What would you do?

kbaltare

New Forum Member
Registered
Hello, I wanted to reach out to members to get their thoughts on the following.

Scenario:
- Purchased 1st investment property last year.
- looking to make further purchases
- Work in California for a US firm
- capital aprox.$90k CAD
- Considering getting in to the multi-family market.

Looking to get members thoughts on
- Interesting locations
- Deals (good purchase/rent ratios).
- Other thoughts.

Thanks in advance for your time.

-Kent
 

Thomas Beyer

Senior Forum Member
REIN Member
Unless you pool your money with others I'd suggest a pass on multi-family with only 90,000.

I'd buy in TX, AZ or other fast growing US markets. Canada will be weaker growth than most US cities the next few years.
 
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kbaltare

New Forum Member
Registered
Thanks for the response Thomas,

I don't know if you remember but you actually gave me some great advice a while back before I bought my first property. It's funny that you are first to respond to this post about my second purchase. The US definitely has some great deals. The financing will be a challenge as I have been here for about 9 months and that is the age of my SS# as well. Most big banks wont use your Canadian credit when assessing your credit worthiness. Which is frustrating to put it lightly.

My hope was to sit on my cash until I sensed a floor in Alberta given the current decline, then use the capital which is actually in USD right now to buy a good deal utilizing a favorable FX. I know my cash can go a lot farther in some US markets, and I can avoid holding a place that goes through repairs resulting from harsh weather conditions, but I guess the idea of working with US banks after how I've been treated for the first 9 months is a bit daunting. Maybe just fearing the unknown though.

Your suggestion of avoiding MF applies in the US as well?

Thanks again for your time Thomas.
 

JBagorio

Inspired Forum Member
Registered
If credit is the problem in going into the US market, be aware that you have other options here. You can partner with other like minded investors that have capital and/or can qualify in the US. I have been eyeing on AZ for a while specially in the Phoenix area. I will definitely put my money there in the near future. If you need a good realtor there give me a call or email I am more than happy to introduce you...
 
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RE123RE

Inspired Forum Member
Registered
Hi,
Can you please elaborate a bit. How were you treated by the banks?
I mean l you have 90K. They don't want your business?
Thanks
 

CorySperle

Senior Forum Member
REIN Member
For 100K I would partner with others and buy a multi if that's an area you wish to focus on or you can likely pick up a couple of townhouses.
 

Alvaro Sanchez

Ottawa-Gatineau Investor
Registered
If you are planning on staying up there I would start looking to invest there. Just by the volume of properties, you can not compare. You can also JV with a local to get access to financing (I.e. co-workers, relatives, etc.)
 

Developer

New Forum Member
Registered
I think your idea of buying in Alberta after things bottom out is a good idea because you'll capitalize on the exchange and if you time it well, will likely get some decent capital appreciation on your property where most other markets will remain quite flat
 

E

Inspired Forum Member
REIN Member
If you look in the Dallas or Fort Worth Texas market there are opportunities that you can purchase at less than 50 per door although you will be looking areas where it could be a tougher neighborhood or a building that has some deferred maintenance. Sometimes you can find the right seller in these markets who are just tired of handling a multifamily building if you look through enough you can sometimes find one of these types of sellers and they may be willing to provide a vendor take back mortgage which will allow you to get into the multifamily market easier. These type of sellers could've had the building for so long that they may not want to take all the cash upfront because they could be hit with capital gains so by doing a vendor take back they have the opportunity to receive cash flow for a while until they can do a 1031 exchange or they may just be interested in continually receiving cash from the interest payments.

I do believe that you can get into the multifamily investment business with 90,000 but it will take a lot of work and you'll need to find a creative deal.

Find a seller and more importantly find out exactly what their motives are and find out why they are selling

If they are selling because they need the $ to buy another building then offer them a quicker close but a lower price or if they are selling because they just want to get out of the business and don't know where to park their money you might be able to offer a longer close and even asked for vendor take back

Basically try to customize the deal based on what the seller is looking for, if you do that they may leave you a nickel on the table and an easier way in. Could be a win win because your reaching your goals while the seller is too!

- So let's not get tired of doing what is good. At just the right time we will reap a harvest of blessing if we don't give up.
 
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Matt Crowley

Senior Forum Member
REIN Member
PWC put out a comprehensive report on US and Canada markets earlier this year: http://www.pwc.com/ca/en/real-estate/publications/pwc-emerging-trends-in-real-estate-2016-en.pdf



A big challenge right now is that cap rates are very low which makes high leverage ineffective. The spread on a building a 6% cap and an interest rate at 4% really doesn't allow for more than 80% LTV without taking on very high levels of risk.

Real estate investing is primarily a tool that folks use once they have a large pot of money and want to earn small returns on it. It isn't a place where people come to make big money it is often just where big money goes after it has been made somewhere else. It isn't really more special than any other business. The asset only makes about 6% in total productive capacity right now. That is it.

