Blessed by the Potato

Macquarie research put out a comparison of REITs vs direct (condo) ownership in Toronto and Calgary. The story was picked up by the Globe and others. It’s an interesting comparison, especially the part about leverage, when another article this week warned of the dangers in leverage.

“Unbeknownst to most of these families, their theory of home ownership as a safe, low volatility investment is based on the often-mistaken premise of no or little debt. This is a crucial blind spot because the moment that a large amount of debt is used to buy a home, that safe investment theory goes completely out the window. […] What happens when that family buys that house with just 10 per cent cash down and a 90 per cent mortgage that promises an interest rate of 3 per cent to the bank over the long term? Amazingly, the equity in the house has now become dramatically more risky than before. The equity is now three times as risky as the overall market rather than 30 per cent as risky. This is more risky than an investment in nickel mining stocks or Internet start-ups.”

I was asked after these reports about REITs, and specifically if they’re as risky as the housing market, given my views there. Briefly, a REIT is a real estate investment trust, a type of investment that owns real estate that it rents out. The majority of the cash flow is paid out as a distribution to the investors. I tend to view them as a step up from fixed income: essentially all of the anticipated return will come from the distribution (rather than capital gains), and though that can be cut or expanded depending on circumstances, it should for the most part be stable.

I do invest in REITs (until late last year they were a huge part of my portfolio, but now are down to ~3% as I was selling as the prices appreciated), and don’t think that they’re in for the pain that residential housing is, due to several key reasons.



The first is diversification: both personally and for the REIT. Even if I wasn’t hugely negative on housing, I’d be somewhat uncomfortable having my house be the entirety of my net worth for the better part of a decade. With a REIT, I can get some exposure to real estate without risking it all. Also, the REITs themselves are diversified, holding many buildings all across the country. Even if I think Vancouver and Toronto are bubbles, Canada on the whole is not quite as bad.

The second is the sector: most REITs I invest in lease retail and commercial buildings (plus some industrial and government properties). Even the REITs that invest in residential apartments are not buying individual houses or condos. The housing market has been blown up by speculation and cheap-as-free CMHC financing, but those factors haven’t applied to multifamily residential (i.e.: apartment buildings of 5+ units) or industrial/commercial/retail buildings.

The third is return: REITs are investment vehicles for professionals, run by professionals. Before investing money, a building is evaluated for its investment return, and only its investment return (not how nice the school district is or how grown up you’ll feel buying it or how only scumbags rent or how pretty the countertops are). A common measure of investment return is the cap rate: the rent less the expenses divided by the price. The lowest cap rate I’ve seen on a REIT purchase in the statements I’ve read for the last few years was 5%, but 6-8% is more typical. For residential housing, buyers don’t evaluate it for its investment return (often at all, but certainly not as a top priority) — some people don’t even investigate what their housing alternatives are, and I kid you not, more than one person (on the internet, granted, so trolling is a possibility) didn’t even know that you could rent detached houses/townhouses/anything but apartments — and if they try, don’t typically do a very good job of it (innumeracy at work). In Toronto, a typical residential condo cap rate is something like 2% right now, with gross yields at 5%.

And the fourth is liquidity: if I buy a house and I’m wrong, I’m sunk: up to 10% just in transaction fees, and in a down market it can take a long time to sell (or a big discount). Even if I could recognize a downturn early on (say after only a 5% drop in prices), I’d probably lose 20% by the time I got out, not even accounting for the risk-layering of leverage. For a REIT, transaction fees are the same as for other stocks: small (for the position sizes I take, I try to keep fees to less than 1%). If I’m wrong, I can sell as soon as I decide to — again, if I could recognize a downturn after only a 5% drop in prices, I could get out losing only 5-7% (depending on transaction fees).

The third point in particular explains why I don’t think REITs are as prone to a real estate crash as residential housing: the over-valuation simply isn’t there in the first place. Plus, unlike residential housing speculators, they don’t rely on flipping property to make money: even if property valuations slide, as long as it’s not so far as to threaten the ratios on their loans, the income should continue to flow.

