The Burrard Street Blog

Today’s entry is the first of a series on the different aspects of an apartment that give it the “wow” factor we’re all seeking. We start the series with a look at something that seems to be slowly disappearing below 30 stories in the downtown core, and that is a breathtaking view.

So often we hear about granite this and stainless steel that, it becomes easy to forget about another very important part of your home: What you have to look at every morning. I’m not talking about your spouse (that is one view I can’t help you change) but rather your condo’s view. Whether it is of the mountains, the ocean or the city, when you’re purchasing a home you may be looking at that same view for 10, 20 or 30 years and it needs to inspire you. For me, view and location are the most important aspects of a home purchase (assuming of course it has granite this and stainless steel that, great amenities and friendly neighbours). One could say a magnificant view is quite the panty dropper, while an unattactive one is a definite price dropper.

The Mountain View
For some nothing is more majestic than a view of the beautiful North Shore Mountains. It may be their size and strength as, unlike housing prices, they have remained constant for thousands of years. Some enjoy being reminded of mother nature and all her possibilities; perhaps looking out each morning to check the snow conditions and decide if they should call in sick and hit the slopes.

The Ocean View
Similar to its partner the mountain view, the Ocean View offers one a sense of just how great mother nature is, a reminder of how small we are compared to the earth which we have the privledge to inhabit. Also in common is the sheer beauty of the view on a perfect summer afternoon, sails riding high as the sea is alive with boats. Personally, I have never found mountain or ocean views very appealing after sunset.

The City View
To me their is no greater view than an impressive city view. While a view of the mountains or ocean may make one feel small compared to mother nature, sitting atop the city at 30 or 40 stories looking down can make a man feel like a king. What better way to start your day than to look out of your floor to ceiling windows and see all the people you need to meet, stores you can shop at, buildings you want to buy and restaurants you plan on trying? To me there is no comparison, well unless of course you can have all 3.

The Rooftop Garden
I used to live in the Electric Avenue building on Burrard and Smithe. My suite was on the top floor and as such it had access to what I liked to call the John Kalovich floor which provided semi-private access to a 360 degree rooftop garden. The view in my corner suite was fantastic but couldn’t compare to this. In the mornings I’d complete my runs by climbing the 24 stories of stairs to the garden, and I can tell you there is no better feeling in the world (yes I was listening to eye of the tiger, and yes I made a habit of proclaiming I was the king of the world while looking down on the city).

It may not always be possible to find the absolute perfect view you want, in the building you want. This is where the 360 degree rooftop garden comes into play. By having communal rooftop areas a building allows more of its residents to live like kings, even if its only for a few hours a week. As an ambitious up and coming investor, having a rooftop garden on your own home allows you to take a few minutes each day to look out over the city you want to one day own and feel inspired, taking that feeling with you for the rest of your day.

At the end of the day one has to ask, what is a view worth? Some tell me a view is everything to them, while others proclaim their blinds are closed all day anyhow so why waste the money or spend more time in an elevator than neccessary? Whatever you decide on your view, look into the surrounding airspace rules and make sure it is yours to keep. The beautiful view from my former corner unit in Electric Avenue will be no longer when the 40 story condo across the street completes sometime in 2009.

I apologize for the lack of updates the last few days. As many of you know I’m on the market for a new place downtown to call home, and well it has become very time consuming. The good news is all the hours spent shopping have become inspiration for a series of articles for the upcoming week. I’m going to take a closer look at what I consider the most important aspects of a downtown pad, starting with views on Monday. I’m looking forward to hearing lots of feedback on what drops your jaw and makes you say “Wow, I’ll take it.”

 Until Monday,

Dan Johnston.

“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.”
-Donald Trump

There is no doubt that some of the wealthiest people on earth made their money through real estate. Building wealth through real estate can give you financial freedom and more time to enjoy living! This is part one of a series of articles I will be writing on real estate investing for Canadians, expect at least one new article on the topic every two weeks. If you’re tired of hearing about other people making money in our amazing real estate market now is your chance to step up and get into the game.At the most basic level there are only 2 ways to make money through real estate: Rental income and capital gains. Understanding these basic concepts is fundamental in becoming a successful real estate investor.Here are some quick definitions:
Rental Revenue: This is the money you receive from tenants living in your properties. This is taxed by the government the same as any other income.

Capital Gains: This is the money you make from increases in your properties value when you sell. Income through capital gains is taxed less than rental or employment income and is only paid when the property is sold. You do not pay capital gains tax on your primary residence.

