Guest Post – Investing Can Be Really Simple. Really.

MR here.  I invited Uproar to do a Guest Post on my blog because, beneath his rough exterior and sex jokes, he has a heart of gold and a very clever mind. Although I definitely wouldn’t take his one-liners to heart, his financial advice is incredibly solid and definitely deserves a receptive audience. Financial Uproar is one of my favourite blogs out there. So with that little intro … enjoy!

Nelson Smith is the blogger behind Financial Uproar, which he’s pretty sure is the best blog in the entire world. He smells vaguely like lilacs, and his hair is really quite soft, because he enjoys the little things. He also recently just learned to tie his shoes. You can also follow him on the Twitter, where you will be undoubtedly disappointed.

For many young adults, investing is a world scarier than that time I accidentally stumbled upon an episode of Toddlers and Tiaras. (I refuse to believe that show isn’t a practical joke played by TLC, and we’re all the patsies. But I digress.) There are so many questions, most of which I’m assuming are about investing. What exactly should you invest in? Should you invest in stocks? Or bonds?

The world of investing can be a very complicated place, filled with all sorts of words and abbreviations. It’s time to cut through all the fancy pants terms and products and get down to what’s important – building a portfolio that will outperform 80% of your peers while using at least 80% less effort. It’ll leave you more time to do whatever it is the kids do these days. Ecstasy or something.

On second thought, don’t do ecstasy.

Okay, here’s what you need to do. You need to find the cheapest index funds, and buy them. In Canada, that means buying E-Series funds from Toronto Dominion Bank.

You can either set up the process with TD representatives over the phone, or do it online through a TD Waterhouse brokerage account. They can’t be bought from any other company, so don’t even try. It’ll take an hour or so to set up an account, but it’s time well spent.

Why TD E-Series funds? It’s simple. They are the lowest cost mutual funds in Canada. Say the average fund in Canada charges a 2% management fee. The average fee on an E-Series fund is 0.30%. If you have $10,000 invested, you’ll save $170 per year in fees. Fees are bad, they’ll eat away at your returns. Avoid them at all costs.

Secondly, these funds don’t even try to beat the indexes. All they do is try to match the performance of the TSX, the Dow, the S&P 500, or whatever other index, by replicating those indexes as closely as they can. Remember the high fees charged by regular mutual funds? Because of these large fees, they’re practically guaranteed not to beat the index. If the fund and the index both return 8%, but it costs you 2% in fees, you’re getting (I’m gonna try this without a calculator) a 6% net return on the fund. Meanwhile, the TD E-Series fund would return 7.7%. (8% – 0.3%)

Okay, enough about fees. You’re probably bored, and I don’t blame you. So what should you invest in?

I’m going to make a big assumption with the following model portfolios. I’m going to assume you’re an investor in your 20s or early 30s, one without many other investments. I’m also going to assume you have a half decent tolerance for risk too, since Money Rabbit does not care for wusses. (Which is probably why I can’t get a date with her.)

Diversification is important when you invest. Since Canada is filled with all sorts of resource companies, these companies will dominate the Canadian portion of your portfolio. This is why you want to own companies from all over the world. So, using TD’s E-Series funds, I’d build most of you the following portfolio:

33% – Canadian Index

33% – U.S. Index

33% – International Index

That’s it. Split your investment into thirds, buy the Canadian, American and international indexes, and call it a day. That’s how simple your investments can be.

If you’re a little scared about investing fully in the stock market, add some bonds in there.

25% – Canadian Bonds

25% – Canadian Index

25% – U.S. Index

25% – International Index

That’s how simple investing can be. Just because the market is complicated, it doesn’t mean your investments have to be.

Look at all the extra time I just gave you. You can totally use some of it to go to dinner with me. I’ll pretend to be a gentleman long enough to convince you to sleep with me.

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January 12, 2012 | Money Rabbit | 7 Comments »

My New Investing Strategy

I pulled an investing 180.

Since I wanted to use the majority of my bonus to go into my RRSP, I booked an appointment on Thursday to speak with my financial advisor at TD Bank.  Before my appointment, I sat down to really think about my investing goals and the current market conditions.

Disclaimer: this is my opinion, do not base your investments upon what I’m about to say. Do research and be informed. I am NOT suggesting or recommending courses of action for your investments.