That said, REITs have had a big run up from the financial crisis lows, and since they are leveraged, they are somewhat interest-rate sensitive. They’re not without their own set of risks. For residential REITs, if rents come down due to competition from accidental landlords, they could take a hit. Even if there was zero spill-over from the coming condocalypse to commercial/retail values, REIT pricing could suffer if crowd psychology caused people to jump ship from anything with “real estate” in the name. A downturn in the economy that causes businesses and shops to close means they have higher vacancies, and thus less income.

There’s been some discussion over whether to hold individual REITs or the iShares REIT ETF XRE. XRE has a 0.58% MER, and not a great amount of diversification, with only a few names making up three-quarters of the fund (Riocan alone is a quarter!). For zero MER, one could buy the top one (or two or three) holdings and get the same basic exposure, it’s argued. Though the MER is a touch high for an ETF, it’s still nice to get the diversification… but I personally wouldn’t/didn’t go the XRE route for a different reason entirely: I just don’t like RioCan (REI.UN). It only yields 5.5% (as of today), and that’s with over-distributions (paying out more than cash flow as they hope that future income growth will close the gap). I know yield-chasing for the sake of yield-chasing isn’t a good thing to do, but there are other (smaller, ‘natch) REITs paying substantially more with, IMHO, the same riskiness as RioCan. Either way though, not a bad way to go for a part of your portfolio, especially as a renter without other real estate exposure.

The market looks to have gone a bit crazy lately, which I guess shouldn’t be unexpected given the turmoil all over the world. The world is a mess, and I just need to rule it which should (eventually) lead to opportunities presenting themselves. Oil was down a fair bit recently, which I found a bit surprising given the headlines, but I suppose some pullback was due. Oil stocks seemed to follow with gusto, which lead to me looking again at the sector for another value name to stick in there.

I should note that I have a bullish bias on oil long-term. Approx 12% of my active portfolio is in the energy sector (plus whatever’s in the TSX in my indexed portfolio), and that’s not including pipelines (which do have some exposure to energy prices; they make up 11%), or other companies that have some exposure (e.g., part of Canadian Helicopters’ business is servicing the oil & gas industry). That seems high to me, but it’s actually considerably less than the TSX (which is 27% energy). Most of my exposure is through the ETF on the sector, XEG. My thinking’s a bit torn on that. On the one hand, it’s a great, low-cost way to just pick a sector if one has a strong feeling about it, without having to pick individual companies. My ability analyze an oil company is admittedly weak (how to value reserves? what is land in one “play” worth vs. another?), so that works out for me, and gives a good amount of diversification. On the other hand, I could go even further and index more of my portfolio, and just get energy exposure through the TSX. Which I suppose comes back to my schizophrenic view on passive investing in general, which may be worth a post of its own in the future. The short version: I think it’s great, most people should do it (and it’s the only thing I recommend to others), as it’s hard-but-not-impossible to beat the index… but for 3 years running, I have. Which is terrible, because as they say, one of the worst things that can happen to a novice investor is to get lucky early on. So I try to stay grounded, and I do engage in passive investing (indeed, that’s largely where new savings go). Anyway, that brings me back around to wondering if, on the active/value side, I can do better than just say “I like oil” and buy the ETF.

I have to acknowledge my weaknesses: I can read a balance sheet, and look at cash flows, make back of the envelope calculations, and reason. But, even though I’m a scientist, I’m not a geologist, so I have no clue about formations and different plays, and have no idea how to even begin to value a company that isn’t at the production stage. So I don’t look at junior/exploration players (though that’s a high-reward, high-risk area that may serve a properly trained active investor well… that is definitely not me). Even with producers, I have to admit that I’m new at trying to examine them, and this next part is basically going to be me thinking out loud (unlike the rest of the blog). I would definitely welcome feedback on my thought processes and how to analyze these companies.

