Comparing Stocks to Real Estate...

Or what your broker forgot to tell you!!!

Most people who are looking to invest their money have heard the fantastic story of someone, just like you, who made their fortunes in the stock markets. Or maybe they know of the friend of a friend who received this fantastic stock tip and his investment quadrupled. If it hasn't happened to you yet, I am sure it is just a matter of time!!! More realistically you are one of the many people who invested in a little company that was going through the roof called Nortel. How many people do you know who made it out at the peak?

Just to add insult to injury, did you notice what many of your RRSP's did at the same time? Many of the Mutual Fund investors had the same confidence as we did in Nortel and many of our funds took a huge dive. The very people that we trusted with our retirement money were unable to foresee this!! Worse yet, what if they don't see it happening the year I retire? Will you have three or four years for it to recover?

With all these large companies to choose from how do you know which stock to pick? Sure you can do your homework and research a stock or a mutual fund and you can choose when to buy or sell, but other than that you are in the hands of the stocks' board of directors, or the fund manager, or possibly worse yet, the market itself! Remember the Dot Com boom and bust?

Now that I have brought all the doom and gloom scenarios to the front, let me add that many people quite successfully invest in the markets and they do it quite well. These are generally people who spend many hours diligently doing all of their research and managing their portfolio. These people can range from day traders who try to time their buying patterns with short term trends, to long term holders who once they purchase are in for the long haul of the companies growth (ever hear of a fellow called Warren Buffet?).

Stocks and ROI Lesson one!

Are you ready to start thinking now? If you had $100,000 and invested it in the stock market and you saw your stocks go up 5% over the year, you would now have $105,000. Do you know what your Return On Investment (ROI) is from this investment? ROI is simply the money you made divided by the amount you invested, so it is $5,000 (5% of the original $100,000) divided by $100,000 for an ROI of 5% (the math gets harder as we move along).

Real Estate and ROI Lesson two!!

Now if you invested $100,000 in Real Estate and saw a 5% increase in your property value over a year, what would your ROI be? 5% would be the typical answer for this, but if it was that simple everyone would simply invest in the stock market. This is where leverage comes into play. When you purchase property you typically do not put all of your money into the property, but rather put a portion in and get the rest financed by one of the banks or trust companies. So if you were able to get 75% mortgages on each of your properties (which is pretty standard) you could buy two $200,000 properties by putting $50,000 down on each, or four $100,000 properties by putting $25,000 on each.

So now your $100,000 investment has allowed you to purchase $400,000 worth of property! Recalling that your property has seen a 5% increase in value your $400,000 worth of property is now valued at $420,000 or $20,000 more. This would make your ROI 20% ($20,000 increase in value divided by $100,000 original investment).So the same increase in value (5%) provides you with four times the actual return due to leverage. Is Real Estate starting to get interesting yet?

Did I forget something? Don't I have to make mortgage payments?? You are correct and that is why we turn these properties into rental properties, that not only pay for themselves, but they also generate extra monthly cash flow so your ROI is actually even higher. We actually operate our properties so that they generate not only the cash flow, but also enough money to build up vacancy funds, repair funds and miscellaneous extra rainy day cash.

The next exciting part about Real Estate is you can actually buy many properties for as little as 10% or 15% down. At 10% you could have purchased $1,000,000 worth of property and it if went up 5% you would have generated a 50% Return on Investment which would have been $50,000 on your initial $100,000.

I hope by this time you are seeing some of the excitement that can be created by investing in Real Estate versus putting money in the stock market. There are indeed some other risks to be concerned about in the Real Estate Market, but we are in a truly unique situation in Alberta.

Oh What A Value Experience Is!

So now you are starting to see the value of investing in Real Estate. The next question is how do I get started? The easiest answer is to take the next year of your life and spend every spare moment reading about Real Estate and hanging around people who invest in Real Estate, live and breathe Real Estate and then you will have a fairly good start but will you have purchased any property? Or you may end up having bought some property and learned many new lessons you wish you had known before. Just to make ourselves feel a little better we like to call these "lessons" seminars, that way we can justify the high cost of them on our wallet!

Is there another way? What if you could find a person or a group of people who have already taken all of that training, who are already hanging out with other people who invest in Real Estate and who already live and breathe Real Estate? What if these people already attended some of these seminars for you? What if these same people would do all of the work and you could carry on with your life and simply collect monthly positive cash flow cheques and watch your investment blossom as the Real Estate Market continues it's steady upward climb in Alberta?

