Top 4 Property Types to Invest in for 2009

1. Office buildings with medical or governmental offices in secondary markets.
Small town Ontario abounds with medical and government offices in buildings that range in age from new to 40+ years old. In recessionary times, government tends to spend more in small towns and rural locations to try to boost local economies, so the risk of closure is lower today. Doctors never go out of style, especially when you consider our aging demographic. Look for well located buildings with little maintenance required over the next few years and with long term leases in place.


2. Apartment buildings - everywhere.
When the housing market gets shaky, first time buyers tend to put off buying houses and stay in their apartments longer. The unfortunate reality for established home owners is sometimes not much better - many are forced to sell after losing their jobs and move back into apartments as a less expensive alternative to ownership. Both of these factors mean that apartment properties tend to do well on the downswing of the housing market. Look for locations with younger populations, university towns are great, and buildings that have been well managed or come with management in place.

3. Storage properties in underserviced locations.
The storage business is another one that tends to do well on a downswing. As people move back into apartments or stay in them longer, they still have 'stuff' that they just can't part with. Things like a family heirloom, extra furniture, collectibles, etc. that people have an attachment to, but no place to store. Look for properties with vacancies no higher than 25% and expect a hefty return in the range of 9-11% annually depending on competition, condition, and location. Also try to find locations where there is a lack of land for competitors to come in and build new storage businesses - new players will undercut your price and put you out of business! Be forewarned, this kind of property can be tough to finance, so do your homework and try to get a line on some capital early in your search.

4. Distressed older plazas in good locations.
This one will be tough to find in today's market, but worth the effort. Over the last ten years, a lot of older product in this category was refurbished or torn down altogether and replaced with modern storefronts. When you can find them, however, they often make great investments provided that the existing cashflow justifies the price. If you can find plazas with some vacancy and upside potential in terms of some cosmetic improvement that will drive new tenants to your location, and you aren't afraid of some hard work, this property type can return excellent profits.

Why is my list so short? Security is the name of the game in 2009. Each of these is a fairly secure bet - there are no guarantees in real estate investing, but you should be able to reduce your risk if you're careful. There is a lot of uncertainty out there right now, and making a decision to get into real estate at this time takes guts. Lower your risk by choosing a secure investment (read: cash flow now, not capital appreciation later!) with long term upside to succeed.

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OREA Presentation on Mandatory Home Energy Audits (Bill 150)

Thanks to Christine Kemp, President Elect of the Peterborough and Kawarthas Association of REALTORS® for posting these videos on her Facebook page and bringing them to my attention.

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Real Estate Investment Fundamentals Still Strong

Let me start today by asking a few questions:

Why do buyers of commercial real estate think that just because the economy has been squeezed by a few percentage points, that ALL properties are now somehow poisoned assets? Did somebody change the fundamentals of real estate investing when I wasn't looking? When interest rates are at an all-time low, why are investors now nervous about buying solid assets with good leases to national tenants and demanding higher cap rates?

Now before you call me a whiner, let's qualify my comments a little bit. I believe that a correction in the market place is unavoidable at this time as the financial institutions have, indeed, tightened their proverbial belts and made it a bit more difficult to get favourable terms i.e. LTV ratios are different today than they were even just eight months ago. Many companies are having to look at their plans for the future and are asking themselves if expansion or new facilities fit with the economic realities of today. I get that.

What I don't get is that there seems to be a giant chasm between perception and reality as it relates to commercial real estate in Canada right now. As one of my clients recently put it, " the point of capitulation hasn't been reached yet." Why does there need to be a point of capitulation? If an investment has solid fundamentals, a good lease with a strong covenant, a good term remaining on the lease, a building that's in good condition and well located, why is that investment so much riskier today? I'd argue that it probably isn't.

The rules of the game haven't changed; perception in the marketplace has.

I'm really looking forward to reading any comments or additional ideas you might have on this topic, so please comment below.

