Real estate advice from Don Campbell

[Subwoofah]

Some good info...

http://www.calgaryherald.com/business/fp/Real+estate+guru+shares+money+making+tips/1412989/story.html

[barmanjay]

Great article

Loved this part


"You're not going to put your kids through university by huddling in your basement worrying about (what happened in) 1982," he says. "The reality is, the next 18 months are going to be a roller-coaster. During a roller-coaster ride you're always freaked out. But keep in mind that roller-coaster rides always end."

If you're worried about your job, that's no reason to stay out of the market. In fact, all the more reason to get into the bank and secure that loan while you have a job.

"Are you going to try to get a mortgage for a cash flow property while you have a job, or after you lose your job?" he says. "And if your job sucks now, then use it to get a good credit rating."


Never go out on a financial limb in the hopes that property values will make a huge leap, he advises. Instead, look for properties that will still pay you an income even if their value goes down.


2. Become a landlord. In recession, more people need to rent as they hold off buying their own home. You will have a steady clientele.

3. Buy near universities and colleges. During a recession, more people go to university, especially high school graduates who can no longer walk into lucrative labour jobs. And they need rental housing.

4. Follow transit improvement plans. If you keep up on where the next big road is going in, or where the new train station is going, you will know the best neighbourhoods to invest in. The key is timing: you have to wait until the project is actually starting (to guard against a reversal of plans) and you have to get in before the new route is established and prices have already gone up.

"If you buy within 800 metres of a station, and then the demand goes up for homes within walking distance of that station, you're in a good position."


If the value goes up, you are in great shape. If the value goes down, it doesn't matter because you still have the monthly cash flow.

Bottom line is, the recession may actually help investors.

"There is this perception out there that the banks aren't lending," Campbell says. "That's not true. They are for decent deals. They care about the worst-case scenario: if they have to take the property back, can it pay for itself?"

[Graham_A_M]

Yeah I have his lasted edition of "real estate investing in Canada". Definately knows what hes talking about. :thumbsup:

[Xtrema]

wise words.

[autosm]

Did not read book but....


400k house 25% down = 300k Mortgauge @ 5% Thats 1250$ per month interest + 200.00$ property tax 50.00$ for insurance. Your cost is 1500$ per month + . Add repairs and possible lost rent.

Really don't know what rents cost but I see a few nice houses for rent for 1500-2000$ per month.

How can Calgary even be considered a place to see any cash flow let alone ROI?

Houses prices are declining monthly. That fact is not even included in the above figures.

Sounds like Don is trying to pump the market.

If my job is not secure the last thing I am going to do is take on something like a rental property.

Am I missing something?

http://www.rentyourview.com/listing/265

[ckangarloo]

Originally posted by autosm
Did not read book but....


400k house 25% down = 300k Mortgauge @ 5% Thats 1250$ per month interest + 200.00$ property tax 50.00$ for insurance. Your cost is 1500$ per month + . Add repairs and possible lost rent.

Really don't know what rents cost but I see a few nice houses for rent for 1500-2000$ per month.

How can Calgary even be considered a place to see any cash flow let alone ROI?

Houses prices are declining monthly. That fact is not even included in the above figures.

Sounds like Don is trying to pump the market.

If my job is not secure the last thing I am going to do is take on something like a rental property.

Am I missing something?

http://www.rentyourview.com/listing/265

Bang on. Actually, it sounds like he is pumping his book.
So he slightly changed his book to make it work for the current economic shit storm. Advising people to get more credit doesn't make any sense to me.

I just ran the numbers on the place I currently rent. There are three units for sale in the same complex, all identical. Prices range from $400k (just reduced 60k) to $500k. Lets say I buy a place for $375k, have a 65k down payment, leaves me with a mortgage of 310k. With a 4% interest rate on a 25 year mortgage, I'm looking at payments around $1650/month. Add on $190/month taxes and $200/month strata fees, I'm up to $2000/month.
Looks OK, right? NOT A CHANCE. My rent is $1300/month. I pocket the $700/month savings and watch patiently as the price reductions add up. Sure, there must be some places in Canada where RE is a good investment but its not anywhere I know of.

