Kitchener Waterloo Real Estate Investment Blog | Apartment Buildings | Condos | Development Land | Student Housing » rental property

From Greece with Love

Benjamin Bach, the Wealth Team — Tue, 11 May 2010 20:28:08 +0000

How the Greek Debt Crisis directly affects Kitchener Waterloo Real Estate Investors

There are a few stories out today about how the Greek Debt Crisis (update: now known as the European Spending Crisis) is affecting mortgage rates, and the problems in the Eurozone have also complicated the plans of an investor we represent in the acquisition of a Kitchener apartment building.

How is the Greek Tragedy connected to individual transactions and personal mortgages in Kitchener Waterloo?

The effect on Mortgage Rates

CTV: EU crisis a boon to Canadian homeowners

The financial instability in Europe is giving Canadian homeowners a slight reprieve from rising mortgage rates.

Banks began a series of swift mortgage rate hikes in early April, and both bankers and economists said that rates would continue to rise.

But in the last week a number of banks have cut their rates by between 10 and 15 basis points, effectively undoing the last in a series of three successive rate hikes.

That’s because the situation in Europe caused investors to lap up U.S. and Canadian bonds – which are seen as a safe haven – pushing down yields, said TD economist Craig Alexander.

The yield on five-year government of Canada bonds peaked on April 21, and fell as low as 2.764 per cent on Thursday, he noted. For banks, that yield has a large impact on the cost of funding their fixed-rate five-year mortgage loans. With the cost of funds falling Toronto-Dominion Bank decided to cut its rates and, as competition kicked in, other banks began following suit.

“Greece is clearly the story here,” said CIBC economist Benjamin Tal.

CBC: Mortgage hunters get temporary reprieve

Longer-term fixed mortgage rates typically follow longer-term bond yields. The Greek debt crisis put a stop to rising bond yields as traders moved money out of risky assets.

“Both treasuries and Government of Canada bonds have recently benefited from a flight to quality on the back of renewed sovereign debt concerns in Greece and other parts of Europe,” CIBC World Markets noted in a recent commentary.

Many mortgage experts say the pause is just temporary and note that bond yields are already edging higher as the EU’s bailout package eases Greek default concerns.

Variable mortgage rates are tied to the Bank of Canada’s overnight lending rate. After recent healthy signals coming from various sectors of the Canadian economy, including last Friday’s unexpectedly strong jobs report, the markets now expect the central bank to bump up its key rate on June 1. That rate has been at a rock-bottom 0.25 per cent for more than a year

So, people think Greece (and by extension the other European countries that are heading for similar problems) are risky, so they’re putting money into the safe Canadian investments. That means Canadian banks can lend money cheaper, so we can borrow it at a lower interest rate when we invest in a Condo.

What about the other part – how the Greek Spending & Debt Hangover is affecting sales of apartment buildings in Kitchener Waterloo

Kitchener Apartment Building Tied Up In PIIGS Crisis in Europe

A few weeks ago we had a real estate investor looking at an apartment building that came on the market. Great location, well priced, good tenant profile. We hadn’t done any due diligence, but so far so good. We proceeded with an offer.

The sellers are from Europe, and own assets in some of the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain; the acronym refers to their financial situations, which ratings agencies feel is inferior to other Euro Zone countries like Germany).

Turns out, due to recent deterioration of the financial situations in those countries, they’re rethinking selling their assets in Canada – as we looked at a few weeks ago (Commercial Real Estate news in Canada) investors from across the world look to Canada as a stable economy, and the sellers apparently may want to keep their property here. In the meantime, our clients are looking at other opportunities.

So the situation in Greece is good news for people who want a mortgage, but for my client who wanted a quality building, it is a Greek Tragedy. There may be a happy ending yet, but we’re not holding our breath.

If you have any questions about the real estate market in Waterloo, or for a free list of cash flow producing investment property for sale in Kitchener Waterloo, email me at Benjamin@BenjaminBach.com

KW Commercial is your one stop shop for commercial, investment, retail and multi family advice and brokerage in Waterloo Region.

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How much is the Kitchener Waterloo apartment building for sale for?

Benjamin Bach, the Wealth Team — Tue, 11 May 2010 10:55:56 +0000

Value of a Kitchener Waterloo Apartment Building

One of things I find myself talk to real estate investors about these days is how to value a Kitchener Waterloo Apartment Building. Seems there are lots of people looking to acquire high quality apartment buildings, but there is small supply of these buildings for sale, especially when we start talking about more than 50 units.

Most owners are happy to hold their buildings now – multi family real estate is a notoriously stable investment during good times and bad (and stable investments are held in higher regard during recessionary times), but buyers are eager to deploy their capital into a stable asset.

