(I set out to liveblog a REIN meeting. What I didn’t plan for is how long a meeting is and how long they run. At about 4.5 hours, I wrote nearly 4,000 words and my batter died with 45 minutes or an hour left. I’ve broken things in to four parts: Part 1, Part 2, Part 3 and Part 4. Enjoy!)
7:33 Russell is back on stage. [For upgraders] we’ve seen delay notices but no cancellations. It’s making the graph longer, more sustainable over the long term. Russell’s got a quick presentation called: 28 Years of Volatility.
7:34 He’s leading with my favorite line “There are always reasons not to invest….” There’s a chart they hand out the first day of Quickstart that I’ll post later but it’s got a reason every year to not invest.
Let’s look at Canadian Real Estate prices from 1980-2008….the trend line is up. Did it go up every year? No, but over time it goes up. If you invested in 1980 the average house price was $70,209. In August the price was $290,347, that’s a $220,138 gain. However, you’d have had a 25 year mortgage on it so you’d have no mortgage on a $290,000 house! He keeps going on with the ’87 recession, the Gulf War, and a bunch of other things. The slug for each one? “The trend line keeps going up.” Mainstream media definitely keep recycling headlines.
Russell’s burned through about a dozen slides. It’s a very effective presentation technique and he does it well. He’s going to make the slide deck available online for REIN members to show in their presentations.
Now he’s got a 1956-1990 series. There are two peaks and he’s put it up against the other numbers. The previous peeks and drops look completely insignificant in the context of the whole trend line.
7:45 Russell’s going through some ROI numbers on the scenario. There are lots of them, but they’re understandable. The compound interest rate is about 10.9% p.a. Summary? There are always reasons not to invest. Time is your friend. The key is cash flow to be able to sustain your business of time.
7:48 I’ve got about 66% battery left so we’ll see if I make the whole meeting.
The Canadian arrears rate is 0.27%. The US foreclosure rate is over 1%. (that’s as of June this year) Canadians pay their mortgages.
He’s leading into Peter Kinch’s presentation with an article about the bank’s push to lock in mortgages. Short story? Stay variable!
Peter is Canada’s #2 Mortgage broker. His presentation is called “10 questions to ask your broker as a real estate investor”.
7:52 His favorite headline last month was “Contagion Spreads”….what the heck does that mean? The UK dropped prime by 1.5%. Isn’t that terrible? Not if you’re borrowing.
There are issues, but we’ve got look at the details. Just learn the new rules of engagement.
He’s saying pull out a pen and paper, luck for me I have a laptop J Yes, He’s a mortgage broker but what he’s saying is for dealing with any broker.
- How will you help me design my 5 Year Plan?
It’s not the real estate you want, it’s the results. You’re not here to just buy one property, you’re going to buy a portfolio and you need a plan to achieve that. Here’s the tip: if you get a deer-in-the-headlights look, it’s time to turn and burn.
- It the mortgages don’t show up on my credit bureau, do I have to show them to the bank?
Yes, and it’s called full disclosure. If you don’t its fraud. Even in the mortgage broker industry there’s people who don’t understand this. Don broke in to add that he’s heard this from 8-9 people in the last month. This is because when the market was hot it was easy to become a mortgage broker and get deals done; now it’s harder to get it done and people get dumb. If the broker says “they don’t really care” it’s time to run. Don’t sign a fraudulent document. You just have to work a little harder.
- Can you explain to me what a DCR is?
If they don’t know what a DCR is they don’t work with investors. It’s a Debt Coverage Ratio. It’s a ratio of income to expense. Some use 1.1, sometimes for multi family it’s 1.25. If your broker doesn’t know what it is and how to use multiple banks you’re never going to grow a portfolio.
- What is the 1.1% Rule?
At FirstLine, CIBC or President’s Choice, if you have 3 or more rental properties and the portfolio has a DCR of 1.1% you have more flexibility with your income.
- Can you explain to me what my DSL is and how the cash flow from my property impacts it?
The maximum amount of money the bank wants to see me spend on my personal debts. It’s going to be 40% of your personal income. How does cash flow impact it? If you have negative cash flow gets added to your personal debt. Positive cash flow it gets added to your income and helps your DSL.
- Do you recommend going fixed or variable on my rental property? Why?
