Jul 112016

Real Estate Incentives

Financial advisors sometimes get a bad reputation for not having their client’s best interest in mind. Many continue to earn commissions even if their client’s portfolio is losing money. But what about real estate agents? Their compensation structure is also heavily based on commissions. They often earn a percentage from the final sale of a home. For a homeowner looking to sell, the ideal situation is to sell his house for the highest price possible. So at first glance it would appear that both a homeowner and a real estate agent would have the same financial incentive; to get the best possible deal for the seller. ūüôā


But further investigation reveals that maybe that’s not really true. Let’s say a homeowner¬†sells his house for $500,000 with the help of a real estate agent on a fixed 2% commission. This means the realtor earns $10,000 and the homeowner keeps the remaining $490,000. To keep it simple we’ll ignore taxes and other costs.

But maybe¬†with some additional¬†advertising, negotiations, and patience, the house could actually be sold for $510,000. ūüėȬ†But this is when the¬†incentive structures begin to diverge. As the homeowner selling the house, an extra $10,000 from the sale price means adding $9,800 more to the bank. ūüėÄ Most sellers would like to see that money, even if it means waiting an extra couple of weeks to find the right buyer. But a realtor would only make $200 off the extra $10,000. For most real estate agents, putting in the extra time and effort (and sometimes even money for ads) isn’t worth the extra commission. So if the homeowner stands to gain $9,800 while the agent would only receive $200, then clearly their incentives do not align very well anymore.

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Jun 272016

Real Estate Ad Terms

Some folks might think using words like “charming,” or “spacious” in a properly listing is smart and would result in a higher sale price. But in reality the opposite is true. Here are 10¬†common real estate ad terms. Half of¬†them have strong positive correlations with a higher sale price, and the other half is negatively correlated.


According to the book Freakonomics by Steven Levitt and Stephen Dubner, the 5 terms correlated to a higher sale price are:

  1. Granite
  2. Maple
  3. Corian
  4. State of the art
  5. Gourmet

And the 5 terms correlated to a lower sale price are:

  1. Fantastic
  2. Charming
  3. Spacious
  4. Great neighborhood
  5. !

Words such as Granite, Maple, and Corian (a countertop brand,) are all definitive physical descriptions of a home. It tells any potential buyer exactly what the property is like. The terms Gourmet and State of the art, also connotes a place that’s ready to move in.

But on the other hand words like Fantastic can be a misleading description, as are other ambiguous terms such as Charming or Spacious. These words aren’t tangible enough to tell the buyer anything specific about the property. Mentioning a¬†“Great neighborhood” might signal that this particular house isn’t that great and may not¬†have any specific attributes worth mentioning, but at least other homes nearby are pretty nice. The last word on the list isn’t really a word; it’s an exclamation point. It feels like a feeble attempt to cover real shortcomings of the home with a false sense of enthusiasm!!!!

The book also broke down the language used in a listing¬†for a real estate agent’s own home. She indeed emphasize adjectives¬†like new, granite, maple, and move-in condition. She¬†avoided empty and interpretive portrayals¬†like wonderful, immaculate, or¬†the overused exclamation point. She used every advantage she had to increase her final sale price, including telling potential buyers that a nearby house recently sold for $50,000 above the asking price. But that doesn’t make her a bad person. Realtors are people too.¬†They’re simply looking for closure.¬†ūüėÜ

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Apr 192016

If you tend to be very trusting of what other people tell you, it might end up harming you in the long run. You can actually tell a lot about some people based on your first impressions of them. Though your initial thoughts about somebody could be wrong, oftentimes, your gut instinct tends to be correct because it is based on your past experiences with similar people.

Consider this scenario: if the lessor turns out to be a pain to talk to during the initial discussion about the house rental, then you will be stuck with that particular lessor for the whole duration of your contract. This is something that can easily be avoided if you take the time to make acute observations during the discussion of the lease. Here are some things for you to observe when you have the initial meeting with your possible landlord, and why each of these factors might be a clue as to your future relationship with that person.

Does Your Lessor Have a Pleasant Personality?

One of the most important factors to consider when renting a house is if your lessor is easy to work with. After all, you will have to deal with this person for the entire time that you stay at your new place. For instance, assuming that you have been able to pay all of your dues each month without a problem, would your landlord consider giving you a short extension if you happened to be late on a particular payment due to some circumstances beyond your control?

According to an article by Brittany Foster on Law Depot, most landlords who are accommodating do not mind giving you a little leeway. After all, it is in their best interests to keep a tenant that is responsible and courteous most of the time rather than kick them out and replace them with a troublesome tenant who is rude and misses every single payment. This is a headache that most decent lessors would want to avoid at all costs, as good tenants can be hard to come by, and it is not worth letting go of them all because of a one-time tiny mistake that they could not avoid no matter how much they tried.

