So I was chatting with one of my home builder friends on the weekend. He says he hasn't had many jobs lately because decrease in sales. He works on new homes and said that the new homes are selling very slowly now, he also told me he had problems selling his home too, dropped it $30,000 and still no dice. So what I have been thinking was that the real estate market is starting to weaken and prices will soon fall contrary to what the media has been publicizing. If new house price drops that means old houses will have to stay competitive and both will drop together, no way will an old house that's the same as a new house in terms of what they have be the same price, depending on area. Renters also seem to be getting smart because why pay $1000/month for a 1 bedroom apartment when you can mortgage a house or your own apartment for the same price? That means rent will also be going down soon too!
In conclusion don't be too hasty when you do your next real estate investment because you might be in for quite the surprise.
G.
Monday, June 14, 2010
Tuesday, June 8, 2010
Drop In New Houses
So the numbers for new housing development decreased in May. What forecasters say about this decrease has to do with the recent increase in interest rate from 0.25% to 0.50%. Only a 0.25% increase affected the market this much? In real terms if you were to get a 5 year mortgage rate at the 0.25% rate you would've gotten it for 5.25% a year but now since the Bank of Canada prime interest is at 0.50% that mortgage increased to 6.25% THAT'S A WHOLE 1%. On a $400,000 mortgage 1% means $4,000 and that's a fair chunk of change.
Here's some reasoning behind it. The current market prices for houses did drop slightly, new or old.They are unable to sustain those prices because of increase in interest rates and competition between new and old houses. Recently new houses have been priced nearly the same as an old house and they are the same thing, what would you have picked? NEW or OLD? What I see happening is old house pricing dropping at a faster pace depending on how much new houses get sold for. Generally new houses will get sold for a higher than market price due to the buyer having many options in selecting what kind of flooring, siding, kitchen...etc they want. So investors watch OUT!
G.
Here's some reasoning behind it. The current market prices for houses did drop slightly, new or old.They are unable to sustain those prices because of increase in interest rates and competition between new and old houses. Recently new houses have been priced nearly the same as an old house and they are the same thing, what would you have picked? NEW or OLD? What I see happening is old house pricing dropping at a faster pace depending on how much new houses get sold for. Generally new houses will get sold for a higher than market price due to the buyer having many options in selecting what kind of flooring, siding, kitchen...etc they want. So investors watch OUT!
G.
Saturday, June 5, 2010
Smith Maneuver
Ever had the dream of retiring rich and retiring young? You and me are probably alike as we are working our blue/white collar jobs, living pay check to pay check and paying off that life long mortgage. In a lot of countries, housing prices have gotten astronomical that people live to pay their mortgage. After the mortgage is paid off most people are generally only left with whatever work pension they have and maybe some RRSP. For most people pension, RRSP, CPP, and old age pension may not be enough or maybe they were forced into early retirement or just sick of their jobs. Where am I getting at you wonder?
WELL HERE'S ANOTHER GET RICH QUICK SCHEME FOR 9999.99...just kidding. There are things called mortgage strategies and Smith Maneuver is one of them. Ever dream of writing off that interest you pay for 35 years, imagine how much money you would save. Never thought you could do that did you? This technique only works in Canada, sorry American readers. The goal of the Smith Maneuver is to borrow money invest in lets say stock market or something income producing, you can deduct the interest from that loan off taxes. Now what in the world does this have to do with real estate? Well you need equity to borrow against, that's where your house comes in. So you borrow money and use your home that you are mortgaging as equity and used the borrowed money to buy stocks. The goal for this strategy to work is you must earn as much as the percentage that you are paying for your mortgage. So at the end of the 35 year mortgage you have paid off your mortgage, plus you have all that borrowed money invested which the portfolio should be higher than what you borrowed. For example you borrowed $400,000 because that's how much interest you paid and that was invested and at the end of the 35 years you made $600,000. You take out $400,000 and pay off the loan and now you are left with $200,000. Now I say to you, would an extra $200,000 make your retirement that much flexible and relaxing?
G.
WELL HERE'S ANOTHER GET RICH QUICK SCHEME FOR 9999.99...just kidding. There are things called mortgage strategies and Smith Maneuver is one of them. Ever dream of writing off that interest you pay for 35 years, imagine how much money you would save. Never thought you could do that did you? This technique only works in Canada, sorry American readers. The goal of the Smith Maneuver is to borrow money invest in lets say stock market or something income producing, you can deduct the interest from that loan off taxes. Now what in the world does this have to do with real estate? Well you need equity to borrow against, that's where your house comes in. So you borrow money and use your home that you are mortgaging as equity and used the borrowed money to buy stocks. The goal for this strategy to work is you must earn as much as the percentage that you are paying for your mortgage. So at the end of the 35 year mortgage you have paid off your mortgage, plus you have all that borrowed money invested which the portfolio should be higher than what you borrowed. For example you borrowed $400,000 because that's how much interest you paid and that was invested and at the end of the 35 years you made $600,000. You take out $400,000 and pay off the loan and now you are left with $200,000. Now I say to you, would an extra $200,000 make your retirement that much flexible and relaxing?
