Investing with Emotions

Warren Buffett often leans on one of his favourite quotes from ‘The Intelligent Investor’ which says that “investing is best when it is most businesslike.” So does this mean emotions are always bad when it comes to making investments in real estate?

Emotional investing can be calamitous. However, once you dig into it, emotions may have some positives when investing too.

Emotionally Charged Investment Decisions

Emotions tend to influence people to act less rationally. This would appear to be at odds with making sound, logical, investment decisions. We see it when home buyers keep on stretching beyond their means to bid on homes as they get caught up in the excitement and competition. We even see it when Canadian real estate investors fall in love with the concept marketing and branding of a pre-construction condo or luxury rental homes, and then vastly over pay, or can’t bring themselves to exit a failing investment when they should.

The reverse is what keeps many investors from making the better, more common sense investment decisions in less fancy property, which may actually be far more profitable.

Fear is one of the strongest emotions. It is also one of the most dangerous for an investor. Fear has been manufactured and managed many times to create substantial sell-offs at discounts when investors should have held. We’ve seen this in the stock market, oil, tech world, and real estate markets, and it looks as though that cycle may soon start again, if people fall for it.

When Emotional Investing Can Be Good

While some would argue that emotional investing can never be good, there are some factors which refute that.

For example, you could say emotional panicked sell-offs of an asset can create an amazing opportunity for those with the bullishness and courage to go against the market or act from a high level of wisdom. If no one invested emotionally then green and eco-friendly building never would have caught on.

Finding Balance

It is wise to be objective when choosing investments and predetermined timeline for selling and holding investments. However, this may follow an investor first emotionally by selecting a country, region or city to invest in, and the type of investment they are most interested in. It is then crucial to put personal bias aside and choose expert third party management that can execute and objectively manage real estate investments daily in order to maximize portfolio performance.

Richard Crenian

Investment Insights from 2015 Billionaire List

Forbes has released its new 2015 list of world billionaires, which details how the world’s wealthiest investors are doing this year and the valuable insights for individual Canadian investors desiring to follow in a similar path.

The Economy is Just Fine

While some enjoy debating the health of the national and global economy, the data from the new 2015 Forbes Billionaires list shows that the economy is operating fine for those that are willing to make it work for them.

Together the members of the list have seen their net worth grow close to one trillion dollars over the last year and nearly 300 new individuals achieved billionaire status this year as well.

Age is Not One of the Numbers to Dwell on

With 46 billionaires on the list under 40 years old, as well as aging veterans like Warren Buffett, age should not be considered a barrier for Canadians looking to increase their personal wealth. Age may be a motivating factor in demanding more from an investment portfolio or an added advantage for those getting started early and benefiting from compounding returns. It is clear from the list that age is not something that any Canadian investor should allow to hold them back.

The Power of Partnerships

It is incredible to see the vast majority of billionaires on the 2015 Forbes list are self-made, along with it are also two key takeaways Canadian investors shouldn’t overlook.

The first is the power of partnerships. Pick any name on the list and it is hard to see how they could have made it without others. Everyone on the list had help in creating, maintaining and growing their fortunes. This applies to Uber, Facebook, Berkshire Hathaway, Amazon, Alibaba and all of the other companies these billionaires have developed into modern day success stories. It also applies to the individual partnerships that investors have formed to invest together.

While it is great to see so many self-made billionaires, it may also be shocking to see that very few billionaires attained their wealth from inheritances. If so few heirs have managed to grow their inherited wealth, Canadian investors should give serious thought to how they will instill good financial principles amongst the next generation, as well as selecting secure investments that can be professionally managed on behalf of heirs.

Passive Income

From the multi-billion dollar valuations of tech companies to the personal investments of these billionaires, the one consistent theme is passive income. These titans of industry create passive income streams and invest heavily in assets that can produce them.

Real Estate

Whether its providing the initial capital to invest, serving as a main investment vehicle, or providing a safe haven for excess capital; real estate is perhaps the one consistent investment and asset that all of these successful individuals have in common.

Summary

It doesn’t matter your age or how you start your financial journey. As can be seen by the members of the Forbes Billionaire list, leveraging partnerships and acquiring passive income investments can build great wealth over the long term. By seeking out the investments and embodying these principles, more Canadians can experience greater progress toward their financial goals.

