Real Estate Investments outperform stock market

May 24, 2012 — Steve Garganis

Saw this article in the Financial Post over the weekend…  great stats about timing real estate investment…  There is a growing fear that interest rates will rise causing affordability to decline… Okay, for now, let’s say that we do except that the global and US economies will suddenly improve  and govts can then raise rates…. Should this stop you from buying real estate?   Is this a bad time to invest?

According to the stats in this article, the answer is NO.   From 1992 to 2011, the average house in GTA increased from $214k to $465k.  That’s 116% increase or a compounded annual return of 3.94%   But if you factor in just enough rental income to cover your costs, then your return jumps to 11.40%…. compared with the TSX index return of 8.69%.   And hey, we didn’t factor in any rent increases…rents have also climbed dramatically over the past 20 yrs…

But what if you bought during the peak of 1990, just before prices dropped….  well, your return would still outperform the TSX index with a 8.94% annualized return.    And now let’s really think about this for one second…. How many people out there have actually invested in the TSX index?   I mean, come on…  No stock broker or Investment Advisor I know has ever recommended that.. they never do.. they pick mutual funds, stocks, etc…  and guess what?  I’ve yet to hear from anyone out there that has made a good return in the last 20 yrs…  In fact, most people I hear from tell me they have lost or just broken even…

Now, combine this info with the fact that we are still enjoying RECORD LOW interest rates and it’s very easy for me to say, I’d rather buy property than ride the stock market roller coaster…

There are some things to consider before buying that rental property…  how long should you plan to buy and hold?  What are the possible negatives?  Can you deal with tenants?   etc… but this is just some fact-finding… the knowledge is out there… it really isn’t that hard to do… you just need to ask questions and get informed.. it is possible..   If you need some advice on buying rental properties, send me a note and I’ll be happy to share my advice and strategies.

EVEN AMANDA LANG……?

One more thought… I was watching Amanda Lang on CBC a few weeks ago… she’s well spoken and very bright… but I have to take exception with one of her comments….  It was during a round table discussion… I only caught a bit of it but she made reference to real estate not matching inflation over the long-term… she was advocating other options for us to invest….  Come on Amanda, really?   Do you want to take  poll and see how many people have lost money in stocks and mutual funds??    And then let’s compare with how many have made or lost with real estate?

I don’t know about you, but my stock and mutual fund performance has been an on-going roller coaster ride with my Financial Advisors giving me the same speech for 24 years.. you know the speech… it’s from the movie, the Boiler Room with Ben Affleck, Vin Diesel and Giovanni Ribisi…   “don’t sell when it’s low…buy more, this stock is gonna come back….”  Last I checked, the most wealthiest people made their fortunes in real estate….   Sorry Amanda, I can’t agree with you on this one…

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When opportunity knocks…open the door.

March 21, 2012 — Steve Garganis

It’s March, 2012.   How will you look back at this month in 5 years time?    There are certain dates in history that stand out for all of us.   Some are more personal than others, like the birth of my son, the day I met my wife, my first trip overseas, NHL pro hockey camp, etc.

And then there are dates where I look back at missed opportunities.

-October 1984, I had a chance to buy a waterfront lot on Balsam Lake in Ontario’s cottage country, for $22,000…. now selling for $400,000.   There was a new condo in east Toronto for $82,000 in September 1987…. now selling for $392,000….(and yes, I think I was 5 years old…Lol!)..

-Or how about that semi-detached house at Danforth Ave and Woodbine, in Toronto, for $175,000 in 1990….now selling for $500,000.    More recently, I could have bought a house for $320,000 in 2005, near the water in Burlington, Ontario…..that same house sold for $800,000 last year.

The point it, I think we will look back at March 2012 as the month when the Banks declared mortgage war against each other…  Only in this war, there is a winner… YOU, the consumer, YOU the borrower, YOU the investor.   We are seeing record low mortgage rates.   And they won’t last forever.  In fact, this mortgage war is probably going to accelerate interest rate hikes…  almost like starting a campfire with gasoline soaked wood… It’s burning red hot but it won’t last for long.

