Sunday, February 28, 2010

This and That - Edmonton news

Time for a reality check on Alberta's dirty oil - "The real problem here is that most Americans don't have a clue of the importance our energy resources are for them.

Shame on them for not knowing, Shame on us for not telling them loud and clear.

It is our energy that keeps them warm in the winter and cool in summer, and without it they are going to have a very difficult time competing with rising powers like China, India and Brazil.

Getting that message out is becoming increasingly important.

Op-ed articles in the New York Times and USA Today can help. As can forums at scholarly think-tanks. But how do we really do it?

Well, like it or not, those cable television news programs and talk-radio big mouths are what is driving political debate in the U.S. right now. That is where we have to tell the Americans that without our oil they are doomed.

That will get their attention. And it has the added benefit of being true."

As he points out in the article, America's other sources, are not so reliable Middle East, Nigeria and Venezuela to name a few.

United Way raises $20.6 million in Edmonton area - "A struggling economy failed to curb Edmontonians' generosity as companies and individuals throughout the capital region donated more than $20.6 million to the United Way during its recent fundraising campaign."

The total finished just shy of the $20.7-million goal but still beat last year's effort by $56,000.

"Although the City of Champions slogan originated in the sports world, it is truly exemplified by the unmatched generosity, compassion and engagement of its citizens," Wayne Shillington United Way Campaign chairman

What generosity! Way to go Edmonton!

A Different kind of exploration in the oil patch - "Jim Carter, the former president of oil sands miner Syncrude Canada Ltd., recently returned from a trip to Abu Dhabi, where he attended the World Future Energy Summit. Mr. Carter was named chair of the Alberta Carbon Capture and Storage Development Council in April, 2008, and has become a leading proponent of the province's bid to develop the greenhouse gas-busting technology.

Alberta has spent $2-billion to build four pilot carbon-capture-and-storage (CCS) sites. It's a controversial investment in a province that has careened into multi-year deficits, but Mr. Carter's time in the Middle East convinced him Alberta could become a global technological leader if it continues on its path."

Alberta is often a technological leader can' t wait to see how this pans out.

Saturday, February 27, 2010

We ARE Ambassadors!

Todd and I applied to be Alberta Brand Ambassadors and were accepted! We're really excited because,hey, we've already been selling Alberta for 8 years to 5 countries.

Here is the passion behind the brand:
"Alberta has a great story to tell and we are going to tell it.

Now, more than ever, this is the time to promote Alberta. It is vital to ensure that our province remains competitive in the global market, and continues to be a place of opportunity, prosperity and pride for all Albertans.

The new Alberta brand is a brand for the place - our province. It captures the spirit of our people as well as the potential that exists throughout Alberta.

The perception of Alberta that the new brand helps to create at home and abroad will have a profound impact on the success of the province. It will affect Alberta's access to world markets, sway investment decisions and influence our ability to attract tourists and immigrants."

What vision! I'm proud to be Canadian, an Albertan (vicariously) and to be part of this.

Thursday, February 25, 2010

Kids hate vegetables.

I met a little American boy the other day who told me how much he hated vegetables. I actually hear this a lot from western kids and I wonder why. Whereas in Japan kids will tell you how delicious vegetables are some even going so far as to give recipes for best results.

Where do they get these ideas? Are they from parents who think kids who hate spinach are cute? Or TV where kids are feisty and well aware of parents attempts to sneak extra nutrition into food.

It brings me to memes and specifically those related to money. Investing is risky. Real estate gets you up at 4 am. Tenants are a headache that eventually reduce your R.O.I in terms of time management. The safest thing is to invest in mutual funds and keep my head down working. I can retire in 35 years.

The problem with my generation is we've got the memes of our parents (university,job security, pension) and also the memes of the information age- where fortunes can be made online. The paradox of risk and security can leave you in inaction.

At any rate we DO have the power to select the memes we live by. Though many will tell you you're crazy to take the road less traveled by... it makes all the difference.

So eat your vegetables and take control of your financial future.