Richard Crenian

Different Commercial Real Estates Available For Investors

More and more Canadian investors are looking towards real estate investments for safety and yield. Below are five different property types available for investors, each with their own benefits and values.

Industrial Real Estate

Industrial real estate covers a wide variety of property uses. In Canada, it is probably most notable in its use by energy and oil companies. This can make it extremely valuable in times when oil prices are high and related companies often secure real estate for their needs years in advance to lock in low costs when property prices are attractive. There are other uses in this category to such as government property, distribution centers and warehouses and manufacturing plants.

Office Buildings

Recent surveys and data show that office buildings have remained one of the most popular types of real estate investment with global investors. Large investment funds and institutional investors flock to these types of investments, often due to its income capacity and the fact that office buildings generally occupy prime central locations. While the relocation of corporate headquarters is often a major indicator regarding the performance of other types of real estate, as jobs and incoming workers lift the local economy, it is also wise for Canadian property investors to keep an eye on remote working trends and its impact on the future demand for office space.

Multifamily Apartment Buildings

Multifamily rental apartments offer Canadian property investors an easy to understand step up from residential single family homes. Experienced and sophisticated real estate investors often prefer multifamily to single family due to lower costs per door, easier management and higher ROI on value add improvements. Canadian investors typically choose multifamily for passive income generation and wealth preservation.

Retail Properties

Canada’s retail property performance is among the best. Choices for investing range from stand-alone single tenant stores to local shopping plazas to super-sized, internationally respected shopping malls. Retail stands out for income investors and those seeking passive wealth buildings.

Raw Land

Raw land can run from small buildable lots in existing residential communities to large plots that could house farms, factories or malls. While land doesn’t generally provide the income and yield that the above commercial properties do, it does offer low maintenance and low holding costs.

Summary

Selecting the best commercial property type to invest in really comes down to watching real estate cycles and selecting the right types based on personal goals, while evaluating the individual merits of each property. Dependent upon your goals, your financial needs can be met with a variety of different property types.

New Changes to Canadian Mortgages

The recent 2015 Bank of Canada rate cut stole headlines and was expected to fuel a new low interest rate as banks and mortgage lenders vied to make more home loans. However, as we approach March, a new trend appears to be emerging – which can take things in the opposite direction.

Bloomberg News recently picked up on Canadian mortgage insurers and lenders pulling back and making new plans in some pockets of the market. Entities including Home Capital Group and Gentworth MI Canada are reportedly preparing to defend against more defaults and losses on loans, as well as tightening underwriting criteria as they fear the fallout of low oil prices.

Between investors withdrawing capital and cash flow interruption, many are expecting high capital rates to fall out of the oil industry as well. These entities want to protect themselves from further losses – possibly making it harder to borrow for regular home buyers and homeowners in regards of qualifying for mortgages and their borrow amount.

Together, current trends can make residential condos and single family homes, as well as industrial property slightly less attractive to investors in the short term. Expect more activity in commercial property sectors such as multifamily and retail, as Canadian investors seek more safety, growth and yield.

Industrial developments like Edmonton airport’s new distribution center may offer exceptions to this, but those that have stalled on buying homes could add to the pool of renters nationwide; increasing performance for apartment building owners.

Domestic and global capital will likely seek out other commercial property investments. Retail in particular may provide some shelter to investors looking for properties that can better ride out any potential dip and bounce back easily when things pick up.

Investment Trends

Legendary investor Warren Buffet made big waves with Canadian and energy sector investments over the past few years. However, financial reporting from his flagship firm Berkshire Hathaway shows the ‘Sage of Omaha’ dumped its entire Exxon Mobil investing (around $3.7 billion) in the beginning of 2015.

According to coverage by The Globe and Mail, this was Buffett’s single biggest bet since IBM five years ago. This dramatic portfolio shift is probably in part due to crumbling oil prices, but also potentially a side effect of his frustration over the Keystone XL pipeline which he said was a “good idea”.

How to Invest Like Warren

Everyone wants to know how to invest like Warren Buffett. Most do it too late. So while the news is fresh, how can more Canadian investors emulate Buffett’s latest bold investment moves and enjoy more Warren style rewards?

The big question is where the legend is investing now.

According to financial filings by Berkshire Hathaway, some of the most notable moves and holdings over the last year have been in services that support retailers like Wal-Mart – which we know has become a major player in Canada. Retail property investments are definitely complimented by current trends picked up by the Toronto Star in February 2015.

