On April 17, 2013 the US Senate's "Gang of 8" released its bipartisan immigration reform bill.
The bill includes new immigration opportunities for Canadian retirees:
· Extending the possible stay in Visitor status to 240 days; and
· Creating a nonimmigrant (non-green card) retiree visa, which allows individuals who maintain US $500,000 in US real estate to live year round in the country.
Perhaps the best news is that one of these visas, if this bill passes in its current form, MAY create an easy path to US tax residency for those who qualify.
In a section (Section 4503) entitled "Encouraging Canadian Tourism to the United States," the bill allows certain Canadians to be admitted as Visitors for a period of up to 240 days in a calendar year. This is different from the current Visitor option that allows Canadians to visit the US for a rolling 180-day period. To qualify, Canadians must meet the following criteria:
· Citizen of Canada,
· At least 55 years of age,
· Continues to maintain a home in Canada, AND
· Owns a US home (or has rented a US home for the duration of the period of stay being requested).
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All the joy of owning a good property will be lost with poor PROPERTY MANAGEMENT.
As an investor we must look at the properties we own as a business and demand from our property manager a business like attitude.
1. HOW MANY PROPERTIES DO YOU MANAGE?
The first thing I always want to know is how many properties (units is a better measure) are they managing. This is followed up with how many employees are managing these units. I found based on my experience: a trained employee with the right tools and proven processes can manage between 30 and 50 units - assuming the accounting function is not included.
Horror Story: In Phoenix one of my clients hired a manager with 1100 units and only 3 employees. He thought he was in good hand he learned that he was not when his 2.3 million financing fell thru. When he asked why, the Broker asked him: "When is the last time you were there? The property looks terrible!" Hen he flew down he was horrified. Garbage everywhere, not picked up, lawns not cut etc., etc. Took him another month to get the property up to snuff and the financing approved.
2. Do you own and manage any rental properties themselves? If so, theirs will always be looked after before yours.
3. How much is the charge and how does it work? Most property managers charge between 7% and 10% of the rents for managing your properties. Be sure that you know what that percentage is based on. Some managers will require that you pay them the agreed percentage on the total rents that COULD be collected whether they are collected or not. That is a non-starter for me Also: 7% when you put tenant in plus 1-month rent, what tenant leaves after 6 months. Pay the fee again?
4. What is your business plan?
A good property manager. He/she must have a reviewable business plan. Ask your manager for his.
5. What is your budget outline?
He has a written budget outline - income projection - timely collection of rent - expense control - establishing rental value - clean simple accounting - maintenance.
6. What is your operating procedure?
He also has to show you the operating procedure he employs for maintenance (ongoing action or re-action to problems as they occur only), repairs (ditto), safety and security issues (spelled out, how when who?) and insurance (enough, all eventualities covered, etc.)
7. What's your regular (weekly, daily, monthly) inspection routine?
You should also inspect the property with your manager together and meet the staff he employs (you may like him but shudder at the employees).
8. Let's discuss the scope of the authority.
Does he hire contractors to do the work? Does he advance funds? Does he use rental income to place ads or bill you? Does he make his own repairs? What is the track record? Who can you call to verify? Do this all up front. Have a written understanding of your relationship - small building or large - and you have a basis to measure actual performance against promised performance.
Make sue you write everything down . I.e. always have a limit (i.e. $200 ) that property managers can spend w/o calling you. Need to spend more ... needs approval etc.
How to find a good property manager in Canada?
· Local Chapter of the REIC of Canada members (also for Depreciation reports)
· Apartment owner's associations
· Better business bureau
· Local Real Estate board
How do I find a good property manager in the United States? · The website of the Institute of Real Estate Management, www.irem.org. They have a nationwide list of Certified Property Managers (CPM), a professional designation for property managers that is recognized by the National Association of Realtors (NAR).
· How do I find a good property manager on www.trulia.com, which is a national real estate website.
"If you are searching for yield, real estate can get you some astounding returns"
REITS invest in
· Shopping centres, commercial real estate
· Apartment buildings hotel – even mini storage
Yes, they paid high prices, but they also get absolute record low rates. If you have a larger property with solid income, CMHC will insure you down to a 2.4% 5-year term (LOWER if short term!)
Smaller investors are also searching for that elusive yield. They can buy individual apartments, duplexes, four-plexes, depending on budget.
1. actual return after expenses
2. mortgage reduction
3. capital gain
Question: What are the potential pitfalls?
Buying the wrong property.
Buying in the wrong area.
Not understanding the absolute urgent need for good property management.
· Low Vacancy rates
· Inward migration
· New jobs
· Building cycles
Market somewhat ok if measured against 2012 ... but measured against 2011?
March General 2013 versus 2012: Vancouver in general is down 18% in the number of sales, even in price, up in listings.
Calgary/Edmonton is up/even in sales, well up in price, sharply down in listings.
Specific - drilling down numbers:
If you measure Vancouver sales against March 2011 sales are 43% lower! Fraser valley - 38% lower! And prices are 10% lower (worst in 10 years).
