Banking on Real Estate in Canada, but is it sustainable?
Real estate has been a traditional way to bank your cash privately as a rising long term asset protection. Many investors also see this as an income producing asset with rents returning better than what the banks can provide.
Banking on Real Estate
In the second quarter of 2009 Canada’s real estate activity and prices has risen significantly especially in the larger urban centers like the Greater Toronto Area (GTA). Canada and most of the rest of the world is in a deep recession But sales of real estate has been much higher than expected. In fact, the surging activity has Ottawa and the Bank of Canada talking about putting on the brakes, but a mild one at that.
First-time buyers attracted by historically-low interest rates sent the number of sales much higher than expected in several markets. But is it any wonder when the faith in the equities market has taken such a beating, those with some cash to spare will also turn to real estate as a wealth preserver?
In some markets, prices returned to pre-recession highs. The Canadian Real Estate Association says stronger sales in higher-priced markets have skewed the average price higher.
They revised its sales outlook twice during the year to reflect the stronger activity. It suggests the number of sales and average prices will continue to rise in 2010.
Reasons for Real Estate Price Rise
Even cautious investors have decided to take the plunge and buy real estate. The most important reasons appear to be based on the larger urban areas like the GTA.
* Large steady population increases creates a steady rise in demand for real estate.
* Commuting wastes time and resources, so many are now buying closer to work. That creates more local area demand for larger population centres.
* Interest rates are historically low for mortgages.
* Large first time real estate buyer pool. (Mum, Dad and grandparents may also be shelling out financial support for first time buyers).
* Large net immigration (from other countries or even from other parts of the country) into large population centres like the Greater Vancouver Area and Greater Toronto Area.
* Even with the retiring baby boomer population, their more active lifestyle and longer life span may simply create a different kind of housing demand.
Money and the exchange of value has been around since very ancient times. But the concept of a central banking control – a Federal Reserve Bank or Central Bank – is always dreamt up by a central control powerhouse (emperors, greedy usurpers, kings, presidents,…but really, the big bankers). Also since ancient times, this practice of monetary control was prevalent as a method of power and control – not to mention greed.
Take a look at the ancient cultures of Greece, Rome, China, India, Persia…etc. What makes any same person think this can’t happen today? I’ve got news for the doubting ones. It Happens! Banks run the planet we now live on. Even the flush of your toilet has a price on it in society…you pay for it don’t you?
Talk about creating your own bank. And how. They’ve done it in the biggest way possible.
Imagine banks being run by mega wealthy magnates and private financial houses (read as private banks).
In the distant past, at least it is doubtful anyone working today can remember when that was really so. Most banks were started by some rich so and so and run the way he or she wants (men were mostly the owners).
But having your hard earned savings run by one single person has its drawbacks. The owner’s business directive may not be for the best interests of anyone else. Historically, around the world, that has been found to be true.
Some Basic Private Banking Requirements to Create Your Own Bank
An integral part of banking to create your own bank is to have a system of private banking services preferably all within the operating control or influences of that financial institution because this is especially critical when you need to build your financial assets. You’ll need to be able to invest internationally to get the best that your money can offer you. You’ll also need a really good money manager and an investment management system in place.
An Offshore Malaysian Tropical Island Resort
Think of it as offshore investment and banking as opposed to tax havens. This is really about maximising your financial returns, protecting your asset values and ease of financial transactions worldwide especially if you travel.
Think about it…In these days of international travel, and cash transfer restrictions, it can be hell to try investing in global opportunities (Have you ever tried carrying more than about $10,000 while traveling? It can be fraught with restrictions and questions by the customs…). And when in a certain part of the world you find a great piece of real estate or perhaps a business that’s just too good to pass up…and you have no way of getting hold of the required downpayment.
Something that happened to me;
I had transfered a sum of currency to a local bank’s main branch in another country which also has great financial resources to purchase a condo with a fantastic price…but the money took 30 days to arrive (just a couple of years ago, this would have been an easy overnight transfer)…well after the deal had slipped away and my trip over there was over. Of course the fine print made the bank immune from prosecution. Yet, this was my own money deposited at the bank and transfered in the same currency.