Truthfully, I think we’re heading for another dip in the economy. I think we’re in the calm before the storm. The European economies have been collapsing like houses of cards, and with a globalized financial system, we ought to be feeling the effects. Way more than we currently are.  Unemployment, particularly in the 20-30 range, is double the national average. As Mrs. Lovett said to Sweeney Todd, “Times is hard, sir. Times is hard.”

My RRSP was invested in the TD Dividend Growth Fund. 40% of that fund is in the financial sector. I bought into the fund during 2008, when it was at its lowest point, and I averaged a 12% total annual return on it (from 2009-2011 alone, I made a generous 10% return, after the 2% MER). However, within the past few months it hasn’t budged, and has even gone down in value. I’m not a fickle investor … I don’t mind the buy and hold strategy when it works. But since my spider senses are tingling, I’m listening to my gut. So on Thursday, I switched funds.

I am now in the TD Canadian Bond Fund.  It has a relatively low MER (1%), and even between 2007 and 2008, it gained 1.8%. Though the fund is bonds, it’s cashable. It is much lower risk than my Dividend Growth and given the economic instability, I feel much better putting my money in that fund, especially since I may have to draw upon this money to fund my education (to go to Teacher’s College). I have approximately $8100 invested in this fund.

I also set up my first ever “fun money investing account.”  It’s the closest I’ll ever get to gambling. After seeing skyrocketing returns on the precious metal fund (albeit it is the most volatile fund I’ve ever seen), I have put $100 into the fund, and will be contributing $25 biweekly. I have no purpose for the money. It’s simply a fun money, risk-taking account. Right now, the fund is down. Buy low, sell high. Precious metals are almost a bet against the economy; when the economy tanks, people put their money into precious metals as a safety.

Just for kicks, my advisor looked at my RRSP GIC to give me an update on its returns (I bought it in June 2007, it will mature in the June of this year).  It has dropped in value by 50% since I’ve bought it and hasn’t recovered.  Thank GOD it’s a GIC and my principal is protected!  Whew!

I feel more excited and confident about moving forward. I was no longer feeling secure with such a strong foothold in the financial sector, especially with my belief that a market correction is in the works. If I’m right, I’m going to feel like a million bucks.  If I’m wrong … well, better luck next time.  Only time will tell.

(P.S.  Two updates – I broke my coffee rule since my clinic instructor asked if I wanted to grab a coffee with her after our 16k run on Sunday.  Couldn’t say no. I also am moving forward on my volunteering goal…on the 22nd, I will be leading ten preteens in a visual arts activity for a local youth group organized by my cousin. If it goes well, and I’m hoping it will, I have some bigger ideas for youth sustainability projects and running groups!)

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January 10, 2012 | Money Rabbit | 3 Comments »

My Bike, My Investments, My Life

The Winner of the Novica Prize Giveaway is … Michelle, from Sense of Cents!!! Congratulations Michelle, and thank you to everyone who entered.  Enjoy your shopping!

On Tuesday, my friend Vince sent me a Kijiji link for a Cervelo Triathlon bike, listed for $700.  I hedged.  I have been talking about getting a new bike for a long time, and I knew I would have to get one in the spring since the Half Ironman only allows road and tri bikes, but I was still nervous about the expense, especially as my emergency fund is rather paltry at present.  But I worried more about missing the opportunity for an incredible bike, especially because used Cervelos are usually listed for $900+. So I made an offer for $500.  Wednesday night, I picked up the bike for $540. The thing is a bit of a man-magnet. The photos I posted on Facebook had my male friends drooling like a pack of rabid hyenas.

I’ve been doing a lot of thinking over the past week about my current investment and savings strategy, and buying the bike served as a catalyst for understanding what I need to change about my current mode of thinking.

My whole life, I’ve always bought items with the purpose of keeping them forever. The concept of buying something, only to sell it a year later, is foreign to me. So, my living spaces have always gradually filled up, since I’m unwilling to sell or donate my items. Last year, I sold my desk and dresser to a neighbour, and the guilt I felt was unbelievable.  Without knowing it, I had assigned personas to my furniture.  We had been through so much together, I thought.  How dare I sell something that served me so selflessly?

WAKE UP CALL.  MY DESK DOESN’T HAVE FEELINGS.  NEITHER DOES MY BIKE.  NEITHER DO MY INVESTMENTS.

