1% rule

  • housingrental

    Status: REIN™ Member

    Posts: 4,647
    Joined: 11 Oct 2007
    From: Waterloo

    Funny post Michael :)

    bizaro86
    Rickson9
    I'm currently negotiating with the owner of a 16 unit multi-unit in Phoenix, AZ that has 3 vacant units and currently brings in $76k in gross rents ("pro forma" with the all units rented is around $96k).  Separately metered.  The price we're dancing around is $450k.  That's a 1.7% rule.  He is offering 80% VTB with terrible terms, but we'll see how that turns out over the next few days. 
     

    I thought you had a strict "cash-only" policy for your investments?

    Regards,

    Michael
     
    Adam Hoffman - Hoffaco Property Management - Waterloo - Rent / Consult / Manage - http://www.hoffaco.com
  • bizaro86

    Status: Forum Member

    Posts: 1,013
    Joined: 29 Jan 2008
    From: Calgary, AB

    Rickson9
    In this case I guess I should have clarified my usage of the term "illiquid".  I was comparing it to my short-term investments/stocks which I can basically turn into cash next week.  I was thinking 1 year initially, but thought 2 years might give me a buffer since I want to try and sell the property myself using comfree.  I move very slowly in general. 


    Makes sense in that context. I thought you meant "illiquid as compared to a multiplex in Phoenix" which seemed pretty unlikely for just about anything in Toronto to me. I actually think a condo in Toronto is the most liquid form of real estate in Canada. Although the fact it's worth nearly as much as a 16 plex in Arizona gives a bit of pause.

    Regards,

    Michael 
  • Rickson9

    Status: Forum Member

    Posts: 837
    Joined: 27 Oct 2009
    From:

    bizaro86
    Makes sense in that context. I thought you meant "illiquid as compared to a multiplex in Phoenix" which seemed pretty unlikely for just about anything in Toronto to me. I actually think a condo in Toronto is the most liquid form of real estate in Canada. Although the fact it's worth nearly as much as a 16 plex in Arizona gives a bit of pause.


    Still blows my mind...
      
  • Darr

    Status: Forum Member

    Posts: 81
    Joined: 4 Sep 2012
    From:

    Hi Rick,
    I'm totally set back by the CAN-US differences also even considering to huge shadow inventory on the banks balance sheets that are not counted in the MLS inventory.
  • Darr

    Status: Forum Member

    Posts: 81
    Joined: 4 Sep 2012
    From:

    For those who may be interested in RE deals along the Mediterranean coast, the prices are down again in August:  -14.7 YOY. Here’s more info and charts:

    http://www.tinsa.es/en/4860/press-area/press-releases/press-release-year-2012/imie-august-2012.html
  • Rickson9

    Status: Forum Member

    Posts: 837
    Joined: 27 Oct 2009
    From:

    Darr
    Hi Rick,
    I'm totally set back by the CAN-US differences also even considering to huge shadow inventory on the banks balance sheets that are not counted in the MLS inventory.


    Not sure what differences you are speaking of?  USD vs CAD?  CRA vs IRS?  Something else?

    You can get caught up at the end of this thread:
    http://myreinspace.com/public_forums/Real_Estate_Discussion/62-17378-Canadians_Snap_Up_US_Properties.html

    Since prices and rents in Phoenix, AZ have spiked up dramatically, I have been praying for this so-called "shadow inventory" to quench demand and relax supply; so far, nothing.  Apparently most of the earlier bears in the aforementioned thread have disappeared.  Would like to hear their analysis at this point.  Might be informative.

    "As prices increase, returns on investment for landlords diminish and at some point in the future we expect to see investor demand diminish...there is still no sign of any significant new supply of homes coming on to the market and those who anticipate a flood of bank owned “shadow inventory” are likely to be very disappointed."
      
