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BUYER BEWARE: Brad Lamb, 25% Return & Jasper House (Edmonton)

Discussion in 'Real Estate Discussion' started by Matt Crowley, Oct 30, 2015.

  1. Matt Crowley
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    Matt Crowley Active Member Registered

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    Just a quick caveat for anyone searching "Jasper House" in Edmonton and is reading through the fine print. The story on this development is that the marketing team believed they would sell out the investment 80% overnight. They didn't. Probably sitting somewhere around 30% presales where 50% are required for financing (it might be higher). The project has just been remarketed for a guaranteed rental...which is interesting. I'm not saying don't buy here. I'm just saying purchase knowing the assumptions. And some of them are wildly aggressive in Edmonton's current rental market.

    Overall, he is touting a 24.3% year 1 return, 137.6% 5-year return. Assumptions:
    - 4.5% condo value growth per year. This is extremely unlikely to happen in Edmonton.
    - 3% rent growth per year. Rents are decreasing in Edmonton currently.

    The simple math: Why these returns are totally ridiculous:

    Take a look at the property for $359,800. Down payment $89,950. He shows a 24.3% return. Where does this return come from?

    Principal pay down = $6,332 (30 year amortization, 2.3% interest rate)
    Appreciation = $16,191 (he assumes 4.5% appreciation per year)
    Cash flow = -$664
    "Return" year 1 = $21,858
    Return as percent = 24.3%

    So basically, he is selling a negative cash flow product with appreciation expectations.

    Amazing, the expectations get even more ridiculous after 5 years where he promises a 137.6% return:

    Principal pay down = $33,157(30 year amortization, 2.3% interest rate)
    Appreciation = $88,576 (he assumes 4.5% appreciation per year)
    Cash flow = 2,038 (equal to about $33/month)
    "Return" year 1-5 = $123,771
    Return as percent = 137.6%

    Marketing material below. Proceed with caution!

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  2. Advantage
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    Advantage Member REIN Member

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    Wow. I am by no means a educated, savvy investor and even from my point of view, these numbers look ridiculous. Interested to see how sales go. I'm sure there will be uneducated, inexperienced, first time investors who eat up their sales pitch, especially since Brad Lamb's name is associated with the development. I would be interested to know how they can give you a two year rental guarantee. I'm sure there's plenty of fine print in the sales and construction agreements to rid themselves of any liability or guarantee on projected returns.
     

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