Friday, February 19, 2010

MUST READ - Peter Kinch on New Mortgage Rules

Peter Kinch is Dominion Center's #1 mortgage broker in Canada and a bestselling author.

This is taken from his newsletter which you can (and should) sign up for if you have a mortgage or are looking to get one.

"One year ago today, Canadians were worried about the greatest recession since the great depression. Housing values would drop so low we will all lose our life savings. Everything was doom and gloom.

What a difference a year makes. No only did the housing market rebound - it came roaring back with a vengeance as if the recession had never occurred. So much so, in fact that at the end of December Canada's Finance Minister Jim Flaherty did an interview with CTV in which he expressed concern over the sharp rise in housing values and fears of a pending housing bubble. He made it clear that the government had tools at their disposal other than tinkering with interest rates that could be used if necessary to slow down an 'over-heated' housing market. The tools he was referring to were changing the maximum amortization for 35 years down to 25, and changing the minimum down payment for CMHC insured mortgages from 5% to 10%. At the time many economists expressed concerns that an over-reaction to the current market conditions would dampen the overall economy and hinder our economic recovery. They warned the government not to over-correct a 'hypothetical problem' in reaction to 'unwarranted fears'.

On the other hand, there were many voices in the market sounding the alarm - 'Have we not learned from lessons of one year ago?' Many felt that Canadians were getting right back into the same trap of using their homes like an ATM machine and were setting themselves up for disaster the moment interest rates start to rise. Surely the only prudent thing to do would be for the government to step in and protect us from ourselves - not to mention those greedy bankers who are once again offering us borrowing options that allow us to borrow with reckless abandon - at least that's what some would have us think.

So what's the truth? Well as always it lies somewhere in the middle. The fact is, interest rates must rise - not if, but when and by how much how fast. When this happens will a large percentage of Canadian homeowners be caught in variable rate mortgages paying only 2% interest only to find that their interest rate is now 5%. If that were to happen, would a larger percentage of those homeowners be in the position of no longer being able to pay for their mortgage. Would this trigger a mass sell off, thus resulting in an imbalance of the supply and demand equation, ultimately resulting in plunging home values - thus triggering the aforementioned dreaded 'burst of the housing bubble?'

A fair question and one that many were asking and the government felt compelled to address. The result - the February 17th announcement of 3 new rule changes to government insured mortgages (read CMHC) aimed specifically at addressing these concerns. But the real question is; did they address legitimate concerns or was it simply a case of paying lip service to a vocal minority for the sake of good optics?

Let's take a look at the three rule changes and analyze what they really mean to you:

• Any borrower who chooses a short-term mortgage (1 - 3 years or a VRM) must now qualify at the 5 year rate in order to get a CMHC insured mortgage.


Negligible: the fact is that most lenders already require that anyone taking a variable rate mortgage must qualify at the '3 year posted rate'. What's of interest is that the government announcement did not distinguish whether the 5 year rate is a a'posted rate' or 'discounted rate'. The difference is about 1.5%. The irony is that the current 3 year posted rate is higher than the 5 year discounted rate, so if the government rule requires that you qualify at the 5 year discounted rate, this could actually serve to 'relax' the rule not strengthen it. In addition to that, recent surveys indicate that as much as 70%of Canadians already choose fix rate long-term mortgages.

Bottom Line:

Great move regardless. It is practical and imperative that anyone taking a variable rate mortgage today factor in a 3% increase in rates over the next 2 to 3 years. I still believe there are huge savings to be had if you take a variable today, but only if you increase your current payments to match the current discounted 5 year rate. In dong so, you will accomplish two things:

1. You will accelerate the rate at which you pay off your mortgage, thus reducing your principal mortgage balance at the time of renewal. This will help to negate the impact of an increase in rates at that time.
2. You will adjust your family budget today to the inevitable higher rates in the future - thus avoiding 'payment shock' to your budget.
Smart and prudent - but will it achieve the effect of helping to cool off the housing market and slow things down? Not at all - this one is purely optics.

• The maximum amount you can refinance your home has been lowered from 95% to 90%.


