Mining For Gold In Canada s Technology Triangle

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Mining For Gold In

Canada’s Technology Triangle

How You Can Profit From The Real Estate Boom

in Kitchener-Waterloo-Cambridge

(2010-2015)

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This report is published by Andrew C. MacDonald. All inquires are to be directed to:

Andrew C. MacDonald

E-mail: info@andrewcmacdonald.com Web: www.andrewcmacdonald.com

Disclaimer:

Real estate is not a suitable investment for everyone. Real estate investing has risks associated with it. There are no guarantees that real estate will rise in value; in fact it could decline in value.

This report, or any updates given in relation thereto, is provided, on the understanding that the author, Andrew C, MacDonald, and team of real estate professionals, are not responsible for any results of any actions taken in reliance upon any information contained in this report, or conveyed in any way by said updates, nor for any errors contained therein or presented thereat or omissions in relation thereto. It is further understood that the said author and team do not purport to render legal, accounting, tax, investment, financial planning or other professional advice. The said author and team hereby disclaim any and all liability to any person, whether a purchaser of this report or otherwise, arising in respect this report, and of upon the whole or any part of the contents of this report. If legal, accounting, tax, investment, financial planning or other professional advice or assistance is required the services of a competent professional person should be sought.

The following content has been researched and published in good faith without warranty or liability for any erroneous, incomplete or misleading information.

All rights reserved. No part of this report may be reproduced, or stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. © Copyright 2010 Andrew C. MacDonald. All rights Reserved.

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Table of Contents

Table of Contents ... 0

Introduction ... 1

Why Real Estate? ... 2

Cash Flow / Income... 2

Appreciation ... 2 Leverage ... 3 Stability ... 3 Control ... 3 Tax Advantages ... 4 Principal Reduction ... 4 Inflation Hedge ... 4 Wealth Creation ... 4 Why KWC? ... 6 Location ... 6 Population ... 6 Housing Trends ... 7

Income & Employment ... 7

Economy ... 7

Infastructure Improvements ... 8

Political Leadership ... 8

KWC: A Brain-On Investment ... 9

Looking For More?... 10

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Introduction

This report has been designed to cover the answers to 2 basic questions: 1. Why invest in Real Estate?

2. Why invest in Kitchener-Waterloo-Cambridge?

As I cover the answers to these 2 questions, you will quickly gain insight into how you can profit from the real estate boom in Canada’s Technology Triangle.

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Why Real Estate?

It is no coincidence that the affluent invest in real estate and use this asset class as the foundation for their wealth. There are many benefits offered by real estate which provide a solid foundation for lasting wealth. Some of the key benefits we will briefly cover include:

• Cash Flow / Income

• Appreciation

• Leverage

• Control

• Amortization

• Tax Advantages

• Stability / Safety / Low Risk

• Inflation Hedge

• Wealth Creation

Cash Flow / Income

One of the best reasons for you to invest in real estate is that it is an income producing asset. The income can often be great enough to cover all of the associated expenses and still put money in your pocket every month. I focus on positive cash flow properties as a means of increasing financial independence.

Appreciation

As Mark Twain said, “Buy land, they aren’t making any more of it.” In addition to positive cash flow on a monthly basis, the value of real estate increases over time. There are several factors which can drive real estate prices upwards, and by investing in areas with strong economic fundamentals, you can greatly increase the amount of appreciation on your properties.

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 A ve ra ge H ou se P ri ce Year Canadian Real Estate Price Appreciation

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The preceding graph shows the average price over time for an average Canadian house in major urban centres. A home worth around $75,000 in 1975 is now worth over $400,000.

Leverage

Not only does investing in real estate offer you a combination of excellent cash flow and substantial appreciation potential, it also provides the opportunity to leverage your money. Using the power of leverage, you are able to buy more with every dollar you invest to generate greater returns on your money. $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 0 5 10 15 20 25 Va lu e Year Leverage Model

Leveraged Equity Unleveraged Equity Original Investment

Note: Value assumes $25,000 investment and 5% annual appreciation

The bank is paid interest on the money they loan to you, but the cash flow beyond loan payments, as well as 100% of the appreciation belong to the owner. In this way, applying leverage in real estate is much like having one dollar do the work of three or more.

Stability

There is a reason the banks are willing to loan money to investors who choose to invest in real estate. Real estate is tangible, it is a great store of value, and provides excellent long-term stability. Real estate returns are generally more predictable, more stable, and better collateralized when compared with other forms of investment. This is a key reason banks are willing to provide such excellent leverage on real estate.

