Real Estate Investing

How profitable can investing in Kitchener Waterloo Real Estate be?

I just got this email from a client, who bought his first real estate investment property in 2008. He now owns 4 rental properties in Kitchener Waterloo, including student rentals, single family homes, and a future development site (currently rented).

Hi Ben, I hope this message finds you and Sarah well and enjoying married life.

I’m sold on the value of Real Estate investing. We are generating positive cash flow from every property plus I just received my mortgage statements from last year. My tenants paid my mortgages down by over $25,000 in one year. Not including the cash flow or appreciation.

We are proceeding to build an addition onto 1234 Cedarbrae and by Sept.1st we will have two extra rooms available to rent. I owe you the credit for that property. You saw the value when I didn’t. Now I will gain over $100k in post-construction value plus the extra cash flow will pay for the construction in less than 5 years.

I am tinkering with my properties, trying to maximize the value. The property at 1234 Weber St. was purchased as a duplex for $222,000. I am considering trying to convert this into a triplex, with three 2 bedroom units. Would you be able to give me a rough ballpark as to what the value might be post-construction? This will help me in my decision process.

Thanks in advance, Larry

For information on how Larry and his wife have built their portfolio, contact me today. I’d love to serve you the way we’ve served Larry’s family over the years (yes, we help more than one generation of his family

You know where I am – Benjamin@BenjaminBach.com or call me at 519 772 4376

Real Estate Investing

New Mortgage Rules for Real Estate Investment in Canada

My wife and I are in the Carribean this week doing some research, so posting has been light. However, I want to pass along a few articles my friend Jeff Zabel, with Mortgage Alliance in Kitchener Waterloo emailed to me.  They are about changes to the mortgage rules, and will affect real estate investors:

This morning Finance Minister Jim Flaherty made the following three announcements to mortgage insurance rules

1. Variable mortgages qualified at five year fixed rate;

2. Refinancing limited to 90% instead of 95%;

3. Non owner occupied residences [I read this as single family properties bought for rental purposes -BB] require 20% down payment;

This announcement is the result of a review process on debt levels undertaken by the federal government that CAAMP has been actively engaged.  We released Will Dunning’s debt report, consulted with members  and took a position with decision makers in Ottawa that while we opposed changes to the current 5% down payment rule and 30 35 year amortization rates for primary residences, we were open to other changes if the government deemed there to be a problem.  The changes announced this morning reflect CAAMP’s position and do not affect primary mortgages except for the first point where many lenders are already qualifying at 5 years anyway.

Jeff is being told that these rules will be effective april 19th, 2010, so we may be able to still take advantage of the current terms and rates if you’d like.  Contact me for more information regarding that.

Jeff also sent me this article from the Canadian Press, which came out before the initial announcement, so it contains speculation, not fact:

New mortgage rules introduced to lessen mortgage crunch risks: sources say

By Julian Beltrame, The Canadian Press

OTTAWA – The federal government is expected to announce new rules Tuesday that would make it more difficult for first-time buyers to enter Canada’s hot housing market.

Sources have told The Canadian Press that Finance Minister Jim Flaherty is ready to move on the issue because of concern Canadians may be taking on too much debt.

Economists have advised the minister the best way to protect Canadians is to institute a debt affordability test in order to qualify for a Canadian Mortgage and Housing Corp. insured mortgage.

Currently, prospective home owners can qualify for a CMHC insured mortgage if they put at least five per cent down on the cost of a home.

But bank officials say they usually apply a cushion to ensure home buyers have sufficient income to meet payment requirements if floating rates rise, in some cases by more than two percentage points.

Flaherty is expected to make such an income test a condition for acquiring an CMHC insured mortgage.

Another possibility is for the minister to reduce the amortization period from 35 years to 30, which would have the effect of raising monthly payments. [note: it does not appear this happened -BB]

It is believed Flaherty rejected more radical measures to cool the housing market, which has reached record levels in sales and near record levels in average home prices despite the weak economy.

Economists have cautioned the minister against putting on the brakes too strongly. They say raising the minimum downpayment requirement to 10 per cent, one of the suggestions given the minister, could cause a crash in a key mainstay of the fragile economic recovery.

The Bank of Canada has been warning for months that homeowners should ensure they can absorb an increase in their floating rate mortgages once rates start rising, likely as early as this summer.

By the central bank’s own stress test calculation, almost one in 10 households would have a debt-service ratio that makes them vulnerable to economic shocks by the middle of 2012 if current trend continue.

In an address written for deputy governor Timothy Lane last month, the bank suggested the government has all the tools it needs to address the problem.

"An array of supervisory and regulatory instruments can be used by the government to restrain a buildup of systemic risks," said notes the address.

