David's Blog

Ottawa tightens mortgage rules to avoid 'bubble'

David Sandbrand (Cobblestone Investments) — Thu, 10 Jul 2008 16:47:58 -0500

In the Real Estate investment game, cash flow is the ultimate goal. With positive cash flow, you can weather any unforseen market fluctuations without the worry of having to carry the investment - remember, you want your money to work for you and not work for money.

Given that cash flow is so important, you'll find that most (if not all) investors are more concerned with their mortgage payment that they are with the purchase price. If the tenant is paying your mortgage monthly, who cares what the property cost you!

Yesterday, the Federal Government announced that they are eliminating the option of 35-year amortization mortgages, and also eliminating zero-down mortgages in an attempt to protect the Canadian economy from being hurt in the same way the US has experienced.

As investors, zero-down deals are hard to make work, because it creates such high mortgage payments that positive cashflow is impossible, not to mention the difficulty in finding any lender that will finance a zero-down investment property. Instead, investment properties usually are purchased with 20% or 25% down, and often with 40-year amortizations to reduce the monthly payments.

So, does this announcement hurt investors? not really, in fact it can easily be taken as good news!

With a mortgage of $300,000, the difference in payments will only be $70/month (at current rates), and if $70/month makes a good deal go bad, it wasn't *that* good of a deal to begin with.

but what is does mean is that first time home buyers will now need to save a bigger minimum downpayment and be able to afford higher monthly payments due to the reduced amortization period. This will hold back a portion of first time buyers, and when they can't buy, they'll continue to rent for a while longer.

We have investors that are currently getting $300 per month in cash flow from an investment of under $85,000. If the next investment is 'only' providing $260 per month because of a longer amortization period, I find it hard to believe anyone will have issues, especially since it may may the rental market a bit tigher and even drive rent upwards.

You can find the article here

David.

Retirees risk outliving their savings

David Sandbrand (Cobblestone Investments) — Wed, 09 Jul 2008 17:54:35 -0500

The Vancouver Province published an article last week (original visible here) discussing how the average person is at more risk than ever of not being able to afford retirement.

This situation stems from an increasing cost for quality health care (except here in Alberta), and longer life expectancies.

The article really focuses on making healthy choices now, so that you are healthy down the road. While this is obviously great advise, it's not the whole story.

One aspect that they barely touched on is the financial planning aspect of getting older. They said "Perhaps most important of all, workers need to personally plan ahead for a long, potentially expensive retirement" and "individuals need to accept greater responsibility for their present and future health, and to factor the cost of health care into their retirement planning [...] They need to open their minds to the possibility they could outlive their assets, and seek advice from those who have access to the full spectrum of solutions"

So, what's the solution to this problem?

Simple - people need to stop living for the moment and buying depreciating assets. We've somehow slipped into a world where (no doubt at least partially because of marketers) the new iPod and RV somehow get purchased on consumer credit, often before retirement planning is ever considered.

Making the matters worse is the banking world that has convinced us that by automatically buying $300 of mutual funds every month will make us filthy rich by retirement. This when more people are retiring broke and the banks are making over $4 billion per year - that's *each* of the big banks.

So, now that we know part of the problem, how do we keep it happening to us?

One answer is to do our best to stop buying depreciating assets, and start buying appreciating assets - things that go up in value. I guarantee you can't sell that iPod, RV, or almost every vehicle manufactured for more than you paid.

It's tough to do, and nobody is perfect at it - I'm sitting here preaching this, but I have lots of things that go down in value. The trick is to buy depreciating assets with cash, and borrow money to buy things that go up in value. It might mean waiting a few extra years for that new car - which is tough, trust me - but it's the easiest way to get money to work for you, instead of you working for money.

The classic example of this is to borrow money to invest in an asset that provides you a monthly dividend payment that is at least as much as the cost of that loan. If you can do this, you have sucessfully purchased an appreciating asset with the bank's money, and you essentially got it for free. In this case the only 'out of pocket' investment you have made is your credit rating, which is often unaffected because banks love to lend money for houses - it's how they make all that money.

I'll wrap up this post now, since I could go on for hours. If you would like some more thoughts or info on this investment strategy, please get in touch - I'd be happy to discuss it further, or meet for a coffee.

David.

Calgary still has right stuff for investors

David Sandbrand (Cobblestone Investments) — Wed, 09 Jul 2008 17:21:33 -0500

Here's a great article about how Calgary is "a 'bright spot' for investing" for Canadians and in fact those around the world.

We have a balanced economy, political stability, the three things the world wants - Food, Fuel and Fertilizer, and all of the economic fundamentals show that Calgary will be a shining star for years to come.

