The Investors Housez – Your Calgary Real Estate Information Site

It’s been a rough year for investors who went with some of the large developers with huge advertising budgets. Already this year we have seen Concrete Equities and Bridgecreek Development run into some serious issues, now Shire International Real Estate Investments has been served with a Class Action Lawsuit.

Shire was issued a cease trading order in Saskatchewan earlier this summer and now has as many as 3,000 investors involved in a $75,000,000,000 lawsuit in an attempt to recover some of their investments. For the whole story you can follow this blog, The Shire Saga.

It’s not that all of these investors were first time investors, or didn’t know what they were getting into. The success of the Real Estate market and the potential for great returns has always had investors flock to these types of opportunities.   This same excitement of missing out has always been around, whether it was the stock market, the real estate market or even the gold rush.

Unfortunately it could take years before anything becomes resolved with any of these companies, meanwhile the investors are all hung out to dry. Hopefully some of the allegations that people are throwing out in some of the discussion forums about Ponzi schemes and misappropriation of funds turn out to be false and people are able to receive some of their investments back.

You always have to remember, any type of investment is a risk reward situation. The higher the potential return the higher the risk involved. We have had some very successful investments over the years with many of our partners, friends and investors, but we too have been hit over the last couple of years and had to disappoint some people with the results we have recently seen. Fortunately Real Estate is a long term investment and the people we work with understand this, so as long as you have the time to wait, they can be quite satisfying financially.

Just as a final note, the damage companies can cause by being irresponsible rains down on all the other good and honest companies that are out there. People who abuse the opportunity that is out there all for personal greed and to line their pockets deserve to take the fall that accompanies it. I’m not saying all of these companies are indeed at fault, but if they are, they deserve to have the book thrown at them.

What a great way to feed the fear that is already prevalent out there just to shill a few papers. I just read the article from the Edmonton Journal talking about Alberta’s bankruptcy’s being up by 86%. The sub headline compares us to the national average of 34%.

So first off, it sucks that people are going into bankruptcy. It’s hard on them, it’s hard on their families, and it’s hard on the economy. I don’t wish it on anyone.

Now for the realities of it. Alberta went through what was possibly the biggest boom Canada has ever seen in the mid 2000’s. Money literally fell off trees here and that is why people flocked to the province, home values skyrocketed and spending went crazy. Add on top of that the entrepreneurial spirit folks in Alberta seem to have and the number of personally owned small businesses in the province that require a busy economy and you can see why bankruptcies have jumped here.

We became intoxicated with the boom and with such a young average age in the province all we knew was economic success. Alberta led the country in retail sales, we led the country in average wage increase, and we led the country in unemployment, the list just goes on and on about how successful we were. Now that the money train has stopped for many and the economy has slowed down, of course we will see the repercussions of people used to a lifestyle that couldn’t be maintained.

The biggest spike in bankruptcies just happens to be in Fort McMurray and the Peace Country which just happen to be driven by oil and gas. It would be interesting to see statistics about the average age of these bankruptcies. Perhaps it might show younger individuals who were making six digit annual wages and living incredibly well having to survive off of $1,600 monthly EI payments? When they have $1,000 monthly vehicle payments, you know that won’t last long.

On top of that, look at how many individuals have gone the route of contract work for companies to acquire the bigger monthly pay checks. During a boom, this was an incredible way to go. The downside of course is during a slowdown, many contract workers are the first to go. For the company these contracts don’t require big severance packages versus paying out long term employees. For the contract employees, suddenly they are faced with the situation where they don’t even qualify for unemployment insurance!

These are a few of the reasons why we are higher than other provinces, it’s not that things are worse here than anywhere else. The situation here in Alberta is actually far better than many other areas, we have just experienced a much larger swing of the pendulum so it is more visible statistically.

So in the end, maybe this was a wakeup call. Maybe we are reminded again about the 80’s and how we asked for another boom and promised not to piss it away again. Maybe we just come out if this a little bit wiser, create a better plan for our future and ask for one more boom?

June marked the sixth month in a row of increased Real Estate sales and this continues to help  keep the Calgary and area Real Estate market sitting in a balanced environment. As I discussed before a balanced market is where we have approximately 2-4 months of inventory for sale versus the 11 months we reached at points last year.

When we have excess inventory, it is called a buyers market as buyers have a multitude of choices and sellers are at the buyers mercy. This type of market tends to drive prices down as competition heats up for the few properties that are getting sold. When we are short of inventory we have a sellers market and they can command higher prices as buyers have less choice and more buyers are competing on a single property.

