FACTS THIS WEEK:
THE RICH ARE MULTIPLYING AND TRENDS ARE EMERGING
RICH-OTHER GAP HAS SPACE FOR ENTREPRENEURS
MODULAR HOME PARKS MUCH BETTER DEAL IN THE U.S.
10 TIPS FOR INVESTORS
TOUGH, FAIR AND SMART: PROPERTY MANAGEMENT NO PLACE FOR THE TIMID
CHAOS WARNING IN VANCOUVER HOME BUILDING
HARRISON HOT SPRINGS
Q: A lot of talk about the big Vancouver Housing crash in the Huffington Post. Ozzie, your thoughts please.
A: Yes, Hilliard MacBeth was quoted saying just that: "...depending on the price of oil, depending on world economies and all that, we'll see next spring, next summer (a Canada-wide crash)." He added: "...bubbles in countries including Ireland, Portugal, and Spain have seen values fall all the way back to levels that existed prior to them being pumped up."
OK, as long term subscribers know ... I believe that the continuance of printing money will result in hard assets being higher - always. Note that the writer has (like magic, ahem) a book coming out: "When the Bubble Bursts: Surviving the Canadian Real Estate Crash". If you have a book coming out, you have to be dramatic... Like Harry Dent's: "The Depression of 2010", or Ravi Batra's "The Collapse of 1990" (78 more). Does it mean that house prices will rise forever? Yes, but not in a straight line.
I think we have seen most big price increases for a while. Our forecast is for a flat market - single family homes in big cities to do better than condos and small towns still lagging in general ... but long term inflation will win. (You can see it worldwide already).
Major Point repeated: Investors ... buy cash flow. Short term, sell the losers. Short term: Take some chips off the table.
Q: Ozzie you mentioned that you will provide an app for the Facts by Email. When will that be and is there a charge for that?
A: We will launch it shortly awaiting approval from Google and Apple. It is simply an easier read and no, there will not be an extra charge - other than your minimal subscription cost.
I N T E R N A T I O N A L: Modular Home Parks Much Better Deal In The U.S.
Modular home parks (also known as manufactured home parks and once as trailer parks before a certain TV series made that a marketing no-no) have always offered a good deal for residents. In B.C., however, it has become harder for investors to make money owning a park. Regulations. Zoning. Rent controls that limit rent increases this year to around 2.1%... High land prices.
In the United States, however, they can be a relative gold mine, according to Kelowna realtor Ken Umbarger who owns and sells parks on both sides of the border.
Umbarger said it is hard to find mobile home parks in B.C. and the prices are rising, but there are thousands of such parks in the U.S. and prices are a fraction of Canada. "And there are no rent controls."
Mobile homes make up 6.4% of the US housing stock and there are 8.5 million of them, according to the US Census. The number of occupants is estimated to total about 20 million, or about half the population of Canada. This means many parks, and they are not just for the poor.
According to the U.S. Manufactured Housing Institute, about 57% of the heads of mobile home households are in full employment and another 23% are retired. Yet the household median income is only a little over half the national average.
It is a niche that has interested more than private investors like Umbarger. Tricon Capital Group Inc., the Canadian company whose profit rose five-fold in 2013 after betting on U.S. housing in the depths of the slump, and who is now expanding into upscale U.S. mobile-home parks.
Tricon is looking to buy communities of manufactured homes in the "sun belt" of Arizona, Florida, and California. The Toronto-based company aims to buy assets of about $750 million in the modular housing segment, with the first investment this year, according to Chief Operating Officer Gary Berman. The U.S. single-family home market is worth US$2 trillion to US$3 trillion, and manufactured housing is about a US$400 billion business, Berman estimates. Tricon will only target "five-star" parks, he added.
In fact, modular homes could be a shrewd U.S. investment. U.S., demand for more affordable housing is high as federal subsidies haven't kept pace with the growing need, according to Harvard University's Joint Center for Housing Studies. Family incomes have fallen while the supply of rentals has remained flat, contributing to an estimated shortage of around 4.5 million rentals for low-income families. That's up from a gap of 1.9 million in 2007.