Here's the article, with the original here;

There may be economic uncertainty in other parts of Canada and the world, but Calgary continues to be an attractive place for investors.

Statistics compiled by commercial real estate firm CB Richard Ellis indicate Calgary is well on its way to surpassing last year's real estate investment sales volume.

CBRE's second quarter 2008 report says investment sales volume year-to-date was $1.65 billion, compared to $2.2 billion for all of last year.

The numbers show "continued investment confidence" in the Calgary real estate market, said Bruce Irvine, vice-president of business development and retention for Calgary Economic Development.

There are two main reasons for that, he said.

First, the fundamentals of Calgary's economy remain strong.

Second, with the greater economic uncertainty in the world, Calgary remains a "bright spot" for investing.

The CBRE data show year-to-date sales in Calgary have already surpassed investment sales for all of 2003 ($954.5 million), 2005 ($1.5 billion) and 2006 ($1.6 billion). In 2005, the total was $1.8 billion.

The data also shows a good balance in investment sales throughout different types of real estate product, said Irvine.

There is "clearly great interest in all elements," he said, adding CBRE's numbers indicate this is a story about Calgary as a whole and not any one particular segment.

Year-to-date investment sales by property type were split between retail (20 per cent), downtown office (20 per cent), land (19 per cent), industrial (19 per cent), suburban office (16 per cent) and multi-family (six per cent).

This shows a "healthy and balanced offering across all segments," Irvine said.

Some of the increasing investment volume can be attributed to inflation, said Todd Hirsch, senior economist at ATB Financial. "Alberta is a great place to invest and a great place to do business and that's reflected in the investment numbers," he said.

He said Alberta and Calgary, right now, have the "mojo" and the province is a "strong economic engine of growth. It's got the momentum on its side and investors respond to that."

Greg Kwong, the managing director for CBRE in Calgary, said the total value of investment is bigger this year because the value of properties has risen.

"Very definitely Alberta is the shining star relative to other areas of Canada" said Kwong.

Long-term view key to real estate

David Sandbrand (Cobblestone Investments) — Wed, 09 Jul 2008 17:20:20 -0500

A TD Economics report released yesterday declares Canada's housing boom to be over and certainly over the summer, you're going to hear about declining average house prices in Calgary.

This will undoubtedly give rise to speculation the housing 'bubble' has burst, the bottom has fallen out of the market, the sky is falling and a bunch of other adages proclaiming the end is near, none of which are or will be true.

That's because, over the summer, average single-family house prices will be compared to last year's average prices, which, in July '07, hit an all-time high of $505,920, at the peak of a demand cycle that started in late 2005.

From the heights of last July, the average price declined to about $445,000 by December, then started rising again in January and was slightly above $470,000 yesterday.

Despite the gradual increase this year, comparing prices year to year will show them to be down.

But that's much the same as telling someone turning 50 years old they're only one year older than last year -- while it's true, the fact is the birthday girl or boy isn't thinking about last year -- she or he is thinking about 10 or 15 years ago, when fewer things ached and white-out was in a small bottle, not on the top of the head.

Which is the type of thinking needed to better appreciate the housing market -- what it did last year is not necessarily a true indication of its strength. Real estate requires a long-term view and an understanding of the dynamics that drive the market.

You don't need to go back too far -- five years will do. The average price of a single-family house in Calgary in July 2004 was $242,442, rising to $272,846 in July 2005.

In the fall of 2005, the real estate market went into a frenzy, with the average price in July 2006 hitting $418,998, then reaching the record set last July, an 85% increase from July '05.

And then the frenzy ended.

Demand since about this time last year has subsided dramatically, with prices coming down from last summer's highs, which you can expect them to continue to do this summer.

Which they should, because last year they were too high. And a great many houses are still listed at too high a price today. Too many sellers are looking for the big score from their homes and have them priced above true market value, which is probably somewhere between the average of about $419,000 in July '06 and today's $470,000.

So, when you hear about house prices being down this summer compared to last summer, remember: Real estate is a long-term proposition.

News articles for week of May 5

David Sandbrand (Cobblestone Investments) — Mon, 12 May 2008 09:19:01 -0500

Late is better than never, right? I've been very busy this past week with our newest investment property, plus Diane being now 7 days past due is adding to the complexity around here.

As I eluded to last week, I have been overwhelmed by the number of calls and emails I've been receiving from folks interested in our newest rental property from afar. I've gotten inquiries from as far West as Victoria, and as far East as Newfoundland and Labrador, but the bulk of the people - a good 50% of the inquiries - are from Ontario.