Control

Unlike many other asset classes, real estate can offer excellent control over your investment. This control can provide greater piece of mind since you will know exactly where your money is being put to work, and have a tangible asset to show for your investment.

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Tax Advantages

Real estate investing offers several tax advantages which can further increase your effective returns. These tax advantages can generally be divided into favourable tax treatment, and eligibility for deductions, which both reduce the amount of tax paid and increase profits.

Depending on the particular investment and its structuring, profits from appreciation are generally treated as capital gains which are only 50% taxable (versus active income which is 100% taxable). As an investor your gross rental income is reduced by the various expenses associated with owning property such as mortgage interest, property taxes, property management fees (if applicable), repairs and maintenance and other related expenses to reduce the taxable income. The ability to claim depreciation allows investors to reduce current income and minimize tax payable today.

Furthermore, tax-free equity take-outs through refinancing offer an additional benefit to owing investment real estate.

Principal Reduction

Investment real estate is typically financed using a long-term mortgage. In instances where an amortized loan is used, each mortgage payment reduces the principal balance of the loan, which builds equity for the investor. With investment real estate, the income from the property covers the loan payments, meaning the tenant is building wealth for you.

Inflation Hedge

As the general price of goods and services increases, real estate appreciates in value and serves as a great hedge against inflation. As inflation occurs, the buying power of your money is eroded. However, having your money invested in appreciating assets such as real estate protects the purchasing power of your money.

Wealth Creation

The bottom line with real estate investing is that it provides you the ability to earn income while

simultaneously creating wealth in a stable and collateralized investment. As the property appreciates, and amortization reduces the principal of the loan, your equity rises at a rapid pace.

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WWW.ANDREWCMACDONALD.COM PAGE 5 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 0 5 10 15 20 25 Va lu e Year

Equity Growth Model

Loan Balance Equity Property Value

Note: Assuming 25 year mortgage at 8% APR with 25%down-payment on $100,000 property and 5% annual appreciation

Preferential tax treatment allows you to keep more of the profit in your pocket which further increases your effective return.

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Why KWC?

The buy-and-hold portion of my real estate business is based on acquiring quality properties in areas with strong economic fundamentals. By removing the emotion associated with buying real estate and instead making decisions based on the underlying economics of a region, you can purchase in areas where the fundamentals will provide a bright future for real estate values.

“The first fundamental step is to identify a city, town, or neighbourhood that has a future, not a past.” - Don R. Campbell, Author, Real Estate Investing in Canada

The cities of Kitchener, Waterloo, and Cambridge (KWC) form Canada’s Technology Triangle and the area is recognized worldwide as a competitive area to setup a high-tech business. The region’s shifting economy, strong economic fundamentals, progressive economic development office, and ongoing infrastructure improvements position KWC as a region with a bright future.

Location

Located just over an hour from Toronto and within a few hours of both the Buffalo and Detroit border crossings, KWC is well positioned from an economic standpoint. Serviced by Highway 401, rail, and air transportation, businesses in the region have access to a large proportion of North America within 2 hours flying time0F1. Located in the heart of Canada's most populous province KWC has access to:

 2.7 million people within a

45 minute drive1F2

 5.1 million people within a

1 hour drive2F3

 130 million people within a

day’s drive3F4

 60% of the Canadian population

within a day’s drive4F5  40% of the US population

within a day’s drive5F6

 71% of Canada’s manufacturers

within a day’s drive6F7

Population

The strong growth exhibited by the Technology Triangle over the past decade is not anticipated to let up anytime soon. The latest population estimates for each city are:

 Kitchener: 223,715 (2009 Estimate)7F8  Waterloo: 121,700 (2010 Estimate)8F9  Cambridge: 130,000 (2010 Estimate)9F10

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By 2031, forecasts expect Kitchener to have a population of 311,500, The City of Waterloo to reach over 150,000 and Cambridge to hit 177,00011. Forecasted population growth of approximately 37% over

the next 2 decades will have a positive impact on the economy and demand for housing in this region.

Housing Trends

During the recent recession, housing starts declined along with consumer confidence. Demand for rental accommodation also dipped as a result of low interest rates which made home ownership a more affordable option for many renters.

The good news is that with increasing consumer confidence, the real estate market in KWC is set to boom once again. CMHC estimates that housing starts will increase 12% in 2010 and the average resale home price will rise 2.9% while resale volumes are expected to moderate around their current level12.