[BigMass]

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[barmanjay]

Instead of buying a 400k house

what if you bought a home in marborough at the sub 300k mark and had 30% down

in theory you would end up with payments of around 8-900/mo

take those same houses and rent them for 13-1400

not a gold mine,.. but a steady source of income

[Xtrema]

Originally posted by ckangarloo
I just ran the numbers on the place I currently rent. There are three units for sale in the same complex, all identical. Prices range from $400k (just reduced 60k) to $500k. Lets say I buy a place for $375k, have a 65k down payment, leaves me with a mortgage of 310k. With a 4% interest rate on a 25 year mortgage, I'm looking at payments around $1650/month. Add on $190/month taxes and $200/month strata fees, I'm up to $2000/month.
Looks OK, right? NOT A CHANCE. My rent is $1300/month. I pocket the $700/month savings and watch patiently as the price reductions add up. Sure, there must be some places in Canada where RE is a good investment but its not anywhere I know of.

The problem with this scenario is that no landlord can handle negative cash flow for too long. If he can rent it to you for $1300, his cost is not $2000.

The other part of the math is that with a $1650 mortage payment, at least 300 will go to principle. So it's really compare $1300 to $1700.

What that have shown me is that you wait too long to buy a house and to the point that renting is cheaper.

Rent on average is on the decline because mortgage payment on average is on a rapid decline with cheaper properties and historically low rate.

I won't preach house ownership because it isn't for everyone. Actually, the more perpetual renters there is on the market, the happier I'll be. Rental market is going to be bad in 2010/11 as market rebounds and everyone starts to buy houses again, just like 2001/2002.

So keep renting people! :thumbsup:

[cmyden]

I haven't read through his entire book, but a friend had it laying around and I skimmed through it.

I remember one section talking about his equation to help decide if it was a good time to buy a rental property or not.

I believe it was...

Price of house x 10% = X
Income from rental property per month * 12 = Y

If Y > X, it's a good investment.

So applying that to here in Calgary..

$420,000 x 10% = 42,000

Income from rental property per month would have to be $3500 to be a good buy.

I haven't really studied the Calgary rental market much, does the average home in Calgary rent for $3500 ?

A quick scan over at RentFaster.ca of the 660 SFH properties for rent would suggest it doesn't. $3500 puts me on page 2 of 44 (when sorting in descending order from most expensive to least).

On Page 22 (the middle of the RentFaster listings) puts me at $1700, which sounds about right for your average house rental in Calgary if I'm not way off.

So according to Don's formula, a good time to buy in Calgary for investment purposes would be when the average house is approximately $204,000 ($1700 X 12 X 10). Assuming the rental market prices stay even of course.

I think another section of his book talks about the '4 seasons' of a real estate cycle. We are clearly in the winter phase of his analogy. He has a checklist for determining when the 'spring phase' is starting to hit. There are about 15 items on the checklist, and he says you should start paying serious attention when about 7 or 8 of them are satisfied. I think right now Calgary satisfies about 2 of them if I remember correctly.

[liquid1010]

What most people don't think about are issues such as Repairs & Maintenance, and the problems you will run into with tenants. It's great to have a spreadsheet model that shows cash flow and value appreciation.... but at the end of the day, you have to deal with tenants.

Some are great - some are absolute clowns, and unfortunately in Alberta the clowns are given way too much protection. That's something that will affect cashflow, and must be accounted for.

[Xtrema]

Originally posted by liquid1010
What most people don't think about are issues such as Repairs & Maintenance, and the problems you will run into with tenants. It's great to have a spreadsheet model that shows cash flow and value appreciation.... but at the end of the day, you have to deal with tenants.

Some are great - some are absolute clowns, and unfortunately in Alberta the clowns are given way too much protection. That's something that will affect cashflow, and must be accounted for.

Clowns can usually be weeded out. Something that actual landlord can do better than management outfits. It's better to lose 3-4 months of rent income than picking a clown.

[masoncgy]

Originally posted by Xtrema


Clowns can usually be weeded out. Something that actual landlord can do better than management outfits. It's better to lose 3-4 months of rent income than picking a clown.

