CMHC Rental Reports 2010

[wgraham]

feel like I use this term a lot lately but here is another must read document....The CMHC Rental Report (Calgary)http://www.cmhc-schl.gc.ca/odpub/esub/6437...71_2009_A01.pdf

Here is my take:

[list type=decimal][*]We are going to see rental increases again in due to lower vacancy and higher interest rates[*]In-migration rises and this will have a possitive effect on the real estate market as a whole[*]This is still going to be a tough year relatively speaking and top managed assets will do fine but poorly managed ones will create some motivated vendors. I see this as an opportunity for investors that are patient but agressive when the time arises.The two bedroom condo market will see some serious competition with many condo projects coming on lineAffordability is out-of-wack and this is going to come back to normal in late 2010[/list type=decimal]

 

[Thomas Beyer]

QUOTE (wgraham @ Dec 16 2009, 06:31 PM) ..
[*]Affordability is out-of-wack and this is going to come back to normal in late 2010
..
how ? lower prices ? lower interest rates ? smaller properties people buy ?

 

[t67]

The Vacancy rate in the CMHC report looks far below what I`m seeing on the streets, there`s "For Rent" signs everywhere in the downtown core and surrounding areas. Multifamily properties are not a good asset. I`m seeing 6 plexes now listing in the range $800M-$850M and decent four plexes listing at $500M-$600M. This is a significant drop in the value of commercial real estate from just a few years ago. New Shale Gas deposits in the US together with a significant decrease in Oil consumption in the US means a "crash" in cgy`s commercial real estate is a strong possibility. I wouldn`t want to be owning a high-ratio mortgaged multifamily unit at this time.



Cheers.

 

[Thomas Beyer]

QUOTE (t67 @ Dec 18 2009, 10:28 PM) The Vacancy rate in the CMHC report looks far below what I`m seeing on the streets, there`s "For Rent" signs everywhere in the downtown core and surrounding areas.
yes, rents are down somewhat and vacancies up somewhat .. although in MOST of our locations we have very full buildings .. only some soft spots usually in smaller towns but even there it is all managable
QUOTE (t67 @ Dec 18 2009, 10:28 PM) Multifamily properties are not a good asset.
Somewhat of a weak statement .. it depends on price you paid and location. Multi-family in decent areas with decent leverage decently managed WILL ALWAYS be a great asset to have.

of course, if you bought in Calgary @ $200,000/door 2 years ago you will see a 25% value drop as you overpaid then ..

QUOTE (t67 @ Dec 18 2009, 10:28 PM) I`m seeing 6 plexes now listing in the range $800M-$850M and decent four plexes listing at $500M-$600M. This is a significant drop in the value of commercial real estate from just a few years ago.
indeed .. because a 6-plex @ 850 sounds high to me as does a 4 plex @ 600K .. if you paid more you paid too much a year or 2 ago .. prices are down from teh peak 2 years ago .. surprise .. revenue properties need to show appropriate yields (aka CAP rates) of 5.5% to 8% depending on the location / upside. Today around 6% in Calgary or Edmonton based on true costs/rents .. slightly higher in smaller centers

QUOTE (t67 @ Dec 18 2009, 10:28 PM) New Shale Gas deposits in the US together with a significant decrease in Oil consumption in the US means a "crash" in cgy`s commercial real estate is a strong possibility.
likely in office and retail .. and if you paid too much for a condo or house or apartment building in 2007 or 2008

QUOTE (t67 @ Dec 18 2009, 10:28 PM) I wouldn`t want to be owning a high-ratio mortgaged multifamily unit at this time. why not ? Depends on price you paid or location ..

 

[luckyluciano]

CMHC reports mainly registered units. They have no way of accurately measuring/counting illegal rentals, privately rented conos, flats, single family homes. Having said that, if they report year over year increases in vacancies,then it signifies the trend.