Again this one is negligible. Smart move by the government to make mandatory what should be common sense. The only reason anyone would leverage their residence up to 95% would be to pay off high interest credit card debt with the extremely low interest mortgage debt. Others may want to simply access as much money as they can at these historically low rates in hopes of generating a greater return in the market. Either way, it is extremely imprudent for anyone to over leverage their principal residence. Whether there is a bubble or not, it certainly doesn't take much of a market correction to eliminate 5% in the value of any home. For the average Canadian, their home represents their greatest investment and with that, their largest source of net worth. It also represents a major component of the average Canadians' retirement plan. It should be a source of 'equity development' and not be used as an ATM to subsidize current lifestyle.

Bottom Line:

Smart and Prudent move. Will it have the desired effect of slowing down the housing market? Not at all. The truth is that the percentage of Canadians refinancing to that extent is an extremely small percentage of the population so this will have a very small impact.

• The minimum down payment on non-owner occupied properties purchased for speculation will now be 20%.


Significant: this is by far the most significant of the new rule changes. Although the announcement specifically stated that they were targeting the 'speculator' not the 'investor', the net effect is that all investors will be impacted. However - and this is VERY important. The impact will not be the fact that investors must now put 20% down. The truth is, I've been teaching that for years. Any investor should look to put 20% down for cash flow reasons if nothing else. But the real reason this is a major rule change is the sub-text to this rule change that was not included in the original announcement and not reported in the press. In addition to no longer allowing high ratio mortgages, CMHC has also changed their underwriting policy. Whereas they previously allowed for an 80% offset of an investors existing portfolio when underwriting a mortgage, they will now revert to a 50% addback. Now to the average Canadian this is a meaningless change. But to the real estate investor, the change is significant. It will create 3 major changes:

1. A 50% add-back is significantly less favourable to an investor than an 80% offset. Without going into an elaborate explanation of the difference between the two, let me make it simple: if you currently own more than three rental properties, you will never be able to qualify for a mortgage using only 50% of the rental income from your portfolio.

2. No problem you say - I'll just put 20% down. Well the secondary issue here is that all the non-institutional lenders such as Merix, Street Capital and DLC Mortgages, are MBS lenders and require that all the mortgages in their portfolio be insured - even if they are conventional (20% down). That means they need to follow the CMHC guidelines. This means those lenders are no longer an option for real estate investors with 3 or more properties even with 20% down payment.

3. This will shift more of this business to the chartered banks, all of which are tightening their guidelines on rental properties meaning the next issue investors will face is 'Cap space'. You will have a cap on how many mortgages you can get with each bank and you now have fewer choices. This will make the need to have a strategic plan even greater.

Bottom Line:

Significant impact on investors. But as for cooling down the overall market - again negligible, simply because real estate investors at the end of the day represent less than 5% of the overall market so their impact on the overall housing market in Canada is muted.

At the end of the day, the finance minister walked a thin line between addressing concerns about an over-heated real estate market in Canada and not over-correcting the problem at the risk of causing damage to the overall economy. I think he went too far with the changes to the investment side, but otherwise I give him full marks. By addressing these concerns now, it should also take pressure off Mark Carney and the Bank of Canada to raise rates prematurely and that is in the best interest of our overall economy. But like I said in January - it's the government we're talking about - anything can happen."

Until next time;

Happy investing,

Peter Kinch

Check this out! Great pictures

Alberta Brand you can even become an Alberta Ambassador.

Wednesday, February 17, 2010

Canadian Mortgage Lending Changes

From April 19th look out for new federal rules that may affect your next real estate purchase.

1. Lenders will have to now evaluate potential buyers based on the 5 yr fixed rate at the time of purchase. Even if the buyer decides to go with a different "type" of mortgage. This will probably only affect you if your Total Debt Service Ratio (ability to borrow based on the amount of debt you can reasonably carry) is on the high side. If you can get a good TDSR at the 3 year 3% then a 5 year rate of 5.89% might just nix your chances of getting a mortgage.