So, because of this I've picked some articles from this week explaining why this is happening. In essence, while the manufacturing sector in central Canada is struggling because of the weak US dollar and the general economic slowdown south of the border, for every job that is lost out there, another two+ are created in Western Canada.

It truly is an amazing time to be in Alberta, with the lowest personal and property taxes in the country, along with super landlord/tenant laws. It's a watershed moment where the powerhouse province shifts from Central, to Alberta.

Labour shortage Canada's top problem

When Prime Minister Stephen Harper gathered the country's premiers at 24 Sussex Drive last fall, he wanted them to focus on what he saw as the country's No. 1 economic problem: Within a decade or two, there simply will not be enough workers in the country.
Already, more than 80 per cent of working-age Canadians have a job -- an all-time high. Solberg marshalled the following data to back up his claim: Alberta will require 100,000 workers over the next 10 years.
And, as the Bank of Canada noted in its monetary policy report last week, year-over-year wage growth has been strong as well, suggesting that good-paying manufacturing jobs are being replaced with equally

Alberta's job market best in the country

Calgary and Alberta boasted the lowest urban and provincial unemployment rates in Canada in April, Statistics Canada reported Friday, as Wild Rose Country set another record Canadian high for employment in the wake of strong job creation.
The federal agency said Alberta's jobless rate in April edged down to a nation's lowest 3.3 per cent from 3.4 per cent in March, as additions to the province's employed easily outweighed growth in both the population and the labour force. That pushed Alberta's employment rate -- the fraction of people who can work who are working -- to a record high 72.1 per cent.
The tight labour market has helped to lift average hourly wages in Alberta to the highest of any Canadian province, at $23.39 an hour in April, a 5.6 per cent gain from April of 2007. Although wages in Newfoundland and Labrador, and in Saskatchewan are now rising faster, they are at a much lower level.

Economy pumps out more jobs

Canada's economy created 19,200 jobs in April, more than economists expected, but the jobless rate ticked higher to 6.1 per cent from 6.0 per cent in March as 23,800 workers entered the labour force, Statistics Canada said yesterday.
It was the first time since June 2007 the unemployment rate was that high.
The average hourly wage of permanent employees rose 4.2 per cent year-over-year

News articles for week of April 28

David Sandbrand (Cobblestone Investments) — Sun, 04 May 2008 14:51:28 -0500

I’m keeping the article list a bit shorter this week – just two articles that show how strong the Canadian economy is, compared to the states, and how Alberta is now the ‘have’ province that the rest of the country is watching.

We took possession of another property on Monday, and are knee-deep in the middle of orchestrating renovations, tenant screening, and ensuring our investor receives great returns. It’s been very interesting receiving so many calls from out-of-towners that are in the process of moving to Calgary. I always talk about the influx of people, but the sheer number this week has even been a shock to me – the summer migration is well underway it seems, earlier than normal.

Federal surplus shrinks to $12.9B

"The federal government's budget surplus is shrinking as expected, but 11 months into the fiscal year just ended it was still a surplus, and still in double-digits, at $12.9 billion."
"Finance Minister Jim Flaherty has vowed not to let the government slip back into the red, suggesting he will delay some spending plans if needed to avoid what would be the first deficit in more than a decade."
Here’s a classic case of negative headlines catching attention. The budget surplus shrinks! Oh no! But wait, we’re still over twelve billion dollars in the black.
This $12.9 Billion federal surplus is in addition to the several billion dollar surplus the Alberta provincial budget will bring in this year.
It’s also key to look at this information in a larger perspective. In 2007, the United States government has a deficit of $163 billion, and is forecasting a deficit of $239 billion for 2008.
The economy in Canada is certainly slowing, but all signs point to us doing just fine.

Energy sector surges past auto industry

"The inexorable shift westward of the Canadian economy is now gaining traction even in the manufacturing sector, the very heart of the central Canadian economy in Ontario, according to a new report."
"In an analysis of Canadian manufacturing in 2007, Statistics Canada found the global commodities boom is benefitting manufacturing industries in the West with sky-high prices and stronger demand, while the strong Canadian dollar and weak U.S. demand is causing Central Canada manufacturing to languish."
"Western Canada has the advantage of selling everything the world wants."
The West is booming. What more can I say?

News articles for week of April 21

David Sandbrand (Cobblestone Investments) — Sun, 04 May 2008 14:50:55 -0500

Here's a few of the news articles that came out this past week highlighting the Alberta economy.