G.
Friday, June 4, 2010
Dream Home!
So lately the Canadian dollar and the US dollar have been floating pretty close to parity. Canadian dollar is a lot higher than back in the 70cent US for $1 CAD days. Also, the economic recession has tanked a lot of the US housing prices. I also remember looking at US housing prices for vacation homes and time shares, they have significantly dropped too! For about $100,000 CAD you could buy at least a 3,000 sq ft. monstrosity in the US at the peak of the recession. For investors, vacation lots like time shares may seem a bit risky because you are not always there to supervise your property but that's what property management is for. If you pick a retirement area there are always seniors going for vacation like golfing resorts. While prices are low, snatch a few and watch your residual income roll in. Reason why I said pick popular retirement areas is because there will always be somebody there so you get more consistent clientele. Now what is a popular retirement area is for you to figure out ;) Can't tell you all the secrets you know!
G.
G.
Wednesday, June 2, 2010
Interest Rate Status Quo?
So another announcement was made today that the Canadian prime interest rate will stay at 0.5% Very good news for those who have variable mortgages. To those with fixed mortgages better hope your re-amortization period is coming up soon. Why the sudden freeze prime interest rate was due to the weakening financial strength from Europe and Japan. I can't really wrap my head around how and why it is affecting our prime interest rate unless it has something to do with imports, exports, stock market, and foreign investments.
If it was really the case of imports and exports and foreign investments, this would mean, in economic terms, the decrease in Canadian exports thus less money profited by Canadian companies which means Canadians have less money to pay for mortgages and less money all around to stimulate the economy. Don't quote me on this one.
How does the stock market come into play for stock markets you say? If you were someone that uses the Smith's Maneuver or are using some sort of equity to pay off your mortgage then you would be devastated by this news because the worst has yet to come. I'm sure many of you out there have stock portfolio that are already in shambles from the recession and now the Euro crisis & Nippon crisis.
Despite all this bad news, this could mean more foreclosures on the rise soon due to people not able to pay off their mortgages due to lay offs. The price of crude oil has really tanked as of late and many oil companies are unable to invest in any mega projects so watch out for Alberta and Saskatchewan to have an increase in pre-foreclosures and foreclosures very soon.
G.
If it was really the case of imports and exports and foreign investments, this would mean, in economic terms, the decrease in Canadian exports thus less money profited by Canadian companies which means Canadians have less money to pay for mortgages and less money all around to stimulate the economy. Don't quote me on this one.
How does the stock market come into play for stock markets you say? If you were someone that uses the Smith's Maneuver or are using some sort of equity to pay off your mortgage then you would be devastated by this news because the worst has yet to come. I'm sure many of you out there have stock portfolio that are already in shambles from the recession and now the Euro crisis & Nippon crisis.
Despite all this bad news, this could mean more foreclosures on the rise soon due to people not able to pay off their mortgages due to lay offs. The price of crude oil has really tanked as of late and many oil companies are unable to invest in any mega projects so watch out for Alberta and Saskatchewan to have an increase in pre-foreclosures and foreclosures very soon.
G.
Tuesday, June 1, 2010
Lesson #1: Different Types of Income
Before I start the first session, I'd like to give you guys some feedback on yesterday's blog post. Indeed Canada increased the interest rate to 0.5%. We should see some housing prices go down a bit after the summer house buying rush is over or none at all.
I'd like to start the first lesson on different types of incomes that you could potentially earn when you are in the real estate business.
Residual Income (passive): This form of income does not really grow in the long run, but ever quarter or every month you will earn this money. To obtain residual income you could be renting a property or leasing a property to someone and earning rent. Pros to this type of income is you have a steady and possibly long term source of income that you can rely on and looks great when you apply for a bank loan due to more equity value. Cons to this type of income is there is no potential for growth unless you hike up your rent. But if you are bound to a leasing contract then that price stays stagnant for the duration of the contract.
Active Income: You have an unlimited earning potential from this type of income but usually earn it in a short termed and possibly long termed scenario. Active income is earned from a service you provide, for example you refer a buyer to a real estate agent and receive a finders fee or as a real estate agent you earn commission by selling a house and gives you instant monetary liquidity. Cons are there is a chance you don't earn any income at all, for example if the real estate property doesn't sell.