2. The government is lowering the maximum amount Canadians can withdraw when refinancing to 90% Loan To Value, from the current 95% LTV as a "forced savings" initiative. It's not a bad idea really, providing less exposure to people.

3. Investors will require a 20% down-payment on “speculative” investment properties. I'm not sure who will determine what speculative means but... if you're hoping to invest with 10% down better do it before April.

Of course there are always legal ways to get around these new scenarios.

Monday, February 15, 2010

Pulling Gold

The Olympics have officially started! It was the first time I saw the postmodern 'doobie' torch and I must say, it was inspiring to watch the games begin. Although I'm not a huge sports fan, every time the games start I manage to get wrapped up in them. Once I was on a barge floating in Indonesia, another time in Tokyo and it was especially moving to see.

The relay has involved 12,000 torchbearers who have covered roughly 45,000 kilometers in every corner of the country. It started in Olympia, Greece, last October at a ceremony that used the rays of the sun and a special mirror to light the flame. After touring that country, the flame was put inside a miner's lantern and flown to Canada where the final four legends lit the flame.

What I get out of watching the Olympics is seeing the athletes elated faces when they win, especially the young ones. It is fantastic to see them so blown away when they get a medal. I love that look; the coaches beaming on. There is a release of energy to be a part of something so big - but yet to still celebrate your (and your teams) win.

When you watch a particularly moving competition, try and take a bit of that energy with you on throughout your day and into this year and see what happens.

Sunday, February 14, 2010

This and That

Alberta keeps edge as Venezuela's oil reserves surge - "On the industry-accepted Oil & Gas Journal list, Saudi Arabia comes first, with 264 billion barrels of largely easy flowing crude, followed by Canada's 175 billion barrels of oil, mostly from the oilsands. With 99 billion barrels, Venezuela trails Iran, Iraq and Kuwait.

"It all depends on how you count your reserves, and in Canada our data are open, transparent and reviewable. You can even look at the drilling logs and core samples," Greg Stringham, vice-president of the Canadian Association of Petroleum Producers

"The situation in Venezuela is significantly different than Alberta, given the political environment and the uncertainty there, so that also suggests that, while there may be more oil there than some people had thought, there's a big, big leap from there actually being more oil to having more oil produced. That is, at the end of the day, what really matters."

Canada still ranks as number 2 in the world for oil reserves. We are THE safest place to get oil in the world.

Economic revival sweeping western Canada - “The West is on fire,” said Adam Waterous, Scotia Capital's Calgary-based head of global investment banking. “It's fantastic news for the country. These are big, big projects that are going to get developed. And there's no question that the West is going to lead the country out of the recession.”

Bring it on! We are ready to ride out of the recession Alberta style!

Olympic games no golden economic opportunity - "Closer to home, here in Alberta, the Games have already produced some notable economic winners. The biggest of all is Edmonton-based PCL Construction, the lead contractor on the $900-million expansion of the Vancouver Convention Centre.

The sprawling waterfront structure on Burrard Inlet, next to Canada Place, will serve as the international media centre during the Games, and home base for some 8,000 journalists.

The closing ceremonies for the Games will take place at B.C. Place, where PCL, once again, will oversee another huge project. Although it won't start until after the Games end, the $458-million scheme to install a new retractable roof on the stadium, home of the B.C. Lions football team, will rank among the largest construction jobs in Western Canada this year."

The Olympics are a fantastic celebration of excellence but they may not sell your home.

Friday, February 12, 2010

How to avoid huge pre-payment penalties.

In this case hindsight is 20/20. Low posted rates mean that anybody trying to sell their property before the maturity date will be hit with some pretty hefty mortgage pre-payment penalties.

Most banks offer two pre-payment penalties on their loans; three months payment or the interest rate differential (IRD) quoting whichever is higher. With posted rates so low you're going to be looking at the IRD penalty almost every time.

It works like this if your $100,000 mortgage is at 6.0% and matures in July 2012 you want to sell in March 2010. The bank takes the difference between your rate and the posted rate say 2.0% and charges that interest rate on the balance of your mortgage for the term left. Clear?

