Roadmap to Millionaire as an Investor

7 years of experience on Finance and wealth building, this blog is created to generate ideas how everyone can make a million dollar through actively investing.

Friday, July 23, 2010

A Day in the Life of a Realtor Parody Episode #1


Monday, June 28, 2010

How an Economy Grows and Why It Crashes

Sunday, May 9, 2010

Pessimistic outlook for US commercial real estate

It could take a generation for the US commerical property market to return to the kinds of deals seen during the boom years of 2005 to 2007, according to analysts.

The prediction comes from real estate services company Jones Lang LaSalle whose latest analysis also shows that US commercial real estate sales fell 80% in the first half of 2009 compared with the same period a year earlier, and down an astonishing 93% from the peak in the first half of 2007.

The firm’s US Mid-Year Capital Markets bulletin shows that sales totalled $16 billion in the first half of this year compared with a peak of $231.4 billion in the first half of 2007. It also revealed that sales in the second quarter of $5.2 billion were the lowest on record.

From the peak of the market to the end of the second quarter in 2009, office asking rents fell on average 10 to 25%, office leasing was down 25 to 50% and commercial real estate prices fell 30 to 55%, according to the report.

The credit crisis, which accelerated at the end of last year, essentially shut down mortgage lending and other loans critical for real estate sales and refinancing, analysts point out. Although lending to selected borrowers has resumed somewhat, the US recession has pounded rents and occupancy rates.

‘It is unlikely that any true debt liquidity will return to the market until the middle of 2010 at the earliest,’ said Kenneth Rudy, president of Jones Lang LaSalle’s Capital Markets practice.

Prices for office buildings are not expected to begin to recover until at least 2012 because commercial real estate performance, which is based on job growth, lags the economy. The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel.

Jones Lang LaSalle predicts that US investors will slowly begin to return to the market by the middle of 2010, though a return to the boom years of 2005 through 2007 will take a generation or longer.

Instead of $231 billion a year in deals, US commercial real estate sales are likely to hover around $100 million on average for the first several years of the next decade, the report concludes.

So even as the housing market starts to show signs of recovery, fortunes for commercial real estate are looking increasingly grim. The rate at which property owners are defaulting on loans is climbing at an unparalleled pace. Many banks are stuck with shopping malls, hotels and offices buildings they've repossessed and can’t sell.

‘The bottom line is defaults are exploding. It’s going to be worse than in the early 1990s. It’s terrible,’ said Richard Parkus, an analyst with Deutsche Bank.

The National Association of Realtors is also pessimistic and said a rebound isn’t likely until the second half of next year. And research firm Reis Inc says that defaults and late payments on commercial mortgage-backed securities may surpass 7% by the end of the year.

‘We haven’t seen the end of these delinquencies and defaults,’ said Edward Leamer, a senior economist at the University of California, Los Angeles, who added that there is about $3.5 trillion worth of commercial real estate loans held by banks, or tied up in commercial mortgage-backed securities or held by other institutions


Wednesday, April 28, 2010

Rental Residential Rehabilitation Assistance Program — Rental RRAP

Rental Residential Rehabilitation Assistance Program — Rental RRAP

The Rental Residential Rehabilitation Assistance Program (Rental RRAP) offers financial assistance to pay for mandatory repairs to self-contained units occupied by low-income tenants. This program is available in both rural and urban areas.

Who Can Apply?

You, as the owner of an affordable housing rental unit, may apply if your property is eligible. To receive a loan, you will enter into an agreement that places a ceiling on the rents that you may charge after the repairs are completed and limits rent increases during the term of the agreement. You must also agree to limit new occupancy to low-income tenants.

Eligible Properties

Your property is eligible if it meets the following:

  • It is owned by a private entrepreneur, a non-profit corporation, or housing cooperative that is not receiving government housing assistance;
  • It is a rental unit occupied by tenants who have income at or below established thresholds where pre and post RRAP rents are below the established levels for the your local area;
  • The property is at least five years old and lacks basic facilities or requires major repairs in at least one of the following areas: heating, structural, electrical, plumbing and fire safety;
  • A legitimate landlord and tenant relationship exists. Rents being charged can be confirmed.