An investor usually earns income (or attempts to) from both sources. A property bought to earn a monthly income (often referred to as a revenue property) will often increase in value (resulting in capital gains when they eventually sell). Properties bought to be resold because they are expected to increase in value are also usually rented out to help with mortgage payments.

Some other terms you should know:
Cash Flow: This refers to actually money coming in and out. If your property generates more cash per month than it costs you it is said to have positive cash flow.

Equity: Equity refers to your ownership in a property. If you put $30,000 down on a $300,000 property you have 10%, or $30,000 equity. If that property goes up to $425,000 you now have 36% or $155,000 in equity. You can see how one is able to turn a small investment ($30,000) into a large profit($125,000).

Look forward to future articles covering everything from increasing your leverage to using options to make money with minimal risk.

 This site is a great place to post opinions, ask questions or recommend learning materials.For more reading on real estate investing I recommend:“Real Estate Investing in Canada: Creating Wealth with the ACRE System” by Don Campbell. It starts with the basics and is written for Canadians by Canadians. This book covers a lot of the little details. For the big ideas behind many successful real estate investors I recommend anything by Trump or Robert Kiyosaki. 

Like most people I never realized how important my credit score was until I started in this business. A credit score of 700+ (considered good to excellent in the lender’s eyes) will help you secure the lowest interest rate possible. A lower score will not prevent you from buying a house, but you may end up with a higher interest rate or additional fees. This also applies to car loans and leases (those advertised 0% financing are only for buyers with excellent credit).

Your credit score or “beacon” is used by lenders to predict the likelihood of you missing a payment over the next 2 years, whether or not you owe money or have balances on your credit cards have little influence on this score.

Your credit score is broken down into various components:
35% Payment History - This means paying your bills on time. You don’t have to pay off your credit cards every month, just always make the minimum payments. Most companies will allow you to send in a void cheque and set up an automatic minimum payment, or you can schedule it online with your bank.

30% Amounts Owed - Anytime you are using more than 50% of a credit account it lowers your score. Having balances below this on your credit cards does not lower your score. In the final months leading to a home purchase you may be better saving cash for a down payment and leaving balances on your cards. This decision should be discussed with a professional.

15% Length of Credit - Try and stick to the same credit accounts. It looks much better to have a visa you have used and paid since you turned 19 than constantly opening and closing accounts.

10% New Credit - If you are applying for every credit card you can or shopping around for mortgage rates this shows up on your report and lowers your score, you may be considered a “credit hunter.” Financial institutions will wonder why you were rejected by the other companies who checked your score, or why you are signing up for so many different credit products.

10% Type of Credit - The kind of credit affect how it is viewed. Bank loans are best, than major credit cards and lastly consumer cards (ie future shop, home depot cards). A bank loan paid on time every monthly looks great.

Things you can start doing now:
Everyone should pull their credit score (www.equifax.ca), it will cost you $23.95 and will give you your score and advice as to how to improve your score so you can have excellent credit. If you’re looking to purchase a home in the near future I can check and review your credit with you during the mortgage application process.

If you have high balances on your credit accounts try and pay them down or at the least spread them out (so no account is at 50%+ of its limit). If avoidable, do not apply for any new credit. Make sure not to miss any minimum payments, and if it is unavoidable call the creditor beforehand and ask for an extension!

If you are a student or looking to purchase in more than 2 years: If you don’t already have a credit card get two, building a credit history of 2 years or more is very important and having 2 different accounts is best. If you already have a lot of credit, don’t worry about outstanding balances, just make sure you do not miss payments. Try and stick to 2 or 3 credit cards and avoid closing accounts or switching banks too often.

This covers a basic introduction to credit. In addition to credit, lenders are also concerned with your income and the property involved, I’ll cover these 2 subjects later this month. I will also be writing an article on how to read your credit report in the future.

If you have any questions send me a message or better yet post it so everyone can see because you’re probably not alone.

Dan.

The Vancouver Sun ran an interesting editorial today in which Bob Ransford discussed lower mainland housing prices. One very interesting argument he made was that Vancouver’s core is immune to world events that would generally crash real estate markets. The idea behind this is that Vancouver and British Columbia ”[are] a haven for people fleeing such doom and gloom, and that our real estate market therefore benefits from the uncertainty, instability and economic downturns elsewhere. People like to park their money in a safe, stable, beautiful place like British Columbia.”

We need to admit that Vancouver is a global city whose appeal spreads from the UK to South America to Asia. Wealthy individuals around the globe see real estate in our city as not only a neccessary luxury but a safe investment. When a businessman or celebrity can have bragging rights and an excellent return from their Vancouver penthouse who would say no? I feel safe in saying that the luxury condo market will only go up, but what about the rest of the province?