Worst suburb? Richmond against March 2011= Prices are 17% lower: from 727,000 – 606,000, sales are 56% lower and listings 27% higher.
Condo prices in Coquitlam, Richmond, Surrey, Langley, Maple Ridge back to 2009 levels.
Condo projects many of them - only 60-70 sold since last summer.
Maple Ridge: "Sales of new townhomes are going nowhere in this market. The market is down and staying down," says the latest Condominium Market Opportunities Report from Strategics. One 75-unit townhome project began marketing last fall and had no sales for three months. Another started marketing July 2012 and only 15 of its 43 units had sold by January, Strategics reports.
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From this week's Facts by Email newsletter
REITS and why you were wise to invest in them ... which ones to get now:
The average annual return on the TSX-REIT index since 2001 is a compounded 14.5%, compared to 5% on the TSX and 6% on bonds.
But since the 2008 recession, REITs posted 55% returns in 2009; 22% in 2010; 21.7% in 2011 and 15.2% as of the end of 2012. Needless to say, more investors are piling into REITs.
Some recommendations, acquisition targets? (Listeners/readers MUST check out first.)
Here are our picks for both REITs that may be buyers and REITs that may be takeover targets:
This week our Finance Minister called the Manulife Mortgages Company and told them to be responsible citizens and withdraw their new 2.89% 5 year term mortgage. Huh?!
First, we already had a 2.89% mortgage for months and a 2.99% mortgage for over a year.
Second: Why pick on the Mortgage Company and not a big bank? Of course they caved instantly and withdrew their 10th of one percent better mortgage!
Third: What the heck is a Finance Minister doing interfering in the competitive marketplace? What gives?
Fourth: Think about this: according to the fine CMHC our mortgage markets are very safe – and not to be compared with the US.
- Less than 10% of Canadians have less than 10% equity in their property.
- 12% of Canadians have 10-24.9% equity in their property.
- 79% of Canadians have greater than 25% equity in their property (in fact about 40% are paid in full).
- CMHC figures also show that mortgage debt represents 68% of total household debt, up from 63% in 1971, but down from a high of 75% in 1993.
- Finally, 47% of homeowners in BC are in fact mortgage free.
To go after this homeowner who would benefit from the lower rate, secured by a solid asset and leave credit card interest rates without comment is downright silly.
Look is this:
A $27,000 credit card balance at 19.9%, making only the minimum payment ($585.00) will take you 127 years to pay off! 127 YEARS!!! How is that even legal? You can incur debt, secured by no asset at all; that the payment structure ensures you will carry to your grave.
Major Point: Mr. Finance Minister ... what do you know that you are not sharing with us? It can't possibly be mortgage rates. Are you expecting a major collapse and want to save your bacon?
Three Major Forecasting Agencies Predict Crash, Collapse Or Slow Death THIS WEEK
1. The TD Bank Long Run Rate of Return for Canadian Home Prices predicts that residential real estate will limp along with 2% returns for the next decade.
2. Moody's Investors Service is floating an idea that a severe economic shock could flatten national housing prices by as much as 44%(!), citing Japan, Spain and the United Kingdom as examples.
3. The Conference Board of Canada ties our fortunes in Vancouver to the Chinese economy: "There is evidence that the Chinese economy moves with various Vancouver Real Estate variables... If the Chinese economy goes down so will Vancouver."
4. World forecaster/demographer Harry Dent says: "Vancouver and Syndey are in for a major correction."
So the forecasts, taken together, translate into: "run for your life and bring a life raft with you."
Ozzie says: Not so fast!
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The difference in a few numbers can mean thousands per year on your mortgage payment
Watch your Beacon score!!!
Each Canadian consumer has a three-digit number that affects how they can access debt and even how much they will pay for it.
Equifax and TransUnion use a scale of 300 to 900 to determine your credit score; the higher the number you have, the better your credit score is. Someone with a credit score of 760 would probably be most likely to get a loan or credit card, while someone with a score of 650 may not.
You can get your own report free (by mail) by going to their website or pay the $20 or so and get it instantly. Do it! When I checked mine a few years ago, when I was president of Royal Lepage (res), they had me listed as working in a restaurant.
Go to FactsByEmail.com - See all the forecasts regularly every week plus a FREE Hotline
1. Scotiabank Cuts 10-year Rate To 3.69%!
THEY WOULD NOT OFFER THAT IF THEY DID NOT THINK LOW LOW RATES STAY.
You can get a full-featured 5-year fixed for 2.89% or less.
BUT: HAGGLE HARD - THE POSTED 10 YEAR RATE IS 6.75% - A FULL 3% HIGHER!!!!
2. SELF EMPLOYED MORTGAGES are coming back
Street Capital (www.streetcapital.ca) which lends only through mortgage brokers, has revamped its stated income mortgage by:
- Eliminating its stated income rate surcharge;
- Adding commission income as an employment type; and
- Giving its stated products all the features and flexibility of its regular mortgages.
Street lends up to 65% loan-to-value on its conventional Stated Income Program.