Eligible Repairs

Eligible repairs include mandatory repairs required to bring properties up to minimum levels of health and safety. The quality of the repairs should extend the useful life of the dwelling for at least 15 years.

Ineligible Properties

Hospitals, motels, hotels, bed and breakfasts, residential-care facilities, or special-purpose projects.

Ineligible Repairs

Any repairs carried out before the Rental RRAP loan is approved in writing are not eligible.

Financial Assistance

Assistance is in the form of a fully forgivable loan of up to 100 per cent of the cost of eligible repairs. The amount you could receive is based on the cost of mandatory repairs and the number of eligible units in your rental property. If the cost of mandatory repairs is more than the maximum forgivable loan available, you, as the owner, will be required to cover the additional cost.

The maximum amount per unit you could receive varies according to the three geographic zones:

Maximum Loan/Unit
Zone 1: Southern areas of Canada $24,000
Zone 2: Northern areas $28,000
Zone 3: Far northern areas $36,000
Additional assistance may be available in areas defined as remote.

Other Assistance Available

Landlords and homeowners may also be eligible for assistance to improve accessibility for persons with disabilities or seniors with an age-related difficulty.

Contact Us

To find out how to apply for financial assistance or for more information about these programs please call CMHC toll free at 1-800-668-2642 begin_of_the_skype_highlighting 1-800-668-2642 end_of_the_skype_highlighting.

Replacing Your Furnace - Greatly lower Operating expenses by 10-35%

Replacing Your Furnace

There are usually two major reasons why you are choosing another forced-air furnace. The first is that your furnace does not function. It has just broken down, irrevocably, or it has been “red-tagged” or condemned by gas inspectors. If it is winter, and your house is getting colder quickly, you may not have the luxury of making a reasoned choice on what to buy next. The other situation is that your furnace is getting old, or your fuel bills are becoming too excessive to tolerate. In this case, you have the time to shop around and get the best furnace and fuel for your situation.

This About Your House is written to address both situations. If you have a dead furnace and a chilly house, you will probably take some shortcuts in your selection process.

Choice of Fuels

For many years, CMHC and others could offer sound advice on what fuel choice would be the most economical. During that period, heating systems based on electricity or propane cost the most to operate. Heating oil was somewhat more economical, and natural gas (if available in your community) was the least expensive choice.

Since 2000, the prices of these commodities have been fluctuating, and it is difficult to offer reliable advice on pricing. At one point in 2001 – 2002, heating with electricity in Manitoba was as economical as heating with natural gas. Predicting these prices over the next two decades (a common life span for a furnace) is nearly impossible. The best advice is to make a calculation based on the current prices quoted to you in your locality. See the text box entitled “Calculating fuel costs”.

Calculating fuel costs

Here is a rough comparison of the relative costs of heating an older house in Ottawa. You can put in your own fuel prices and the efficiencies of the appliance that you are choosing to compare relative costs.

Calculating fuel costs

Note: It is often difficult to isolate the cost per unit of fuel, be it gas or electricity. Include all the costs that relate to the m³ of consumption for gas (for example, gas supply charge, gas delivery charges, gas surcharges). Electric utilities often also have a bewildering range of charges. Apply all the charges except fixed charges (for example, $10/month connection charge).

For oil appliances, use an energy content of 38.2 MJ/litre of oil. For electricity, use 3.6 MJ/kWh and 100-per-cent efficiency.

Note: 80 GJ (or 80 gigajoules) is the energy required for heating the example house over the winter (heat load). Your own house will likely be different. However, the relative costs calculated for alternative fuels and furnaces in the example house should help you make a selection for your house. For a calculation that includes a wood furnace, consult CMHC’s publication A Guide to Residential Wood Heating.

Furnace Sizing

You probably do not need a furnace with the output of your current furnace. Most furnaces in Canadian houses can provide far more heat than the house requires. A properly sized furnace will be running almost continuously during the coldest day of the winter. Having a furnace of a correct size will result in efficient operation during the whole heating season. A grossly oversized furnace will run only for a short period, never coming up to peak efficiency. Note, however, that sizing may not be a big issue with high-efficiency, condensing gas furnaces. Due to the design of condensing appliances, they are efficient even when oversized.