Example: Petrobakken (PBN). PBN is a little interesting: it has just tanked this year as its growth has slowed. It is an oil-weighted company (~85% oil, ~15% natural gas) with lots of land in Saskatchewan and Alberta (the Bakken and Cardium areas — it’s mostly focused in the Bakken, hence the name). The issue that seems to have brought down the share price is that the wells in the Bakken have been tailing off very quickly. Now there is normally a “decline curve” for oil wells: lots of oil can be pumped per day when the well is new, but as the pressure tails off (and, I’m sure, a host of other factors), less oil per day comes out as the well ages. But for Petrobakken, the decay has been very quick. The biggest declines have been in the namesake Bakken area, with new drilling not able to keep up with declines: the rock formation is “tight” and has to be fractured (“fracced”) to open channels for the oil to flow from the pockets it lives in to the well. The Cardium region has been making up the gap.

There are a few ways to try to put a price tag on an oil company, and I’m sure I’ll screw them all up.

The first is the way I look at many companies: discounted cash flow valuation. PBN reported cash flow per share of $3.51/share. If I assume that their production levels have roughly stabilized (tough to say, as they had a lot of growth, then some pull-backs, but many of the analysts say they’ve stabilized or will grow) and that oil prices (i.e.: cash flows) go up 4%/year, then I can plug all that into a discounted cash flow spreadsheet and get a valuation. Note that to be conservative, I’m using a 12% discount rate, assigning a -$9/share book value/starting value. That’s because they have about that much debt, and the assets (capitalized drilling costs, reserves, etc.) are not subtracted from cash flows, so if I counted them towards book value, they’d be counted twice (at least, I think so — if I’ve screwed up my accounting, let me know!). I’m not sure that I’ve fully accounted for the cost of drilling in this (because I’m not sure that their statement of cash flows discounts drilling costs), but hopefully I’ve been conservative enough in the other aspects that it’ll all come out in the wash. This quickie valuation gives me $23/share as my target price — indicating that the current price of $19 represents a substantial discount.

Another way is to try to multiply out the value of the oil they have in the ground. I could approach that in a number of ways, which will hopefully get me to the same ballpark. One is to take the total reserves (2P*) of 170 MBoe, and multiply that by a dollar value per BOE. That’s a little subjective: I pulled $35 out of my butt, partly by discounting their reported netback per barrel, and assuming that natural gas (15%) would be just break-even. TD suggests that the average valuation right now is $27/2PBOE, but $33 for oil-weighted companies, so I guess that gets me close. Multiplying out gives $6B value. Subtract the debt of $1.8B, and that’s $4.2B, or $22.50/share. This is a method prone to errors, for example, I wouldn’t want to pay $33 for a barrel of oil today, expecting to sell it for $33 in the future: I’d want a discount for the time invested. I would assume though that that premium would come from the price of oil increasing (I am bullish on oil), and also from growth in the reserves as more drilling and exploration is done (and their replacement ratio — the finding of new oil to replace what they drill — is above 1).

A similar method might be to try to multiply out by well instead of by reserve: it looks like their wells return something like 100 kboe in their life (with ~200 bbl/day initially, which rapidly decays). I’m getting conflicting readings on how much it costs to drill each well. They budget for $800M in capex, and plan to drill 200 wells this year, which to me translates to $4M per well, but the reports have figures all over the place, down around $2M. It looks like $4M might be a good conservative estimate, so I’ll use that. They have 2200 total well sites planned out (with, I’m sure, the potential for more as reserves are explored and firmed up). I’m not sure what figure to use for the amount they can sell the oil for: their “net back” is around $43, but that includes a cost for operations, and I don’t know if that includes the drilling, or just the ongoing costs. If I assume it includes the drilling, then I don’t need to subtract the drill cost, and I get a value of ~$9B (from which the debt should be subtracted). If I do have to subtract the drilling costs, that’s much less attractive: a value below $1B comes out in the end. So I don’t think I’m approaching this method right.

