A run down of what's going on in the market and the company.

Sunday, April 24, 2011

10 Reasons Why Real Estate Investments Are Better Than Anything Else

Here are 10 reasons why we think it is much better to invest in real estate than in any other investment vehicles — they are the reasons WE invest in real estate.

1. In Real Estate, we can insure our property for its full replacement value, against loss. We cannot insure paper assets against any type of loss.

2. In Real Estate, we can put $10,000 as a down payment to buy a $100,000 property and get $90,000 from the bank. We now own $100,000 of assets. If we put $10,000 into paper assets, we get only $10,000’s worth of asset.

3. If the value of your $100,000 property increases by 5% in one year (which is below average in Ottawa where we live and invest), we are $5,000 richer. If our $10,000 paper asset increases by 5% in a year, we’re only $500 richer.

4. The bank will loan us a lot of money to buy property—millions if we want to buy an apartment building or a commercial building. That’s using OPM—Other People’s Money—at its best! We can also go to mortgage brokers, hard-money lenders, etc. The bank will NOT loan us a penny to invest in paper assets. And forget mortgage brokers and hard-money lenders. We have to use OUR own money to buy paper assets.

5. Certain types of properties will generate cash flow—called passive income—which is taxed at a much lower percentage than earned income. We can’t get cash flow from paper assets (unless a mutual funds pays monthly dividends). And that is a capital gain which is taxed at a higher %.

6. Though we have no control over the real estate market as a whole, we have control over the “value” of our property—which we can increase by doing minor improvements, full rehab, keeping full occupancy, changing the vocation of the property. We have NO control over the stock market or over the management of our paper investment; there’s nothing we could do to increase the value of our paper assets.

7. There are all types of depreciation and expenses we can legally use to reduce the income from our real estate investments. For example, when we travel to other provinces or other countries to look for property to invest in, those travel expenses are a legitimate tax deduction. Try to do that with paper assets!

8. Real estate is REAL. We can drive by it and SEE our investment. We can live in it. We can pain it. We can add an extension to it or plant a tree in front of it or add a patio behind it. Paper assets are just that: a piece of paper.

9. We can form partnerships with many other investors—family, friends, or total strangers—and together we can buy big properties that will yield remarkable ROI. Just imagine going to family and friends and say “Hey, let’s pool our $50,000 together so we can buy a whole bunch of shares of Nortel or some petroleum company…”

10. But most of all, we invest in real estate because it provides a roof (or a hundred) over people’s head. And it allows us to give people with past credit problems another chance to own a home or live in a safe and sound apartment or condo. It’s a great feeling, a feeling we can’t imagine getting from calling a broker and buying a bunch of stocks.

There are more reasons why we prefer to invest in real estate ourselves, but those are the 10 main ones.

Inflation Soars in March!

OTTAWA—Canada's consumer-price index leaped by its biggest monthly increase in two decades, adding Canada to the list of major economies recently pressured by inflation as economic recoveries around the world become more entrenched.

The jump surprised economists and analysts here, many of whom had been comforted by so-far benign inflation pressure across Canada, much of that thanks to a strong Canadian dollar. It also raises the likelihood of an interest-rate increase by the Bank of Canada, the central bank, sooner this year rather than later. Some economists had pushed back their forecast timing of such a hike after the Bank of Canada, which kept rates steady last week, offered a less hawkish tone on future action than many had expected.

Overall CPI rose in March at a 1.1% monthly rate, the quickest clip since January 1991, accelerating from 0.3% the previous month, and lifting the year-on-year pace to 3.3% from 2.2%, Canada's statistics agency said Tuesday. The Bank of Canada targets inflation at the 2% midpoint of a 1% to 3% range.

The core rate—which excludes volatile energy and some food prices—accelerated to 0.7% from 0.2% on a monthly basis, the largest gain since February 2010. The core rate was up 1.7%, from 0.9%, on an annual basis, a level that the Bank of Canada had previously forecast would only be reached in the third quarter of this year.

