Canadian Real Estate Foreclosures & "The Hype"
The mere mention of Canadian real estate foreclosures is enough to get a beginner investor jumping out of their chair in excitement.
While their are are foreclosures that may represent good deals there are a few things you should know...
Let us explain.
Canadian real estate foreclosures have a process that is followed and it differs province-by-province.
Here in Ontario are "Power of Sale" process is used by Ontario lenders to provide a speedy means of disposing of real estate.
The property is usually listed on the Multiple Listing Service (MLS) with a real estate agent. And the list price is usually at "fair market value".
So here in Ontario if you find Canadian real estate foreclosures listed as "power of sale" it doesn't necessarily mean it's automatically "a deal".
However, we have been involved in Power of Sale purchases where there is money to be made. For example, one property was purchased for $930,000 and sold several months later for $1,250,000.
You should note though...that was done by a team with some serious Canadian real estate foreclosures experience and deep enough pockets to carry the property for some time if it didn't sell.
Right now in Canada (July 2008) there are a ton of "seminars" advertising to Canadians that there is huge money to be made in the U.S. by buying U.S. foreclosures.
And they're taking bus tours to go buy them.
Almost like a ride at Canada's Wonderland!
We get invited to these U.S. events and Canadian real estate foreclosures all the time.
And regularly turn them down.
Most people know us as investors so they don't understand why we're usually not interested.
Some people even get upset that we're not all jazzed up about the opportunity.
Here's why these things don't interest us much...
The property is less important than the team of people involved in the transaction and post-transaction.
We buy properties with this criteria:
1. They produce positive cash flow (or can be made to produce positive cash flow).
2. The location is a fundamentally sound area to invest (population, job and transportation growth).
3. The property itself is sound.
4. Our team of experts works in the area or has trusted partners in the area (lawyers, inspectors, contractors, mortgage brokers, real estate brokers, property managers).
Here's what most people miss when they look at foreclosures, especially U.S. foreclosures.
You ready for it?
They usually miss every one of the four points above.
Every one of them!
It seems to us that people who don't follow the points above are "speculating" more than "investing".
Usually the person pitching U.S. or Canadian real estate foreclosures to us doesn't know any details about the property other than the address and that "it's a good deal".
No comparable sales, no economic data on the area, no team on trusted experts on the streets locally. Nothing.
Just because a property is advertised as a "good deal" we prefer that we KNOW it's a good deal because one of out trusted team members is intimately familiar with the area.
The other day (literally yesterday) we were sitting in one of our lawyer's offices and overheard a conversation where someone had purchased a power of sale property.
And because the team of "experts" this person used was not familiar with the process they didn't negotiate that the property be "tenant free" on closing.
Now this person had purchased a property and had to deal with a tenant living in it.
The proper termination of tenancy procedure had not been followed and this tenant did not plan on leaving.
This was a problem for the purchaser and he was starting to sound like a motivated seller.
A few days earlier he thought he had found a motivated seller (the bank) and now because he bought without the right people in place he had the potential of becoming one!
So the next time someone wants you to buy a piece of real estate "because its a good deal" make sure you review the four points above.
Remember...don't focus on just "the price".
Will the property make you money? How?
Will you have to be there locally to accomplish that? If so, and the property is in the U.S., do you have a team of people on the streets there that you can trust?
How are the economic fundamentals of the area?
What about the property itself? Never buy something sight unseen.
If something sounds like a lot of hype...it is. Ask the tough questions.
Real estate is exciting and in our opinion its one of the best investment vehicles available, if done properly!
Until next time...be a Renegade!
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