Edmonton Real Estate Investor: March 2008

alberta closes borders

As you’ve probably already heard, the Alberta provincial government announced last Wednesday that the province would be shutting down its borders for the next 18 months beginning April 2nd 2008.

The announcement was made after repeated complaints by citizens that the economy was growing too fast, salaries increasing too rapidly (along with housing values) and that the higher demand for oil was contributing to a sense of ‘overwhelm’ in the province of 3.48 million people.

The government reacted after receiving requests such as these from its Eastern neighbors, from Newfoundland Irene Casey said “ It’s been nearly 12 days since I’ve seen by husband Tim and our son Ryan”. The two set off to work in the manufacturing supplies center NE of Edmonton. They aren’t due back for another 3 days, but Mrs. Casey is feeling nervous after receiving a telephone message from husband Tim.

“Don’t bother boiling any ‘taters for Ryan and me. We sent our first cheque back for $21,000 (2 weeks work) and are staying on for another month so we can pay of the mortgage”.

A message from an anonymous MP in Ontario read…

“We would rather slip into recession than have Alberta stoke the nation’s economy- please stop employing our unemployed, we want to keep them here and as miserable as possible”

The list of hate mail grew. Disgruntled Saskatchewanites chimed in, threatening the province to “back off and share some of the wealth. ‘Cause if you don’t we’ll embed all males between the ages of 14 and 45 under the skin with self destructing chips that will detonate whenever a Saskatchewanite tries to cash a pay cheque earned in Alberta”

B.C. said that Albertans looking for vacation homes on the sunny West Coast would now be charged a ‘Yankee Tax’, forcing ‘rich’ Albertans to pay 12 times the price for property in B.C. that B.C. residents would. New (Albertan) residents would be required to garden in the nude for the first 3 years as well.

But perhaps the worst news of all is that Albertan’s will be forced to eat a vegetarian diet, walk to work and make all their own electricity by using hand held generators for the next 18 months. What will this do for property values?

April Fools' Day or All Fools' Day, though not a holiday in it's own right, is a notable day celebrated in many countries on April 1.

The day is marked by the commission of hoaxes and other practical jokes of varying sophistication on friends, enemies and neighbors, or sending them on fools' errands, the aim of which is to embarrass the gullible.

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So which is it? Is Saskatchewan the next mecca for life, work and investment or is the affordable housing, great jobs and incredible salaries just another wheat field in the sky?

I am not sure.

Saskatchewan has a lot of potential; there are large oil deposits, significant uranium and potash deposits and a diamond mine that but the economy isn't THAT huge and from what I can tell the reverse in-migration was about 150 people more going back to Saskatchewan than moved to Edmonton.

First you read this:

"The Canada West Foundation has published it's State of the West report - it's the first in five years.

Author Brett Gartner says what stood out most for him was the net migration out of Alberta and into Saskatchewan.

It's the first time this has happened since the mid-80's.

The reason for this high job availability and having cheaper real estate than our western neighbour.

Gartner also points out there is also a net migration from the countryside to the city within the province.

He says both trends have everything to do with enormous job opport unity in Saskatoon and Regina. Benson McCulloch

Then you read this:

"If Tracy Mercier could do it all over again, she would never have given up her west-end apartment.

The former Edmontonian packed up her family last August and moved to Saskatoon, lured by the promise of low-cost living and an easy lifestyle. But what she discovered were sky-high rents and low wages.

Now Mercier, 32, wants to warn others planning a similar move that the grass isn't greener next door.

"We took a chance and we thought, 'OK, it looks pretty cheap,' and we moved," said Mercier. "I tell you, every day I kick myself."

"It promised a lower cost of living and a higher quality of life," said Mercier.

That wasn't entirely true, she said.

Mercier said that in Edmonton, they paid $650 a month in rent compared to $689 in Saskatoon. It's going up to $830 this summer, she said.

She said her husband got a job changing oil for $10 an hour, compared to the $16 he made working for the City of Edmonton. Taxes, meanwhile, are "a killer," she said.

Mercier, who isn't working because of a medical condition, said the experience has taught her there's no place like Alberta.

"You have to work harder there, but the rewards are worth it." The Edmonton Sun

Perhaps in a few years the economic fundamentals of Saskatchewan will be able to support residential investment interests but for now I am sticking with the "800lb gorrila" in the blue corner.

An Edmonton landlord struggles to keep the school near his complex open and is willing to pay to make that happen.

"Reg Appleyard, Meadowcroft Housing Society of Edmonton's executive director, told public school trustees that he will guarantee 110 students are enrolled in Woodcroft Elementary School by Sept. 15, and the society will pay nearly $5,000 for every student short of the goal, up to $98,224 or a shortfall of 19 kids." Photo courtesy of Edmonton Journal.

