Happily obsessive.

I was hugely disappointed to read the latest “advertising feature” in one of Canmore’s newspapers, the Rocky Mountain Outlook. It’s a misleading advertorial that mishandles statistics in order to create the mistaken impression of a “22.5% return on investment” for perpetually-affordable housing at Palliser Village.

In light of people spending hard-earned dollars on real estate in Canmore, and doing so through the long-term commitment of a mortgage, it is crucial that people objectively evaluate the opportunity based on all of the facts. I hope that these details were omitted innocently, but because the piece was a paid advertisement, it begs further analysis.

Among several errors, the most glaring error of omission is this: banks don’t lend money for free. And if a property’s rate of appreciation does not exceed the mortgage interest rate, then you could lose money.

The piece described a situation that included:

1. An initial investment of $4,600;
2. A 35-year mortgage at an interest rate of 5.79%; and that
3. 10 years of payments would yield an increase in equity of $28,600.

Based on a 1-bedroom Palliser unit selling for $192,000, the mortgage would start the 10-year period at $187,400. This demands a monthly payment of $1,034. After ten years, the principal on the mortgage would be down to $164,765, an increase in equity of $22,635 (not $28,600) at an interest cost of $101,410.

In other words, after ten years of payments, you’ve paid down your mortgage by $22,635 and given the bank $101,410. Most importantly, the increase in equity that you gained through mortgage payments ($22,635) CANNOT be later considered as a return on your investment as the article suggests. It is just money you have saved with the property acting as the savings vehicle. To think it is a return on your investment is as nonsensical as putting $100 in your savings account, withdrawing it in a week, and telling yourself you just made $100.

Next to omitting the interest cost, the second glaring error in the Palliser article is to equate the Consumer Price Index as an investment with “a 3% a year… historical rate of return.” One big problem: the CPI is not a mutual fund; it’s a measurement of inflation. IT HAS NO RATE OF RETURN. The CPI is merely a government tool that measures inflation through the average cost of average consumer items compared to previous costs in previous years.

Here are the details and some questions that you need to be answer BEFORE you “invest” in Palliser Village:

First, how much mortgage assistance is in play? Most banks require at least a 5% down payment on a mortgage, but $4,600 is only 2.4% of $192,000.

Second, if you don’t qualify for mortgage assistance, then you’ll want to re-work the Palliser numbers accordingly.

Third, if any investment does not appreciate greater than the rate of inflation (as reflected in the CPI), then you are LOSING money. This is the case because all consumer items get more expensive over time. If you are not increasing your investments faster than the cost of living increases, then you are effectively losing money.

Fourth, if your rate of appreciation and gains in equity do not exceed the cost of your mortgage interest, then you are also losing money in real estate. The reality of the situation is not a 22.5% return on investment, but a loss of $35,381 over ten years. Here’s why:

• If the $192,000 property appreciates at 3% per year, it will be worth $258,029 at the end of ten years;
• The remaining principal on the mortgage will be $164,765, resulting in owner equity of $93,264;
• The down payment was $4,600, and the equity gained through mortgage payments is $22,635, so the equity gained by appreciation is $66,029; so…
• You invested the down payment and a little with each mortgage payment (for a total of $27,235) and came away with more than twice that. Sounds pretty good, right?

Nope. It sucks.

It sucks because you paid the bank $101,410 in interest costs on the mortgage in order to “make” $66,029. The bank is happy, but you’re in the hole -$35,381. Still sound like a good deal and a 22.5% return-on-investment?

And why didn’t the Palliser Village “advertising feature” contain this crucial piece of information?

Palliser Village may be a good investment, but definitely not with the numbers as presented — and especially with the huge omissions —  in this “advertising feature”. Buyer beware.

For a spreadsheet of the numbers, click here.

The POINT of asynchronous communication (voicemail, email, text) is NOT to notify someone that you need something. The point is to inform someone WHAT you need, HOW they can help, WHEN you need the assistance by, and finally, HOW to get back to you with the solution.

So here’s the test: Do you leave messages like the following?

1. “Hi Scott, can you call me back? My number is 123.456.7890;” or
2. “Hi Scott, mmm, mmm, mmm, 456.34m.mmm. Mumble, mumble;” or
3. “Hi Scott. I have a question on X. Please give me a call.”

If you answered “yes” to any of the above, then you suck.

If you leave messages like this…

“Hi Scott. This is Joe Blow from ABC Company. We have a problem with X. I was hoping that you could help us out by doing Y. If you could get back to me by end of day on Thursday, that’d be a big help. I can be reached at 123.456.7890 or by email at joe@abccompany.com. Thanks for your help.”

…then YOU ROCK.

Here endeth the lesson. Now go forth and get your shit together.

“There are only two premises which are tenable as to the future. Either we are going to have chaos or else recovery. The former theory is foolish. If chaos ensues nothing will maintain value; neither bonds nor stocks nor bank deposits nor gold will remain valuable. Real estate will be a worthless asset because titles will be insecure. No policy can be based upon this impossible contingency. Policy must therefore be predicated upon the theory of recovery. The present is not the first depression, it may be the worst, but just as surely as conditions have righted themselves in the past and have gradually readjusted to normal, so this will again occur. The only uncertainty is when it will occur…”

— Dean Witter, in a memo to clients on May 6th, 1932

Free hats available from The Unofficial Ambler Blog.

After reading The Suck Factor, several friends asked me if I was depressed. No. Far from it.

Getting discouraged, probably even depressed, comes from under-estimating the effort required to make something happen. When the reality is harder than the fantasy, people often get discouraged. If you think it’ll be damn hard, then when it is, it ain’t. The battle may even become fun.

A lot of unrealistic expectations in the general public come from two main sources: our fast-food, zero-inconvenience, immediate-gratification commercial systems and, even more so, those stomach-turning “you can do it” books and tapes. Let me help:

1. You can do it.
2. For every action, there is an equal and opposite reaction.
3. Two bodies attract one another in direct proportion to their mass. (In space; not at the bar.)

Believe all those? Good. Now let’s move on.

Worthwhile pursuits aren’t rosy or easy, nor should they be, and that’s what makes life f&^%ing awesome. Far more motivating than anything Tony Robbins has ever delivered to the world is a little movie called Fight Club. By far one of the most-inspiring movies in a LONG time. “You are not a beautiful and unique snowflake.” Translation: You’re going to have to bust ass to get it done, and not every day is gonna be shiny, happy and easy, nor should it be. What could be more inspiring than that?