A declining Canadian dollar, new stores with better deals and the prioritization of experience and saving hassle has kept more Canadian consumers shopping at home. That bodes extremely well for retail real estate investors and the performance boost applies equally to smaller local plazas as major outlets.

However, more than anything else Buffett and Berkshire Hathaway’s real estate investments continue to stand out as the ones to watch. Buffett continues to be bullish on real estate which he still names as his best investments. His forays into this arena are widely diversified from personal residences to farms to commercial retail property and mortgage debt, as well as real estate sales.

Real Estate Investing for 2015

While some have forecasted a bland year for real estate in 2015, others are anticipating an exciting one. With global capital flows, cross-border investing, low interest rates and millennials fueling a buying boom, Canada continues to stand out as a great global destination for commercial real estate investing. However, there is still plenty of uncertainty over which cities will post the best gains. With the information we currently have, these are aspects investors should look for this year.

Professional Management

If there is one factor that Canadian investors can’t afford to prioritize in 2015, it is securing professional property management. The potential of an investment is only unlocked by great management. Seek out a veteran team with a proven track record.

Leverage

This year will be the year to take advantage of strong leverage. Partnerships with other accredited investors can be a very smart move this year and will allow Canadians to expand their portfolios safely. Low interest rates can’t be ignored and ought to be capitalized upon as well. Combining both of these forms of leverage could prove to be extremely powerful and can afford investors a great opportunity to scale during this optimal time.

Property Types

While most expect oil prices to return to normal before long, industrial properties will probably be less attractive than other commercial real estate sectors in 2015, until confidence returns. Office may remain strong and is normally a favorite with foreign commercial property investors. Multifamily and retail are likely to remain among the most trendy and desirable property types in the short and mid-term.

Diversification

Until real clarity comes to the market and the media realizes that constant scaremongering filler content is bad for their organizations too (even if it bumps up short term ratings), the best strategies still rely on diversification. The more diversified investors are in geographic location, property type, number of and type of tenants, the better their overall performance should be.

Income

Like Warren Buffett, investing for income and cash flow appears to be the favourite strategy and priority for 2015. Prioritize income and cash flow, desire value, prefer tax liability reducing structures, and price fluctuations won’t be a factor that should make investors nervous, or self-sabotage with rash moves.

Global Commercial Real Estate Investments for 2015

Analysts and data suggests 2015 will continue to see international capital flows and commercial real estate investments, growing and building upon the last two years. So how much capital is flowing? Where is it going and where are the opportunities for individual Canadian investors?

Factors Driving Global Real Estate Investment in 2015:

• Geopolitical unrest
• Failure of BRIC nations to offer safe and appealing CRE opportunities
• Entry of major sovereign wealth funds
• Need of pension funds and HNW individuals to make new investments
• Flight capital to safety and security
• Low interest rates
• Need to minimize tax liability

Where the Capital is Coming From

According to Real Capital Analytics, as of November 2014:

• Inter-regional investment in the Americas had reached $17.4 billion
• Domestic investment in the Americas had topped $338 billion
• Asia Pacific had invested $17.4 billion in the Americas
• The EMEA had similarly invested 8.1% of capital ($17.4B) in the Americas

Where the Capital is Going

According to Preqin data and a CCIM Institute report in January 2015, there is an additional $220 billion in capital waiting on the sidelines, which is poised to be deployed into real estate investments. This is up almost 20 percent from Dec. 2013, which saw almost $700 billion in global commercial real estate transactions (a seven year high).

Oxford Economics forecasts suggest strong investment in North America and specifically retail establishments, which is based on fundamentals and growing global affluence. The CCIM Institute points to an ongoing slowdown in China dragging down Asia Pacific demand, while tight monetary policy in the UK has slowed growth and turned off investors.

Office, multifamily and retail has been and is expected to continue to be the top choices of global investors. Industrial real estate in North America is currently suffering from significant uncertainty due to low oil prices.

Compressed cap rates and peak asset prices in gateway cities are likely to push more foreign investors to destinations that offer cheap leverage and strong secondary cities, which provide more value and a better security cushion for wealth preservation.

For the Individual Canadian Investor

What does it all mean for individual Canadian investors? Individual investors ought to continue to find select opportunities in smaller deals and will benefit from partnerships and low Canadian interest rates. Yield and cash flow will continue to be more important and prioritized over pricing fluctuations and expectations of cashing out in the short term.