next to Australia). This is due to the war effort during the Second World War where both Australia and Canada were establishing their place in the world as nations of relevance.

In years gone by, the baby boomers were in their child rearing years, hence a detached home was necessary. Now, the baby boom population is in the 40 to 60 age category. Their lives are changing. Their children either have or will be soon leaving home. That will leave a 4 bedroom house, with a pool, a double car garage and lots of maintenance, cleaning and snow shovelling.

You can understand why these people start daydreaming about different options. They have raised their families and are now looking at travelling, increased recreation and spending more time socializing. Condominium lifestyle is much easier, with a lock and leave ability which will become more important with age.

Most condominiums do not have stairs which is another important consideration, as baby boomers see their elderly parents try to cope with aging in their homes. Many baby boomers will be confronted with the prospects of being a ‘sandwich’ generation; meaning taking care of elderly parents and having high school to university aged children. This maintenance free lifestyle allows for more time to care for dependants in their lives. The trend towards urbanization is spearheaded by a movement away from needing a car to get anywhere and the proximity to restaurants, coffee shops and facilities.

The second major target market of condominium ownership will be the ‘echo’ generation, which is the children of the baby boomers. These children are approximately ten to twenty five and represent the second largest group of our population. When first time buyers enter the market often they are looking for properties close to their workplace because their decision might result from a car or a house. This could be a difficult decision, but it is made easier if they are with walking distance to work or close to public transit.

To further support the condo market, CMHC released their most recent report based upon Ottawa statistics:
- In 1999 singles were 64% of starts, 2008 just 45% in 2007
- Projections going forward are 40% singles and 60% higher density
- approximately 60% of condos are bought by baby boomers
- condominiums make up roughly 30% of the total sales in the marketplace
- 2008 – highest # of condo starts since 1992 with 1500 units being built
- 2009 – predicted to have 1400 new units built
- Downtown core homes predicted to rise 9%
- Retiring baby boomers and young professionals prefer the downtown areas
- Single family homes sales decreased 1.8% from 2007 to 2008 (new homes)
- Condo sales in Ottawa increased by 17.3% from 2007 to 2008 (new homes)

In my opinion, over the next ten years, the best investments are best made in the core areas of the city. Preferably, investment real estate should be targeted at properties that are suitable for the aging baby boom population or will appeal to the “echo boomers”, which are the children of the baby boom. Luckily, many times properties that appeal to echo boomers can be slightly modified to appeal to baby boomers as well.

Tuesday, January 20, 2009

Canadian Mortgage Rates for January 20, 2009... Prime Rate drops 1/2%.
Canadian Mortgage Rates for January 20, 2009
Provided by: MortgageOpolis

Prime Rate

Variable Rate (Prime plus .80%)

1 year fixed term

2 year fixed term

3 year fixed term

4 year fixed term

5 year fixed term

10 year fixed term

Rates subject to change without notice.

The Bank of Canada announced today that it is dropping the overnight lending rate to 1% and Major Canadian Banks followed suit by dropping their Prime Rate to 3%. Other lenders are expected to follow suit in the coming days.

RBC dropped their rates 0.96% today, one of the largest one day drops in history. This puts the mortgage rate back into proportion to the overnight rate.

Monday, January 19, 2009

Ottawa Housing versus United States Housing

First it is essential to understand the problem in the US. They have a sub-prime mortgage crisis. 1 in 3 mortgages in the United States were sub-prime mortgages and 1 in 6 mortgages in the United States were NINJA mortgages.

Do you know what a sub-prime mortgage is? A sub-prime mortgage is a high ratio, riskier mortgage where there is little to no down payment and ‘creative’ terms (balloon payments, interest only, etc). In the US, it went a step further, introducing a program called NINJA (no income, no job, no assets), meaning you could be get a huge mortgage without the financial back up (unlike Canada). As well, in the United States, you can deduct the interest on your mortgage from your income taxes. Meaning your home becomes akin to an ATM card, where you refinance and buy consumer items with an interest deductable loan.

How did this affect the overall economy?

These subprime mortgages were packaged with a bunch of other "safe" investments and sold to banks, investment houses and insurance companies. These investments were held by these companies in place of cash reserves. Just as an FYI, this practice is illegal in Canada, it is legally mandated that these companies have to keep cash reserves.

These US companies were leveraging upon leveraged assets. The real estate assets are now illiquid, so it is causing major problems for everyone. As many prominent advisors have said, the cream will now rise to the top and the best managed companies will survive and the others shall disappear by one way or another.

The average Canadian has more in savings, owns a higher percentage of their home and in general is not a highly leveraged as our American friends. I agree that the spending spree that started in 2001 has finally caught up with the Americans, combined with the hugely expensive war effort and loss of manufacturing jobs to lower costs outsource countries.

Economies on a world scope are changing. Canada as a "developed" country we are moving to the Information Age, whereas the US economy is having a harder time making this change. We have a higher average education per capita than the US and this eases our change. As well we are a resource based economy that is in a boom time. Countries like India and China are desperate for our natural resources, so even though 80% of our trade is with the US, the world economy is changing.