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Cheap Commercial Real Estate Fish Stories

Got $100,000? Buy a Skyscraper | NBC New York

This article on NBC's New York News beta site would have you believe that things are so bad in the US right now, that you could buy a Sixth Avenue skyscraper for $100,000 US. While prices are getting very low on these kinds of assets and Real Capital Analytics claims that there is as much as $86B US worth of at risk property, I did a little digging and found some details on this particular transaction.

I was intrigued because a Canadian Pension Fund unit was the purchaser of a landmark location in the Manhattan, and the patriot in me wanted to know the details of how they managed to pull this coup off.

Turns out that magante, Harry Macklowe bought the building, located at 1330 Avenue of the Americas, two years ago for an estimated $498M. When a loan secured by the property for $130M was defaulted upon, the bank seized the property and sold it to Cadim.

The loan was sold to Cadim, Canada's largest pension fund, and transferred to the subsidiary Otera Capital. Otera took over the loan and the tower's $240 million mortgage. The building, in the middle of the country's most lucrative commercial district, is two-thirds leased; its most prominent tenant is the Financial Times newspaper, sporting a pink `FT' logo on its rooftop.

"We had some confidence that the building is a good building, and with patience we would be OK," said Marie Giguera, an Otera vice president.

Entire news article here.

So, while this is definitely a great move for Cadim and Otera, it wasn't the $100,000 fire sale some would have you believe.

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Tax Harmonization in Ontario - The Big Grab

Boy, have I got a bone to pick with the Ontario government this week! Several, actually. Yesterday was my rant about proposed energy audits. Today I'm going to write about Sales Tax Harmonization, or as I like to call it, The Big Grab.

The Ontario Government has put up a page explaining their position and the 'benefits' of making this move, you can read it here. Pure propaganda, if I've ever seen it. What really ticks me off is that they have the nerve to use terms like: transparency, fairness, job creation, and economic growth. Hogwash.

So what's it all about? They're proposing a change to sales taxes in Ontario a la the maritime provinces. No more separate PST and GST, both would be rolled into one tax, the HST. A 13% tax on just about everything you buy, including services that aren't currently taxable provincially - like real estate commissions. On the surface it doesn't look that bad as there are some exemptions that will be continued. Things like books, children’s clothing and footwear, children’s car seats and car booster seats, diapers and feminine hygiene products will still be exempt. What they don't offer, though, is the things that will now be taxable at a higher rate. Things like new homes and real estate commissions.

Firstly, new homes. Now I don't sell new homes and I have absolutely no desire to get into the market, but many of you do buy these properties or broker them on behalf of clients. Did you know that the sale of some new homes will cost tens of thousands of dollars more under this new tax scheme? I can hear the arguments already, "There's a rebate up to $400,000 and a reduced rebate for homes between $400,000 and $500,000. What about that? Doesn't that make up for it?"

Not really, no. According to the Ontario Home Builders Association (OHBA), in a recently released leaflet, fully 41% of new homes sold in centers with populations over 50,000 people will be subjected to tens of thousands of dollars in NEW taxes. That has the potential to, dare I say will certainly, impact new home sales and construction activity in this Province. At a time when the economy is suffering, should one of our main economic drivers be hamstrung in this manner?

Now you might be tempted to think, "That's just NEW homes though; there won't be any other negative effects on the housing market." How wrong you'd be! If your house sells for $300,000 and you negotiated a commission of 5.5% with your REALTOR®, then the fee would be $16,500 plus taxes. Today that tax amount is just 5% or $825 - after the HST comes into effect your new tax burden will be $2,145! That's an increase of $1,320 or a 160% increase! And just where is that money supposed to come from? I feel for you, dear consumer, but my kids still have to eat - I can't justify just dropping my fees because the government passed a new tax.

The McGuinty government claims that the impact to most families shouldn't be more than $70 per year in increased costs. But don't worry, they're going to give you your own money back in the form of a $1,000 pay off. The McGuinty government claims that businesses will benefit because they'll now be able to more affordably buy new equipment to keep people employed manufacturing goods. There might be some truth in this one, and I applaud them for thinking about how to keep Ontarians working.

