24 August 2009
McClelland Minute - August 23, 2009
Real Estate as an Investment
I was sitting in the tractor one July Saturday afternoon when the cell phone rang. It was the owner of a four plex and he wanted to sell his property quickly in order to take advantage of another opportunity. I directed several questions at him - asking price, how old the building was, what condition it was in, vacancy rate, and details on the rent. A quick mental calculation indicated that it would be a good investment. My opinion was shared because it sold in under a week to a client experienced in this type of property. So my first tip to you is in order to be successful with real estate investing, you can not time the market, the timing finds you.
Most people think investing is like sitting on the sidelines at a game; that you can wait until you see which team is going to dominate, then enter the action on the winning side. It doesn’t work that way at the local ball park, and certainly doesn’t work in real estate. Timing is about being active all year long; always being in the game. The best deals come from opportunities that present themselves to you, and good ones always go fast to the smart investor.
My second piece of advice is to do what you know and have some control over. One of the most successful investors I have worked with is a couple that buys solid little houses requiring TLC that my team feels are priced right for the location. They fix them up, usually rent them out for three to five years, repaint the interior, then sell them for a profit. Cash flow and equity appreciation both; you’ve got to like that.
So what really is a good investment? Well, investing is supposed to be, by definition, not risky. Of course, the last year or so has proven that to be untrue. Investments change in value, and not always up. But real estate that can be rented actually provides cash flow to service debt and pay for maintenance; so really, it can be quite forgiving if you are patient and just keep it until you can get a fair return.
Market values are cyclical, and the experienced investor is always thinking about where they are in the cycle. Let me give you an example. Right now, starter homes are in demand. Mortgage rates are low, and rental rates have climbed. First time home buyers are actively looking to put their monthly cheque into something that they feel will eventually reward them. Investors/owners of these types of houses are putting them back onto the open market because they suspect that interest rates won’t always be this favourable, therefore this may in fact be the best time to liquidate this aspect of their holdings.
Too often I hear that all the good investments are taken. The truth is that every market has opportunity if you are open to it. Realtors see them all the time because there are two fundamental forces at play in every potential real estate trade – economic and personal. If a relationship breaks down, and the owner is moving out of province, they are more likely to price their property to sell quickly than the person who just wants a bigger home in the same community.
And because life happens to all of us, these opportunities are constantly being created and have very little to do with the price of oil, the weather, or any other economic condition. I can’t predict where, or even when, but windows for investment are always being opened.
Vern McClelland is associate broker with RE/MAX of Lloydminster. If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700 or through the McClelland Group website www.mcclelland.ca
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