Toronto Home Sales Drop in March 2018

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Real Estate Investing, Energy Trading and Red Paper Clips

Today I want to talk about several different things.

#1. Kyle MacDonald, aka the guy who traded a Red Paper Clip until he eventually got a house. See the video below:



Kyle MacDonald became noteworthy years ago for starting with a red paper clip and trading it for a pen, which he traded for bigger and better things until he eventually ended up owning a house in Canada.

In a way this idea of trading things for something bigger and better is a bit like how the stock market works. You trade cash for stocks when they have a lower value, you sell it for a higher value, then you buy different stocks for a lower value which you then sell for a higher value... then maybe you buy gold at a time when gold prices are soaring, then you sell the gold and buy other stocks which are showing growth... and you repeat this process again and again until you have a multiplied the amount of money you started off with many times over.

That is the theory at least. The problem is how do you guarantee the things you invest in go up in value?

#2. Energy Trading, which involves trading electricity with other regions in order to provide electricity to customers at a cheaper rate.

Energy trading can also relate to oil and natural gas, selling it or buying it. So for natural gas, commonly used in residential home heating, it again comes back to the idea of trying to save money and pass those savings unto the customers who are buying the natural gas. With oil it is going to refineries and later made in gasoline, diesel, petrochemicals, and even plastics. So that translates into different prices at the gas pumps and also effecting the petrochemical / plastics industries.

In Ontario, Canada our electricity grid has to produce a surplus of 10% more power constantly in order to prevent brown outs / shortages of electricity. (I learned this during a brief stint of working for an electricity / natural gas distributor in Toronto.)

Ontario then sell that surplus of electricity to New York State, Michigan, Quebec and other neighbouring regions. In the USA they use a similar system of trading electricity between various states, allowing each region to produce surplus electricity, but also to be able to sell their surplus electricity at a discount to neighbouring regions. This way no region suffers brownouts and ultimately the various regions can save money on the cost of electricity.

See the video below in which Gustavo Luna from Bismarck, North Dakota explains how energy trading works.



Energy Trading should not be confused with Commodities Trading - which focuses on buying oil for example at a lower price and selling it for a profit. With Energy Trading, the goal is to buy surplus electricity at a cheaper rate and then pass off those savings to consumers. So you are not making a profit, you are simply saving money for consumers.

Or at least that is my understanding of it. Gustavo Luna would probably be disappointed by my simplistic explanation.

#3. Real Estate Investment / Flipping Properties - which is really my primary topic today. (You are probably wondering what the above two ideas have to do with the third, but don't worry I am getting. I just have to make sure the readers are aware of everything before I get to my idea.)

There are a number of ways people can invest in real estate.

• Buy a property for the investment, rent it out for years, sell it later for a profit when the real estate prices in the region skyrocket.
• Buy a property, renovate the property in ways that will boost its resale value, then sell it ASAP for a profit. At which point you buy another property, renovate it, and sell it again.
• Invest your money with a company that invests in real estate (office buildings, etc) and churns a profit from the rentals and later sales of properties. That company collects their percentage and you get a percentage while they do all the work, but you are the one taking the risk.
• Buy mortgage securities on the stock market from banks and sell them later for a profit. The trick to this is that if you are aware of what happened during the Financial Crisis of 2007-08, you could be buying AAA rated mortgage securities that are actually full of junk mortgages (eg. sub prime mortgages). The problem with the mortgage security industry is that they tend to bundle together junk mortgages and give them together an AAA rating, even though it is junk. It is truly a care of buyer beware.
• Finance the mortgage of a family member - this is quite good because a family member is pretty much guaranteed to pay you back. You can be lenient with the payment schedule, the interest rate, etc if needed, but otherwise it works out quite well. Even if the family member does somehow default on the home, you foreclose on them, keep the money they already paid you and then sell the home for a profit. That is a Win-Win financially for you if they fail to live up to their side of the mortgage agreement. It creates an incentive for the family member to not burn bridges because they know that if they do, you foreclose on the home and make a tonne of money anyway. (The only way you could potentially lose money in this scenario is if the real estate market collapses.)