My Investing Story

I bought Bank of Nova Scotia stock in the early summer of 2007.  I bought 100 shares at $51.69 a piece. They grew, slowly, with DRIPed dividends cheerfully reinvesting themselves, making me glow with pride.  I was a shareholder, a real live investor.

Then, the recession of 2008 hit.

Within 1.5 years, my investments were worth approximately half of what I had paid for them. If I had bought the stock just 12 months later than what I did, I would have doubled my money, and then some.

I had heard rumours of a coming crash in the fall of 2007, but I ignored them, thinking that the market would reward my “long-term” strategy.  Let those wimps sell, I thought.  I have the tenacity to hold on.  In my head, I had grown fond of my stocks, like pets.  I believed that as long as I held tight, and believed in their inherent value, they were go from ugly ducklings to beautiful swans, rewarding me along the way.  I was loyal to them. I had made my choice and wanted to stick with it.

When I sold my stocks to pay off my car, I sold them for approximately $50.73 a piece.  That’s nearly a dollar less than what I paid for them, meaning that without the reinvested dividends and the 20 additional shares that I purchased when the market was low, I would have walked away with a $96 loss.  After four years. Fortunately, because my stocks generated about $220 a year in dividends, which were reinvested even when the market was low, my actual profit was approximately $900 net. Still.  After four years, that’s not very good.

I’ve recently started reading the book “Rule #1″ by Phil Town.  It’s reminding me that I need to be a lot more engaged in watching the markets, if I want to buy and sell stocks with a successful and high return.  And I am really going to have to wrap my head around selling. My former strategy of buy and hold doesn’t always work; indeed, sometimes that strategy means that you’re shooting yourself in the foot.

Pretty bike!

Buying my triathlon bike really drove this point home for me. I had originally wanted to buy a bike that was universally versatile. Do such bikes even exist? Maybe. But I was handed an exceptional opportunity to own a bike that will lend itself perfectly to an event that means a lot to me, and bikes don’t lose value unless they’ve been in an accident, or you’ve bought it brand new. This is why they’re so desirable to steal. I could easily sell my Cervelo for the same price I paid, or even more.

In my head, the perfect bike existed.  One that was inexpensive.  That would go fast. That I could use on bumpy city streets. That would be great for long distance trips. That I could race with for Triathlons or Duathlons. But what I’m finally coming to terms with is that sometimes, the perfect all-purpose product or investment doesn’t exist. Or sometimes, you need a specialized product or investment for a little while to serve a specific purpose, then it’s time to let it go.

I’d love to find a stock that I could purchase at a reasonable price, that would grow a nice 8% annually, reward me with a dividends, and provide me with total peace of mind that it was completely and totally safe. Does such a thing exist?  Maybe. But if I spend my life combing the markets trying to find it, I’ll lose time, which is ultimately my greatest asset.

What I’m trying to say is that I’m no longer willing to lose time in my search for perfection. Sometimes, it’s worth it to wait patiently, as long as your expectations are reasonable and you have a very clear idea of what you’re looking for (definitely the best route for big ticket items, like houses or cars). Sometimes, it’s better to just get in there, as long as it’s within your means, especially if you know you can sell for a great price even after enjoying its use.

Lesson of the day: items and stocks don’t have feelings.  Have a strategy, but don’t be afraid to sell when the time is right.

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October 29, 2011 | Money Rabbit | 8 Comments »

Real Estate Investing – My Introduction (part 3)

I have to keep going with my posts on investing, so here is the (mildly) anticipated third chapter of real estate investing.

As for me, well, I have a lot of thinking to do this weekend, and I don’t want to make any rash decisions until I have a chance to really sit down and talk with my current boss.  But I’m seriously considering taking the leap and going into business purely for myself.  I figure if I apply the same principles to my business that I have applied to this blog and to my money management, I can find great success.  I plan on creating my business on a platform of excellent service and knowledge.  I plan on serving my clients with integrity, honesty, care, diligence, and fidelity.  I will also get them the best damn deal they can get.  Hey, I’m Dutch, haggling is in our genes!