As I see it (and I have similar circumstances to you although I live in Edmonton) the opportunity to make money in real estate right now is to develop. Even holding, upgrading and refinancing once rents rise. But I try not to sell and I don't want to tie up my money at 6% interest. I don't have enough of it right now to just lock it in at such tiny rates.
 

Thomas Beyer

Senior Forum Member
REIN Member
If you look in the Dallas or Fort Worth Texas market there are opportunities that you can purchase at less than 50 per door although you will be looking areas where it could be a tougher neighborhood or a building that has some deferred maintenance. ..
...
Indeed ... many still are in the 20's - 30's/door .. but with 90,000 that will leave a small C building in a C area and you still need upgrade $s and $s for vacancies while you kick undesirable tenants out and renovate ..

With 90,000 I'd buy a TH (townhouse) in a complex that is professionally managed in a promising city with rising rents .. and there are a few of those left in Canada (but not many) and quite a few more in the US ..

Or a small house in said towns if you can find a property manager in that town that is capable to manage SF houses.

Or a REIT.

Or do a JV with some of the capable REIN members that attract capital here.
 

JROC

Inspired Forum Member
Registered
I have a few rental properties in the PHX area. Just in the process of refinancing. Some banks will now do 20% down, 80%LTV (BMO/Harris) on a rental property. When I purchased 3 - 4 years ago it was 65-70% LTV. Properties will still cash flow but low cap rates. Try and find a short sale / forecloser if there are any out there. Might have to do a small rehab to get it rent ready or flip it depends what your strategy is. I also like HOU or Austin TX might be able to pick up some good deals soon.
 

kbaltare

New Forum Member
Registered
Hi,
Can you please elaborate a bit. How were you treated by the banks?
I mean l you have 90K. They don't want your business?
Thanks

What I am referring to here is how the banks treat individuals who have a new SSN (regardless of assets, your salary, etc). Most larger institutions that have rates you would want will not consider your Canadian financial situation (tied to your SIN) when granting financing. Effectively they treat someone new to the country, who has a new SSN, the same as someone who just went through bankruptcy, from a credit point of view. Your credit rating seems to trump everything down here, though its not always reflective of an individuals ability to handle debt loads going forward. With that said, there are some interesting points in responses around creative financing. I have some contacts in Tempe Arizona, as well Dallas that I have been in discussions with so I think I'll start looking more in to those areas and JV's or a private lender who isn't scared of a FICO score that's inherently misleading.

Does anyone else have any thoughts on being bullish with Alberta considering the cycle that its currently in, specifically as it relates to timing. I have had many discussions with investors down here (US) that had great success coming in to REI in 2009/2010 with a good capital base taking advantage of the deals that were available throughout the country. Some call it luck, but I think its just about being ready when the timing is right. I am wondering what peoples thoughts are on this considering what's happening in Alberta at the moment.

Thanks for all the great comments.
 

Thomas Beyer

Senior Forum Member
REIN Member
What I am referring to here is how the banks treat individuals who have a new SSN (regardless of assets, your salary, etc). Most larger institutions that have rates you would want will not consider your Canadian financial situation (tied to your SIN) when granting financing. Effectively they treat someone new to the country, who has a new SSN, the same as someone who just went through bankruptcy, from a credit point of view. Your credit rating seems to trump everything down here, though its not always reflective of an individuals ability to handle debt loads going .

Get credit, even if small, say by getting a US credit card, small furniture loan or a small car loan and then pay it back on time .. that is how credit is built.

am wondering what peoples thoughts are on this considering what's happening in Alberta at the moment.

.

The bottom is unknown in Alberta right now as labor market and housing market has to correct downwards for quite some time. Unless oil goes up to $65 or more quickly and stays there I would stay away from investing in Alberta. Make money elsewhere, and check back every two years or so. The Alberta Advantage is gone. It is like many other Canadian provinces: led by incompetent politicians, over indebted, excessively paid and too many civil servants, weak economic growth.

I prefer BC and TX, but of course there are opportunities everywhere, but AB is not an easy place to make money right now unless you are local and specialize in niche markets, say infill housing, or condo re-conversions, or loan-to-own second mortgage situations.
 

RE123RE

Inspired Forum Member
Registered
Does anyone else have any thoughts on being bullish with Alberta considering the cycle that its currently in, specifically as it relates to timing... I am wondering what peoples thoughts are on this considering what's happening in Alberta at the moment.

Hi,
Good question, considering Alberta.. Especially since if you buy you could potentially benefit 'twice' - 1. If prices go up in Alberta after you purchase and 2. If the Canadian Dollar strengthens after you purchase using your in USD income.
A basic question for you for Alberta experts: What are the current prices in Alberta: Have prices already dropped significantly?
Can Kent, or can't he, already purchase today for say 10% below Alberta's prices 2 years ago? or we do not yet see such significant price depreciation there?
Thanks
 
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Matt Crowley

Senior Forum Member
REIN Member
^ Prices for SFH legal suites are easily down 10%-15%. Looks like a great opportunity except that rents are down 10 - 20% depending on where you were at in 2014. I'm down about 10% on my turnarounds and spent probably 3x as much marketing and had 5x as many appointments to sell the place.