Checking Today’s Private Bankers Out
Yesterday’s interviews with several Private Banks’ Bankers says it all. They typically are masters of their own piece of allocated work. In fact, none of them are very savvy in terms of being a full service banker by themselves. It seems, only the top guys…the senior VPs and perhaps the CEO or a Managing Director has all the marbles.
The employees by and large remain employees…even those with over 10 years of banking experience. They get very good at what they do in their little cubicle or office and that’s that. In fact, they are so good at offering packages, they often forget the entire scope of what their banks offer worldwide.
Here’s the story:
I played the role of a returning customer (which was true in most of the cases – I’ve tried many banks’ services in the past) and queried some banks about International Private Banking - I got largely blank stares. So I had to delve into what I required as a client…not a mere customer.
Note:I made some requirements which are fairly typical of a financially independent person (not necessarily ‘filthy’ rich) who travels and has family on the other side of the planet. Mature Private Bankers will tell you these are a fairly large cross section of the private banking population with very useful disposable cash. They make up the most valuable customer base a bank can have.
1) I enquired about a bank that can set up an account here in Canada or USA and then an account over in the other side of the globe – or in any other country they may have a branch.
- This is critical when you want to be able to take advantage of that country’s investments…for example, China right now. Or perhaps a simple business trip and you need not go through the hassle of transfering that much cash.
2) The Bank services include all manner of investment management – no, not just buying and selling local stocks, bonds and mutual funds, but actually will operate a system of global investment like access to the forex, the futures and also the foreign equities like the Chinese markets for example. And how about the very favourable Gold or precious metals futures?
- Where you bank is unlikely to offer these investment services to take advantage of where it’s prfitable immediately. You want a bank that can do so immediately without administrative “problems”.
3) An easy way to transfer your own money via wire transfer or better yet, being made available through the bank’s global pool of deposits/funds like the HSBC has.
- Therefore you’re not really transfering any money, merely using your own anywhere in the world. Imagine the peace of mind and the hassle from “the banking police” (at your banker’s mercy) being averted.
4) A money and investment manager to take care of your investments according to your needs. And I mean a well trained team that can and will manage your foreign investments and options, and other equities, not merely dealing with the local equities.
- This allows you to invest most forms of investment vehicles or hedge your assets. You’re not stuck with using a single market – remember the terrible losses not long ago?
5) The stable and great relationship building that bankers on the job for many years have with their clients. The vast majority of retail banks run their so called “private bank division” like a high priced offshoot of their retail side banking with much higher margins involved.
- It frustrates the hell out of me that each time I visit a bank intending to do a minor portfolio shuffle that should have taken only 10 minutes cost me the better part of an hour as the “new” guy tries to shuffle my papers trying to figure out who the heck is this guy that just popped in to his bank. All that before a few simple adjustments on the computer. Most banks still have no clue about the part of private banking that really means “Know Your Client”.
6) The bank and bank branches have international acceptance and a good reputation for fiscal expediency. This will expedite your foreign transactions. Well worth considering as a must have.
- Imagine having a bank that is thought of as possibly insolvent or known to launder money…would any other bank want to deal with such a financial institution?
The World is Your Oyster
These days, to get the very best from your money takes more than a little effort. You need to sit down and figure out what you want. Check out this site posts first and a future e-book or course to help you decide what you should do. Every jurisdiction in your area will have differences. In the US there are Federal and State banking and investment laws to consider. In Canada or the UK or Singapore or China there are banking and investment laws to consider.
But then when you do have all these services at your disposal, the world truly is your oyster. You can “travel” via the information highway and many banking functions which used to require a trip or two with tons of documentation half way around the world and then back…When accomplished, you can safely travel across the globe and have your piece of mind that your financial resources are cared for, well protected and well within easy reach.
Now, how about a holiday in a warm sunny tropical shoreline on your own villa or sailboat while winter rages on anyone?
One of the easiest countries in the world to start a bank bar none is…drum roll…surprise!
THE USA!
Surprised? What with all that debacle on Swiss Bank Privacy, Bank bailouts, making it difficult for private investment in banks…one would think the country was anti-banking. Yet the USA is probably the easiest place to create your own bank.
Did you realize that the USA had the most banks of all G20 countries – ever? 12,000+ in 1985. And then after many losses and downturns, it’s now about. 8,400. But by 2010 the numbers may be 1,000 smaller than that…read more. Bank failures are rife today.