The Alberta budget

It's been a great week to be an Albertan again, with the new provincial budget being released on Tuesday.
$1.6 billion surplus, and the lowest taxes in Canada - a savings of $3000 to $5000 per person over the other provinces!
No more health care costs. that's a savings of $1056 after tax dollars for a typical family.
valuing oil at only $78 per barrel, the budget still leaves a surplus of over 1.6 billion dollars
For every dollar that a barrel of oil goes up, Alberta pockets an additional $130,000,000. On the day the budget was announced oil closed at over $119. If oil averages even $100 per barrel this year, Alberta will bring in an additional $2,860,000,000 this year (that's $2.86 Billion!)
With a HUGE surplus like $4 billion, there will be new schools, roads, and jobs, jobs, jobs. When taxes go down, and more jobs are created - people move here.

Positive market for home buyers

"Rising inventory levels, coupled with falling interest rates, are giving buyers a "favourable advantage," says the Re/Max Affordability Report 2008."
"The housing slump in the U.S. has so far left Canada's real estate market unaffected."
"Doom and gloom reports coming from south of the border have yet to hinder overall momentum," said Re/Max executive Michael Polzler."
Last week the headlines were "The market is over" and "The bubble has burst". This week, all the articles are indicating what a *great* time to buy it is.
And while it's a great buying time, prices are still very high, meaning less people can afford to stop renting and buy their first place.

Alberta rush - The hottest housing market in North America, driven by oil

"A boom of unprecedented dimensions is sweeping Canada's spectacularly scenic western province of Alberta, the Texas-sized territory with a population of 3 million that is home to a pair of world-class cities -- Calgary (population 1.2 million) and Edmonton (population 1.1 million)."
"As a result, the economy of Alberta since 2002 has been growing an average 12.2% annually. That's not far from China's average, 14.8 %. In the past decade, Alberta's per-capita GDP has almost doubled, to $66,000."
"Demand for labor is so intense that Alberta has basically run out of people. Fast-food emporiums, for example, are closing down because managers cannot find folks willing to work for their modest wages."
This is far-and-away my favourite article this week because it's from New York, and shows us just how the rest of the world is seeing Alberta right now.

Skilled workers still hard to find in Canada, survey says

"Nearly one in three Canadian employers has difficulty filling skilled job openings, a new survey suggests"
"The demographic shift that fuels the challenge shortage is not going to change," she said"
Simply, there’s not enough people in Canada – specifically Western Canada – to fill all the jobs. This brings more people, causing more work shortages in the supporting markets, and further fuelling the fire.

IMF’s World Economic Outlook

The International Monetary Fund recently released their newest report on the world’s housing situation. This report s huge, and looks at many aspects of housing around the globe.
On section of the report, also visible at http://www.economist.com/finance/displaystory.cfm?story_id=10974135 shows that housing prices in Canada are still undervalued compared to the fundamental market indicators of the Canadian Economy.
The US, with incredibly weak fundamentals, is still 12% over priced – even after the huge pricing drops they have seen in the last year.
This is one more indicator that the US housing prices are nowhere near levelling out, and also that Canadian housing prices are still a bargain, and will continue to rise.

Alberta rush - The hottest housing market in North America, driven by oil

David Sandbrand (Cobblestone Investments) — Tue, 22 Apr 2008 08:21:48 -0500

Here's an excerpt from a GREAT article from yesterday that I just had to post, from http://www.marketwatch.com/news/story/hottest-housing-market-north-america/story.aspx?guid=%7B82AE55C1-1D9C-4546-9423-586B1CA9B68C%7D&dist=msr_1

By Marshall Loeb, MarketWatch

Last update: 7:38 p.m. EDT April 21, 2008

NEW YORK (MarketWatch) -- A boom of unprecedented dimensions is sweeping Canada's spectacularly scenic western province of Alberta, the Texas-sized territory with a population of 3 million that is home to a pair of world-class cities -- Calgary (population 1.2 million) and Edmonton (population 1.1 million).

Most important today, though, is that Alberta is the source of the world's largest trove of tar sands, the sticky substance locked in rock that North American Indians have used for centuries to caulk their canoes but that also can be mined and processed into oil.

Refining it makes sense if and when ordinary oil climbs above a certain price .Oil marketers and geologists can argue what that magic figure is -- Canada's Energy Information Administration estimates that alternative fuel sources, including oil sands, become economically viable when the price of oil hits $30 to $60 a barrel.

At the recent world price of $114 a barrel, the figure has long since been exceeded, particularly since recent improvements in mining and extraction techniques have significantly reduced tar-sands production costs. See related story.

Canada has rather rapidly become the largest supplier of oil to the U.S. Alberta is producing more than 1 million barrels of so-called synthetic oil a day, and the province is sitting atop the largest petroleum deposit outside the Arabian Peninsula (as much as 300 billion recoverable barrels).

