Glenn Simon Inc., Suite 1217, 5328 Calgary Trail NW, Edmonton, Alberta, Canada. Tel 1-888-780-5940 Fax 1-888-276-4517
www.glennsimoninc.com email: info@glennsimoninc.com
November 15th., 2014
Volume 17, Issue 8
Dear Friends and Partners,
Last month’s newsletter was immensely popular. Investors want to learn and understand how to use Real Estate cycles to their benefit. In that spirit, we’re re-posting a few of our earlier NuWire articles to help you define your target area, property and tenant profile. Coupled with real estate cycle knowledge, you can build a strong portfolio.
Reach Your Real Estate Goals with Filters that Clarify Your Targets
There are different strategies that you can apply to make money in good or bad markets, with short-term buys or longer ones. We follow a conservative style of investing or a ‘residential buy and hold strategy’ — nothing fancy here.
Real estate cycles and to a lesser degree, market timing, play roles in where and what type of property you’ll purchase. Once you have used those first filters, you can start using the other filters to analyze a potential area or property. The #1 constant filter is cash flow from day one.
Filters To Consider
1. Type of investment property and exit strategy: How long do you expect to be in the market, what exit strategies can you employ?
2. Financing options for this type of investment property: Is conventional financing possible - 50%, 35%, 20%, 5% down payment? Are their incentives such as grants or ‘purchase plus improvement’ strategies that you can leverage?
3. Your ROI target: After all expenses what is your minimum target return within your elected time frame? Is this realistic and achievable in the current market?
4. Management options: Who will look after your property? If it is you, what succession plan do you have in place to remove you from management when the time comes?
5. Is your system scalable: Can you create a template and duplicate success?
Exit:
Every time I consider adding a property to my portfolio I establish the type of deal and how/who I will eventually sell it on to. Some properties may be a short-term renovation/resale of 6 months. Others may be keepers that I don’t intend to sell for 20+ years. Is my exit buyer a fellow investor, a first time home buyer or a retiring couple?
Financing:
I very rarely want to use the smallest down payment possible. More often I look to buy properties that stress-test (a system we use to run interest rate hikes and rent drops to test the property’s breaking point; a shock test to determine the buffer we need to build in) with a LTV of 75%. Instead of going too skinny into a property I will look for ways to add value (equity) by financing renovations or buying with an advantage like dividing a lot, adding a suite, garage or other source of income. Of course, buying under value is also good. That doesn’t mean that I use all my time chasing distressed properties or desperate sellers.
ROI:
I run my properties through various filters and stress-tests (as above). Income after all expenses equals Net Positive Cash Flow (NPCF). I factor in the expenses below, but remember you may have additional expenses that you need to add too. There are property specific costs such as mortgage, tax, insurance, condo fees, property management, vacancy, repairs, advertising, bookkeeping, yard care and tenant incentives. When I do up a pro-forma I look at my selling costs as well as what my return on equity and appreciation are. My main focus here is to establish my NPCF and determine if the overall ROI is inline with similar property metrics in my target area.
Property Management:
If you are self managing there will come a time when you want to hand the reins over to an experienced manager so factor these costs in. While you are self-managing you need to identify your cost be it time or money, because it will likely be both.
Scalable Systems:
First you need to establish your goal as a property investor. This may mean a dollar amount of NPCF, a lifestyle shift or creating generational wealth for your family. Refine your goal and the number of properties you need to reach it. Then look at capital, financing, time and energy needed to reach your goal – is it duplicable? Do you need to buy 3 single-family homes or 3 x100 units? Quite often you will find that you need less doors to reach your goal than you initially thought.
Remember that every plan grows and mutates. Along the way you’ll identify what works best for your skill set and in your area. You may tweak your plan to better compensate your lifestyle; grow with it.
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Central Edmonton: Terrace Heights 4-Unit Cashflow (PPI Deal)
Turbo charge your portfolio.This 1963 built Side X Side Bungalow with in-law suites is located of Wayne Gretzky Drive in Terrace Heights. Easy access to Downtown, UOA and the Yellowhead as well as many parks and schools to enjoy in this neighbourhood.
This property has front entrances to the 2 X 2BD main floor units and lower entrances for the 2X 1BD suites. This property was built as a duplex and will need renovations to operate the (non-conforming) in-law suites.
