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Surrey Real Estate Investors Club - A Presentation on Area Selection and the RE Cycle
- 1. Surrey Real Estate Investment Club Welcome! “The most important thing is to do your homework. You have to read a lot, find out about the areas you want to go into, where the emerging markets are. It’s a matter of where you see growth, go and find out, you have to go into the markets yourself." ~Jim Treliving
- 2. Surrey Real Estate Investment Club Welcome! "Real estate is at the core of almost every business, and it's certainly at the core of most people's wealth. In order to build your wealth and improve your business smarts, you need to know about real estate." ~Donald Trump
- 3. Sponsors Welcome to the Surrey Real Estate Investors Club!
- 4. Future Plans 1. Strategy & Getting Started 2. The RE Cycle and Selecting An Investment Area 3. Property Selection and Cashflow 4. Financing 5. Due Diligence & Making an Offer 6. Tenant Selection & Management
- 5. Review of Last Meeting • A simple, little retirement plan • add $2,000 / month to your retirement fund! • Why or why not invest in RE? • What skills are required? • What strategy? • hands-off vs active • residential, commercial, MFH, SFH, condos • What tactics? • Wholesaling, B&H, flips, RTO • Getting started – your vision and plan www.AspireRealEstate.ca/blog
- 6. Tonight’s Agenda • What is the real estate cycle and how do we use it to our advantage? • How do I decide where to invest? • Location fundamentals
- 7. The Legal Stuff… The information contained herein (the “Information”) is intended for general informational purposes only and should not be relied upon by recipients hereof. Although the Information is believed to be correct, its accuracy, correctness or completeness cannot be guaranteed and has not been verified by either Aspire Holdings or any of its affiliates. Views expressed in this presentation are based on research materials available from sources that Aspire Holdings (d.b.a. “Aspire Real Estate”) considers reliable but neither guarantees, warrants nor assumes any responsibility or liability of any kind with respect to the accuracy, correctness, completeness, or suitability of, or decisions based upon or in connection with, the Information. All real estate opportunities come with varying degrees of risk and past performance is not an indicator or guarantee of future results. Prices can go up or down and current performance may be lower or higher than any performance data quoted for comparisons.
- 8. The Real Estate Cycle What is the first thing that comes to mind when people talk about the Real Estate Cycle?
- 9. The Real Estate Cycle The Housing Bubble -Kieran Trass The Secrets of the Canadian Real Estate Cycle - Don Campbell, Kieran Trass, Greg Head and Christine Ruptash
- 10. Caution! • Market specific • Nearly Impossible to pin point exactly! • Tactics to use • Focus on Trends and WHY
- 11. Caution! • Media • Fear and Greed • Each Phase • Beginning • Middle • End
- 12. The Cycle Recovery Boom Slump
- 13. Boom Early – Population continues to increase – Returns are attractive for existing investments but new ones offer lower returns. Middle – Population growth, rents peak. – RE sells quickly, few foreclosures. – RE Financing is readily available.
- 14. Boom continued End – Rents fall, vacancy rates increase. – Constructions levels are very high. – Renovation is very popular. – Prices are still increasing but will change quickly. Prevailing emotions: Fear that RE is good investment shifting to GREED (Fear of missing out).
- 15. Slump Early – Slow price increase. – Surplus of RE inventory. Middle – Vacancy rates peak. – RE horror stories. Non-strategic investors sell to get out. – Cashflow decreases as rents decrease.
- 16. Slump continued End – Population/employment growth and rents are low but stable. – Income and RE sales are stable. – Price of RE drops and affordability improves. Prevailing emotions: Greed turning to Fear
- 17. Recovery Early – Population increase. – Rent increase and vacancy decrease. – Property values increase (<10%). Middle – RE is affordable . – Construction increases.
- 18. Recovery continued End – Returns decrease as prices increase. – Rent increases slow down as people become homeowners. Prevailing emotions: FEAR shifting to Greed
- 19. Strategies during Boom Early – Continue buying for CASHFLOW. – Good time for construction or selling Middle – Get creative with existing properties to increase cashflow. – Opportunities with good cashflow are rare. End – Get ready for slump, sell underachieving properties. – Vacation time!