As a result, the economy of Alberta since 2002 has been growing an average 12.2% annually. That's not far from China's average, 14.8 %. In the past decade, Alberta's per-capita GDP has almost doubled, to $66,000.

Demand for labor is so intense that Alberta has basically run out of people. Fast-food emporiums, for example, are closing down because managers cannot find folks willing to work for their modest wages.

Says Ron Gilbertson, CEO of the Edmonton Economic Development Association: "We no longer talk about unemployment. We talk about effective full employment." He expects employment will grow 2.5% to 5% annually over the next three to five years, as workers rush in from other parts of North America.

Want to live mortgage free?

David Sandbrand (Cobblestone Investments) — Mon, 21 Apr 2008 07:51:34 -0500

As you would expect, I find myself talking to a lot of people about investing. I talk about the shortage of quality housing, and about the sub-prime crisis. I discuss how the tenant is your real asset, and not the house.

But the one thing that I talk most about is the power of leverage. This one thing is the most powerful part of real estate investing, and can sky-rocket your returns.

So, how does leverage relate to you paying off your mortgage? Let me explain.

Let's say that you bought your house worth $300,000, and put 10% down. Assuming a 25 year amortization, a 5.50% interest rate, and once monthly payments, your mortgage payment would be $1681.

Now, let's assume you are a diligent saver, and decide to pay an extra $500 on your mortgage every month. This is a great move, and will shorten your mortgage from 25 years to 15.3 years, saving you $94,698 of interest payments.

Sounds great, but let's look at another strategy. Let's say you don't accelerate your mortgage payments, but instead use that extra $500 per month for an investment.

In this situation, you borrow against the equity in your house, and use the $500 per month to pay the carrying costs on that loan. With today's interest rate, you could easily borrow $110,000 and have under a $500 per month cost. For the sake of simplicity, let's assume you borrow $100,000 as a nice round number.

You then take that $100,000 and invest with us, and we purchase a great $400,000 property for you. You own the property, and we manage all aspects of the day-to-day operation. Again, to keep things simple, let's also assume that the property does not generate any monthly cash flow.

If this property was held for 10 years with an average annual appreciation of 8.0%, the property would be worth $863,570, and the mortgage balance (based on the investment mortgages we typically use) would have been reduced $34,611 by the tenants.

Upon sale of this property, you would receive your initial $100,000 investment back, plus a profit cheque of $239,091.

Now, let's go back to your personal mortgage. After 10 years without any accelerated payments, your mortgage balance would be $206,564. If you applied the $239,091 profit cheque to your mortgage, not only is your mortgage paid in full, but you're left with $32,527 pocket change to go celebrate your new mortgage free status (in the Bahamas maybe).

So, by using that small $500 per month investment to invest, instead of paying off your home mortgage, you reduced your mortgage period from 25 years all the way down to 10 years - a full 5.3 years sooner than adding that $500 to your mortgage payment.

Sounds great, doesn't it? But there's even more to the story. Because you owned the investment property for 10 years, you paid $71,539 of interest on that investment property's mortgage, which is a deductable expense. Also, you made 12 monthly payments of $500 for 10 years, totaling $60,000 of interest payment. That's a total of $131,539 of interest payments incurred for investments, meaning fairly significant tax deductions each year.

Also missing from this scenario is the monthly cash flow that is distributed from our investment properties. Simply put, this is the cash remaining each month after all expenses are paid. To keep pace with market conditions, annual rent increases are normal, meaning that the passive income provided by the investment would go up every month, and realistically would cover your $500 per month interest payment within a few years.

Now, it needs to be said that leverage is a very powerful tool in investing, but it does come with its risks, and is not for everyone. Also, everybody's tax situation is different, so you would need to consult your own accountant and tax advisor to determine what the correct deduction plan for your situation is.

I would be happy to sit down with you and run some real numbers that are more accurate to your situation if you are interested in more details. Please see our Contact Us page to reach me.

David.

