Category Archives: Investing

How Much Are You Really Paying for Your Property?

Most people need to get a mortgage (i.e., a loan) to buy a property. After all, investing in real estate is a humongous investment.

In the scenario of buying your first home, the good thing is that once your mortgage gets approved and all the papers are signed, you can start living in the home while paying off the mortgage every month.

Have you thought about how much you’re really paying for your property?

There are a number of factors that affect how much, in total, you’re paying for your property. Here, we’ll focus on the total you’re paying your lender over the course of paying back the mortgage in its entirety (also called the mortgage amortization period).

a beautiful blue house for a home

What affects how much you’re paying in total for your property?

On top of the price you paid for your property, you need to pay back the mortgage with interests. Here are factors that affect ultimately how much you’re really paying for your property. We’ll follow with an example later.

  1. Interest rate: the higher the interest rate, the more interests you’ll be paying your lender.
  2. The amortization period: the longer the amortization period, the more interests you’ll pay.
  3. If you need to get mortgage insurance, that will add to the cost as well.

Notably, the interest rate you pay for your mortgage changes. For example, it may take 25 years for you to pay off your mortgage, but mortgages tend to be shorter. The most common is a 5-year mortgage. You can also choose between fixed rate or variable rate.

Typically, variable rate results in lower effective interests. However, some people like the predictability of fixed rate. At the end of the 5-year period, you’ll refinance your mortgage at a new interest rate.

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This Dividend Cut Can Be A Blessing In Disguise

Slate Office REIT (TSX: SOT.UN) cut its cash distribution by almost a half from CAD$0.75 to CAD$0.40 per unit. This frees up CAD$26 million of capital annually.

Initially, Slate Office plans to use the capital to reduce its debt levels. This will increase the financial flexibility for future investments.

Quick Business Overview

Slate Office recently generated income from 41 office properties, had a portfolio occupancy of 87.6%, and had a weighted average lease expiry of 5.8 years. These should help the REIT generate stable cash flow over the next 5 years.

Financial Health

The REIT’s recent interest coverage worsened to 2.3x compared to 2.7x at the end of 2017. Additionally, its recent weighted average debt interest rate was 4.3%. The rate had edged higher every quarter since 3.6% from a year ago.

The Dividend is Much Safer Now

Slate Office’s 2019 FFO payout ratio will be much more sustainable at ~64% based on 2018 FFO per unit. The big buffer is needed because 2019’s FFO is estimated to decline due to the reduced interests in 6 Greater Toronto Area assets. The FFO per unit that will be generated during Q2-Q4 will give a sense of the FFO generation power of Slate Office’s assets.

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5 Useful Tips for Successful Stock Investing

Some people think stock investing is gambling. It can be, but it doesn’t have to be. Stock investing won’t be gambling if it’s a sure win. There is a range of concepts you can apply to increase your odds of winning.

Here are some useful tips that can make stock investing a lucrative endeavour for you.

saving, investing, and compounding
Image attributed to ccPixs.com

Don’t Lose Money

This is easier said than done. To avoid losing money when you invest in stocks, first familiarize yourself with the topics around what makes a good business, fundamental analysis, and valuing a company.

I find learning about technical analysis helps. But identifying great businesses and trying not to overpay for them comes first.

Many investors share their investing strategies or why they buy or sell a stock through blogs or forums.

For instance, my friend recently invited me to join a Facebook (NASDAQ:FB) group, which had a focus on dividend investing. Of course, if you have more time on your hands, pick up a bunch of books about specific investing topics from the library or Amazon (NASDAQ:AMZN).

A good book for new investors is The Single Best Investment by Lowell Miller with a focus on Creating Wealth with Dividend Growth.

You can follow the people or groups that share stock investing ideas or strategies that interest you and learn over time.

Soon, you’ll be itching to apply your knowledge. If you want a sure-fire way to not lose money, experiment with a virtual account. I bank with Bank of Nova Scotia (TSX:BNS)(NYSE:BNS).

It offers a virtual trading account in which I can buy or sell stocks on the Canadian and U.S. exchanges like in a real account, but it’s for practice only. It starts you off with $100,000-200,000 of virtual money.

Key Takeaway: Preserve your capital. You need money to invest to make you more money.

Blue sky with cloudy words saying change. Grass field in background.

Business Valuation Changes

In the previous section, I mentioned about valuing a company. If you’ve done some reading on stock investing already, you’ve probably heard that you don’t want to overpay for even the best of companies, including Johnson & Johnson (NYSE:JNJ), one of only two AAA-rated companies.

The most common valuation metric of a stock is the price-to-earnings ratio (P/E).

As of writing, Facebook trades at $162 per share and in 2018 it reported earnings per share of $7.57. So, its P/E based on trailing-12-month earnings is 21.4. However, its P/E was close to 60 when it first started trading. Facebook’s 2019 earnings are estimated to remain stable compared to 2018’s. That’s why the stock is trading at a lower P/E. Longer term, Facebook is currently estimated to increase its earnings per share by more than 15% per year.

There are other things that can affect a business’ valuation, such as the debt levels of a company. If company A and company B are the same except that A has more debt than B, A will have a lower price tag than B.

Key Takeaway: Business valuations change as the underlying businesses change. Typically, lower anticipated earnings growth (or worse, negative earnings growth or a net loss) will cause stocks’ valuations to drop like a rock.

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