Exactly. It pays to take an interest in your investment. Run it like a business. Take applications, do your background checks, find the best candidate... not hard to do at all.

Truth of the matter is, even if you get stiffed on a bit of rent, you're still putting your money into the investment. A portion goes right to the principle, and the interest you pay is deductable against the rental income, so even though you're out of pocket a bit of cash, it's not wasted.

It is an amazing time to purchase rental properties... so many great examples out there right now... I just wish I had a bit more flexibility to take on another one!

[liquid1010]

Credit checks and background checks are huge - I can attest to that. References are useless........

[wmrchiang]

Originally posted by Xtrema


The problem with this scenario is that no landlord can handle negative cash flow for too long. If he can rent it to you for $1300, his cost is not $2000.




This is exactly why it would be such a stupid idea to buy NOW for investment since your COSTs will be more, unless you have a large down payment say 50% or more. Also when housing price keep going south, so does rent and therefore you will find yourself under the water during your 25 years mortgage period.

For landlords - you think it is nice to have someone paying off your mortgage? My view is you are subsidizing them for living in your nice home. So please keep up the good work and buy as many houses as you can. :thumbsup: o don't worry, I can build up my equity elsewhere.

[masoncgy]

Originally posted by liquid1010
Credit checks and background checks are huge - I can attest to that. References are useless........

Really? So calling someone's employer to confirm employment, which in turn determines their ability to pay the rent, is useless?

lol...

[masoncgy]

Originally posted by wmrchiang
For landlords - you think it is nice to have someone paying off your mortgage? My view is you are subsidizing them for living in your nice home. So please keep up the good work and buy as many houses as you can. :thumbsup: o don't worry, I can build up my equity elsewhere.

:facepalm:

Do you know what the word 'subsidize' even means?

So... if I rent a home at market value, and that rent covers the mortgage, taxes and insurance (ie: my direct costs), and the tenant pays that monthly rent for 5 years, I am subsidizing the said tenant?

Explain. I'm dying to hear this one. :rofl:

[barmanjay]

It drives me nuts hearing "investment, investment, investment" in anything real estate.

I've said this to some clients and I'll say it here too.

Investing in the real estate market is like starting a new business.

most new businessess fail within the first 2 years.

If you are buying as a home to live for the long term,.. as long as you are comfortable with the payments and the price you are willing to pay for the house you want, you will be ok.

I'm sure most of you don't run your family like a business.

Investing for rental is only viable for 'break-even' if you have more than 30% down - what you are doing is only creating equity in the home you purchase,.. no great cash-flow (maybe dinner for a week out at some nice places). The equity may not be as liquid as some may perceive, but it's being created every month.

If you have more than 50% to put down, then you are in a good position to invest for rental purposes.

You wont be a millionaire or even a beyond baller, but you can make a steady monthly income from that (pay your phone bills and utils? maybe a car lease?)


If you have less than 30% for a downpayment and want to invest in realestate,.. don't bother with rentals,.. go see ZorroAMG

[max_boost]

Originally posted by Xtrema


The problem with this scenario is that no landlord can handle negative cash flow for too long. If he can rent it to you for $1300, his cost is not $2000.

The other part of the math is that with a $1650 mortage payment, at least 300 will go to principle. So it's really compare $1300 to $1700.

What that have shown me is that you wait too long to buy a house and to the point that renting is cheaper.

Rent on average is on the decline because mortgage payment on average is on a rapid decline with cheaper properties and historically low rate.

I won't preach house ownership because it isn't for everyone. Actually, the more perpetual renters there is on the market, the happier I'll be. Rental market is going to be bad in 2010/11 as market rebounds and everyone starts to buy houses again, just like 2001/2002.

So keep renting people! :thumbsup:

:werd:

Renters FTW! :)

For my tenants, a letter from their employer stating position, salary, years, + a first page of their credit report with FICO score, bam, done.

