Saturday, July 24, 2010

The first one is always the hardest

Hi Greg,

Thank you very much for all of your help and advice in getting us setup with our first investment property.

Wow…buying and renting sure can happen quickly, when you have the right team behind you!

We have made an agreement for the 15th of August with the Engineer and 2 other tenants, who we should be meeting with in the next couple of days. The new tenants seem to be as excited as we are…

A co-worker of mine is very impressed with the B****r area location and is considering purchasing a rental property as well. I told him about your email distribution of properties. I will forward your email/contact information to him so that he can reach you when he is ready to look.

We are aiming towards paying down some of our LOC…so that we can do it all over again!

Many thanks

Kim and Colin

Tuesday, July 20, 2010

Time to Panic? Bank of Canada increases prime rate by a 1/4%.

Bank of Canada has just raised its prime lending rate for the second time this year and many customers who are on a variable rate mortgage are wondering whether it's time to lock in or continue as is.

This ¼ point increase is not a reason to panic and convert to a fixed term mortgage. Customers who are in variable rate mortgages have enjoyed historically low interest rates for the last twenty months and slight increases should not change their strategy moving forward.

I continue to recommend staying in a variable rate mortgage and using your excess cash flow to pay down non-tax deductable debt. My expectation is that the Bank of Canada will increase their prime lending rate once more in 2010 (either Sept 8th or Oct 19th) meaning that the banks will be at 3.00% and for anyone that has a prime minus variable rate mortgage, that would translate to a savings of over 1.5% vs today's 5 year fixed rate mortgage thus the savings is quite significant.

So what do other economists think???

Avery Shenfeld of CIBC World Markets, said the central bank would hike its benchmark rate to 1.25% (bank prime would then be 3.25%)before it pauses for "at least" two quarters, as relatively low borrowing costs will be required as the global economy grapples with widespread budget cutting and weakening consumer demand.

Economist Michael Gregory of BMO Economics, who also calls for a another 25 basis point increase, said he expects the bank to make one more increase of that size in September then hold the line for the remainder of the year.

Excerpt from The Bank of Canada website:

The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

The global economic recovery is proceeding but is not yet self-sustaining. Greater emphasis on balance sheet repair by households, banks, and governments in a number of advanced economies is expected to temper the pace of global growth relative to the Bank's outlook in its April Monetary Policy Report (MPR). While the policy response to the European sovereign debt crisis has reduced the risk of an adverse outcome and increased the prospect of sustainable long term growth, it is expected to slow the global recovery over the projection horizon. In the United States, private demand is picking up but remains uneven.

Economic activity in Canada is unfolding largely as expected, led by government and consumer spending. Housing activity is declining markedly from high levels, consistent with the Bank's view that policy stimulus resulted in household expenditures being brought forward into late 2009 and early 2010. While employment growth has resumed, business investment appears to be held back by global uncertainties and has yet to recover from its sharp contraction during the recession.

Questions about your individual needs, please contact LILIANNE EID at TD BANK

Bucket List

I have been evaluating life a bit more lately, due mostly to a new book I have read called "The 4-Hour Workweek" by Timothy Ferris.  Basically, he talks at length about getting out of the rat race and learning to live in "mini-retirments" and be more productive by removing many time wasters from your life and re-positioning that time into other personal pursuits.

His point is to automate as much as possible and outsource where possible to free your time.  He recommends outsourcing parts of your job to India, through a company called Brickworks.  I am giving this a go, doing a trial run.  Will update on results if your interested.

Where this all comes from is finding those items that you want to do before you "kick the bucket".  I have started my own list with things like learning how to cook from an actual chef in Italy, visit Spain during the tomato fight, go to Greece in the spring when peaches are in season, immersing myself in the culture and learning to be fluent in French, Spanish and Dutch.

From there, my mind wandered to the applications in my life (and maybe yours).  He evaluates his time as a currency. I immediately thought of property management. We all want to take on property management to save the 7 to 10% monthly, which is a smart business decision, but at the same time, it is a poor time decision.

He empowers his outsource companies to make the customers happy and personally handle all decisions under $400 without consulting him.  He evaluates quarterly to make sure this policy is working.  From his research and tracking he has found that his client satisfaction is higher and his complaints are down.  By empowering his outsource companies, they feel much more a part of the process, rather than mercenaries.
I am looking now at buying another commercial property (as the qualification is different and with my portfolio banks are getting more particular about lending to me).  I am looking at locations that are 15 plus hours from home.  I am going to implement these ideas into that property and watch it's results. 
If successful, this can lead into the idea of mini-retirements, as my whole portfolio will be completely automated and I will be free of all day to day responsibilities.  The biggest hurtle to the success of this plan is finding the best property management companies to run the property smoothly and efficiently.

The age old question ' "CASH OR CREDIT"?

This is very, very important and again, this is something that books are written about, let alone blogs - credit is a critical piece for you as an investor.  If you haven't heard this a thousand times already then you are not listening.  CREDIT IS MORE IMPORTANT THAN MONEY!  Let me say it again.  Your good credit report and good credit scores are more important than money! 

If you remember nothing else from reading this, remember this: Your good credit is more important than money.  If you have good credit, you can get any amount of money you want within reason.  However, if you have all the money in the world, you cannot buy good credit and find people to do deals with you unless you pay cash.  Some people with horrible credit are forced to pay cash for everything.  Don't be one of those people!  I know a prominent real estate investor who pays cash for all his deals as he does not have any credit. 

There is the whole principle of leverage - another topic of a blog - that you miss out on if you have to pay cash. As a real estate entrepreneur, you want to leverage your money and balance risk with reward. You are not able to do that if you don't have amazing credit. You will not be able to go to the bank and get an 80-20 loan or have them finance 100% or do a couple of other techniques unless you have good credit. (Good credit scores are any over 700, 850 is a perfect score). You do not have to have money if you have good credit.

I have done a number of deals with little or no money because I have excellent credit.  For instance, you can get a mortgage at 80% LTV (loan to value) and at the same time arrange for an unsecured line of credit for the other 20%.  In this example, you have used your credit to finance the home 100%.  Your credit is very, very important!  Unless you can develop good credit, you will not have a long-term future as a real estate investor.

Saturday, July 10, 2010

Rising interest rates and inflation ?

Lawrence Yun, chief economist at the National Association of Realtors (NAR)

NAR and the US government feel there is little chance for inflation in the near term.

Yun suggests that it is possible that we may not see inflation when the economy gets back on track, the big winners, if inflation rises 5% or more would be property owners.

"Paper money will lose its purchasing power, but real tangible assets will rise in value," he said.  "As it has happened around the world throughout history and more specifically during the 1970s and early 1980s in the United States, property values rise with consumer price inflation."

Basically, what Mr Yum is saying is - If inflation occurs and prices of good go up, real estate will go up as well and this will be great for property owners!