With interest rates are record lows, isn’t this the time to borrow?    A $300,000 mortgage will carry for $1196/mth.. and that’s with a 5 year fixed rate term.  Bond yields are climbing… 5 yr bond yields are up to 1.71%.. that’s up 30bps in less than a month… 5 year fixed rates follow bond movement… i think it’s safe to say, we should expect rates to climb in the near future… and the reason they haven’t moved yet is because of the Mortgage wars…

We are hearing the cries by the govt and some bankers, telling us not to borrow too much.  Personal Debt level concerns are plastered all over the internet and media.   But we aren’t seeing many articles telling us how to borrow and invest wisely…. borrow when rates are low instead of borrowing when rates are high… borrow when you qualify instead of borrowing when you don’t… borrow when you don’t need the money…   Isn’t that when Banks want to lend you the money?

We have just seen a draft guideline, Bill B-20,  entered in for review with a May 1st decision date.   These new regulations are aimed at tightening lending rules even further.. and this time it’s targeting Home Equity Lines of Credit..   That’s right, they want to make it even harder to qualify for these products and possibly make the repayment terms more strict…

Opportunity is knocking… answer the door..

Posted in Interest rates, Mortgage News, Mortgage Rates, Mortgage Tips, Real Estate news. Tags: , , , , , , . 1 Comment »

RRSP, RESP, TSFA or Mortgage prepayment? Which has the best returns?

February 22, 2012 — Steve Garganis

HOW TO GET THE MOST OUT OF YOUR MONEY

Trying to decide what’s the best move can be difficult…. and I must admit, this is not an easy subject to tackle.   There are so many opinions…. But it’s important enough that I’m going to put my 2 cents in.  My final recommendations are listed at the bottom if you want to fast forward…

First, let’s come to an understanding that we are all different and have different needs…. you must ask for professional opinions and make up your own mind. Having said that, I think that for me, this is actually a very easy decision.

RESP   If you have kids, put money into an Registered Education Savings Plan…  the govt gives you 20% on a max contribution of $2500/yr per child.. that’s $500 of free money… Just be careful to not invest in any risky funds or stocks… you’re making 20% return already… don’t get greedy.

TFSA  If you have some extra cash, then yes, put those funds into a Tax Free Savings Account.  You can contribute $5,000 per year and any unused contribution limit carries forward each year… and the good news is that whatever investments are allowed for RRSPs are also allowed for TFSA.  Funds can go in and come out and grow tax free.  But I wouldn’t be putting too much in here while you still have a mortgage… Pay your mortgage off first.

RRSP  An old favorite for many.  Millions of Canadians have contributed to RRSPs in an attempt to be masters of their future and retirement.   Mutual Funds have become a favorite investment within RRSPs.  But now let me ask you… how has your RRSP performed for you?  For most of us, that answer comes with some profanities…%@!)*&%!!!   or something like that.

RRSP contributions are tax-deductible… and higher income earners will benefit greater…your funds can grow, tax-free… but you must pay taxes when you withdraw the funds.   At age 71, you have 3 options…-transfer to a Registered Retirement Income Fund, -buy a life annuity (better when interest rates are high), -or take the cash (bad choice as you will have to include those funds as income in one tax year which will result in large tax bill.)

RRSPs are a way to grow your investments, tax-free, and defer paying the tax… but you will have to pay the tax… make no mistake about that…

MORTGAGE PREPAYMENT   Probably the least exciting but the best choice for many.. just pay down your mortgage… your mortgage is not tax-deductible, unless you have a mortgage on an investment or rental property.    Get rid of that mortgage faster..make prepayments…  even little prepayments done regularly will make a difference…. On a $300,000 mortgage, a $3,000 annual prepayment will shorten your amortization from 25 years to 20 years, 10 months.   Based on today’s 3.29% mortgage rate, that’s a savings of over $28,000.   Hey, a $28k return on a $45k investment isn’t bad.

ONE MORE OPTION…INVEST IN REAL ESTATE  Sure, we’ve all seen property values go up over the last few years… actually, they’ve gone up over the last 12 years.. this is a long bull market for real estate… and there will probably be a correction.  But if you buy a rental property, you should plan to hold it for the long-term… 7 years or more… that’s usually enough time for any price correction to reverse itself.  Rental properties are popular today because mortgage rates are low and vacancy rates are even lower.