News articles for week of April 14

David Sandbrand (Cobblestone Investments) — Sun, 20 Apr 2008 15:41:29 -0500

If you have any trouble reading this email, you can view it online along with past articles and miscellaneous ramblings at;

http://www.CobblestoneInvestments.com/index.php?option=com_myblog

Oil could reach $300, says expert

http://www.arabianbusiness.com/512436-oil-could-reach-us300-claims-expert

Matthew Simmons, chairman and founder of specialized energy investment banking firm, Simmons & Company International, said the current highs of $100 per barrel are "cheap".
He noted that in the UK's capital, London, where typically the price per gallon can reach as much as $9, it hasn't deterred motorists from continuing to use their cars.
Simmons is a leading expert in his field and author of the controversial book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. In the book Simmons argued that Saudi Arabia will, in the coming decades, be unable to maintain its current level of oil production, with huge economic repercussions. Simmons said that the peak oil issue is poorly understood and the world's data on production, demand and inventories is inaccurate.
We haven’t seen the beginning of high oil prices, and every time the cost of oil goes up, more money flows into Calgary.
For the first time ever in Canada, the cost of 1 litre of gas at the pumps now costs more than 1 litre of milk. Would you rather never leave your house, or have no milk... Gas is still dirt cheap.

Sub Note:

Matt Simmons (Bloomberg): Peak Oil Now, Oil Perhaps to $300 (Video)

http://www.youtube.com/watch?v=4IwtAQzrfiw

Recorded 14 months ago, this is a six minute video about the future price of oil interviewing the same fellow from the above article. He continues to say that we've hit peak oil globally, that $65/barrel is only $0.10 a cup, and the price will only go up from here – WAY up.
Note the reporter's shock of $300/barrel. It doesn’t seem like such a shocking number now, does it?

Soaring oil, gold point to widening economic divide

http://www.canada.com/edmontonjournal/news/business/story.html?id=fa41a6a1-d54c-454d-89ae-74929d2dc0f6

The loonie soared close to parity Wednesday on the back of record oil prices and new evidence of a widening North American economic divide. U.S. reports pointed to a deepening of the housing recession while Statistics Canada reported an unexpected second straight monthly surge in factory shipments.
Meanwhile, oil hit a new all-time high of more than $115 US a barrel, ending the day at a record close of nearly $115 US, while gold, silver and copper prices all also posted gains. Investors responded by going on a shopping spree for commodity stocks and sending the benchmark TSX soaring by nearly 250 points.
However, the western provinces should grow between two and three per cent, led by Saskatchewan, followed closely by British Columbia and Alberta, and then Manitoba, all of which are expected to continue surging ahead in 2009.
Because of the cost of oil, rising commodity prices in general, and the booming economy out West, we’re the envy of the rest of the continent out here.

Alberta sidesteps economic anxiety

http://www.canada.com/calgaryherald/news/story.html?id=b5102caa-51db-453d-b5d0-4b9127ecd8c6

Amid unease around the economic future in Canada's heartland in Ontario and Quebec and anxiety about the United States' outlook, a raft of recent indicators paint a sharply contrasting picture for Alberta and Calgary. Simply put: Alberta remains an island of prosperity in a roiling sea of economic uncertainty.
"There almost seems to be distinct economies between Alberta and the rest of North America, really," notes Calgary Economic Development chief economist Adam Legge.
"Alberta is doing even better than most people thought . . . and we expect Alberta to remain quite strong," CIBC World Markets chief economist Jeff Rubin told the Herald.
Alberta's employment in March topped the two-million mark while the provincial jobless rate sank to a cross-Canada low of 3.4 per cent and the participation rate -- those working or looking among adults -- rose to an all-time Canadian high. Job creation in Alberta is running at 3.4 per cent annually compared with 1.9 per cent nationally.
You have love reading that “Alberta remains an island of prosperity in a roiling sea of economic uncertainty”, and it’s true. The global investment community is looking to Alberta as a safe haven for the next five or so years of investments.
Those of us that live here are so close to it, that we become a bit jaded by it, not able to see what the rest of the world sees. All of a sudden, investing in Florida seems to be a good option.

Canada will 'sit out' U.S. recession, CIBC forecasts

http://www.canada.com/edmontonjournal/news/business/story.html?id=4fa2d119-792b-445c-9049-313c84cfe91e

The Canadian economy will avoid being dragged into a recession by the U.S. downturn thanks to healthy domestic activity and strong commodity prices, a major Canadian financial institution forecast Monday.
CIBC is forecasting that high commodity prices, which are cushioning Canada's resource sector, will push the loonie to $1.05 US by year end. The currency closed at 98.08 cents US Monday, up from 97.71 cents US Friday.
CIBC forecast that continuing high commodity prices and the strong dollar will hurt central Canada's manufacturing-based economy. "Weakness in the Ontario economy, which will likely come the closest to outright recession of any of the provinces, will likely spur further Bank of Canada rate cuts," Rubin said.
Another forecast that Canada’s economy is doing great on the world scale, and we’re not tied to the US nearly as much as we have been in the past. The old adage that when the US sneezes Canada catches a cold sure isn’t true this time around.