Self-employed and commission-only people note - but here is one provider still in the game.
You can put either a first or second mortgage on your own house.
You need to get an appraisal; you need to set up a self-directed RRSP with a financial institution that has a trust arm.
You need to charge yourself the current CMHC rate.
There are also costs: Setup fee, annual fee and - the big one - CMHC insurance. Insurance could be from 0.4 per cent to three per cent, depending on what your mortgage to value ratio is.
Why would you do it?
- You could use the cash wisely.
- Keep the interest you would pay on your mortgage for yourself.
- You have the option of setting the interest rate to the highest allowable at the time - and get forced savings.
- You have certainty. You know what your RRSP is invested in.
- The predictable growth of the RRSP may be what your personality needs ... particularly if some of your investments in the RRSP have not worked out.
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1. A good property manager doesn't take the first yokel that wants to rent the place.
2. He/she has a plan of action to get tenants, he has a clearly itemized - who is responsible for what - contract with his owners and one with his tenants.
3. He must have a reviewable business plan. Ask your manager for his.
4. He has a written budget outline - income projection - timely collection of rent - expense control - establishing rental value.
5. Clean, simple accounting and maintenance.
6. He also has to show you the operating procedure he employs for maintenance.
7. You should also inspect the property with your manager together and meet the staff he employs (you may like him but shudder at the employees). What's his regular (weekly, daily, monthly) inspection routine?
Do this all up front. Have a written understanding of your relationship - small building or large - and you have a basis to measure actual performance against promised performance.
In our weekly Facts by Email we discussed the above ... clearly what governments worry about is:
1. Global land grab, governments and multinational agribusinesses from China, Saudi Arabia, India and elsewhere quietly buying up arable land
2. Residential foreign investors drive the locals out of the market and create booms that are always followed by a bust!
3. Australia, China, Switzerland, Thailand, Hong Kong have introduced controls NOW (some lately)
4. Canadian provinces already have controls on agricultural land (Alberta - limit - 20 acres, Saskatchewan - 10 acres - Quebec - only with permission from Government).
Limiting foreign investment does not have to be an outright ban ... but could limit investor buying through very high buying and selling taxation.
I.e. The new Hong Kong foreign tax is a tax on purchase (!) of 15% for 3 years on the average price of $500,000 that is $75,000 (its expected to stop the market).
While foreclosures are not that many ... there are listings from $185,000 to 4 plus million dollars. Most boom times leave some problems in their wake.
There are foreclosures websites but best bet is to look for realtor sites... watch out for sites that want you to pay money.
Often there are old listings etc.
Better yet go to court (see what's offered) in your area, sit in court and see how foreclosures really work.
You buy as is where is...
- Buyer negotiates with the lender's lawyer (through their agents)
- Once accepted – Buyers have a few days to do diligence and most of all arrange their financing
- Before offer goes to court – must be subject free. Can take a month to get a court date.
- Just because you have an accepted offer does not mean you get the property…because the price is disclosed to other realtors, lawyer etc. to encourage bids and you could possibly compete with several once in court. (even the owner can make a bid)
- Be in court on the date…if offers are all even, sometimes the judge will tell everyone to leave and make a new bid in a few hours later. If you're there - easier
- Have financing in order
- Inspect well
- Offer gets you into court - everyone will know it
- Don't make your best offer first
- If lots of competition - up your offer
US Short Sale
A short sale is a property where there is a mortgage balance that is greater than the market value of the home, that property is a short sale.
A Short Sale is a Privilege, Not a Right
Not every property qualifies as a potential short sale in a bank's eyes. A bank must agree to grant a short sale. Banks are under no obligation to approve a short sale. Banks will grant a short sale if the bank feels it is in the bank's best interest to approve the short sale.
Could take from 1 week to a year to get approval.
Your valuation cannot dispute your taxes, but you dispute your assessments.
The deadlines for valuation dates and assessment dispute dates vary (check your exact local assessment dispute dates!)
Valuation Date Dispute date Alta July 31 60 days after mailing the assessment notice (varies by municipality) Sask June 30 30 days Ont Jan March BC July 1 January 31(!)
Websites to check:
1. Calgary: Free search but only personal assessments, plus paid for search for businesses at assessmentsearch.calgary.ca/login.aspx
2. Edmonton: General assessment and neighbourhood information is available at edmonton.ca/for_residents/services/service-my-property.aspx
3. Vancouver: Sale price of similar houses in the immediate area, assessed value and even the number of bedrooms and bathrooms at bcassessment.ca. DEADLINE JANUARY 31, 2013.
4. You might try a phone call to the Assessor first ... they do not bite.
5. BC Assessment is offering the opportunity to check out FREE detailed information on up to eight properties, including the SALE PRICE OF SIMILAR HOUSES IN THE IMMEDIATE AREA, assessed value and even the number of bedrooms and bathrooms at E-VALUE BC evaluebc.bcassessment.ca
6. Current assessments will be mailed this month, based on values as of July 1, 2012.
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