Earlier this month, the European Central Bank raised its key rate in a move officials said was aimed at keeping inflation across the euro-zone in check. And in China, Beijing officials are struggling to battle inflation, which data showed last week is rising at its fastest clip in three years.

But until now, North America has been relatively unscathed by the threat of rapid price rises. Last week, surging gasoline and food prices drove up U.S. prices. But excluding fuel and food, they remained subdued.

Many economists had been expecting Canada's strong currency to help keep prices in check north of the border. Canada is a big importer of U.S. goods, and a strong Canadian dollar helps keep a lid on imported inflation.

Tuesday's broad-based price surge "raises some serious questions over just how much slack is left in the Canadian economy and just how much of a dampener the Canadian dollar really is on prices," said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto.

The Canadian dollar, which has recently broken through levels not seen since 2007, moved higher after the inflation data was released, on the expectation that the central bank might move earlier in raising rates.

Forecasts had called for monthly and annual total CPI gains of 0.6% and 2.8%, respectively. The core rate had been expected to increase 0.2% on a monthly basis and 1.2% year-on-year.

"In the past, one could take comfort from the view that although headline inflation would suffer from the impact of higher energy and food prices, the core would remain well behaved. Some of that comfort has been lost today," HSBC Securities (Canada) economist Stewart Hall wrote in a report.

The annual average for the first quarter was higher than the Bank of Canada's latest forecasts from its Monetary Policy Report, published last week. The central bank held its benchmark overnight rate steady at 1% for the fifth consecutive time last week and said any further rate hikes would need to be "carefully considered."

StatsCanada, the statistical agency, said gasoline prices jumped 18.9% year-on-year in March, and the cost of fuel oil and other fuels surged 31.3%. Overall energy prices rose 12.8%. Food prices rose 3.3% as the cost of fresh vegetables jumped 18.6% due to reduced supply caused by bad weather in Mexico and the southern U.S. The cost of food purchased from stores rose 3.7%, the most since August 2009.

Clothing and footwear prices were up 0.9%, the first annual gain since November 2009, as fewer clothing items were discounted compared with a year ago.

Tuesday, April 12, 2011

Rates Remain Dormant, But For How Long?

April 12, 2011

Bank of Canada Leaves Rates Untouched

The Bank of Canada suprised few today by keeping its key lending rate at 1.00% for the fifth consecutive meeting.

With the prime rate holding at 3.00%, today's news is yet another positive for variable-rate mortgage holders.

The BoC’s statement did have some mixed signals, but few analysts are decoding that to mean a May rate increase. Here is some of what the Bank had to say:

"[There is] an environment of material excess supply in Canada."
"...the global economic recovery is becoming more firmly entrenched"
"In the United States, growth is solidifying, although consolidation of household and ultimately government balance sheets will limit the pace of the expansion."
"...global financial conditions remain very stimulative and investors have become noticeably less risk averse."
"The persistent strength of the Canadian dollar could create even greater headwinds for the Canadian economy, putting additional downward pressure on inflation"
"...recent economic activity in Canada has been stronger than the Bank had anticipated"
"Overall, the Bank projects that the economy will expand by 2.9 per cent in 2011."
"The Bank expects that the economy will return to capacity in the middle of 2012"
"...underlying inflation is subdued"
"Core inflation...is expected to rise gradually to 2 per cent by the middle of 2012"
Looking forward, a growing crowd forsees the bank resuming its rate increases this summer. Financial markets and major economists are largely forecasting 2011's first rate hike to fall on July 19.

That said, those forecasts can easily change and some economists have already pushed back their expectations to as far as September or October.

The next Bank of Canada rate meeting is in 49 days, on May 31.

Steve Huebl & Rob McLister, CMT
Link: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/04/bank-of-canada-leaves-rates-unchanged-yet-again.html