Just a few questions though, and feel free to comment below - I'd like to hear what you have to say:

1. If sales tax harmonization (STH) will 'only' cost $70 per year in new taxes, why are they willing to 'give' families $1,000 each? Could it be to buy them off? Could it be a bit of a carrot so that people don't complain? Who couldn't use a little extra money right now? I could. Baaaa.
   
2. If STH will benefit business so much, why are they providing $4.5B in tax relief to businesses to offset the cost of new taxes? Could it be to buy them off? Could it be to provide the illusion of doing more for our manufacturers?
3. They claim that consumer prices dropped in the maritime provinces by something just short of 2% after STH was introduced. Why then, do they estimate that it will cost consumers an extra $70 per year?
4. What extra benefit does the hard working Ontarian get from this extra $70 per year in increased taxes? And don't tell me it's the $1,000 pay off! That's already your money! You just gave it to them in April when you did your taxes!

When has this government EVER given us something with one hand without taking more back with the other? EVER?

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McGuinty Government Mercilessly Targets Home Owners

Anyone who's listened to the news recently knows that we are in the middle of the worst recession since the Great Depression.

Except Dalton McGuinty that is.

He and his band of merry men and women think that now might be the right time to erase thousands of dollars in equity from just about every household in Ontario. They think that now might be the best time to force home owners to pay MORE to sell their houses. They think that this just might be the perfect time to 'stick it' to the little guy!

I say, enough is enough! The perception of doing something good for the environment just isn't enough reason to unleash this kind of boneheaded manoeuvre on the Ontario taxpayer. And this is on top of the government's plan to harmonize the sales taxes! (This will be my next post)

Let's go through an example, shall we? You want to sell your 1970's construction home and you live in a nice part of Peterborough, Ontario. You have a couple of REALTOR®s drop by to give you an idea of the market value for the property and to give you their sales pitch for the services that they would be prepared to offer you and the commission that they each will charge you. So far so good. You and your spouse talk it over and you decide to go with the REALTOR® who gave you the best marketing plan and has the best track record even though their commission is slightly more than their competitor. What, you didn't think I'd advocate the lower rate, did you? ;)

You agree to put your house on the market for $278,000 and also agree to a listing term of 120 days. After just 28 days, your REALTOR® calls you, she's very excited as an offer has been registered and the other broker would like to present the offer to you tonight right after dinner.

Sounds great! Until you get a chance to read the offer over with your broker. The buyer has inserted a clause requiring you, under newly enacted legislation, to have a home energy audit performed - at your cost. How much will this cost? No one knows for sure, but probably somewhere in the neighbourhood of $450. Ouch! You bite the bullet though, because you have to sell because you've been laid off and need to downsize (remember, this is the worst recession since the '30s!) The audit comes back with results that are less than splendid. The buyer looks at the report and says, "Wow...this place is a real energy hog! Guess you better drop your price by $15,000 so that I can afford to make the improvements necessary to get this place up to spec! What's that, you can't afford that? Guess I'll just buy the house down the street then..."

Now you do have choices, you could:
1. Drop your price to save the deal - equity erased courtesy of Dalton McGuinty.
2. Allow the buyer out of the deal and 'hope' that the next buyer to come along has a bigger bag of money.
3. Don't sell. Everyone does the same and the real estate market freezes. Prices plummet and the economy goes into an even deeper nose-dive - again, equity erased courtesy of Dalton McGuinty!

None of this even takes into account licensing the energy auditors, ensuring quality of inspections, administering the bureacracy created by this new layer of insanity and the huge tax burden placed on the tax payer to cover the cost of administration!

Write to your MPP and demand that this bill be repealed. Call them, fax them, email them, show up at the constituency office! Let's do everything we can to stop this!

CNW Group Article on this story is here.

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Your Building Appears to be Missing....

Found via reddit.com

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Get Motivated!

In the past, I've posted links to others' writing, but this time I'm doing something different.  This article is so good, I felt like reposting it in its entirety.  If you'd like to visit the author's blog it's here.

