Category Archives: Alberta (Commentary)

Is the huge money in businesses or real estate?

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When I was growing up, my parents taught me that land was valuable because it was tangible.  They simply did not trust anything they couldn’t see. The fact that people would lose money in stocks merely proved their point. They are not making any more land and as Andrew Carnegie once said “90% of all millionaires become so through real estate”

Over the years, I met other people who believed that businesses were the key to wealth because they were able to amass sports vehicles, yachts and other luxuries that life had to offer. This lead to my question of which (if any) method was clearly superior in achieving extraordinary wealth.

The answer to this question is both simple and clear anywhere in the world. Business ownership is indisputably the method to achieving a high net worth!

If you look at the Forbes list of the world’s richest people, all of them are business owners. They can be in many industries including telecommunications, retail, banking and restaurants to name a few. As for Andrew Carnegie and his quote which has been used to entice many joint venture investors, one must recall that he was a steel industrialist and made his enormous fortune by being a business owner. In today’s dollars, he would be worth hundreds of billions.

Having said all of this, the one asset class which is used to maintain wealth once it has been achieved is real estate. It has a very long track record for keeping pace with inflation.

In fact the most common method to have it all is to make your fortunes in businesses and keep it in real estate. The real estate seminar business generates far more profits than one ever could by completing a foreclosure or renovation. That is what they will never tell you as a member of the audience!

Why the focus on the economics of real estate?

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Often times, I have met real estate investors who want to purchase property and have many details covered about the renovations, location, price etc.  However, they consistently miss the single most important factor to succeeding in real estate and that is in understanding the unbiased economic fundamentals.

It is the economics of a region that drives valuations, rents, vacancies, renter profile, transportation etc.  Without an understanding of these important trends, the best property in the world would be ignored because there would be no potential for equity appreciation or cash flow.

The economics should be the first and foremost thing to look at investing in real estate. This will separate you from the speculators who are merely wishing prices to increase.

Identity Theft

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Ask any investor regardless if they are involved in real estate, stocks or any other asset class if they require paper for their transactions and the answer is a resounding yes.  Documentation showing a title transfer or stock purchase/disposition is essential for tax purposes as well as legal.  The storage of these documents is important but even moreso is the way they are discarded.

Please do not ever throw away anything which has your name, address, phone number or other important information about you. There are professionals in your area who scour garbage bins and prowl areas in an attempt to steal this vital information from you in order to make a quick illegal profit.

Once your identity is stolen, it is not just the financial headache it causes but an ongoing emotional toll that it takes to restore what was taken from you.  I do not speak from experience but have heard this from others who have been victimized. This can have negative consequences which can easily last years from a simple act such as tossing your utility bill in the garbage can.

For more useful information on how to stop identity theft from occurring, please visit this site: http://tinyurl.com/d77nm

Yes, it can happen to you!!

Opportunity is nowhere

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Many years ago, I used to frequently attend investment seminars.  They helped me tremendously because it gave me an environment to learn and be surrounded by like minded people.  During one of these events, the speaker asked us all to read the title to this commentary and most of us stated that “opportunity is nowhere”. Many of us concurred with others at our tables that this was indeed what was being stated; myself included.

There were a few people who did not see it this way and disagreed with our interpretation of the word nowhere. They told us that it was all about the perception of the world around us. We mostly stayed with our original interpretations.  Those few people then said that they read the statement as “Opportunity is nowhere”.

At that point, I understood as to how we saw the same letters but our ideas were polar opposites.  When the markets go down, I do not see this is a bad thing but potentially a good one because it may represent a buying opportunity.

After all, opportunity is nowhere.

Property Management

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Before you even begin to venture out into any real estate market, you must consider the most important aspect of real estate investing which is the customer (i.e. tenant). They are the ones who will pay your bills, tell you of any issues and leave you with positive cash flow every month.

For this reason, you must absolutely have an outstanding property manager who will oversee their every request. Whether you manage your own properties or outsource this aspect of your business, this is key to success. The best property can quickly turn into a nightmare if impeccable property management does not occur. This can also be the difference between a regular property and an outstanding one with people lining up to rent from you.  It has certainly happened to me!

If the thought of a leaky toilet call at midnight is enough to stop you from managing a property, then consider getting a property manager who has experience in the community you are considering purchasing in. You should also get to know your property manager on a personal level also and this will only make your overall experience more beneficial.

