July 2006 Volume 2, Number 7
In This Issue
· Calgary Rental Market
· The Dual Economy
·
Real Estate Links
Stef Lukas, our Realtor
Nikki Harrison, our Mortgage Broker
The Real Estate Investment Network
An Online Listing Service
Another Online Llisting Service
The Multiple Listing Service
Contact Us
In This Issue
· Calgary Rental Market
· The Dual Economy
·
Real Estate Links
Stef Lukas, our Realtor
Nikki Harrison, our Mortgage Broker
The Real Estate Investment Network
An Online Listing Service
Another Online Listing Service
The Multiple Listing Service
Contact Us
What's
happening in the Calgary Rental Market?
After years of minimal rent increases in Calgary, suddenly they are escalating. The media has been forecasting 10% increases this year; however, from our view, we are seeing much higher jumps.
Various factors are causing this change; the high cost of utilities, increased cost of borrowing, substantial in-migration, and the sky-rocketing price of property. Finally we are seeing rents moving to catch up with all the increases.. The most significant effect is of course, the higher property values.
Landlords simply cannot afford to rent a property in 2006 for the same price that was in effect in 2000. Inflation has been increasing steadily over the years and the cash flow that long-term owners were seeing has steadily eroded due to the increased costs.
The other significant
factor is sheer demand. With huge in-migration to Alberta and a vacancy
rate of less than 1%, we have reached a point where there have been bidding
wars for vacant suites. If you have talked to anyone recently who has
been trying to rent a place they will tell you the frustrations they have
been going through finding a home.
For example, with just one advertisement for three vacancies in our rooming
houses, we were able to fill them by noon of the first day and a waiting
list of six people by the end of the day. As I was signing a fellow into
one of our weekly-rental rooming houses, he told me he had been living
in his vehicle for the last two weeks while he looked for a place to stay.
There simply wasn't anything he could find. A different ad for another
property drew over 50 phone calls and emails and it rented within a few
days. Now, that's what we call high demand!
If you are currently a landlord, you may want to review your current rents and consider increasing them. Or at the very least, as tenants move out of your property, do a rent assessment of equivalent properties in that area. You may be surprised by what you find.
Conversely, if you are currently a tenant, I strongly recommend you begin to look for a property to purchase. Before your rent goes up too!
Seeing this type of demand for rental accommodation just places us in a better situation. We have always waited to find the correct tenants to put in place, rather than jump at the first person who inquired. Now we are able to not only get a much larger pool of applicants to choose from, but they are generally better tenants, as our rental properties are at the higher end of the spectrum.
This approach helps
safeguard our investments and the results solidify the fact we are actively
doing the right things, even in this intense market.
The Dual Economy
For anyone who has been watching interest rates rise over the last year and a half, it appears there may be some relief in sight. Partially, this is due to the Dual Economy that has arisen in Canada.
After years of Ottawa dominating the economy with its huge manufacturing base and massive amount of exports into the US and abroad we are finally seeing the power move further West. The large increases in energy prices, the Canadian economic power is shifting to the Western Provinces, mostly Alberta.
While this has been good for the Alberta economy and has provided many positive overflows, it has definitely hurt the Eastern manufacturing plants with significant cost increases due to the high price of energy. Combined with the effect of the $0.90 Canadian dollar on exports and it is understandable why Ontario is struggling. Traditionally, the Bank of Canada used interest rate increases to help slow down the economy and maintain a moderate level. This created the recent increases and was meant to slow Alberta's boom.
The negative result as the economy slows down in Ontario is that rate increases will cause further decline. People have less money for spending, cost of goods increases, and people hang onto their money longer before making purchases.
As the price of oil continues to move upwards, the other effect is greater strengthening of our dollar, as some economists are forecasting a Canadian dollar on par with the US. If this happens, it will continue to be more dismal forecasts for the Ontarians.
In this situation, lowering interest rates will have the double effect of stimulating the economy (out East) and helping to stabilize the increase in the value of the Canadian dollar. These same economists are forecasting a rate decrease of up to three quarters of a point (.75%) by next year. Therefore, if you currently have a variable rate mortgage and have considered locking in, you may want to wait another six months.
The other point to consider is the political effect in play. If the Eastern economy continues to slow down, layoffs persist, and large manufacturing plants such as General Motors keep on closing how happy will the population there be? The politicians realize where the majority of the votes come from and they won't let a huge voting population like Ontario experience prolonged economic decline, without devising a swift solution.
As you observe the
situation over the next two quarters, let me know your thoughts on my
prediction in nine months. I would love to hear any comments, so please
email me with your opinions.
Buying Strategies, LOC's Part II
Last month, we had quite a bit of feedback on our Buying Strategy article about Lines of Credit (LOC). Many people were wondering how it worked or if I could provide an example. Our course my readers' wish is their command, so here we go.
If you bought your house here in Calgary five years ago for a princely sum of $200,000 with a mortgage of $175,000, your home would now be worth $300,000 or more and your mortgage would be paid down to approximately $160,000. This leaves you with $140,000 in equity. The banks will generally provide a secured Line of Credit up to 75% of the home's value, including any mortgage balance. A secured LOC, means the bank uses your property as collateral, allowing more security for the lender, therefore a lower borrowing rate for you.
75% of your homes $300,000 value is $225,000 and of this, you still have a mortgage balance of $160,000 leaving you with a possible LOC for the difference, or $65,000. To set this up there are some bank fees and lawyer's fees involved, but depending on your stature at the bank and your negotiating skills, this can often be negotiated down to virtually nothing.
Additionally, the typical interest rates for the LOCs will be the prime rate, but you can also negotiate this down to at least ¼ point (.25%) off of prime and occasionally ¾ (.75%). The best I have personally negotiated is ½ point off, so feel free to make me look bad!
Okay, now you have a $65,000 LOC, now what do you do? Well several people who have invested with us at KatSid Housez, have used some of their LOC as a short-term loan to us for renovation projects. For these types of projects we typically pay out 15% annual interest. For example, if you lent us $20,000 for one of our projects for six months. You would receive $1,500 interest for money you never had access to before. Talk about making your money work for you. Now don't forget, you would also have to pay interest to the bank during this time, but even if you couldn't negotiate at all and were stuck with a 5.75% interest rate, your total payments for the six months would have been $575. You are still ahead $925 in six months on money that was previously sitting in your house.
Hopefully this helped
answer questions about the process and may have even created more things
for you to think about. If you still have questions, as this is a fairly
simplistic example, just give me a call at 403-870-4663 or email me at
bill@housez.ca.
Well it's Stampede time here in Calgary and it looks like it is going to be a very fun time this year for us at KatSid Housez. Karen and I are already set to attend a few of the Stampede celebrations and we may even start a few Real Estate conversations while we are out.
If you have never
attended the Calgary Stampede you may want to pencil it into your schedule
in the next couple of years as it is quite an amazing time here. Until
next time, take care and enjoy your July!
Bill
& Karen Biko
Kat