Monthly Archives: July 2008

Rent Control: The Landlord’s Enemy

Just like The Joker is to Batman or Dr. Evil is to Austin Powers, Rent Control is the enemy to a Landlord. I know the claims of many renters and government representatives: “Without rent control, people couldn’t afford to rent!” I ask, what happened to the basics of economics – the law of supply and demand?

I’m not an Economist, but I do understand that what the “market”, in this case a renter, is willing to pay for any particular unit is what that unit is worth. If you, Mr. Landlord, raise your rents too high then your tenant will leave and you will have a vacant property that you can’t fill.

Rent control is intended to protect tenants from bad landlords. And, I do understand the purpose it was intended for. What it effectively does is create run down properties through the handcuffs it puts on landlords. Instead of putting money into property improvements, landlords of rent controlled properties find themselves paying more for utilities, taxes, insurance, etc. and not being able to recover the costs through rent increases. This means less money for improvements.

Have you wondered why developers no longer build new apartment buildings? Developers choose to build condos instead because it’s very difficult to make money on a newly developed apartment building these days. Rent control is one of the biggest factors why.

Rent Controls are the Enemy of Landlords

Rent Controls are the Enemy of Landlords

In B.C. where we hold a handful of rental properties, the maximum you can increase your rent to a current tenant within 2008 is 3.8%. On all of our B.C. properties, taxes alone on these units increased at least 5% over last year – and that’s just taxes! Insurance on our properties goes up at least 5% each year and I don’t want to even get into what’s happening with hydro and garbage costs. If our rental income can only increase 3.8% each year there is no way we keep up with the costs of owning the rental until the tenant moves out and we can move up the rent at that time – IF the market will bear it. Which is my point, why can utility companies, gas companies, retail companies, etc. all increase their costs to customers when it’s necessary, yet landlords can’t follow suit? When the vacancy rate is at an all time low of sub 2% in much of Vancouver and on Vancouver Island, and housing costs are at an all time high, why must a landlord pay for increasing costs while the tenant keeps paying the same, low amount?

One final point about rent control, if rent control was abolished and landlords in their greedy ways started jacking up rents by 10% or 20%, many tenants would simply relocate. Thus, leaving the landlord with an empty unit and having to spend money to place a new tenant. This would force the landlords to maintain their properties in better condition, and a wise landlord would quickly adjust their practices. It’s much better to keep a good tenant at their current rent than risk losing them because you are increasing their rent too much.

Supply and demand, the market (renters) should decide what your rental unit is worth, not the government.

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3rd Place in MOMAR – Not bad for begginers

Well, it took us 4 hours and 41 minutes to:

  • kayak the 5km out and back on Shawnigan Lake,
  • Mountain bike through 23km of sometimes really rugged trails around Cobble HIll,
  • Swim across a river to get a check point and then swim with a pool noodle across a quarry for another,
  • And, run about 5km in the forest finding check points for the orienteering section.

We survived, and don’t have any major injuries or pains to go with the survival! And, we were thrilled that we placed 3rd in Co-Ed 2’s and 6th overall for the short course race. Not too bad for our first time. And even more important, for most of the time (except for when we missed a turn going up a hill 1km to lose the lead we had after the kayak section), we had a blast doing it. Bryan and his team that put together MOMAR deserve a lot of credit for an extremely well run race, and for putting on a great dinner and party afterwards.

Now, we’re getting ready for MOMAR Cumberland at the end of September! Maybe we’ll see you there?

Crossing the Finish of the Short Course MOMAR Race on July 26th, 2008

Crossing the Finish of the Short Course MOMAR Race on July 26th, 2008

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Momar Adventure Race Around the Corner

Dave & Julie Crossing the Finish Line at the '08 ALS Adventure Race

Dave & Julie Crossing the Finish Line at the '08 ALS Adventure Race

When I think there is something I would like to do, I don’t sit around talking about it for years. I rarely research it to death or waste a lot of time thinking of excuses why I can’t/won’t/shouldn’t do it. I typically think I would like to do something, then decide if I am going to do it. Once the decision is made I get enough information to make a plan, I set my goals (which always include a date and a measurable way of knowing I achieved my goal), and then I get to it.