So mathy stuff aside, there are some concerns with PBN. The biggest one to my mind is the fact that they pay a nice dividend, but that they have been over-paying, racking up debt in order to finance the dividend. The debt is at least cheap, but still, I’d prefer they cancel the dividend to pursue the growth, and keep the leverage down. A close second concern is part of what caused the slowdown in the growth rate: they halted fracing in some areas because of “fracing out of zone”, which is when the rock structure is fractured beyond where the oil pool is, and they get water coming into the well. It’s a technical challenge, and it sounds like they have some solutions to improve the oil flow rate. What concerns me though is the potential liability if this fracing out of zone, into a water pool, means that they’ve contaminated groundwater in the area. I honestly don’t know if that’s a material concern or not, but it has me worried. Divestor has an article up on whether PBN is a value trap, and unfortunately, I can’t really refute his concerns, and I don’t have much confidence in my ability to put a value on the company here (again, any help appreciated!).

I’m primarily a “value investor” in my active portfolio (my passive portfolio is, naturally, passive, and designed to protect me from being too clever by half), and I don’t tend to pay too much attention to my asset allocation: instead I look for opportunities in individual stocks. Nonetheless, despite my statement about being bullish on oil long-term, I don’t have a huge exposure to oil (especially after selling BP). And, thanks to a great run in Canexus and Chemtrade, I find myself with a bizarrely high allocation to sodium chlorate producers — not normally a sector of much significance. I still think they’re both pretty attractive, so I’m hesitant to trim them down, but I think that’s probably where I’ll be getting the cash for an oil company (or more XEG) like PBN above.

* – 2P: Proved and probable (or possible). To put it simply: there are usually 3 levels of reserves reported, proved (1P) being oil in the ground that the company has a very high certainty (usually 90%) is there and can extract using current technology. Probable is oil that’s likely there (to some confidence, say 50%) and can likely be extracted using current technology.

Disclosures: don’t listen to me, I’m just a blogger, blah, blah, blah, long XEG, HSE, DAY, CHL.A, CHE.UN, CUS.UN, no position in other companies mentioned.

I’ve talked a lot in the past about Rogers from the customer’s point of view, so now I’ll flip that around and try to look at it as an investor, given the recent share price weakness.

In the past, I’ve never liked Rogers as an investment, without ever doing too much research: their P/E was always high, implying that investors expected a lot of growth, and I was always completely dumbfounded that the growth kept coming. Plus, you know, Blue Jays — how wise was that investment? Early on, as they were transitioning from being a cable company to a wireless company, I couldn’t believe how fast cell phone use grew, and how long it kept growing at those rates. Families were getting a cell phone for every member, a trend I was seeing with my own eyes and still not believing (I honestly thought it must just have been a Toronto thing, that surely not all Canadians could afford a cell phone). Rogers out-performed the TSX by a large margin for pretty much all of the last decade, and I kept thinking that it couldn’t continue.

I’ve still maintained my skeptical attitude towards these double-digit growth rates, despite being wrong for years running. I think I may finally be right, as if you add it up Bell, Telus, and Rogers now have between them 23 million wireless subscribers, against a population of 24 million between the ages of 10 and 65 (yes, surely some really young kids and older seniors will also have cell phones, but I have to believe that somewhere out there are a few people still without cells or who share within a family). Any future growth in net adds (above say 3-4%) will likely have to come at the expense of a competitor, and supposedly competition is heating up with the new wireless companies. I don’t know how much to fear margin compression with competition: the oligopoly of Bell, Rogers, and Telus have managed to “compete” without cutting into wireless profit margins for years, and maybe the new players will be in on the game too.

On the other hand, the markup for data services in Canada is one of the highest in the world, which leaves a lot of room for margin compression if any competition does take root, on top of any lost customer volumes as the market gets further fractionated. For comparison, the profit margin of Rogers and BCE is in the neighbourhood of 38%, but Verizon and AT&T are closer to 15%. So it’s definitely a concern, especially since Rogers doesn’t exactly have good brand loyalty.

The growth in upgrades to smartphones has been explosive, and adding data service to a wireless plan is a cash cow for a company like Rogers (smartphone customers spend ~2X as much per month). I don’t want to underestimate that, but at the same time, over a third of Rogers subscribers are already on smartphones. And competition is heating up there as Bell & Telus have only recently completed the network upgrades needed to seriously compete with Rogers for data customers (as well as getting access to the iPhone).

