IN THIS WEEK’S FACTS BY EMAIL:
- QUESTIONS, QUESTIONS
- A NUMBERS ROMP – FROM TORONTO TO KELOWNA
- LANDLORDS SHOULD CHEER RISING CONDO PRICES
- PAPERWORK TO BE SENT FOR VANCOUVER VACANCY TAX
- CLOSE UP VANCOUVER DETACHED MARKET
- COMMERCIAL; PLAY HARDBALL IN LEASE TALKS
- OPTIONS WHEN SELLING BUSINESS WITH REAL ESTATE
Expert Discussion: US Tax Liens & US Auction Deals
I sit down with Brad Norman for an Expert Discussion on US Tax Liens and US Auction Deals. Watch Video
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Q: Watched BNN last night. They talked about Canada’s 1.6% core inflation being in line with expectations. Then they followed it up with hand wringing. House price increases of 33% in Toronto and over half of Canada’s regional markets have risen in value by over 10%. How can they not put the 2 together? If it looks like a duck, walks like a duck, it’s a duck! Blows my mind. I am glad I listened to your speech at the Fraser Valley Building awards in September 2014. After your brief talk, I gained confidence, did not sell and I am $285,000 ahead!
A: Music to my ears. I drink scotch! I am with Milton Friedman: “Inflation is primarily a monetary phenomenon”. I talked about it since 1998. You can take all the items out of your ‘core or headline inflation basket’ that you want (house prices, rent, food, gas, oil) … in the end all that ‘money creation’ settles in higher hard asset prices. Worldwide.
Q: CMHC reported record housing starts in March. Builders have a lot of confidence!
A: Yes, in fact these were record high starts since September 2007. Builders do have confidence, but that does not mean much. After the previous high in starts (2007) we crashed into the economic crises of 2008 – 2010. No matter how positive I am for price increases in the long run, it is time for extreme caution. There are other influences that determine values. As we noted before: European elections, NAFTA deal-making unsolved, etc, etc. I’d like some clarity there. France elections next week!
Q: Interesting to see that some markets see increases in listings. A crack in the armour?
A: In a given submarket … very likely. However, most markets are moving lower in listings in the LM. This month and May will tell the story… After last April, sales and prices of SF dropped very sharply in May and every month thereafter (yes, ahead of the tax).
Poloz Is Entirely To Blame For Higher House Prices
That was a title of my Outlook 2015 speech and in my January 2016 Outlook issue I devoted a chapter to it. You can’t indefinitely lower interest rates in a relatively safe and predictable economy, without people feeling positive about their future and then buying houses. You can also not talk down the dollar relentlessly and not expect foreigners to come into that safe and predictable economy. Mr. Poloz will not raise rates this week either and he will point a warning finger about ‘prices being to high, can’t go on, etc.,’ as he has done for two years. Since he is not doing anything about it, there will be no change.
Contemplated are: Foreign buyer tax, rent controls and/or general speculation tax. (Much like the NDP contemplates for BC – 2% per year, every year on all houses owned by people that do not pay an appropriate amount of provincial tax.) Ontario is flat broke. BROKE! What they will bring in depends only on what they think the electorate will swallow. Under the banner of “housing affordability” a cash strapped, deeply indebted provincial government may surprise on the ‘draconian’ side.
More Numbers – A Canada Romp
|TORONTO||Mar. 2017||Mar. 2016||%|
Huge increases in sales, prices and sharp decline in listings: Result – Higher activity and prices.
|CALGARY||Mar. 2017||Mar. 2016||%|
Surprise, surprise! Increase in price, decrease in listings bodes well for stabilization. Also, Alberta in March saw the highest job creation (percentage-wise) in Canada!
|EDMONTON||Mar. 2017||Mar. 2016||%|
Ditto to Calgary.
|VICTORIA||Mar. 2017||Mar. 2016||%|
Lower sales, but also lower listings.
|KELOWNA||Mar. 2017||Mar. 2016||%|
|VANCOUVER||Mar. 2017||Mar. 2016||%|
|SF – new||71||110||-31%|
|SF – used||1,090||2,043||-47%|
|SF Home Prices||1,720,000||1,792,000||-04%|
|FRASER VALLEY||Mar. 2017||Mar. 2016||%|
|SF Home Sales||856||1,553||-45%|
|SF Home Prices||937,700||920,215||+02%|
Huge decoupling of condo sales and prices against single family homes.