- 20. Strategies during Slump Early – Get ready for opportunities to come. – Continue vacation. Middle – Start shopping. Look for those that NEED to get out. – Focus on strong cashflow. End – Quality properties with great cashflow are available.
- 21. Strategies during Recovery Early – Buy and Hold. Great time to grow portfolios equity and cashflow position. – Fixer uppers. Middle – Continue buying for cashflow and fixer uppers. – Land for development. End – Land for development and well located renos. – R2O-be careful of leaving equity on the table.
- 22. Important points • Global economy is still a wild card. • Buy and Hold with positive CASHFLOW is a great investment.
- 23. “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” - Sir John Templeton.
- 25. Why Is the Area Important? You are only making an investment if you make money while you own it. Otherwise you are just a speculator! But, you make money on the buy, not the sell. Good location research will improve your likelihood of success. Poor research can devastate you!
- 26. Where Should I Invest? You have to ask yourself some other important questions first: 1. How active am I planning to be with this investment? 2. How far am I comfortable travelling to do my research? 3. How familiar am I with that area right now?
- 27. Some Big Picture Things to Think About Population Trends? Employment Situation? Transportation? Healthy Economy? Appealing Opportunities and Plans?
- 28. Case Study: Surrey vs Ladner Real estate with a CAUSE! Credit to RevNYou.com! C onvenient A ttracts ….(families, students etc) U nder Market Value
- 29. Case Study: Surrey vs Ladner Real estate with a CAUSE! C onvenient A ttracts ….(families, students etc) U nder Market Value S tarter Homes E conomic Fundamentals •
- 30. Case Study: Surrey vs Ladner C onvenient A ttracts ….(families, students etc) U nder Market Value S tarter Homes E conomic Fundamentals GDP → Jobs → Population → Rental Demand → Decreased Vacancies → Increased Rents → Increased Prices
- 31. Research Fundamentals ?????
- 32. Focus on a Sub-Market Same indicators on a micro-scale: • Rent Rates • Vacancies • Median income • Typical starter home • Typical home owner & tenant profile • Watch listings/prices/DOM & other signs • Walk the area frequently – take your dog!
- 33. Feedback, Prizes and Action plan! Questions or comments? Please let us know! Next meeting Wed. March 27th @7pm Summary: www.AspireRealEstate.ca/blog/ • Find a new person in the group and tell them what you are going to do in the next month to achieve your goal! • Follow up at next SREIC meeting.
Editor's Notes
- 7.00-7.15 Arrivals and networking (4-5 min pp)Food orders (their tab)Introduce ourselves.Second mtg of SREIC which we set-up to get people interested in the possibilities of RE, particularly in Surrey.Want the club to be an open, sharing, educational place for people who are or want to learn more about RE. We focus on B&H and RTO investments and that is what we are primarily sharing information on over the next few months. Club Rules - No pitching without our consent. Honesty and confidentiality Open environment – ask questions, be friendly, participate, offer help to membersWhat we hope you gain from membership Enough knowledge for you to get started and start asking the right questions or new questions if you’re already investing Our opinions. Not a get rich quick event nor are we selling anything!
- Sponsors: ARE, ABC, CREW, RNY. Our Company covering costs for the first several meetings but after that may need to charge a small membership fee.Ask Lorena about meetingSKIP:Attendee introductions – name, from, why you’re here, if you have investment property.
- In these 2h meetings, it’s impossible to go in-depthFuture plans – 6 months of covering fundamentals of buying residential RE. May have some expert speakers in for certain topics such as financing. After that we hope to build a following of people who are taking action and want to continue to expand their knowledge and horizons.Bonus RTO?
- 7.35Wealth generation – pension plan / accountant story
- Lower liquidity, education, research, skills required, passive income, risk versus Multiple ways to make money: appreciation, mortgage paydown, cashflow, forced appreciation, tax advantages Overall: willingness to learn, positive attitude (things will go wrong – flood example), perserverance identify your strengths and weaknesses to help you decide if you want to do it and what strategies/tactics to useSummary is on our blog
- We`re expressing our opinion - not selling, promoting or advocating anything and if you go out and use the Information it`s at your own risk and all examples we give provide no guarantee of future performance of any investment.