I think it`s ironic that most real estate investors tell eachother that when interest rates go higher, or there is some type of economic slow down that rents are going higher because many who cannot afford to own will return to the rental market. While this is only have the truth. Since there are two sides to the economic equation of "Supply & demand.". Looking at only the possible demand side of the equation may give you false beliefs anf financial troubles. While immigration, in-migration, owners giving up home ownership all fuel the demand side of the equation, one must also look at the supply side as this is perhaps the most important (ie: the U.S. Market is oversupplied/overbuilt in many cities). My experience is that buying and investing is much like the stock market. The Masses get involved when prices are appreciating. When the reverse happens, the Masses look to get out thus flooding the supply side with properties for sale AND for rent when they cannot sell at a price they find palletable thus potentially driving down rental rates. Certainly there are several other factors further complicating the equation that will affect many investors but by and large, the supply and demand equation will affect the majority.

 

[Thomas Beyer]

QUOTE (luckyluciano @ Dec 20 2009, 08:08 AM) ..the supply and demand equation will affect ...
indeed .. and with rising unemployment also many folks decided to shack up with parents again, cozy up with friend`s in their basement or rent smaller units .. so this recession CERTAINLY LOWERED the demand side also !!

While 2008 to 2009 was slightly down going forward into 2010 we will see far less new construction, higher interest rates, tighter CMHC lending requirements, tighter bank underwriting requirements and an improving economy .. so I expect rents to GO UP quite a bit over 2009 in 2010 .. more than offsetting the loss in income in 2009 !!

We / if you survived 2009 .. 2010 will be a lot better !!

 

[t67]

QUOTE (ThomasBeyer @ Dec 19 2009, 11:49 AM) yes, rents are down somewhat and vacancies up somewhat .. although in MOST of our locations we have very full buildings .. only some soft spots usually in smaller towns but even there it is all managable

Rents aren`t somewhat down, rents are significantly down at least 20-30%. Not long ago multiplexes listed in the range $1500-$1700 rent for 2-3 bedroom units and have fallen to $1100-1200 and are heading lower. As a result these assets have fallen in value. The problem with multifamily properties is that there aren`t many buyers, and when the trend heads downward the damage is usually more significant than single-family. We can argue this all day, but that`s the reality. Also, I think you`re missing an important point, the real estate market, especially commercial is strongly affected by the general economy of Alberta and with large deposits of Shale Gas recently tapped in the US and the decreasing demand for oil globally, I can`t see how buying a multifamily makes sense now or how this justifies a recent purchase. Properties that are cash flowing aren`t being listed and if you`re cash flowing you probably put a large down payment. But that shouldn`t disguise the fact that these assets, if purchased during the boom years is a good asset to own. Multifamilies in Alberta are a declining asset and you`ll be holding it for years to recover losses if you purchased in the last 3-4 years.

QUOTE (ThomasBeyer @ Dec 19 2009, 11:49 AM) t of a weak statement .. it depends on price you paid and location. Multi-family in decent areas with decent leverage decently managed WILL ALWAYS be a great asset to have.

You`re making the same agreement as those who were still buying Enron shares when the company was declining. I certainly don`t think the market here will utterly collapse however commercial real estate is heading for a correction and you shouldn`t be suggesting or hinting to people that`s its still a good investment (other than if you purchased well before the boom). You should be saying if you`re stuck with this asset class, look at strategies to minimize your risk (ie., lower debt levels) as well as minimizing the risk to lower interest rates that are on the way so the real estate investor avoids trouble, or worse, loses the property or takes a lose because of the need to sell. That is the responsible thing to say. I think this site fails to balance the rewards against the tremendous risks people take on (high debt levels, leverage).



Sure if you purchased 15 yrs ago and the property is essentially paid off, it`s a good asset, I have those properties (clear titles) and I`m doing well, however that`s not what I`m saying and most on here aren`t in that position.

Cheers.

 

[gwasser]

QUOTE (ThomasBeyer @ Dec 19 2009, 11:49 AM) yes, rents are down somewhat and vacancies up somewhat .. although in MOST of our locations we have very full buildings .. only some soft spots usually in smaller towns but even there it is all managable

Somewhat of a weak statement .. it depends on price you paid and location. Multi-family in decent areas with decent leverage decently managed WILL ALWAYS be a great asset to have.

of course, if you bought in Calgary @ $200,000/door 2 years ago you will see a 25% value drop as you overpaid then ..


indeed .. because a 6-plex @ 850 sounds high to me as does a 4 plex @ 600K .. if you paid more you paid too much a year or 2 ago .. prices are down from teh peak 2 years ago .. surprise .. revenue properties need to show appropriate yields (aka CAP rates) of 5.5% to 8% depending on the location / upside. Today around 6% in Calgary or Edmonton based on true costs/rents .. slightly higher in smaller centers


likely in office and retail .. and if you paid too much for a condo or house or apartment building in 2007 or 2008

why not ? Depends on price you paid or location ..