The cable TV part of the business is looking the weakest in my eyes: a small minority of people (like myself) have already cut off the cable, finding my TV watching needs can be met by DVD sets of my favourite shows, internet services, and over-the-air (which is all hi-def now, no need to go up like 3 packages to get the first few hi-def channels!). Fortunately, cable (TV, internet, home phone) is the smaller part of Rogers (wireless accounts for 68% of profit, cable about 30%, and TV just over half of that), and is still growing for the time being (though only 3.6% yoy in terms of revenue). Indeed, most of that growth is coming from the internet side: home phone is shrinking already, and TV was the only segment with net reductions of customers through 2009 (some came back in 2010, but I think that shows that there is weakness starting to form in the TV business). Internet should be pretty steady: hopefully UBB will go away, but they shouldn’t be getting much from that at the moment, as they’ve already driven the high-usage users off to the independents anyway. The next little while may be hairy though, as Bell & the CRTC’s UBB insanity gave the independents (and Netflix) a lot of free advertising.

There’s a touch more debt on the balance sheet than I’d like (and still growing, if slowly), and recently cash went towards share buybacks rather than debt repayments, but the maturity schedule looks well-managed.

In the end, I basically view Rogers as a utility: I don’t expect much if any growth, yet their services should have a well-supported demand with stable profits going forward (with no small amount of fear regarding competition). As such, I expect a utility-like P/E and dividend, and with the recent weakness it looks like that’s where it’s getting to. If I assume that earnings increase at about 2%/year (i.e.: about inflation, with any growth in customer base essentially offset by margin compression), and that book value is nil, I get a projected total return of about 9%/year here, using what I consider to be “fair” assumptions*. I’m not hugely thrilled with that for going out and picking something vs. just taking the market return in my indexed portfolio, but I am seriously thinking of investing in Rogers, in part for diversification (diworsification?) reasons, and in part for stupid reasons (I keep coming back to look at it, like my gut is telling me there’s something there, but that could just be because my gut likes beaten-up stocks).

* – don’t let my excel-fu instill a sense of false precision, I could see a future of anywhere from just the 4-5% dividend to 11%/year, and that’s just using some “fair” assumptions — admittedly, lower than the bottom range of “consensus” but not very conservative. Pessimistic ones about competition can make things look much worse: assuming profit margins go down to an American ~15%, then RCI would be over-valued by about a factor of two.

The pipelines have long been a core part of my portfolio: with nearly no income, I pay no income tax, so the tax treatment of the distributions never affected me, allowing for a bit of tax arbitrage (for most investors, outside of a taxable account, the yield on a pipeline would have been less after-tax than an eligible dividend, so their yields were high). They’re stable, long-term businesses, with very acceptable returns (esp. given the, IMHO, low risk involved). For full disclosure, I own both Fort Chicago (now Veresen) and Inter Pipeline, and have for years. So when Wayfare was looking for a safe investment in the midst of the chaos of 2008/2009, we turned towards pipelines, and settled on Enbridge Income Fund. After roughly doubling, she was wondering if it was perhaps wise to sell it (or sell half and invest in something else). Here’s a few of the things I looked at when making that decision:

First of, it’s important to recognize that pipelines are not exactly growth industries: it’s a capital-intensive business, and it’s hard to build out some fraction of a pipeline per year. So I don’t generally plan on much, if any, growth, which may be a little pessimistic (if nothing else, the transport tariffs may increase with inflation, and they do have other business lines, and hook up new producers to the pipeline over time in small segments).