Do You Feel Respected by the Lessor?

During your initial meeting with the landlord, it is important to check for signs of whether or not they look down on you as a possible tenant. After all, they are trying to get people to rent our their property, so they must treat you with respect no matter how many questions you have or how many times you ask to clarify something in the contract. In fact, taking the time to observe a lessor’s tone of voice, body language, and facial expressions are a way to gauge just how much they actually respect you and any other potential lessees they may have.

If you sense any discomfort, condescending tones of voice, or even the tiniest signs of disrespect, consider these red flags about the lessors’ attitudes and move on to the next one.

Does Your Lessor Blame You for Everything?

According to Brene Brown, blaming others for all kinds of problems is one way in which people try to release any pain or discomfort that they are feeling. After all, when you point the finger at somebody else, you would be washing your hands of the problem and would not have to deal with it anymore.

If you can, ask current tenants if the lessor tends to blame them rather than diagnose what the problem is. Make sure to check if the contract states that any damages that happen to the house will be paid for by the lessor. If the contract states that all repairs will be covered by the lessor but you are still forced into paying for the damages, then take it as a sign that the will blame you in the future, and look for another house to rent.

Whether you are looking for a new house for rent on useful sites such as PropertyGuru Singapore or hitting the streets to look for vacancies, do not only focus on the physical properties of the house itself. There is an element of human interaction whenever you decide to rent a new property to live in, and that happens to be in the form of your future landlord. Take your time feeling out the person’s personality, as a few minutes or hours talking to them will give you a clue about what your long-term relationship with them will be like.

Find a landlord that respects you so that you will not just have a home that is beautiful and up to physical standards, but an intangible renting experience that is nothing but positive for everybody involved.

Feb 112016

House it Going in the Real Estate Market?

So this is the kind of house you can expect to buy in Vancouver today for about $1.19 million.



To put this into context, the same $1.19 million could be used instead to create a¬†dividend growth portfolio that would generate¬†$40,000 each year of tax advantaged income for a lifetime. ūüôā Have homeowners completely lost their noodles in this city?

The economy has stagnated. The U.S. stock market is down about 10% over the last 12 month period. The TSX in Canada has seen worse, falling by 20% since this time last year. Canada lost more jobs than it gained last month, pushing the unemployment rate up to 7.2%. Low oil and commodities prices is costing us a lot of jobs not just in this country but also in emerging markets that export metals and other resources. Negative interest rates are as common as the flu. Asia’s growth is slowing down. U.S. Treasury yields have fallen from 2.0%+ to just 1.6% over the last 6 months. And as Lenore Hawkins, chief economist at Meritas Advisors, says, the slowdown of growth in “global trades is at levels we haven’t seen since around 1958.” It’s almost like the entire world is in recession.

But despite all the negative news and market volatility out there, local real estate as a whole has remained stubbornly bullish for the last 4 decades.

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Feb 082016

Mortgage Investment Corporations Returns in 2015

The Toronto Stock Exchange lost about 9%¬†last year.¬†But one group¬†of investments that performed well in 2015 were¬†mortgage investment corporations (MIC.) In the beginning of 2015 I held three¬†different MICs. Since I didn’t add any new positions throughout the year it’s easy to calculate my total annual returns from them. Let’s take a look at the results. ūüôā

Liquid’s MIC returns in 2015:

  • Antrim Mortgage Fund: +4.5% return (on $10,300 invested)
  • Atrium Mortgage Investment Corp (AI): +8.2% return (on $2,100 invested)
  • Timbercreek Mortgage Investment Corp (TMC): -0.6% return (on $2,600 invested)

Total returns = 461 + 172 + (-16) = $617

Overall Return on investment = $617 √∑ $15,000 = 4.1% return

The chart below shows the unit price of my AI and TMC investments compared to the S&P/TSX index, throughout 2015. It does not include dividends or interest.


MIC Analysis

My total return for holding $15K in MICs last year earned me 4.1%. This rate of return was lower than the historical average of 5% to 8% one would normally expect from a basket of mortgage based investments. I believe a number of negative factors played into this outcome.

  1. Our economy in 2015 was weaker than economists had expected. The price of oil lost around half its value. As a result, the Canadian economy fell into a recession because it’s very¬†dependent on strong oil prices to grow.
  2. Another reason is because the Bank of Canada cut interest rates not once, but twice in 2015. Lower rates are bad for mortgage lenders like MICs because they make less money if borrowers pay less interest on their loans.
  3. Furthermore¬†the annual account fee I paid to my trustee lowered my Antrim Mortgage Fund¬†return by¬†1.3%.ūüėĖ
  4. The last reason is because one of my holdings, Timbercreek (TMC) severely under-performed other MICs. I don’t know if 2015 was just a bad year for the stock or if the drop¬†is due to¬†something more substantial. ūüėē

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