Example 2 – The Condo Assignment

A lot of the deals that I have seen come down the pipeline recently are condo assignments, which is essentially selling the original agreement of purchase and sale prior to the closing of the original deal, which closes upon registration of the condo.  These deals are legally complex and frustrating, but can be extremely lucrative.  It’s also a more accessible investment, since it requires less money upfront.  However, I would really only recommend this route with an experienced condo investor and specialist Realtor by your side.  It is a VERY calculated risk.  And when I say calculated, I mean pull out your calculators.  Condo investments come down to square footage.

Example:  The original buyer (assignor) purchases a brand new Jr. 1 Bedroom condo unit straight from a builder for $180,000. It has about 430 sqft, 1 parking space and 1 locker.   That leaves a price per square foot of $418, which in Toronto is pretty good, and the price per square foot is generally higher in the smaller units.  The builder requires an initial deposit of $5000 up front, followed by 5% of the purchase price after the first 30 days, another 5% after 60 days, 5% after 90 days, and 5% after 120 days.  All in, an initial investment of $42,000. It’s a lot of money up front, especially considering that the condo building often will take between 1.5 to 2 years to reach the occupancy stage.

Two years later and the condo has reached its occupancy stage, which means that the units are ready, but the hallways, common elements, parking, and other areas are still under construction, and the building is not yet registered as a condominium corporation.  In order to live in the building, you pay the builder a monthly rate (in this case, $750 a month) if you are inhabiting in the unit.  The deal, however, still has not yet closed, since the building isn’t registered, so there is no mortgage yet.

The Harbourfront Development in Toronto. These are the same idiots who came up with the street name "Ice Boat Terrace," I kid you not.

Meanwhile, the neighbourhood has been further developed, and is being heralded as a trendy up-and-coming area.  The buildings are filling up with young, hip professionals.  Stores and retail outlets are popping up, yoga studios have materialized, and investors are starting to rub their hands together with desire.

This is where the assignment comes in.  You can actually sell your original agreement of purchase and sale with the builder … for a profit.  Similarly sized units in the building and neighbouring buildings are now selling for close to  $520 per square foot (as is currently the case in Liberty Village), and the added feature of the parking and locker are a bonus, since they are separately deeded and can be sold or rented (parking spaces in Toronto at the moment begin around $30,000.  At the new Cinema Towers downtown, they’re being sold for $45,000 a pop).  At $520 per square foot, the unit can now be sold as an assignment to another investor, who keeps the property as part of her rental portfolio, for $223,600.

Factor in 5% of real estate fees off of the purchase price, and you’re looking at $212,420

Total return on investment:  $32,420 on your initial $42,000 investment, in less than two or three years.

Pretty sweet, hunh?

HOWEVER, things to be aware of:

-The builder often asks for additional money to be coughed up, for a variety of reasons and deficiencies

-You may pay more money for upgrades on the unit, like stainless steel appliances, hardwood floors, granite countertops, etc.

-These projects are inevitably delayed, so if you need that money back on your investment, you will have to WAIT.  Your capital is completely tied up, and sometimes it can take years.

-Some condo buildings don’t allow assignments, and if they do, they charge a fee.

-Assignments are VERY stressful.  The Assignor has a lot of duties and obligations to the Assignee (buyer) to perform due diligence and make the Assignee aware of any deficiencies, or anticipated slowdowns.  The Assignor has to compile floorplans, agreements, condominium documents, and everything has to be examined in painstaking detail by the Assignee’s lawyer.  However, it’s win-win, since once the building registers, the unit again jumps in value, although the new owner does owe GST on the transaction (and it’s still a little iffy about whether that is now HST, the new rules haven’t been around that long).

-Taxes are another quagmire, especially with HST in Ontario.  It’s still not yet fully understood what the implications are.  Sometimes taxes are owed straight to the builder after the building is registered, and there’s more grey area about whether or not the unit is the principal residence.

-Many sellers overprice their investment units when either assigning or selling.  Since they’re purely investors, they’re trying to maximize their profits, so the units either sit on the market for a long time before being reduced, or they will be stubborn negotiators and may give more hassle than what it’s worth.

VERDICT: Condo investing makes me think of math whizzes and Vegas gamblers coming together had having a love child.  You need steel nerves, a back up plan, and be prepared for delays, slowdowns, or a shift of the market.  I would only buy a condo straight from the builder if I knew that I could afford to keep the condo after the building was registered and a mortgage came into effect, either by residing in it as my principal residence or by having a tenant.