Alberta pursues 41,000 foreign workers

http://www.canada.com/calgaryherald/news/story.html?id=7ae4d36d-c19e-4ff3-baf8-576651f15369&k=34137

The workers, being brought in to ease the massive labour shortage, would create a new city half the size of Red Deer if they all lived in one place.
The new data provided by Human Resources and Social Development Canada also indicate the number of temporary foreign workers could grow even larger in the coming months because "a significant number" of applications are still being processed over and above the 41,218 requests approved in the past 12 months.
"We are being swamped with requests from employers for temporary foreign workers because they simply can't find people," Greene said.
This is one of my favourite articles this week, just because the rental market here is incredibly tight as it is, but if you add another 41,000 people to the market it will get even tighter.
Canada Mortgage and Housing Corporation (CMHC) is predicting a 0.5% increase in Calgary’s vacancy rate this year from 1.5% to 2.0%. Of course the papers are running headlines like ‘Vacancy rate skyrockets’, but keep in mind that 2.0% of a year is 7.3 days. I’m not sure about everyone else, but one week of vacancy in a year sure doesn’t scare me.

News articles for week of April 7

David Sandbrand (Cobblestone Investments) — Sun, 20 Apr 2008 15:33:44 -0500

Alberta economy sets employment record

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=af0ae666-b41f-4009-8986-ff633541a55b

“Even with Alberta's frantic pace of economic expansion moderating, figures released Friday indicate the province has never before employed more people and the rate of Albertans working or looking has risen to a Canadian record high. And that's pushed Albertans' wages higher, faster than any other province.”
"We're nothing close to the marked slowdown we're seeing in Ontario, and of course obviously nothing close to the recession they're in, in the United States," said Hirsch.
“In February, Alberta's jobless rate was 3.5 per cent and in March 2007, 3.6 per cent, giving Alberta the country's highest job creation rate over the past 12 months, at 3.4 per cent.”
Just one more article showing how amazing the Albertan economy is doing, and how the slowdown in Central and Eastern Canada, along with the mess in the USA is not affecting us.
With record unemployment rates, plus record job creation, there’s clearly a HUGE shortage of people in Alberta. That will keep the in-migration very high, and quality housing is

Canada is in the middle of a quiet oil boom

http://www.msnbc.msn.com/id/23958032/from/ET/

It’s pretty rare that CNBC News does a special on the oil sands, and MSNBC follows-up with a print article, so this is a big one. You should watch the ‘Canada’s boom’ video.
A great article showing the perspective from the rest of the world. The oil sands and the Alberta economy is old news to us, but we take it for granted.

Province's economic tank has 'plenty of gas'

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=faf8fd0a-45ac-4579-a8b9-6b61849dc625

“Alberta's construction sector is continuing to power forward in 2008, even as performance nationally continues to cool, according to figures released Monday by Statistics Canada. At the same time, the Conference Board of Canada said resilient consumers will keep the overall Canadian economy expanding this year, despite weakness among exporters suffering from a strong Canadian currency and a weakening market for their goods in the United States.”
"As a leading indicator of growth, the value of building permits issued suggests Alberta's construction sector is in for a pretty good summer," said ATB Financial senior economist Todd Hirsch. "Despite the slowing U.S. and Ontario economies, there still appears to be plenty of gas in Alberta's economic tank."
Once again, Alberta is on fire. Even with decreased trade to the USA, Asia is providing further increased demand, so Alberta’s economy is solid.

Mutual Funds vs Investment Real Estate

David Sandbrand (Cobblestone Investments) — Wed, 09 Apr 2008 08:08:02 -0500

or "The problem with Mutual Funds"

Ahhh... RRSPs. I could chat for a long time on this, but here's my 'short' version of it;

RRSPs serve only one purpose: To reduce your payable taxes in the year you make the contribution (including up to Feb). Nearly everybody thinks there is *no* taxes on RRSPs, when in fact you only defer the taxes until you take the money out.

For example, instead of paying income tax on the $10,000 you put into an RRSP in 2008, you pay income tax on the $50,000 that that contribution grew into when you take it out (in 2040, let's say).

But - you get a tax credit NOW. that's the good thing. I invest in RRSPs for a tax savings. it's a good strategy to reduce your taxes, to be sure.

BUT - and here's where I get a bit passionate - if you're contributing to RRSPs because you want to retire wealthy, you're likely to be very disappointed come retirement time.

The reason very simply is that when you buy $100,000 of RRSPs, you only own $100,000 of RRSPs. One dollar in = one dollar of savings.

Real estate is how *real* wealth is created.