Real Estate Investing

Property Management for KW investment property

A big part of our client base lives outside of Kitchener Waterloo – other parts of Ontario, Canada, and even people living in other countries.  They are able to live   where they love, but invest where the numbers make sense because they employ quality property management companies.

Even a lot of our clients who live in the KW area use property management to take care of their rental properties; it’s just easier, and can be very affordable (depending on who you deal with)

Here’s a bit of info for you:

Contant me “Benjamin AT BenjaminBach.com” for a referral to a great management company

Real Estate Investing

A profile of Eastbridge in Kitchener Waterloo, Ontario

One of my favorite neighbourhoods in Kitchener Waterloo is Eastbridge. Located in the North East part of the city, there are parks, trails, beautiful homes (ranging from condos, semis and towns to luxury homes worth more than $1 million), shopping (Conestoga mall is close by), close to restaurants like Wildcraft, Ben Thahn, The Keg and more. It’s also close to the expressway, which means 401 access to Toronto is convenient to access. 

Friends (and clients) of ours live there, and I asked Darryl and Robin why they chose to buy a home in Eastbridge, as opposed to any of the other areas in KW.  Listen to what they had to say; they also discuss why they like investing in real estate vs other asset classes.

BONUS: Watch the video to find out what the best Thai restaurant in Kitchener Waterloo is:

Why we love living in Kitchener Waterloo’s Eastbridge area

The schools in the area are well respected and include:

Lester B Pearson Public School 520 Chesapeake Dr

St Luke Catholic Elementary School 550 Chesapeake Dr

Lexington Public School 431 Forestlawn Rd

KidsAbility School 500 Hallmark Dr

WRDSB Partners in Ed Adult Cont Ed

You can check out the Eastbridge Neighbourhood Association page here: http://www.eastbridge.info/

For more information on the area, or for a list of available homes and investment properties in the area, send me an email to “Benjamin AT BenjaminBach.com” or call me today at 519.772.4376

Real Estate Investing

Why we invest in Kitchener Waterloo Real Estate

Yesterday I had the chance to sit down with two of our clients, Dr Robin Walsh and Darryl Kraemer to discuss why they invest in Real Estate, as opposed to any of the other investment vehicles available, like stocks, mutual funds, commodities, gold etc. 

Press play to hear what they had to say:

Darryl and Robin have a great portfolio of single family residential (including condo units) & student rental properties in Kitchener Waterloo, Ontario -all tenanted & performing well. 

If you’re interested in starting to invest and building a diversified property portfolio like theirs over time, send me an email. I’d love to help you

Real Estate Investing

What to put in an offer when you’re buying investment real estate

A friend of mine asked me this morning what clauses we usually put in an offer, when we’re helping our clients buy and sell an investment property in Ontario. 

While every purchase and sale will have unique features demanding custom clauses – often a few Schedules worth of them – most of the time, we use the same base of conditions and clauses when our clients are buying a rental property.

Conditions:

Real estate agreements are either ‘firm’ or ‘conditional.’  A firm offer is one where the are no additional conditions on the part of the buyer, and conversely, a conditional offer is where the buyer has some time to do due diligence, such as needing to get approval for financing, having the property inspected, or making sure that the city will let you develop an apartment building on the parcel of vacant land.  Most of the time our clients put in conditional offers.

The typical conditions we use are: a financing condition, an inspection conditions, and verification of income and expenses & supporting documents.

If the property we were looking at was a potential development site, we’d probably put in a Zoning condition – allowing us to research and verify that we could develop and build what we wanted to – and an environmental inspection, to make sure that we weren’t buying a potentially contaminated site.

It’s important to verify the income and expenses, and review the actual leases and bills.  We want to run our own eyes over those documents; trust but verify!  Also, the bank or lending institution is going to want to see the information as well, as they do their own financial due diligence on the investment property.

Clauses:

In addition to the conditions, we usually will include a number of additional clauses in the Schedule A (and often we’ll append more Schedules, depending on the offer. The most I’ve written is 4 additional schedules to the agreement of purchase and sale.  The client was a lawyer ).

If you were purchasing an property that was already rented with tenants, one of the clauses would be that the rents and leases are all legal according to tenancy laws of Ontario, and that the landlord doesn’t have any pending or upcoming issues with the Landlord and Tenant Board.

I include a clause asking for the current lodging licence, if it is a student rental that requires one.  Also, make sure that the license is current when the property closes – If we don’t complete the transaction till August, I still want the license to be in place then!

I like clauses where the seller hands over all architectural & electrical plans, and any information they have on hand about possible expansions of the property. It’s amazing what owners have, and how useful it can be in a few yeas when you want to make some changes to the proeprty!

