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Jurock’s Real Estate News

Sept. 17 to 24, 2014

“Never stop and say, ‘I have done enough.’ When you say that you are going backward, not forward.” -Morley Greene

FACTS BY EMAIL THIS WEEK:
Real Estate Outlook 2015 Covered All The Bases
Debt & Demographics
Lessons From An Illustrious Career
On The Ground In Northeast BC
Two Alberta Towns To Invest In Now
Formula For Investing In Phoenix
Whistler: Move Fast For Opportunities
Saltspring: A Love
Power Of Property Management

Tip Of The Week: MORTGAGING THE AGING – DISCRIMINATION? HOW DO YOU DO IT?!

Real Estate Outlook 2015 Covered All The Bases

The 23rd annual Jurock Real Estate Conference 2015 will be known for the breadth and depth of its presentation, which this year tapped speakers across an astonishingly wide field, from global demographics and macroeconomics to the nitty-gritty of investing in northern B.C. and Alberta boom towns.

As Ozzie Jurock explained, “We decided to make the Outlook Conference more meaningful. This is a difficult environment and to make proper forecasts we had to broaden the real estate horizon from various viewpoints.”

Today’s real estate investors are buffeted by changes in interest rates, currency fluctuations, changing demographics of potential buyers and vendors, as well as the traditional challenges of finding the right location and the right team to make any property play pay off.

All of that information and more was found at Real Estate Outlook 2015, which for the first time held breakout sessions on specific topics as well as presenting a distinguished lineup of expert speakers and a trade floor packed with booths.

Below are just some of the highlights of what many delegates said was the best Real Estate Outlook Conference ever.

Debt & Demographics

The aging of the global population is unprecedented in human history and holds the key to understanding future economics and the real estate market, said Kwantlen Polytechnic University finance professor Robert Ironside, who holds an MBA in Finance, a BA in Economics and held the floor to open the Real Estate Outlook conference in front of a spellbound audience.

What is going down the track, Ironside said, is the gigantic bulge of an older population. As late as the 2000s, the bulge was apparent. By 2050 the entire world will be older, much older and people are living much longer. “We will never go back to having a younger generation and every facet of human life will be impacted by aging.”

It means lower population growth – Canada has a birth rate of 1.6 and it needs 2.1 to keep the population stable – and some countries are faring even worse. Russia, for instance, will lose one-third of its population by 2050 unless, like Canada, it allows large levels of immigration. Europe will face the biggest population loss since the Black Plague.

The highest growth rates and youngest population in the world are in the Middle East and Africa, a “youth bulge” which Ironside said explains much of the turmoil in those regions.

In 1970 there were 205 million people in the world over the age of 60. By 2050 there will be 2.5 billion people this age or older and this group is already growing 3 times faster than the general population. “This is scary.” It means that in Canada within 20 years there will be 2.1 retired persons for every working person, he explained. And it gets worse after that. The real estate implications are profound, he argues. In many countries, the population will decline by 1.5% annually. Work forces are going to shrink and workers will become less mobile and less likely to move.

A global debt crisis is looming, he warned. We are at the end of a debt cycle that is being seen all over the world but most developed countries have been printing money, using inflation to handle the debt crisis, Ironside side. “With all of this liquidity getting pumped out by central banks all over the world, there has to be some asset inflation ,” he says. For those investing today, regardless of whether prices fall in the short term, they are likely to be rewarded a decade from now, because like everything else, assets will cost more to buy as the currencies’ purchasing power is eroded by inflation.

The first big crunch, he said, will be in the 2020s – less than six years away.

“Canada will not be hit as hard as some other countries. The winners will be those who understand what is happening and get ahead of the curve,” Ironside said.

Lessons From An Illustrious Career

Morley Greene is the legendary Chairman and managing partner of Trez Capital, Canada’s largest private commercial mortgage lender with a mortgage and investment portfolio of $2 billion – and that is growing at about $200 million per year.

While Greene began and remains in Edmonton, which he believes is one of Canada’s best real estate markets, four years ago he expanded into real estate in Dallas, Texas. He soon realized that 17.5 million people lived within one hour of Dallas and that U.S. banks were hesitant to lend on real estate. He opened a lending company and was soon providing 65% loan-to-value loans to Texas homebuilders and making 12%-18% returns. He has since set up a U.S. investment fund in Canada that is now worth $100 million. This year Trez has done $257 million worth of loans in Dallas, where it is also doing some land development. What appears like a Midas touch, however, is bed rocked on a set of career-long principles, which Greene shared with the Outlook audience.

Find a mentor who is honest – honesty is more important than kindness.
People have to trust you.
Don’t be afraid to ask for the cheque. And don’t be afraid to lean on people when you ask for the cheque.
Build strong relationships, because in the long run these relationships will hold you in good stead.
Hire good people.
Invest only in bigger cities that can weather downturns. Small towns are too volatile.
Only lend on cash-flowing businesses, not on raw land.
Don’t lend on in golf courses, recreational property or hotels.
Always see the physical property before you invest in it.
Always maintain discipline.
Know your business.
Don’t be afraid to make mistakes.
Don’t deal with neophytes or with disreputable people.
Never stop and say, “I have done enough.” When you say that you are going backward, not forward. Always keep growing!
Back in Edmonton, Trez has entered into condominium development. Low interest rates, ironically, is what helped convinced Greene to go into residential construction. Canada Mortgage and Housing Corporation loans are available at 2.35% for five years, he said. “Wow,” Greene said, “what doesn’t work at 2.35%?” INDEED!