In the Lower Mainland markets there seems to be certain price ratios between certain areas that remain a constant. For instance A condo in Burnaby will be xx% of a condo Downtown, while a condo in the Westend will be xx% of one of Coal Harbour etc. The problem with this is that the demand forces are entirely different for all these areas. Luxury penthouses are hitting record highs of 20 and 30 million and bringing up the prices of 2 bedrooms in the same building. Now my question is, why does the owner of a 60 year old 2 bedroom in a 3 story walkup in the westend think his apartment is now more valuable because brand new luxury condos are increasing in price? Just something to think about. 

And yes I understand supply and demand and how the markets work, I’m just trying to look at things from a fresh perspective. At the end of the day it falls on the consumers. When you’re looking to find an affordable place downtown remember to negotiate and play hardball. The value of a property is what someone is willing to pay for it. For those renting, its not your responsibility to cover someone’s mortgage payment because they paid too much for a property that is poorly designed or in an unappealing location. I would say based on the number of vacancies in the Spectrum buildings I think this is starting to occur. 

If you are looking for an investment it is very important to prevent yourself from getting attached to any one property. There is a great story in Donald Trump’s first book, The Art of The Deal where he talks about a heritage mansion he purchased. I believe it was owned by the government and they had it for sale for 20 million. Donald describes the place as absolutely gorgeous, important Italian marble, beautiful grounds, the works. He also knows he doesn’t have to own it and won’t spend more than he has to. If I remember right (my copy of the book is lent out) his first offer was around 10-15 million.  There were many interested buyers and his initial offer was refused. Eventually those buyer’s either backed out or their financing fell through, so he made another offer, lower than the first. Again it was refused, and again the potential buyers fell through. Continuring to make lower and lower offers each time he eventually purchased the mansion for 5 million dollars, not bad eh?

 If you want to check out the full Vancouver Sun article that inspired this entry you can find it here:

http://www.canada.com/vancouversun/news/westcoasthomes/story.html?id=b0412dc8-0639-4bf9-96b5-5c47265cc2ca

Have an outstanding day,

Dan.

My business coach forwarded this video to me and I had to share it with everyone.

This clip got me thinking about how our minds work. We direct our subconscious in one direction and it does whatever it must to keep us on track. When deep down we want to sit on the couch and be lazy, or fail financially out subconscious will come up with any number of logical reasons for us to follow that route. Perhaps your parents always tought you money was the root of all evil, your subconscious will come up with 100 reasons why you shouldn’t invest or start your own company. JUST DO IT

The CBC aired an excellent program on condominium pre buy units. The main message was condo buyers have little legal rights and should be very careful about buying anything pre construction as it is all subject to change.

 To summarize the advice given at the end of the program:

• Take a measuring tape to the model suite and compare the measurements with the floor plans
• Look into the developer’s record
• Visit a completed building by the same developer and ask residence if they are happy
• Hire your own real estate agent and lawyer
• Show the contract to your lawyer, sometimes it can be improved

You can watch the full program online here:

http://www.cbc.ca/marketplace/2008/01/09/condo_crunch/

Yesterday the CMHC (The Canadian Mortgage & Housing Corporation) announced that 2007 saw 229,600 housing starts, the second highest in 2 decades. “Growth in 2007 housing starts was driven by low mortgage rates, solid employment, income growth and a high level of consumer confidence,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “Even with the weakness in residential construction in December, new home starts are estimated at 229,600 units in 2007, surpassing 2006 levels.” 

December housing starts were down significantly compared with November. While some took this as a market indicator the CMHC had another explaination. Bob Dugan pointed out the exceptionally cold December in Toronto as a significant cause of the decline and pointed out the large number or condominium pre sales indicate a lot of activity to come.

In some circumstances it is now possible to purchase a property with no down payment (infact in some circumstances you can get cash back, effectively borrowing over 100% of the properties value). Although this is heavily advertised by many banks and mortgage professionals it is not always advisable and may be a poor financial decision. While there are circumstances when you’re best decision is to buy a property with zero down, if the market shifts you can find yourself with negative equity. Here I’ll review the pros and cons of the Zero Down mortgage.

Benefits
-If you have a good income but have not saved any money it allows you to purchase a property without waiting. This is very appealing in a rising market, especially for recent graduates.
-You can keep your savings for new furniture, rennovations or other moving costs.

Downside
-You will pay significant insurance premiums (this covers the bank in the event you can’t make your payments) for the privilege of having a Zero Down mortgage.
-If your property doesn’t increase in value over the term of your mortgage you may have trouble refinancing when your mortgage comes due.
-These products are marketed hard because there is money to be made lending money, the more lent the more made. This is part of a scary societal trend of over borrowing. Before taking on any debt you must really consider your ability to make payments and what other areas of your lifestyle may suffer if you stretch your income too much.

