"If you’d rather not eat cat food in your retirement, you’d better invest in condos."- Developer Brad J. Lamb.
Toronto condo developer Brad Lamb says inadequately funded pension plans and limp RRSP returns will not meet Canadians’ retirement needs. So unless you want to eat cat food in your retirement, you'd better invest in condo's.
Yes, we're not making this up. This is the message Toronto's Condo King has for the masses as he presented a free workshop on real estate investing to some 340 people at The Westin Saturday in Ottawa, as reported in the Ottawa Citizen.
Of course Lamb's development company is constructing the Gotham and SoBa condo towers in Ottawa, which is what brings him there to hold the "free workshop".
His investment advice?
Factoring in inflation, he says that someone retiring 30 years hence will need $2.1 million for a pension of $50,000 a year in today’s dollars.
To get there he recommends you buy, rent and re-sell urban condos in a market that, based on the past 30 years of real estate performance in Ottawa, Lamb believes has nowhere to go over the long term but up.
Lamb’s strategy?
Scrape together $20,000 (that’s your down payment on a small condo that is also your own residence) and using what he called conservative projections of 4% annual growth in real estate values, Lamb says you’re soon able to use the equity in your unit to buy a second one. You rent that out for enough to cover its mortgage, condo fees and other costs and eventually sell it for a profit.
You continue buying, renting and re-selling units — all the while upgrading the one you live in — until you have a portfolio of five rental condos.
Lamb figures it will take you 12 years to do this.
Once you have achieved this nirvana, you then sit on the properties, with your tenants paying off your mortgages, for another 13 years. Twenty-five years after making your initial investment, you have enough assets to retire. At least according to Lamb.
Lamb figures it will take you 12 years to do this.
Once you have achieved this nirvana, you then sit on the properties, with your tenants paying off your mortgages, for another 13 years. Twenty-five years after making your initial investment, you have enough assets to retire. At least according to Lamb.
After the workshop he confided to the Ottawa Citizen newspaper that it annoys him that:
“our education system doesn’t teach (retirement planning)."
Which, presumably, is why Lamb was holding the 'free workshop.' Of course Lamb added:
"Also, it doesn’t hurt that I own properties, and some people (here) will buy some units."
What is that phrase, "past performance is not an indication of future results." Isn't there a valid reason that securities law requires that disclaimer?
You have to wonder if each workshop attendee also received a free bottle of snake oil as they left the seminar with Gotham and SoBa condo brochure in hand?
(hat tip Ben Rabidoux)
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Don't forget to mention that Lamb has active projects in Ottawa where MLS condo inventory is off the charts. See charts in this post:
ReplyDeletehttp://theeconomicanalyst.com/content/canadian-housing-and-economic-trends-good-bad-and-ugly
It also appears Mr Lamb is simultaneously advising people to pile into condos as an investment AND quietly shelving plans to build more out of concern that the market is getting saturated.
http://www.bloomberg.com/news/2013-04-10/toronto-condo-kings-retreating-to-avert-crash-mortages.html
Integrity on display!
"Toronto condo developer Brad Lamb says inadequately funded pension plans and limp RRSP returns will not meet Canadians’ retirement needs"...some if it is true. Folks acted stupid and took cash from RRSP to buy condos that they could not afford to start with. With falling prices of RE some folks will "eat cat food", since they will have nothing but debt.
ReplyDeleteCat food is expensive... so even with that regard he doesn't even know what he's talking about.
Delete(Or perhaps he knows EXACTLY what he's talking about... buy a condo -> go broke -> can't afford cat food. Got it!)
Hey, Whisperer,
ReplyDeleteOzzie Jurock, Vancouver's own RE guru for a number of years, presented the same scheme back in 2007. He recommended it as a means to becoming a millionaire in 20 years. You can read his own words here in this thread (2nd post)at Vancouver Peak:
http://vancouverpeak.com/Thread-In-the-beginning-was-the-word
Been following your posts - great blog and great work!
Skook
Follow this advice and you too can be the next limo driver from the movie "Queen of Versailles"
ReplyDeleteA major mortgage partner of Brad Lamb's development company is Fortress Real Capital (http://www.fortressrealcapital.com/).
ReplyDeleteJawad Rathore is the CEO of Fortress.
Jawad has been sanctioned by OSC and MFDA:
https://m.befraudaware.ca/fraudaware/disciplinedPersons?letter=R
One day when the bubble bursts, RE agents will be viewed as social pariah, just like used cars salesmen.