Within the first three years, 40% of new immigrants purchase a property and 60% continue to rent. Continued domestic and international in-migration combined with new student demand and rising interest rates will provide stronger demand for rental units in the KWC market. This prediction is reflected in CMHC’s forecast which sees vacancy rates in the Kitchener CMA moving from 3.3% in 2009 down to 3.1% in 201013.

Income & Employment

Above average incomes in the Kitchener Census Metropolitan Area create a positive atmosphere for real estate values in the area. The median household income for the Kitchener CMA was $69,782 as of 2009 and is predicted to increase to $78, 603 by 2014.

With the exception of 2009, the unemployment rate in the Kitchener CMA has historically been below provincial and national averages. An increasing labour force in the region combined with the global recessionary period in 2009 has temporarily increased unemployment in the area. With a strong diversified economy, and increasing consumer

confidence, unemployment in the region is expected to again outperform provincial and national averages going forward.

Economy

KWC has the most diverse economy in Ontario14 and is no longer just a manufacturing powerhouse.

The area has been recognized as Canada’s Most Manufacturing Intensive Regional Economy, with 26% of the workforce having manufacturing occupations. Despite this recognition, the region’s high-tech industry now employs over 26,000 people at its more than 450 information technology companies15.

Waterloo Region is home to many major employers across several industries.

Top Private Sector Employers Top Public Sector Employers

Company Employees Organization Employees

Research In Motion 5,200 Waterloo Region District School Board 6,000 Toyota Motor Manufacturing 4,500 Grand River Hospital 3,965

Historical unemployment rates (%) Year Kitchener CMA Ontario Canada

2004 5.1 6.8 7.2 2005 5.7 6.6 6.8 2006 5.2 6.3 6.3 2007 5.5 6.4 6 2008 6 6.5 6.1 2009 9.5 9 8.3

Source: Statistics Canada, Labour force survey, January 2010, seasonally-adjusted data.

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WWW.ANDREWCMACDONALD.COM PAGE 8 Sun Life Financial 2,700 Region of Waterloo 3,892 Manulife Financial 3,600 University of Waterloo 3,076 Schneider / Maple Leaf Foods 1,688 Waterloo Catholic District School Board 3,000 ATS Automation Tooling Systems Inc. 1,615 City of Kitchener 1,500 Loblaw Companies Ltd. 1,205 St. Mary's General Hospital 1,200 Rockwell Automation 1,000 Cambridge Memorial Hospital 1,192 Challenger Motor Freight Inc. 1,000 Wilfrid Laurier University 1,047

iQuor 1,000 City of Waterloo 1,000

Babcock & Wilcox Canada 1,000 Source: Waterloo Region Economic Development. Waterloo, Ontario, Canada

Infastructure Improvements

Waterloo Region is rife with new development as a result of expanding post-secondary campuses, Ontario’s Places to Grow Act, and government stimulus trickling in from the recent recession.

New Development

Anyone who has visited KWC lately can easily see that this area has a lot going on. Some recent and planned projects in the area include:

 Conestoga Mall: $50MM renovation and expansion16

 Sportsworld Crossing: 300,000 sq.ft. of office space and 250,000 sq.ft. of retail space  University of Waterloo: New $160MM Quantum Nano Centre17 (under construction)  Conestoga College: New $21MM Cambridge campus near Hwy 40118 (under construction) Transportation Improvements

To support the rapid growth in Waterloo Region, numerous transportation improvements have already been completed over the past few years with several more currently planned or in-progress. KWC has recently benefitted from numerous highway improvements and the addition of GO Bus service

connecting the Technology Triangle to the GTA. Some key improvements include:

 $60MM project to widen Highway 8 between Fairway Road and Sportsworld19 (scheduled

completion date of 2011)

 $790MM light rail transit system running from the North end of Waterloo to Fairview Mall20

which would make KWC the smallest metropolitan area in North America to offer an LRT system (expected to begin in 2012)

Political Leadership

Waterloo Region undoubtedly has a very progressive Economic Development Office. Creating a strong brand for KWC as Canada’s Technology Triangle, the region is now being recognized worldwide. Creativity, diversity, innovation, entrepreneurship and enterprise are some of the first words associated with Waterloo Region, and with the strength of the local talent pool, this should be no surprise.

