Welcome to Home Equity Clients 

The concept:

Land has made considerable returns in the past. The fact that real estate can be leverage has given it an edge over other asset types. The reason for getting involved with Home Equity was that the concept appeared sound with diversification and potential returns. Because the lower mainland is surrounded by the ocean, the mountains and the USA, its boundary cannot be increased. With regard to limited supply of a commodity, its scarcity tends to push prices up higher. Take Manhattan, Tokyo and San Francisco. All have natural boundaries and the associated steeper real estate prices. Vancouver and the Lower Mainland have similar characteristics.

Change of use: Most investor in real estate purchase a finished product and intend to make money from renovating, upgrading or otherwise improving on an asset with an established use. Home Equity Land Development purchased raw land with the objective to change it’s use. When real property changes use from a raw track of land, to acreages, the price is subject to a substantial lift. Change from acreage to city lots, another lift. From City lots to condo lots, yet another lift. Change from residential to commercial…another increase in price per square foot. For example, a few years ago, I purchased a property in town with the view to develop it as office space. The residential appraiser hired by the bank evaluated the property at $126,000, including the dwelling (house and garage). Subsequently, I had the property appraised in the process of the development. The new lender, a commercial lender asked for a commercial appraisal. The commercial appraisal came in at $175,000, without the house…raw land! I call that a good lift.

Home equity was structured to take advantage to the booming economy and the coming shortage of land. In the meantime, the economy has had to endure a political regime less than hospitable to the business climate. In addition, Asian started leaving British Columbia and returning to China and Hong Kong. This has had a dampening effect on the timing of the sale of land. Fortunately, the investment was structure over a ten year period allowing them the opportunity to wait out temporary declines.

When it comes to making money with real estate transactions, appreciation of prices due to supply and demand or inflation is required. This is the traditional way of making money in real estate. You purchase a condo, fix it, hold on to it, then sell it at a later date, as a condo, for more money. The same goes for a single family home. You buy it, it appreciates (you hope) then you sell it a for a profit.

The other way of making money is by changing the use.

Contact Pierre
Phone:  1- 867-667-6100
Email:   placasse@yk.fpc.ca

© Copyright 2000, Pierre Lacasse Financial Services