Where’s the money? Show me the Money ! Norair Yeretsian

Analysts turned gloomier about the outlook for U.S. home prices as
sales slump and home re-sales declined in May .[WSJ-6/23/2010]

The classical way to turn this around would have been lower interest rates
and increase available money for mortgage lending purposes.

However the  weak real estate market in the US also has another problem.

Lenders not lending to potential borrows ( who may qualify ) to
purchase the real estate because they don’t want the exposure to real estate risk.

Has the pendulum swung the other way now, where lenders are being conservative
and tight on lending money for real estate ?

Are the Banks paving the way for a Double Dip Recession and a further crashing in real estate ?

In one of my class this week a student spoke about the difficulty his son and
daughter in law were having trying to obtain a mortgage to purchase a house
in the US because they felt the timing was right for them to do so.

They are both  employed at reasonably good jobs with income(s) and a down-payment.
Yet they were having great difficulty finding a willing lender.

In an article by Ben Tripp on the Huffingtonpost.com , Ben posted his story and titled :

The Real Estate Plague Nobody is Talking About .
Ben describes his family’s challenge and difficulty in trying to get a mortgage
to purchase their  house — without success .

He wonders how America can come out of this Housing Crisis if no one is lending the
money to finance the purchase.

“If it’s this difficult for qualified buyers to get into a house.
I don’t see real estate making a comeback any time soon – and if the banks want another
bailout, they can send the request care of current resident . ”

He has been told ” this situation is epidemic.
Vast numbers of highly qualified buyers can’t get into houses, because the banks
don’t want to lend.”We were told that crisis had passed, but it hasn’t… the  American
economy runs on consumer spending,
and the queen of all consumer expenditures is a house in the suburbs.”

So the U.S. went from everybody and anybody get a home loan to nobody,
even if you qualify get a home loan.

Wow, sounds like the major leaking financial crisis has been capped ,
but this could make the problem a lot worse for America’s real estate.

Leave a comment or two, you can also Twitter @ EnvoyCapRealty

nyeretsian@yahoo.com     June 28, 2010

Is this the New Normal or Double Dip coming? Norair Yeretsian

Mr. Mohamed El-Erian (PIMCO, CEO: over sees more than $ 1 trillion of assets )
said we need only look to the key indicators to understand
where we are and what is happening in our economy and here is the short list ( below ).

This is the new normal economy get use to it . Things will move slower, on employment front.

Employment :  rather unemployment , well at least it is not increasing — its steady .

Consumer Spending : consumers are cautiously spending and not taking on any new debt.

They are starting to work on reducing debts.  Household’s de-leveraging – working on reducing of debt .

Government spending : Government is increasing spending and taking on more debt .

Government is increasing leveraging ,  increasing debt . This is not going to help in the long run.

Business :  Small businesses can’t borrow to spend and grow .
Big corporations have the credit ( and lines of credit ) but  not borrowing and
using their cash to buy back stock.
Not expanding , investing in new plant and equipment to grow.
This is not good for the long-term.

Housing starts : steady , stabilizing , getting better .

Demographics : the population, increasing / decreasing — aging .
The new tax base and the pension(s) – health care, more things to worry about.

The economist Nouriel Roubini described things and generally things are not good
in the economy and government does not appear to be doing anything right at this point
- this is a major concern and will affect all our lifestyles  in America.
With the future only having increasing taxes and possibly cuts to spending in many areas.

There is good liquidity in the economy, Government printing lots of money .

The U.S. economy is still the best on the planet, however  Asia will be coming up .

Roubini is concerned we may be heading for another Dip as the stimulus money
runs out and few to no other measures available for more stimulus.

El-Erian believes we are not heading towards a Dip again, however we
should not expect the economy to perform as it has/ had in the past.

It is always good to have at least two views on where we are and where we may be heading
think about your local economy and the status of its health :
where you are and where you might be heading.
The Key indicators and plus the Demographics of your location should give
you a better understanding of what is happening at the Micro level.