The courses I am following to become a realtor are not particularly awe-inspiring. However, looking around the class room trying to discern the expertise I am getting when buying real estate from my class mates, I did learn something quite valuable to me.

When dealing with REIN, we are evaluating our properties mostly on anticipated income (must be cashflow positive and cap rate of say 6%). Those are investor valuations derived from commercial real estate deals mostly used in the purchase of multi-family properties of 8 doors and larger.

Many REIN members buy their first town house investment or duplex which are part of the much larger residential market. When buying single apartment or townhouse units or single family dwellings, we are not the big wholesalers that buy a 30 unit apartment. We are buying retail and applying wholesale valuations!

The residential market is, as Don says, `bought including emotions`. The typical residential buyer is pursuing a life style purchase depending on the buyer`s current living requirements and desires. Hence, when evaluating a residential property, the list pricing is strictly based on market comparison (i.e. based on what retail buyers are willing to pay) not on what investors are willing to pay. So, if you want to buy single townhouses or apartments you may have to screen numerous residential listings before you find a property that is problem free and meets your criteria. Likely, such properties are bought from an extremely motivated seller or a foreclosure.

 

[t67]

QUOTE (gwasser @ Dec 20 2009, 01:03 PM) Many REIN members buy their first town house investment or duplex which are part of the much larger residential market. When buying single apartment or townhouse units or single family dwellings, we are not the big wholesalers that buy a 30 unit apartment. We are buying retail and applying wholesale valuations!

I hope this doesn`t come across the wrong way, however the few REIN members I have met underline what I said in my previous post. What I found was that these REIN members I met each displayed shades of `greed`. For example, they wouldn`t buy you a lunch if their life depended on it, even if you picked up the tab before. That`s not to say this small group of people were representative of all REIN members but it seemed their primary interest was short-term. They didn`t tell me anything I hadn`t already known, or could find out as a responsible landlord, however what I found disturbing was that these persons didn`t belong in the market. I recall last year, at New Years I got a text from a REIN member urging me to buy, I thought he was nutty. Urging members to buy when they probably shouldn`t endangers all of us who have carefully invested over the years. I`ve been in this and other markets for more than 10yrs, I own assets close to $4MM and my net worth is $2MM. I didn`t inherit or win money, but earned this overtime through a little luck and carefully investing. I advocate responsibility not because I`m altruistic, but because I have a vested interest in protecting my assets from reckless investors who shouldn`t be in the market.

 

[housingrental]

Hi t67

REIN has a large tent and you`ll find people with all perspectives that are members...

that being said if you were to phrase the question do I think REIN members are more or less greedy than non-rein members I`d say LESS. Rein as an organization advocates ethical behavior, honesty in your dealings, and actively encourages giving back to the community through charitable giving of volunteer time and money... a more cynical person might observe that rein members are on average wealthier as they are, or are interested in, investment real estate which requires $$ and are therefore in a better position to be charitable... but that doesn`t make the members greedy....

Most importantly REIN preaches and most members take to heart concept of win-win.... leaving something on the table for everyone you deal with... The exact OPPOSITE of being greedy...

As for your statement of being worth $2Mil with $4Mil of assets beyond stoking your own ego what does that have to do with anything?

Perhaps your next post will read "I got a Bentley so go F-Yourselves" or your 2010 resolution... Start referencing REIN members as "them folks..." ?



QUOTE (t67 @ Dec 20 2009, 04:52 PM) I hope this doesn`t come across the wrong way, however the few REIN members I have met underline what I said in my previous post. What I found was that these REIN members I met each displayed shades of `greed`. For example, they wouldn`t buy you a lunch if their life depended on it, even if you picked up the tab before. That`s not to say this small group of people were representative of all REIN members but it seemed their primary interest was short-term. They didn`t tell me anything I hadn`t already known, or could find out as a responsible landlord, however what I found disturbing was that these persons didn`t belong in the market. I recall last year, at New Years I got a text from a REIN member urging me to buy, I thought he was nutty. Urging members to buy when they probably shouldn`t endangers all of us who have carefully invested over the years. I`ve been in this and other markets for more than 10yrs, I own assets close to $4MM and my net worth is $2MM. I didn`t inherit or win money, but earned this overtime through a little luck and carefully investing. I advocate responsibility not because I`m altruistic, but because I have a vested interest in protecting my assets from reckless investors who shouldn`t be in the market.