Enjoy the article and remember, your life is yours alone, rise up and live it!

Even the most motivated of us — you, me, Tony Robbins — can feel unmotivated at times. In fact, sometimes we get into such a slump that even thinking about making positive changes seems too difficult.

But it’s not hopeless: with some small steps, baby ones in fact, you can get started down the road to positive change.

Yes, I know, it seems impossible at times. You don’t feel like doing anything. I’ve been there, and in fact I still feel that way from time to time. You’re not alone. But I’ve learned a few ways to break out of a slump, and we’ll take a look at those today.

This post was inspired by reader Roy C. Carlson, who asked:

“I was wondering if you could do a piece on why it can be hard for someone to change direction and start taking control of their life. I have to say I’m in this boat and advice on getting out of my slump would be great.”

Roy is just one of many with a slump like that. Again, I feel that way sometimes myself, and in fact sometimes I struggle to motivate myself to exercise — and I’ll use that as an example of how to break out of the slump.

When I fall out of exercise, due to illness or injury or disruption from things going on in my life, it’s hard to get started again. I don’t even feel like thinking about it, sometimes. But I’ve always found a way to break out of that slump, and here are some things I’ve learned that have helped:

1. One Goal. Whenever I’ve been in a slump, I’ve discovered that it’s often because I have too much going on in my life. I’m trying to do too much. And it saps my energy and motivation. It’s probably the most common mistake that people make: they try to take on too much, try to accomplish too many goals at once. You cannot maintain energy and focus (the two most important things in accomplishing a goal) if you are trying to do two or more goals at once. It’s not possible — I’ve tried it many times. You have to choose one goal, for now, and focus on it completely. I know, that’s hard. Still, I speak from experience. You can always do your other goals when you’ve accomplished your One Goal.
2. Find inspiration. Inspiration, for me, comes from others who have achieved what I want to achieve, or who are currently doing it. I read other blogs, books, magazines. I Google my goal, and read success stories. Zen Habits is just one place for inspiration, not only from me but from many readers who have achieved amazing things.
3. Get excited. This sounds obvious, but most people don’t think about it much: if you want to break out of a slump, get yourself excited about a goal. But how can you do that when you don’t feel motivated? Well, it starts with inspiration from others (see above), but you have to take that excitement and build on it. For me, I’ve learned that by talking to my wife about it, and to others, and reading as much about it as possible, and visualizing what it would be like to be successful (seeing the benefits of the goal in my head), I get excited about a goal. Once I’ve done that, it’s just a matter of carrying that energy forward and keeping it going.
4. Build anticipation. This will sound hard, and many people will skip this tip. But it really works. It helped me quit smoking after many failed attempts. If you find inspiration and want to do a goal, don’t start right away. Many of us will get excited and want to start today. That’s a mistake. Set a date in the future — a week or two, or even a month — and make that your Start Date. Mark it on the calendar. Get excited about that date. Make it the most important date in your life. In the meantime, start writing out a plan. And do some of the steps below. Because by delaying your start, you are building anticipation, and increasing your focus and energy for your goal.
5. Post your goal. Print out your goal in big words. Make your goal just a few words long, like a mantra (”Exercise 15 mins. Daily”), and post it up on your wall or refrigerator. Post it at home and work. Put it on your computer desktop. You want to have big reminders about your goal, to keep your focus and keep your excitement going. A picture of your goal (like a model with sexy abs, for example) also helps.
6. Commit publicly. None of us likes to look bad in front of others. We will go the extra mile to do something we’ve said publicly. For example, when I wanted to run my first marathon, I started writing a column about it in my local daily newspaper. The entire island of Guam (pop. 160K) knew about my goal. I couldn’t back down, and even though my motivation came and went, I stuck with it and completed it. Now, you don’t have to commit to your goal in your daily newspaper, but you can do it with friends and family and co-workers, and you can do it on your blog if you have one. And hold yourself accountable — don’t just commit once, but commit to giving progress updates to everyone every week or so.
