10 Great Reasons to Invest In Real Estate Instead of Paper Assets

12 Reasons Why Ottawa IS the Number 1 Canadian City To Invest In

Info from The Versatile Investor

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Some Excellent Reasons Why It Makes Sense To Invest In Canada Now

Here is a very encouraging article for people thinking about investing in Canada, particularly for our American friends.

It was published in the magazine NEWSWEEK in the February 16 - 2009 issue.

“The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1 compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north. In addition, home loans in the United States are "non-recourse," which basically means that if you go belly up on a bad mortgage, it's mostly the bank's problem. In Canada, it's yours. Ah, but you've heard American politicians wax eloquent on the need for these expensive programs interest deductibility alone costs the federal government $100 billion a year because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian home ownership? It's 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America's by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; "healthy life expectancy" is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America's largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal "permanent residents" in Canada no need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company's announcement noted that it would staff the center with "highly skilled people affected by immigration issues in the U.S." So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada where most of them will work, innovate and pay taxes for the rest of their lives.

If President Obama is looking for smart government, there is much he, and all of us, could learn from our quiet OK, sometimes boring neighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative.”

10 Great Reason To Invest In Real Estate Instead Of Paper Assets

Here are 10 reasons why we think it is much better to invest in real estate than in any other investment vehicles—they are the reasons WE invest in real estate.

1-In Real Estate, we can insure our property for its full replacement value, against loss. We cannot insure paper assets against any type of loss.

2-In Real Estate, we can put $10,000 as a down payment to buy a $100,000 property and get $90,000 from the bank. We now own $100,000 of assets. If we put $10,000 into paper assets, we get only $10,000’s worth of asset.

3-If the value of your $100,000 property increases by 5% in one year (which is below average in Ottawa where we live and invest), we are $5,000 richer. If our $10,000 paper asset increases by 5% in a year, we’re only $500 richer.

4-The bank will loan us a lot of money to buy property—millions if we want to buy an apartment building or a commercial building. That’s using OPM—Other People’s Money—at its best! We can also go to mortgage brokers, hard-money lenders, etc. The bank will NOT loan us a penny to invest in paper assets. And forget mortgage brokers and hard-money lenders. We have to use OUR own money to buy paper assets.

5-Certain types of properties will generate cash flow—called passive income—which is taxed at a much lower percentage than earned income. We can’t get cash flow from paper assets (unless a mutual funds pays monthly dividends). And that is a capital gain which is taxed at a higher %.

6-Though we have no control over the real estate market as a whole, we have control over the “value” of our property—which we can increase by doing minor improvements, full rehab, keeping full occupancy, changing the vocation of the property. We have NO control over the stock market or over the management of our paper investment; there’s nothing we could do to increase the value of our paper assets.

7-There are all types of depreciation and expenses we can legally use to reduce the income from our real estate investments. For example, when we travel to other provinces or other countries to look for property to invest in, those travel expenses are a legitimate tax deduction. Try to do that with paper assets!

8-Real estate is REAL. We can drive by it and SEE our investment. We can live in it. We can pain it. We can add an extension to it or plant a tree in front of it or add a patio behind it. Paper assets are just that: a piece of paper.

9-We can form partnerships with many other investors—family, friends, or total strangers—and together we can buy big properties that will yield remarkable ROI. Just imagine going to family and friends and say “Hey, let’s pool our $50,000 together so we can buy a whole bunch of shares of Nortel or some petroleum company…”

10-But most of all, we invest in real estate because it provides a roof (or a hundred) over people’s head. And it allows us to give people with past credit problems another chance to own a home or live in a safe and sound apartment or condo. It’s a great feeling, a feeling we can’t imagine getting from calling a broker and buying a bunch of stocks.

There are more reasons why we prefer to invest in real estate ourselves, but those are the 10 main ones.