ReplyDeleteIf condos were such a great investment, why would he be selling them? Wouldn't it make sense for him to keep all of his condos and just rent them out himself? Why would he sell his precious "investments" to the unwashed masses?
ReplyDeleteI hope Lamb and Ozzie start to eat cat food!!!!!!!!!!!!! They are oozing snake oil. They have no shame because they only care about themselves, and what is going into their pockets. No regard for the impact their "advice" has on the people that follow it. Ozzie has been sued and yet he can still keep his license to continue what he is doing: misrepresentation.
ReplyDeleteI know nobody on this blog wants to hear a contrary point of view, but here it is anyway:
ReplyDeleteI don't know if I agree with Lamb's program 100%, however I can say that I followed a strategy not dissimilar starting at the peak of the market in 1997. Bought more condos (primarily in Vancouver, but also in Surrey and Toronto) through the trough 1999-2001 and have continued to buy one or two a year since on average. The equity in the portfolio is well over $1M and I receive positive cash flow from my portfolio despite multiple refinancings over the years. I have pulled out cash to buy more condos and pay off my house mortgage. The key is being disciplined, never buy something that isn't positive cash flow and ladder out debt maturities to manage risk. My overall loan:value never exceeds 75% and my operating return on current equity (not including any appreciation, but including mortgage principal paydown) is about 7%-8%. Some recent (2012) purchases at higher leverage levels are earning me RoE's in excess of 15%.
If the market drops 20%, that doesn't make any difference to me; it will just enable me to buy more at higher yields. My only risk is interest rates rising significantly but I actively manage that risk and the portfolio can absorb a significant level of rise over time.
Just one guy's experience. FWIW.
Anonymous,
DeleteI have no problem admitting to you and everyone reading this that what you have written is beyond my comprehension. Therefore, I am going to conclude that you did your homework prior to setting out and that you have a full grasp of the complexities and issues involved in such investmenting.
This is why I think for the average Joe and Jill attending Lamb's talk in the present or having read Ozzie's articles in the past - their message that it is all so simple (and obvious, right!) makes their message so dangerous. I did not attend Lamb's talk so I have no idea if he went into any depth of the pitfalls involved in such investing; but, I know from reading Ozzie's news articles, he sure didn't - mind you, he did say you should have the advice of a professional (like him?!).
It would be interesting to know how many followed Ozzie's advice back in 2007 and now find themselves way over their heads in debt.
Skook
You my friend need to watch the movie "Queen of Versailles". You are the next limo driver.
DeleteI've seen the movie. I don't know how you can compare a business based upon mid-market rental apartments in Greater Vancouver (consistently rising rental income and lowest vacancy in the country) with a business based upon selling timeshares in Vegas and Florida to people who pay for them with their credit cards because they don't have any cash.
DeleteIn defense of Ozzie, I have never attended one of his seminars but I have heard him on the radio and he usually advocates a disciplined approach based upon the property's cash flow.
DeleteSo even if you bought at a peak and are sitting on a paper loss (like I did in 1997-99), it doesn't really matter as long as the cashflow is sound. Values will bounce back eventually, in the mean time you continue to collect your monthly income. Basically, condo values today are exactly where they were in 2007-2008, but rents have risen by 10%-15% since then.
Anonymous, the movie has everything to do with you. Maybe you missed the Limo driver part. David Seagal's limo driver, former NY investment manager, goes crazy and buy 18 houses as investments. Loses everything and is a cheap limo driver having to do work on the side to pay his rent. Completely financially destroyed.
DeleteEveryone is a hero on the way up. You are all shmucks on the way down as you try to squirm out your financial obligations.
If you were able to find immediately positive cash flow properties in Toronto and or Vancouver over the last five years, you've got a great accountant!
DeleteBut seriously, which real estate company do you work for?
Here's one, the first one I pulled up on Realtor.ca:
Deletehttp://www.realtor.ca/propertyDetails.aspx?propertyId=12773824&PidKey=-1713933895
Yaletown condo, $1,350 rent, $133 maintenance, taxes probably $80/mo. Net is $1137. Asking price is $288,800. With 25% down your mortgage payment would be about $900 so your cash flow would be $237 per month and your principal repayment is another $392/month. Total income is $629/month on equity invested of $68,800 (based upon asking price, you could probably buy it for less). That's an 11% leveraged return on your equity, tax-deferred. Capitalization rate (pre-debt) is 4.7%.
Alright, you need to factor in the loss of income that your $68,800 would make you in a balanced portfolio.
Delete7% annualized returns on
$68,800 is about $4,800, or $400/month
How about general repairs?