Keep it simple, crunch the numbers and buy if you can afford to. The market isn't going to shoot up another $100K any time soon so you have time. BUT, sitting on the largest oil reserves next to Saudi Arabia does make you wonder what will happen when things do recover and the ball gets rolling again, I sure as hell wouldn't mind another spike.
:bigpimp:

[Xtrema]

Originally posted by wmrchiang
For landlords - you think it is nice to have someone paying off your mortgage? My view is you are subsidizing them for living in your nice home. So please keep up the good work and buy as many houses as you can. :thumbsup: o don't worry, I can build up my equity elsewhere.

It's not subsidizing when it cost landlord nothing. :dunno:

People buying houses now for rental are dumbasses even if they have a huge down. The huge down probably earn more $$ hassle free in a GIC account or better return (higher risk tho) on stock market.

Real Estate investment will only work on the long run.

[masoncgy]

Originally posted by Xtrema
People buying houses now for rental are dumbasses even if they have a huge down.

It depends on what & where you're purchasing.

Of the examples I have seen here (ie: +$400K rental property)... I would agree. Virtually impossible to make a go of it when the up-front costs are that high.

However, I've seen some good examples in the last few months... low-cost duplexes & single family homes that are often split into main floor & basement suites... the opportunity to break-even or squeak out a light positive cash flow is there.

Of course, 25% down is a minimum getting in. I don't believe most banks will finance a rental property with less down (correct me if I'm wrong).

[Xtrema]

Originally posted by masoncgy
Of course, 25% down is a minimum getting in. I don't believe most banks will finance a rental property with less down (correct me if I'm wrong).

You are right.

But the up/down tenant thing may bring in another level of headaches tho.

You best bang for the bucks is probably $280-320 for a single tenant.

[fraction]

i have rented out one property and so far doing not too bad. although i have to pay little bit from my pocket everymonth so to say negetive cash flow but then i write it off in my taxes and get it back and i stay on the ahead of the game.
i myself rented for long time and learned that whatever i was saving was using on other useless stuff. at least now i have my own place as well as a rental one so some one is paying for my equity in my rental property.
i dont think it is a bad time to buy rental property right now. Again it is an investment and take it as a business. i cant predict the future but to my understading sooner or later either house prices have to come up or rents will go up (considering low housing starts and lot of people are not interesting in buying at the moment). if our city's population is keep on increasing let say not at the insane rate as it was in previous years rather at a moderate rate and people are still moving to Calgary. Everyone needs to live somewhere. so either they will be renting or buying. so if nobody is buying of course they will be renting. i dont see any reason that home prices will ever go back to 2000-2001 levels. because it doesnt seem to me that our population have droped dramatically.
right now interest rates are low but a lot of people have also lost their jobs so there is not much buying activity. but interest rates have to go up in future. and i can see that it will be a start of inflationary cycle. if inflation kicks in it will drive the oil prices high and there will again be a oil rush. once it will start there will be lot of jobs creation in Alberta. with the low housing starts we will run up of current inventory may be in next 2 years and then again there will be panic buying. i assume that people will be more cautious next time if there will be a housing boom in our city but beign said that people have short memories and everyone rush to make money. it always happened during the peak cycles and will continue happening. i have no doubt in my mind about it.
Again I am not a RE investment guru just sharing some thoughs here.

[barmanjay]

Originally posted by Xtrema


You are right.

But the up/down tenant thing may bring in another level of headaches tho.

You best bang for the bucks is probably $280-320 for a single tenant.

Lots of places are in that price range right now and the good ones are selling fast

[Xtrema]

Originally posted by barmanjay


Lots of places are in that price range right now and the good ones are selling fast

Oh, I know.

But like I said, rental market will suck next few years. So I'm not risking negative cash flow until I see property value showing some upward momentum.

I still think market should bottom out by end of this year, this ain't the bottom yet.

[Subwoofah]

I thought this article was relevant...

"
We've all heard stories about that not-so-Savvy Investor who put his life savings into a property and lost it all. These serve as cautionary tales, but had that "investor" been truly knowledgeable, he probably wouldn't have lost everything on one property. With the economy on a downslide and panic rippling through society, people make rash decisions faster than you can say "foreclosure". But once the emotions like excitement and fear are stripped away, one can beg the question: is real estate ever truly a bad investment?

