Dec 292016
 

The Most Expensive Home in Canada

If you’re in the market for the best property money can buy then look no further than Vancouver, B.C. Earlier this year the exclusive downtown penthouse in Coal Harbour went on the market for CDN $58,888,000, which makes it the priciest Canadian home to be listed on the MLS.

This custom designed, upscale penthouse features two full stories, and over 8,000 square feet of living space. It has a spectacular panoramic view of the ocean, mountains, Stanley Park, Lions Gate bridge, and English Bay. The drawback for most apartments is a lack of parking spaces. But you won’t have that problem here. This luxury pad comes with a private garage for 7 cars. 🙂

Luxury Living Near Central Park

What if you have lots of money and want to live on the east coast? Well not to be outdone, New York City has its own selection of ultra expensive homes for sale. A duplex penthouse on the top of the new One57 skyscraper in Manhattan sold last year to an anonymous buyer for US $100,500,000. Nope, it wasn’t me. 😛 At an incredible height of 1,000 feet (~300 m) tall, you can see just about everything from this penthouse. It has unparalleled views of Central Park, the Hudson and East Rivers, and nearly every New York landmark on the horizon. Wow. Imagine waking up to that view every morning. 😀

Located on the 89th and 90th floors, this 11,000 square feet apartment comes with a steam room, a library, a movie theatre, and 6 bedrooms including a rather large 550 square feet master suite. Not surprisingly, this sky high apartment also comes with sky high expenses. The estimated maintenance cost is around $18,000 per month, which actually isn’t bad considering the apartment’s value, eh?

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Oct 172016
 

So Long, Air Canada Bonds

Earlier this year I purchased some Air Canada bonds for $5,305, with an attractive coupon of 7.625% annual interest rate. Very nice! They weren’t suppose to mature until 2019. However Air Canada decided to be a jerk and redeem them early at the beginning of this month. So all the bonds were bought back, including mine.

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As we can see, I lost $305 on my principal amount. However I’ve collected more money back from interest payments. So overall I still came out with a small profit. This concludes my first junk bond investment. I wasn’t able to earn the attractive return all the way to the end as I hoped, but at least I didn’t lose any money. 😀

Anyway, redeeming the bonds means Air Canada returned the $5,000 cash back into my RRSP account. 🙂 So I used the money to purchase 2 relatively defensive stocks, Boardwalk REIT and Enbridge Inc. The stock market reached a new high this year and it’s been over 8 years since a major correction so I believe we are overdue for a pull back any day now. Both Boardwalk REIT and Enbridge generate stable cash flow so they are more resistant to market corrections than most other stocks.

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Boardwalk REIT – New Addition to my Retirement Portfolio

I purchased 60 units of Boardwalk REIT (BEI.UN) at $50.56 each. The total came to $3,043.59 including commissions.

I like REITs because they own and operate properties, and pass on the profits to their unit holders. This means investors can make money in the growing real estate industry without all the hassle of dealing with tenants. 🙂 Boardwalk specializes in multi-family residential properties.

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Normally we determine the value of a stock based on its earnings, but in the real estate business we use funds from operations (or FFO) instead to measure a company’s performance. According to Boardwalk’s forward guidance the company expects its annual FFO to be in the $3.20 per unit range. This gives BEI.UN an equivalent earnings yield of about 6.4%. Which translates to a P/E ratio of about 16x. To me 6.4% isn’t a bad return in today’s market. 🙂

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Boardwalk owns property across the country, but about half of its portfolio sits in Alberta, including some in Fort McMurray. Alberta is struggling due to the unfortunate wildfires this year and the continuous low price of oil. Calgary’s unemployment rate last month was 9.5%. Ouch! 🙁 As a result BEI.UN is down 10% compared to a year ago. However, I believe this is a good opportunity to get in before the REIT recovers. Oil has already bounced off the bottom. And forest fire season is over. A lot of people are pessimistic about Alberta’s economy. But I think their concerns are overblown.

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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. 🙂

mics-house

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. 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. 😀 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.

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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.

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Apr 142016
 

To become a successful farmer you have to be outstanding in your field, if you know what I meanBut as most investors know, commodity prices have been in a slump over the past couple of years. This means many grain farmers have to live a very tough life. Perhaps some of them barley survive from wheat to wheat! But things may not be as bad as they seem because crop sales in 2015 were some of the strongest Canadian farmers have ever seen, and was cited as a contributing factor to growing farmland prices.

 Canadian Farmland Values Grow 10.1% in 2015

The national agency, Farm Credit Canada, recently released its annual farmland value report about the previous year’s farming landscape. As it turns out in 2015 the average Canadian farmland price increased 10.1%. This is absolutely incredible! 😀

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Farmland prices are assessed using recent comparable sales. These sales must be arm’s-length transactions. All provinces saw their average farmland values increase and Manitoba experienced the highest increase at 12.4%. The full report is on FCC’s site.

After this year’s adjustment using the 9.4% Saskatchewan increase from the new FCC report my farmland should now be worth $129/acre more than last year. Since I have about 300 acres of Saskatchewan farmland, that’s almost $39,000 of capital appreciation in one year. Whoop Whoop!

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Farmland Historical Performance

Here’s a look at historical farmland values in Canada from 1985 to 2015 according to FCC.

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