Even in some advertising they show the client as broke! When used responsibly the no money down mortgage is a great tool, unfortunately irresponsible lenders tend to market it towards those who should not be using the product.

In conclusion the Zero Down mortgage is an excellent option to have available when used properly. Under the right circumstances this mortgage allows you to buy property immediately without waiting years to save a down payment. In a fast rising market this could be a major benefit. Imagine having waited 2 years from 2004 to 2006 to save a down payment to avoid insurance premiums only to have the property you want increase in value 40%?

If you’re considering this option send me an email and we can discuss your circumstances and decide what is your best solution.

There is a lot of confusion over the “Credit Crunch” or “Mortgage Crisis”which is apparently sweeping the globe. I’ll do my best to simplify and summarize the US problem and explain why it won’t ever happen in Canada.

2007 saw the United States facing crashing real estate markets and a record high number of home foreclosures. Many families have lost their homes and many more have lost equity they had built up in their homes. This has been referred to as the “sub-prime crisis.”

The first thing we need to clear up is the meaning of the term “sub-prime.” Sub prime lending refers to the practice of granting mortgages to less than ideal candidates, usually those with poor credit or past bankruptcies. These clients pay a higher rate and usually upfront fees for the privilege of borrowing money. The term “prime rate” is the interest rate charged by banks to their most creditworthy customers; “sub prime” is not related to this term and does not meaning customers getting a lower rate than the “prime rate.”

Now, lets move on to the cause of the mortgage crisis south of the border. While this is not intended to be a social commentary I couldn’t explain the problem without first discussing the obvious. The United States is a country of over-indulgence. Marketers push food, clothes, cars and homes on people that they don’t need and creditors make it easy for the customer to give into their craving and just spend without recourse. The average consumer spends more than they make. I’m a mortgage planner not a financial advisor, but this seems like bad financial planning to me.

Ok, so I’m getting sidetracked here. Well what happened in the US is that the housing market was booming and so lenders decided to grant people mortgages they couldn’t really afford. The way mortgage qualification works is that your monthly mortgage payment can’t be more than xx% (usually 32-35) of your pre-tax income; this is to ensure you’ll be able to afford to eat and get to work while making your mortgage payments. Some lenders down south started pushing what are know as “graduated payment mortgages” on people and this is where the problem started.

Graduated payment mortgages, or GPMs were originally created to help low income families secure housing and were usually run through the government. While in a normal mortgage your payment is the same in year 25 as year 1, in a GPM your payment gradually increases (as it is assumed your income will as well). The low initial payments let those with a low income qualify for a mortgage they otherwise wouldn’t be able to afford. This can be great for lower income families trying to get back on their feet. The problem with GPMs is that your initial small payments usually don’t cover the interest accrued on your mortgage, so the amount you owe actually increases each month.

When the US housing market starting to boom in the early 2000s many private lenders started pushing GPMs with teaser rates (very low rates of one or two percent interest for a short period of time). These mortgages weren’t aimed at struggling families, instead they were used by the middle class. John and Jane would get a GPM to buy the biggest possible house they could, then use the money they saved from their teaser rate to buy a new BMW and send the kids to private school. Because the markets were hot the banks and the borrowers assumed their house would keep going up in value and wasn’t concerned that their mortgage was actually increasing in value.

So what happened? Well the markets started to turn. Now John has a $425,000 mortgage on a house he paid $415,000 for that is now worth $325,000. Because he took only a 3 year term for the teaser rates his mortgage comes due before the market has time to pick itself up and no one will refinance his house (remember he owes $425,000 and his collateral is now only worth $325,000). John can’t refinance, the bank takes his house and is force to foreclose. Soon enough this happens 3 times on the same street and property prices tumble, everyone knows the story from this point.

WHY THIS WON’T HAPPEN IN CANADA
This simple answer is that the banking system is Canada is one of the best in the world, and the sub prime market in Canada is minuscule compared with the United States. GPMs are almost never offered here, and Canadian consumers are much smarter about their credit and spending. I was recently speaking with an executive at a major lender with operations in both the United States and Canada who commented on how amazed he was at the low rates of foreclosure in Canada and especially BC. Canadians have enormous pride in home ownership and paying their bills on time.

If you’re knowledgeable on the subject feel free to add to this article. I’m not an economist or an expert on the subject.

For more on the US housing mark and foreclosures this article offers some excellent commentary and links to other sites:
http://wallstreetexaminer.com/blogs/ducalion/?p=127