experts: real estate column Thursday, December 04, 2008

Questions, Questions

Ozzie answers reader's questions on buying in Mexico, the 'depression', downtown condos, mortgage brokers and more.

By Ozzie Jurock

I love getting e-mail ... even e-mail that does not love me. This week I was accused of being biased toward real estate. Well, of course, I believe in the marrow of my bones that owning your own house in Canada is the best possible thing you can do ... it is the only capital gain you can make tax-free. It has historically been proven - PROVEN! to outlast all recessions (Vancouver climbing from $16,500 in 1966 to $800,000 today) and it is the foundation of all family wealth. Yep, biased.

Q: I am looking at buying a property in Mexico. The plan is to use it personally for two months per year and rent it out the rest of the year. I would appreciate your comments and insight.

A: We - at JREI - do not recommend buying real estate in any area other than the US and/or Canada. Laws are different, corruption is rampant and while Mexico may be a much better place to invest than other non US/Canada countries, we still think that buying something here and holidaying there ... is much better. Personal use and renting never works. You will always want to use it, when you get the highest rent ... in the end you will rent elsewhere. And it never pays for itself.

Q: Surely, even you must agree now, that we are going into a terrible situation that we have never been in before. There is only one outcome ... depression!

A: I get a few of these every week. They are not really questions. They are statements written ... almost in glee ... almost hoping, praying wishing for some terrible calamity to befall us. The writers are wrong ... of course, we have been there before ... 1974, 1981, 1987, 1990, 1998, 2001 ... etc. Each time we were in it we say "We have never had it this bad before". And there they are right ... it was always worse, primarily because we always printed more money in between each crunch and today even more so. If inflation is a monetary phenomena (according to Milton Friedman) then we are seeing the 'mother of all monetary phenomena' right now! That is why I believe the naysayers will likely be wrong again. Yes, the numbers are bigger, the zeros larger and each time - after climbing a wall of fear - we muddle through with the result that hard assets will be even higher again five to 10 years later. In any case, real estate is doing remarkably well. Anyone that was invested in the NASDAQ (down 49 per cent year over year), the DOW (down 51 per cent) and the TSX (down 45 per cent since June) would really rather have that investment property now ... particularly one that we have recommended for years ... where the tenant pays your mortgage and it cash flows. And as far as depression goes ... don't hope for it ... life as you know it, would change - even if you were hoarding gold.

Q: Hi I'm 24 and I work in the Alberta Oil Sands. I rent in North Vancouver right now and I'm a bit lost on what I should do. I have $10,000 in RRSPs, another $15,000 in savings and a $30,000 line of credit at six per cent. I take home $3,500 a week and would like to buy my first condo in downtown Vancouver. What would you recommend I do about the down payment? Should I use the line of credit, my RRSP, my savings, or because I'm making good money right now would you recommend buying a second place for rental?

A: First off, I salute you, that at your age, you have savings and are contemplating buying real estate. I recently spoke to 100 UBC students and I pointed out to them, that if at age 24 or so they would buy a condo somewhere for $80,000 with an $800 rental income per month, put down a minimum down payment, then they would own it by the time they are forty and then have $800 a month for the rest of their lives. You have the same opportunity. For my own place ... I would get a top downtown realtor and look carefully at new condos. Developers are flexible and willing to haggle. Use your RRSP and take out your $10,000 under the Registered Homeownership Plan (borrow it from yourself - non-taxable) and pay it back to the RRSP over 15 years at approximately $80 per month. But do not rush - make offers ... the market is not running away from you. For my investment, I would look carefully at a good small town in B.C. where the ratio of rental income to price makes sense.

Q: I am relocating from Edmonton to Penticton with my career. I am not rushed to sell or buy but am wondering with the market going down, if I am better off to sell my acreage outside of Edmonton ASAP, even though Christmas is around the corner and take my time to get the right buy in Penticton. Or should I wait until spring to sell my acreage?

A: As questions go, this is also a favourite currently. Unfortunately, the answer is not easy, since you are not buying or selling a market, but rather your individual property. If you are for instance 'trading up' and you are worried to receive - say - 10 per cent less for your property in Edmonton, you will also benefit from the property in Penticton being 10 per cent less and likely better off than you would have been five months ago. Acreage values also depend on what you can do with it, what prospects there are for redevelopment, etc. I would get three realtors to evaluate the property to determine realistically what they can get for you now - and then keep looking for that special deal in Penticton. Sometimes, selling in December is better ... fewer properties for sale and what buyers there are, are more serious.

Q: I have purchased an apartment in Airdrie, Alberta that I will be renting out when it is completed in April. My bank is offering 1 1/4 per cent off the posted rates. It appears mortgage brokers can get better rates. When I looked them up for Richmond there are many and I would like to know is there any difference between brokers? Are there any specific questions I could ask to help decide who to use? Is it worthwhile to ask for quotes from different brokers?

A: Interesting question. Until two months ago, I would have said that all mortgage brokers really have the same access to every financial institution as any other and that the only difference is the experience, acumen and 'hungriness' of each broker. Today this has changed. A number of lenders have cut off large numbers of brokers. Some do not use brokers at all and others have cut off low-producing brokers. Many brokers cannot say that they actually have access to every lender any more, only the big companies and high volume brokers still have access to every lender and yes, it could mean access to the best rates at all times.

Published in The Vancouver Sun on November 27, 2008

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