On The Ground In Northeast BC

We have all heard of the liquefied natural gas boom that is shaping northeast British Columbia and will dictate the future of the province. Outlook speaker Chris Biasutti has a front row seat on the action as director of sales with Western Canadian Properties Group, which is active in northeast real estate investments.

Biasutti said the northeast is bigger in dollar value than Fort McMurray was when it emerged as an oil-boom town 15 years ago. With $60 billion in investments pouring into the Northeast, it is a lot bigger. China and Japan are clamouring for LNG – the former to ease pollution levels and replace coal, the latter to replace 43 nuclear power plants that shut down after the earthquake. LNG sells in Asia for $16-18 (per gigajoule), compared to $3.40 in North America, which explains the push to get B.C.’s LNG to market and why China invested $15 billion buying Nexen, a major player in the NE gas patch.

Northeast BC holds 30% of all the LNG in North America and drilling alone will total $8.9 billion within four years; from 20,000 to 40,000 new workers will be needed to meet demand, Biasutti said.

And the kicker for real estate: the population of the Northeast, which includes Fort St. John, Fort Nelson and Dawson Creek, could double to 64,000 people. The rental vacancy rate is already near zero and average rents are at Vancouver levels, but you can buy brand new townhouses or condominiums for less than $250,000. As Biasutti notes, young gas field workers are making good money and they want nice rentals.

The message: get into the Northeast BC market now and profit from both renting units out and holding for appreciation. See www.westerncanadianproperties.com for their offerings.

Two Alberta Towns To Invest In Now

Edmonton in the north and Red Deer in the centre of the province are the two prime Alberta cities for real estate investors, Andrew Schulhof of Strategic Investment Realty (www.strategicinvestmentrealty.com) told the Outlook audience. And he had the numbers to prove it. Half of all the new jobs created in Canada last year were in Alberta and Alberta employment grew 3.5%, compared to 1% in the rest of Canada. That equates to 71,000 new jobs in Alberta. In one year.

Alberta has the highest weekly wage in Canada, at $1,108.

Edmonton, the provincial capital and service centre for the oil industry, has a huge influx of people annually, rental vacancy rate of 1.3% and its housing prices are less than half that of Vancouver. The Edmonton Arena District (EAD) is a multi-billion redevelopment, now underway, that will include a new NHL hockey arena and the tallest (62-storey) building east of Vancouver and west of Toronto, as well as retail and residential right downtown.

Red Deer offers the same logistics as Edmonton – a strong economy and situated halfway between Calgary and Edmonton – with the addition of no business tax and an average household income of $94,000. Red Deer condominium rental apartments can be bought for $123,000 and deliver steady rental income and a healthy return on investment at resale, Schulhof told the Outlook audience.

Gerry Halstrom, one of Canada’s top real estate professionals and a real estate coach and trainer, also urged Outlook delegates to invest in Alberta.”It is happening, baby,” he said. But Halstrom cautioned rental investors to hire a good property manager to avoid the “yahoo factor” in Alberta centres that are flush with young men with loud money. Halstrom likes Edmonton and he pointed to one recent opportunity: the Nest, a new rental condominium project in Spruce Grove (an Edmonton suburb) where studio suites sell for $99,000 and rent from $975 to $1,095 per month.

Formula For Investing In Phoenix

Speakers, Ralph Case, president of Worldwide Referrals (and a long-time partner of Ozzie Jurock) Paul Blum, president of Phoenix-based Patriot Commercial Properties, and Eric of Express Capital Mortgage Inc., presented detailed blueprints for making money in Phoenix real estate.

Case outlined the “multiplier effect” and the criteria for investing in Phoenix rental units. The multiplier effect, he explained, means boosting a property values by changing the net operating income. Simply raising the rents on a 50-unit rental building by $10 per month, he noted, will have dramatic effect on the cap rate and the value of the investment.

Case and his partners have bought more than 500 residential units in Phoenix over the last two years and have applied the multiplier effect on every one of them – in some cases increasing gross income dramatically.

Here is what Case looks at in the competitive Phoenix market when shopping for property:

Location (close to good schools and in family neighbourhoods)
The number of suites
The mix of the suites (1, 2 or 3 bedrooms)
The cost “per door”
The capitalization rate
The operating expenses
The cost per square foot
The occupancy level in the building.
Blum and Kohl shared a strong message: there is money available in the U.S. for Canadian investors, with Blum noting that U.S. commercial real estate can be as profitable as residential plays.

As Blum explained, Canadians can land financing in the U.S., but they will be required to put down at least 35% on their purchase and expect to pay mortgage rates of from 3% to 5% for five-year loans. Express Capital. Based in Phoenix, specializes in helping Canadians buy U.S. real estate, even offering a “home fix and flip” package on U.S. properties and can arrange “cross-state collateralization” for Canadians who want to buy in different states.