6% -2% = 4% on $100,000 for 28 months = a lot of cash ($10,000+ of dollars)

We always plan our sales/refinances based on the mortgage maturity date. It's simple planning that can save you surprise cash losses at sale.

The simplest thing to do is hold out to maturity but if you just can't wait try savvier options like assumptions, agreement for sales (wraps) or rent to owns.

Monday, February 08, 2010

Insurance Costs

We've renewed our insurance costs for 2010. Our provider is Peace Hills Insurance and they give us very competitive rates, excellent service and quick responses on any claims we file.

We watch our costs pretty tightly and noticed there was an increase in the premium this year. Our great broker explained that insurance companies generally increase the premium annually on a flat rate inflation percentage. Even in years where the properties aren't appreciating.

The spread between some companies is between 4% and 12% in the same year. So we asked if we could adjust our rate and were given the ok.

When you're dealing with a huge portfolio it could mean hundreds to thousands of dollars a year in savings. Of course you must ensure your property is never under-insured or over-insured.

Wednesday, February 03, 2010

Who says art doesn't pay!

Another draw to the city.
Check this building out! I think it is classy and if it draws the estimated $2.2M in revenue that would be nice. The gallery has already sold 2000 memberships before it opened and is aiming for 200,000 visitors in the first year.

Tourism is another tier in the diversification table and a welcome stream of income. Plus, it'll be fun to visit even if you're not that keen on the arts.

Here is the map to get there and check out the Art Gallery of Alberta site.

Monday, February 01, 2010

Are you missing the point? - Alberta Oilsands Investment Real Estate

Recently Danielle has been listening to a lot of Hay House Radio, which is pretty cool. You get to hear many fantastic authors speak, and sometimes callers can dial up to ask questions. But, there are some hosts on there whose topics I just can't wrap my head around.

I was making a joke about one of them when Danielle mentioned another teacher that we both really like now. We'd bought her audiobook a year prior but have only started to grasp the concepts she spoke about now. In fact when I first heard it it sounded like some kind of wacky mumbo jumbo. But, when I heard it again recently I totally got the message. What changed? It was exactly the same audiobook, same author and the same message.

How have I changed in 1 year that has enabled me to 'get' the message this time? Perhaps you've experienced re-watching a movie and the second time round you pick up so much more from the film. You're able to get the subtle nuances, catch an underlying theme or get the deeper meaning that you missed the first time. Maybe you've read a great book and have taken away one two key ideas to apply. Then you go back to that same book and find another 3 concepts that you didn't even catch before!

I guess the old adage is true - 'When the student is ready, the teacher will appear' even if that teacher is a book, a situation or something unpleasant. When we continually tune in with an open mind our learning is infinite. This is a lesson I think we can use whenever we feel a particular concept is difficult to understand. Step back, look at it and ask what is it that I'm not seeing?

Sometimes it may take a while for that answer to be processed, but it'll come when we train ourselves to be receptive to it.

"In the spider-web of facts, many a truth is strangled." -Paul Eldridge

Kind Regards,

Todd and Danielle Millar.

Kiyosaki Busted?

CBC slammed Rich Dad Robert Kiyosaki after some hidden camera work and investigative reporting in Ontario. Exposed were what seemed to be some truly horrible real estate investing seminars that were held in the Rich Dad name.

Not only did the seminars cost around $12,000 - $45,000 but apparently the trainer, Marc Mousseau was abusive, rude, arrogant and seriously ridiculous. There was intense up-selling and pressure to increase credit card limits to buy more real estate and maybe more courses. Those who protested were hauled out by security.

I personally have a lot to thank Rich Dad for. His game Cashflow and books were our start into investing. I still play the game today and always get something out of it. The report looks injurious to his image but I think, as with anything, you must consider the big picture of all the positive his work has done.

Anyway we're all adults if someone pressured you to increase you credit card to $100k would you run out and do it? I wouldn't. Think of the interest!

Watch the 20 minute video