Real Estate Investment Network president Don Campbell joined us recently for an online discussion of housing market trends for 2011. The following is a collection of questions submitted by readers that Mr. Campbell could not get to during the live discussion but has since answered.
Q. You mention rates will rise late 2011. Is this still a good time for first time buyers of commercial real estate to enter the market - specifically multi-family or small apartment buildings? -Dana
A. The rate that we were discussing was the Bank of Canada rate, which has a direct affect on variable rate mortgages and to a lesser amount, long term fixed rates. What you are speaking of are different rates all together, commercial rates are set based on the underlying bond yields... in other words, they move at different paces, and sometimes different directions than the residential mortgage rates.
In addition, you will also find with the new residential mortgage rules that there will be less demand for home buying which will create a stronger demand for apartment rentals - which in turn will help you with your small apartment buildings. Before you buy, make sure you do great detailed homework on the region in which you are buying. Some will win and some areas won't in the next three to five years. This article may help you choose a region on which to focus.
Q. You seem to be hinting that transportation costs are going to factor into housing demand in the immediate future. Do you see the predicted pressures of intensifying urbanization and the de-emphasis of suburbanization being of increasing market concern? -Damien
A. Transportation will continue to play an increasingly more important role in the performance of specific neighbourhoods and regions. Our recent studies, based on results of transportation improvement across Canada and the U.S. for the last 30 years, has shown that areas that are newly serviced by transport improvement (i.e new highways, or LRT) have witnessed increase in property prices upwards of 15 per cent above the average, that is substantial for both home-buyers and investors looking at long term holds. Densification is going to have to occur in GTA and BC's Lower Mainland due to green space and physical growth restrictions (ALR, Mountains, Lakes, Oceans etc). These denser areas then become more viable for increased transportation infrastructure. Those areas where commutes are long and painful to job centres will definitely underperform in the coming decade (when compared to regions with more commuting or job options). Full research reports are available for many main centres across the country that name specific neighbourhoods that will be at the positive impact over the next decade, you may find them helpful (and they are free): http://myreinspace.com/downloads/research_reports1/m/research_reports/default.aspx
Q. Don, if you were to personally invest in Ontario, which cities would you choose? -Erwin Erwin
A. It all depends on the type of property and my long term plan. I would suggest that I would go directly to where the jobs are being created, as it inevitably leads to in-migration. Areas like Kitchener, Waterloo, Cambridge, Hamilton would be a good place to start. I would also take a good look at where major transport changes have occurred or are already being built such as Barrie. Ottawa will be a good performer as well, stable.
Q. What is your outlook for 2011 in REIT? And what is a solid REIT you would recommend for monthly distributions? -Ed
A. This is a completely different ball game as the prices of these aren't just reflective of the economic fundamentals of the region in which they own property, they are also at the mercy of the stock market sentiments and the management and government regulations. I stay out of this arena
Q. Do you think the Florida real estate market has bottomed out? -Guest
A. Not even close, looking at the economics, the foreclosure rate, the job growth numbers, it looks like bottom will hit around 2013. If they increase interest rates up in US, this will push more properties onto the market. There are currently 4,000,000 properties listed (and many more not listed but empty or owned by banks) in the U.S., that is an almost 11 month supply. Only demand is coming from speculators hoping to time the market. Here is a link to my latest U.S. market info: This the first in a series of 6 (all posted on the site now) start here: http://www.donrcampbell.com/tropical-real-estate-is-not-always-paradise-the-six-rules-of-investing-in-us-or-tropical-real-estate
Q. If you had say $100k to invest in a rental-income property and wanted it to have a cash flow on say a 65 per cent LTV, where in Canada would be a good place to invest? -Guest
A. That is a great question, as cash flow is critical. Unfortunately, many beginners turn into speculators by purchasing property only on the hope that it will go up - that is not investing. We do NOT advocate speculation as a matter of fact the reason that REIN has been so successful over the last 19 years is our focus of teaching people how NOT to become speculators by becoming informed investors. As I am a long term investor, I would look at a region where the job growth and immigration is not going to be a short-term blip. I would look at transitional neighbourhoods in Edmonton, Calgary, Maple Ridge, Surrey, Hamilton, Cambridge, Brampton as a start (I only include specific cities as that it what you asked for) however there are many other regions that would do you well over the long term. Here is our Top Canadian Cities for long term investment report. In that report, the list of cities is important, but more important is the criteria used. I suggest you use the same questions (on page 3) we used to analyze your target city to see if you can uncover a hidden gem http://myreinspace.com/downloads/research_reports1/m/research_reports/100340.aspx It is free to download as well.
Q. Don, what are your thoughts on Mortgage Investment Corp's (MICs) as an alternative mortgage provider?
A. I have used them for bridge financing and secondary financing. They do provide a service to the home buyer and investor market that is helpful. The key is to understand that they all have their own lending rules and they all have their interest rate criteria. Finding one that fits your needs will be important (don't just take the first one that comes your way) Ask around with other investors who they use, interview the MIC's underwriters, make sure their goals fit yours.
Q. How do you factor in foreign/immigrant investment in the market. What impact do they have? -Sam
A. The answer to this is very regional. Canada has become a safe haven for major investors and investment funds parking their money not only in companies but also in our real estate, this trend will continue while the world continues to show signs of economic confusion. We are even seeing tours coming in from Asia and Europe solely to purchase Canadian real estate. This has mostly artificially driven up demand on condo markets in Toronto and Vancouver and is one of the reasons those markets are hotter than they should be (based on the underlying economics).
Long term outlook, we have what the world will need upon recover kicking in. We call them F3 - Food, Fuel & Fertilizer, all three of which will be headline generating (and unfortunately crisis catalysts around the world). Having these three key industries will help us to have a more stable, and sustained economy when comparing us to G20 countries. Job growth will come from these industries.
For a transcript of the full online discussion, click on the Cover it Live box below. Mobile users can read it by clicking here.