Daniel G. St-Jean & Laurel R. Simmons

Professional Real Estate Investors

12 Reasons Why Ottawa IS The Number 1 Canadian City To Invest In

September 1, 2010

This is an excerpt from a very long article that appeared not that long ago in the Canadian Real Estate Magazine. It’s entitled 10 Best Places to Invest in Canada.

“Across Canada, various cities are emerging as hot new spots for real estate investors to realize strong returns on their property investments. Here we’ve selected our own countdown of the 10 best cities, based on how the market is performing, potential return on investment, current infrastructure and future development plans.”

Here are the 10 cities:
#10 Collingwood, ON            #9 Winnipeg, MB
#8 Victoria BC                       #7 London, ON
#6 Moncton, NB                    #5 Kingston, ON
#4 Fredericton, NB               #3 Guelph, ON
#2 Quebec City, PQ             #1 Ottawa, ON

[We found it very interesting that places like Vancouver, Kelowna, Calgary, Edmonton and Toronto did not make it in the top 10. Who knew? Here is the rest of the article, interspersed with 8 of our 10 reasons for investing in real estate (see 10 Great Reasons to Invest In Real Estate Instead of Paper Assets).]

According to real estate broker Joe Connelly, the current Days on Market (DOM) indicator shows that the Ottawa market is decreasing in DOMs and now stands at 24 days. “This means there are a lot of active and ready buyers willing to move quickly for available homes [REASON #1]. And although Ottawa has been a balanced market for a long period, these numbers highlight a move towards a seller’s market, and many properties are receiving multiple offers.”

Investors looking for properties to rent out will be happy to hear that the Ottawa rental market is robust, with 2009 showing an apartment vacancy rate of 2.3% (same as 2008). A recent CMHC Ottawa Rental Market Report also shows that the average rent in the area is increasing at the rate of inflation.

“The outlook for 2010-11 is that the market will tighten up with vacancy rates falling slightly below 2% [REASON #2], with rents increasing at a slightly slower rate than last year,” says Connelly. “With more condo units becoming available throughout 2010-11, especially in the downtown core, there will be more rental competition in this growing segment to find renters.”

Ottawa has a history of being a good market for real estate investors. As far back as 1955, the average rate of return on Ottawa properties has been 6.3% per year [REASON #3]. According to the Ottawa Real Estate Board, only a small number of years have shown zero or negative growth and the following year bounced back to positive growth.

This profitable market can be partly attributed to the fact that Ottawa has a strong concentration of government workers and educational institutions. It’s also considered one of the lowest cost large cities in Canada in terms of real estate. Many investors see this as a stable, long-term investing opportunity [REASON #4].

“We’re seeing much stronger interest in investing in real estate, especially due to the recent large negative stock market impact,” says Connelly.

“To lose 10% of a share portfolio value in one day is much more likely than losing 10% in a stable real estate portfolio in Ottawa.”

Joe says that people, from novices to seasoned investors, are now getting involved in investing in real estate. The very active not-for-profit Ottawa Real Estate Investors Organization (OREIO) [REASON #5] has more than doubled in membership in the last 12 months to over 200 people.

With its population constantly growing, Ottawa has had to keep up by developing new infrastructure to meet demand. The proposed new Light Rail Project is aimed at easing the increasing city traffic and should allow greater property price appreciation in the areas near or adjoining the Light Rail system. However, once signed off it’s likely to be at least a few years before any positive impact is felt.

The major central highway (417) was recently widened in the west side of the city to ease daily commuting times, in addition to allowing homeowners the opportunity of more rural living.
In the downtown core, Ottawa is seeing an increased focus on condominium developments that will increase housing stock over the next couple of years. They could represent good investing opportunities over the longer term. [REASON #6]

Ottawa has many major employers that draw workers to the city. The government is the largest employer in the region and provides for a stable employment base. Hi-tech and bio-tech companies remain a mainstay in the region, and employment has been reasonably stable in these sectors over the last year. [REASON #7]

Not surprisingly, Ottawa is consistently one of the Canadian cities that boasts the lowest unemployment rates. [REASON #8].