Market crashes make even the most seasoned investors shudder, but real estate is probably the safest investment out of them all for a few reasons. Stock "experts" like to show that stocks have produced an average annual return of about 10% per year over the past 65 years. With numbers like that, stocks easily beat out other investments, but what they don't mention is this: there can be very long periods in which the markets stagnate. When one factors in inflation, an investor actually loses money with most stock investments, but not in real estate - because real estate is the most effective hedge against inflation!

To quote an old wise man, real estate "can't go to zero" - it's a hard asset. You can visit it, stand on it, take enjoyment from it while your capital appreciates. If the worst happens, you can bulldoze the house and sell the property, rent out the home, offer a lease-to-own and more - IF you are a Savvy Investor.

That guy who lost all their money on a real estate investment just probably wasn't a very good investor. When markets drop, there are plenty of things an investor can do to keep their investment lucrative while holding the investment until the market goes back up. Lease to owns and other rental scenarios are a great way to turn a positive monthly cash flow until an investor is able to flip the house - the investor just has to know what to do. And how can an investor know what to do in such a situation? By educating themselves!

Remember, as an investor you will never actually lose money unless you sell your property at a loss! So, posing the question again, is real estate ever a truly bad investment? Considering there is always something that can be done (even if that something is just waiting a bit to sell), there are really no bad property investments, only bad property investors.
"

[liquid1010]

Originally posted by masoncgy


Really? So calling someone's employer to confirm employment, which in turn determines their ability to pay the rent, is useless?

lol...

:banghead:.... ok ........

Considering I have a great deal of first hand experience in this.... yes it is "primarily" useless. You would be amazed how many people fake their references, and many of them are extremely good at it.

[Subwoofah]

This is an article from Ottawa...

http://www.theglobeandmail.com/servlet/story/RTGAM.20090326.wmortgage0326/BNStory/National/home

Looks like lenders want the government to help with their bad loans.

[riceboi]

Originally posted by barmanjay
Instead of buying a 400k house

what if you bought a home in marborough at the sub 300k mark and had 30% down

in theory you would end up with payments of around 8-900/mo

take those same houses and rent them for 13-1400

not a gold mine,.. but a steady source of income

Correct me if I'm wrong but the above calculations did not include the opportunity costs and/or borrowing costs for the 30% (roughly 90k) down payment. My take is that for an investment property you have to put everything thing on the table to do your true ROI. With this in mind, your monthly costs would probably closer to 1500-1600 (payment + prop tax). This also assumes that the property is fully rented year-round and zero repairs.

[barmanjay]

Its not wise for business to borrow the downpayment,.. sorry, I would not advise that in any real estate transaction for investment purposes.

Leveraging yourself like that is dangerous and high risk.


Now with that being said again I'm going to quote myself


Originally posted by barmanjay

If you have less than 30% for a downpayment and want to invest in realestate,.. .. go see ZorroAMG

[riceboi]

Originally posted by barmanjay
Its not wise for business to borrow the downpayment,.. sorry, I would not advise that in any real estate transaction for investment purposes.

Leveraging yourself like that is dangerous and high risk.


Now with that being said again I'm going to quote myself



I think you misunderstood my point here (or maybe I didn't explain it carefully). What I was trying to say is that regardless of the down payment amount you put in, you must calculate the opportunity costs with that downpayment portion so in today's market lock in 90k (30% of 300k) to get an annual return of $1200 (assumed that your positive cashflow is 100/mth) is probably not that attractive.

[Xtrema]

Originally posted by riceboi


I think you misunderstood my point here (or maybe I didn't explain it carefully). What I was trying to say is that regardless of the down payment amount you put in, you must calculate the opportunity costs with that downpayment portion so in today's market lock in 90k (30% of 300k) to get an annual return of $1200 (assumed that your positive cashflow is 100/mth) is probably not that attractive.

That's why real estate is long term. If the property value is not increasing, it's worse than 3% GIC in short term.

From an Asian's POV, real estate can't go wrong simply that it's something your kids will need down the road anyway. May that be 10 years or 20 years. Even if the house worth noting in 20 years, if you have done your homework, at least the lot is worth something. And trading a house for another is still cheaper than trying to start from scratch.

The only down side is future Calgary turns into another Detroit.