So what do these things have to do with each other?

Well, that is where we get into the fun part.

I think there is a future in "real estate trading and investing", wherein people could invest in say "Renovating and Flipping Properties" for example.

Idea #1.

Lets say you have 10 investors who invest $100,000 each in buying and renovating a house. They do none of the work as part of their investment pays for a contractor who renovated the house. Upon completion they then sell the house for 20% more than what they paid for the property, the taxes, the cost of renovations, etc.

Those 10 investors then have $120,000 each, which they could then use to buy and renovate two smaller houses for $600,000 each, which they later sell after the renovations for $720,000 or more each... So each investor then has $144,000 or more.

Now if they managed to do all of this is the space of 1 year, that is a 44% increase from their investment.

A person could do this individually... and even do the renovation work themselves, and hope they follow the building code. But it actually makes more legal sense to have a contractor do it, have it all in writing in a contract, with liability insurance and everything in case anything goes wrong. But that would require the person who is funding this whole thing to come up with all the money by themselves.

In contrast, if people only had to invest one tenth the needed amount, there is more security in numbers as a shared enterprise... and it allows the group to buy larger properties or multiple properties, thus diversifying their investment.

Kyle MacDonald for example when he got the house eventually could have renovated himself - or hired a contractor - and later sold the larger house for a profit. Then he takes the money he made, buys a different house, renovates it, sells for a bigger profit... and keeps repeating. He in theory could have gone down that road, but is probably pretty amazed at what he managed to accomplish with just a red paper clip as is.

Idea #2.

Another way to do this "Read Estate Trading and Investing" idea is to buy up properties that make good rentals (properties that don't need a lot of maintenance costs are ideal), and then rent them out for a profit. Industrial properties are pretty good for this.

So for example 10 people buy a warehouse which they then lease out to a company for storage, which allows them to make a tidy income every month on their investment.

Individual investors could sell their one tenth share to other people if they later wish to do so, take whatever profit from that sale and then invest in a different property the same way.

Idea #3.

10 family members finance the mortgage of an eleventh family member. This way each of the 10 family members only have to pay one tenth of the total cost of the home, which they then gain money back + interest each month until the mortgage is paid off. The benefit of this is that there is even more familial pressure on the 11th family member to pay off the mortgage... and failure to do so means the family forecloses, sells the property and collects their profits.

Oddly enough something similar to this is already done by Mennonites when buying up farmland for their children. The whole community of Mennonites will pitch in, buy a property for a newlywed husband and wife, have a barn raising, renovate the house, and the property is later paid off.

And because Mennonites don't pay taxes they are laughing all the way to the bank. (What you might not know about Mennonites is that because they don't pay taxes, are very industrious and don't spend their money on cars/food/rent/university tuition/etc they end up saving lots of money and ultimately tend to be quite well off financially. They have so little expenses compared to the rest of us and money that goes into the Mennonite community rarely comes back out.)

Idea #4.

Crowdfunding Property Investment

Imagine if 50,000 people each invested $200 each. That is $10,000,000 and they use it to buy up multiple properties which they then:

• Renovate.
• Rent out.
• Sell.

Following the same principle as #1, they could make perhaps a 44% increase in value in a single year by buying, renovating and selling properties in this manner.

Those people could also sell or trade their share(s) to someone else and invest in other properties instead. They could decide whether they want to invest in small properties, large properties, residential, industrial, rental properties, and more.

And they could do all of this via a website which manages it.

Idea #5.

Website? Why not also an app? A real estate investment and trading app.

Move over Bitcoin, you are basically worthless and eventually people are going to realize that Bitcoin is worthless.

Real estate however. There is a reason why it is called "Real Estate". It is tangible property.

So just imagine this revolutionary way of investing in real estate. One part Kyle MacDonald's Red Paper Clip, one part a bit like energy trading or commodity trading as explained by Gustavo Luna - except this is the buying, selling and trading of real estate.

That to me is an interesting and exciting app someone should make.

So yeah.

There is my idea for an app someone should make. I should start a crowdfunding enterprise just to create the app, with the first people who invest getting both a share of the app and a share of the first property that we invest it.