Here are 10 tips for buying a U.S. mobile home park, from Umbarger and Mobile Home University (www.mobilehomeuniversity.com), a U.S. group that offers courses and tours for potential park investors:
Buy in the north and mid-west states and ignore California, which is too tenant-friendly and has high prices. (Umbarger likes Wisconsin...)
Don't buy a park in an area with a lot of foreclosed homes because they present too much competition.
Buy a park that needs work and has vacant lots. They can be bought for less than a Kelowna duplex. Clean up the park, fill the lots and raise the rents.
Buy used trailers and fix them up. Used ones can be found for $8,000 or less. They can then be rented out along with the lot, or sold.
Expect to charge rents of around $280 to $350 per month. The tipping point appears to anything over $500 per month, the limit where tenants start to look at conventional apartments.
Hire a manager to run the park (U.S. Internal Revenue will not like you working in the park as a Canadian.) For a relatively nominal salary - these days, around $12,000 a year for the typical park plus a rent-free trailer - you can hire a manager to handle day-to-day problems.
Be strict with rent collection and with keeping the park clean and tidy.
Evict delinquent tenants quickly.
If there is swimming pool, shut it down [too much upkeep and liability] and use the space to put in more trailers.
Raise the rents 10% per year after you have cleaned the park up.
Major Point: Investors note: Modular home owners have a financial stake in their unit and don't want to face the cost of moving it, so rent increases, if kept relatively modest, will fly.
The Rich Are Multiplying And Trends Are Emerging
Reading the latest U.S. Wealth Report reminded me of a remark by Vancouver Veteran real estate developer Nat Bosa, who has had great success selling luxury condominiums in San Francisco, where prices are as high as in Vancouver.
"People don't talk about real estate there like they do in Vancouver," Bosa said, "because in San Francisco they can afford it." (!!)
And, according to the latest reports there are a lot more Americans - especially young Americans - who certainly can afford it.
In fact, according to RBC Wealth Management's High Net Worth Individuals (HNWI) report, the population of rich people and the amount of money they have has reached record levels.
The population of U.S. HNWIs jumped 17% last year to 4 million and their investable wealth by 18% to reach $13.9 trillion. Growth rates of both the HNWI population and HNWI wealth in the U.S. exceed the global averages of 15% and 14% respectively.
This is a staggering number. It shows that just 4 million U.S. residents could almost retire the entire U.S. debt of $17.9 trillion dollars!
So how are the rich getting so rich? (Hint: they don't get it by giving it to the government.)
The RBC study showed that most of the big dollars are being made in the usual places: energy and high-technology sectors, which have posted the strong growth in wealth over the past five years. Read Dallas, Houston, San Jose/San Francisco.
However, the 12 cities with the highest number of truly rich residents are:
New York, Los Angeles, Chicago, Washington D.C., San Francisco, Boston, Philadelphia, Houston, San Jose, Dallas, Detroit (!) and Seattle - which are home to 69% of super-rich people and 75% of their wealth.
Not surprising, New York leads all cities, with 894,000 high-net worth people who together hold $3.2 trillion.Los Angeles is a poor second with a mere 330,000 billionaires worth $1.2 trillion. In fact, LA ranked only slight higher than Detroit.
Dallas and Houston were stand-outs, leading in both high-net-worth population growth - at 20% and 18% respectively - and wealth growth, at 24% and 22% respectively. In fact, Dallas entered into the top 10 high-wealth population centers for the first time, edging out Detroit.
So, let's see, based on the Wealth Report, there are 4 million high-net-worth individuals in the U.S. That leaves, according to the latest U.S. Census Bureau stats 313 million Americans who are not high-net-worth individuals. It is this group that most of us are interacting with when investing in the United States, to give some clarity.
