Invest in Real Estate - Without fixing broken toilets - NAFR Ottawa
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Invest in Real Estate Without fixing broken toilets
Acknowledgements • Linda of NAFR Ottawa Branch • Frank Schilder our Zoom Master • Michael Patenaude of Ottawa Share Club • Dave Gass for the video
Disclaimer • Nothing in this presentation is advice or recommendation and is for information only • All investing involves risk • Readers should seek the advice of a registered financial/investment adviser or conduct their own due diligence before making any investment • The presenter admits a negative bias towards physical real estate
Poll question 1 • Real Estate does well in an area when: • 1. Interest rates are low • 2. Economy is growing • 3. Population is growing • 4. All of the above
Interest rates have been on a
downward trend for 38 years
Note last 2
Almost zero !
months.
How low can
it go ?Poll question 2 • Over the next five years, I expect interest rates will: • 1. Increase • 2. Decrease • 3. Stay about the same
Interest rates & mortgage affordability
$2000/month payment
Year Mortgage Maximum Average
Interest Mortgage Ottawa
Rate % House price
1981 18 132000 64896
2001 7.4 270000 175971
2011 5.4 330000 343284
2021 1.4 507000 547071
Total % 284 743
Increase
Estimated 38
% Increase
due to
interest
Source: Bank of Canada Historical Interest RatesMortgage demand may fall as rates rise • Mortgage applications to purchase a home fell 6% in a week • CNBC, February 17, 2021 • 5 Year bond interest rates increased from 0.425 to 0.550
Can newly purchased investment
properties be cash flow positive?
• Toronto apartment rent decline 20% YOY
• Torontostoreys.com, January 14, 2021
• Toronto condo prices fall 7.5% YOY
• Globe and Mail, February 20, 2021
• Overlooked costs include:
• Maintenance/Condo fees (1%/yr)
• Renos (1%/yr)
• Purchase and selling costs (6%)
• Empty unit
• Non paying tenantsPoll question 3 • What % of Ontario renters are currently behind on their rent ? • 1. 7% • * Globe and Mail, December 22, 2020
An effective landlord
Real Estate Investment Trust (REIT)
alternative to owning real estate
• What’s a REIT ?
• A corporation that owns and manages real estate on behalf
of its investorsTypes of REITs • Apartments • Retirement residences • Retail stores • Office buildings • Industrial buildings • Cell phone towers • Hotels
REIT Advantages • Passive investment – nothing to do • No bad/non paying tenants • No repairs • Little research or searching • Regular cash flow • Easy and inexpensive to buy and sell • Diversification • Low minimum investment
REIT disadvantages • Sensitive to interest rates and economy • Covid impacts on retail, hotels, office • Less leverage than conventional mortgage • Use HELOC to provide leverage • Interest tax deductible • More risky ?
REIT ETFs 10 year total returns
CI REIT Active ManagementCanadian REIT ETF performance
ETF Yield % 10 year av MER %
annual
return
RIT 4.9 9.7 .75
XRE 4.3 6.5 .55
ZRE 4.9 7.4 .55
VRE 3.8 7 (*5 .40
years)
Source: Morningstar
Past returns do not guarantee future returnsRIT versus Ottawa & Toronto residential
property price increase
2 Year 10 Year 10 Year 2 Year 10 Year 10 Year
%/Yr %/Yr %/Yr w/o Total % Total % Total %
increase increase interest increase Increase Increase
effect w/o
estimate interest
effect est
Ottawa 15.8 5.3 3.3 34 67 42
residential
RIT ETF 3.4 9.7 6.0 6.9 152 94
*Distributions
reinvested tax
free
Toronto 7.8 4.8 16 112 69
Condo
Source: Ottawa Real Estate Board
Excludes positive cash flow for physical property
This is NOT a recommendation to buy any securityRIT vs TSX 250 Total Return (XIC ETF)
RIT ETF Top Ten Holdings • 1. Canadian Apartment • 2. TriCon Residential • 3. Dream Industrial • 4. Interrent • 5. Granite (Logistics) • 6. Summit Industrial • 7. Killam Apartment • 8. Minto Apartment • 9. Crombie Real Estate (Grocery and apartment) • 10. WPT Industrial
RIT Tax advantaged distributions
% Capital % ROC % Income
Gains
RIT (*2019) 65 6 25
This is not a recommendation to buy any securityWhere to use REIT ETFs • Registered Retirement Income Funds • TFSAs • Taxable Accounts • RSPs
How to buy • REIT ETFs bought and sold like a stock • Available through any broker or financial adviser • Not available through Bank Branches • Mutual Fund alternative may be available at higher fee • Use discount broker for lowest cost: • $0 - $9.99 per trade
Disclosure • The presenter holds the following investments mentioned in this presentation: • RIT • BUT once again, this is NOT a recommendation to buy any security.
Questions ? Condo in Spain. Ad claimed it was rustic but with a good view.
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