Does it sound like a good way yet? Or is Real Estate still to risky? After all look what happened during the 80's. Oil took a dive, the economy tanked, the bottom fell out of the housing market. You know that is going to happen the moment you try to invest don't you. So why bother, you can just keep your money under the mattress where you know it will be safe and no one can take it away, well no one except inflation that is.

Just one more thought, what if you had some extra information that no one else did about the housing market? Would that give you the edge that may make Real Estate worth while? If so, you better read on!

The Alberta Advantage

Are you ready for some juicy tidbits that will give you that edge? How about this one to get you excited, Alberta will be debt free by the end of it's next fiscal year which translates to about March next year. How is that for a start? Not many people are going to know about that are they? If they don't know that, then what are the odds of them knowing that that will provide Alberta with approximately $1.4 billion dollars in extra cash each year that does not have to go towards debt servicing?

This surplus is going to have to be spent on something and with all the cutbacks we have seen over the last 10 years you can bet that health care and education will be two of the hot spots to receive new funding. From there watch for possible tax cuts to occur in both the public and corporate sectors. This $1.4 billion of extra cash still doesn't take into account the surplus cash that is being generated every year with the high cost of oil. That money will have to be spent as well, but that moves us onto topic number two, oil.

"Please God, give me another oil boom and I promise not to piss this one away". Does anyone else recall seeing this bumper sticker in the last 20 years? It seemed like a pretty similar circumstance, but wait, here comes the next tidbit. Over the next 10 years there is over $60 billion worth of exploration, building and technology being spent in Alberta on oil with most of that money going to the Alberta Oil Sands. In the last year the oil experts have now suddenly decided that there is over 175 billion barrels of oil up there that is now "economically viable" to get the oil out of the ground. These expenditures amount to approximately $6,000,000,000 into Alberta every year for the next ten years.

We previously talked about an oil bust, what makes us think we won't see that happen again? Part of the reason that we are seeing all of this infusion of money into Canada and Alberta specifically is due to the Middle East problems. Our friends to the South of us in the United States of America have realized that if they cannot count on a steady supply of oil from the Middle East they had to find it elsewhere and where better than their Allies to the North? They realize they have to spend this money to keep their economy growing. They have seen years of recession and finally they are starting to see some steady economic growth and with this, as the machinery starts cranking up, comes the need for more oil.

Add to this the fact that both China and India are in the huge economic growth pattern right now as they move to modernize more of their economies. With these three large nations all demanding more and more oil and with issues in both the Middle East and Kurkos Oil in Russia we have seen some stellar pricing on oil that has to come down, but will not be approaching the price per barrel that we saw in the eighties for some time. For it to come down we will have to see some huge settlements in the ongoing disturbances in Iraq and a general slowing in the economies of China, India and the U.S. It seems quite unlikely that all of these factors will come into play any time soon.

So What Does This Mean To Me?

The two big observations from this are that there is lots of money coming to Alberta and that Alberta and it's inhabitants are going to be in a great position. With all the money coming here you will see salaries for Alberta continue to climb with Edmonton and Calgary leading the way. These two cities are already in the top three for average salary and they only trail Ottawa presently.

As salaries increase a subset occurrence of this is the increase of house prices. As people find there is more money they can spend on a property they cause the property values to increase. This all relates to something called the Affordability Index. This is a rating of how much a household spends on their shelter. The typical rating for affordability is 33% of your income going to your housing and you are probably familiar with this from when you obtained your first mortgage as this is one of the ratings that banks use. Presently the average of this index in Alberta is 26.7%. Calgary is at 28.7%, this puts Alberta as one of the most affordable places to live in Canada.

So we are already one of the most affordable places, and now we are going to get better health care? And more schools? And higher wages? And possible tax cuts? Do you think this might translate into more people from other provinces wanting to move here to be a part of this? I want to move here and I already live here!!

Really all of this information is readily available to anyone who reads the paper or follows the news. There is nothing incredible about this information, there are no real secrets to this knowledge, rather it is what you are going to do with it now that it has been shown to you. Too many times in our lives we say to ourselves, "If only I knew that was going to happen". Well now you do, are you going to let this go by without acting on it as well? Or will you take advantage of this huge opportunity and see where it can take you?

This is Great, But How Can I Benefit?

So you have made it this far, you can see the possibilities and now you want to take action and make your money finally work for you! What kind of action can you take? Well you still have two choices, you can go out and learn all of this on your own, or you can look to someone who already has experience, someone who already has property, and someone who already has a plan!

If you are ready, or require more information please contact us via email, phone, 403-880-5256 or fax, 403-203-1753, remember if you continue to do the same things the same way you always have, you will continue to have the same results! Step out of the box and see where it takes you!

Bill and Karen Biko
KatSid Housez Inc.
Calgary, Alberta