Portfolio Income: Many people may not have heard of this one or you may think it only belongs to people that a invest in the stock market. The name is exactly what it means, money coming from what you own but not rent. It can be income from your property's royalties if you were to buy the mineral rights or an oil and gas company coming to build a test rig on your land in return paying you a royalty for borrowing land.
That's all for today.
G.
I'd like to start the first lesson on different types of incomes that you could potentially earn when you are in the real estate business.
Residual Income (passive): This form of income does not really grow in the long run, but ever quarter or every month you will earn this money. To obtain residual income you could be renting a property or leasing a property to someone and earning rent. Pros to this type of income is you have a steady and possibly long term source of income that you can rely on and looks great when you apply for a bank loan due to more equity value. Cons to this type of income is there is no potential for growth unless you hike up your rent. But if you are bound to a leasing contract then that price stays stagnant for the duration of the contract.
Active Income: You have an unlimited earning potential from this type of income but usually earn it in a short termed and possibly long termed scenario. Active income is earned from a service you provide, for example you refer a buyer to a real estate agent and receive a finders fee or as a real estate agent you earn commission by selling a house and gives you instant monetary liquidity. Cons are there is a chance you don't earn any income at all, for example if the real estate property doesn't sell.
Portfolio Income: Many people may not have heard of this one or you may think it only belongs to people that a invest in the stock market. The name is exactly what it means, money coming from what you own but not rent. It can be income from your property's royalties if you were to buy the mineral rights or an oil and gas company coming to build a test rig on your land in return paying you a royalty for borrowing land.
That's all for today.
G.
Monday, May 31, 2010
Canada Increasing Interest Rate
A lot of media sources like local news sources are all saying that the current Canadian central bank interest rate of 0.25% the lowest it's ever been in Canadian history is about to increase. Those sources say the increase will go up to 0.5% possibly by June 1, 2010, which is tomorrow. This interest rate increase will likely continue on to the end of the year.
My thoughts on this increase in interest rate from what I learned in ECON class in university is to decrease inflation by increasing interest rate. What this means for the current people that hold variable mortgages is an increase in their monthly mortgage so be prepared. Though this increase may not be that significant it is still pretty low so possibly no need to panic and lock yourself into a fixed mortgage rate just yet. Now for the good news. Increase in mortgage rate means decrease in housing prices, so individuals who hold a lot of equity for buying a house could take advantage of this situation and buy the home of their dreams at a slightly discounted price of the current market. Forecasters say there may be a 10-15% drop in real estate prices all around Canada by the end of the year. How much is 10-15% you say? Well for a $300,000 house that means you save $30000-$45000 on this mortgage. You can buy a new car with that kind of money!
Stay Tuned!
G.
My thoughts on this increase in interest rate from what I learned in ECON class in university is to decrease inflation by increasing interest rate. What this means for the current people that hold variable mortgages is an increase in their monthly mortgage so be prepared. Though this increase may not be that significant it is still pretty low so possibly no need to panic and lock yourself into a fixed mortgage rate just yet. Now for the good news. Increase in mortgage rate means decrease in housing prices, so individuals who hold a lot of equity for buying a house could take advantage of this situation and buy the home of their dreams at a slightly discounted price of the current market. Forecasters say there may be a 10-15% drop in real estate prices all around Canada by the end of the year. How much is 10-15% you say? Well for a $300,000 house that means you save $30000-$45000 on this mortgage. You can buy a new car with that kind of money!
Stay Tuned!
G.
Sunday, May 30, 2010
First Post!
Hello Everybody,
I'm Genesis. I've created this blog to share the knowledge that I have learned from real estate investing to help new comers kick start their real estate passion and to refine the knowledge of seasoned investors. What I hope to gain from blogging is for your critiques of what I teach and report because the best way to learn is to learn from your own mistakes.
What I hope to achieve is to give everyone decent and concise real estate investing tips and to point out current trends in the real estate market so that all of us may benefit from the information. So please stay tuned to my future posts for your real estate information and I will do my best to post as frequently as possible.
G.
I'm Genesis. I've created this blog to share the knowledge that I have learned from real estate investing to help new comers kick start their real estate passion and to refine the knowledge of seasoned investors. What I hope to gain from blogging is for your critiques of what I teach and report because the best way to learn is to learn from your own mistakes.
What I hope to achieve is to give everyone decent and concise real estate investing tips and to point out current trends in the real estate market so that all of us may benefit from the information. So please stay tuned to my future posts for your real estate information and I will do my best to post as frequently as possible.
G.
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