- So what are some of the things that first come to mind when people talk about the real estate cycle… ask..Interesting… when I talked to a few people about this talk the first thing they asked was what do you think will happen? We can go around the room and I am sure we will all have an idea, because we have heard it in the news, the friend, uncle, neighbour, etc.. But most likely you wont hear it from me… why because I am here not to tell you what will happen but to give you some of the tools to allow you to do so yourself and break through all that fog. And also because for us in particular we don’t necessarily care to panic about it because we have used and use the cycle to our advantage when setting up our strategy
- For over two decades of following, observing and studying the real estate cycle Kieran trass (author of a great book the housing bubble) observed that real estate markets followed a predictable and repetitious cycle. Nowadays there is a book specifically for Canadians –Secrets of the Canadian Real Estate Cycle from Don Campbell, Kieran Trass, Greg Head and Christine Ruptash. I highly recommend these books if you want to learn more since we do not have even close to enough time to go through all of it today.
- First of all lets talk about some things to be cautious of:Market specific- the media likes to talk about the canadian real estate cycle but when investing it really changes from area to area and it is important to look at that. In fact hot spots emerge regardless of the health or lack of health in a city or regions RE cycle. Nearly impossible to pin point exactly- there is so much information and variables that make it impossible to really know this try to have an idea. Strategies to use-we will talk about strategies some of the best strategies to use but sometimes NOTHING is the best one. Focus on Trends and why- try to avoid focusing on numbers but rather look at the trend. Much better idea of what the market is doing.
- Media- will scream boom, bust and bubble in each phase of the cycle. They make things confusing for all. Look at the economics underneath. Fear and Greed- are the most prominent emotions during the cycle. You will see in really hot markets people get greedy and you will be tempted to make risky investments… stick to the economics. They also fuel the boom and prolong the bust. Each phase has a beginning middle and end
- Do influencers and drivers FIRST!!There are market drivers and influencers. Influencers impact the immediate level of supply and demand but are not permanent or sustained. They are sensational and sustained. Create the blips we see.The main influencers are: Interest rates-Availability of financingForeign investment- Vancouver exampleGovernment legislationConfidence in RE as investment vehicle InflationInvestment alternatives (.com boom) Drivers combine to push cycle through the different phases. Go through drivers.
- Most exciting for non-strategic investors and frustrating for strategic investors. The bigger the boom the longer the bust. Early: media-confusing and contradictory. Praising and sceptical of real estateMiddle: key drivers peaking- not big increases in population increases, employment level and income increases anymore. Volumes of sales drop. media-confusion prevails over whether the price increase can continue. Stories of unaffordable rents and how many people cannot purchase real estate. RE is a hot topic. Stories of people making loads of money.
- End: RE is very unaffordable. media- people justifying why the boom will continue. Others talk about impending doom. Prevailing emotions: Fear is still strong early on and people look for evidence that RE is a good investment. Quickly shifting to GREED.
- Non-strategic investors struggle because they purchased properties they shouldn’t have and now are overcommited. Good opportunities start to crop up again in the middle to end. Severity depends on overbuilding and over pricing. During this time prices decrease and rents decrease. Early: desireable areas tend to falter and undesireable areas have small increases. Surplus of real estate (new and existing). Media- overvaluation of RE and need for a market correction. Middle: vacancy rates peak. RE is very unpopular and non-strategic investors start struggling with reduced cashflow and stalling values. Media- cheaper to rent than to buy and many experts come out saying they predicted the crash.
- End: media- bad news stories about RE prevail. Prevailing emotions:Early on greed is still exists as many refuse to accept that market has begun to decline. Inexperienced investors believe values will rebound quickly. fear of failure becomes strong as you move into the middle of the slump. At the end greed is not evident at all.
- Short and Hard to recognize. Great opportunities for Buy and Hold. By the end RE cycle prices rise rapidly taking people by surprise. IndicatorsEarly: media talks about shortage of rentals. Sceptical of growthMiddle: RE provides attractive returns for investors. media is confused due to intermittent price growth.