However, it’s an easier way of getting a foothold in the market (you often need a smaller deposit to purchase an assignment), and can be extremely lucrative.  It’s also a great way of tailoring your investment strategy – you can keep it and rent it out, live in it yourself, or sell it for a profit once the building is registered.  There are so many options with condo investing with what you do, and there is no “right” or “wrong.”  You do what works best for you.

There is a sincere worry about condo bubbles in Toronto.  The price per square foot is rising at too rapid of a pace, which is great for investors a couple years back, but in terms of getting in now, looks less lucrative.  There are a TON of new developments happening (River City, Cityplace, Liberty Village, King West, Flatiron Lofts in Leslieville, to name a few), and with all of the new units coming onto the market, there’s worry of a flooding and a collapse.

Many of these buildings are megaplazas with a ton of tiny investment units, usually under 450sqft.  These units are great if you buy into them right at point of building, but they’re harder to sell down the road, because who wants to pay more money for something that they can’t live in and doesn’t provide good cash flow?  The first buyer has already done well for himself, but a future owner may not see the same investment turnaround, so it is definitely harder to sell.

So what do you think? Has anyone invested in a condo or an assignment?

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May 27, 2011 | Money Rabbit | 5 Comments »

Thank You to the Haters

I made it home alive! After 14 hours of biking, half of our group made it to Niagara Falls, and half remained in St. Catharines to spend the night before heading to the Falls in the morning. I was in the latter group, owing partially to the fact that I had a crazy accident in which a small child veered her scooter directly into my bike path, giving me about one second to react. I don’t remember what happened but I remember ending up on the pavement, with a badly scraped knee and palms. Apparently I did a bit of a roll over my handlebars and threw the bike aside to avoid hurting her. She was absolutely fine, although very scared. I was mostly just scared too, and the downer of wearing very tight biking clothing meant that every time I pushed the pedal, I could feel the fabric rubbing against the scrape.  It was a loooooong six hours post accident.

But it was an amazing weekend, and I’m returning to the city very mellow and relaxed.  I have a stressful upcoming week, packing almost every single night to move to my new place, and trying to keep my sanity amidst the mess.  I have moved 5 times in 2 years, and this is the first time I’ve been genuinely bummed about leaving, since I’ve made friends with my neighbours and my garden is returning to life.  I’ll miss my roses blooming, and the strawberry and raspberry seasons respectively.

You may at this point be wondering if I’ll ever get to the meat of this post, which has entirely to do with my title.

I was interviewed recently for a newspaper about my investment strategies.  I was honest about what I do and why I do it, and was hoping for some positive feedback, since I’m young and have worked hard to be an investor in the first place.  The article was very well written, and I do think it captured the spirit of what I do with my money.

Today I found 29 comments, some of which personally attacked my university degree, my career, my investments and my intelligence.  I was called silly and a “23 year old veteren (sic)”, a hypocrite who should take my own advice, and someone went as far to say that “everything about me screams mistake.”  In fact, one commentator said that with my background in theatre and my career in real estate, that I should move to a French riding, run as an NDP candidate and go to Vegas during the election.

Apparently, my very existence infuriates some people.

However, there were some comments that defended me, pointed out that I’m only 23 and my portfolio selections were perfectly acceptable for my age, and encouraged me for my initiative.  Some of the commentators kindly told the haters to take a hike.

To the haters who have never met me but feel qualified to judge and tear apart my character and intelligence, I would also like to thank you.  You remind me of why I write.  The general sense I get from the twenty-something population with regards to investing is that it is intimidating, daunting, and veiled in layers of unfamiliar terms (futures, IPOs, preferred shares).  Maybe when you’re 30 you wake up in the morning and suddenly understand what all of this means.  Until then, good luck to you.

The fact that this happened indicates to me an even greater need for our generation to be educated and resilient.  All we need is a trellis to cling to and climb.  And haters can act like a fungus, eating away at your confidence and making you second guess your own abilities.

We all make mistakes with our personal finances.  No one’s perfect.  But we’re all stumbling towards our dreams one step at a time.  We’re all trying to come up with the fastest and most efficient way to maximize our efficiency in achieving our goals, and sometimes we fail.  And when we fail, we get back up, dust ourselves off, and keep going.