Relying on 30 years of accumulated reserve funds, Reg sees this as the biggest crisis the complex has had to face, and is willing to pay to keep the school and his units tenanted.

"We bought this complex 30 years ago, and we've always set aside funds each year for crises or emergencies," he said. "We feel that this is probably the biggest crisis we've faced in 30 years, and so we are prepared to use some of our reserve funds to try to solve the Woodcroft Elementary School problem." Reg Appleyard

What a reserve fund!
Reg seems determined to get those seats filled and has already signed up children.

I can't help but wonder if his reserve funds could be spent in a way that could revitalize the community or help tenants who can't find housing rent in his building. The $5000 shortfall per child could actually equate to a $416.00 monthly rent reduction for a year in his building.

That might attract a lot new tenants, fill the school and offer subsidized housing.

Read the full article here

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This is taken from Star Publications of Malaysia.

"WITH crude oil hitting a record price of US$108 per barrel recently, the search for oil and gas has been more intense than ever due to its high profit margin.

In recent years, investing in the extraction of oil from sand or oil sands is gaining popularity because of the strong demand and high prices of oil.

It was reported by Time Magazine in a recent article that second only to the Saudi Arabia reserves, Alberta's oil sands deposits were described as “Canada's greatest buried energy treasure,” which could satisfy the world's demand for petroleum for the next century."

So that brings the countries investing in Alberta to France, China, Norway, the Middle East, America, Japan and now Malaysia. They see something that is a sure bet with the price of rising and demand constantly increasing.

Read more about Alberta's HOT economy Click Here.

Good question if you think in a Boom and Bust mentality...

This is a reply to "Is Edmonton Real Estate Too Hot?"

In reality what you have happening in the province of Alberta, specifically Edmonton, Calgary and Red Deer cities is a healthy slow down in the market. It's not a Boom and Bust. It's not a 'Too Hot', in fact it has slowed enough to become a buyer's market- opening up the market for the first time in the past 2 years.

When a market is firing on all cylinders it has growth stages and moderating stages where it absorbs the outflow of energy produced. It's a self-regulating safety valve so that the economy doesn't get overheated.

As a sophisticated investor you don't want to target a market that is doing double digits year after year... you want to target a market that has a diverse, multi-tiered economy that is set to grow year after year.

Too many novice investors (read: Speculators) chase the percentages. They look for the next 'Big Town' that is going to BOOM. When in reality, seasoned investors look for a growth market where real estate appreciation is between 6% and 8% per year, sustainable. When your market goes above your targeted 6% to 8%, it's gravy- a nice bonus.

My job as an investor is to study the Edmonton market and the province of Alberta's economic fundamentals. When the economy can't support the growth, then you begin to research other areas or property types that will support that growth.

In a nutshell, the economy remains diverse in Edmonton and will prove to be a very stable place to invest for the next 5 years. Of course as the market shifts you may need to adjust your target property type and check to make sure that it still makes sense. For example, if single family homes are no longer priced in your target range of affordability, look at Town Houses or Condos, which still remain quite affordable.

Too often in the media, regional areas and investments get painted with one big brush. On one hand that may be good, because it shakes out the inexperienced and continues to regulate the market. Look at year over year averages and check the fundamentals to decide what is a 'Boom or a Bust'.

Here are a few quick facts below:

Alberta's unemployment rate is the lowest in Canada at 3.20% . An incredibly healthy employment percent is 3% (11/07 to 2/08 Stats Canada)

Alberta's GDP: $290 Billion- yes, Billion. In a province of 3.4 Million people.

If you still think Alberta's economy is on the slide, then read the RBC (Royal Bank of Canada) Report released February 2008:

http://www.rbc.com/economics/market/pdf/provfcst.pdf

"Alberta's economy remains the 800-pound guerilla of Western Canada. At some $290 billion, Alberta's GDP -- gross domestic product -- is almost 15 per cent larger than that of B.C. and Saskatchewan combined.

So when housing starts in Saskatchewan's two major cities soar by 60 per cent -- as they did in 2007 -- it's from a tiny base. Even with a slowdown, Alberta's housing starts will top those in Saskatchewan by six or seven to one in 2008.

Indeed, although home builders in Edmonton plan to curtail new construction in the first half of 2008, some are already worrying that they won't be able to meet new demand by this fall, when inventories are likely to be depleted. In short, rumours of Alberta's economic demise are greatly exaggerated."