We have a structural problem in Alberta with our production costs . We need to do things cheaper. The wages in some oil & gas jobs had outpaced reality and we will need to adjust to a medium term lower price oil environment...and one that has the supply ability to sustain oil prices at low levels for a longer period of time. It is not a comment that Albertans don't work hard or sacrifice for their money. But maintenance staff in Ft Mac can't be making $70+ an hour when the world is competitive. Conference Board of Canada was one of the few forecasters with realistic forecasts for 2015 and they were right on target. Their crystal ball sees oil at ~$50 in 2018.

The problem is that the supply constrain on oil was artificial. The supply is readily available and oversupplied. It was just constrained to drive up prices. Do you think that OPEC will reform and create the supply constraint that balloons our prices again?

70% of the Alberta economy is driven by investment, but investment is leaving the province
Net provincial migration is negative and some cities are shrinking
News in the province is going to get uglier reinforcing consumer constraint (even positives like record car sales are being suppressed)
Economy will get worse before it gets better
You will have break-even or negative cash flow in the short term on most properties, even with today's low mortgage rates
VTB financing is equally dangerous because the interest rates are higher than the property yield, forcing equity underwater​

Are you good at catching falling knives? Real estate is somewhere people put their money once they have made a stack of it somewhere else. When buying in a falling market, you want to have a larger buffer for when rents fall. So if you bought in 2014 and had a DCR of 1.2, that means you had a 20% buffer where your income was 20% more than your debt servicing costs. Now with rents down 10% you have a DCR of 1.1. When rents fall by 15%, you will have a DCR of 5%.

There is opportunity if:
High cash reserves
Can find a mortgage with longer amortization and are willing to put 25% or more down
Focus on tenant profile right now, not on maximum rent​
 

Thomas Beyer

Senior Forum Member
REIN Member
^ Prices for SFH legal suites are easily down 10%-15%. Looks like a great opportunity except that rents are down 10 - 20% depending on where you were at in 2014. I'm down about 10% on my turnarounds and spent probably 3x as much marketing and had 5x as many appointments to sell the place.

We have a structural problem in Alberta with our production costs . We need to do things cheaper. The wages in some oil & gas jobs had outpaced reality and we will need to adjust to a medium term lower price oil environment...and one that has the supply ability to sustain oil prices at low levels for a longer period of time. It is not a comment that Albertans don't work hard or sacrifice for their money. But maintenance staff in Ft Mac can't be making $70+ an hour when the world is competitive. Conference Board of Canada was one of the few forecasters with realistic forecasts for 2015 and they were right on target. Their crystal ball sees oil at ~$50 in 2018.

The problem is that the supply constrain on oil was artificial. The supply is readily available and oversupplied. It was just constrained to drive up prices. Do you think that OPEC will reform and create the supply constraint that balloons our prices again?

70% of the Alberta economy is driven by investment, but investment is leaving the province
Net provincial migration is negative and some cities are shrinking
News in the province is going to get uglier reinforcing consumer constraint (even positives like record car sales are being suppressed)
Economy will get worse before it gets better
You will have break-even or negative cash flow in the short term on most properties, even with today's low mortgage rates
VTB financing is equally dangerous because the interest rates are higher than the property yield, forcing equity underwater​

Are you good at catching falling knives? Real estate is somewhere people put their money once they have made a stack of it somewhere else. When buying in a falling market, you want to have a larger buffer for when rents fall. So if you bought in 2014 and had a DCR of 1.2, that means you had a 20% buffer where your income was 20% more than your debt servicing costs. Now with rents down 10% you have a DCR of 1.1. When rents fall by 15%, you will have a DCR of 5%.

There is opportunity if:
High cash reserves
Can find a mortgage with longer amortization and are willing to put 25% or more down
Focus on tenant profile right now, not on maximum rent​
Well stated. I 100% agree.

Buying now is only for the strong stomached with ample reserves AND a deep understanding where prices used to be. Alberta right now is a very risky place to invest, especially with an utterly inept government that discourages investment (see Kevin O'Leahry's letter here to Rachel Notley of today: http://www.theglobeandmail.com/repo...-four-point-plan-for-alberta/article29012727/ )

Or far higher energy prices to come, like Ontario's failed energy policy: http://business.financialpost.com/f...-youre-about-to-pay-a-steep-bill-to-kill-coal .. plus minimum wage, carbon tax, personal and corporate tax hikes.

2016 and 2017 will be UGLY.

Wait to 2017 as a novice. Until then, look elsewhere. The Alberta DISadvantage will take to 2020 to be cleaned up and then 5 more years of catch up to eliminate the grotesquely high public sector wages and debts created.
 

RE123RE

Inspired Forum Member
Registered
Prices for SFH legal suites are easily down 10%-15%. Looks like a great opportunity except that rents are down 10 - 20% depending on where you were at in 2014. I'm down about 10% on my turnarounds and spent probably 3x as much marketing and had 5x as many appointments to sell the place.
Hi,
Interesting. From Thomas response sounds like a good chance prices will continue to fall.
Thanks
 
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