- End: media- Price increase is now in the headlines. Some people start calling it a boom. Prevailing emotions:Early on there is a lot of FEAR towards the end shifting to Greed.
- Early: Focus on locations that are lower to mid income areas- fixing up and renting out for positive cashflow. Build on vacant land. Middle: increase cashflow on existing properties. Sell vacant land. End: sell poor performing RE and free up cash to invest.
- Early: Purchase new construction property in a forced sale situation. Cashflow. Middle: purchase positive cashflow real estate in mid-upper income areas from motivated sellers. End: position yourself for equity growth. Start purchasing in great areas middle to upper income and emerging markets.
- Early: fixer upper and buy and hold with positive cashflow. Middle and end: continue and land for development. Be careful with Rent to own you don’t leave to much on the table.
- Important to note:-global economy is still a wild card. -CASHFLOW is king
- You have to research for forward-looking trends, not backwards. What will happen (in the next 12-24 months)This gives you a reasonable chance of making money on the sell because you have bought in an area that you predicted would be desirable in the future.i.e. buy with the end in mindAlso, remember that you are not your client (it’s about whether they would live the, not you), unless you plan to!
- When we started Aspire our business plan had some fundamentals in it that dictated our area selectionThis would be an active business in which we would be the main PMs We wanted to be within a 1 hour drive of our properties We wanted our investment partners to be able to see the property relatively easily if they wished We wanted to build a portfolio based business and not a transactional oneDoesn’t mean you have to have same choices but think about why or why not a particular area would work for you in a very general sense (eg hands off in US vs active in US)Will you use a PM?This can open up more possibilites but also more problems (ie lack of in N. BC)Familiarity with area if you are new reduces amt of research and increases your feel good factor!
- Picture is of one of the never populated towns in ChinaBig picture WHERE.Ignore national news articles about crashing economies or where is hot.Write down list of places.Don’t rule out anything. Who put Surrey? Who lives in Surrey?Show list – now use Surrey as an exampleList of Good and Bad
- Explain our company phraseConvenient - to us, our investors, our tenants and the future homeowners - Are there stores, schools, amenities, parks, dog areas and how close and how will they get thereAttracts - whoever your client is. For us it’s small, new families - what do they want – schools, parks - would they live there (not you)Under Market Value - make money on the buy (instant equity, reduces risk for you and your partners) - are there homes in this area that are cheaper than surrounding (in-migration) - are there motivated sellers? Why? (divorces) - has there been a recent price change either way (why)
- 4. Starter Homes - varies in different areas - there is the most demand (up and down movers) - for us we’re matching to 1st timers and ppl who lost their homes - in Vancouver it’s apartments, in Chilliwack it’s larger t/homes or SFH5. Economic Fundamentals - This is the key driver of the real estate market in your area
- 5. Economic Fundamentals - This is the key driver of the real estate market in your area - This is why you need to look forward to get in at the start - Includes general infrastructure plans (eg Gateway Project) - Also includes housing market stats - Watch for over-supply - Look for Starbucks!
- 5. Economic Fundamentals - This is the key driver of the real estate market in your area - This is why you need to look forward to get in at the start - Includes general infrastructure plans (eg Gateway Project) - Also includes housing market stats - Watch for over-supply - Look for Starbucks!Relate to Surrey – our researchTransportation: Gateway project, new LRT lineHST Introduction & RepealInterest RatesWhere to find information: REB/Realtor, City, Google, MLS, CL, RentometerDo you really want to do all of this ‘passively’?Ask yourself – what makes you hesitate about this as an investment area?
- One of the most important things that we learned from our business mentorsPick an area that you can get to know inside out Something you can walk around in about 45 minsLook for the same indicators on a micro-scaleAllows you to really focus in only on properties of interest – saves timeAllows you to advertise the benefits not the features when advertisingCan find deals – more instant equityEar to the ground for new plansAnalysis Paralysis
- 8.30
- Magazine give-away (CREW sponsor). (promo code: 35% discount SREIC)Talk about RNY – future discountsOther sponsorships needed. Next 2 mtgs by donation. New member referrals.Out of room by about 9.15pm – networking question