All of the jobs numbers from around the world are showing the same things, people are losing jobs.  Since Alberta was really driving Canada’s economy seeing that people are losing jobs and taking pay cuts there is the confirmation that we’ve been expecting.  None of this really comes as a surprise of course with oil worth less than a third of what it was a year or two ago.  My point is simply that the good times are over.  Canada’s manufacturing sector was lagging for a long time and the US housing market started to collapse a few years ago already.  But now that Alberta has finally succumbed the peak in the Canadian economy is over as well.

The other side of this is related to real estate.  Calgary real estate peaked about a year about already.  The absorption rate (the time is would take, statistically, to sell a house) is around 10 months, but prices have not fallen very much.  The key was that there were still low unemployment and many high-paying jobs.  In fact, one reason for the dramatic rise in real estate prices was the high income earners were looking to jump aboard the express train of high yielding real estate.  When prices stopping rocketing to the sky it didn’t matter because speculators were able to hold multiple properties, either by renting out the excess or being comfortable allowing their high wages to carry them through the rough patch.  Now that people are losing jobs it will be the time to really pay attention to house prices.

Things have been cooling off in the last 18 months, or so, so I decided to take a look at the Calgary Real Estate Board’s December 2008 statistics package.  Side note: I have to hand it to CREB for keeping and publishing great stats, the best in Canada, in my opinion.

• Over the last year median sale price has dropped from 368,500 to 340,000, or 7.7%.
• They’ve had huge volume compared to sales for a long time now and the absorption rate is currently sitting at 10 months.  That means if you have a house to sell, you can expect it to take 10 months before it gets sold.

What isn’t in this report is the state of the local economy.  I have heard from friends that the job market is starting to look bleak.  People are starting to lose jobs.  Apparently, if you apply for a job and don’t list a Calgary address then the application ends in the garbage.  What this means is that inventory may increase and/ or prices will start to drop as people are forced to sell.

The smart real estate investor knows that no matter how far the market drops, people still need somewhere to live and will always have that need. This proves that in the long run, real estate is anything but speculative. However, as with the stock market, if you make uninformed and rash investment decisions, you are likely to fall victim to market fluctuations and lose your shirt in the process. If you keep abreast of market indicators and modify your real estate investment portfolio to match current trends without losing the base of your investment strategy, you can enjoy continued growth in the lean times.

So, as a concluding point to this series of articles, during a depressed housing market, smart real estate investors move ahead with acquiring properties because they know that the market in time will correct itself and continue to increase, whether it be five, ten or fifteen years down the road.

When considering a rental property, you have to take your tenants into account. In the case of commercial leases or month-to-month rentals, you should examine what your tenants have to offer in products and services. This doesn’t mean that you have to go into business with them, but there are certain aspects of their business dealings of which you should be aware. For instance, the stability of their business plan and future projections will impact your revenue. This will protect you from fly-by-night operations that tend to close their doors and claim bankruptcy before paying off their creditors — of which you may be one. Other things that come into play in a commercial environment are improvements, modifications and utilities. Rental agreements are often a point of negotiation, and you should keep abreast of costs and responsibilities. This is where solid contractual agreements between yourself and your tenants come into play. Clearly outlining responsibilities in regards to upkeep, modifications and improvements will not only give you a clear picture of your actual revenue, but it will also protect you from those nasty and often costly misunderstandings.

In the case of residential tenants, you need to be sure of their ability to pay and their promise to treat your property with the respect necessary to ensure years of trouble-free rental. You can never eliminate the unseen, but checking references and ensuring that you get such things as first and last months rent and security deposits will help shield you from being ripped off and help to ensure that the tenant takes due care with your property. Look into your local Residential Tenancy Act (or similar) to become familiar with your rights and obligations.

Whether you intend to directly control your rental property or wish to leave it in the hands of a third party, you need to do your research and take the precautions necessary to ensure that your rental property is a reason for your success and not your bankruptcy.

In our final article, we will discuss how all of these real estate investment opportunities are available to you in a depressed market.

