Jun 232014
 

It appears both the real estate and stock markets in Canada are at all time highs 8-O Meanwhile yields on bonds and GICs are still near record lows :( Even cash is losing its appeal because energy and food prices have pushed the inflation rate to a multi-year high. Which begs the question: Where can we still find value? What should people be investing in now?

Well I think I have the answer! ;) In May I blogged about looking into mortgage investment corporations. After some further research I bit the bullet and earlier this month I invested $10,000 in a MIC. This new investment generates a stable 7%+ annual return, uses real estate as collateral, thrives under inflationary pressure, is hedged against the risk of increasing interest rates, can be redeemed at any time with no penalties, and adds stability to my portfolio because a stock market correction would not affect my $10K principle balance at all.

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A mortgage investment corporation lets investors pool their money together to be lent out as mortgages. It essentially allows the average investor like you and I to participate in, and profit from, the mortgage lending business ;) This is the best thing since canned peaches! Banks make a lot of money by collecting interest on mortgage loans right? Well retail investors can also get in on this lucrative business model. Booyah! :D

A MIC is also a great hedge against inflation. If interest rates rise, a MIC’s return would also increase because higher mortgage rates mean more profit! People who invest in a mortgage investment corporation do not own the real estate. MIC investors simply make money from the enviable position of being a lender! It’s like peer to peer lending in the U.S., Estonia, or other parts of Europe, except every loan in a MIC is secured by real property ;) What a lollapalooza!

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Jun 172014
 

The Canadian housing market continues to defy gravity! :) According to CREA the average home price in May increased to $416,584, a 7.1% jump from a year ago. The number of homes sold also increased by 5.9% month over month, which is the largest gain in several years.

A lot of people feel concerned that this kind of growth is unsustainable. They question how prices can increase so much without personal incomes growing at the same pace. Many have concluded that we are surely headed for a correction soon.

I hope I can explain what’s going on, and why it would be perfectly normal for home prices to move even higher.

As an investor I know from experience that personal income has very little to do with purchasing power or prices. For example I spent over $200,000 on stuff in 2013 (mostly financial assets) even though my take home income last year was less than $50,000. Living in a debt based economy means we have the privilege to borrow money from other people so we may buy things even if we don’t have the cash :)

Local incomes also don’t account for the massive amounts of foreign money that gets pumped into the Canadian housing market each year. But what really affects the price of homes is the cost of financing. Over the last year mortgage rates went down in this country. A 5 year fixed rate term is under 3% now.  Cheaper financing options means people can buy more expensive homes.

Mortgage and down payment real estate market canada

If the Bank of Canada lowers its Key rate by 1%, bond yields would fall to almost nothing, and mortgage rates would be even lower than today. You could probably get a $300,000 mortgage for 2%, which would cost a new home buyer just $6,000 a year in interest to live there. That’s cheaper than renting a comparable property! On the other hand if the Key rate increases by 1%, mortgage rates will also climb, and many people wouldn’t be able to afford a $300,000 home anymore so home prices would drop across the board. If rates don’t move at all, home prices should simply increase at roughly the pace of economic growth, which is about 2% a year.

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May 092014
 

I recently received payment from my tenant for the first half of the year’s rent. So I have $5K now sitting in the bank. What should I do with it? Well I want to invest in the mortgage market. I first heard about mortgage investing when I attended a free industry seminar. But it wasn’t until recently that I seriously started to look into it.

Here’s how it works. When someone buys a home, they typically need a mortgage (a loan) which usually comes from a bank. But instead of getting the loan from a bank, what if we, as investors, lend money to this home buyer. Then all the interest the borrower pays would be our gain.

In Canada, there are companies called Mortgage Investment Corporations, which pool together investors’ money and underwrites and lends mortgages for home buyers looking to finance. A MIC (pronounced *mick*) is a flow through investment and 100% of the net profits are distributed to investors.

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A MIC is similar to a high yield bond because both are debt instruments for financing purposes and both have similar yields, which is perfect for me because I need some fixed income exposure in my portfolio right now. If any readers own a MIC, are you happy with its performance?

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Apr 282014
 

Earlier this month Farm Credit Canada published its annual farmland values report :) Across the country farmland values on average increased 22.1% in 2013. Great Scott! 8-O Saskatchewan farms experienced the biggest jump of 28.5% Blimey! (゜o゜) That represents an 89% increase since 2011.

A couple of years ago I explained on this blog why Saskatchewan had the most investment potential due to its growing resource economy and past government regulations which artificially limited market demand.

14-04-2013 Canadian farm price change farmland values

The full FCC report can be found here (PDF.)

Right after I bought my first farm in 2012 some readers asked me if it’s too late to invest in farmland. I told them it’s never too late to buy land as long as you have a long term investment horizon ;) I’ve never heard of anyone who has held onto good quality real estate, whether it be in the city or in the countryside, for over 10 years and somehow lost money during that time. And I would give the same opinion to anyone today in 2014 if they asked me that question again :)

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Feb 252014
 

The following is a guest post about property investments

Become a landlord and make your money work for you

Buy-to-let is a way that many people have been investing their money since interest rates fell to historic lows and savings have offered little return.

With a strong recovery in the property markets hitting the headlines, it looks like now is as good a time as any to get involved in rental investments before prices go any higher.

Investing in property has always been seen as a great investment and becoming a landlord is now more popular than ever.

Interest rates

The big factor that affects savings is interest rates. When they are as low as they have been for the past few years there is more incentive to make your money grow in other ways.

In the UK, interest rates are set by the Bank of England and there are conflicting signs as to how soon we can expect any increase. In the meantime, low cost mortgages remain a good deal for many would-be landlords and mean that higher yields on rental levies will be possible until circumstances start to change.

Property prices

Obviously when you buy a property to rent out, not only do you receive a regular income but the property itself also grows in value if you have bought wisely. This is called ‘capital appreciation’ and some forecasts are currently suggesting a growth of 20-30% over the coming years in the value of property in the UK.

Of course international property investment opportunities are also available to everyone wherever they are based, and different countries have excellent prospects across various sectors.

In fact, unless you are lucky enough to stumble into buying shares in the very early days of the next Facebook or Twitter, putting your money into property in the UK or abroad is likely to offer the best returns of any investment currently available.

First timers

With interest rates unlikely to see large jumps even when they do start to rise, many first time buy-to-let landlords are currently looking to get involved in the rental sector.

For those who already have a buy-to-let portfolio, now could also be the ideal time to extend it by adding more properties. As rents have remained stable through the economic crisis and the benefits of low mortgage costs have been felt for some time, existing landlords will be well placed to invest further.

Outlook

For many rental property owners, yields are the best in a generation and capital growth has already begun to revive, so investing money in this sector really does seem like a solid and viable way to keep making your money work harder for you.