When you have $100,000 and want to buy a property, can you only buy a $100,000 house? hell no. The bank will easily loan you the rest. Using a conventional mortgage (that means a mortgage that is not insured by CMHC), you only need to put 20% down. So with $100,000 you can buy a $500,000 property.

now, if you own $100,000 of RRSPs (as in mutual funds), and a $500,000 property, and they both increase in value by 10%, what are they worth? Well, the RRSP is worth $110,000 and the house is worth $550,000.

With the EXACT same investment, and the EXACT same increase in value, one investment made you $10,000 and the other made you $50,000. by buying real estate, you made a five fold increase on your money compared to an RRSP.

And as they say on TV "But wait - there's more!"... Buying revenue real estate also provides you with another TWO sources of profit; One is that as your tenant pays down your mortgage, you owe less on the property - that's the mortgage pay down profit.

And the coolest past of real estate, the third source of profit, is monthly cash flow. That's the money left over from the rent after you pay all the expenses. That's called passive income, and frankly it's the best kind of income there is - imagine getting a cheque every month for doing nothing.

So let's Fast forward 40 years when you plan on retiring, and compare real estate to RRSPs. When you start redeeming your RRSP, the value goes down every month. If you live long enough (or don't have enough in your RRSP), you eventually run out of money to live on, and you're broke (living in a crusty old-folks home, eating oatmeal every day).

With real estate, in 40 years the property will be paid of fully (courtesy of the tenants), and your monthly cash flow will be HUGE (since rent goes up every year), and the property will be worth millions.

The longer you hold revenue real estate, the richer you get.

I like to say that real estate is not a 'get rich quick' investment, it's a 'get REALLY rich slowly' investment.

News links for the week of March 31

David Sandbrand (Cobblestone Investments) — Sun, 06 Apr 2008 19:44:18 -0500

Flipper or investor? Find your comfort zone

http://www.canada.com/vancouversun/news/story.html?id=ea7d886e-f24f-406c-96a9-9ae835f70c58

“That is the thrill a flipper lives for -- fast cash. But don't fool yourself: A flipper is not an investor looking for safety first. Paying $800,000 for a condo downtown and renting it for $2,500 is not an investment, it's a gamble on a higher priced sale in the future. Flippers often get caught in downturns, you must be able to weather one, when it comes.”

“To buy real estate in 2008 will feel as troublesome as it did in 1966 or 1975 or 1983 or 1988 or 1991 or 2001 when we had all these troubled events (stock crashes, crisis, troubles) the previous year. And aren't you happy you bought then?”

“For all the 38 years I have been in this business there are the same stories every year.
There are too many Realtors in the business.
No young couple can afford to buy anymore.
I wish I bought 5 years ago.
Every Year!”

It’s a B.C. based article, but it makes some great points, specifically that;

Flipping is not investing, it’s speculation.
If you base your buying decision on future appreciation, you can end up in trouble very quickly if the markets turn.
On the other hand, if you buy a property that provides a positive cash flow from day 1, and it’s an attractive property to renters, the market appreciation is just a bonus as you’ll get positive cash flow monthly regardless of what the market does.
The headlines will always give you reasons not to invest, but five years from now you will regret not buying. The real estate market always goes up over the long term.
When you do invest, it’s important to follow a proven system that has built-in safety nets for things like maintenance and vacancy.

Home prices rise in first quarter: report

http://www.canada.com/ottawacitizen/news/business/story.html?id=b7c64e55-0e0a-46c1-bfb1-5b9de97b8d6b&k=88167

"Nationally, the average price of a detached bungalow climbed 8.3 percent to C$336,834 ($333,857) in the first three months of 2008, according to Royal LePage Real Estate Services' latest House Price Survey.”

"In Calgary, Alberta, Canada's oil industry capital, the price for a standard detached bungalow climbed 9.9 percent to C$442,852”

This shows just how strong the entire Canadian economy is, and further how strong Calgary is doing.

What this article also shows is how negative stories sell. The article says “Despite the strong oil and gas economy in the province of Alberta, increases in home prices there have moderated from the frenetic pace of the past few years”, but a 9.9% increase is a HUGE increase of the market – just spectacular!

Even better – if you dig a bit, you’ll see that the Calgary market went up 9.9% during the same period the Dow Jones Industrial Average (DJIA) went *DOWN* 4.61%

Inaugural post - hello world!

David Sandbrand (Cobblestone Investments) — Tue, 01 Apr 2008 17:01:33 -0500

This is just a quick 'hello', as my first ActiveREIN post.

If you have a minute, please check out our new website at www.CobblestoneInvestments.com