This spread between available supply and current demand makes it a great time to sell your Kitchener Waterloo apartment building; case in point, we have recently seen quality multi family investment properties come to market and receive multiple offers in the first few days.

How to Price a Kitchener Waterloo Apartment Building

If you were going to sell your Kitchener Waterloo Apartment Building, how would you price it?

Right now, there is a large difference in ‘per suite’ asking prices for comparable apartment buildings online, with several active multi-family listings being priced considerably higher than comparable recent sales.

(Note: there are some properties, like brand new buildings or luxury apartment buildings, that sell for outside the normal range. For example, see: Two Waterloo Region Apartment Buildings Sell For $45+ million)

Click play to watch this quick video we put together looking at the prices of apartment buildings in Kitchener Waterloo

If you own a Kitchener Waterloo Apartment Building

If you have any questions about the multi-family investment market in Waterloo Region, call me directly at 519-772-4376 or email me at Benjamin@BenjaminBach.com

KW Commercial is your one stop shop for commercial, investment, retail and multi family advice and brokerage in Waterloo Region.

We have buyers currently looking for a large Kitchener Waterloo Apartment Building – call us to discuss the sale of your property.

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April’s Real Estate Sales in Kitchener Waterloo set Record

Benjamin Bach, the Wealth Team — Thu, 06 May 2010 10:35:22 +0000

Another very busy month for real estate in Kitchener Waterloo – 724 homes were sold in April 2010, up 12.6% from April 2009′s volume. The previous record for sales in April was set in 2007 with 711.

The average price of a single detahced home sold in Kitchener Waterloo in April rose to $327,196, an incrase of 12.3% over the average price reported in APril 2009.

The average value of a semi-detached home incrased 17.4% from $196,429 (average, April 2009) to $230,582 (average, April 2010), and the average sale price of condos increased 7.2% to $176,117.

Market Summary:

Volume is up; Prices are up.

Mortgage interest rates continue to rise, so if you’re looking to make a real estate investment in the next few months, it is profitable to lock in your loan interest rate now (ask me for details on how to do that) so you don’t end up paying more each month for the same property.

For questions about the current real estate market in Kitchener Waterloo, call me now at 519 772 4376, or email me at Benjamin@BenjaminBach.com

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New Investment Property CMHC Mortgage Rules & downpayment options in Canada

Benjamin Bach, the Wealth Team — Mon, 19 Apr 2010 22:45:21 +0000

Two posts in one day – the new mortgage rules for investment properties in Canada must be big news!

CMHC has changed regulations around how much money a real estate investor has to invest as an initial down paymeny when buying an investment property in Canada. Prior to today, you could put 5% down on a small rental property. Today, you need 20% down for a CMHC insured loan on a rental. Almost every mortgage lender is moving to that standard too.

Many of our clients put down between 20-40% when investing, so this isn’t affecting them, but it is annoying some of our clients who prefer to tie up less than 20% of a property’s equity when investing.

Real Estate Investors – here is the opportunity:

Buy an Investment Property with 15% down payment (on approved credit, etc)

Today, a major lender came out with a program that will allow you to go up to a 85% LTV using a combination of a first and 2nd mortgage – that means that instead of putting down $40,000 on a $200,000 investment property, you can put down $30,000.

Buy an Investment Property with 10% down payment (on approved credit, etc)

Even better, there is an exclusive offer available only to our firm’s members. A major lender has agreed to allow our clients to use a 10% second mortgage, in conjunction with a standard 80% Loan to Value (LTV) mortgage, to purchase small rental properties. We also have private lenders lined up for these 10% second mortgages.

That means that you can invest $20,000 – vs 30k or 40k – in that $200,000 investment property if you want to (and if that is a smart choice for your particular portfolio – call me, we’ll chat). Best of all, you won’t be paying any CMHC premium – like you used to when putting down 10%!

Most investors don’t have access to a loan program like this, so you will have the advantage of better financing terms when negotiating; always a good thing!

For information about properties that you can purchase with a program like this, email me now at Benjamin@BenjaminBach.com

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Mortgage Rules & Down Payment Requirements in Canada for Investment Properties

Benjamin Bach, the Wealth Team — Mon, 19 Apr 2010 13:46:04 +0000

We’ve been talking a lot recently about the new CMHC changes to mortgage rules and down payment requirements for investment property.

These changes apply to people investing in small rental properties – from a Kitchener Condo to a triplex in Waterloo.

(Important Update: There are now options for you to buy an investment property with less than 20% down, find out the details here: New Investment Property Down Payment Rules in Canada)

This morning, the Globe and Mail has a story that I’ll file under “Ya Right…”

Limited impact seen from mortgage rules

Ottawa’s tougher mortgage rules have sparked a rush by home buyers to get in before the new regulations take effect Monday, but may not dampen the real estate market to the extent observers believed.