Now you might think, how does one make money off an app like that?

Well, easy. You charge 0.1% fee off every sale transaction. So if someone invests $200 and later sells their share for $300, the app takes 30 cents. So 10 cents off each $100. It isn't a lot really, but if you get 50,000 people to invest in the first year, and they later sell off their shares for $250 or more then you are still looking at 25 cents x 50,000.

$12,500.

If the app grows in popularity and millions of people start investing in real estate this way, that 10 cents per $100 isn't pocket change any more. It is millions.

So what is wrong with this idea?

Well, I am pretty sure there are some laws from the USA that would say that this kind of investing is illegal - because the government also wants their share. The USA would want to tax any transactions and profits happening within the USA.

And it would target any real estate assets being bought, renovated and sold in the USA.

So any kind of investment in the USA through the app would mean American citizens would be taxed on each transaction, and investing in the USA would be problematic. The app would make more sense in countries which allow this sort of investing and aren't so worried about taxing people who want to invest their money this way.

The USA has similar problems with offshore gambling websites. People can buy virtual chips/etc overseas, gamble, possibly win (although most likely they lose it all), and then cash out their chips and never have to pay anything in taxes.

Similarly, the USA has other problems with Bitcoin and other crypto-currencies. They are hard to track and it becomes unclear if people made a profit by buying and selling things using Bitcoin.

So the app and company that runs it would need to be based in the Bahamas, Panama, Ireland or some similar tax haven.

And this is where I hit a brick wall in terms of motivation to make this happen myself. It seems like too much work and I have other issues to deal with, rent, bills to pay and a baby to feed.

So I am not saying "go ahead and steal this idea". Honestly, I feel like this is definitely my idea and I would be upset if someone stole it and made a profit off it. But I would be willing to sell my idea or become an intellectual property rights partner with someone else if they want to do the leg work on this idea.

I currently cannot be bothered to do it all myself.


One more idea...

I would love to buy a farm, buy horses and open an archery range / horse riding school. I think that is a business worth investing in. I have already done the math on what it would require in terms of investment, how much to charge students, how much to pay the riding instructors, and how much money could be made within the first year. It would be one of the very few places in North America where people could do equestrian archery. (Seriously, go try to find such places and you will find they are few and far between.)

One last idea, I swear this is the last one.

Start a charity that deals with buying properties for mustang horse sanctuaries. People donate to buy the property, the property is renovated with fences to keep in the horses, and the mustangs are then transported to the property where they can roam freely. This would solve a problem in the American West where mustangs are a problem due to overpopulation and the government culling them because they get on to the properties of ranchers, ruining crops, etc. The people who donate get a voucher they can use on their income taxes, but really it is mostly about giving the mustangs a safe place where they roam without being killed by ranchers or by the government.

Real estate agents breaking the rules: Hidden camera investigation

 The following video is a hidden camera investigation by CBC to determine how unethical real estate brokers are who double dip and do similar unethical and illegal things.

This is why you should ALWAYS get a separate real estate broker.

Is Toronto's Condo Market Poised to Cool or Collapse?

November 9th 2017.

So today the CBC posted the following article on their website, but I don't want to talk about the article so much as I do want to talk about the implications of it:

Hundreds of Toronto condo buyers lose homes after developments fail

When Tanya Rumble and her partner Josh Kolic heard a new condo development was going up in their Junction neighbourhood, they thought it would be the ideal time and place to buy. After all, they had been renting in the neighbourhood for seven years and loved it.

The developer, Castlepoint Numa, advertised an exciting new 10-storey condo building on Sterling Road in the Junction Triangle, called Museum FLTS. The building was going to be close to transit, a new park, a daycare and a new contemporary art museum it was also building.

"We got really excited" Rumble explained. "I walked by the sales centre almost every day," she said, hoping to be one of the first people to put down a deposit the moment sales opened.

She was.

In May of 2016, Rumble and Kolic signed an agreement to purchase a two bedroom, two bath unit in the 10-storey condo. But as the months dragged on they noticed the project appeared stalled. "Sales staff kept telling us, 'Nothing to be feared. The developer has a great reputation,'" she said.

