QUOTE (bigbabba @ Nov 16 2008, 02:03 PM) I went to their office sometime back in October to see what they are offering, I have found quite a few flaws and mis reprensentation`s within their investments.
1) They dont allow you to get your own broker, and so the way it`s setup is that you end up with a 2nd mortgage that is to be paid back to montblanc at almost 7%
2) the numbers they give you are all botched and don`t add up, so make sure that you do your own calculations.
3) their operating costs increase every year but they dont increase the rent, they tell you they increase by 2.5% (illegal?) but its not in the rent figure itself for 09, 10 etc etc.
4) They dont have a breakdown of their operating costs, you dont know what the prop taxes are or the maint fee for that matter.
5) they tell you that the operating costs cover ALL costs, even if repairs where needed in the unit itself, their contract states otherwise.
6) They guarantee the rent for 3 years, well, 6 years now as of 2 weeks ago..but the rent is the same today as 5 years from now. The number that is written in the box that is the rent for the next 6 years, op costs keep increasing every year though, eating into whatever PCF you may have the year beofore.
**Do you due dilligance prior to signing with them, it could cost you. Once I saw how botched their numbers were that was an instant deal breaker for me.
bigbabba:
I am the president of Montblanc Investments and from reading your post it is clear to me that whomever you dealt with from our organization, they did not do a good enough job at explaining clearly how our real estate investments work. Which is ultimately my responsibility as president.
As a preframe, experience wise, I have been in the real estate industry for 28 years and have developed or co-developed over 3,000 condominiums. I also co-founded a property management firm that now manages a residential portfolio in excess of 50,000 units. My experience is that the real estate industry is very large and diverse and there are many different real estate investing strategies that can be followed. Our particular real estate investing strategy/plan is one that I believe has merit for investors who cannot be hands-on property managers.
If it is alright with you, I would like to answer your 6 concerns in the same order to help explain and clarify our investments.
1) "They don`t allow you to use your own broker and 2nd mortgage at almost 7%"
Our residential real estate investments are designed to be turnkey or arm chair for the investor so as part of our service we organize first mortgage financing for 75% of the condominium with a major bank and offer to organize a second mortgage for up to 15% of your condominium if the investor desires. This allows investors the flexibility of putting anywhere from 10% to 25% if the investment as a downpayment. Some of our investors organize their own mortgage financing with their existing bank or through their own mortgage broker, it just depends whether they want to do the work or let us do it for them. So yes you can use your owm mortgage broker if you wish altjough I recommend to most people to let us organize it for them.
If the investor wishes to avail themselves of the second mortgage option, the current interest rates that we have been getting in the second mortgage market is between 6.5 and 6.95% for a fixed two year term. For second mortgages on a non-owner occupied condominium that is a relatively good rate these days. To put this in context, the most common posted rate for a two year fixed rate first mortgage (not second mortgage) on an owner occupied dwelling (versus non-owner occupied) on www.canadamortgage.com today is 6.45%.
2) "The numbers are all botched and don`t add up"
Our cash flow spreadsheets are all done using Microsoft Excel which makes it very hard (but not impossible) for there to be a mathematical error (I remember the days when all spreadsheets were done by hand using a calculator). I have double checked our spreadsheets and they seem mathematically correct. That being said, no one is perfect, including us, so please call me at 416-922-1261 ext. 210 and let me know where the error(s) you found were, so that I can correct them. Thanks
3) "Operating costs go up every year and rents don`t, though they say 2.5% (illegal?)"
I believe a fair estimate of operating expense increases is 2.5% a year based on my experience managing 1000`s of units, as it is an estimate based on experience, some people may say I am low, others high.
More importantly, my experience is that a fair estimate of rental rate increases in Ontario over a ten year time frame is also 2.5%.
The rental increase is made up of the annual allowed Ontario legal increase from the provincial government (which usually runs 1% to 3% - see chart below of Ontario legal increases for last ten years) plus rent increases we achieve as we renovate/improve the properties. As tenants turnover, we are legally allowed to reset the rent to a new level, which in some cases has been 10% to 35% higher than what the departing tenant was paying. It is the legal guideline rent increase plus the rent resets on turnover that combined together, deliver the total rent increase per year. All completley legal, within the regulations and one of the benefits of having a professional property management firm that fully understands what is legal.
Ontario Approved Rent Increases for past ten years:
3.0 % January 1 - December 31, 1998
3.0 % January 1 - December 31, 1999
2.6 % January 1 - December 31, 2000
2.9 % January 1 - December 31, 2001
3.9 % January 1 - December 31, 2002
2.9 % January 1 - December 31, 2003
2.9 % January 1 - December 31, 2004
1.5 % January 1 - December 31, 2005
2.1 % January 1 - December 31, 2006
2.6 % January 1 - December 31, 2007
Average legal rent increase for last ten years is 2.74% (which is above our 2.5% estimated
rent increase amount, which is also before rent increases due to resets on turnover)
4) "They don`t breakdown their operating expense and you don`t know your property taxes and maintenance fee"
We have the estimated tax and maintenance fee for each indiviudal condominium that is in the operating expenses for 2009.
5) "They tell you that operating costs cover all costs, even repairs inside the unit, their contract says otherwise"
This is another issue of professional property management. When there is a repair issue inside a unit, depending on what the repair issue is impacts how it is dealt with. If it a simple matter like a leaky faucet, the onsite property manager deals with it. If it is something large and not normal wear and tear, then the tenant or tenants insurer is often responsable and pays. Other normal wear and tear items like carpet and stoves/fridges are replaced out of our annual repair and maintenance budget.
6) "They guarantee the rent for3 years but stays the same as operating costs go up"
We do not guarantee the rent. We offer an optional leaseback program where if the owner wishes, we will leaseback the unit at a fixed base amount. The leaseback amount is a base amount that gives some owners extra assurance and peace of mind and the owner is free to end the leaseback arrangement whenever they wish. Some owners like the safety of the predetermined leaseback others don`t.
No one can tell you exactly where rents or expenses or values will be in 6 months or a year or even two years. I have found that you have to invest in low rent to price, individual titled condominiums and then be prepared to wait five to ten years for appreciation to happen. Many smart real estate investors believe the absolute best strategy is keep all your income real estate forever and let the rents fully pay off your mortgage so that eventually you own it free and clear as it continues to produce monthly rental income.
The bottom line is that our low rent to price ratio condominium investments are designed for the long term investor who does not have time to manage a rented condominium on their own.
Ross
Ross McBride
Montblanc Investments