So, how do you size your furnace? You can have the contractor use a home heat loss calculation that is available from Canadian Standards Association (CAN/CSA F280) or a sizing procedure from the Heating, Refrigeration and Air Conditioning Institute of Canada (HRAI). Having a proper sizing will cost you $150 – $300 from a qualified contractor.

Those who keep their heating bills, and who are mathematically inclined, can try the calculation in the text box entitled “Calculating house heat loss from utility bills”.

Calculating house heat loss from utility bills

Here is a sample calculation, using a three-month meter reading for a typical house. You can use any period (but at least two weeks of winter weather is necessary). You can either read the meter yourself for the information, look at your furnace bills or phone your utility to see if they have appropriate records. The natural gas usage of other gas-fired appliances in the house is estimated from gas utility data and subtracted from the total for the period in question, so that the gas requirement for heating can be isolated. (Oil furnaces are harder to size using this method, but it may be possible using oil fill-up intervals and the number of litres delivered.)

The goal is to find a relationship between the gas consumed and the heating degree days (HDD). A heating degree day is essentially the number of degrees of heating required over the course of 24 hours, compared to a reference temperature of 18°C. For example, if the average daily outside temperature is 10°C, then the number of heating degree days for that day is 18°C - 10°C = 8 HDD. You can get the approximate HDD for your calculation period from the Environment Canada website at:

Use the data from the “Degree Days: Below 18°C” row.

Once the relationship of the HDD and gas consumption is established, then you can calculate gas consumption for the design temperature in your area. The design temperature is the coldest temperature that can be expected in your area and is usually available from Environment Canada, a mechanical contractor or your local building officials.

The example below uses a design temperature of -35°C. At that temperature, the maximum HDD per day is equal to 53, which is the difference between 18°C and -35°C. Calculating the size of the furnace necessary on the coldest day of the year will mean that the furnace has the capacity to handle any expected local temperature. You can find a furnace’s efficiency rating on its EnerGuide label or in the product documentation.


Total gas consumption from December to March = 1,320 m3

Estimated consumption for other gas appliances (data from utility) = 306 m3

Therefore, gas consumption during the period for heating = 1,320 - 306 = 1,014 m3

Heating degree days for that period (from Environment Canada data) = 2,840 HDD

Heating consumption by degree day = 1,014 m3/ 2,840 HDD = 0.3570 m3/HDD

Heating consumption at 53 HDD/day = (53 HDD/day)(0.3570 m3/HDD) = 18.9 m3/day

Where gas has an energy content of 37.5 MJ/m3, and the existing furnace has an efficiency of 72 per cent, then:

Heat loss at 53 HDD/day = (18.9 m3/day) (37.5 MJ/m3)(0.72) = 510 MJ/day or 21.3 MJ/h

According to the energy content of electricity, 3.6 MJ/h = 1 kW, then 21.3 MJ/h = 5.9 kW

This heat loss would require a furnace that produces an output of 5.9 kW or about 20,100 Btu/h (1 kW is approximately 3,412 Btu/h).

If we allow the CAN/CSA F280 permissible oversizing of 40 per cent, then the proper furnace sizing would be (1.4)(20,100 Btu/h) = approximately 28,100 Btu/h.

If you are calculating for an oil furnace, heating oil has an energy content of 38.2 MJ/litre.

Furnace Efficiency

There is a wide range of furnace efficiencies, although only high-efficiency gas furnaces are sold in Canada as of 2010. The range of efficiency will vary by fuel.

Electric furnaces work on electric resistance. The full 100 per cent of the energy consumed goes towards the heating of the house. The inefficiencies with electric heating happen before the electricity reaches your house. If the electricity is created by burning fuels, there are inefficiencies in that process plus losses as the electricity moves through the lines.

Oil furnaces have become far more efficient since the height of their popularity in the mid-twentieth century. Efficiencies have risen from roughly 60 per cent to well over 80 per cent as a result of advanced technologies — first to flame retention head burners and then to high static pressure burners. The more efficient oil furnaces require a better chimney than their conventional counterparts, so you will probably need to upgrade the chimney with a stainless steel liner inside the old clay tile. Make sure this is included in the quote.