Whistler: Move Fast For Opportunities

Veteran Whistler realtor Mike Wintemute, now managing broker for Sotheby’s International Realty Canada, is a perennial speaker on Whistler real estate at the Outlook conference. But this year he had some good news.

While not saying that B.C.’s biggest ski resort is in full recovery mode, he told the audience to move fast to grab what he believes may be the last of bargains for a long while.

Listings of homes for sale have fallen to 700 units and will likely stay in the 500-unit range for 10 years, Wintemute said. Prices remain far below the peak, but are recovering. The 30-40 homes selling each month are all at the higher end. For example, he pointed to a 3-bedroom unit at Mountain Star that sold for $1.3 million in 2006 and this year for $900,000. Townhouses at North Star in the Benchlands have sold 1,000-square-feet units for $553,000, down from $720,000 when they first sold ten years ago.

“Whistler is on its long way back,” he said, adding that this summer posted the highest visitors numbers on record. “There are some great deals but you have to move fast.”

Salt Spring Island: Island Living Is A Love Affair

Long term Ace Realtor Li Read made a caring, sweeping presentation of her beloved Island (they call her Ms. Saltspring), the challenges and the rewards of Saltspring living (and no, it isn’t just the lamb you go there for) and the healthy lifestyle. She took a special focus on the (probably last) new development called Skywater Acres (www.skywateracres.com). I had the privilege last week to fly to Ganges (25 minutes from downtown Vancouver) and see it firsthand myself. It is a high class fabulous 500 acre development with splendiferous vistas and large lot sizes (5 acres to 22 acres) – relatively inexpensive (with finished driveways) in the $400,000 to $1, 2 million range – most with breathtaking settings. She may fly you there if you are really interested and you can get a hold of her here: liread33@gmail.com

Power Of Property Management

Vancouver-based Scott Ullrich, President and CEO of Gateway Property Management, heads one of Canada’s largest property management firms. More than 45,000 Canadians from B.C. to Quebec rent from Gateway, which is celebrating its 50th anniversary this year.

Professional property management is vital, Ulrich said, whether it is for a property portfolio or individual units. But Ulrich cautioned that B.C.’s new depreciation reports are skewing the condo rental market. He estimated that half of all the Strata Corporations in B.C. do not have a depreciation report, which he said means trouble ahead for investors . “I believe we will see the development of a two-pricing structure for condo mortgages: those with a depreciation report and those without one.” Buyers of units with no depreciation report will pay more for their mortgage and will have trouble selling the units, he said. The cost of a depreciation report is from $2,500 to $7,500 and then from $25 to $100 every three years to keep it current. ” That is very cheap when you consider the potential real estate returns,” he said. An excellent, fact based, no nonsense presentation.

He also outlined his basic principles on hiring a property manager. Principles that deserve their own space – in next week’s issue.

Best Mortgage News

By Dustan Woodhouse

Are there age restrictions on Mortgages? Strictly speaking NO. Can an 88 yr old take out a new mortgage with a 30 yr amortisation? Strictly speaking, YES.

BUT: Have new policies all but eliminated lending options for the retired individual seeking a mortgage or a secured credit line? YES.

There was a time that all one required was stellar credit, 35% equity, and confirmation of no income taxes owing to CRA – and they received a 65% of value mortgage up to $1,000,000.00 at AAA interest rates.

That time has passed. November of 2012 saw the introduction of the B20 guidelines for Chartered Banks, and by Spring of 2013 the flood of ‘Equity’ applicants into the Credit Unions was so overwhelming that nearly all Credit Unions either collapsed completely or significantly limited their ‘Equity lending’ programs.

The focus on line 150 documented income is intense, unrelenting, and unlikely to change anytime soon. Few lenders will consider OAS or CPP income. Although a registered pension puts one in a pretty solid position.

The trickier crowd to accommodate are the self-made individuals that have sold their companies, have stellar credit, significant liquid assets, and many times clear title properties. All of that gets their toes right up to the finish line, but without any confirmable income or confirmation of owning an incorporated company crossing that finish line and getting financing approved is far from a simple task. On a near daily basis I am advising clients that they look away from this thing called ‘logic’ as it largely went out the window along with reasonability and rationality when it comes to mortgage approval.

Back to the opening question about whether lenders age-discriminate, certainly not officially as that would be a human rights issue. However there 101 other ways for a lender to decline a file from an applicant they are not comfortable with.

Ultimately solutions and Options still exist for all clients, the issue though is that they are often accompanied by a .50% – 1.50% rate premium and on occasion a .50% – 1.50% lender fee.

Income is vital. Confirmation of business ownership is helpful as well, second only to income. Moral of the story; Get your financial ducks in a row prior to retiring or sell your company. Create access to the equity in your property before you need it. GOOD ADVICE DUSTAN … FOLLOW IT. You can get a hold of Dustan here: dustan@ourmortgageexpert.com

1yr 2.74

2yr 2.59

3yr 2.69

4yr 2.82

5yr 2.89

Variable – Prime -.60% – 2.40%

Information provided by Jurock.com

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