That’s how I got into Adventure Racing this year. It all happened at the Muddy Buddy Race in September ’07 (now called Mud N Bud in Vancouver). It was a 10km run/bike race with a teammate. Dave and I did it together, and I had a blast. I loved that is was a team event with obstacles and challenges at the checkpoints and I enjoyed training so much more with the race as a goal. When the race coordinators mentioned the MOMAR race, I asked around about it, and decided that it was something I would like to sign up for.

Dave and Julie (and Bram) after Muddy Buddy Vancouver '07

Dave and Julie (and Bram) after Muddy Buddy Vancouver '07

MOMAR stands for Mind over Mountain Adventure Race. It’s a grueling “short” adventure race consisting of about 10km of kayaking, 25km of mountain biking, 10 -15km of trail running mixed in with orienteering, bushwhacking and mystery challenges. When we signed up that is about all we really knew about it. Lucky for me, Dave was interested and agreed to do it!! And, our friend Chris wanted to do a race with us as well. I had a team, so I couldn’t worry about the fact that I couldn’t kayak or mountain bike, I just had to start figuring out how I was going to get good enough for the race.

Honestly if Dave and I had stopped to think about this plan, we’d have come up with 100 reasons why we should not do MOMAR races this year. Not the least of which was that I didn’t know how to ride a mountain bike on single track downhill. But we didn’t make excuses. We just set out to planning a course of action to achieve our new goal (which the big goal we are working towards is to successfully complete the long course MOMAR in Cumberland at the end of September with our teammates Chris Nicholson and Leah Montgomery – GO TEAM FOUR PLAY).

I find that most people are really good at coming up with excuses why they can’t do something. Most people have grand dreams and many even have great ideas. But, so few of these people ever act on those dreams or those ideas. I can take it back to our real estate experiences, as we’ve had so many people tell us that they would love to invest in real estate…someday. Or they would buy a property, but…. And honestly, their excuses are good. Some have even done elaborate market analysis, or studied their returns in stocks versus what they think they would get with a property. They have clearly spent a lot of time thinking about all the reasons why they can’t do it. Imagine their results if they had just put that energy into finding a way to do it?!!

Julie's first Single Track Mountain Bike Ride Ever on Seymour Mountain

Julie's first Single Track Mountain Bike Ride Ever on Seymour Mountain

We have bought real estate at so many points in our life that we know there aren’t too many good reasons why you actually can’t buy real estate (Want to see how we did our deals – check out our newsletter on the 11 properties we bought in five years). Sometimes it means you have to get a partner, or you have to find someone who will give you a VTB loan (Vendor Take Back), or sometimes it means you have to look that much harder to find a deal that works for you. It’s not always easy, but if it were too easy everyone would do it and it wouldn’t be profitable.

My point of this is, if there is something you want to do, whether it’s an Adventure Race, losing 5lbs, getting a new job or buying a house, stop finding the reasons why you can’t do it and start figuring out how to do it.

So as we’re racing around Shawnigan Lake this weekend for the MOMAR Cowichan Short Course Race, and I am cursing the day I ever thought riding my mountain bike down trails in a race was a good idea, I will stop that thought and congratulate myself for progress. This time last year, I had not ridden a bike in over 5 years. And this time last year, I’d never had my bike on a mountain. Thankfully I didn’t think of either of these problems when I signed up. I just focused on what I wanted to accomplish.

So, what do you want to accomplish? Write it down with a date beside it, and make your plans!! When the reasons why you can’t do it pop in your mind squish them and just focus on how you are going to get to your goal by the date you’ve set. Good luck!! We’ll be back on Monday with a race report.

DEAL UPDATE:

Oh, and the little commercial property Dave told you about a few days ago. We put an offer in but a competing bid won over ours. Unless they have all cash to buy the property there is a good chance they won’t get financing and we may just get another crack at buying it. It’s ok if we don’t because we’re already looking for the next deal.

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Trying to Become Commercial Real Estate Investors

So many real estate investment options...

So many real estate investment options...

It’s tough to find a residential property that makes sense to buy right now… and that’s been our focus for a long time. When we sat down to discuss our investing goals for 2008 we decided that it was time to venture into commercial real estate investing. It’s not a completely new place for us to go as Julie’s parents have been active in commercial real estate investing, and I recently became a commercial real estate mortgage broker. But, there are some big differences between the two. I wrote an article last year regarding the comparison of commercial investing to residential investing. They are both real estate investments but they are very different beasts.