Unexpected letter came in the mail

Last week, about 18 months after signing their purchase agreement, the couple got a letter from Castlepoint Numa, along with more than 100 other condo buyers.

The company returned their deposits, explaining the condo project couldn't get construction financing. The developer also wrote, "we have not secured all of the development approvals or available permits" from the city of Toronto.

"We were pretty gutted," Rumble said. "It was quite devastating."

While the vast majority of condo projects proceed as planned in Toronto, CBC News has learned that more than a handful of proposed projects have failed this year alone, leaving hundreds if not thousands of buyers in limbo.

Many now find themselves priced out of Toronto's red-hot condo market where prices have soared 20 per cent in the last year alone, according to the Toronto Real Estate Board.

Developer says lack of financing, permits killed condo

Castlepoint Numa declined to answer several specific questions about the cancelled project, but in an email, company president Alfredo Romano vowed the condo will get built eventually.

It will "proceed but only once building permits are available. We can no longer rely on just a zoning bylaw to proceed to market. Only then will a project be 'safe' to go forward." he wrote.

Romano and company officials would not say when that would be, or whether they expect to resell the units to new buyers at higher prices.

The developer also declined to say whether it would offer the original buyers any discount or incentive once the project is eventually built.

Janice Creighton and her partner, Mike, also bought a condo at Museum FLTS and feels she's now been priced out of the market. "It seems as though there's a risk that you could put your money into something, think that you're in the market," she said, "and they could just take it away from you and resell it for whatever it is when they open it back up again."

Museum FLTS just the latest condo project to fail

Museum FLTS buyers aren't alone. Hundreds, if not thousands of other pre construction condo buyers have also been left in limbo.

Earlier this year, a project adjacent to the Mimico GO station in Etobicoke was placed into receivership after the developer, Stanton Renaissance, failed to meet its financial obligations. The company owed millions to suppliers and contractors.

More than 200 of the units in the proposed 27-storey tower had already been sold — some as far back as six years ago.

Today, the site remains only 15 per cent complete. It was recently sold to the Vandyk group of companies. Court records show Vandyk doesn't have to honour the purchase agreements of the original buyers, and it won't.

On the GO Mimico buyer Arash Borujerdi tells CBC News he still hasn't received his deposit back and fears he's now priced out of Toronto's housing market.

"The process has really set me back in life in terms of becoming a homeowner, as you know the prices have gone up substantially since I purchased," he said.

It doesn't take much for a condo to fail

Numerous other condo projects in the city have also failed — many due to lack of financing, zoning approvals or other factors. It's happened in Scarborough, North Toronto, and downtown. Hundreds of people who bought proposed condos and townhomes from Urbancorp are still fighting the bankrupt developer in court to recoup some of their losses. Unlike condos, deposits of freehold townhomes aren't protected.

Real estate lawyer Bob Aaron says it doesn't take much for a proposed condo to fail. A developer can simply decide they don't want the hassle of building if profits appear to be diminishing.

"It's always a case of buyer beware," he said.

"Sometimes purchasers think, 'I'm going to make so much money, I don't care about buyer beware, I'll take the risks.' Sometimes when the market gets a little tighter, people are a little more cautious."

Coun. Josh Matlow tabled a motion that was passed at city hall back in 2013, demanding Ontario's Ministry of Government and Consumer Affairs prevent developers from advertising or selling condos that still haven't obtained the necessary permits and approvals.

"Why should people believe all the community meetings, the votes at city council mean anything, if the developer is telling you there is already a predetermined outcome?" Matlow said.

"'Something is coming soon,' they advertise, even though nothing has been voted on."

Matlow says the province has yet to enact any regulations.

He also says a variety of issues can derail a proposed development, leaving behind financial and other problems for buyers who waited years for nothing.

As Creighton puts it, "I don't know that I could do pre-construction again knowing that this is the risk. I just kind of wish I had known beforehand that this was something that developers have done before."

Rumble says she and her partner knew buying a pre-construction condo came with risks but "developers are in a position to sell units when they don't have the necessary permits in hand. They can sell us a dream that they don't know if they can materialize."