How about stata special assessments?
How about closing costs?
How about having the place sit vacant between tenants?
Ever plan on selling? Realtor fees!
All of these things need to be considered when determining whether or not a place is truly cash-flow positive.
Above all, remember that if/when the market drops, you lose your money right off the top.
So if that 288,800 condo drops 24%, your $68,800 down payment is wiped out, if you were forced to sell.
Leveraged investments work both ways.
(1) How many people can earn 7% on a stock portfolio. Especially given recent performance. I would wager almost nobody. You can't use 7% as an opportunity cost of capital.
Delete(2) Special assessments can be avoided by buying in buildings with healthy contingency funds.
(3) Closing costs are what, $500-$1000? Less than a stockbroker's commission, that's for sure.
(4) Given vacancy rates in Vancouver of <2%, suites generally don't sit vacant between tenants.
(5) The key to building wealth in real estate is never sell. Avoid realtor fees and, more importantly, taxes.
(6) Why would someone ever be forced to sell a real estate investment? Maybe to cover a margin call in his money-losing stock portfolio? Margin calls don't exist in real estate; you can be underwater but cashflow-positive for a long time...as long as you are making payments banks will leave you alone. Leverage in a stock portfolio is a very different thing. The minute you are off-side your margin requirement, be prepared to pay the piper or else have your broker close out your trade at the worst possible time.
And no ability to shelter any income from your "balanced portfolio"...7% is really 4%, whereas in real estate 4% is really 8%.
>Happyguy
Delete7% return is very reasonable expectation on Balanced portfolio.
Your assumption is
same vacancy rate
same rental income
With 20~25% d/p for Vancouver property, your standard deviation (=risks) are much higher than Balanced portfolio.
It is illiquid, asset concentration (= no diversification), also lots of maintenance cost involved.
Balanced portfolio is highly liquid and 7% return I am talking about is net of management fees.
You also conveniently dismissed the other coast involved.
* potential (very likely) strata fee increase
* Potential property taxes increase (likely in city of Vancouver. City needs more money for Bike lane)
* PTT (for $288,800 property, it is $5,776 in BC. no exemption since no principal residence)
* Agent commission upon sale
* Another legal fee upon sale
(also potentially with increase)
AND taxes
You mentioned CCA.
I am sure you already know, if you claim CAA, it will decreased our ACB.
More capital gain taxes upon sale.
Rental income (=100% taxable), or capital gains (50% taxable), either way, there is no way to avoid tax consequences (obviously)
Also, unpredictable future income tax rates.
We can safely say, it will not be down from current rate, but more chances to increase.
Lastly, you mentioned (6), yes, with only 20~25% down payment in Vancouver property, small sq. ft property, if you keep it for longer than 3 years, geographic factors could be changed dramatically in Vancouver.
There is no "100% sure thing", we all know that because it is market.
So, my answer is Yes, it could happen (forced sale) for investment property, way more chances than principle home holders.
Again, this kind of comment from Happyguy is pretty harmful in my opinions.
Just don't dismiss the Risks involved.
You are taking much more risks than what you claim.
Keeping my powder dry so I can afford to eat mutton when I retire, Mr. Lamb.
ReplyDelete"never buy something that isn't positive cash flow and ladder out debt maturities to manage risk."
ReplyDeleteI find it hard to beleive that with a down payment of 20% you would be able to receive a positive cash flow. Most condos in my area sell for $250-300K. Property tax is $1200 per year and maintence fees are $200 (to be on the low side).
With extremely conservative numbers, that amounts to $1250/month. Going rate for a condo to rent is approx $1300/month. Assuming no vacancies, no repairs & main required, you are still only getting a return of 1.2% on your investment? And I am also ignoring the tax implications...
where I can put that $50K deposit in a balanced portfolio and earn 7% or 7 times that amount and not have to play landlord or deal with renters.
The current market is overpriced so it makes it more difficult to do this. I don't question the historical value of this strategy but I wondering about the '12 properties. Obviously you received a shrewd deal or you putting more than 20% down.
You have to be picky, to be sure, that's what I meant by being disciplined.
DeleteHere's one example from a suite in East Vancouver I bought last year: Purchase price $219,900+net HST, call it $230,000. Rent is $1,175, fees and taxes are $240/mo, net is $935. With $45k down mortgage is $185,000. Payment at 2.99% fixed 5 years (could do much better today) is $777. $158 positive cashflow, but importantly, you are forgetting the benefit of $319 principal paydown each month. Net income is $477/mo ($5,724 p.a.) which is a 14.3% return on $45,000 equity.