This is a purchase plus improvement deal, meaning that we wrap the ($25K) renovations into a new mortgage. Ensuite laundry to be added. Property has parking pad. Excellent access to downtown, transit and Sherwood Park.
Comes complete with great tenants making this a totally turn-key property for you. Terrace Heights is a great mature area that is a desirable for tenants working in the city or attending U.O.A..
HUGE upside potential due to the quality of the building, great purchase price, strong economic fundamentals and the proximity of this property in relation to Edmonton's desirable growing core. Purchase price factors in renovations. P.P. of $575K + $25K renovations = $595K.
Purchase price: $595,000K
Total Investment: $139,000K.
Your Estimated 5 Year Profit $94,475K.
Your pre-tax Total ROI is 68% or 13.6% per year
These 4 suites rent for top dollar and have everything arranged, including financing structure and incredible tenants. Your investment includes: impeccable tenant selection, financial analysis, professional inspection, insurance, financing set-up, legal fees, basic accounting, reserve fund, CMA, bi-annual statements, strategic market planning to ensure successful entry and exit, plus much more!
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Bumpy economic ride causes panic
By Gary Lamphier, Edmonton Journal, October 15th., 2014
EDMONTON - Yes, oil prices have tanked, and stock markets have sunk too. The last month has been a real bummer, man.
Unless you live under a rock, you know this. No need to alarm our fellow townsfolk by using words like “collapse” to hype the news.
No doubt, it has been a miserable few weeks. Corrections happen, and this one is well on its merry way, leaving pain and angst in its path.
As of Wednesday’s close, oil prices were 23 per cent below their June high. Toronto’s main equity index was off 11.5 per cent, and the key U.S. indexes had shed between 6.9 per cent and 8.5 per cent.
Why? Pick your poison, peeps. The reasons are many, and varied. For starters, stocks were overvalued, and overdue for a pullback. Ditto for oil prices, which remained aloft despite growing global supply and softer demand in China and Europe. FOLLOW THIS ARTICLE
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Alberta economy to ‘soften’ in 2015, but experts say no crisis on the horizon
By Amanda Stephenson, Calgary Herald, November 13th, 2014
Calgary and Alberta may be in for a period of softer economic growth in 2015, but two top economists said Thursday there is no reason to be alarmed.
While sharply lower oil prices are expected to have an impact, the guest speakers at Calgary Economic Development’s 2015 Economic Outlook said by no means will they be a catastrophe for Alberta or Canada as a whole.
“Sometimes you want a little bit of a moderation — it helps to control costs for energy producers, it helps to rebalance the labour market,” said Todd Hirsch, chief economist for ATB Financial. “I’m not expecting anything in 2015 that anyone could call a bust — just a slight pullback, a bit of a moderation.” GRAB THIS STORY
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Yedlin: Keep your eyes on Q4 results in Alberta’s energy sector
By Deborah Yedlin, The Calgary Herald, November 1st, 2014
For anyone who doesn't yet understand the importance of the energy sector to Canada's economy, Friday's Gross Domestic Product numbers were opportunity to reassess that view.
The country's economy grew at a rate of 0.1 per cent in August, with the fall-o in oil and gas activity being one of the key culprits. That GDP number supports an annual growth rate of two per cent.
While some of that decline is attributable to both planned and unplanned maintenance activity from August, the fact there was also a 4.3 per cent drop in oil and gas service sector activity suggests something bigger is going on. And that's before the oil price really tanked. READ MORE HERE
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I appreciate all your calls and emails. I'm looking forward to helping you with your next step towards building real wealth.
Your success continues EVERYDAY, let me help you build for tomorrow.
“Learn to say ‘no' to the good so you can say ‘yes’ to the best." - John C. Maxwell
Warm Regards,
Todd and Danielle Millar
I appreciate all your calls and emails. I'm looking forward to helping you with your next step towards building real wealth.
Your success continues EVERYDAY, let me help you build for tomorrow.
“Do your own thing on your own terms and get what you came here for." - Oliver James
Warm Regards,
Todd and Danielle Millar
===SPECIAL NOTICE: NO CASH, BUT GOOD CREDIT? CALL US TODAY TO LEARN HOW YOU CAN OWN INVESTMENT PROPERTY===
P.S. Stay ahead by checking out Danielle's blog at Edmonton Real Estate Investor for all your cutting edge market news and information.