 

[t67]

QUOTE (housingrental @ Dec 20 2009, 06:06 PM) As for your statement of being worth $2Mil with $4Mil of assets beyond stoking your own ego what does that have to do with anything?

Perhaps your next post will read "I got a Bentley so go F-Yourselves" or your 2010 resolution... Start referencing REIN members as "them folks..." ?

This kind of response is exactly why I would have difficulty joining REIN, and I have been asked to join. The reference to net worth was simply to illustrate that I`ve been in the market for quite a while and that you can grow your assets responsibly, without taking too much risk. I`m not worth $100MM or more as some members of REIN, but I don`t leverage either. My observation about RIEN members was limited to but a few members as I mentioned, I didn`t think it was representative of all members, however these few that I did met, every one showed it. I`m sorry, but its true. And no I don`t own a Bentley, I drive a simple GM. Thanks.

 

[housingrental]

Thanks for your reply t67

Assuredly a response affirming the lack of greediness of REIN members would encourage you to join REIN no?

To clarify re "as simply to illustrate that I`ve been in the market for quite a while and that you can grow your assets responsibly, without taking too much risk." OK the implication of this would be to say that a) REIN members take on too much risk and b) REIN members lack experience in the market - Both of these are inaccurate... See my post above on REIN having a wide membership base...

And for the record I`ve had many REIN members purchase food and drink for me.... Your explicitly saying that your experience was limited to a few REIN members... but than the rest of your posts are implicitly using this as a basis for not joining REIN and extrapolating negative virtues to REIN members in general... incredibly offensive...



QUOTE (t67 @ Dec 20 2009, 09:13 PM) This kind of response is exactly why I would have difficulty joining REIN, and I have been asked to join. The reference to net worth was simply to illustrate that I`ve been in the market for quite a while and that you can grow your assets responsibly, without taking too much risk. I`m not worth $100MM or more as some members of REIN, but I don`t leverage either. My observation about RIEN members was limited to but a few members as I mentioned, I didn`t think it was representative of all members, however these few that I did met, every one showed it. I`m sorry, but its true. And no I don`t own a Bentley, I drive a simple GM. Thanks.

 

[Thomas Beyer]

QUOTE (t67 @ Dec 20 2009, 11:12 AM) Rents aren`t somewhat down, rents are significantly down at least 20-30%. Not long ago multiplexes listed in the range $1500-$1700 rent for 2-3 bedroom units and have fallen to $1100-1200 and are heading lower. As a result these assets have fallen in value. ...
True enough .. rents in Calgary were obscenely high .. and ANYONE who bought a house or God forbid, a multi-family asset assuming $1700 in rent is normal for a 3BR is/was a fool ..

Anytime you buy at the peak, say 2007, and must sell a year or 2 later .. you`ll lose ..

I have never owned a building in Calgary because I always thought since the start of my multi-family career 10 years ago that Calgary was too expensive compared to Edmonton ..

We have yet to pay more than $79,000 per unit .. anywhere .. ever .. and with those prices you can thrive with rents @ $750 to $800 ..

QUOTE (t67 @ Dec 20 2009, 11:12 AM) ... But that shouldn`t disguise the fact that these assets, if purchased during the boom years is a good asset to own. Multifamilies in Alberta are a declining asset and you`ll be holding it for years to recover losses if you purchased in the last 3-4 years.

I do not see prices falling anymore in market we buy in, such as Lower Mainland / mid-Island in BC, Edmonton and area or SK cities .. have they fallen from 2007 .. some areas yes .. certainly not SK .. but yes in Edmonton where we sold quite a few into the run-up of 2007 .. and are now entering again as prices have leveled off and rents are starting to rise again ..

Were/Are there people who paid too much in 2007: probably quite a few ..