Major Point: As we said last week: Spring sales and prices last year were a record. So, our measurement of this month performance showing fewer sales than last year, has to be seen in that light. When we measure this March against previous years we look better. Surprising is the vendor’s resistance to flood into the market and lock in their price. Homeowners are trained now to expect higher prices and they are not listing!
BIG DANGER HERE! I still would not buy a house without having sold mine first. All markets experience ups and downs based on the confidence level of the participants. Sentiments can change – and fast! Caution!
Landlords Should Cheer Rising Condo Prices
Metro Vancouver apartment landlords should look forward to continued lower vacancies and higher rental incomes because of one simple equation: the rising costs of condominium apartments. New condos are routinely cracking $800 per square foot in Vancouver and are north of $600 in inner suburban markets. New and resale condo apartment demand is fueled by the high price of other alternatives. B.C. government incentives to first-time buyers, speculation, a tight supply and low interest rates. The typical condo apartment price in East Vancouver, as an example, is up 6% in the last three months, to an average of $542,245 and 159 condos sold in March, the same pace as in the white-hot March of 2016.
This is not going to change anytime soon. Some frank landlords are cheering the trend on.
“Rising home and condo prices plays perfectly into what we do, which is provide affordable rental housing,” Daniel Drimmer, president and chief executive officer of Starlight Investments Ltd. told the annual CIBC real estate conference in Toronto last week. Starlight owns 34,000 rental apartments, including properties in Vancouver, Victoria and Toronto. All three cities have seen dramatic condo price increases “We’re essentially full, we’ve had great rent growth and we find that there’s tremendous demand,” said Drimmer.
Immigration has combined with high condo prices to drive the rental market, according to Ugo Bizzarri, the senior managing director, and COO for landlord Timberbreek Asset Management.
“Rental has become a viable long-term option now and people want to rent,” Bizzarri said. “They don’t necessarily want to buy a home for investment.”
The conference was told that developers may be smarter to build rentals than condos (a trend already being seen in Vancouver, Victoria and Calgary). Calvin Younger, senior vice-president and head of real estate finance a CIBC capital markets, said new Toronto rentals are renting for up to $3.50 per square. A similar level is being achieved in the city of Vancouver.
Major Point: Small investors should pass on buying even an older apartment rental building in Vancouver. That bus is gone, driven away by land speculation. Instead, look for older Vancouver detached houses that can be converted into rental suites or older duplexes and fourplexes in the Fraser Valley, especially Surrey.
Paperwork Sent For Vancouver Vacancy Tax
The City of Vancouver has begun mailing out forms to city homeowners regarding the vacant home tax.
The notice states that a vacant home must be rented by July 1, 2017 (and remain occupied for the rest of the year) or it will be subject to the tax.
- The tax is now in effect and for those affected, here is where the tax applies.
- The home is not occupied by a tenant for at least 30 consecutive days and for more than 180 days during a year (to April 2018)
- The vacancy tax is 1% of the taxable assessed value of the home.
- Every owner of residential property will have to make a property status declaration for the 2017 calendar year by Feb 2, 2018. This will determine if the property is subject to the Empty Homes Tax.
- Failure to make a property status declaration will result in the home being deemed empty and subject to the tax. The city may also prosecute for fines.
- The payment for the vacant home tax is due April 16, 2018.
- Late and unpaid Empty Homes Taxes are subject to the same remedies for non-payment as property taxes.
- False declarations will result in fines of up to $10,000 per day of the continuing offense, in addition to payment of the tax.
Major Point: Arrgh!
Commercial: Play Hardball In Lease Talks
The commercial real estate market is becoming as competitive and pricey for tenants as residential, and if you have to play hardball, according to Dale Willerton and Jeff Grandfield, who literally wrote the book on commercial leasing.
Here is Willerton’s rather hardnosed advice:
- Create competition for your tenancy. Negotiate on multiple locations simultaneously – with both new locations and lease renewals. By doing so, you create options to play one landlord against another. Share with each landlord that you are receiving proposals on other sites.
- Start the planning early. Start at least nine months ahead for new location lease agreements and 12 months ahead for existing locations and lease renewals. You’ll need ample time for completing paperwork, searching for alternate sites and accounting for Murphy’s Law. If you can’t secure a good deal within the first few months, you can still exercise your option to renew or start the relocation process.
- Negotiate hard. You want to get as many landlord inducements as possible – free rent, a tenant allowance, no deposit, a low rental rate, a great location and so on.
- Ask for more than you expect to get. Negotiate for more than you expect to get. Ask for eight months of free rent if you want five. This allows for “wiggle” room for negotiations.
