As real estate investor since 2002, I have seen The Good, The Bad, and The Possible of the North America real estate.
My wife and I own investment properties throughout the province of Alberta in Canada. In recent visits to our properties, we have seen the bumper sticker that seems to pop up everytime there’s an economic downturn. This bumper sticker is more prevalent than ever:” Please God, give me one more economic boom. This time I promise not to piss it away.”
If you have lived in Texas or any of the states whose economy is fueled by oil you have also seen these same stickers over the years; all connected to Black Gold, Texas Tea or Alberta Coffee; the oil industry.
Many of us investing in North America remember March 9, 2009, when the Dow Jones fell to just over 6500 and the TSX dropped to slightly over 8000; destroying our investments and retirement funds.
We all have to re-examine the bigger picture of the long-term real estate success investing. We had to be more aware of GDP ( Gross National Product) growth, increased rental demand, decreased vacancies, increased rents, increased property purchase demand, and increased property prices. All these factors lead to success when moving upward; the opposite happens when things are in reverse.
In January 2009, we saw property prices fall, property purchase demand decline, rents lower, vacancies increase, jobs disappear, people move out of cities and towns, and a decrease in GDP growth.
The dramatic change in the economy in 2008 forced many of us to change our purchasing and rental practices.
Before 2008, many of us were not doing property analysis, and if were, we were accepting properties in our investment real estate portfolio that did not meet the criteria for a great rental property.
Many of us had such impressive positive cash flow; we were spending on lifestyle and not on keeping our investment portfolio financially healthy.
We did not care if we had tenant turnover; another tenant was lined up to fill the vacancy. We were not sharp with our pencils when it came to the costs of operation. We did not give our properties the TLC- the tender loving care – they deserved. If we were in condominium complexes, we were not funding them and doing the building upgrades the way we should have been. Many of us underfunded reserve funds, forcing governments to revise legislation to make owners improve the viability and economic state of these reserve funds.
TLC Wake-Up Call
Luckily, many of us got the wake-up call, as the stress we were experiencing was no fun.
In 2010 and 2011, my wife and I continued to make purchases in our portfolio- some of our best buys. We changed our 2008 and earlier purchasing practices and implemented a new “tender loving care” purchasing strategy for our investment real estate purchases.
Stage 1 — The Tender:
We focused on every property we purchased, doing full renovations, including new appliances and replacing the standard bi-fold bedroom closet doors with sliding mirrored doors — big hit! We pulled up the carpet in the living rooms, dining rooms, and hallways and replaced it with laminate flooring– also well received. We changed the exhaust fans over the stoves with combo microwave–exhaust fans. We worked all the upgrades and new appliances into our mortgage financing.
Stage 2 — The Loving:
We focused on the entire condominium complex, joining the Board of Directors. We reviewed the overall appearance of the building, its structure, and the reserve fund study. In most cases, we only had to slightly increase the condominium fees, which still gave us access to a more substantial fund. As a board member, we made decisions to improve the curb appeal of the building by painting the walls, changing the flooring, and improve the lighting in many common areas.
This refresh gave each building a better overall appeal; remember, the building has only one chance to make an excellent first impression.
Stage 3 — The Care:
We re-examined our mortgages, and as they came up for renewal, we built in a rainy-day fund to ensure we would either take a mortgage payment vacation or have access to a mortgage cash account. You won’t believe how those two mortgage changes helped us going forward.
The year 2011 now seems like the distant past; how long did you stay true to your operational changes?
The Bad — The Slow Drip
What is unusual about the current economic downturn is its length. In March 2011, oil rebounded to $114.69; how many of us thought we were headed back to over $150 a barrel?
What started as a slow and steady decline has accumulated in January 2016 at $29.01 -five years in the making.
God gave us one more oil boom; did you recognize it or think you were in economic recovery forever? Or, as the bumper sticker asks, did you flush your financial wealth, knowledge, and lessons down the drain?
The Possible: 2017 and Beyond
We are at a point again where time is on our side; it has been a slow recovery and even though we are viewing a see-sawing of pricing between $42 and $52 a barrel we have seen a nice lift in pricing from $29 a barrel just over a year ago.
No one can predict where oil prices will be. The one thing you can count on is action, and we all know governments can be slow to act, and when you change governments, the impact can be positive or negative.
In the oil industry, we are starting to see a much friendlier environment: the Canadian government recently approved two oil pipelines and, with the change in the U.S. government, Keystone XL is back on the table. It will take some time to get these projects up and running and to see their full positive impact economic impact.
In an interview with Victor D. Lillo, senior vice-president, Business Development, Westridge Capital, he told me, ” The significant production cuts from OPEC, combined with the natural decline rates of producing oil wells, will impact the oil glut; further, it seems reasonable that the oil market will come roaring back as the oversupply is reduced and global demand rises. Lillo also observes that there will be significant returns to investors and companies engaged in CapEx recovery speed.
Current Market Conditions
Are you caught up in the past, or are you paying attention to the now?
I recommend you have new conversations with your local realtor or realtors you are using in the areas you have purchased investment real estate.
You need to also talk to the property managers you are using or phone some local property managers and ask them have they seen changes to the vacancy rates in their areas. Are the changes to lower vacancies and what about rents are the rents staying the same or are they inching up? What about rental incentives; have they stopped being as generous as in the past? These are questions that make you an active investor; don’t sit on the bench as your skills never improve if you are not in the game.
Many of us have, as real estate investors, lived through two economic downturns; did you implement lessons learned and the recommendations made?
Are you ready for The Next Possible?