Note: This week's article are my answers to questions submitted to us this week by a national media outlet... we're not sure if they're publishing our answers, so we are! Use us as your real estate investing resource center.
1. I know it's almost impossible to judge just when the bottom is and trying to do so is like picking a needle in a haystack. But in your eyes, are there any telltale signs you look for?
Answer: The number one way to tell which direction the real estate market is going to go is to look at interest rates. If interest rates are low, as they are now, the market will rise. When you can borrow money cheaply then people will do it. Right now we're seeing as many as nine offers on a single property in the east end of Toronto and five offers on properties in the Kitchener/Waterloo area. Why is this happening? Low interest rates. Cheap money.
2. In your opinion, where are we at in the current real estate cycle? What signs point to this?
Answer: Tough question for many reasons. Canada is holding interest rates low to try and scare off foreign investment into this country. The hope is that this keeps our dollar low. And the reason that Canada wants this is to protect our export based economy. And Canada is almost forced into this situation because the U.S. isn't an attractive place for foreign investors right now. Canada doesn't want investors who are avoiding the U.S. to pour their money into this country because it will drive our dollar up and dampen sales of our exports to the U.S. As a result Canada is keeping rates at historic lows and recently announced that they will be this way for most of 2010.
We're in this very strange stage of the real estate market where market forces out of our control are guiding activity. If Canada begins raising interest rates that will slow the real estate market.
Be ready for that. It happened in the early 1980's where interest rates on mortgages were in the teens and in the early 1990's when mortgage rates jumped quickly. This slowed the real estate market to a crawl.
Bottom Line: With rates this low we are in an active real estate market with prices appreciating. As long as Canadian employment stays relatively strong and flexible, as it has, then people will continue to buy.
3. What top 5 tips would you give to other investors right now, in order to buy well in the current marketplace?
Answer (#1 -5!) 1. Always buy properties that generate positive cash flow. It's easy to hold onto properties that generate cash for you. It's tough to hold onto properties that cost you money every month. This advice is so simple that most people discount it.
Buy for cash flow, don't buy for appreciation only. Buying for appreciation is speculation. You can make big money speculating but you need deep pockets to survive.
2. Get educated. Seriously, start learning about the bond market, the foreign currency market and interest rates. Learn how Canadian Bonds work and U.S. Treasury Bills work. These things are responsible for direction of interest rates and the real estate market. Investing without getting educated in these things is like flying blind.
3. Think long term. It's easy to get caught up in short term thinking. Instead, develop a plan that extends out 5 and 10 years. 98% of people don't have such a plan. Are you the 98% or the 2% that does? Using your plan as a guide makes your decision making simple.
4. Buy in communities that have staying power. Buy a property in a Canadian community with growing population (faster than the average of the province), diverse employment and transportation improvements. There's many other factors to consider but those three are the most important. If you buy in a good community it's difficult to mess up really badly because the rising tide will lift your property with it.
5. Get good people around you. There's no magic pill to real estate investing but there are magical people. Good people will save you many hassles. Get an experienced team around you. They will protect you and make you money.
4. Are there any asset classes that investors may want to avoid? Which ones and why?
Real Estate Investing Resource Center Answer: Sure, commercial real estate. Not apartment buildings, but strip malls and office buildings. The lending market for that type of asset class is still in bad shape.
If you need to sell or refinance a commercial property shortly after you purchase it you may be in for a battle because there are few buyers who can qualify for the financing.
5. What areas do you personally feel might provide good buying opportunities right now? (perhaps areas that are set to boom because of specifics like increase in population, infrastructure development, etc.) What is it about these cities that could prove profitable for property investors? What types of properties should investors look for in these areas?
Real Estate Investing Resource Center Answer:
I'll stick with Ontario because that's what we know best:
Kitchener/Waterloo/Cambridge, Hamilton, Barrie are our favourites right now. All three have growing population bases, diverse employment and future increases in transportation and infrastructure (rail lines, new highway developments etc...).
As for the type of property investors should look for - you need to follow your goals. Single family homes are always the most liquid pieces of real estate, especially starter homes. Student Rentals usually provide the most cash flow.
Duplexes and Triplexes have one roof but multiple units in them which is great.
Apartment buildings produce huge amounts of monthly revenue but if you buy them with next to nothing down the cash flow is going to be very low. So my advice is this:
Specialize. Pick an asset class that you like best and become an expert in it.
Most people who make big money in real estate are specialists.
6. Do you know any great contractors?
You need to develop a good network of contractors and the best ones are local. If you're in the Greater Toronto area you definitely want to check www.torontocustomconcepts.com. We have used them before. They do A+ work and we highly recommend them. This has been a special Q&A for you, we hope this has provided you with a real estate investment resource center you can use.