We are currently putting in an offer on, what we think, is a great little retail/office building. It’s just a small step for us, but we think it has a lot of potential. Our intention is to begin purchasing several commercial properties and build a portfolio of commercial properties while retaining most of the properties in our residential portfolio. This will help to diversify our risk a bit (commercial and residential do not always follow the same cycle), and help us become experienced commercial investors. We’ll keep you informed on our progress and we will pass along our commercial learnings just like we have with our residential ones. Hopefully we learned enough from our many mess ups in our residential investing that we will make fewer mistakes investing in commercial than we did with residential. We just can’t afford as many mistakes!!

Keep looking for updates and please tell us about any commercial real estate investments you have done or intend to do!

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It doesn’t matter what you paid – what is it worth today?

I came across this little gem of an article called Sunk Cost Bias on a blog called Litemind, and I immediately thought of how applicable it is for a real estate investor. Not that long ago Dave was suffering from a sunk cost bias of his own… he’d bought a crackhouse in Niagara Falls, ON.

Year after year it cost us money and added a lot of stress to our life. Within the first few years of owning it our property manager went on trial for murder, Dave was fined in court about fire code violations, and Dave had to constantly make repairs to keep it up to fire code.

He tried to sell it a few times. But he priced it too high to attract buyers as he wanted to at least get his money back. Finally this year he accepted that it didn’t matter what he had paid for it, he had to get rid of it. He lost money when he sold it but it was such a relief it didn’t feel like money lost.

Dave's Lovely Niagara Falls Property

Dave's Lovely Niagara Falls Property

The price you paid for your house is really irrelevant for most things except calculating capital gains or losses. When you go to sell your house, the only thing that matters is what the “market” is willing to pay for it. It doesn’t matter if it would cost twice as much to build that house. It doesn’t matter if you paid $1 for it or $500,000 for it. All that matters is what someone will pay for it today. When I look at our investments I don’t think about what we paid for each of them, I think about whether the property fits within our investing goals today. If it does, then I keep it. If it doesn’t, then I begin evaluating options.

As the blogger of Litemind points out, money spent and time invested are in the past. Failing to leave that dead end job, walk away from that bad relationship or not selling that stressful money sucking property just because you’ve invested so much in it and want to make it pay off is just “throwing good money after bad” or good energy after bad.

I really like the advice in the blog that says:

Sure, we all expect to have a good return on what we invest. It would be insane not to. Just make sure you’re not on a situation solely because you made the investment in the first place. You don’t make a bad move any better by dwelling more on it, unless you can effectively make something that changes the expected outcome.

Stop spending resources on a bad move — throwing good money after bad — immediately and start spending these resources on a new one: Cut your losses and move on!

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Craigslist meets Google

Before we rent out any of our units, we do research to figure out what market rent is for the property. Generally we look for comparable units within a few blocks of our unit by using:

Craigslist, hands down, has the most listings in it for comparison purposes but it’s a pain to find properties that are nearby the one we’re renting out. NOW – I’ve found this handy little tool that mashes craigslist with google maps. It’s called HousingMaps and I bet renters will like it even more than landlords doing rental rate comparisons.

**Note: If you want to learn more about what to do to rent out a unit, see our latest edition of Rev N You with Real Estate. It should be on our website by the end of the week, or you could sign up for our newsletter and have it delivered straight to your inbox**

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Brace Yourselves – There will be NO surge in House Sales

Federal crackdown could spark housing sales
The real estate industry is bracing for a surge in home purchases,
betting buyers will rush to get ahead of tighter federal government
standards for the mortgage industry.The Finance Department will stop
guaranteeing 40-year and zero-down-payment mortgage loans starting
Oct. 15.

No Surge In Home Sales on the Horizon

No Surge In Home Sales on the Horizon

Hard to believe this is what the media and even some industry players think will happen because of the government change. When I was putting together residential mortgage applications, I had less than 10% going with the 40 year amortization. And I did not have 1 application who went with 100% financing, no money down. Now, this is not to say nobody did these deals, but really, in the grand scheme of things, is this really going to all of a sudden create a “surge in home purchases” before Oct. 15th?

Highly doubtful in my opinion. It may light a small fire and push a few properties to sell a little quicker than they are currently, but given the very small percentage of total purchasers that use these products, I highly doubt you should quickly list your house to capitalize on this upcoming change. As it stands, some banks/lenders are eliminating this program long before the Oct. 15th Federal date. Thus, stopping a “potential” rush of people applying for these products. Of course, this is just my opinion, I welcome your thoughts on the matter!

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