And there are no tax consequences unless you sell since you use CCA depreciation to offset then net income.
Of course, not every condo produces as good a return as this, but these deals do exist if you look. I would say that many/most small units for sale these days do produce breakeven or positive cash flow.
Principle repayment is not income, so it's back to $158 a month...until you add vacancies, damage, special assessments, insurance, and opportunity costs of the down payment.
DeleteAdd those to an already terrible return and it becomes negative.
"Of course, not every condo produces as good a return as this". Too funny!
Landbaron, I would suggest that you take a basic accounting course.
DeleteSo assuming no vacancy, no repairs, no increase of maintenance fees and no special assessments ever and including principal payment, your CAP rate is well under 3%/year. LOL. Mr Anonymous, I think you need to take a basic accounting course.
DeleteOh wait, you are basing your return % on your current equity - well take out a $45K HELOC and buy a nice car bringing your equity to $0 and enjoy your infinity return on investment.
You got very lucky by purchasing property at the right time but alas within 2 years your $1 million in equity will likely be $0.
An Observer
Observer, I am a real estate appraiser and can tell you that your analysis of the cap rate is incorrect. A Capitalization Rate is defined as Net Operating Income divided into Value. Net Operating Income is gross rental income less stabilized vacancy and operating expenses, but excluding interest. Thus the Capitalization Rate is the measure of the unlevered return that an investor would expect to earn.
DeleteIt looks like Anonymous is achieving a capitalization (cap) rate of approx. 4.8% on his purchase. That is a pretty good yield for a Vancouver condo. Most I have seen are in the 4.0%-4.5% range.
The best investment here is clearly pet food stocks.
ReplyDelete"Also, it doesn’t hurt that I own properties, and some people (here) will buy some units."
Doesn't hurt who?
Buy 5 condos??? He must be out of this world. Really.
ReplyDeleteThe day public schools teach financial planning to kids, you can bet home ownership will feature large and prominent in the lesson plan. How about we start with basic financial literacy, and see how that goes?
ReplyDelete"If you’d rather that I not eat cat food in my retirement, you’d better invest in condos."
ReplyDelete- Developer Brad J. Lamb.
Fixed it for you
Lamb's advice is the Real Estate version of a stock "pump and dump" scheme (he's getting out while the suckers pile in). I'd rather put my money in the stock market and make a solid 8% average return than be a landlord with all that hassle.
ReplyDeleteThe more I look at it, the more RE reminds me of a pyramid scheme (with all the related problems and different classes of losers once it starts to unravel)...
ReplyDeleteD
Not sure about Ottawa, but a piece of garbage condo anywhere near TO is at least $300,000, which is $1,419 /month at 3% for 25 years, plus at least $300 condo fees and lets say $150 in property tax. This is the lowest possible price you can pay. You need to rent it out for $1,869/month to break even and hope that interest rates never go up and that your rental unit never needs maintenance for 25 years. Bullet proof strategy
ReplyDeleteI know a few RE agents (and RE knowledgeable normal folks) browse here - I have a question:
ReplyDeleteIf you have an Exclusive Property Listing w/ an agency and the property is sold, is the "sold" price published?
Thx in advance
WunderingBoy
No
DeleteLamb and Ozzie knows and uses prospect theory:
ReplyDeletehttp://en.wikipedia.org/wiki/Prospect_theory
How we make decisions bbc doc
Deletehttp://www.youtube.com/watch?v=cVqVJ0IXi_M
Hi everyone,
ReplyDeleteI’ve really enjoyed reading this blog, and I’m glad to see there are many others like me who eschew real estate and prefer to rent. My wife and I are in that camp. Currently, we are looking to upgrade our rental from a small 1-bedroom, downtown apartment to something larger (a detached or 2+den apartment >1,000 sf) and within good distance of rapid transit (or at least what qualifies as transit in the rainforest). Unfortunately, the Vancouver rental stock is absolutely atrocious (at least compared to what I was used to in Toronto). Just browsing Craigslist or Kijiji becomes depressing – a large number of “garden” (re: basement) suites, or just places in serious need of some TLC. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income (so much for their faith in real estate appreciation, eh?). Where do you guys look to find good rentals in the city? Do you use an agent? Any blogs you can recommend for people like us to share our thoughts on the rental market?
Thanks in advance for the advice.
rent_vancouver, you make a compelling argument in favour of home ownership.