QUOTE (t67 @ Dec 20 2009, 11:12 AM) ... I think this site fails to balance the rewards against the tremendous risks people take on (high debt levels, leverage).

That is a good point you make .. and many folks are too levered with not cash-flow to hold 5+ years.. so in multi-family 25-30% down is the new norm as opposed to 15% down up to 2 years ago ..

 

[gwasser]

QUOTE (t67 @ Dec 20 2009, 02:52 PM) I hope this doesn`t come across the wrong way, however the few REIN members I have met underline what I said in my previous post. What I found was that these REIN members I met each displayed shades of `greed`. For example, they wouldn`t buy you a lunch if their life depended on it, even if you picked up the tab before.

I don`t think you know the half of it. First of all, my leverage is well below 50%, in fact it is way too low and I will need to up it if I want returns comparable to my stock market investments.

Secondly, you met a few members and your sample was probably not statistically significant. I know REIN members that happen to be quite generous. Just check out REIN`s internal campain for Habitat (the REIN community has build 3 or 4 houses by now) and of course, Don Campbell has dedicated the profits from all his books (and they are Canadian best sellers) to Habitat.

Now, my wife claims I am a cheap Dutchman, but I can tell you that my tax savings on donations say differently. But I must admit my wife has a point, I feel that many REIN members are a lot more generous than I am.

So, don`t jump to conclusions. Besides, joining REIN is not about being generous but about learning how to invest in real estate. If your goal in life is to donate all your real estate profits to charity, I think you could donate even more if you joined REIN.

 

[Stephen1151]

I was a Rein member and have let my membership run out

Here is my take. Rein is great for networking, Information on how to buy, run a rental property and meeting other like minded people.
Rein is not good for predicting where values will go up in the next few years.

 

[Thomas Beyer]

QUOTE (stephen @ Dec 27 2009, 09:46 PM) ..Rein is not good for predicting where values will go up in the next few years.
depends on your definition of "few" .. of course if you joined in 2007 at the peak and you heard values will be higher in 2009 then your expectations were not met .. but they WILL BE HIGHER in 2012 from 2007 .. and some areas in some towns will be up more if you follow the criteria laid out by REIN .. such as transportation improvements ..

 

[Stephen1151]

QUOTE (ThomasBeyer @ Dec 28 2009, 09:39 AM) depends on your definition of "few" .. of course if you joined in 2007 at the peak and you heard values will be higher in 2009 then your expectations were not met .. but they WILL BE HIGHER in 2012 from 2007 .. and some areas in some towns will be up more if you follow the criteria laid out by REIN .. such as transportation improvements ..


I guess my definition of "Few years" is about as often as the the Rein list of top ten towns comes out. Funny how Grande Prairie isnt mentioned much anymore. Given long enough time im sure that many other towns will be up in value 5 - 10 years from now.

 

[jamurphy]

QUOTE (stephen @ Dec 27 2009, 08:46 PM) I was a Rein member and have let my membership run out

Here is my take. Rein is great for networking, Information on how to buy, run a rental property and meeting other like minded people.
Rein is not good for predicting where values will go up in the next few years.

I am very much in agreement with all aspects of this statement.

I have heard the statement very often in REIN that "who cares if values go up or down as long as it cash flows"?

When declining prices wipe out the investors equity and leave them without the ability for any futher purchasing for years.........I`d have to call that statement into question.

I wish I was not talking from experience.....but I bought in Edmonton just after REIN 2008

 

[housingrental]

The idea is that your buying a long term business
You can rarely predict with accuracy if a real estate market will be higher or lower in the short term.
The idea is you can look out twenty years and say there`s a great chance it`ll be higher.
And if you`ve bought a business that is profitable, and leveraged, and tax efficient, you`ll have a big smile on your face longer term even if one year after purchase you feel wounded.


QUOTE (jamurphy @ Jan 21 2010, 06:40 PM) I am very much in agreement with all aspects of this statement.

I have heard the statement very often in REIN that "who cares if values go up or down as long as it cash flows"?

When declining prices wipe out the investors equity and leave them without the ability for any futher purchasing for years.........I`d have to call that statement into question.

I wish I was not talking from experience.....but I bought in Edmonton just after REIN 2008