The why is the most important part of that answer. Sometimes brokers get bigger commissions for selling fixed rate plans, and if they’re not helping with your long term goals they’re not going to be as aligned.
- I don’t have enough for my down payment. Do you recommend I only put 10% down?
The right answer is going to require them mentioning the high-ratio premiums, cash-flow and future qualifying.
- How will this help me get future mortgages?
Like chess, never make a move today without knowing what your move tomorrow is.
- How will you help me when my debt service ratios are too high?
Watch for the blank stare. Part of the answer might be helping bring in a JV partner.
- Can I get a pre-approval on a rental property?
Technically, yes. In truth, not really. If you don’t know the property you’re buying it doesn’t count because the approval depends on the property. You need to get pre-positioned. That takes into your DSL, DCR and income, gets you a rate hold and helps you know what type of property to look for.
He throws a pitch in for a pre-positioning consultation, including them this weekend. He’s brought 4-5 brokers. It’s an obvious pitch for the consultation, but it’s a good one. The consultations are great, I’ve had 2, and I did my last deal with one of Peter’s brokers.
8:15 Don’s back up on stage. There’s a little bit of rambling but now he’s introducing some of the REIN team. Patrick Francy is the VP of Operations. His focus this weekend is to support you building your business of real estate. Melanie Reuter is the manger of research. She’s the one to ask if you’ve got a question about where to find something. Shawna [didn’t catch her last name] is the in-house accountant and will help with accounting info. Deb Buttler and Ray Reuter, both of member services. Anything to do with anything for members, ask them. Ray and Rodney are the guys to ask about myREINspace. “We’re all here to help you, that’s what we’ve been doing for 16 years.”
8:21 Don’s back to a couple of headlines: “Alberta’s Incomes Rising”. Average weekly earnings are $871.85 in Alberta compared to $760 in SK and $786 in BC. We’ve also had the highest increase from 2007 to 2008. “This economy is still churning along.”
8:23 Don’s introducing Barry McGuire and his “Tales from the Trenches”. Barry’s got a picture of his niece Adrianna sitting in a pile of leaves. First story is a Roto-Rooter story, then it’s all about side-deals. Are side-deals grey-deals? Then, ‘your deposit as a raincoat’.
I’m not going to do the details of each story, as they’re really detailed and I’ll go on forever. What I will do is touch base with Barry about sharing some short stories in the future, either online here or on his own blog.
The takeaways? You need your own legal advice; you need your own lawyer. Don’t use the same lawyer for buyer and seller. Consider some more disclosure questions (sewer backup? Any problems I should know about?). Consider adding sewer lines to your property inspection checklist.
The grey area was about a side-deal to borrow $50k for closing that wasn’t disclosed. Side-deals are almost always in the grey area.
The deposits story is about a purchase dependant on a sale. The sale had a very small deposit and the buyer bailed. Remember, you’re responsible for a seller’s loss if you break the contract!
Barry’s also talking about the new rules for client ID, verification and record-keeping from the Law Society of Alberta. This is an important part of life for lawyers, realtors, mortgage brokers and banking professionals.
Last month he mentioned he’s going to be spending more time experiencing his Belize. He’s going to be working on focus workshops, doing JV consulting, being more involved in REIN and the Tales from the Trenches. Barry’s taking 3 months off and then getting involved. He’s been investing since the early 70’s and has ridden two major cycles and several minor cycles. [I love the regular REIN presenters because they’re investors too. Barry’s a good example.]
8:42 Don’s back up. A quick plug for myREINspace, which has almost 40,000 posts. Note to self: to search the downloads section you need to click on the downloads button on the top and then the quick-search box will work.
There’s a 17-3 awards mention and the 2008 REIN Awards Nomination Form. The awards are handed out in December. The ACRES program (i.e. Quickstart) starts at 8:30 am tomorrow morning. Its 8:50 and we’re just about to break. After the break we’re having an Olympic coach. It’ll be a 15 minute break.
9:04 U2’s Beautiful Day is on, which means its go-time. There’s also a clanging bell sound to get everyone back in. Russell is back on stage doing a quick summary of what’s gone on thus far. Russ has mentioned that rates now at 4% prime plus 1% are still less than 6% prime minus 0.75%. You throw in the longer amortization and you’ve got better cash flow.