You know what amazes me?  Year after year, we shovel wheel-barrel loads of money into that, intangible monster we call the stock market.  Most of us do this with, what mutual fund propaganda, refers to as, "The Long-Term Thinking Approach". We take our hard earned cash that has been earmarked for retirement and we hand it over to a banker or other financial advisor who gives it to some dude in an ivory tower, whom you'll never meet, to invest in a volatile, risky market that is based purely on emotion.  Sounds risky to me.

Now let's take that "Long-Term" approach and apply it to Real Estate.  If I can be so bold as to say, "Real Estate is six times better to invest in than its intangable competition".

Allow me to explain:  Let's say you buy a duplex for $300k and you put $45K (15%)down.  That leaves you with a mortgage of $255k and a payment of $1675/month based on a 20yr amortization and a 5% interest rate.  Let's assume you rent your two units for $1100 each (plus utilities) which will give you enough to pay your mortgage and the taxes.

At the end of the 20 years your mortgage will be paid off and assuming the market has risen by a modest 100%, over the 20 years, you will have an asset worth $600k.

Here's the exciting part:  How much did we originally invest?  $45k right.  Now lets take our future value and subtract it from our investment ($600k-$45k=$555k) divide our total increase by the number of years of investment ($555k/20years = $27,750)  and divide our per year profit into our total investment ($27,750/$75k = 66.7%)  Remember that's 67.7% per year, return on investment (ROI).

Now, let's go back to our mutual fund propaganda; what is it they say to hope for over the long haul?  That's right - an average of 10% ROI is considered good.  Using this as our prescription to a wealthy retirement, over the same 20 years, mutual fund would have a total of 200%.  Sounds pretty good eh?  Yes, except when you do the math - 200% of $45K is $90k.  So the total increase in the mutual fund was a mere 16% of the increase in real estate ($90k/$555k = 16.2%).  Another way to look at is, the Real Estate investment had a return on investment that was 6 times the amount of the mutual fund.

Now, in fairness I have not allowed for repairs and maintenance or vacancy on the Real Estate Investment.  Nor have I allowed for the tax advantages of a mutual funds growth inside an rsp, but SIX TIMES the ROI.  The numbers are hard to dispute.

You know what ai really like about investing in Real Estate?  It's tangible;

I can stand on it,

I can build on it 

I can change it's use

I can subdivide it and unlike stocks, it can't vanish into thin air.

The key to what I'm saying is the word "I".  When "I" invest in Real Estate, "I" am in control and "I" can easily understand it.  And doesn't that make more sense than blindly giving your money to a company that invests it in something you know little about?  After all the word, "Investment" begins with "I".

This is Rob Thompson saying, "Good Luck and Good Investing".  

Garry Marr, Financial Post 

The latest rate cut means consumers buying a house can borrow for as little as 3% interest on their loan if they are willing to buy into the Bank of Canada's statement Tuesday that it won't be changing rates until June, 2010.

If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis -- the lowest rate in Canadian history.

But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago.

"What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin."

Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low.

The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in.

"You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist.

John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market.

"There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further."

He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner.

Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit.

"If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history."

Quantitative easing Q&A with the BoC

FP Posted: April 21, 2009, 10:16 PM by Alia McMullen

With interest rates now at a record low 0.25%, the Bank of Canada has provided definitions of quantitative easing and credit easing on its website. 

What happens when the policy interest rate approaches zero?
"The traditional monetary policy instrument used by central banks to stabilize the economy and maintain price stability is the policy interest rate. When the policy rate moves towards zero, a central bank may consider using other tools to provide stimulus to the economy and achieve its inflation objective. This can include consideration of so-called 'unconventional' monetary measures such as quantitative easing and credit easing."

What is quantitative easing?
"Quantitative easing is the purchase by a central bank of financial assets through creation of central bank reserves. As a result, the price of the purchased assets (which can include government securities or private assets) rises and the yield on the assets falls. The expansion of reserves available to commercial banks also encourages them to increase the supply of credit to households and businesses.
In economic terminology, quantitative easing uses 'unsterilized' funding; in other words, the reserves of the central bank are increased to finance asset purchases."

What is credit easing?
"Credit easing is the targeted purchase by a central bank of private sector assets in certain credit markets which are important to the functioning of the financial system. The goal of credit easing is to reduce risk premiums and improve liquidity and trading activity in specific markets so that credit will flow and demand in the economy will expand.
Credit easing can be done on a 'sterilized' basis; in other words, there is no need to increase central bank reserves in order to undertake credit easing. If undertaken on an unsterilized basis, this amounts to combining credit easing with quantitative easing."

For Lease. 1023 square feet of retail space at $18/sq.ft net, in a busy retail complex on a main artery into Kemptville. Put your business here!

Great opportunity.  Freshly renovated historic building in the newly rejuvenated downtown core of Kemptville.  Has 813 sq.ft. retail space and 980 sq.ft. 2 bedroom apartment with balcony.  Great investment!

THE LOFTS OF MARKET ROW.  Newly constructed retail condominium on busy Prescott Street.  Bring your own business or buy as an investment.  Will not last long.  This is a non-registered condominium.

As part of Canada’s Economic Action Plan, the Home Renovation Tax Credit will provide a one-year, temporary 15% income tax credit on eligible home renovation expenditures for work performed, or goods acquired between January 27, 2009 and February 1, 2010. The credit may be claimed on eligible expenses exceeding $1,000, but no more than $10,000, for a total credit of up to $1,350.

Eligible renovation expenditures include: renovating your kitchen, bathroom or basement; installing new carpet or hardwood floors; building an addition, deck, fence or retaining wall; installing a new furnace, central air conditioner or water heater; painting the interior or exterior of your house; resurfacing a driveway and laying new sod.

Renovations which are not eligible for the credit include: purchase of furniture, appliances and tools, carpet cleaning, and maintenance contracts.

To obtain more information on the Home Renovation Tax Credit, call 1-800-O-Canada or visit the Canada Revenue Agency Web site.

Thanks For Listening

Rob

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have gone up in the last six months, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.