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Most regions talk a big game when it comes to economic development, but KWC walks the talk. The Technology Triangle has attracted significant investment, and has carefully planned for its future growth. The Economic Development Office and political climate in Waterloo Region are receptive, helpful, and diligent in preparing KWC for sustainable growth as an economic powerhouse.

KWC: A Brain-On Investment

With such strong economic fundamentals and a fantastic future outlook, it is no surprise that The Real Estate Investment Network (REIN) rated Kitchener-Waterloo-Cambridge as the #1 investment region in the 2010-2014 edition of its “Top Ontario Investment Towns” report.

REIN provides the following list of questions investors need to ask before investing in any area21:

• Is the area’s average income increasing faster than the provincial average? • Is the area’s population growing faster than the provincial average? • Is the area creating jobs faster than the provincial average?

• Does the area have more than one major employer?

• Is the area in the RBC Affordability Index Hot Zone (25% to 39%)? • Will the area benefit from an economic or real estate ripple effect? • Has the political leadership created an economic growth atmosphere? • Is the Economic Development Office progressive and helpful?

• Is the area’s infrastructure being built to handle the expected growth? • Are there any major transportation improvements in the works? • Is the area attractive to Baby Boomers’ lifestyle?

• Is there a short term problem occurring that is slated to disappear in the future? • Is there a noted increase in labour and materials cost in the area?

The Technology Triangle satisfies all thirteen of these criteria, and with such a strong economic outlook, investing in well selected and impeccably managed properties in KWC is truly a no-brainer.

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Looking For More?

About Andrew

I am a Canadian real estate investor and analyst who works with Joint Venture partners to create long-term wealth. With a focus on buying and holding positive cash flow properties in Canada's Technology Triangle, I make the benefits of real estate investment available to those who lack the time or expertise to buy and manage property themselves.

For more info about me, visit http://www.andrewcmacdonald.com/.

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Thanks for reading, and I wish you a future full of real estate investment success! Cheers,

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Sources

1Canada’s Technology Triangle: Strategic Positioning - http://www.techtriangle.com/strategic_positioning 2 Ibid.

3 Ibid. 4 Ibid.

5 Land and Location - City of Waterloo, Ontario, Canada - http://www.city.waterloo.on.ca/DesktopDefault.aspx?tabid=1423 6 Ibid.

7 Ibid.

8 FP Markets - Canadian Demographics 2009

9 Statistical Profile, City of Waterloo, Ontario, Canada - http://www.city.waterloo.on.ca/DesktopDefault.aspx?tabid=1284 10 Stats, Facts and Profiles. The Corporation of the City of Cambridge -

http://www.cambridge.ca/economic_development/stats_facts_and_profiles

11 Region of Waterloo. (2006). Planning, Housing, and Community Services - Interim 2031 Population Forecasts by Local

Municipality -

http://www.region.waterloo.on.ca/85256AE80070E40F/vwSiteMap/A288897047333422852573700060C1D7/$file/INTERIM_POP ULATION_FORECASTS.pdf?openelement

12 CMHC Housing Market Outlook – Kitchener and Guelph CMAs – Fall 2009 -

http://www.cmhc-schl.gc.ca/odpub/esub/64323/64323_2009_B02.pdf?sid=58b16b48bd624a3783c6b87f0ecff361&fr=1272313995068

13 CMHC Rental Market Report – Kitchener & Guelph CMAs – Fall 2009 -

http://www.cmhc-schl.gc.ca/odpub/esub/64399/64399_2009_A01.pdf?sid=58b16b48bd624a3783c6b87f0ecff361&fr=1272312595412

14 Canada’s Technology Triangle: Industries - http://www.techtriangle.com/waterloo_region_business_sectors 15 Ibid.

16 BMO Capital Markets – Waterloo Region and Guelph Economic Update – July 2008 -

http://www.bmonesbittburns.com/economics/reports/20080722/sr20080722.pdf

17 Waterloo Institute of Nanotechnology - www.nano.uwaterloo.ca/facilities/qnc.html 18 TheRecord.com - “Conestoga College will get $21 million for a new Cambridge campus”-

http://news.therecord.com/article/401433

19 Outhit, Jeff. (2008). “Highway 8 Project has Miles to go”. Waterloo Record. (June 21, 2008).

http://news.therecord.com/article/371350

20 The Transport Politic. (2009). ‘Canada's Waterloo Region Plans for Light Rail by 2014’. (July 2, 2009).

http://www.thetransportpolitic.com/2009/07/02/canadas-waterloo-region-plans-for-light-rail-by-2014/

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