- Joined
- Dec 14, 2013
- Messages
- 980
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!
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!