The result of a balanced market is we no longer hear tales of buyers submitting low ball prices with all kinds of conditions and sellers accepting the offer. More sellers are sticking to their guns and not budging and there are even occurrences of multiple offers on some properties coming up again.

Does this signify the boom is back, the recession is over and life is moving forward? Or is it just an indicator of how short our memories are? Perhaps it’s a bit of both. Time does heal all wounds and we have been in the midst of this recession for awhile. Another option is we may becoming used to it and it’s not quite as bad as it sounds.

Part of the government strategy to fuel the economy was the lowering of interest rates to stimulate purchasing and the borrowing of money which then leads to accelerating the flow of money through the economy. This was tied hand in hand with the money being pushed into capital projects which stimulate job growth. Together these have created cheap money for borrowers and more stability in some areas of the workforce.

When we look at some of the sales statistics, we can see that the majority of sales in single family homes are all occurring in the $399,999 price range and lower. Now while this sounds quite high, with today’s current low interest rates the payments can be deceptively low. Even using a CMHC 10% down payment mortgage a property at the top of this range would require payments of just over $1,600 a month based on a 35 year mortgage.

This only requires a family income of around $60,000 to qualify for and when considering a year ago the monthly cost of this mortgage would have been closer to $2,000 a month you can see why many home buyers are excited. Two and three years ago these potential buyers were priced out of the market by the combination of higher (compared to now, but not historically) interest rates and prices that had skyrocketed.

Now they are suddenly finding homes that fit into their budgets. This coupled with the headlines and news stories about the housing market rebounding and interest rates starting to increase have home buyers jumping in before they find themselves priced out yet again. It’s not about the price of the home; it’s what the individuals purchasing the property can afford and homes have suddenly become affordable for many.

So what will happen to these homeowners as interest rates change and move upwards? Will they suddenly find their homes unaffordable again and be forced into selling, defaulting or some other dubious situation? For the majority there won’t be any difference for three, five or possibly ten years, all depending on just how long they have locked their mortgage in.

By that point, we will have passed through the current recession and we may be left with some fallout from our current economic situation. To battle the pending inflation that will in all likelihood result from the current recession we will be seeing interest rates rise once the economy is in a recovery stage. This will affect homeowners when they go to renew their mortgages in the next few years. The outcome of this could be mortgage payments that increase by several hundred dollars per month or more, all depending on the mortgage size and the amount rates end up increasing.

But three or more years out is a long time from now and the economic situation could be quite different again by then. Historically following recessions there is always growth in the economy, which leads to more jobs, which leads to more money flowing and to increased values in properties. Not 35% per year growth but at least steady single digit percentage growth.

So maybe by then, the house has gone up another 10%, the mortgage has been paid down many thousands of dollars, wages have increased and their home is still affordable after all. Maybe, just maybe they will be happy they didn’t listen to the people who told them to continue renting and that prices were too unaffordable.

So how can I help you? Really, do you have questions about Real Estate? Do you wonder how mortgages work and whether a fixed term or variable rate is best? I have been actively involved in Real Estate for over 6 years now, so I might have some insights for you. I might even be able to recommend a home inspector, mortgage broker or Realtor to make your life easier.

Are you having problems with tenants? Or finding tenants? I can recommend where to advertise, what methods work best and even how to help screen them. Or if you are wondering what the process for evicting someone is, well I have been there too and can tell you the fastest easiest way to get this done.

Are you wondering whether now is the time to purchase a rental or vacation property in the US or Caribbean? I can tell you what to watch out for and what you need to know before you make any decisions. Are you aware of issues like foreign taxation, how foreign exchange rates will affect you and pending price trends?

Are you looking for safer investments than the tumultuous stock market right now? I’m currently looking for investors to partner with on purchases of single family homes. Or would you be interested in finding out about fixed 8% returns on Mortgage Investment Corporations (MIC’s)? I also have access to other Real Estate based opportunities that pay 10% or more and provide profit sharing. These start at only $5,000 and you can transfer current under performing RRSP’s over.

What about some great books for business, motivation, or self improvement? If you have followed me for any length of time, you know I like to read. I’ve slowed down a bit, but I have read over 150 books in the last few years, maybe I can make a suggestion?

Are you looking for a great employee? I talk to a lot of people every week, maybe I talked to someone who is ideal for what you need? Heck maybe it’s me if I don’t get any emails or comments back from this post as I may be off base and need to find a new line of work! If you are tired of employees and are looking for someone to help sell your business I can even help with that!