Depending on the type of property, there will be additional clauses; every property is unique, so each agreement of purchase and sale will vary.  We recommend all of our clients run offers by their lawyer, and it’s a good thing for you to do too.

What clauses and conditions do you include when you’re buying a property?

Real Estate Investing

Flaherty to public: Hold on, I’m thinking, watching and monitoring real estate market

Canadian Government still looking at shorter mortgage amortizations on real estate purchases, but no indication of decision yet

So much talk, so little action.  Typical of a government, so I probably shouldnt be surprised

On December 22 I wrote Flaherty comments further on Canadian Real Estate and Mortgages and on Janaury 13 I reported in What is the Bank of Canada doing with mortgage rates? that Flaherty was still looking at what to do.

Today comes news that… drum roll please… Jim Flaherty is still “watching and monitoring” the real estate market in Canada 

“As you know, we took steps a year or two ago to require at least a 5% down payment and to restrict the amortization period for insured mortgages but we’re watching that. Low interest rates obviously are having an effect on the strength of the housing market in Canada," he said, warning "people have to make sure that the mortgages they take out today either have a fixed rate or they know that they’ll be able to handle increases in that mortgage rate later on."

CIBC World Markets senior economist Benjamin Tal says the bigger issue for consumers would probably be an increase in downpayment as opposed to a change to amortization schedules. Even though half of mortgage origination is said to be going for a longer amortization, Mr. Tal issued his own report that shows 40% of Canadians opt to make an extra month’s worth of payments each year.

Called accelerated bi-weekly payments, consumer make payments every two weeks instead of twice a month and the impact is considerable. "On a $250,00 mortgage with 5% rate amortized over 30 years, that works out to a de facto shortening of the amortization period by five years," says Mr. Tal, adding if rates rose by 75 basis points, consumers could absorb the increase by simply stopping the accelerated payments.

Mortgage credit was up about 7% year over year when Mr. Tal wrote his report but he thinks dramatic changes to downpayment levels and amortization are not necessary at this point. "Be careful you don’t kill a fly with a hammer. You could derail the housing market for no good reason," says Mr. Tal.

In real estate circles, many privately grouse about Mr. Flaherty’s overreaction to an improved housing market that still fell well short of records set in 2007. "You don’t want to see anything that affects the ability to purchase," says Gary Friend, president of Canadian Home Builders’ Association. "You make changes and in a place like Vancouver where I am, it could have a significant effect. At the same time we respect the need for prudent credit conditions and smart borrowing."

What do you think – should the government further tighten the regulations around minimum downpayments and amortizations? Let me know by leaving a comment below

Real Estate Investing

Waterloo bests Kitchener and Cambridge in Canada-wide study

An interesting tidbit in The Record this week: Waterloo more attractive to economy-boosting immigrants than Kitchener and Cambridge

WATERLOO REGION – Waterloo is a Canadian leader in attracting immigrants to power its economy, while Kitchener is in the middle of a pack of 50 cities nationwide, according to a study by the Conference Board of Canada.

Cambridge was in the bottom nine, scoring poorly in most categories – particularly innovation, health care and education of its population.

“Cities that fail to attract new people will struggle to stay prosperous and vibrant,” Mario Lefebvre, director of the centre for municipal studies at the Conference Board of Canada, said in a press release.

The “city magnets” study compared 41 indicators that make Canada attractive to skilled workers and mobile populations. Waterloo was in league with Calgary, Ottawa, Vancouver, St. John’s and Richmond Hill in the battle for people needed to fuel economic and population growth.

“These six cities come on top across all the rankings, so they appear to have an overall winning combination that is attractive to migrants,” Lefebvre said.

Waterloo earned an overall A ranking. Kitchener got a C, along with 21 other cities including Winnipeg, Hamilton and Montreal.

Cambridge was marked D, in a cluster of nine cities, including Oshawa, Windsor and Saint John, NB. It’s a class of cities generally battered by job losses in the recession of which seven face population declines, the report says.

Waterloo also has a lower vacancy rate for rental properties (“Waterloo Vacancy Among Canada’s Lowest”) than Kitchener and Cambridge, although there are uber-desirable enclaves in all three cities.

Real Estate Investing

What is the Bank of Canada doing with mortgage rates?

Many people are speculating that the Bank of Canada will be raising rates.  While the consensus amongst those I speak to is that rates have nowhere to go but up (and we are closing on a loan with a 2.4% interest rate on friday, so that’s a pretty solid perspective), the question seems to be when they will go up.  The Bank of Canada is indicating that they won’t be raising rates any time soon.