So I’m grateful to my haters.  They mean that I’m reaching a larger audience of people, and that I’m on the right track (in the past two months, I’ve had two articles about my personal finances run in national papers).  The haters make me tougher.  They remind me to always stay positive so that I don’t end up like them in twenty years.  They make me want to keep learning and improving, to climb higher and higher.

Cyber bullying is an epidemic in this country, and the same adults who condemn it in schools will sit down at their computers and anonymously harass politicians, celebrities, and ordinary Canadians like myself.  It is a serious problem and not restricted to online trolls.  I think everyone has haters in their lives – bosses, family, romantic partners, friends – who feel that it is their duty to make you feel small.

Starting from this point onwards, I’m going to be educating myself about investing and the stock market, and I’d like to invite you to join me.  My articles are going to be flawed and tentative.  I won’t be advising you on how to invest your money.  But hopefully, as we proceed in a spirit of experimentation and open-mindedness, we’ll increase our knowledge and confidence while feeling positive and encouraged.

I have to go move a desk now and keep packing, but if you’re out there and are ever feeling discouraged, you are beautiful, unique and intelligent, and don’t let anyone ever convince you otherwise.  If you are unique enough to attract the attention of a hater, congratulate yourself on being so sparkly that they couldn’t resist you.

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May 24, 2011 | Money Rabbit | 20 Comments »

Real Estate Investing – My Introduction (part 2)

Today is part 2 of the series I’ve written based on my observations on real estate investing.  These are true stories that I am sharing, either through an acquaintance or through what I’ve witnessed in my career.

That being said, I would like to write a full disclaimer and say that these are specific cases, and that this is NOT financial advice or a “how-to” guide for real estate investing.  My only intention is to highlight specific instances through which a calculated investment in real estate paid off.

The Case of the Investment Semi-Detached Victorian

An acquaintance of mine purchased a semi-detached Victorian property near Bloor and Dufferin about three and a half years ago.  He bought the property for $466,000, with approximately $80,000 down (which he had to beg, borrow and steal, since his mortgage broker was kind of a tool and screwed things up three weeks before close).  He is a single dude, and was 27 years old when he bought the house.

He had very specific needs when he bought the property – it had to have joint laundry facilities accessible by everyone in the property.  It had to have a garage, and sufficient parking for potential tenants.  It also had to have a basement apartment for additional income, and it had to be on the subway line for easy commuting.

What he wound up with: the house is three stories, with a 2 bedroom basement apartment with separate entrance.  It has legal front pad parking and a detached 2 car garage around the back.  In the main area of the house, the main floor living room is shared, with four tenants sharing the second and third floors.  On the second floor is a kitchen exlusively for the tenants’ use.  Meanwhile, the landlord lives on the mainfloor, where he has use of the mainfloor kitchen, a bathroom, and a bedroom (the converted dining room).  It’s a strange setup but fully functional.  The family in the basement are completely segregated and have their privacy; the landlord has his own kitchen, bedroom and bath;  and the four tenants who the landlord handpicks are young professionals who quietly inhabit the second and third floors, while venturing down occasionally to watch TV in the shared living room.

Since buying the house, other similar homes in the neighbourhood have been selling upwards of $520,000.  His mortgage is being paid entirely by his tenants, he lives mortgage free.  Not only that, but he has an additional cashflow of anywhere between $500 to $1000 after all bills and utilities have been paid.  When you look at his initial investment of $80,000, he is making an annual CASH return of between $6000 and $12,000, or for the sake of averaging, let’s just say $9,000, or approximately 11%.  Albeit, he has expenses associated with the expense of the house, and has to pay annual property taxes to the city of Toronto, BUT he lives rent free, and his asset steadily appreciates.  You could add in the money he would have spent on rent (let’s just be conservative and say $700 a month).

It should be noted that while he was going through the hell of coming up with the remainder of his down payment, and for about a year after he bought the house, he was so impoverished that he was eating beans out of a can.  However, it did pay off in spades for him, and he’s laid a foundation for a very successful financial future, especially because he remains frugal.

VERDICT: Stressful, but extremely successful.  An unusual arrangement allows this bachelor to live rent free.  To a degree it’s temporary, since his living quarters are really only suitable for a single.  But it works.  Owning this property has left him with enough security to feel comfortable leaving his job for a year while he figures things out.

Do any of you have income properties, or know of someone with an income property?

