Rising interest rates likely to threaten bonds

Shark Tank star Kevin O'Leary took the stage to much fanfare last week at CREB®`s annual  Forecast Conference and Tradeshow breakfast, providing level-headed commentary on  entrepreneurship, investing and, of course, real estate.

What intrigued many was O'Leary's approach to a balanced portfolio and the suggestion real estate is a suitable replacement for fixed income products such as government bonds.

Potential rising interest rates in new year to coincide with growing economy

The once seemingly clear crystal ball that existed prior to the surge of Calgary housing prices in 2006 turned hazy during the global financial crisis that began in 2008 – and has  remained hazy ever since.

There have been moments since 2008 when predicting the future of interest rates seemed clear, however, other than the obvious that rates will eventually go up, predicting the timing has been elusive. Even the Bank of Canada itself has stopped providing forward-looking statements.

The market conditions in Calgary are perfect for smart, long-term investment in real estate.  The fundamentals are sound. The Calgary real estate market is showing less volatility than  in years' past. Large jumps in prices – either up or down – seem less likely than at any other time since 2006.

Combined with low vacancy rates, rising rents, positive net migration and affordability – which, according to the RBC report on housing trends and affordability, remain at historically favorable levels – now is the right time to start teaching Calgarians how to properly invest in real estate with long term wealth accumulation in mind.

Interest rate increases looming for borrowers

Heading into the home stretch of 2014 and toward 2015 is an opportune time to review or create a mortgage plan.

A mortgage plan — whether you're buying a home, already in one, or planning on purchasing revenue properties in the next few years — is vital to you and your family's overall financial health.

The last several years have been unique as a result of the 2.99 per cent mortgage craze. Banks have been highly competitive, lowering fixed rates to historical lows in an attempt to gain market share.

And in today's low-interest-rate environment, it's not a question as to whether rates are going to increase, but when. Borrowers need to position themselves in a way they can absorb higher interest rates and/or be able to still pay off their mortgages faster.

Revenue properties more stable than the stock market

What would you do if you could wake up every morning and have enough money to do  whatever you wanted to do that day?

What if you didn't have to punch the time clock, or head to the office for 9 a.m.?

What if you didn't have to let your boss determine your destiny?

Over the last couple of weeks, I've focused on revenue properties – how one client received 17 per cent returns on her first rental property, as well as three rules for buying rentals.

There's more to it than just buying a condo

In last week's column, I discussed a client who recently purchased a rental property that will    return 17 per cent annually on just the cash flow and mortgage repayment.

That's a pretty good return, especially when considering that return will increase as more principal is paid down, and as the property starts to appreciate in value.

However, there is more to consider than just buying a condo and renting it out. Our client is a smart buyer who followed three basic rules when it came to buying her investment property. While these rules are simple, they are also important.

Can be smarter than stocks or bonds
Calgarians may be surprised to find out just how profitable revenue properties are in this city – even in consideration of claims housing prices are already overvalued.

In fact, annual returns of 17 per cent, or more, before factoring in appreciation or tax benefits are not uncommon. All you need to get started is a 20 per cent down payment, which can be as little as $30,000 – or $15,000 if you partner with someone – decent credit, and the ability to think long term.

Freedom is as easy as one, two, three

To be mortgage-free faster, it is up to borrowers to take the necessary steps to accelerate  payments. And it's not as simple as waiting until your lucky six numbers come up in the lotto.  Paying off a mortgage sooner is all about strategy and automation.

Here are three ways to cut your mortgage down to size.

Understanding how they affect rates, penalties
Pre-payment privileges are the single-most overlooked aspect of a mortgage by borrowers.  Consumers, for whatever reason, seem to gloss over them as if they are a feature of the  mortgage that will never be used.

However, pre-payment privileges are important. They are what allow a borrower to reduce his or her amortization from 25 years to 10 years. They can also affect interest rates and payout penalties, which is why a better understanding of how they work, is important.

Low rates and product features

For decades, the process of selecting a mortgage has been the same: go to the bank, choose  between a fixed or variable and don't ask any other questions.

Oh how things have changed. A mortgage is no longer just a mortgage.

There are many things to consider when it comes to finding financing. The first and foremost is whether the bank you love for your everyday needs is the one that is right for your mortgage needs. Ask what rates your bank will offer you without any haggling. You may find they're not as attractive as elsewhere.