ReplyDeleteQuestion to all renters out there -- and I'm not trying to make a point, I'm genuinely curious because I don't understand the renter mentality:
How do you expect to make ends meet once you reach an age where you're no longer able to earn what you do now? Rent only goes up every year, whereas a mortgage eventually gets paid off. A survey this week says the average Vancouverite doesn't expect to be mortgage free until 59...to me that's still a heck of a lot better than paying rent into my 80s and living at the whim of some landlord...
@HappyGuy,
Delete-Right now it's much cheaper to rent an apartment than to rent money from the bank to buy an overpriced and depreciating asset. It's that simple.
Appraiser, the $1350 per month renter is just to get a sucker to buy the condo. After it's sold, the renter will leave, and the next renter willing to pay only $800 / month. That's like already $2/SF
ReplyDeleteRents downtown for newer condos or rental buildings range from $2.75-$3.25 per sq.ft. depending on age, condition, size, view, amenities and whether parking is included or not.
ReplyDelete$1,350 is at the high end of the range for studios but not unheard of. Studios of 400-450 sq.ft. range from $1,200-$1,400. 1 Beds of 500-600 sq.ft. range from $1,400-$1,800. 2 Beds start at $2,000 these days for 750 sq.ft. and go up from there.
You'd be lucky to find a studio in Surrey for $800, never mind Vancouver. Check Craigslist and educate yourself. You are dreaming of 1999 rents unfortunately.
Olympic Village Rentals are lower, and have been going down. I would call them semi new and in good condition.
Delete1 bed 650sq ft $1400 (I pay 1425)
3 bed townhouse, 2 level, ?sq ft $2500
This from a sign in the lobby of my building
Ok I'll admit when I'm wrong...It's actually a 4 bedroom for $2500!!
DeleteCall Coho property management in the OV
By December this year, condo depreciation reports kick in making this type of BS a teensy tiny bit harder to pull off. But lying liars and their damned lies never die... they just move to a different industry.
ReplyDeleteWhat if that 2.99% mortgage resets to 4% in 5 years? How about 5%? 6%? How's our ROI now? And, btw, at those rates, who can afford anything in Vancouver? Answer: still a few people, because at those rates, prices will have fallen off a cliff. Let's not talk about how much equity is left except to assume it's much, much less than it used to be. RE, like all investments, is brilliant when prices are increasing. Sucks when you buy at the top though.
ReplyDeleteA lot of the most affordable rentals in the vancouver area, and in some of the most desireable neighbourhoods are NEVER advertised, except for a sign put out front by the landlord. It has been like this for decades.
ReplyDeleteIn great nighbourhoods like the west end, especially west of denman, south granville, kits etc, you have to walk/drive the neighbourhood to see the available vacancies. This is not that complicated as you can do it in a couple of hours on any weekend. Landlords have their signs out, you call the number on it -- they usually show the suites all weekend long, so often you can see the place right away (and you will always be told the rental rate on the phone when you first call).
West of Denman (which is on transit and located right within all amenities - rec centre, library, all stores, services, 3 blocks to stanley park, 3 blocks to english bay beach):
studios: $800-900
1br: $975-1200
2br: $1400-1700
These are normally older rental stock, but are almost always very well maintained, have large floor plans and the rental rate usually includes heating and hot water costs.
Who the heck would pay $800 for a studio way out in SURREY??!! That is the rate a desperate amateur landlord/investor is trying to get!!
I have owned a condo in van in the past -- they very rarely cash flow unless you put down >25% and they are overall depreciating assets (very small % is in land value) as they are just not well built in this area, and will require tens of thousands of dollars of repairs (cost per unit), about every ten years or so over the life of the building.
This recent low interest rate environment will be proven to have "trapped" a lot of folks who simply cannot afford to be "owners". With the prices coming off the condo bubble now since 2008, as people have to sell (job loss, move for new job, relationship breakups), many are going to be deep in debt or worse, forced into bankruptcy as many will/are using other consumer credit to keep things afloat in the meantime. Very, very sad. No doubt there is a special place in hell for the likes of Brad Lamb.
Hmm...Gotham is nearing completion (concrete all poured, windows going in, drywall being installed)...and SoBa will break ground by the fall...all the real estate bears have been proven wrong...I love reading things like this and seeing just how wrong bloggers are.
ReplyDeleteThink I'm wrong? Go google "real estate bubble" and you will see the National Post talking about this in 2008. Simple fact is, condo prices have gone up over 70% since then. Fence-sitters would need to pay 70% more to buy a unit today compared to if they had purchased one back in 2008.
But pay no attention to me. I'm only dealing in facts. Drama and unwarranted fear are much better to listen to, right?