Chris Davies

I had one of my listings scooped in the 30 days between my phone calls. Someone wrote an offer, got it accepted $10-15k below what I would have sold it for, completed their due diligence and were about to close – all by the time that client came back around to the top of my call list. Why? Because that buyer writes unsolicited offers.

If you’re on the fence and can’t seem to get a deal done, it’s because you’re not getting offers out there. I talk about the need to write offers in my book and losing out on that deal reminded me of how critical this can be in today’s market.

If you’ve got a good multifamily broker (like me), get real clear about what you want in a property and know what your capabilities are. Identify areas and buildings you like and think might have upside. Find the owner and research whatever you can lean about the building. Have your broker reach out and see if they’d look at an offer but know ahead of time what types of pricing is realistic, what the rents are like and what you think the condition of the units are. That’s easier than ever to do with some skillful googling.

Then you just get the deal done. There are trades happening at some stunning prices and you’re getting left behind.

First published on YEGapartments.com.

(N.B. Today’s post is a guest post from Michael Sadler at Access the Flock, who I met at one of the better real estate networking meetings I go to.)

How has Brexit affected North American real estate prices?

Brexit is supposed to cause real estate prices in Canada to go up until 2019 because investors are channeling money from London to North America.

Are US real estate price increases driven by BREXIT or is this an effect of U.S. stimulus and other US economic factors?

Recent U.S. data shows that prices are going up.

Since the Brexit vote happened in June 2016 the house price increases that you see in the above chart found on the Economist were probably caused by US stimulus, the economic cycle, or that real estate prices tend to rise over time. Brexit could help increase North American real estate prices further.

What is CETA, the Comprehensive Economic and Trade Agreement, and why would it affect real estate prices globally?

According to the European Commission CETA has passed:

The Comprehensive Economic and Trade Agreement (CETA) was adopted by the Council and signed at the EU-Canada Summit on 30 October 2016. Once applied, it will offer EU firms more and better business opportunities in Canada and support jobs in Europe.

Since CETA removes tariffs between Canada and the European Union it will reduce economic waste as both countries can trade products without 99 percent of the taxes. Global economic trade increases firms’ bottom line in the long run. CETA will help businesses in the long term and could increase real estate prices because real estate prices tend to rise in areas with businesses that create employment.

What is Trumpflation?

Trumpflation is Donald “Trump’s plans for massive infrastructure spending and tax cuts…” that “…will cause inflation to rise”. Trumpflation is already affecting bond markets by increasing bond yields because bond traders are selling bonds to buy stocks. The price of stocks and bonds are inversely correlated. Higher bond yields are expected to put upwards pressure on mortgage rates, because some mortgage rates are tied to bond yields, and downward pressure on home prices.

World leaders are trying to boost the global economy out of a slow growth period and avoid deflation.

The U.S. economy is stronger than the Canadian economy right now if you compare employment rates. A stronger U.S. economy means potentially rising interest rates by the Federal Reserve. Real estate prices tend to go down in a rising interest rate environment because less buyers can afford their mortgages.

What about the Trans-Pacific Partnership (TPP) trade deal?

According to Independent, “White House officials have admitted they do not believe the controversial free trade deal with 11 other Pacific nations will pass through Congress before the formal transition of power on 20 January.”

Brexit, CETA, and Trumpflation all have a different impacts on North American real estate prices.

According to Jim Yih, don’t try to predict real estate prices. He predicts “real estate prices will fluctuate in the short term and they will go up in the long term.”

Summary

Brexit, CETA, Trumpflation and TPP (if passed) could affect real estate prices in different ways. The effects of Brexit, CETA, Trumpflation could each have differing effects on real estate prices in North America and could cancel each other out. Real estate has historically gone up in price and is known as an investment that provides a good return in the long run. In the short term, prices could be affected by uncertainty.

Michael Sadler is the Founder of Access The Flock Real Estate Marketplace where he helps Real Estate Professionals make money accessing cash buyers and motivated sellers. Follow on Facebook, Twitter, Google+, YouTUBE, LinkedIn Group, LinkedIn Personal.