What is happening with the supply of re-sale housing , listings to sales
how many weeks / months supply is there at current demand ?

Most of my colleagues complaint of  lack of inventory ( good salable listings).

What’s the employment statistics in your area of the country .
Does the national average – really matter to you / your area’s economic health ?

If interest rates move, how will that effect the supply – demand dynamics in your area?

Will the interest rate movement effect affordability to the extent that
prices/valuation will be impacted in your location.

One of these factors ( variables) a lone, will give us the answer we are seeking -
- but the mix of these variables at the right time will lead us in the direction we end up.

What happens at the Macro level ( the nation) is more challenging to understand
immediately and we see the data historically ( end of quarter / half/ year ).

Mohammad El-Erian and Nouriel Roubini  [ Crisis Economics , new book ] on CNBC discussion June 15/2010

( The Realist and The New Normal )

Mirco -data ( and what it says ) and Marco ( what actually happens ).

What about innovations by individuals and companies ?
What about alternative energy sources development and implementation into our economy?
What about new discoveries  , that are game changers for the economy ?

What is happening in your area of the economy or country that is raising hope
for a new dynamic economy where new types of  jobs are be created and
new demands for housing are being driven?

Let’s discuss it below with your  comments / or on Twitter EnvoyCapRealty .

nyeretsian@yahoo.com    June 20, 2010

Even Professionals Learn Valuable Lesson, Norair Yeretsian

G.E. Capital was struggling with its huge commercial real estate
portfolio of approximately $80 billion.

GE Capital is planning to reduce this by about half to $40 billion.

” It was just the toughest market I’ve seen in my lifetime. ” said GE Capital’s
chairman and CEO Mike Neal. Coming through the economic crisis,
GE Capital will be” smaller and stronger with a goal on returning to profitability.”

The goal is to make its real estate portfolio about 10% of its overall assets.

The company will be exiting commercial properties as it can.

On commercial real estate market conditions,  overall
” we are largely through the free fall , better days are ahead.”
said Mike Neal.

In addition to cutting back on real estate assets, the portfolio is
also likely to shift to more debt holdings than equity.
And that the company’s goal is to transition to more of an
asset management platform, according to Neal.

” When you talk about what we learned, Neal said,
“one is that with small operations at a distance you can’t earn very much.”

This advice was given many years ago by a master builder and founder of
Tridel Corporation Jack Del Zotto,’ try to buy properties that are within a
day’s drive of your home — you will be able to manage them and
you will make more money ‘.

Sage advice, as Pension Funds and other large entities are searching the planet
to invest the billions of dollars intrusted to them and believe they must diversify
it all over the world to better protect the capital for their stakeholders / investors/ pensioners .

I have a feeling they too will learn this simple lesson years from now.
However it will not be at their expense.

Keep your investments close to you. So that you can see them everyday, as need be.

Let’s continue the discussion and comments below or at Twitter @ EnvoyCapRealty.

Costar was source of material information, June 14/2010 .

nyeretsian@yahoo.com     June 15, 2010

17 % Less Realty Tax !!! Norair Yeretsian

The Town of Strathroy has no Debt and it reduced the property tax
( town portion) by 17% (2008) .  Amazing !

Unbelievable . This is outstanding !

All Cities and towns in Ontario should learn from Strathroy .

What a model of how to run a municipal (local)  government .

Great leadership by  local officials , who responsibly tax and
spend in a caring manner.

So it can happen, taxes can go down !

Town of Strathroy, Ontario is a well run community according to
Mr. John Grogan (Re/max Centre City Realty Inc.) a sales
representative (www.johngrogan.ca) :

” everything is going well in Strathroy .

Industry ( mostly automotive) is working and things are busy”

Yes its a small town, but its run very well. It just built a new
two ice pad Arena and purchased a new Fire truck ($150,000)
without any Debt.

You have to be proud of your local leadership when they manage
your Town and your tax dollars in such a responsible manner !

