Choosing A Rental Property

Choosing a Rental Property

Where I totally spend my summer playing Cricket and Croquet.
Where I totally spend my summer playing Cricket and Croquet.

When comparing two or rental properties, it is key to look at what you can charge reliably for rent and it’s listed price. If it is 200,000$, you want at least 1% of it’s price as rent each month, so 2,000 a month. If another 200,000$ property rents for 1,500$/mo it is a worse deal. If it is 100,000$ and rents for 1,500$/mo it is a better deal than the 200,000$ property renting for 2,000$/mo.

I did some digging around on real estate listings in my city to show the things to look at making this decision. Keep in mind, in my city of Edmonton, Alberta rental prices have been hit by oil crashing so much. In turn, it is difficult to find a profitable rental property out there.

House A is 1268 sq. ft, 3 bed 3 bath and costs 299,900. This equates to a monthly mortgage payment (for a fixed five year term @2.22% and 25 yr amortization) of 1247$. Rent for a place like this ranges from around 1350 – 1400/month. Also, 1350/mo is a far cry from the ideal 1% rent to price ratio. Plus, with property tax of around 1200 a year you’ll be losing money. Not so good.

House B is much much cheaper. It’s a one bed condo on 118 ave, AKA the ghetto. However it is in Beverly which is not the worst neighborhood you could go with in Edmonton. Yes you’ll see sketchy people stealing steaks in your grocery store, but that makes for a fun story. At 58,000$ and made in 1969 it is far from nice. The best part however, is the fact you can get at least 600/month rent (basically right on the dot for 1% rent to price ratio) on 241$/month mortgage payments. Take away property tax and there’s 330$/month of buffer to absorb all the damage from your shitty tenants. And there’s just about only shit tenants that are willing to live on 118 ave. I’m sure you could find a diamond in the rough by doing some proper screening. After hours of looking at real estate listings, this is the only property out of dozens of potential ones that could possibly turn a worthwhile profit. I’m not saying do it. But on paper and not really taking the risks all that seriously, something like this is about the best bet to turn a profit. Which makes me feel sad about owning real estate here.

Thanks For Reading!

 

 

Emerging Markets – Vietnam

I figured I would do another one of these emerging economies posts. Countries are just so interesting! Let’s go with Vietnam this time.

Another beautiful country
Another beautiful country

 

Vietnam has already had a few years with good amounts of foreign investment to develop, as opposed to Myanmar which is only just now really opening up investment in it’s country. However, like Myanmar it’s corruption is holding itself back in a number of ways. Luckily, the workforce  is pretty educated, with 93% literacy.

Vietnam has engaged in trade liberalization since the early 2000’s. It became a member of the World Trade Organization in 2007. It has shifted from a highly centralized and planned economy to a socialist-oriented market economy. Currently. Deep poverty, defined as the percent of people living on 1$ a day, has greatly decreased due in part to the equitable economic policies of the government.

Interestingly, Information Technology and High-Tech industry now forms a large and quickly growing part of Vietnam’s economy.

The government of Vietnam has recently shown support for its own start-up ecosystem. Vietnam aims to develop as a country into middle-income status by 2020. The “socialist republic” structure of government seems happy to meddle directly with countries which can cause problems with it’s stock market.

There is some good news. Vietnam is still classified as a frontier market by index constructors and it creates a huge difference in investors perceptions when viewing how a market is classified. The amount of institutional money invested in these frontier markets is tiny compared with emerging markets.

An emerging market sounds like an exciting proposition and suggests a growing economy, whereas a frontier market seems more risky to investors. If this is your mindset, you should be happy to learn that Vietnam is widely expected to be bumped up from frontier to emerging market status at some point in the near future. This upgrade should open up a lot of investment and therefore you might want to consider increasing your exposure to the Vietnamese market.

The best ways to increase exposure to Vietnam would be the emerging market indexes that of course, include some Vietnamese equity. One that has direct exposure and focuses solely on Vietnam is “The Market Vectors Vietnam ETF” (VNM). While the ETF hasn’t done well since its inception, some of the holdings have done very well. I plan on further analyzing some of their more promising holdings.