Some of you may have noticed that it’s been well over a year since my last post. There’s a very good reason for that, besides selling lots of apartment buildings.

I’ve finally completed my book and we’re published!

It’s available on Amazon.ca (here) or directly from me at the website www.ApartmentBuildingsThatOutperform.com.

It’s been an interesting process writing a book and self-publishing – something that I’d love to discuss more. Let me know if that’s something you’re interested in. It’s both a longer and more complex process than expected, but still not that difficult.

The market in Edmonton has been a bit of a rollercoaster but there are decent buildings around and financing continues to be cheap and available. If you’ve got property already, you might be interested in the ebook we put out earlier which is a resident manager manual. Thanks everyone for your support in getting this thing written and published!

Everyone loves Excel! Pivot tables, pie charts, bubble graphs, colour-coded bar-scales!

Ok, that’s just me. I do love data. One of my most read blog posts is really nothing more than a big spreadsheet of real estate values since 1962. (NB – no, I can’t update that post. The way they collect data has changed too much to have real ongoing numbers).

Here’s 12 metrics I’ve found in my own experience, from my clients and from reading interesting things like annual reports.

1.  Debt to Value (Book and Market)
   This one isn’t complicated on the face of it. What’s the current outstanding debt of your property divided by the current market value. That gives you a bead on how much risk you’re carrying, your potential ability to refinance and potential profits if you sell. You should also compare that to your book value if you’re depreciating your properties.
2. Operating Expense Ratio (OER)
   People love this one when they’re buying properties and I’ve never really understood why, but they do. This is how much you spend on operational costs, before debt servicing, divided by the net income of the building. I think it’s important for comparing stabilized vs. non-stabilized properties and how fast you can get a poor asset under control. Companies like Mainstreet consider a stabilized building to be one that’s been under management for 24 months.
3. Occupancy vs Vacancy
   I use two metrics here – first there’s vacancy rate. If there’s one vacancy in a 20 unit building you have a 5% vacancy rate in that month. You need to consider vacancy rate as a snapshot metric or a forward-looking estimation. Then there’s the historical vacancy rate, which I prefer to think of as Occupancy Rate – the number of units multiplied by the amount of time they were rented, divided by the number of units divided by the total amount of time. If you’re actively renovating to add value or just doing repairs to maintain cash-flow you may also want to be conscious of how much time you loose to renos – a rental-time-lost or down-time metric.
4. Rent-Days Lost to Renovations
   Speaking of lost-rent metrics, here’s two ideas for you. If you’re a renovator and you have a lot of units or properties (for the single-family folks out there) – renovations take time and time is money. How long does it take you to do a reno? If you’re doing a similar reno over and over again, such as new flooring and countertops in every suite, how fast can your crew turn around a suite to be rent ready? I’d make the distinction that while it’s under construction it’s not available for rent, and then when you’re done renos and someone can move in it’s now counted as vacant. Every unit comes with 365 rent-days – it’s up to you to make sure as many as possible are fully occupied and paid.
5. Rent-Days Lost to Turnover
   The turnover metric is hugely important in multifamily in a slow market. Assuming you can get a suite rent-ready as soon as your old tenant is out, how long does it take you to get it done? I’d say that same-weekend turnover is the goal and that same-day turnover is possible. You need to be in the unit before the tenant moves out to do little touchups and have a proactive onsite person to help coordinate moving, carpet cleaning and touchups. If rent is $1,000/month every day costs you $32.88. Get it moving!
6. Loss to Lease
   This is a metric I believe I first saw on a Boardwalk annual report. Simply put it’s the difference between the rent you collected during the year from tenants on a fixed term lease (e.g. $1,000/month) compared to the full market lease. Imagine a year where full market was 950, 975, 975, 975, 995, 1010, 1050, 1050, 1050, 1050, 1050, 1050. Your leased unit income was $12,000, whereas the market is  $12,180. Your loss to lease is 1.47%. If you were worried you’d missed out on a rising market, I’d take that number as a reason to chill out.
7. Incentives as a proportion of rent
   Self-explanatory. If you’re giving a discount for the first two months of a lease, or a free TV, or something else like free parking or laundry tokens – put a value on it and keep track of it!
8. Length of Stay
   My favorite metric – how long have your tenants lived in your property. Better yet, how can you change this? Don Campbell suggested last night that when Do you see patterns by area, asset type or suite mix? How much better is a full single family house compared to a basement suite? With garage or without? Good data lets you decide what you want to buy moving forwards or what assets are underperforming and should be sold.
9. Maintenance proportion of expenses
   Like the operating expense ratio item above, you should be keeping track of how much of your expenses are going to capital costs or repairs and maintenance. Usually it’s a metric I see that’s way too low and the building is slowly running into the ground. We’ll come back to properly planned spending.
10. Utility costs per square foot
    I’m not convinced that this will really work across buildings, but it’s worth measuring utility costs and breaking it out to be a per square foot cost. It’ll help compare apples to apples, and if you’re looking at higher costs in some buildings you should also consider measuring adults or teenagers per unit and maybe square foot per person.
11. Deferred Capital Costs
    I own a number of condos and I’m the treasurer of the board of one. I have a healthy respect for the idea of a reserve fund study, also known as a depreciation report. Simply put, look at the big expenses and estimate what they cost and their lifespan and work backwards to know what you need to save. You can put the numbers you get into context by comparing it to annual revenue or market value.For example, a shingled roof on a house may cost you $5,000 and last 20 years. That means that the day after the roof is installed you should to save $250/year for your next new roof.A little extreme? Maybe, but I’ve also seen a huge number of owners, both residential and commercial get absolutely screwed when these costs catch up to them. Just ask anyone who has been on the receiving end of a special assessment.