Its time to consider a drive out to Strathroy, Ontario
to check out the real estate  opportunities there !

Let’s continue the discussion on Twitter : EnvoyCapRealty

nyeretsian@yahoo.com         May 13 , 2010

Real Estate Values Never Go Down ! Norair Yeretsian

Real Estate Values never,
and I mean never go down in the long run , he said to me !

Are you listening to me ? Explain yourself .

Well , think about it as far back as you can go
real estate values never go down in the long run.

And its never going to get cheaper in the long run.

What about economic cycles, Booms and Busts ?

Yes there will be periodic cycles of Boom and Bust.

Well if you and survive through them, then you will be okay.

The real estate cycles are influenced by many variables from time to time ?

And from place to place …

Yes, like supply and demand, low interest rates/ high interest rates,
high unemployment , over building , new population ( immigration )
inflows and Baby booms,favorable tax allowances or heavy and
misguided taxation, etc…

So are you saying be a Buy and Hold investor  like Warren Buffett, and you win.

Well you win in the long run !

Well doesn’t that work with any investment , like stocks/ bonds ?

No, they can disappear from the planet without a trace.
With Real Estate , it’s there forever !

Very interesting my friend. Now your not just saying that because you
are a realtor and you stand to make commission with every transaction?

I was at my bank this afternoon and the banker had a chart showing
the performance of the stock markets in Toronto and NYSE and how
over the long term, your money compounded and compounded and a
little investment became a large holding.

He talked to me about one mutual fund investment that had I invested in
in 1955 with $10,000 . I would have approximately $5,250,000
by the year 2000. Forty five years later ; over $ 5,000,000.
Averaging 15 % annual yield approximately, Wow!

Yes , but you weren’t even alive in 1955 and you didn’t have $10,000 !

I have read a story , that says the Indians that sold Manhattan over 350 years ago
for $24 dollars worth of  jewels , had they invested this amount in an investment
that yielded them no more then inflation compounded annual would have a
greater value than Manhattan with all the buildings on it.
In the year New York City went bankrupt .

So those Indians did a better deal then the Dutch and Peter Minuit ?

They  were at the right place at the right time !
But did they invest or just consume it ?

This is the real decision that one needs to make; consume now or save and invest for a future date?

And if you save, invest it wisely ! Make sure your money works for you.

If you invest it in real estate , you have something solid ( its as good as gold )
and it pays dividends (rents ). Its better than gold !

Hey that’s Gold with Dividends !
Cash flow is king , remember ?

Never speculate, there’s too much risk.

Always do your home work and use a licensed professional .
All realtors are licensed in the province of Ontario, Canada and they carry insurance ( E+O ) .

Let’s continue a discussion on Twitter :  EnvoyCapRealty

nyeretsian@yahoo.com                    May 12, 2010

Cash Flow is King ! Norair Yeretsian

Why do we invest ? We want Cash flow and we want
capital growth ( appreciation ). We can measure Cash flow,
we can project cash flow and we can anticipate cash flow
from an income producing property.

But capital growth is a hope , a wish .It is something we can not
and should not count on exclusively to deliver the high results we
expect from our investment (s). This should be a bonus that arrives
at the end and if it comes we welcome it happily.

Why we invest ? We invest and take the RISK associated
with that particular investment so that we believe we will be better off
and society will be better off after the experience.

We simply put and maybe its too simple…when we put a dollar down
invest it — we want ( expect ) 2 dollars back .
We expect and want return OF our original capital and we want
return ON our capital : profit/return/yield.

From this profit– we pay our tax liability ( obligations) at our
maximum marginal tax rate and the result is CFAT:
cash flow after tax . Simple !

The challenges we face are the search for the profitable
investment opportunities.

Real estate in Toronto has become a more challenging area to make money.

The Capital requirements for buying , investing in real estate for either holding
and / or  development purposes is becoming larger and larger. On many fronts
the cost of capital is starting to rise, prices have not stabilized — still rising.
And this could be for many reasons , one of which is the supply and demand factors.