For a detailed list of questions to ask your prospective property manager, please visit this site: http://tinyurl.com/bq2y2s9

Anticipate the future and not past trends

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This past week while watching television, I noticed a commercial that I found to be totally incomprehensible.  Back in the 1980’s, it was very common to go to a video store, rent a number of movies (usually new releases) and return them the next day.  JVC’s VHS had defeated Sony’s Beta during the era not because it was a better product but due to their marketing efforts. Even in the 1990’s renting videos was a very popular notion because in my opinion the idea of watching movies will never go away.

With technological advances, all of us have seen the CD and DVD revolution take hold along with the demise of analog signals being replaced by digital communication. Today, even these recent improvements are being replaced by online streaming with MP3s and online demand for new movies accessible at your fingertips.  DVD’s now represent something which is fading into history!

For that very reason, I was completely astonished to see a commercial for a company selling a DVD kiosks business whereby people would go and rent a DVD and return it sometime later.  In this world of instant communication, I do not see how a company can survive in the next 10 years using an antiquated business model.  Blockbusters collapse is proof of that.

When purchasing a piece of real estate, one should watch if the indicators are positive.  What I mean by that is if a Walmart, Starbucks, Subway or other business is moving into an area. Seeing one of these come in is encouraging, having two is very positive and all three is a virtual guarantee that an area will do well long term. Conversely, having one, two or three move out is a negative indicator for the long term economics of an area.

Whether it is real estate, technology or other business venture, it is important to see where the future is trending to and not the past.

Demographics and Investing

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In our attempt to provide coverage of the economic fundamentals for Alberta real estate, readers are sometimes provided with news of a new school being built or plans for expansion.  On the surface, this does not seem to have anything to do with cash flow, equity or interest rates and may wonder what it has to do with property.  The answer is a great deal.

Demographics is the study of a makeup of a population. When people make more money, they spend more, when they spend more, real estate prices go up. Peak spending in fact is at approximately 40 years of age and after that point, it starts to decline. One of the factors that drives real estate is the makeup of households and that is why I provide information on new schools as it is a factor as to where growth is or will be occurring.  A community of mostly 25-30 year olds has (all other factors being equal)  a positive demographic profile compared to one where it is mostly seniors who spend much less.

Alberta’s demographics is to show that our province is in fact getting younger and therefore extending our peak spending years many years into the future.

For more information on this important subject, please visit www.hsdent.com.

Are tax refunds a good thing?

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Speaking for myself, we are now in one of my favorite times of the year; namely time to file your taxes.  The IRS deadline is April 15th in the United States and in Canada it is April 30th.  It is very important to file something even if it is wrong because the penalties for not reporting can be severe. Please obey the laws on this and do not fall into the trap that some claim that taxes are illegal and you do not have to pay.

When I was growing up, my parents taught me that getting money back from the government was a good thing.  The very thought of having an extra cheque in April or May (depending on when you file your personal taxes) was never a bad idea. This was to be treated like an extra supply of cashflow. I now take an opposite point of view to what I was taught.

A tax refund means you paid them too much over the period of a year and they are simply refunding your money from over contributions. You gave them your money at 0% interest and get your principal back. I have worked at numerous publicly traded companies and they go to great lengths to calculate the exact amount they owe. Do not underpay your taxes either because then the tax authorities will request their fair share.

The most important business skill

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There are many aspects to building a successful business no matter where in the world you are located.  A solid legal and accounting team are necessary to ensure all laws and finances are handled properly. Effective communications is also a necessary part of having success in your endeavors.  However, there is one area that is far more important than anything else to ensure not only the survival but prosperity of any venture.

The most important skill is the ability to sell.  Sales=Income (cashflow).  Without cashflow, you have no way to develop your business or even maintain its current existence.  That is why I love the network training programs because they teach you this vital skill if you are to succeed.  It is often uncomfortable and vital to overcoming any obstacles.  if you wish to see a great example of sales in action, watch any 4 year old ask their parents for candy or toys.  Kids are wonderful salespeople!

Even in relationships, the ability to sell one’s viewpoint or ideology is what differentiates one side over the other.

Steps to take before renting out a property

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Once you have a property ready to rent, there are some crucial steps to take before someone moves in.

1) Visit the site www.rentometer.com and compare the rent you are charging to other market norms in your area. This is a rough barometer as to where your property is in relation to the rest of the market.

2) Become a tenant for a day and check out your competitors properties. That’s right, you actually become a tenant for a day and visit other people’s places for rent. It is free and you will learn a lot about how your unit compares to others.  Do they answer the phone professionally and/or get back to you quickly?  How do the suites show?  Do they follow up?  These are the types of things to look out for and see how you can improve your marketing efforts.

3) If you have to choose between taking a questionable tenant and leaving a property vacant, please leave it vacant. The last thing you want is to be featured on world’s worst tenants as I mentioned in a previous post.