Thursday, January 7, 2010

And then they'll say they never saw it coming

Almost all the 'institutional liars' claim that they never saw the financial crisis coming. In the Canadian context, we were told that there won't be any recession. Prior to that, circa 2007, there was not even a brief mention of a housing bubble anywhere, except at places like this blog.
3 years later, with 5 % reduction in GDP, over half a million jobs lost, real estate values falling by over 10 to 15% from the peak, it seems people seemed to have learnt nothing. 'Real estate investing' is back in vogue and a lot of 'investors' want a piece of the action. Here's an ad in local Calgary classified for a 50 year old apartment building:

Year Built
1957 (est)
Wood frame
Suite Mix
4 One Bedroom Suites 600 sf +/-
4 Two Bedroom Suites 700 sf +/-
8 Suites Total 5,200 sf +/-
8 refrigerators, 8 stoves, 1 washing machine,
1 dryer
Rental Rate Range
One Bedroom - $750 - $875
Two Bedroom - $875 - $950
• Clean building New roof
• Historically low vacancy
Annual Rent $82,500
Laundry $ 1,800
Gross Income $84,300
Less: Vacancy (1%) $ 843
TOTAL $83,457
Taxes $ 5,902
Insurance $ 2,400
Utilities $ 7,026
Caretaker $ 2,400
R & M $ 4,800
Misc. $ 1,000
TOTAL $23,528
Net Income $59,929
Price $1,600,000
A cap rate of less than 3.75 per cent with very aggressive occupancy assumptions for a 53 year old wooden building in a boom/bust city of Calgary. Sorry, I forgot we had mastered the business cycle. I won't be surprised if CMHC underwrote the mortgage for this type of loan to a 'smart investor'.
Back in the days of 'Alberta Advantage' a property like this would sell for no more than 30 to 40k per unit.

a note on the moderation of comments-it will be stricter. far more stricter than before. if you post a personal attack, it will be deleted. if you post an insult twice, you will be banned.
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