Toronto Income Property Newsletter: December 2008

Happy holidays everyone! This will be my last newsletter for 2008, so I won’t be checking in with you again until after Christmas. In early January I will do my annual wrap-up and analysis of this year. 2008 certainly saw a long-expected downturn finally occur in the Toronto real estate and income property markets and as we head into this holiday season there is an unprecedented sense of doom and gloom in the air. So this month I thought that instead of talking incessantly about falling real estate numbers that I’d look at how best to cope during these uncertain economic times.

Let me say at the outset that for many of you it will be business as usual. Fortunately, most of my friends and clients are financially prudent and many of you have wisely bought income properties in the past that helps with your monthly cash flow. Regardless, if the current economic slow down isn’t affecting you directly, you will likely know someone who is feeling the pinch, and there are many people out there who are nervous, cutting back spending, etc. in anticipation of things actually getting worse.

I can’t ever remember a time when there was so much negativity being spread in the local media. It’s not just a slowdown in the number of real estate trades, but it seems like everyday there is a new story about some industry on the verge of collapse. Consumer indebtedness is at an all-time high and there isn’t a bright forecast for the unemployment numbers and the economy as a whole. If we are in a recession, which I do believe we are, we have to look forward to how this situation can be slowly turned around. There has been a bailout for the financial services sector in the U.S. and now the auto industry is looking for the government to fund their losses. What about a bailout for small businesses – the backbone of our North American economy? The little guy has to continue to struggle with decreased sales and higher borrowing costs, if he or she is even able to get business financing. The Bank of Canada has lowered lending rates for the major banking institutions in Canada. I got a call from my bank manager telling me that my interest rate on my credit facility would go up 1% – not because of any doing on my part, good or bad. It’s just an overall reaction to these times. Then I see what their quarterly profit was. To my all friends and clients that work at financial institutions, please forgive me, but that really sucks.

If any of you have ever seen the Enron documentary, that story is a microcosm for what has led us to the overall economic situation in North America. Greed and abuse by our supposed leaders – the guys at the top skimming huge corporate profits and in many cases, stealing from employees and pensioners, and then ultimately the whole system comes crumbling down. That’s the investment, banking and auto businesses in as nutshell. Massive profits, huge executive compensations and now all of their hands are out looking for the taxpayer to bail them out.

Adding insult to injury, the Canadian public had to endure the empty rhetoric of political candidates vying to be Prime Minister in an election that accomplished nothing. And now there is talk of a coalition which might overthrow the government that we actually elected. These are strange times indeed.

So how do we cope during these unsettling economic times? It has been proven that our emotional states do indeed affect our stress levels and our ability to sleep at night. Studies done at the University of North Carolina have found that as we enter a recession, health-related problems go down. As our economy plummets, the population’s physical well-being improves (as a whole). We smoke less, drink less and drive less, findings that are counter intuitive, since you’d think that if we’re feeling more stress, we’d do more of those less-healthy behaviors to cope with it. Well, that’s encouraging!

When we’re uncertain about the economy, however, we’re less likely to spend significant amounts of money on “luxuries,” which includes things like alcohol and cigarettes. And with the fluctuating price of gas, people tend to drive less. Instead of making three trips, you might combine them all into one trip and cut out errands that aren’t really necessary. Less driving equals less stress and less changes of getting into a crash or accident, reducing your risk of serious injury from an automobile accident.

Sure all of that’s great, but how does that help you right here and right now? Your retirement fund is tanking and there’ve been rumors at work of more layoffs! First, focus on the long-term picture when it comes to things like retirement and your career. People who check their mutual fund balances every day, every week, or even every month should stop. A retirement fund is not there to check up on in that sort of regular manner, because most returns on such funds are measured in decades, not months or weeks. The only thing you can proactively consider for your retirement funds is to move some of your investments into a quality income property that will always pay you cash at the end of the month. Otherwise, while you shouldn’t ignore those monthly statements, you also shouldn’t put much weight into them. Financial markets run in cycles, and this just happens to be a particular bad down cycle. It will recover in time.

The same goes too for your career. You only have control over what you have control over. Okay, I know that sounds obvious, but too many people stress and fret over variables or things they have no control over. If layoffs are inevitable, all you can do is to be pro-active in getting your resume updated and start looking for a new job now, and make sure your boss knows your contributions and value to the company. Being prepared for the worst means that if, by chance, it does happen, you’ll be ready with a list of jobs lined up and perhaps even an interview or two.

That idea of being in control is important. You and I can do nothing about the government bailout of the investment banks and what-not. So why worry about it? Trust that our elected officials are doing all that they can to keep things stable and moving forward, and that confidence will be restored in due time. Instead, focus on what you can control and change in your life. Scale back on planned financial commitments if it’ll make you feel better. Putting such things off a few months likely isn’t going to be a significant difficulty for most and can give a person added peace of mind when they go to sleep at night.

Uncertain economic times are also a good time to reconnect with your family and friends – the social relationships that bind us all together. Such connections remind us of the value of life, and are things we can influence and enrich. Consider this a good time to volunteer some time at a shelter or food kitchen, give blood, or find some other way to give something back to others. Usually when we give of ourselves in this manner, it reminds us of those who need our help – and that we can actually help out, locally, on our own. It can be a very empowering feeling.

Lastly, if you are self-employed like me and you’ve seen a decrease in sales, don’t stop working. Get out there everyday and hustle. My mother used to say “If you move your legs, God will give you speed”. This is very true.

We’ve seen times like this before and we know that this will pass. This current situation will be over soon and in a few weeks Barack Obama takes office. Until then, take heart in the hope that our government won’t allow something like this to happen again in our lifetimes. And with a new President in the U.S., the economy is likely to pick up once again in the New Year.

So that’s my holiday advice to all of you. It’s easy to be smiling when times are good. Just remember that we all have incredibly good fortune to live where and how we do. If you have your health and family and friends around you, then you are truly blessed. Forget about how much money you made or lost this year – at this time of year it’s simply not that important.

I promise that next month I’ll get back to just real estate, but it seems that whenever I go off topic I get the most amount of positive emails from all of you. Once again, have a very Merry Christmas or Hannukah or Kwanzaa or Festivus!

Paul Anand

Broker of Record


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