A lot of investors get stuck with their investment because they bite off more improvements than they can swallow. Look for improvements that you can do yourself. For instance, changing the carpets, repainting or replacing/adding baseboards are ideal for the do-it-yourself investor and can add thousands to your asking price. Unfortunately fixer-uppers often have structural problems that require professional work like replacing the roof, redoing plumbing or electrical and foundation work. You must take these improvements into account because they may cost more than the profit they will generate at sale. Nobody wants to get involved in a money pit.

Sadly, most home sales are a “buyer beware” situation, so it would be good business practice for you to attempt to secure such things as home inspections, home warranties, grow-op disclosure, and pest inspection reports, before entering into a sale.

Now you should consider the time of your sale. Of course this is initially determined by the length of time it will take you to do the improvements, but market health is always a consideration. You can still sell and make money in a depressed housing market, but if you sense a turn for the better, it would be prudent to weigh your costs of holding onto your property.

In our next article, we will discuss rental revenue properties.

Experts continually suggest that when looking for a property to flip, you should be watchful for either an under-valued property or a property that can be improved in order to increase its valuation.

In the case of under-valued properties, you would look for foreclosures or must-sell situations. However do not be fooled by those late night real estate ‘gurus’ because investment in this situation isn’t as easy as they make it look. The majority of their no-money-down ‘success’ stories are at the very least exaggerated. What are the things to watch for? In the instance of foreclosure, you may want to find the reasoning behind the default to the bank. Maybe your intended property is fatally flawed in its construction and would require far more money to make it habitable than you paid for it in the first place. Must-sell situations also need to be examined to ensure that it is timing that is driving the seller to bargain and not some future cut in services or existing environmental disaster.

Once you acquire your property, there are many things that you can do to it to improve its valuation. We will examine some of those in our next article.

If you intend on buying a family home, then a depressed housing market offers you a better opportunity of negotiation. However, it also requires a modicum of careful research before you sign on the dotted line.

“Location, location, location!” is something you will always hear, but what does it really mean? Of course you’re looking for a home that will visually suit you for years to come, but even a beautiful property placed in an area that shows no real signs of growth will not give you the return you deserve when the kids leave home and you opt to sell. Consider the neighborhood in forms of services and utilities. Will your property continue to enjoy civic support in such things as roads, schools and public transportation? Sometimes prefab sub-developments stagnate and never some to fruition. It would be good to examine whether your neighborhood is able to achieve maturity. You can do this by checking the track record of the developer and the success of their projects. Also look into what the municipality is offering and what they intend to offer in the future. Without this solid backing, you may find yourself locked into a mortgage that no one else will want to assume.

Examine your mortgage options. If you are in the middle of a depressed market that looks like its going to drop further, you may want to opt for a fixed rate mortgage so that as interest rates rise, your rate will remain the same. If you think you see light at the end of the financial tunnel, you may want to consider a variable rate mortgage to take advantage of possible future falling interest rates.

This is just a sample of home ownership as a real estate investment. In our next article we will examine the buy, improve and flip concept.

What these panicked investors don’t realize, is that real estate investment, like stock market investment, is a long term project and needs to be afforded the same due care and attention. Therefore consider the following tips.

Be careful of overextending your real estate portfolio even in the good times. You should never risk more than you can afford to lose.

Outline your goals of investment from the outset, and stick to them when you seek out your next purchase. Are you buying a family home that you intend to live in for years? Are you intending to buy, improve and flip your real estate investment? Is your investment goal to purchase either commercial or residential properties for long-term rental revenue?

Stay tuned for our next entry for more tips and advice on purchasing real estate in a depressed market situation.

For posterity sake I’m going to review my experience. Here is the summary of the important this that I learned:
* A house buyer does not need to get a mortgage from a bank, conversely any Average Joe can provide financing (hmm, I wonder what effect they’ve seen with this subprime mess).
* You can buy a dump and fairly cheaply improve its “curb appeal” for a profit.
* Slick salesmen are everywhere trying to separate you from your money.