Major Point: You, dear subscriber that read our annual forecasting report and attended our OUTLOOK meetings have heard me pick Houston for 4 years, San Francisco for 3 and Dallas for 2 years ... (as well as 4 other cities in the US). Also, delegates to the Jurock Real Estate Outlook Conference last weekend may recall that 'uber' mortgage financier Morley Greene picked Dallas as a hot real estate market.
C A N A D A: Spotlight: Harrison Hot Springs
By Freddy Marks, Managing Broker (Cell 604-997-5398)
Nestled against Southwestern British Columbia's magnificent mountains and the sandy beaches of Harrison Lake, Harrison Village is your local vacation destination filled with a rich history and natural wonders including the world-famous BC Harrison Hot Springs.
The Village of Harrison Hot Springs edges Harrison Lake that extends 77km/48mi north towards a backdrop of snow-capped coastal mountains. Other than the natural hot springs that are the community's namesake, the lake has no industry!
Harrison Hot Springs is a favourite getaway destination because it's a lakeside resort atmosphere only 1.5 hours from Vancouver, yet it feels like you're much further away yet there is easy access by Hwy. 7 and Hwy 1.
The population year round is approximate 2,000 and over the summer it sometimes doubles and triples.
Of course there are also three marinas, art gallery, excellent fishing, nature trails, numerous annual festivals, music, art, dragon boat, Oktoberfest, daily live band music at the resort, best German food at the Black Forest, newly revitalized down town core, boat rentals of all kinds, near Sasquatch Provincial Park, free public tennis court, bacci ball field, public school, boat launch and parking area in town, three excellent beaches, etc. Phew ... sounds sooo good!
Every year the demand is higher and higher for new Condos and Townhomes!
The Village of HHS did the necessary rezoning and supports new development.
But even with these rezones in place nobody starts building.
You can buy a townhouse rezoned property (CD-2 / 26 Units for $ 14,700 the unit or a 75 unit waterfront development for $ 56,000 per unit.
Used Condos are between 18 and 25+ years old and are selling for +/- $230 to 260 per sq.ft. ($355 for newer waterfront with Beach at your feet)
Used 3 to 4 bedroom homes sell in Harrison on average around $ 358,000 (based on the sales from this year).
One can buy vacant lots for between $120,000 to $150,000 per lot.
The price per sq. ft. For the condos is very low and don't represent the two most recent sales in our complex Heron's Cove which sold at $ 355. - per sq. ft. But then we have the beach right out front which no one else has in town. Marina Beach next door to us has three units for sale which price out at about the same price.
Every week people come into our office looking for new, higher class condos or town homes. These people are coming from all over Canada & Europe. They like the Harrison atmosphere and its closeness to Vancouver, Abbotsford and Chilliwack.
Their goal is it to retire here. We also have many buyers from Asia-mainly China. Further, we have many businesses, restaurants, waterfront homes including the Harrison Hot Springs Resort already owned by Asian investors and entrepreneurs.
Major Point: Fine points Freddy! I have always liked Harrison Hot Springs, particularly the fine inexpensive condos by the lake. You have golf, skiing (at Hemlock) - an ideal combination for retirement - prices, activities and fabulous surroundings. Just needs a developer with vision.
Rich-Other Gap Has Space For Entrepreneurs
As the Wealth Report above shows, the gap between the U.S. rich and poor is becoming a chasm, but it is a gap that offers more room to make money near the downside of the curve. Canada is seeing a similar split, most obvious in the retail market. Dollar stores, such as Dollarama, are raking in record earnings. In fact Dollarma plans to add another 1,200 stores across the country. Take a drive downBurrard Street by my office or even along 'auto avenue' on Terminal in Vancouver and you see the flip side: luxury car dealerships, where 'heaven forbid', there is now a months-long wait for $90,000 Range Rovers or new Jaguars. Alberni Street is attracting an expanding enclave of luxury stores.
It is the middle market - Sears, Target, Chevy - that are seeing their mid-income market shrink. Too down-market for the rich, too pricey for the rest.