I do not forseee the American problems happening in Canada. I think we are safe here. I think there might possibly be a flat period, but the long term trend will be upwards. Taking advantage of lowered interest rates and a consumer confidence crisis makes now a time of opportunity. I believe in value investing and now is a great opportunity. As a value investor, profits are made on buying, then as the market increases, we collect a bonus!

Keep smiling,Greg

Tuesday, January 13, 2009

The Perfect Storm for Ottawa Buyers

The Ottawa real estate market place is shaping up to be the perfect storm this year for buyers. Interest rates have fallen to historic lows, with the US overnight rate at 0 to 0.25%. These types of rates are unheard of and are designed to increase bank lending.

Right now, in Canada our overnight rate and our bank lending rate is out of sync. This will eventually get itself back into line. Finance Minister Flaherty has said he is going to "encourage" banks to lend again, so mortgage rates are predicted to drop further. Variable rate mortgages are definately the choice in this market, as fixed are still too high. As a further bonus, rates are expected to drop again at the end of January.

What does all this mean?

A house for $300,000 is now much more affordable. For example:

Typical mortgage set up with recent rates (5.7%, 25 year amm, fixed) - monthly payment - $1866.26 (principle and interest)

Modified set up with current rates (4.3%, 35 year amm, variable) - monthly payment - $1375.88 (principle and interest)


This is a quite significant reduction in monthly cost.

The Ottawa market place is suffering from a consumer confidence, that has been brought on by the negative US media. Late 2008 was a major shake up to the capital markets. In my last blog I analysed the Ottawa market place statistics and have shown that the last year in Ottawa real estate was a good year. Ottawa's work force is government based and reports leaking out are that the Federal government will be releasing the largest Federal budget in Canadian history. That means the dreaded 'd' word (downsizing) will not effect Ottawa.

Further to that, the other two major industries in Ottawa, tourism and high tech have not been effected by the current economics. As the Capital of Canada, the majority of our tourism is Canadian-centric, meaning people coming from all over Canada to visit the Capital. This is unlikely to change, as the Parliment buildings are not slated to move! With the World Junior Hockey Championship being a resounding success, 2009 is off to a banner start for Ottawa.

The high tech industry is thriving in Ottawa right now. The difference between today's high tech and yesterdays is the set up. In the dotcom era there were 4 major companies controlling the tech sector, but now there are only approx. 10,000 less people working in tech, but they are working in much smaller, more efficient operations. The lack of a manufactoring sector in Ottawa has saved us from the loss of high paying jobs being experience in places like Oakville, Windsor and Oshawa.

Ottawa citizens have an average household income of $95,000 per year. We are a city that generally has pensions, job security and yearly wage increases. Homes in Ottawa have increased 6.15% annually for the past 50 years and CMHC is predicting another 3.8% increase this coming year. The average home price is predicted to reach $300,000 this year. As a first time homebuyer, it is imperative to get in the market, because the market is running away from you faster than you are moving towards it. Think of it this way, you get a 3% annual raise, the housing market is increasing by 6% annually, after three years of renting, you are now 9.27% further from owning a house!

Now is the time to check out some listings

Wednesday, January 7, 2009

How do we intrepret 2008 housing statistics?

I hope you are recovering nicely from the holiday season. It can be a time of extreme gluttony and in away, it is nice to get back to routine. I saw that the most recent housing statistics for MLS sales came out this week and the reports indicate that December market was down again as compared to December 2007. Seeing these statistics, it annoys me, as it is misleading the public.

People are listening to this type of news and are reacting accordingly. These stats should be presented in a more fair and equitable manner. I realize that the number of houses sold in 2008 was less than 2007, but the average price per home was higher in 2008 than 2007. It is not reported, that 2007 was an incredible year, the best in the history of the Ottawa market – it was a boom as compared to other years.

I compared Ottawa MLS sales from 2008 to 2006 sales and the decline in the overall market was only 0.36% – really not worth worrying about. I also looked up the total average sales from 1998 to 2008 and the total average sales per year has been 12, 706 homes per year. In 2008 a total of 13, 733 homes were sold which translates to a 8. 1 % increase from the average number of homes sold in the resale market over the past 10 years.

In 2008, prices were up 6.7% as compared to 2007. So I would say that the Ottawa housing market is very healthy – especially the condo market

Ottawa resale market over the last 10 years.

Year Total Sales
2008 13,733

2007 14, 579

2006 13, 783

2005 13, 099

2004 13, 158

2003 12, 715

2002 12, 894

2001 12, 237

2000` 12, 692

1999 11, 329

1998 9,547

As you can see from the above chart, 2008 was the third best year in the past 10 in total number of sales. CMHC predicts the number of sales in Ottawa this coming year to be 13,400 sales and an increase in home values of 3.6% in line with inflation. The one caveat is that CMHC predicts that downtown core areas will increase in value by 9%.

Keep smiling,