Affordability: Although Alberta's housing affordability has increased the past few years, so have the wages. Alberta leads Canada in job growth and average median salaries are the highest in Canada at $854.28 (with the exception of hardship posts in the Yukon and NWT)

Despite the high Canadian dollar and manufacturing/export slowdown related to the slow in the U.S. market as well as cyclical slowdown, the GDP is still up 0.02% Alberta's GDP far outpaces nearly all Canadian provinces and has been pacing slightly behind China's growth. Although it will slower this year- which is what healthy markets do, enabling them to continue moving forward at a sustained pace.

http://www.statcan.ca/Daily/English/080303/d080303a.htm

"Looking forward, although Alberta’s outlook for growth has eased, given the large number of major projects that are still underway, the province is still likely to outperform the rest of the country for the next several years. CanaData is forecasting the province’s real (inflation-adjusted) Gross Domestic Product (GDP) growth to be 4.4% in 2007 and 3.7% in 2008."

Economic Indicators - GDP Alberta vs. Canada

Is Alberta diverse? Yes. It's not just Oil and Gas- although they make up a fair percentage of the current growth. In fact investment dollars into the Oil Sands were LESS than other areas of investment. Read the Report Here: http://www.alberta-canada.com/statpub/

Recently a lot of people are asking what exactly is a joint venture investment and "What DO you guys do?"

To put it simply:

We leverage our time, knowledge, expertise, contacts and education for investment capital and we own the asset/property we buy 50/50.

OUR ROLE

1. Choosing quality revenue properties using a proven real estate system - this often means searching through 100's of properties in select areas. It takes time to find a good property in an appreciating area that is a deal. Most people look at a maximum of 10 properties we look at 100s.

2. Purchased undervalue and/or with a decreased down payment - Close to 90% of the deals we do are less than 25% down deals heck they are often less than 20% down. Second mortgages, assumable mortgages and agreements of sale are a few savvy strategies that let investors leverage money further and further.

3. Evaluate potential properties using A.C.R.E. system - beautiful scenery doesn't make a house appreciate ask people in the U.S about that now. There are many markers that you must look for in a property to increase the return you get in the future. Yes, location is but one of them!

4. Inspect, negotiate and conduct exemplary due diligence on property - I knew and "investor" who would go to a house and roll marbles around to make sure it wasn't sinking. I say leave the toys at home and the job to the pros. Often what you can't see in a house is what comes back to bite you.

5. Finance, insure and hold mortgage on investment property - This is the biggest relief for most investors they don't want the burden of getting a mortgage.

6. Cost effectively renovate property up to a top standard of rent readiness - dealing with contractors, need I say more?

7. Choose quality, equity building tenants that improve the property’s value - Tenants are more important than anyone in the deal if your house isn't rented well it's eating your money. Plus did you ever see Pacific Heights? Luckily in Alberta tenancy laws would never allow that nightmare to happen.

8. Appropriately market time and sell to maximize profits - People want to sell now because they think it's over. The only thing that is over is a blip in a long term increase. If you sell now you lose if you wait the market out, use economic factors as a guide when to sell and buy in a strategic location you'll never leave money on the table.

INVESTOR’S ROLE

1. Fund Investment Account - Sounds easy doesn't it?

"The outlook remains extremely positive for the underlying strength and stability of our economy and will continue to make real estate in Calgary a prudent long-term investment," Susan Thompson, research manager at Avison Young Commercial Real Estate (Alberta) in Calgary

Calgary's real estate market is incredible. It is the headquarter central for many huge international companies and the workforce is young, growing and highly paid but lowly taxed. It's a small wonder that big money investors are flocking to put their money into the city for the long term.

However the residential investor is going to Edmonton. Why? Well one point is the difference in income between the two cities is marginal but the difference in real estate prices are an incredible. Edmonton average single family residential house price is about $381,965 and in Calgary the price is $481, 287. More and more people will relocate to Edmonton as a result of more affordable housing. As the demand increases the prices will move closer and closer to Calgary's.

So for the residential market Edmonton is your top choice. Who knows with more and more leading business locating there headquarters in Edmonton (CN Rail, Finning, GE and Neiman Marcus are a few) Edmonton is giving Calgary a run for it's money.

After 4 months of blood, sweat and tears we are proud to present our new website at www.glennsimoninc.com. Our old site had a lot of incredible information about Edmonton, Alberta and the Alberta Oil sands but was starting to get hard to navigate and a little to bulky.

The new site has all the same great information, plus informative videos, over two years of newsletter archives and our featured property sheet where you can find the hot new deals we are offering our JV partners.

Take a look!

In Alberta we've been blessed for a longtime time with being able to assume properties without qualifying for the mortgage.

For the past two years I've seen banks gradually tighten up their lending policies and require buyers to qualify for some assumable mortgages. In essence where we take over the existing mortgage, but still need to prove our repayment ability and that our credit is in good shape.

Last June TD announced that they would cease allowing their mortgages to be assumed, and they have. A few other lenders followed suit; Rezmor and Scotia bank for example.

February 26th 2008, RBC joined up stating that they too would require full qualifying.