Another way to invest in real estate is through private mortgages.   Private mortgage rates run from 10% to 15%.   It takes a little more knowledge and experience to understand this investment, but it could be worthwhile.. Just be careful to get as much information as possible before making any 2nd mortgage investment decision.   These are RRSP eligible too. This subject will have to be covered in greater detail as there is a lot more to it.

FINAL DECISIONS.   For me, RRSPs just haven’t performed well…  And maybe I haven’t invested wisely…. One thing is certain, my Investment Advisors and Fund Managers all won… they take their cut off the top…   Not all Investment Advisors are alike, but I seemed to have hooked up with those that talked a better game than they could deliver.    Here’s a question… were you ever put into a Deferred Sales Charge (DSC) mutual fund?  You know, the funds where you can’t exit the fund family for 5 or 6 years without paying a hefty penalty?   I know several friends and clients that got pushed into those funds…. not one  of them is happy… I am staying away from these funds…

In case you can’t tell, I’ve lost my faith in mutual funds and decided to manage my own money.. and guess what?  I’ve done better than any advisor I know… I’m sure there are good advisors out there…but I’ve just decided that no one will care more about my money and future than me…

It’s time to take charge of our money….   so here are my suggestions…

  1. Put money into an RESP… if you have kids, this is a no brainer…  make sure to park that money in a safe, low risk investment… remember, you already made 20% with the govt’s contribution….let’s not get greedy.
  2. Pay off your mortgage.   Make lump sum prepayments… anything.. something is better than nothing… and try to increase your regular payments… this will accelerate the retirement of your mortgage.
  3. If you have to invest in stocks or funds then put this into a TFSA…
  4. Invest in real estate… it’s not exciting.. it’s not sexy… but history tells us it goes up over the long run…
  5. RRSPs… putting them last on my list… I’m just not a fan of them… if you have other cash, why not invest it elsewhere…  but if you have to put money in RRSPs, play it safe..  this is your future, your retirement… don’t gamble with it.
  6. Seek professional advice…. if you’re not sure what to do, get some advice… if you don’t have anyone to turn to, feel free to contact me… if I can’t answer your questions, I’ll direct you to someone who can.

 

Posted in Money saving tips, Mortgage Tips, Real Estate news. Tags: , , , , , . 4 Comments »

Zoocasa announces Zoopraisal, a FREE property valuation service.

October 27, 2011 — Steve Garganis

Ever wonder what your home is worth today?  Or that house down the street?   How about a friend or neighbor’s house?   Finding out would normally involve contacting a realtor for their professional opinion or hiring a professional appraisal.

Well now you can find out on your own.  The release of Zoopraisal, by Zoocasa.com, may have caused some controversy with appraisers but the service is here and it’s getting a lot of attention.

Zoocasa has entered into an agreement with Centract Settlement Services, an appraisal service company that has administered millions of appraisals across Canada.  Here’s a direct quote from Zoocasa.com website “Zoopraisal™ is Zoocasa’s estimated market value, computed using a proprietary formula, powered by Centract. It’s a starting point in determining a home’s price.”  (Clearly, Zoopraisal is not guaranteeing the value.  It’s just an estimate…the service provides a range of value.)

Zoocasa.com is an online service that provides access to homes that are listed for sale, online.   The goal of the site is to provide a place where buyers can start their search using the internet.   In my opinion, Zoopraisal will only enhance this service.   This can’t replace a good realtor that’s out there looking to match your needs when buying a house.  I think there are still too many intangibles that come into play.  Local knowledge is invaluable and is something that can’t be uploaded online.

But if we look to the U.S., we’ll find similar sites such as Zillow.com.   This powerful site tells you everything from the selling price to whether it’s being foreclosed, to the Zillow’s estimated value, the price per sq foot, etc.   They also offer mortgage quotes, realtor referrals, etc.   These info sites make their money by charging those that want to advertise or participate on their site.

There is a question as to whether all this information should be made public and whether this infringes on one’s right to privacy.  The debate will continue… One thing is for sure, with pressure from the Competition Bureau on the Canadian Real Estate Association to make it easier to access the MLS, we are definitely headed in a new direction.    There is more access to data.   This is not a bad thing.   More data is better.  It helps to make an informed decision.   Professionals like Realtors, Appraisers and Mortgage Brokers should not be worried.  Their expertise will always be needed.

Watch for more of these sites to pop-up soon in Canada.

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