There are parts that are hard to analyze, and hard to talk about analyzing. The companies often have other businesses (e.g., Fort Chicago/Veresen has both power generation and NGL extraction businesses). Some of these may be commodity-price sensitive, but I think I can safely say that generally most of the income from the pipelines is independent of what natural gas/oil does. The contracts vary (this is one of the hard parts to research), but are often take-or-pay, which means that the pipeline gets paid even if the producer gets shut down for some reason and doesn’t use the capacity. The pipeline itself may have different characteristics (e.g.: Inter Pipeline is all up in the oil sands, so it has a bit more growth as it hooks up the growing extractors in that region to its system). Enbridge and Veresen split the main Alliance pipeline that stretches across half the continent, but Enbridge has been more active in trying to grow in Saskatchewan. The corporate structure shouldn’t matter, but I find it much easier to read Fort Chicago/Veresen’s statements than I do Enbridge, since firstly the Enbridge name applies to several different companies (Enbridge Inc., Enbridge Energy Partners, Enbridge Income Fund) which have various relationships, and secondly because even just Enbridge Income Fund itself has various subsidiaries and holding company structures. Figuring out how to value these differences is a bit of a challenge to me.

Nonetheless, the first thing I look for is yield: after all, unless there is an expectation for growth somewhere, the yield is going to be where most of the return comes from in the pipelines. ENF right now yields about 6.1%, vs. it’s brother VSN at 7.6%.

Yield however is fairly meaningless if there isn’t cash flow* to back it up, so I next look there: what’s the payout ratio? The payout ratio represents the size of the distribution vs. the amount of cash or earnings the company is making: for an income trust (now just a high yielding corporation), I expect a high payout ratio, but one that still leaves room for growth, debt repayment, margin of error, etc. It’s pretty subjective and depends on the industry, but for REITs and pipelines, I look for a roughly 80% payout — much higher, and I start worrying about a future cut in the yield (or at least no/low growth); a lower payout may indicate a forthcoming increase to the distribution. For the payout ratio, I tend to look to cash flow rather than net earnings due to the very high depreciation line item that’s usually found — this tends to make the P/E ratio look crazy for pipelines (and other trusts/REITs). I have gone through the statements myself at some point in the distant past to get a handle on cash flow, and how it meshes up with net earnings, but lately I’ve been lazy and have just been accepting what the statements say at face value, or what the broker report has down for cash flow. For the latest quarter, ENF reported $100M of cash available for distribution [full year], and paid out $84M in distributions [full year], for an 84% payout ratio. VSN will report their full year results tomorrow I believe, but for the last 9 months had $134M of cash flow, compared to $107M in distributions [9 mos], for an 80% payout ratio. Due to the income trust conversion, these companies will have to pay income taxes going forward (but on net income, and it will also make the distributions eligible dividends), so I would expect the payout ratios to be squeezed for a few years.

What’s the debt look like? One big question will be the total amount of it, which is usually easily found (ENF: $1.1B, VSN: $1.7B), and that can be compared to earnings or cashflow/EBITA to look at debt coverage. Those measures are very sector-dependent: I’d be running for the hills if a restaurant had debt of 10X cashflow, but it seems appropriate for a pipeline. The various maturities can be important, as was brutally learned by Priszm and H&R — if credit conditions tighten, it can sometimes be difficult to “roll” the debt, so ideally the debt maturing in each year should be within a range where at least a large part of it could be paid off from earnings (with suspended distributions) if it came to it. ENF has this chart on page 17 of the Q4 report, I haven’t found it for VSN, but will likely be in the full annual report. That debt actually gets paid off can be important, depending on your view of leverage, but I think it is important for long-life assets to have the debt paid off before the asset is fully depreciated, and that is indeed how the debt is structured for the Alliance pipeline. VSN’s debt situation is a little more opaque as they paid down some long-term debt related to the pipeline, but then issued more debt in recent years for other acquisitions and capital spending. Anyway, both companies look very similar from a debt perspective (which should be expected).

For growth, I think ENF might have the edge over VSN due to its Saskatchewan system of pipelines. Otherwise they’re very similar, each owning part of the same Alliance pipeline (which makes up the majority of their businesses) and even sharing some power generation assets.

So at the end of the day, I looked at these two and couldn’t figure out why ENF had run up so much (119% for ENF vs 81% for VSN since March 2009) and was now yielding so much less than VSN (6.1 vs 7.6%), and that’s how we came to decide that Wayfare should sell ENF.

* – also called AFFO – adjusted funds from operations.

