All posts by Financial Independence Hub

Toronto & Vancouver real estate investors should sell now, author says

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Real estate in Toronto and Vancouver is at the irrationally exuberant greed stage and investors should sell, says bestselling author Calum Ross

By Calum Ross

Special to the Financial Independence Hub 

The Problem

Real estate investors often fail to objectively assess their existing portfolios in the same way that a holistic wealth management professional or financial planner would when dealing with equity investments.

Many real estate investors who began their investment careers following sound investment principles have got caught up in the hype and strayed from their core investment principles. When a particular asset class performs well, there is often a sentiment of irrational exuberance that develops around that asset class. When this happens, savvy investors adapt their strategy while others continue to “go with the herd” and experience the eroding effects of inertia.

The problem is highlighted today in two key ways:

  • Yield on Toronto and Vancouver Real Estate Has Diminished: Rising real estate prices in these markets have outstripped the increase in rental rates that has eroded yields. This now means many real estate investors are over-weighted in one asset class, and that many new real estate investments are in reality speculative-grade investments because they don’t meet the suggested 3% interest rate cushion to sustain cash flow (a metric outlined in more detail in my recent book on borrowing to invest).
  • Investors are Demonstrating Irrational Exuberance and Greed Towards Real Estate: I’m deeply concerned by the number of people who believe real estate values will continue to climb at these uncharacteristically high levels. Not only are current appreciation rates unsustainable, but the fact that rental increases are not even close to keeping pace makes real estate investment even less appealing.

There are too many investing in real estate who are chasing returns through appreciation alone. There’s an alarmingly high net inflow of money to real estate in overpriced markets even as yields continue to plummet.

Continue Reading…

Is Inflation making a comeback?

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By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

In a noticeable turn of events, one of the key talking points for the 2017 investment landscape has been the potential return of inflation. Indeed, only a little more than a year ago, a rather different take on this topic was dominating market discussion: deflation. However, since the results of the U.S. election became known, market participants began to shift their focus to what is being referred to as the “Trump Reflation Trade.”

Quite simply, the logic behind this “trade” is that fiscal stimulus will now take the baton from monetary policy and provide a newfound jolt to the economy, spurring potentially higher growth and elevated inflation readings, accordingly. For the most part, the financial markets appeared to buy into this line of reasoning, as the S&P 500 has risen +10% since Election Day while the U.S. Treasury (UST) 10-Year yield has climbed by about 65 basis points (bps) during this same time frame. Interestingly, broader commodity prices, as measured by the Thomson Reuters/CoreCommodity CRB Index,  rose in the two-month period following the election to as high as +6.3% but have since reversed course and were basically unchanged as of this writing.

The most widely followed inflation gauge in the U.S. is the Consumer Price Index (CPI). This monthly report is released by the Bureau of Labor Statistics (BLS), with both the overall and core (excluding food and energy) readings receiving the most attention.

Inflation rise of 2.7% highest in 5 years

The February CPI report revealed that overall inflation rose at a year-over-year rate of +2.7%, the highest in almost five years. Continue Reading…

What first-time home buyers should know about FHA loans (U.S.)

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By Cher Zevala

Special to the Financial Independence Hub

For most people, a home is the most significant purchase they will ever make, as well as one of the most complex. Finding a home is actually the easiest part in most cases, but financing the purchase can be stressful.

That stress is only amplified when you want to purchase a home, but don’t necessarily meet lender qualifications for an attractive mortgage. Simply put, it’s not always easy to get a mortgage for a home. Lenders have strict criteria in terms of down payment, income, and credit history, and failing to meet those criteria can mean disappointment, at least when you work with a traditional lender. Thankfully, there are other options for purchasing a home, such as an FHA mortgage.

What Is an FHA Mortgage?

An FHA mortgage or loan is a home loan backed by the Federal Housing Administration (in the United States).  Borrowers who get a mortgage under this program must purchase mortgage insurance, which protects the lender in the event of a default. The agency itself does not issue the loan, but instead works with traditional lenders, providing assurance that the bank will not lose money on the deal.

FHA loans are attractive to many home buyers because they typically have less stringent qualifications in terms of down payment and credit score, but still offer competitive interest rates. For instance, while a buyer who only has a 10 per cent down payment and a credit score of 600 is not likely to qualify for a traditional loan, he or she has a better chance of getting financing via an FHA loan. Continue Reading…

U.S. Treasuries: Who’s buying, who’s selling?

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Major Foreign Holders of U.S. Treasuries Dec. 2016

By Kevin Flanagan, Senior Fixed Income Strategist, WisdomTree

Special to the Financial Independence Hub

One of the linchpins supporting the U.S. Treasury (UST) market in recent years has been the relative yield advantage against the rates that have existed among the sovereign debt of other G7 nations. In the post-U.S. presidential election landscape, fixed-income investors have witnessed a back-up in G7 government bond yields on a global basis, and questions have arisen as to whether said advantage would remain a key contributor to the UST market outlook in 2017, now that the “zero rate club” has shrunk. The best way to answer this query is to examine just who exactly has been buying and who’s been selling, with the first data point looking at developments from the foreign perspective.

Each month, the Treasury Department releases statistics on this front, but it should be noted that the actual data are provided with a one-month lag. Thus, the latest report did not provide any fresh details on how 2017 got started, but it does offer interesting information for calendar year 2016. The report itself is called Treasury International Capital data, or TIC, as it is known in fixed income trading circles, and includes the figures for “Major Foreign Holders of Treasury Securities.” Continue Reading…

On the Middle Class & paying one’s fair share of taxes

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By Tim Paziuk

Special to the Financial Independence Hub

The Liberal Government has stated it wants to build a strong middle class, but who comprises the middle class?  Mr. Morneau in his 2017 budget speech stated, “All Canadians must pay their fair share of taxes,” but what is a “fair share”?  Does fair share mean the total amount of taxes one pays as a percentage of their gross income?  Is this based on an annual consideration or a lifetime consideration?  Or does fair share mean positively contributing to the general revenue?

The answer to the first question is an ongoing contentious debate.  According to former Finance Minister Mr. Joe Oliver, the middle class could include households earning as much as $120,000.  Given research completed by MoneySense Magazine[1], the middle class could include households earning incomes ranging from $38,800 to $125,000 (average second, third, and fourth quintiles for Canadian households), but this varies considerably between Provinces and Territories, and even between cities.  But does owning a private corporation automatically exclude you from the middle class?  The continued witch hunt on private corporations by the Liberal Government would indicate this is the case since it directly contradicts their mandate to build a strong middle class.

Comparing a private-sector and public-sector worker

It is at this time I would like to introduce Sally.  Sally could be a physician or accountant, an engineer or architect, a therapist or life coach, or a hairstylist or clothing retailer.  Suffice to say that either out of choice or necessity, she is self employed.  Let’s make her a plumber who is in a position where it makes sense for her to incorporate because she can defer income within her corporation and income split with her spouse under present tax legislation.  Her spouse works part-time.  Their situation can be summarized as follows:

  • Sally’s taxable corporate income: $100,000
  • Spouse’s gross income: $25,000
  • Net income required to meet their lifestyle: $80,000
  • Spouse’s CPP income: $4,300

Continue Reading…