November 2, 2010
Real Estate Advice
Questions, questions . . .
BY OZZIE JUROCK
Q: I am looking at buying a property in Mexico. The plan is to use it personally for two months a year and rent it out the rest of the year. I would appreciate your comments and insight.
1. In my 40 years in and around real estate I have seen very few people make the impossible possible. Owning property for personal use and also getting rental income is not possible. You will always want to use it at the time you get the highest rent and you will end up renting elsewhere. And it never pays for itself. Whether at Whistler or elsewhere.
2. We do not recommend buying real estate in any area other than the U.S. and/or Canada. Laws in Central or South America are different, corruption is rampant and while Mexico may be a much better place to invest than other non-U.S./Canadian countries, we still think it is much better to buy here and holiday there.
Q: Surely, even you must agree that we are going into a terrible situation we have never been in before. There is only one outcome – Depression!
In my weekly newsletter, I recently quoted 68 books written since 1969 with the words Depression, crash, deflation, etc. in the title. They all had one thing in common: It didn’t happen. There are always those that predict this or that terrible calamity. We have been in tough times before: 1974, 1981, 1987, 1990, 1998, 2001, 2008, etc. etc. Each time we were in it, we heard: “We have never had it this bad before.” And yes, the naysayers were right, it was always worse. Primarily because we were printing more money than before. Now, we are printing the most ever! That is why I believe the naysayers will be wrong again. Each time the numbers are bigger, the zeros larger and each time – after climbing a wall of fear – we muddle through, with the result that hard assets will be even higher again five or 10 years later. I would still rather have that investment property (particularly one where the tenant pays my mortgage).
Q: I’m 26 and my dad told me that he lost his life savings in the stock market. I’d like to learn about real estate and what someone my age should do.
Well, too bad about your dad. If you looked at real estate strictly as an investment over time, it is relatively easy. Say you buy a condo somewhere for $80,000 with $800 rental income per month, pay a minimum down payment and you own it in, say, 17 years when you are 43. Assuming values never go up (which they will) and rent never goes up (which it will) you will have $800 a month for the rest of your life. Do it five times and you would have $4,000 a month forever. Die, and you leave it to your kids. Yes, you will have a few more headaches, but learn property management, get good realtors, mortgage brokers, do your research and voila! Passive income.
Q: We have a $400,000 mortgage. Should I lock in for five years or more or stay variable? Where are interest rates headed?
The long-term mortgage rates are following the bond market. The short-term variables are tied to the prime rate. In the last two months the prime went up by 0.50 per cent and your mortgage payment increased by $180 ($45 per $100,000). We expect the prime to go to 3.25 per cent by year-end (no guarantees!). If you are at prime plus one per cent you will be paying more than four per cent. As I write this (July 26) you can get a 3.96-per-cent five-year term. In this mad, mad financial world, I would rather sleep and go long.
Q: I heard about making my home mortgage tax deductible. My bank has advised me to lessen my monthly payments by rolling my car loans and my mortgage payments together into a home equity line of credit, which will reduce my monthly payments.
Yes, but! Your mortgage can indeed become tax deductible IF you use tax-deductible income to reduce your payments and pay your – say – business expenses from other sources. (Go to centa.com and look at 1,000 pages on the subject.) Clean, clear bookkeeping is vital. But note, you have a mortgage now, which is not reported as a debt to your credit bureau. If you roll it into a credit line the whole amount – credit line and mortgage – will be reported to the credit bureau as a debt.
Q: I have heard that the U.S. will bottom in February 2011. House prices are as low as $25,000. I also heard about foreclosures. Do you think it wise to look there now?
Wow! In February, eh? First, the U.S. is a big place, markets that had the biggest price collapses – Miami, Phoenix, Las Vegas and parts of California – have bottomed right now. Second, every state is different for Canadians. In California you must declare your world income, in Florida your property taxes are more than double than for a Floridian. Third, that $25,000 house (likely in Detroit) you can only visit with a gun in your pocket. Fourth, in my Real Estate Investment Course I tell my students that if they do not look at the property they want to buy for themselves, I am going to hit them with my laptop. Whether it is a foreclosure or not. But particularly if it is a foreclosure. Sixty per cent of the foreclosure deals offered are NOT a deal. If you go to our website at HYPERLINK “http://www.jurock.com” www.jurock.com there are 24 articles on U.S. investing. There is learning to do!
Q: I am going to be renting out a high-end apartment I own furnished, long-term, and am wondering if there is a set list of what is expected to be supplied in a furnished suite.
I assume you are going for the higher weekly rental and your building qualifies. A weekly tenant looks for good location, high speed Internet and phone and at the high-end a flat screen TV in living and master bedrooms, dishes, linens, etc. A good example is found in any ski-lodge advertising. You may also have to supply maid services and belong to a good rental management service that has connections worldwide to supply a stream of weekly tenants. Also check out the movie crowd . . . they make good high paying tenants.