I know many of my readers are already investors, some who invest in their own properties and many who are even investors with us in our properties. So some of my thoughts coming up will be of interest or even concern for many of you.
It can be a scary ride
First off, we have to realize that the incredible years we had in Real Estate during the mid part of this decade were an aberration. Yearly increases in property values of 30-40% are not healthy, not common, and not easily replicable except when everything comes together perfectly as it did for several years in a row here in Alberta. I’m ecstatic that I was able to be heavily involved with various Real Estate investments during that time and I am excited that I was able to drag friends and family along with us for the ride.
Whenever a great ride like that comes along, there also has to be a slide back down the slope after the fact and that is what we have been going through for the last couple of years. The recession, world credit crisis, and general economic malaise have helped drag this out far longer than it should of, but that’s part of the cycle sometimes.
We’ve always been optimistic about Real Estate and honestly, we have had our concerns about the markets the last year. You can only get continually hammered by negative news before it starts to wear you down. During the last year plus, when the markets didn’t recover as we anticipated we were concerned, often times anxious and many times frustrated with how the Real Estate market was behaving.
We have to face it, our livelihood, our dreams and our plans all revolve around what happens with our Real Estate investments. To make the burden even more over bearing, we also have many investors who we have brought on board who are also having to deal with concerns about their investments with us. Values are down and they just aren’t rebounding as fast as we would hope. While we still have positive cashflow from properties and mortgages are getting paid down each month, appreciation is such a huge positive and it has been sorely lacking.
Fortunately, we have always taken a longer term outlook with our Real Estate investments and we all just have to realize we will all see our money start to grow yet again. It just won’t be at the crazy levels previously seen. Currently it is increasing at a snail’s pace, but considering the reverse trend we had been seeing, single digit yearly growth doesn’t seem that bad in the big picture. As always the great aspect of Real Estate is we have cash flow and mortgage paydown at the end of the day and a long term view.
That’s where we sit. The problem I see that will be occurring over the next couple of years (or even faster) is going to revolve around the problems the bigger players have created for us.
As Real Estate investments currently go, with smaller deals it revolves around Joint Venture agreements. This is what we deal with when bringing investors in on a single property. When you move up the chain of Real Estate investments, you start getting into Limited Partnerships, Syndications and the officious sounding Offering Memorandums. This is where significant problems have arisen over this last year.
In certain provinces there are regulations requiring a certain dollar amount of currently held investments and/or yearly earnings to even become involved with these type of offerings. Sort of a rich get richer scenario as it appears only the rich are allowed to play.
Of course, with Alberta being part of the wild west we have been outside of these
The Wild West
boundaries. Unfortunately though, with the recent goings on with companies like Concrete Equities, Shire Investments, Bridgecreek and who knows who else will be added to the list in the next six months, we have to expect this to change. This is part of my upcoming conspiracy theory!
As more details of investors getting bilked through ponzi schemes, Real Estate developers over estimating returns and numerous other problems, it will lead to the government jumping in with both feet to “help” out the investors. This will lead to nothing but additional regulations, lengthier more stringent requirements for individuals to invest in anything “off the grid” of bank stocks and mutual funds and more hoops for the little guy like ourselves.
At the same time, banks and investment advisors will be in an even more profitable situation as other investment options will dry up for the middle income families. On the other end of the spectrum, the parties that take advantage of the loop holes and work the system, and their will be plenty of loop holes initially, will not necessarily have the best intent of the investors in mind, but will most likely be concerned about getting as much investment capital as quickly as they can before that door becomes closed. This can make a very precarious situation for someone with smaller amounts of investment dollars.
So here is your warning, there will be change in the industry, in the opportunities and the way Real Estate investments will be allowed or structured. It most likely won’t be overnight, but it will take place in the near future. For small investors the ones who can adapt to the change and already have great systems in place it will be an easier transition. For investors who have been flying by the seat of their pants this will probably bring a quick demise to their careers.
Now is the opportunity for any landlords out there actively pursuing Joint Venture partners to ensure all their systems and procedures are documented and ready to go. This will help streamline any regulatory changes that do come about and also provide a place to start when moving forward. It may also be an opportune time to purchase additional properties prior to the rules of the game changing.
For potential investors, it will be even more important to do all of their due diligence and to be vocal if it appears they may be locked out of the opportunities afforded the bigger investors with larger pockets. Currently many financial advisors are changing their approaches with clients and coming up with creative ways to access more investment capital. By backing any regulations that block investment with smaller Real Estate investors it will just benefit them as alternatives get reduced.
Whatever your situation, watch for changes to come. Just be aware that not all the change will necessarily be benefiting the proper people, but perhaps protecting the financial industries instead. This is a great topic to get feedback from you on, so I would really appreciate any thoughts you may have on this. Feel free to comment ont his post, or email me directly at bill@housez.ca.
Hello Bill
Love you blog…and here is my long winded Reply
Well I also share your opinion that this is a great opportunity for having your ducks in a row. As with any downturn…change happens on all levels.
I believe balancing what is a stretch and what is sabotage is always an interesting question to ponder,whether it’s eating that extra cookie or buying that next property there are always consequences.
I believe banking practices will continue to change like the wind…and of course stricter guidelines are likely to be implemented.
With the middle class slowly eroding.. and higher paying jobs in some sectors disappearing….its not hard to read the cards.
On a positive note we can always point ourselves in a positive redirection with the best info we have and decide to either sit where we are and grow our nest eggs still having some $$$ to save, share and spend or continue to stretch a little…either way is a RISK… …So perhaps now is the best time ever to really look at your life…where are you Now…How Much is Enough
…and grasp the Brass Ring…it’s within our reach…Stay, Hold or Buy!
Perhaps this Economic Downturn is the Best we could hope for…a reminder of what is truly important to us and to join together for our common goals whether it be Real Estate investing, Community service…longer vacations, more time with family.
Create your reality and remember the people in your picture make all the difference…Surround yourself with wonderful people.
Stay well, Laugh often
Deb
Great reply Deb! It’s during tough economics times that many changes are realized for companies, families and individuals. Some of these changes can dictate where their lives take them and the current economic situation is a great example of a time where people can seize the moment and make momentous strides with their lives or just carry on hoping for the best.
On a recent podcast I was listening to I heard that of the 30 companies that make up the Dow Jones Industrial Average, 16 of them were formed either during a recession or the depression. I haven’t verified it, but I can easily imagine how it’s true, out of great hardships some extraordinary people always raise the bar and now is one of those times we will look back on and most likely see even more huge successes directly related to this time in history.