So...

Really what happened is that the developer didn't have enough from people wanting to buy condo units. Lack of people and sales equals lack of financing. So when it came to crucial stages like getting permits to actually start construction, the developer decided to skip the whole project entirely.

Now this is just an example of one building, but I see it as evidence of something bigger. A cooling condo market.

And at present that is all it is, potentially.

As long as Toronto's economy remains strong, I don't currently expect any kind of collapse in condo prices.

To get that we would need Toronto to get hit by a recession, in which case the recession could be a tipping point if the economy sours enough to hurt condo sales - at which point then Toronto will be hit by condo and possibly housing market collapse.

But seeing as Toronto is not facing any kind of recession, and is not facing any recession in the foreseeable future, then a cooling of the condo market is all it could potentially be.

Unveiling Non-Covered Perils in Home Insurance

Home insurance is a vital safeguard that provides homeowners with financial protection against various perils. However, it is crucial for homeowners to be aware of the perils that are not covered by standard home insurance policies. This article explores the issue of non-covered perils in home insurance, highlighting its importance and offering insights to help homeowners mitigate potential risks effectively.

Understanding Non-Covered Perils: 

Non-covered perils refer to events or circumstances that are excluded from standard home insurance policies. While policies differ, common examples of non-covered perils include floods, earthquakes, acts of war, nuclear accidents, and routine wear and tear.

The Importance of Non-Covered Perils:

1. Risk Assessment and Planning: Recognizing non-covered perils is essential for homeowners to assess and plan for potential risks adequately. Understanding what perils are excluded allows homeowners to explore additional insurance options or risk management strategies to fill the gaps in coverage.

2. Financial Preparedness: Non-covered perils can result in substantial financial losses if they occur. Being aware of these exclusions prompts homeowners to assess the potential financial impact and consider alternative means of protection to mitigate the risks effectively.

3. Personalized Coverage: Understanding non-covered perils enables homeowners to customize their insurance coverage to meet their specific needs. By recognizing the risks associated with non-covered perils, homeowners can seek supplemental policies or endorsements that provide additional coverage for excluded events.

Mitigating Risks Associated with Non-Covered Perils:

1. Evaluate Additional Coverage Options: Homeowners residing in areas prone to non-covered perils, such as flood-prone regions or earthquake-prone zones, should explore specialized insurance policies that specifically cover these perils. Purchasing separate flood insurance or earthquake insurance can offer the necessary financial protection against these events.

2. Risk Mitigation Measures: Implementing preventive measures to reduce the likelihood or severity of non-covered perils can be beneficial. For example, homeowners in flood-prone areas can install flood-resistant measures such as flood barriers or elevated electrical systems. Earthquake-prone regions may require structural reinforcements to minimize damage.

3. Emergency Preparedness: Developing a comprehensive emergency plan and assembling an emergency kit can help homeowners mitigate the effects of non-covered perils. This includes having evacuation routes, emergency contact information, and necessary supplies readily available in case of a disaster.

4. Communication with Insurance Provider: Engaging in open communication with the insurance provider is crucial. Seek clarification regarding policy terms and exclusions. Additionally, notify the insurance company of any changes or upgrades to the property that may affect coverage or eligibility for supplemental policies.

5. Stay Informed: Stay updated on local regulations, changes in insurance policies, and emerging risks that may impact coverage. Being informed allows homeowners to make informed decisions regarding additional coverage or risk management strategies.

6. Seek Professional Advice: Consult with insurance professionals, such as agents or brokers, who specialize in home insurance. They can provide expert guidance tailored to specific needs and offer options to address non-covered perils.

Understanding non-covered perils in home insurance is of utmost importance for homeowners. By being aware of the risks excluded from standard policies, homeowners can evaluate their insurance coverage, assess potential financial risks, and take proactive measures to mitigate those risks effectively. Whether through obtaining additional coverage for specific perils, implementing risk mitigation measures, or staying informed about emerging risks, homeowners can ensure they have appropriate protection and peace of mind in the face of non-covered perils. By addressing this important issue, homeowners can strengthen their overall risk management strategy and safeguard their homes and finances effectively.