Money is the easy part of the challenge.
The more difficult part is the taxing authorities.
The local government(s) now seem to be using commercial real estate as a toll booth
a gate way to collect their taxes.

You buy and hold commercial real estate  (office/retail/industrial properties),
you become an unpaid tax collector. You collect the property taxes
( which was enhanced with the element of business taxes a few years ago)
and forward to the City.

You collect GST (5%) on all commercial rents and as of July 1, 2010 :
you will be collecting the newly enhanced HST (13%) . And always subject to
change or amendment whenever  and where ever the government(s) decide to increase it.

If you decide to re-develop or under take a development project ,
there are many hurdles you will have to get by to build and improve the property
and the City. Development charges, application fees and new
and future assessments… which the City politicians they are charging
the developers, but these costs all get passed along to the end user / the consumer–
the people who will be living and working  in these new improved properties.

Let’s keep the big picture in mind as we mirco manage the growth and development of our City.

Cash flow is the most important element for the business person.
This will keep you in the game.
Through the various ups and downs of the  economic cycles.
When it comes to selling the property, hopefully all will be up –
however if the cash flow has been in your favor over the years ,
it will be less of a concern and disappointment.
If values are up when you sell and you have enjoyed good cash flows
over the years– its all good news !

nyeretsian@yahoo.com May 9, 2010

Where are the Markets Going ? part 1 Nor Yeretsian

Where are the markets going ?  This morning on CNBC , Prof. Robert Shiller  (Yale University )
economist and author — Animal Spirits ( among others) was rather uncertain whether the real estate
markets in the US will go lower or to new highs from here.
They are interesting times, as we try to gauge the nations economy.
With some regions/areas showing no signs of hope with other locations experiencing
good activity and rising prices.

Toronto, Canada is experiencing good times , as the activity and interest continues
in the real estate market here.
Money is available and Money seems to be interested in acquiring property.
Money is flowing in from foreign and non-resident investors.
People are coming here, providing the demand side and keeping our builders busy building.

On the down side…
The Financial institutions are cautiously lending , slower and tighter .

The City of Toronto with its development fees and taxation of real estate both
activity ( land transfer tax) and valuation ( CVA; current value assessment ) and their unrestrained spending on many programs .
Have embraced the spend and tax attitude now for years under Mayor David Miller’s leadership .
And the rising taxes on all .

All these items  will effect the local buyer adversely and creates a slower more cautious investor.
Creating the mindset of  : let’s think about it ten different ways approach and
also factor in a degree of risk associated with the government
policies in place and those they may invent and bring down on us.

Real estate investors are business people. They tend to be rational investors.
Checking the financial numbers of the transaction to see if all makes economic and financial sense.
They are in business to make money — a PROFIT . If there is no hope for Profit , they will not invest.
If there is No Profit — No Taxes !!!
That is when the music stops. And it is very hard +  expensive to start it up again.
Let’s not be so arrogant in the City of  Toronto, or any City for that matter and think that investors, developers, buyers will always be here.

Building, Creating, employing and yes paying Taxes that help support the whole City is the goal .

Keep things in clear perspective and be fair with forward moving proposals and developments.
Be fair with Taxes relative to our local economy.
Put the taxpayer first , they are the client and must be respected and their money which the City gets.
Gets it in trust to achieve the greatest value for the City’s tax payers.

We really can’t separate : Where the market is going from What all the players in the Market place are doing and thinking.
It’s important for us to understand and appreciate where all the players are on the field in terms of the economy and market .
And their mindset , the policies and investment plans of all parties. ( The other levels of government matter also ).

The local success in the real estate market place is strong inspite of the challenges and burdens placed on its shoulders.
From the talk of rising interest rates, to governmental policies , laws , by-laws ,etc…

I for one stand amazed by its strength and the positive attitude.
And the hope for a successful future valuations in the GTA over the next couple of years.

nyeretsian@yahoo.com                                               April 30, 2010