I have successfully used Agreement Of Sales in Alberta and Ontario when the market is favorable. Of course, there are many unique strategies to use as well as, rent-to-own and agreement of sale to name a couple.

If you currently have deals tied up with RBC that are assumable, I believe that they will still honor them if they came in with conditions removed before 2/28.

The city had a budget surplus of $34.4 Million in 2007. Some of the excess funds are planned to go to infrastructure, a new sports complex and other projects.

"I know it's frustrating and I don't blame the public. I don't necessarily disagree with their position either, but sometimes it's hard to guess 365 days in advance what's going to happen." Mayor Stephen Mandel

Maybe we can get a rebate?

New Statistics Canada figures show that along with tradespeople, there is a huge surge of post-secondary school graduates choosing Edmonton over trendy spots like Montreal and Vancouver. Why because smart people go where the money is!

In Vancouver you can spend close to 70% of your income on housing, Montreal you can get a job but pay higher taxes than you would in Alberta.

Or you could chose Alberta with the lowest taxes in Canada, highest salaries and enjoy quite good housing affordability.

No wonder over 160,000 people have moved to Alberta over the last 7 years.

With a higher quality of life and virtually limitless opportunities Alberta is where young smart professionals are choosing to make their home.

Nothing.

I read an article about the prices in Edmonton being stalled (which to me generally denotes stopped/not working/dead). Then the writer went on to say that houses are:

• selling for near list prices

• not staying on the market long

• in strong demand

These are good things right?

Ending with this quote,

"Nothing is for sure" about real estate, but sales agents "are not concerned about the health and vitality of the Edmonton market," association president Marc Perras said in a statement.

"Buyers still have lots of choice." But sellers are encouraged by the reduction of sales waiting time. "And sale prices are typically close to the listed price," Perras said.

It makes me think writers need to get a thesaurus and get their adjective usage under control.

What is it with us Canadians? Do we suffer from ‘the grass is always greener, the sand always warmer’ syndrome? During a -40 snap, you bet we do. And it’s not all bad either.

Due to increases in salaries and the great rise in Alberta real estate values have helped make many Albertans quite well off. Our strong dollar and the perceived bargains in the U.S. have brought droves of Realtors and salesmen from South of the border to flog their wares, when we’re feeling at our most vulnerable-bitter winter.

Albertans are prime targets.

I too admit to a weakness for a house on a palm-treed beach. Actually, I’m lucky to have two palm trees in my garden but their leaves turn brown and fall off during cold spells, far from the beach of my dreams.

The number one thing to remember is that Alberta is where you can safely and steadily grow your profits over the coming years. Let the folks with knee jerk reactions and short-term thinking get shaken out of this market.

Savvy investors think long-term strategies.

I wouldn't look at properties outside of Canada as investment at this time, but instead as a potential 'lifestyle choice', if that applies to your goals at this time, meaning, if you're ready to retire or cash-out.

Otherwise, take advantage of the current breather the Alberta market is taking and use this welcomed chance to move forward with investments that make sense.

It's easy to get sidetracked when pitched an emotional 'deal of a lifetime'; it's not so much the property down South you’re being sold, it's the ‘dream life’. When is it time to buy a retirement home outside of Canada anyway?

Here are some quick points to ask yourself that will help take the emotion out of your decision:

1) Have I reached my investment goals and am I at a stage of my life where I can realistically afford to buy and upkeep a property for pure pleasure?

2) Have I done enough research into the area that I plan to be buying in to understand what it'll be like to live there, receive medical care/coverage and visit family? How will I be taxed? Can I receive income? Can I live there permanently?

3) How will property values and neighborhoods change over the next few years in relation to the sub-prime? How will this affect my lifestyle? Have I visited the area in the peak AND off season- do I like what I see? Is the weather agreeable year round or am I in a hurricane zone?

In my opinion it's not yet time to pick up properties in America. U.S stats forecast another wave of losses to the tune of 2 million foreclosures over the next few years.

You need to wait it out longer until the final mortgages have been reset and prices begin to stabilize, probably at least fall of this year or preferably past spring of '09.

Incredibly strong markets in Western Canada are keeping Canada's real estate markets buoyant even through America's housing slump.

"We expect construction, sales and price gains to moderate in 2008 due to decreasing affordability, especially for first-time buyers, and some softening in domestic economic conditions associated with the intensifying U.S. slowdown and persistently strong Canadian dollar,"Adrienne Warren- Scotiabank senior economist/ author of Real Estate Trends Report

In what is the strongest and longest postwar housing boom cities like Edmonton and Calgary are keeping the market strong and in good condition. Although both cities saw affordability drop slightly the current balancing out of the market in 2008 will bode for good deals for buyers and price increase in 2009.