I never did get a chance to meet Mr Whitney. He showed up at neither the one hour sales pitch, nor the three day seminar. For all that I know Russ Whitney is a puppet they use on the infomercials. Instead there were these guys who talked about how great the Russ Whitney system is. I’ve no idea if these folks were real estate moguls or not, although they claimed to be, I don’t recall seeing any confirmation that they actually made any money on this (besides my tuition for the seminar of course). But even if they didn’t… those who can do and those who can’t teach, so I’ll let it go.

The class itself was enlightening for a non-finance techhie geek like myself who has never been anywhere. I learnt about offshore banking and covering your ASSets. I learnt that you should hire the best lawyer and accountant that you can find. But what did I actually learn about real estate?…
*Look for motivated sellers.
*Try to convince the seller to finance the property for you AND while you’re at it convince them that they don’t need a down payment.

Yes, I think I did learn more that that. It opened my eyes up to various concepts of renting, leasing, financing. I absorbed some ideas about how to cheaply improve a house’s market value. And I did use some of these tips, I have made money on every house that I have ever bought. However, I have been buying and selling houses during one of the longest sellers markets on record.

But over the course of three days, the amount that was actually taught probably could have fit into a much shorter (and cheaper?) seminar. However, they had to make sure that they left enough time to sell their next level of seminars (for the low, low price of … your first born child).  He also offered some type of mentorship program; mentors are great to have so, perhaps, this would have been the crown jewel in the program.

Seriously, I love learning. I do not regret taking this course as I learnt a great deal. The problem is that what I learnt was for more than what they taught. Of what they taught I probably could have picked up at my library.

If you have any interest in signing up for his seminars I recommend that you first read his book. Building Wealth, From Rags to Riches Through the Ages is quite easy to read and will provide you some ideas for real estate investing… and you’ll save yourself from the time and money of a seminar – at least until you’re sure that you want to.  Until then, join real estate investors communities… perhaps you can find a mentor there.

The article mentions a tool that the Saskatchewan government uses in its marketing campaign to entice people to the province called the Cost Calculator. Using that calculator I received a cost comparison or a family in Calgary earning $75,000 vs one in Saskatoon. The picture should be attached.

1) Mortgage Tax. Can anybody tell me what “Mortgage Tax” is? I’ve been a homeowner for a decade in various provinces and I do not recognize this one. If we can simply eliminate this entry then the $3000 ‘advantage’ disappears.
2) Property tax. The table does correctly show that tax is more expensive in Saskatoon than Calgary.. but it is misleading in how much the difference is. My house in Calgary was a 2000 sq ft bi-level, tax was $2400. My house in Saskatoon, is 1100 sq ft 4-level split, tax is $2700. Yes, the difference is $300 (as shown in the table) but for a house that is almost half the size! A comparable house will cost me more than $3000/year here.
3) Auto insurance is expensive in Alberta… if you’re young. As a married old geezer with a good driving record I found no difference between the cost of insurance. In fact, once you take into account that I had a bundle (home and auto) with an affinity discount (from TD Meloche Monnex) my auto insurance was probably a bit less.

So let’s re add this up… By my calulations there is a $2000 advantage to living in Calgary over Saskatoon simply from the corrected numbers. It gets worse, now consider the following:

1) The above calculation is based on the assumption that you can earn the same in
Saskatchewan as you do in Alberta… a poor assumption in my opinion. A quick look at Stats Canada reveals a $12,000 disparity in the median family incomes between the two provinces.

2) The price of real estate in Saskatoon has followed that of Calgary and seen double digit increases over the past year (as Calgary did the year prior). The sad reality is that housing costs are far closer now than they were a year ago largely because Saskatoon lagged Caglary in the real estate boom.

In my case, the decision was mostly not financial (but there was one strong financial incentive). We moved here:
* To get away from the hour+ long commutes in both directions, it now takes me five minutes to get to work:).
* So that we and our kids could be close to family.
* When we were considering the move there was still a large price differential in real estate that we correctly predicted would even out.

So the reality is that it will cost you more to live in Saskatchewan and you will likely earn less. However, if you want to live in a beautiful city that is close to numerous lakes and generally has very short commute times… then come on over!

ps., I apologise for the horrible title for this post, I just couldn’t resist.