“Canadians catching the fever for investing now, as never before: An increasing number of people see real estate as the way to personal wealth…” — Globe and Mail, Friday, August 8, 2005
Realtors should really be tapping into the burgeoning real estate investment market. The Baby Boomers is a marketplace rich in opportunities.
“What we’ve seen in the last five years, is a propensity for people to take control of their own investments,” says Vancouver-based author Don Campbell.
If you compare the volatility of the TSE/VSE/NYSE, to the real estate markets across Canada during the past five years, it appears that most investors in real estate have increased their net worth more than those who have tried to increase their net worth in the stock market.
In the U.S., David Rosenberg, chief North American economist for Merrill Lynch & Co. Inc., says a bubble covers about 60 per cent of that country. He says that “consumer spending and residential construction together, has been responsible for 90 per cent of the growth in the USA…. and at the same time equals 70 per cent of the rise in household net worth since 2001.” I don’t doubt that our stats can be far off that mark, judging from average prices across Canada. While our country may not be in the same overheated markets as those in California or New York, a dramatic slow down would have an impact here.
I don’t think that during the past five years, there has been the speculation that we experienced in the late ‘80s. Although Canada’s home prices have ballooned 41 per cent between ’97 and ‘04 (according to The Economist), it is almost lukewarm compared to Australia’s 114 per cent gain and in Britain’s 147 per cent gain, during that same period. My best friend’s son recently paid over $300,000 (Can.) for a third floor, 600 sq.ft. loft well outside of London. And gas there is what? Five dollars a gallon?
Although there have been regulations in place to thwart speculators, still about 25 per cent of the condo market is currently held by investors. Many Canadians look to invest in a home as a “safe place” for their hard-earned savings. While some who’ve made it big are buying country homes/cottages, others are looking into the Tenant Protection Act. Why? Because they are looking to buy property to rent out and hold on to. Some are buying multiple units and doing very well at it.
Recently, a young friend of mine (not a Realtor — I actually have some friends outside of real estate!) attended a real estate investment seminar. He was inundated with great stories of successful investors buying real estate with little or no money down. The seminar was well attended and there were courses of how-to-get-rich in real estate being offered. My young friend asked me what I thought about buying with little or no money down and I replied: “Caveat Emptor!”
Even though interest rates are low, properties such as the seminar leaders were promoting are hard to find in large centres, such as Montreal, Toronto or Vancouver. It’s difficult, I told my young friend, to find properties with positive cash flows in the market we’ve been experiencing, but not impossible. No, not impossible, if he finds the right agent and the right mortgage broker to advise him properly.
I am not a big fan of these “buying with no money down” seminars. It could lead to disaster. Especially if the property is in need of repairs/refurbishing, and the buyer is not handy at doing those things that need to be done. This could lead to ruination of their investment. They should always be advised that the rental of the home/condo/loft, should at the minimum cover the mortgage. And the investor should have ample cash reserves to fall back on in the event of any unforeseen problems.
Affordability in many large centres is not possible for a great many investors. Recently, my nephew, also in the business, took some of his friends/clients to a smaller city 115 miles east of Toronto to seek investments. It is entirely possible to secure a good investment, with a good tenant(s) and have a local Realtor manage the property for them.
So my advice is to do your research when you are contracted under a Buyer Agency, to be extremely careful in counseling your clients. Yes, you should read up on the current Tenant Protection Act as applicable in your area. Yes, you should definitely read up on all the local and municipal by-laws. Don’t guess at it and definitely don’t take the listing agent’s word for it on the listing. When advertising a home with “rental potential”, be absolutely positive that it’s true. Misleading/fraudulent advertising is one of the most-heard cases at the Real Estate Council of Ontario, and I am sure in other jurisdictions in Canada. Be diligent and you’ll stay out of trouble and have a happy customer who’ll buy more than once from you.
I read a lot of real estate publications in and around the Toronto area. They are a lot of decent buys in real estate out there. If your client is willing to travel with you to seek a decent investment that won’t break his pocket book, then do the research. Call your colleague in that rural area that you met at a conference. Not with a large franchise? No problem, you can get a list of Realtors in the region from the provincial real estate association. I know of at least 10 agents who make a tremendous amount of commissions by just sending out referrals and or co-brokering with a fellow Realtor. Whether you’re a new agent or seasoned agent, this is a golden opportunity to enhance your income – “carpe diem!”
As a Realtor, you should own one or more income properties, simply because it puts you in a position of authority. After all, if you own income properties, you’ll have first-hand knowledge of the ins and outs of real estate investing. So, instead of leasing that gas guzzling limo that you’ve been dreaming of, invest in real estate instead!
I see more and more young people entering into investment properties in recent years. You should be making a study of these entrepreneurs and developing them for your “sphere of influence.” Your broker can further expand on this.
An idea that I’ve seen run successfully, over and over again, is holding seminars for the first-time investor. Depending on the size of your community, you can determine your potential market draw, in addition to your sphere of influence. Some successful Realtors have had their lawyers, home inspectors and an accountant in attendance. Who knows, maybe they’d even pitch in and help you offset the cost of running the event. I heard of a Realtor in a small town in Maine who, over the years, started holding these events in a library and now holds three events a year in the local high school. He charges a $20 fee for the books and the refreshments, but the money goes to his favourite charity. He does over a $1 million a year in commissions.
So, there’s some advice to you as we approach the year-end. Hope you’ve enjoyed this article. Send me your thoughts.
Thought for the month: “The world always steps aside for people who know where they are going.” — Miriam Viola Larsen
Stan Albert, A.B.R., is celebrating his 34th year in active real estate. He serves on the Complaints, Compliance and Discipline Committee at RECO, and the Professional Standards Committee at the Toronto Real Estate Board. He is an established trainer and business consultant and can be reached at salbert@trebnet.com. www.Trainingforrealestate.com.
Discuss this article in the REM Discussion Forum.
Stan Albert, ABR, ASA is a consultant with Re/Max Premier in Vaughan, Ont. He can be reached for consultation by email. Stan is now celebrating his 45th year as an active real estate professional.