COMING TOMORROW:  Investing in Condos (specifically, assignments)

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May 19, 2011 | Money Rabbit | 7 Comments »

Real Estate Investing – My Introduction (Part 1)

This is probably going to be one of my most controversial and debated series of posts, and I’m expecting a lot of trolls (one or two in particular) to jump on here and start tearing it apart.  Which is why I’m prefacing this by saying that haters are gonna hate, just not here.

As well, I’m going to be steering the financial aspects of my blog in an “investing” direction over the next few months.  I was recently approached by a reputable online trading company for advertising on my site.  Since I don’t write this blog to make money, I really only feel comfortable advertising when I can vouch for the services personally, so next time I invest, I will be going through this company.  I’m also going to be saving up to purchase my first real estate property/investment, which I am hoping to do by June 2012.  That is, if the world doesn’t end on Saturday.

One of the reasons that I got into my industry is because I have always had a love and fascination for real estate.  There is something very powerful about owning the very walls you inhabit.  Ever since I was about 13 or 14, I have imagined buying a beautiful dream home for myself (mind you, when I was that age, I pictured a disco ball in the living room and a pool in my bedroom).  The asset is unlike any other investment I can think of in that it’s tangible.  I can touch it, see it, live in it.

Now that I’m older, I can appreciate real estate for being not only something meaningful and personal, but also as an asset that, at least in Toronto, has remained steadily on the rise.  Toronto is the largest city in Canada, with outlying communities like Richmond Hill, Newmarket and Markham offering a less expensive alternative at the cost of a potentially lengthy commute.  These communities are also experiencing a boom – for example, in the community of Maple, which used to be the backwaters, now has a population of 50,000 and is home to Canada’s Wonderland.  The expense of living in the city continues to push people who can’t sacrifice space or expense further and further from the downtown core.

This is not a freakish boom or spike in economics, this is a sustained historical trend of Toronto.  Which is why I believe it makes sense to try and drive roots down deep into the housing market before the push forces you to try and find less expensive accommodation outside of your desired area.  You’ll notice in the chart that I linked to that there was a 15 year recovery period after a spike in the system.  These ebbs and flows are absolutely normal, and if I had to move during that period, I probably would have rented the house for a couple of years while waiting for the market to recover (which it inevitably will).

We all need a place to live.  Everyone pays to have a place to rest their heads at night.  However, the decision is whether you’re paying that money to a landlord (which it often makes sense to do), or if you’re using that money to invest directly in your own asset.

Where it gets sticky is the interest that the mortgage accrues (does it make more sense to pay half of your housing payments to a mortgage, or rent at a cheaper price and put a higher amount towards your savings?) and betting on the market’s stability.  In Toronto, I’m less concerned about the latter, since we have financial systems in place to avoid the collapse as witnessed in the states, and because Toronto is consistently expanding, but is geographically constrained by the lake, which forces inventive urban infill, and property values go up.  I’m prepared to take flack on this, but I’ve seen some really amazing ROIs that I cannot believe were random occurences, since they happen frequently and consistently amongst condo owners and freehold owners alike.

There are also some heralds of doom who are proclaiming that Toronto is experiencing a condo bubble, since there are huge developments happening all over the city (specifically near the water front) that experts worry outpace the demand, especially since prices also outpace the normal rate of inflation.  However, most financial institutions don’t support that theory (enter the conspiracy theorists), but simply state the market will correct itself in ebbs and flows as it always has.

I have compared the personal networths of several prominent personal finance bloggers, and across the board, once a property has been bought, their networth spikes.  Albeit, the “value” of the house is a little iffy, since value is only what someone else is willing to pay for it.  However, with each monthly payment heading towards a mortgage instead of a landlord, the rate at which their networth increases visibly accelerates.  It should be noted that most of these personal finance bloggers are capable of fighting back their desires and buying something within their means, so they don’t struggle to make the monthly payments.  It simply falls into their monthly cashflow.

I just wrote a 2500 word post, but decided that I’m going to split it into 3 parts, which I will post today, tomorrow and Friday.  The next two posts are going to be examples of a freehold investment, and a condo assignment investment, followed by my own decision about the route I’ll be taking to get started.  It’s a little pre-emptive, since I still need to compile capital to begin my investing, but I’m starting to strategize, because it’s important to really understand every angle of what I’m about to invest in.

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May 18, 2011 | Money Rabbit | 1 Comment »

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