  • KevinMatwichuk

    Status: REIN™ Member

    Posts: 73
    Joined: 31 Aug 2007
    From: Edmonton

    I'm with you! Wishing for the shadow inventory.  Bring it on so I can get some more deals!! 
    Kevin Matwichuk
    780.906.2665
  • Darr

    Status: Forum Member

    Posts: 81
    Joined: 4 Sep 2012
    From:

    Releasing the shadow inventory (which should have never been allowed to exist) should be liquidated in a normal economy. However, housing deflation will never never be permitted to happen. Banks are holding houses and MBS's on their Balance Sheet at near book value instead of market value. This is the result of fraudulent accounting practices by FASB to save the corrupt banking sector from failing because If they release a house from inventory, it get’s recorded as a write-down. A large scale write down will collapse most large US banks and taking some European and Canadian banks along with them.

    There is no practical and political solution out of this mess. The FED will monetize bad assets as long as the American public tolerates it. The USD will lose purchasing power rapidly in 2013~14 as a direct result of monetization of debt and the US will most likely enter hyperinflation thereafter.

  • Rickson9

    Status: Forum Member

    Posts: 837
    Joined: 27 Oct 2009
    From:

     
    Darr
    I'm totally set back by the CAN-US differences...


    Again, I'm not sure what differences you are thinking of?  CAD vs USD?  CRA vs IRS?  Something else?

     

    Darr
    Releasing the shadow inventory (which should have never been allowed to exist) should be liquidated in a normal economy. However, housing deflation will never never be permitted to happen. Banks are holding houses and MBS's on their Balance Sheet at near book value instead of market value. This is the result of fraudulent accounting practices by FASB to save the corrupt banking sector from failing because If they release a house from inventory, it get’s recorded as a write-down. A large scale write down will collapse most large US banks and taking some European and Canadian banks along with them. 

    There is no practical and political solution out of this mess. The FED will monetize bad assets as long as the American public tolerates it. The USD will lose purchasing power rapidly in 2013~14 as a direct result of monetization of debt and the US will most likely enter hyperinflation thereafter.


    Fantastic commentary!  For better or worse, these opinions have been making the financial media rounds for a few years now.

    re: My purchasing of US real estate at 1.5%-2.1% "rule".  Do you have any commentary on how you are making money with this information?
      
  • Darr

    Status: Forum Member

    Posts: 81
    Joined: 4 Sep 2012
    From:

    I was acknowledging comparative Real Estate valuations in the US relative to Canada. This leads me to your next question about making money with this info:  In all honesty, to be or not to be in Real Estate is not the issue. Throughout history RE has always been a store of value in inflationary periods which I believe all G10 countries will be facing. They will all print to avoid being at a competitive disadvantage of trading with an appreciating currency. For me, it’s all about finding the right Geo-Political portfolio diversification starting with identifying relative value.

  • markl

    Status: REIN™ Member

    Posts: 1,120
    Joined: 1 Oct 2007
    From: Toronto


    Darr,  I can get much better than 1% if I am adding value to the property by renovating and fixing years of undone maintenance.  But I have seen turn key properties sell at the 1% rule in the last 3 months in Hamilton.  They are out there you have to be looking that is all and they move quickly when they do come up and most times in multiple offers.  
    Sorry I forget the mortgage broker from Hamilton's name.  Are you purchasing in Hamilton or just seeing your clients deals come across?  They might be targeting a different area or they are not quick enough off the mark to get these properties as you have to be fast and aggressive to get the good properties.
    Mark Loeffler
    TheVersatileInvestor.com
    Email: mark@theversatileinvestor.com
    Click here to order my latest book on Amazon called, "Investing in Rent-to-Own Property"
    Check out my latest blog post at: TheVersatileInvestor.com
  • Darr

    Status: Forum Member

    Posts: 81
    Joined: 4 Sep 2012
    From:

    Markl- If they sell a "Turn-Key" property at the 1% rule, then I would not be surprised at a multiple offer scenario.
    The question I always attempt to answer is: Why is the owner selling when his/her real returns are miles ahead of comparable investments in the same risk space? The 1% rule could yield an approximate double digit real spread over Canadian Treasuries. 10 Year Canada Bonds are yielding negative real returns and can be viewed here:
    http://www.bloomberg.com/quote/GCDGIN10:IND

    The yields are posted in black accompanied with value and percentage changes in red or green depending on the direction of the move.



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