“Overall, given the limited construction of purpose-built rental apartments and townhomes, coupled with the stable economy and employment rates, occupancy rates will be slightly tighter, again a positive for anyone wanting to invest in rental properties,” says Connelly.

But all work and no play makes Jack a dull boy, and Ottawa has more than its share of lifestyle amenities to offer. Although best known for its winter activities—it has the longest outdoor ice rink in the world, the Rideau Canal—the capital of Canada also boasts many fine museums and galleries, extensive and well-groomed parks and bicycle trails, and a strong ‘outdoor’ sentiment. For golfers, Ottawa offers a wide array of golf courses to suit every standard.

“Ottawa is also known as being a very safe city [REASON #9],” says Connelly. “It has strong bilingual educational establishments and is also generally a friendly city for bringing up a family.”

Ottawa’s ‘small city feel’ compared to the likes of Toronto and Montreal attracts many people from larger cities who like the ‘large-town, small city’ feeling.

The easy commute to Montreal takes an hour and a half and Toronto is only four hours away, making Ottawa strategically located near two of Canada’s most significant cities.

Now, if that wasn’t enough to convince anyone to invest in Ottawa, here are three more excellent reasons according to a report published in late January 2010 by the Canada Mortgage & Housing Corporation (CMHC).

More people can afford to buy a house now than ever before. And many of the current homeowners are in a position to afford a bigger, more expensive house [REASON #10]. That’s because over the last eight years, the average weekly earnings in Ottawa has increased by 32%. That’s a higher gain than Montreal, Toronto, Vancouver, even Edmonton. Only Calgary has enjoyed a slightly higher gain.

Add to that the fact that household budgets face lower pressure in Ottawa [REASON #11]. Homeowners in Ottawa have a lower and much more stable Gross Debt Service (GDS) ratio than in most other large Canadian cities. The GDS represents the percentage of a household’s income that needs to be allocated to house-related expenses. In 1998, that ratio was 15%, and in 2009, it was 17.5%. Compare that to Vancouver where the GDS was 33% in 1998, and it shot up to 49% in 2009!

Although there was an economic activity slow down in 2009 (even Ottawa can’t escape the universal trend), Ottawa will do well in 2010. Historically, Ottawa has always recovered fast during recessions. Also, increasing migration will benefit employment and the housing market. And there are many big projects slated for Ottawa: The new Congress centre ($160 millions), the CSEC Cryptologic facility ($62M), Parliament Hill renovation ($1B), the transit project ($7B), and some of our universities and colleges are under expansion: Cité Collégiale ($18M), University of Ottawa ($90M), Carleton University ($110M) as well as Algonquin College.

Finally, and this might be the best reason for you to consider investing in Ottawa [REASON #12], we at Safe & Sound Real Estate Investment Group have assembled a top-notch Power Team and we plan on making a lot of acquisitions over the next many years that will provide our investors with a remarkable ROI—thanks to our RTO investment strategy.

Daniel G. St-Jean & Laurel R. Simmons

 Professional Real Estate Investors

PS: Here are some excerpts from a 4-page article entitled "Ottawa Resists Downturn" that appeared in Canadian Real Estate magazine in mid-2009:

"Ottawa may be shielded from much of the doom and gloom that's sweeping across the country. This is in part due to a strong economy, with plenty of government jobs up for grabs as the boomer generation retires."

"Ottawa is probably the most stable market in Canada. This is primarily due to good employment opportunities and affordable product. When theses two factors combine, the chances of a market decline are much less. We aren't dependent upon large industries such as the auto makers and thus aren't feeling the effect of the national recession" -Geoff McGowan

"According to the Conference Board of Canada, Ottawa's economy is set to grow by 2.5% in 2009. Also, Ottawa is noted as the second most affordable big city in Canada, surpassed only by Montreal."

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