What about you? Any good measurements you’ve come across? Am I out to lunch? I didn’t even get into tactical management metrics like calls/ad, applications/vacancy or applications/lease signed.

I have to say that 2014 was a year of massive changes. We’re going into 5 years in the business of helping people buy and sell and we’re finally properly conscious of what we know and don’t know. I’ve never been more excited for the future. Here’s the highlights:

– Our move to do more business on the commercial (multi-family) side continues. About 65% of our income was from the commercial side, while I think we still do a great job on residential properties. I love working with friends and family – right now I’m pretty sure we’ll always stay involved in that side of the business. It’s so grounded and I like knowing how things are in the market first hand.

– We made the RE/MAX Commercial Top 100 in March!

– We did make one big change to the residential side of the business in the person of Jennifer Elander-Bianchini. Jen is a brilliant Realtor, always cheerful, massively hard working and loves spending time with people. She’s helping our buyer clients find new homes and learning lots as we go.

– We gained Jen, but after 30+ years in the business Brent decided to retire from the active side of real estate. He’s still involved managing his own properties, helping out when our clients need advice – he’s still available for consulting and speaking engagements! If you’re buying your first apartment building he just might join you for a walkthrough and see if he can impart some wisdom.

– The band that Mike Landry and I have played in for nearly 10 years recorded our second album and played some cool gigs before letting things go to see what new projects God has in store for us.

– I managed more sailing this year than last, including some time in my Laser.

– I’ve also brought some terrific experience into the office in the person of Leigh Davies. She’s the former controller and general manager of Davies Management and my office has never been cleaner or more organized.

– RE/MAX Commercial World Symposium in Denver, plus visiting RE/MAX World Headquarters!

– I’m writing a book! It’s about strategic apartment building ownership and it’ll hopefully be out in early 2015. Drop me an email or comment if you’d like to be on the list for updates.

– The boys are just brilliant and they’re expecting a new sibling around Easter. Megan and I are stoked.

– I also finally got my MCNE (Master Certified Negotiation Expert) done which included a trip to Vancouver and Victoria!

This was a very challenging year but when I look back at what we accomplished I think we weathered the storm in style. Here’s to a great 2015.

Moshe is brilliant and there’s some great ideas here. Apartment building living doesn’t need to be for the poor, be boring, or be mediocre.