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Emerging Markets – Myanmar

Myanmar has many great things going for it and is the best positioned Asian country (being between India and China has it’s culinary benefits) to have great economic growth in the years to come. It is the fastest growing economy in the world. Despite widespread flooding and landslides its economic growth was 7.2% with 8.4% projected for this fiscal year. Here are some reasons:

Ain't she a beaut?
Ain’t she a beaut?

It’s government. 

I think a lot of westerners (myself included) take the great government structures we have for granted. We spend so much time complaining the x government isn’t doing enough to fix its economy. Well I’d argue that the very structure the government has and it’s legal and political environment is doing most of the economic heavy-lifting. Anyways, Myanmar elected it’s first democratically elected leader in March 2016 after decades of military rule, though the military retains some of it’s previous control. the past 5 years have seen easing of strict controls on media freedom as well. The state still controls the main broadcasters and publications. I can see that changing though.

It's a Hunch
It’s a Hunch

Its resource rich, and its citizens are well educated given it’s lack of development.

Myanmar is a country rich in jade and gems, oil, natural gas. It has a wide income gap from military corruption, and is still very undeveloped, ranking 148 out of 187 countries according to the HDI. Its GDP is equivalent to around 1,000 USD per year per person in Myanmar. So much great potential. It has an 89.5% literacy rate among its people (2014 Burma Census). English is taught as a second language from kindergarten.

Scarface
Myanmar, this is paradise, I’m telling you. It’s like a big chicken waiting to get plucked!

Right now, Myanmar is among the poorest nations in Southeast Asia. Foreign direct investment will help tons with this problem. In March 2012, a draft foreign investment law emerged, the first in more than 2 decades. Foreigners will no longer require a local partner to start a business in the country, and will be able to legally lease but not own property. 2 In March 2016 It’s stock exchange started.

Myanmar is the last true frontier for Capitalism. However, it will definitely have it’s challenges in the future. “Though economic reforms implemented since 2011 have had positive outcomes, Myanmar’s new government will face the challenges of advancing economic reform, addressing infrastructure and labor shortages, and making progress towards peace and social cohesion,” said Winfried Wicklein, ADB Country Director in Myanmar. “Moreover, intensified efforts are needed to connect and develop rural areas to improve access to markets and services, and to generate opportunities and jobs.” 3

Inflation is very high in Myanmar at 15%, which is a concern for anyone invested in its stock exchange. Another concern is its deep-rooted corruption, which won’t go away anytime soon.

How do I make money from this?

For proper investing in Myanmar, it is perhaps a little early. This is where the less conventional methods reign. If you have the drive and interest you can look into real estate there, as the laws have eased up on foreign condo ownership. Real estate prices are already skyrocketing!

Also, keep an eye on it’s stock exchange. And be wary of military owned firms, I have another hunch that the military isn’t really that popular there. Yes I know AT&T and Comcast are a thing. If you are going to invest in military owners, be sure to find the AT&T’s of their economy, not the Blockbusters.

Thank you for reading!

Taking on Debt as a Student.

With tuition and school fees at an all-time high, students are taking on more and more debt to pay off their education. But what is the best choice for a student, a student line of credit or a government backed school loan.

Many people have an idea that government loans help the average person more, I mean, why would the government have it out for anyone? However, for people who do a good job of managing expenses the right choice leans more towards a student line of credit. This is because of the lower interest rate (Prime + 1%: Currently 2.70% + 1% = 3.70%) versus the Federal Government loan which is Prime + 2.5% or 5.2% with the floating rate and Prime + 5% = 7.7% with fixed) The extra 1.5% – 4% adds up quite a bit especially when you take more than 2 or 3 years to pay it off.

The reason why skills in managing expenses is recommended for students looking at a student line of credit is because of the higher loan amount available to students (up to 15,000$ per year for undergraduate where Government student loan is closer to 5,000 to 10,000 per year). A higher loan amount can end up equaling lots of unnecessary costs throughout the degree program with someone who spends like an idiot. This is why the spending discipline is recommended. The only real downside with the line of credit is the exempt status of bursaries and the like.