“When the new mortgage insurance rules were announced, there was widespread expectations that this could help to cool the market,” said Toronto-Dominion Bank economist Craig Alexander. “But the true impact should prove limited.”

The rule that was expected to have the most widespread effect says all borrowers must meet the qualification standards for a five-year fixed-rate mortgage, even if they choose a variable-rate mortgage or one with a shorter term.

Wrong – the change that will have the biggest impact is that CMHC is now making real estate investors put down 20% on an investment property (up from 5%), meaning many prospective property investors will not be able to get into the market.

The government designed the new rule to help ensure that homeowners will be able to afford their mortgage payments when interest rates rise. Rising rates are less of a worry for a borrower who has locked in for five years than for those who have three-year mortgages.

“The government stressed that the rule changes were not to deflate the housing market, but rather to diminish speculation and provide greater incentive for buyers to take mortgages that were less vulnerable to rising rates,” Mr. Alexander said.

I think the change to the mortgage rules that the article talks about – making people be able to afford the fixed rate 5 year payments, even if they take a variable rate mortgage – is a good thing for most people.

The bad changes are the ones not mentioned here.

As Robert McLister said this morning on twitter ““The true impact [of the new mortgage rules] should prove limited,” says TD. Yeah…as long as you don’t need a variable or rental mortgage.”

For questions about the current real estate market in Kitchener Waterloo, call me now at 519 772 4376, or email me at Benjamin@BenjaminBach.com

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For the video-inclined: Kitchener Waterloo Real Estate, March 2010

Benjamin Bach, the Wealth Team — Sat, 10 Apr 2010 10:52:48 +0000

We just looked at the statistics for the Kitchener Waterloo Real Estate market in March 2010; now, lets delve into it a bit deeper with a video. I also talk about the new mortgage rules from CMHC affecting everyone in Canada (see: How will CMHC’s new mortgage rules impact real estate investors in Canada?).

Click play to watch:

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Update: Kitchener Waterloo Real Estate Market, March 2010

Benjamin Bach, the Wealth Team — Sat, 10 Apr 2010 09:57:13 +0000

Monthly/Yearly Kitchener-Waterloo Real Estate MLS Stats for March 2010 - Residential KW real estate sales UP 47.1% and 52.3% for the year.

Best March EVER with 731 homes sold in Kitchener Waterloo

Days on market is down from 55 to 43 for the year.

Sales to active ratio 25.8% was 16.2% in 2009, meaning 1 in 4 listed homes is selling each month, or that we currently have a 4 month supply of listings.

Sales$ to list$ ratio was 98.4% - it was 97.7% 2009. That means that the average home for sale in Waterloo ended up selling for 98.4% of the price it was listed for – so on average, a home listed for sale at 200K is selling for $196,800

Average sale price for a detached home is up 14.2% to $322,974 for the year.

Average sale price for a semi-detached house in Kitchener Waterloo is also up 6.1%, to $213,602 for the year.

Average sale price for freehold townhomes down 8.9% to $228,768 for the year.
New listings up 23.2% for the month to 1133 and number of listings for the year 2892 is up 13.5%.

In terms of the Condo market in Kitchener Waterloo, there were 117 condos sold in march, (MLS areas 1,2,3 & 4), a 51.9% increase from march 2009

Why has March been so busy?

It’s a good question, and I think there are two main reasons, relating to the way you can finance properties.

1) New CMHC Mortgage Rules

-As of April 19, people will now have to be able to qualify for a more expensive fixed rate loan, even if they choose a variable rate.

-The new mortgage rules in Canada (see: How will CMHC’s new mortgage rules impact real estate investors in Canada?) that is having the biggest impact, I think, is that Real Estate Investors will have to put down (in most cases) 20% per rental property, whereas now that minimum downpayment rate is 5%. Investors looking to get into the market may be rushing to do so before the rules change

2) Interest Rates Going Up!

I love cheap money, but rates have nowhere to go but up (and that’s actually healthy for our economy). People know that if they buy a house in 6 months, and rates have gone up, that home will cost them more money, even if the price is the same,

If you have any questions about the Kitchener Waterloo Real Estate market, contact me at Benjamin@BenjaminBach.com or 519 772 4376

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Investment Real Estate Terms: Cap Rate & Cash on Cash Return

Benjamin Bach, the Wealth Team — Thu, 18 Mar 2010 23:56:02 +0000

One of the questions I get a lot is “whats the cap rate on this one?” Real Estate Investors looking to gauge their return on an investment property like an apartment building will often use the cap rate as a rule of thumb, a quick (but very limited) statement of value.

What is a cap rate? Is it a good indicator for the return you hope to generate on your return? Is there a better figure to look at?

This video takes a look at these questions, so we can better understand some commercial real estate terms

Cap Rate, or capitalization, expresses the ratio between the net operating income a property produces, and the value. It shows up, based on income, what a typical investor (or ‘the market’) is willing to pay for the income the apartment building produces.

