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Posted 1 Comment on Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now. Interest rates

Bond rates up 0.30%…and 5 yr mortgages at 2.99% disappear.. for now.

Last week we saw 5 yr fixed mortgage rates hit 2.99% for the first time ever (these are full featured mortgages, not No Frills products).   But these rates didn’t last long… just 3 days later, bond yields spiked up and mortgage rates followed…  5 yr fixed rates now sit at 3.09%.

The 5 year Govt of Canada bond yields are up 0.30% since July 24th, and are currently sitting at 1.42%.  That’s a 26% increase in 2 weeks.  These bond yields have a direct effect on 5 yr fixed mortgage rates.     If bond yields continue to go up, we could see mortgage rates go up further.    Looking further ahead, the 2yr Govt of Canada bond yields provide us with a 6 month outlook…  they have also gone up from 0.93% to 1.16%, a 20% increase… if the yields stay at this level, we should look for rates to go up slightly…

Still, these are historical low rates… anything under 4.00% is ridiculously low…  We haven’t seen 5 yr fixed rates under 4.00% for over 40 yrs..  This isn’t time to panic…it’s still a great time to borrow money…

This seems to be an ongoing pattern.  Rates go up temporarily, then they drop… they go up, then they drop…    We’ve been stuck in this cycle for over 2 years.  But hey, who’s complaining?  Not anyone with a mortgage….not any real estate investors… this means money is cheap….. and it makes investing in real estate a very attractive option.

For those of us with a pension or if you are heavily invested in stocks, bonds or mutual funds, then you won’t like these low rates as they are keeping your Return On Investment very low……  Personally, I have some money in mutual funds and some stocks…..I started with my RRSP in 1990…. they were supposed to be a safe, long-term investments…. The only problem is, I’ve never made any positive return… Sound familiar?   The only ones making money are the Fund Managers (with their 2% Management fees) and Investment Advisors (with their 5% or 6% Deferred Sales Charges).

I lost my appetite for stocks and mutual funds, in 2000… the year of the dot com, dot bomb, internet stock market crash… the markets have been a roller coaster ride ever since… I got off that ride in 2004 and have never looked back.

If you’re looking for investment strategies in mortgages and real estate, drop me a line or give me a call… I’d be happy to share some of my knowledge and experiences of others that are enjoying positive returns elsewhere.

Steve Garganis

416 224 0114  steve@mortgagenow.ca

 

 

Posted Mortgage Tips

‘Stock investing is dead’, says World’s largest Bond fund manager.

For those of you that have made little or negative returns on your mutual funds and stocks, this statement might sound familiar.  Bill Gross is a founder and managing director of PIMCO,  They manage over $1.7trillion of securities.  His latest Investment Outlook paper had some very strong statements.

He says the historic 6.6% return on the stock market is more of a ponzi scheme.   And we shouldn’t expect the stock market to keep up with the real cost of living.   WOW!… strong words, but coming from someone who manages more money than several countries GDP,  we should pay some attention.

So if stocks and mutual funds aren’t cutting it and aren’t going to cut in the future, where do we turn?   There was no clear answer given in Mr. Gross’ article.   But maybe it’s time to look elsewhere…  There is one investment that has proven to stand the test of time.  Real Estate.  Real estate doesn’t have to appreciate in value to generate a positive return…but of course, it usually does.  How’s that you say?  Well, let’s take a close, but simplified look.

If you bought a property for $300k and put a $60k or $70k down payment, rented the house out, and paid your mortgage off in 20 or 25 years (by the way, the average time to pay a mortgage in Canada is between 12 and 17 years), you would own a tangible asset worth $300k.   And let’s not forget the rental income that just keeps being generated each and every month, year after year…. We can use any number for this but a realistic rent on a $300k property would be in the $1300 to $1600/mth range.  But remember, rents go up with inflation… so we should also expect rents to increase with cost of living.  And if they don’t increase, then inflation isn’t an issue…

Yes, the first 5 years or so, may not see a positive cashflow.. maybe even a negative one… but any loss could be written off against your income… and eventually, you would be in a positive position as your mortgage balance decreases.

Real estate investments scare most of us.  We don’t understand what’s involved.  We imagine the worst… the possible tenant from hell, that doesn’t pay for 6 months or destroys your property….or buying the money pit and having major repair bills, or mortgage rates going up making our payments unaffordable.     But in reality, if you are careful with your property selection, put the time in to manage and watch your property, and are careful with tenant selection, you will be with the majority of investors that see their investment perform well… you will build equity in your property as the mortgage gets paid over time.    And hopefully, the value of your property will only go up…

Maybe it’s time to invest in something we can see, touch and take care of….  instead of a piece of paper like stocks shares or mutual funds.  There’s a growing number of Canadians that are fed up with the stock market and mutual funds… fed up with paying 2% management expense ratios or 6% deferred sales charges only to come out with a negative return….  How may of us have been forced into mutual funds or stocks because we’ve been told to invest into RRSPs to reduce our taxes and invest for retirement?   Has that formula really worked for anyone?  If you want to look at something different but certainly not new, then take a look at real estate… you may be pleasantly surprised.

If you need help with understanding mortgages and how financing an investment property works,  please feel free to contact me.  I’m always happy to help.

Steve Garganis

Posted 4 Comments on Real Estate Investments outperform stock market Real Estate news

Real Estate Investments outperform stock market

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…