Thursday, August 27, 2009

Vegas Baby!

I have just returned from a couple of days in Las Vegas, looking at some housing and taking in the fun times there. I have a couple observations, especially how lucky we are in Ottawa!

- estimates have overall tourism down 40%
- over 300 foreclosers per week are happening in Las Vegas
- houses are now roughly 1/3 the price they were a year ago
- jobs are down correspondingly, with immigration heading the wrong direction (out of the city)

Las Vegas has gone through 3 recessions in the past 30 years. It has bounced back in the past and will bounce back at this point. There are some really positive points in Vegas right now. The rental market in the North, South and Western parts of the city is strong.

Foreclosures are a dangerous business, many of the homes have been severely damaged with concrete down the toilets, pipes cut, etc. Not a pretty sight!

Apparently, people are doing this because they feel taken advantage of by their mortgage lenders. They signed documents with low introductory interest rates that ballooned at the end of a term. At the end of that term, people cannot make the payments and are furious with the lender. They destroy the house to "get back at" the lender. The lesson here is to make sure you understand your mortgage commitement (re - interest rate deductable penalty)

Thursday, August 20, 2009

Commercial Financing

It has been a long process, but the financing is now in place for our 6 unit building in the Byward Market. I am very excited to close the transaction either later this month or early next. This building is ideally located with a good mix of units. As they say in real estate, Location, Location, Location!!!

Now starts the hard work of getting the building running smoothly and efficiently. You do not realize the amount of waste there can be in a day to day operation. For instance, the furnace that runs at 60% efficiency, the electric hot water tanks (when gas is available), the lack of bathroom exhaust fans - meaning windows left open and heat escaping.

Through renovation, tenant turn over and smart management this building should produce 4 times the income it is currently showing.

I have just finished the long and arduous task of commercial financing on this building. (thanks Lilianne!) It really is a 2 to 3 month process. Couple of pointers in commercial financing
i - financing is based on the buildings numbers not your personal numbers
ii - get a CMHC insured mortgage, your interest rates are much lower
iii - understand rate hold fees, CMHC fees and bank fees as they are much different in commerical
iv - make sure you build in extra cash flow as commercial properties have many more costs involved

Now, as a reward, I am drafting up an offer on an 18 unit building!

Monday, August 17, 2009

Real estate and bamboo

Real Estate's Long Term Investment Strategy can be compared to the Chinese Bamboo Plant.

In North America we are obsessed with the next day, week, month, or quarter's results - in contrast to our Asian counterparts. Patience is sometimes a true virtue.

To be a a successful real estate investor, you should draw your real estate investment lessons from the example of the Chinese Bamboo plant. This plant can grow to unprecedented heights and it can grow very quickly!

The bamboo seed is planted. It is watered. It is fertilized. But in the first year nothing happens. The second year it is watered and fertilized again, but still nothing happens. The same process is repeated during the third and fourth year; and still nothing happens. Yet, during the fifth year, in a period lasting no more than six weeks, the bamboo grows from seed to over 90 feet!

Did the bamboo grow 90 feet in six weeks, or 90 feet in five years? This is a good question.The answer is five years, because at any time during that five year interval, had fertilizing and watering not been done as required, the plant would have died.

Your portfolio can sometimes feel the same way. You buy a property, you rent it, you pay the bills and nothing seems to happen, but over time the rents go up, the mortgage balance goes down and then one day, things break loose quickly.