The same holds true in real estate. If you can afford it (as we said at Landrush Conference 2 years ago and in all our forecasting issues), certainly play in the high-end housing market where flips are measured in millions, but to take advantage of the growing wealth gap, there is more long-term gain in lower cost rentals.
Cases in point include Boardwalk REIT and Mainstreet Equities, both based in rich Calgary. Both of which have consistently made staggering amounts of money by buying and holding apartment buildings where rents are modest, usually less than $1,000 per month. And they have done it for years. (Boardwalk recently exited Metro Vancouver, perhaps spooked by the growing wealth gap in real estate.)
In Metro Vancouver, for an example, the average apartment building in tony Kerrisdale sells for $402,000 per suite (according to the Goodman Report) but you would likely need at least $3,000 a month in rent to make and receive positive cash flow. At that level your well-off tenants may decide to buy rather than rent and a lot of others simply can't afford it. But in New Westminster, the average apartment building sells for $133,500 per door and the rents are south of $1,100 per month. At this level, there is no lack of tenants and the Skytrain means they are close to work even in Vancouver. Even better, perhaps, is East Vancouver with a large young population of non-high-income-individuals where the typical apartment building sells for $229,000 per suite and rents at $1,300-$1,500 per month are in high demand. (And the first few well situated houses are selling at Westside prices.)
Major Point: By leveraging the opportunity inherent in the growing income disparity you can move yourself into the upper bracket while meeting the needs of the lower-income groups, which are apparently getting larger every year.
Tough, Fair And Smart: Property Management No Place For The Timid
In a presentation to the Jurock Real Estate Outlook Conference this month, Scott Ulrich, President and CEO of Gateway Property Management, offered advice on successful property management.
With 45,000 tenants and a company celebrating its 50th anniversary, Gateway is among Canada's biggest and best property management companies.
As Ulrich confirmed, property management in today's residential rental market demands managers who are smart, tough and fair - it is no place for the timid or for amateurs. If you own rentals, you need a good property manager.
Here are just some of the things you need to understand to manage rentals, using B.C. as an example: the Residential Tenancy Act; the Employment Standards Act; WorkSafe BC regulations; the Privacy Act; the Human Rights Code; Real Estate Services Act and where to find a plumber, an electrician or a RotoRooter man at midnight.
A good property manager will also be up to speed on:
building code bylaws,
proper tenant screening
holding trust accounts for rent deposits
rules pertaining to pets.
It would also be helpful if you have a strata management certificate and know how to deal with out-of-country investors and how to find and manage suppliers.
And of course you have to know about
Depreciation Reports and how to
get rid of bad tenants. Understanding the real procedure is necessary. If you (for instance) retain a deposit for more than 15 days and not give notice that you will keep it and the reasons for keeping it to the rental offices - you owe the tenant (even one that destroyed your property) DOUBLE the deposit back!
Major Point: A professional property management company can handle all these problems for a monthly fee, based on a percentage of the rent. For serious investors (and there should be no other kind) a property manager is as important as the property you buy (sometimes more).
Chaos Warning In Vancouver Home Building
We had a chance last Thursday to sit in on a round table with contractors and suppliers to the Vancouver home building industry. It was rather scary.
"It is chaos out there," one window supplier said. A contractor confided that three different city building inspectors all had different rulings on the very same work and materials being used just blocks from each other.
It is all part of Vancouver's confusing new "green" building code that was supposed to come in in March, and then got delayed to June and now is said to be enforced in January 2015.
However, the BC Building Code already came into effect last December making B.C. the only jurisdiction in North America with a tough new window and door standard.
Vancouver's new rules are even stricter:
No door knobs or knobs on faucets, for instance, and wider doorways and hallways and no powder rooms (only full-size bathrooms) on main floors.
Mandatory electric car charge stations in every garage, etc.
"It is nuts," a door hanger said, noting that window and door manufacturers are spending tens of thousands of dollars to test their product to new standards and then finding that building inspectors don't understand the standard.
Information provided by Jurock.com