Went grocery shopping, with largely two things on my list: real food, and candy. At the intersection of the two: cocoa krispies, but they look to have discontinued them! Which is dastardly, because they were on sale this week!

Wired had a good article on magnetic navigation in sea turtles. Neat, because I was just talking about this in my lecture last week! Hope the undergrads find this. I love this quote: “A skeptic could reasonably believe that the latitudinal cue is magnetic, but that determining east-west position depends on magic,” Another recent article also discusses the radical-pair mechanism. I’ve long lamented the poor quality of journalism, especially science reporting, in these times of ours, but I have to say that I’ve been reasonably impressed with a few articles from Wired recently, in particular because they actually include the citations to the papers they’re talking about, so I’ve subscribed to their RSS feed.

The Berkshire Hathaway annual results are out, including Warren Buffet’s famous annual letter to shareholders. Worth a read even if you’re not a shareholder. Of course, many blog posts out there to help you digest the wisdom, including Larry MacDonald, Canadian Capitalist, and Michael James.

Barry Rithotlz points out that banks are writing credit default swaps on debt that doesn’t exist… if you figure out how to view the full story on the WSJ, let me know, I only got the first few lines as a preview, and there wasn’t even a link with the option to buy the article, so to me it just looks like a broken website (way to go, newspapers, you show the internet how conveying information is done!).

I got a response from my MP after my UBB letters: basically just a form response that the Liberals oppose UBB, and that they’ve received a lot of letters on the topic! Other than that, I haven’t noticed any news on the matter, so now I think we just wait and see what comes out of the CRTC.

A bunch of other bloggers got copies of various tax programs to give away (come on Intuit, it’s not a personal finance blog, but I do taxes too!). Oddly enough many of them only opened their contest up to their email subscribers. I guess people who use RSS to follow every. single. post. just aren’t worthy.

With even the permabulls like the real estate boards calling for the housing market to at the very least flatten out, it’s important to market your home’s selling features. A snazzy virtual tour may help, but might I suggest a space wall?

Toronto Realty Blog considers moving up. The post highlights a few things that I see as being horribly sick and wrong with the current Toronto market (well, it doesn’t intentionally highlight them, but they stand out to me):

• “Five years is far above the average time that a condo-owner will spend in one unit in downtown Toronto…” Transaction costs are high: so far, price appreciation has dwarfed them, but in a flat market, moving very often means more people should lean towards renting rather than buying. If people are feeling squeezed out (or bored, or whatever other reason they have for moving so frequently), then they do need to start to consider the risks of buying at the top, as they can’t just wait out a downturn in the unlikely event that it happens (even if that’s what they tell me). Five years sounds like a very short amount of time to buy a place for to me, so for that to be above the average sounds crazy.
• “As I look around the living room, I see a bookshelf with so many books stacked on top of the unit itself that I’ve begun a small pile on the floor […] and I can’t tell you how many things (skiis, snowboard, golf clubs, hockey equipment, baseball gear, winter tires) I keep in seasonal storage in my mother’s basement. Not only have I outgrown my space, but I can afford far more now as well.” The condos that are going up (even in Markham) are freaking tiny. I have trouble seeing how a single person fits in some of them, let alone a couple. That is partly due to amenities: no need to set aside room for a treadmill if your building has a gym, and space for more than two guests can be taken care of by the party room and movie theatre. But I have to wonder how much of the demand for these tiny units is driven by people buying from plans, and when the buyers will finally stop trying to get a place, any place, and start demanding livable space.
• “Let’s assume that I own my condo in cash, and I have no mortgage.[…] For whatever reason, I would rather keep my money in my condo th[a]n throw darts at the board known as the stock market […] so my all-in cost of living is only $545 per month.” Once again, the fallacy that owning your shelter somehow makes it free, or nearly so, without taking into account the opportunity cost, that is, the return one could get by investing that money elsewhere. Even a GIC-like rate added to the other costs listed would put that monthly total north of $1600 — more than what a 1-bedroom rents for. And along with it, the notion that somehow the stock market is risky but Toronto condos are not. Eventually, fundamentals will matter.