Bank of Canada Won’t Raise Rates in Short Term

Mr. Lane said the bank understands the concern, but it uses its lending rate to keep inflation in check for the whole economy and the housing market is “only one of several factors” that influence inflation.

Other sectors could be adversely affected if the rate jumped before the broader economy was ready, he said.

“If the Bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from recession.”

Instead, he said, the government could increase capital requirements for lending institutions, adjust loan-to-value ratios and change the terms and conditions required to obtain mandatory mortgage insurance.

“These instruments can be targeted to risks to the entire financial system that stem from particular markets or institutions,” he said. “Ultimately, it is the Minister of Finance who is responsible for the sound stewardship of the financial system.”

In an end-of-year interview with CTV, Finance Minister Jim Flaherty said the government would consider raising the minimum down payment from 5 per cent “to a higher figure” and reducing the amortization period of 35 years to "something less."

But the Minister stressed that the government has not yet made that decision.

If you want to invest in real estate and take advantage of the current low rates and generous financing terms, lock your rates in now. If you are dealing with a mortgage broker or bank that is familiar with helping investors, let them know you want to lock in a commitment for as long as possible (likely 60-90 days), and then call me to find a profitable investment opportunity. 

Money will be getting more expensive.  Look at borrowing some now if you had an investment goal on your list in 2010.

Real Estate Investing

Waterloo Vacancy Among Canada’s Lowest

Waterloo’s vacancy rate is among the lowest among Canada’s real estate rental markets, according to a recent Canada Mortgage and Housing Corporation (CMHC) report (which we covered here: Vacancy rate in Waterloo falls to 1%), “thanks to a crush of high-tech workers and university students looking for short-term housing.” (via The Record)

The one-per-cent vacancy rate in Waterloo also means that city has the highest average rents in the region, according to the fall 2009 rental market report complied by Canada Mortgage and Housing. The data looks at the Kitchener census area, including all of Waterloo Region except Wilmot and Wellesley townships.

For example, (average) two-bedroom units go for $937 a month in Waterloo, compared with $835 in Kitchener, $850 in Cambridge and $709 in Woolwich and North Dumfries townships.

Nationally, the highest average rent for a two-bedroom apartment was $1,169 in Calgary, where the vacancy rate was 5.3 per cent. Toronto was second at $1,099, with a 3.1 per cent vacancy rate. The lowest nationally was $518 in Saguenay, Que., with a vacancy rate of 1.5 per cent.

“It’s more than the availability; it’s the cost of it,” said Trudy Beaulne, executive director of Kitchener-Waterloo Social Planning council.

High-tech workers and student housing are king in the city of Waterloo, creating a challenge for low-income families looking for options to live there. They may have to move to Kitchener to find an affordable apartment, she said.

“It’s different housing stock, too. If you’ve got a pretty high income, you have more choice . . . it’s not like if you’re on Ontario Works (social assistance).”

…

“[High Tech Workers] typically move to the area, rent for a year or two before they buy… you have a market where if they were in another area, they just buy a house.”

Kitchener is more of a balanced rental market, but there’s an “upscale pocket” growing downtown around the new satellite university. “It kind of mirrors Waterloo.”

In Cambridge, tenants are eager to rent within a few minutes drive of Highway 401 [emphasis added], because it makes for an easy commute to work in Mississauga. Move away from the freeway and the rental market is soft, Traschel said.

A one-per-cent vacancy rate in Waterloo doesn’t surprise Mike Belanger, director of residential services for students attending Wilfrid Laurier University.

That’s the usual fall vacancy rate for apartments to serve the 50,000 post-secondary students in Waterloo. The vacancy rate jumps to about eight per cent in mid-winter as students take out-of-town work placements. In summer, when school’s out, the student vacancy rate bounces to 30 per cent.

In the early 1980s, Belanger remembers student housing vacancy rates as low at 0.5 per cent. That student housing crisis eased long ago — just look at all the student lodging built along Columbia Street — but Belanger wonders if another crunch is looming.

As Laurier and the University of Waterloo continue to expand to help fight the recession, bank financing for new student housing projects has “dried up,” Belanger said.

“There is some anxiety if the universities grow and the private accommodation does not.”

The note about being close to the 401 in Cambridge is spot on.  We just bought, along with a number of our clients, in a new construction Cambridge development just off the 401, on Fisher Mills Rd (which turns into Maple Grove which turns into Sportsworld Dr and connects up with the Kitchener Expressway), and we’re seeing very healthy rents there (between $1250 and $1399 a  month plus utilities)

If you have any questions about the current conditions in the rental market or how you can take advantage of investment opportunities in Kitchener Waterloo & Cambridge, Ontario you can email me or call me at 519-772-4376.  You can also follow me on http://twitter.com/BenjaminBach for up to the minute updates

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