7. Think about it daily. If you think about your goal every day, it is much more likely to become true. To this end, posting the goal on your wall or computer desktop (as mentioned above) helps a lot. Sending yourself daily reminders also helps. And if you can commit to doing one small thing to further your goal (even just 5 minutes) every single day, your goal will almost certainly come true.
8. Get support. It’s hard to accomplish something alone. When I decided to run my marathon, I had the help of friends and family, and I had a great running community on Guam who encouraged me at 5K races and did long runs with me. When I decided to quit smoking, I joined an online forum and that helped tremendously. And of course, my wife Eva helped every step of the way. I couldn’t have done these goals without her, or without the others who supported me. Find your support network, either in the real world or online, or both.
9. Realize that there’s an ebb and flow. Motivation is not a constant thing that is always there for you. It comes and goes, and comes and goes again, like the tide. But realize that while it may go away, it doesn’t do so permanently. It will come back. Just stick it out and wait for that motivation to come back. In the meantime, read about your goal (see below), ask for help (see below), and do some of the other things listed here until your motivation comes back.
10. Stick with it. Whatever you do, don’t give up. Even if you aren’t feeling any motivation today, or this week, don’t give up. Again, that motivation will come back. Think of your goal as a long journey, and your slump is just a little bump in the road. You can’t give up with every little bump. Stay with it for the long term, ride out the ebbs and surf on the flows, and you’ll get there.
11. Start small. Really small. If you are having a hard time getting started, it may be because you’re thinking too big. If you want to exercise, for example, you may be thinking that you have to do these intense workouts 5 days a week. No — instead, do small, tiny, baby steps. Just do 2 minutes of exercise. I know, that sounds wimpy. But it works. Commit to 2 minutes of exercise for one week. You may want to do more, but just stick to 2 minutes. It’s so easy, you can’t fail. Do it at the same time, every day. Just some crunches, 2 pushups, and some jogging in place. Once you’ve done 2 minutes a day for a week, increase it to 5, and stick with that for a week. In a month, you’ll be doing 15-20. Want to wake up early? Don’t think about waking at 5 a.m. Instead, think about waking 10 minutes earlier for a week. That’s all. Once you’ve done that, wake 10 minutes earlier than that. Baby steps.
12. Build on small successes. Again, if you start small for a week, you’re going to be successful. You can’t fail if you start with something ridiculously easy. Who can’t exercise for 2 minutes? (If that’s you, I apologize.) And you’ll feel successful, and good about yourself. Take that successful feeling and build on it, with another baby step. Add 2-3 minutes to your exercise routine, for example. With each step (and each step should last about a week), you will feel even more successful. Make each step really, really small, and you won’t fail. After a couple of months, your tiny steps will add up to a lot of progress and a lot of success.
13. Read about it daily. When I lose motivation, I just read a book or blog about my goal. It inspires me and reinvigorates me. For some reason, reading helps motivate and focus you on whatever you’re reading about. So read about your goal every day, if you can, especially when you’re not feeling motivated.
14. Call for help when your motivation ebbs. Having trouble? Ask for help. Email me. Join an online forum. Get a partner to join you. Call your mom. It doesn’t matter who, just tell them your problems, and talking about it will help. Ask them for advice. Ask them to help you overcome your slump. It works.
15. Think about the benefits, not the difficulties. One common problem is that we think about how hard something is. Exercise sounds so hard! Just thinking about it makes you tired. But instead of thinking about how hard something is, think about what you will get out of it. For example, instead of thinking about how tiring exercise can be, focus on how good you’ll feel when you’re done, and how you’ll be healthier and slimmer over the long run. The benefits of something will help energize you.
16. Squash negative thoughts; replace them with positive ones. Along those lines, it’s important to start monitoring your thoughts. Recognize negative self-talk, which is really what’s causing your slump. Just spend a few days becoming aware of every negative thought. Then, after a few days, try squashing those negative thoughts like a bug, and then replacing them with a corresponding positive thought. Squash, “This is too hard!” and replace it with, “I can do this! If that wimp Leo can do it, so can I!” It sounds corny, but it works. Really.

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