Cap rate = Net Operating Income / Price (or value)

When we’re evaluating properties and we want to determine what we’ll pay for a certain apartment building, we will rework the formula to look like this:

Value = Net Operating Income / Market (or desired) Cap Rate

Cap rate does not take into the financing available, so unless you are buying a property in CASH, that is, without a mortgage, you’re going to want to factor in the cost of debt into your return calculations.

That brings us to Cash on Cash return, which is:

Cash Flow Before Taxes / initial investment

We calculate Cash Flow Before Taxes by:

Gross Rent – owner’s operating expenses – mortgage payments = Cash Flow Before Taxes.

Cash on Cash gives you a more precise return, because it accounts for the cost of the debt we use to purchase the property

If you have any questions about commercial and investment real estate in Kitchener Waterloo, Ontario, send me an email to Benjamin AT BenjaminBach.com, call me at 519 772 4376, or @benjaminbach on twitter. I’d love to connect with you!

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How profitable can investing in Kitchener Waterloo Real Estate be?

Benjamin Bach, the Wealth Team — Mon, 08 Mar 2010 23:11:30 +0000

I just got this email from a client, who bought his first real estate investment property in 2008. He now owns 4 rental properties in Kitchener Waterloo, including student rentals, single family homes, and a future development site (currently rented).

Hi Ben, I hope this message finds you and Sarah well and enjoying married life.

I’m sold on the value of Real Estate investing. We are generating positive cash flow from every property plus I just received my mortgage statements from last year. My tenants paid my mortgages down by over $25,000 in one year. Not including the cash flow or appreciation.

We are proceeding to build an addition onto 1234 Cedarbrae and by Sept.1st we will have two extra rooms available to rent. I owe you the credit for that property. You saw the value when I didn’t. Now I will gain over $100k in post-construction value plus the extra cash flow will pay for the construction in less than 5 years.

I am tinkering with my properties, trying to maximize the value. The property at 1234 Weber St. was purchased as a duplex for $222,000. I am considering trying to convert this into a triplex, with three 2 bedroom units. Would you be able to give me a rough ballpark as to what the value might be post-construction? This will help me in my decision process.

Thanks in advance, Larry

For information on how Larry and his wife have built their portfolio, contact me today. I’d love to serve you the way we’ve served Larry’s family over the years (yes, we help more than one generation of his family

You know where I am – Benjamin@BenjaminBach.com or call me at 519 772 4376

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CMHC Mortgage Regulations to Restrict Real Estate Investment

Benjamin Bach, the Wealth Team — Sat, 06 Mar 2010 21:00:29 +0000

I’ve been hearing rumours recently that CMHC was changing their financing criteria for real estate investment properties.

Over the last couple of weeks,we’re heard about raising the minimum downpayment (New Mortgage Rules for Real Estate Investment in Canada) that an investor would need to put down on a rental property (that wasn’t owner-occupied, meaning the owner or a close relative was living there), and that rates will be heading up come July 2010 (Interest rate updates from a mortgage broker).

This week I’ve learnt that CMHC is also likely planning to, effective April 19, 2010, change things a whole lots more.

Rental Offsets

Currently when you buy a rental property, CMHC will allow you to use a 80% rental offset, which means that they used to take 80% of the gross rental income that the income property generated, and subtract that from the borrowers total debt, to establish the total debt service (TDS) ratio.

What that means is that you don’t have to have the household income to cover 100% of the value of the rental property, like you do with a home you live in, because the bank will let you offset the debt using 80% of the revenue the rental produces (does that make sense?).

They’re tentatively changing this amount to 50%, which makes it much tougher for people to qualify for investment properties, but the real kicker is that…

CMHC is also changing how they evaluate the current debt and income on your existing rental portfolio – they are treating the rental income here the same as other non-salaried income too, meaning your current portfolio, while it generates cash flow every month, might hinder the growth of your portfolio going forward.

We also think that most lenders are going to adopt these standards, even for non high ratio loans that are not CMHC insured, just to be cautious.

Bottom Line

If you qualify under today’s standards for a loan for 1 or 2 townhouses that you planned to rent out and hold as long term assets, come april 19, you may no longer qualify for them. Let’s talk before then so you know all of your options.

PS – if we have an agreement of purchase and sale (a real estate contract) dated before april 19, and the mortgage is approved, the rental property can close after (they may set a timeframe, contact me for full details). You don’t have to complete the purchase by april 19, just have the contract written and accepted.

If you’d like to talk to a mortgage broker to explore your options, I can recommend one who does a lot of work with real estate investors.

Leave me a comment below with any questions, and please contact me for more information at 519-772-4376 or via email at Benjamin@BenjaminBach.com.

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