- Talk to other tenants. Tenants who have recently moved into – or out of the building can be your best source of information.
- Keep your success quiet. One reason why your landlord will raise your rent for the lease renewal period is due to your success. If you have been profiting in a particular location, you likely will not want to move even if you can afford the rental increase. Some landlords will take advantage of commercial tenants knowing how expensive it can be to move and set up a new location.
- Don’t accept the first offer. Once your landlord has made the first offer regarding your lease renewal, the real negotiations begin. With patience and good communication, you can almost improve any first offer which may be nothing more than a smokescreen anyway.
- Do negotiate for lease renewal incentives. Commercial tenants neglect, or can fear, negotiating for lease renewal incentives. If your lease is expiring, ask yourself what inducements would the landlord give to a new tenant just coming into the property. If these were there for the offering to a new tenant, then why wouldn’t an established tenant – with a proven track record – get the same (or more) consideration?
- Avoid giving unlimited personal guarantees. A personal guarantee is an entrepreneur’s personal promise to honour the lease agreement if the tenant or corporation defaults. Sometimes, a personal guarantee is necessary but we recommend opting for a “limited declining personal guarantee”. To explain, let’s say you are getting a $50,000 tenant allowance. It would not be unreasonable to guarantee a maximum of $50,000, declining by $10,000 per year thereafter.
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013).
Options When Selling Business With Real Estate
Courtesy: Arthur Klein, president of Pacific M&A and Business Brokers Ltd. www.pmabb.com
In some cases, real estate is an intrinsic part a business valuation; Eg. motels, care facilities, nurseries, etc. Certain enterprises also may have structural, market proximity and other attributes that make the real property sale strategically significant. These value drivers should be well identified in the business valuation, and also reflected in fair market property appraisals.
A buyer (more often than not) will seek to acquire both entities and benefit from additional financing options.
Retiring business owners may also not want the task of managing an investment property, including dealing with tenants and maintenance.
Sell business & hold property
A plausible scenario may exist where sale may be at different times should market demand for real estate is booming while the demand for the business is weak. To extract cash from your holdings, an option may be to sell the property and agree on a lease-back to operate on those premises with the buyer. The focus should then be to enhance business value for sale at a later date.
Another alternative is to sell your business, negotiate a market-base lease with the buyer and collect income while holding the property. This will reduce the amount of capital required by a purchaser and potentially create a wider market for the business. The owner can then sell the building with the market rent lease in place and the buyer does not have to be someone who wants to run or own the business. This results in a potentially larger group of purchasers and the building sells for a higher price than could have been realized if sold with the business.
Major Point: While selling a business and real property is done often, it is often done incorrectly. Ideally, the goal is to sell the business before selling the real estate or, if it’s listed in combination with the business, at the same time.
Last week I mentioned that our real estate company has from time to time some opportunities in the pre-sale sector. If interested I would put you on a list. There was some misunderstanding there: While we are a licensed real estate company we do not employ agents that would work with you across the Vancouver market. If you need a good realtor referral, we are happy to recommend one to you that is excellent and client oriented.
What I was referring to however was that – from time to time – we run across to be a good deal, we then would share that information. (In our view.) We were swarmed with requests. At this time, we are not representing such a deal. We likely will have a condo deal in Pemberton by June, a number of 1 acre-plus lots in a subdivision on Bowen Island and in the fall a pre-sale opportunity in the Fraser Valley. If you put your name down, you will be the first to know, when we have details, disclosure statements etc. Thanks.
(These were sent to you by separate “dispatch” last week.)
- $214,900 – 2 Bed 1 bath Condo across the street from Departure Bay Beach. Rentals Allowed
- $579,900 – 5 Bed, 3 bath, 2-year-old home including a 2-bedroom suite in central Nanaimo. RV parking, Detached Shop.
- $399,900 – 11-acre parcel of land located in Chase River area of Nanaimo. Drilled well and a private road. Zoned Agricultural.
Beaver Valley, 40 km north east of Williams Lake, 160 acres Lakefront with 1400 meters of Lakefrontage, $498,000
(As we have stated many times, you are welcome to send in your ‘best deal’. There are no fees from us, nor any guarantees that your deal will be featured here or even is a good deal. It is up to you to study, evaluate and negotiate. Look up our disclaimer under the Hot Property section on your website. Interested parties – go to your website and get in contact directly with the owners/realtors or write to firstname.lastname@example.org)
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