Failure to have a properly sized chimney will result in excessive chimney condensation and eventual destruction in the case of masonry chimneys. There are high-efficiency, condensing oil furnaces as well. Earlier versions had reliability problems. The new generation, launched in 2003, may have resolved these difficulties.

New gas furnaces in Canada are high-efficiency (89 – 96 per cent) condensing furnaces. The high-efficiency furnaces use a plastic vent and are most often vented out the side wall. Propane furnaces are usually modified natural gas equipment.

So… What do I Buy?

Here are the most common questions about furnace replacements to CMHC staff from Canadians, and our usual answers:

Should I switch my heating fuel?

In most parts of Canada, it will be more expensive to heat with an electric furnace than one using oil or gas. An exception would be if you heat primarily with a wood stove and use the furnace only infrequently as backup. In this case, the low cost and low maintenance requirements of an electric furnace may be a major advantage. Deciding between oil and gas furnaces is a matter of choice. Make the calculation to see if it is significantly cheaper to use one fuel or another based on current prices in your area. Oil furnaces require a tank and usually a chimney. There may be additional costs for chimney modification or oil storage tanks when purchasing an oil furnace. Some home insurance companies require periodic oil tank replacements. Check if a new gas furnace would also require relining the chimney. Consult with your contractor and make sure that these costs are included in your estimates.

Some dealers recommend a furnace of 100,000 Btu/h, and some say 80,000 Btu/h will be fine. How do I choose?

See the previous discussion on sizing. If you are buying an oil furnace, proper sizing will affect the durability and efficient operation of your appliance. Your choices are either to pay for a proper heat loss analysis, to calculate house heat loss or to accept the dealer's estimate. Sometimes government or utility programs subsidize house testing. If such a program is in effect in your vicinity, this can be an economical way to have your house heating load established.

Are there any advantages to multi-stage, multi-speed furnaces?

Multi-stage furnaces have become more popular lately, although they are more expensive than the single stage furnaces that have been sold for decades. Multi-stage furnaces have two or three levels of burner function, and an efficient, modulating circulation fan to move the heat into the house. They can provide additional heat when a quick temperature rise is required, such as in the morning when a house with a setback thermostat is being heated from 15°C to 21°C (59°F to 70°F). A traditional single speed furnace would take longer to get up to temperature. The multi-stage furnaces are no more efficient than single-stage furnaces; they offer more flexibility and perhaps more comfort.

Is Furnace "A" better than Furnace "B"? How can I find that out?

There is little or no available data to show that one manufacturer's furnace will operate longer and with less trouble than a furnace from another manufacturer. This is frustrating for consumers. We are used to being able to read ratings of one product versus another product and to make a choice based on those ratings. However, a good furnace will last 25 years. A poor one may break down prematurely at 15 years. With lifetimes of this length, and with furnace design and model changes, it is hard to predict which furnace will provide the best service.

There are two factors to help you in your choice. Pick a furnace with a long heat exchanger warranty, 20 years or more. If manufacturers are willing to back the most expensive part of their appliance for a long time, this should inspire some confidence. Also, pick a furnace manufacturer and a dealer that have been in business for a significant period of time. A furnace with a lifetime warranty offered by a company that has been in operation for only three years may not be the best deal. One would expect to pay less for this level of uncertainty. Look for contractors with memberships in trade organizations such as HRAI, which would indicate an interest in professional qualifications.

The Hot Water Heater Conundrum

There are very few high-efficiency hot water heaters available. Changing your furnace may lead to having to think about your hot water heater. Existing hot water heaters are often located vertically below the kitchen and bathrooms, where the water is used. If you are changing from an electric to a conventional gas hot water tank, and the new gas appliance has to be installed across the basement to be near the chimney, you will be waiting longer for the hot water at the tap. Consider a gas hot water tank that has side-wall venting and does not require a chimney. This way, it can stay close to the plumbing appliances that use it.

Another hot water tank issue can occur when you switch from a conventional gas furnace and hot water tank to a new, high-efficiency side-wall vented furnace. Now the hot water tank has to heat up that big chimney all by itself, and you probably will have to pay for chimney relining. It is often better, when choosing a chimneyless furnace, to switch your hot water tank to side-wall venting at the same time and seal the old chimney closed. However, side-wall vented hot water heaters are more expensive than conventional hot water heaters and can be noisier.