Zig Ziglar (yes I have read several of his books too) says, “You can get anything you want if you help enough people get what they want.” Times are tough right now and although people may want to crawl under a rock and hide until it’s all over and the world rights itself, maybe helping others is the first step to getting to achieve better times? Besides, you wouldn’t want to be under the rock and miss the turnaround anyway!

So if I can help, let me know. If it’s something that will help everyone, post it as a comment, if it’s something you don’t want to share, email me directly. Many of you who have emailed me directly in the past know I like to talk and I like to help, so let me know what I can do to help you or someone you know.

So now that I have offered to help you, here’s my catch. Give me some guidance; what would you like to see more of in my posts? Or what would you like to read less of? I’m trying to post more consistently as time permits, but if it’s not of interest to the majority of people, I am wasting everyone’s time.

Checking my statistics over the last few months many of my readers while still receiving posts, aren’t actually reading them. So I either have become boring, unimportant, or simply off topic. So help me get back on track and maybe even forward me to friends or acquaintances who might be interested. It really benefits everyone!

Scary headlines sell newspapers. Think about it.  You walk by a newspaper box and read a headline that says “Family Dog Bites Person”, who cares.  Instead, if the headline reads “Vicious Pit Bull Attacks Grandma”, now someone’s grandmother was attacked by a ferocious dog and its news. Suddenly people start buying papers like crazy to read what happened.

Both could be the exact same story, but the headline makes people read the story. Once you read the article you are able to get the real information buried somewhere within the news. That’s how news works and that is how papers get sold. The real information is always buried in the details.

This whole topic came from a story I read in the Calgary Herald’s online version today. Their headline is “Alberta’s EI cases growing fastest in Canada”. Scary isn’t it? First impression is that Alberta is far worse than any other province; it confirms the economy is crashing in Alberta, the situation is getting worse daily and we should all be afraid of potentially losing our jobs. Am I right? Think about it, didn’t that kind of go through your head initially?

It’s when you read the article you get to find out the details. We have had an increase of people claiming EI of nearly 165 percent from last October. This works out to over 30,000 newly unemployed in the province or a total of just over 48,000 unemployed in Alberta. With those types of numbers, odds are you know someone who has recently become unemployed.
So let’s look closer at it and look at the big picture. One important line in the article says, “Despite the increase, Alberta still holds one of the lowest unemployment rates in the country.” Hold on, that doesn’t sound so bad, does it? Our provincial unemployment rate is still only 6.6%. It wasn’t that long ago we were close to a 3% unemployment rate, which is full employment. In other words, the only qualification you needed to get a job was fogging a mirror.

We saw how well that worked by the incredible customer service you could receive at many businesses and companies we all had to try to deal with. Now this jump in unemployment doesn’t mean everyone who joined the unemployment ranks wasn’t a good employee, but face it, there were a lot of people working who would normally not get hired in a healthy economy! This has been an attrition process for some companies and is allowing them to weed out some of the less than exemplary employees.

When we look at Canada as a whole, Alberta’s paltry 49,300 unemployed doesn’t seem so bad. Canada wide the latest stats show 1.5 million unemployed and Ontario adding 59,700 to the unemployed in May alone! Our loss of 30,000 in almost nine months suddenly doesn’t look that bad now does it?

So now that we have our numbers in perspective, what does the fact that the percent of unemployed are growing faster in Alberta than anywhere else?  Well when you look and realize how many people moved to Alberta just for work, and how many jobs have been created here in the last few years you have to believe many of these positions would be the first to go during a slowdown.

A majority of the newer jobs were in the energy sector or serviced the energy sector, which has been hit quite hard in Alberta, while the other major work projects revolved around the massive in-migration of people and companies and tended to be based on construction. With a slowdown in energy and a slowdown in construction, is it any wonder that these jobs disappeared? As these jobs slip away, many of the support services around them also had to shrink as their work load decreased.

So the end point of all this is when jobs are created so quickly to fill the booming economy, they can vanish just as fast. This results in a higher percentage of unemployed, just as we originally had a higher percentage of employed.

There are many signs the worst part of the downturn is done, at least for Alberta. Oil is hovering around the $70 mark (which three years ago everyone thought was great), home buying is increasing, money is starting to flow a bit more in our local economy and people are adjusting t the slowdown. We are not booming, but we are definitely not busting either, we just need to keep it all in perspective.

So next scary headline you read, take a minute to read the actual facts in the story and find out just how scary, or non-scary, it happens to be.