Instantaneous hot water heaters, which do not use a storage tank, are becoming more common. They may be more economical to operate.

Furnace Circulating Fan Choices

Most furnace circulating fans consume high amounts of electricity (300 – 700 watts). If you will be using your furnace circulating fan to move ventilation air around the house (for instance, if you have a heat recovery ventilator connected to it, or a high-efficiency air cleaner on the furnace), then look at upgrading the circulating fan to a high-efficiency DC motor. The best furnace fans now will use less than 100 W on low speed. This will result in considerable electrical savings over the life of the furnace.

Other Choices

When replacing the furnace, you may want to look at integrated systems that heat your house and your water and also provide ventilation. Devices known as “combo” units provide house and water heating. New appliances with advanced, integrated systems will provide ventilation as well as space and water heating. For some replacements, these integrated appliances will be your best choice.

Additional Resources

For further detailed information on all heating appliances, there are excellent booklets published by Natural Resources Canada in the Heating and Cooling Series.


Environment Canada — Canadian Climate Normals or Averages 1971 – 2000 (January 2010)

Heating, Refrigeration and Air Conditioning Institute of Canada — HRAI
(January 2010)

Natural Resources Canada: Office of Energy Efficiency — Energy Efficiency Rating System (January 2010)

Natural Resources Canada: Office of Energy Efficiency — Heating and Cooling Publications (January 2010)


Monday, April 19, 2010

Analyzing a Return of Return on Cumberland Project

Cap Rate Exercises

Property; 234 Cumberland street
Built: 50 years plus
Mortgage rate: 3.78%
Gross Operating Income: $46,500.00
Vacancy Expenses: $975.00
Operating Expense: $20,250.00


Net Operating Income: $25,275.00
(Income - Expenses= Net )

Cap Rate of this building: 11.9 %
( Net Operating Income / Price )

Fair Market Value at Cap 10%: $ 252,750.00
( 1/ .01 = 10 X NOI = Fair Market Value )

Calculating Cash Flow of the Property

(Actual Rental income collected + Actual laundry + other income) minus actual operating expenses minus mortgage payment = cash flow

46,500- 20,250 -14,100 = $ 12,150

Calculating Cash-on-Cash Return

Cash Flow / (Down payment + capital improvements + closing costs) X 100 = Cash-on-Cash return%

12,150 / (65,000+6000+6000) *100 = 15.78 %

Calculating Cash-on-Cash factoring in principal pay down in mortgages

($12,150 + 5,500) / (65,000+6000+6000) * 100 = 22.9%

Wednesday, March 31, 2010

Canadian Real Estate Market- Coming Challenges for Investors

The Roller-Coaster of Real Estate Market, with Bank of Canada calling the end to "emergency low rates" anytime soon. Real estate investors must be prepared to deal with the change in raising costings of interest. Just One percentage point hike in a 2,000,000 portfolio will mean losing 20,000 dollars per year to interest- Coming to around 1,666.66 per month. However a more realistic guess on the market is half a point per year because of our dear US Neighbors- whom is having great difficulties with their unemployment rates - above 10%. Because we are still doing most of our business with our neighbor, our currency are not encouraged to be valued higher (Above Par) by adding more interest - and Bank of Canada know that. If Canadian dollars are higher than the US dollar, we would experience poor export due to expensive dollars on buying Canadian goods, therefore leading to more job losses for Canadians.

Another Issue Investors should be aware of is the uncertain market in Vancouver, with new HST implications affecting higher rental costs. The best case for this market is a sideways movements. Rental Prices are already least affordable compare to the rest of Canada. I suggest a strategy for investor is either to Refinance their properties (3%-4%)and invest the differences on other higher yield markets (9%-13% in Thunder Bay) to offset the cash-flow risk that may hit the Vancouver market anytime. If you can't afford to refinance and ride out the market for 3 to 5 years in Vancouver, then I guess just cashing out your profits.

Those that are running a High Debt Ratio on their investments should take extra caution and keep updated on market news at these times. Surviving is key to successful investing during uncertain times. Letting go some of your Negative Cashflow properties and holding some cash or changing it to high yield properties is the solution. Review your current portfolio and start planning how to allocate for your next investment.