USA Banking Hotspots
But then you might think investors have shied away from this banking business due to the heavy risks of failure involved. But surprisingly, more banks are springing up. 78 new banks have already been given their lisences to operate in the US so far this year, according to the FDIC. That is on top of the long ques of interested private investment companies waiting to snap up the failing banks’ assets and liscences – if the FDIC would let them.
Last year, there were 173 last year despite the huge crash of the US financial industry with Lehman Brothers causing a tailspin in the world’s financial markets that has still yet to end. One reason cited for the slowing down of bank approvals is becuase of new legislation that requires banks to have the necessary credibility such as between 10 – 25% of shares and the necessary paid up capital. But the requirements are far and away much less stringent than the European, Canadian or even the so called bank secrecy havens of Singapore and Switzerland.
What’s typical in a period of uncertainty and this time it’s a massive one, people – living breathing human beings – move their assets into the safety of secure assets like cash.In times of war, my grand parents used to hide their cash under their matresses. Who can blame anyone when the hurt and insecurity of the stock markets drive people in droves to hold large amounts of low interest paying bonds or certificates of deposits with banks?
[The Garden City Park, N.Y., bank was swamped with customers, and a push to lure $20 million in cash by selling certificates of deposit attracted $43 million. As investors fled the stock market, some brought Hanover as much as $1 million at a time according to bank officials.]…wsj.com.
But What of the Impending Bank Failures?
At best, it’s a love hate relationship. In good times, bankers can make a huge payoff. But in bad times, banks fall like pins in a bowling alley. You might think, “I feel for those investors -the bankers and share holders must have had it bad.” If that bank has been running for some years and it went down, very likely you’re dead wrong!
In fact, whether the bank has been around for a long time or have been profitable, the real victims are the depositors and depositors who have not either not kept their individual accounts to below the FDIC insured amount ( currently $250K in the US) or they have lost all their money in investment products. When the bank goes, all interest and investment money goes with it. Yes, shed a tear. Many life savings are lost this way. But wait, it doesn’t end there. Customarily, an unhealthy bank’s assets are then divided up into performing and non-performing.
Non-performing assets like defaulted credit card balances are sold, often for pennies on the dollar to debt collection agencies. Very suddenly the debtors will find life getting a little more complicated as very aggressive debt collectors are not so easy to deal with as the bank.
Other performing loans – like overdrafts may be taken over by a healthy bank. So, how may this be bad for a store owner? He or she may suddenly find that he has to deal with very different sets of circumstances. The overdraft may suddenly shrink to too low a limit for the business’ daily operations for example.
Then other businesses or or people trying to make loans, often find circumstances have changed for the loan criteria. Imagine you’re used to one system and then find that you are required to “tune” your loan application in another way. It can happen to your car loan for example. People with their deposits covered by the FDIC will get their principal covered but they notice their interest has gone up in smoke. Business owners who have had a long relationship with the old bankers will suddenly find that they have to do this all over agan. The banks afterall operate in a certain neighbourhood.
Investors’ Mecca
The investors who start up banks know these issues intimately. The potential for making it big far outweigh the dangers of failing. It’s like a business Mecca, the Holy Grail of business. Did you realize that banks do indeed create money? Your money becomes many times the amount allowed under the current climate of very high multiples. So, for a certain deposit, the banks stand to make a huge gross profit.
Therefore, within some countries, the financial risks are truly minimized especially when they operate in bad times, and in periods of allowed high multiples and the bankers’ own financial wizardry. Once you understand this, you can see that it is very much a worthwhile venture. Also, another big payoff is when a big bank eats up the little one and pay a premium doing so. It’s big pay day time to the investors, but not necessarily for the depositors.
Another thing that bank investors know is that the US is also relatively flush with capital despite the losses and destroyed lives from the financial disasters. Relatively speaking, when compared to many so called tax havens (which really is a DoDo) people with cash are everywhere. People no longer hide their money under their mattresses any more – they go to the bank. If you gat a social security check, it goes to a bank. When you get paid the company sends the paycheck to the bank. You pay your utility or credit card bills through the bank…Therefore there is always operating capital available in a country with a significant population base, which frequently use the bank like a utility.
I could go on on the beuaty of the technicailties involved but you get the picture by now why the USA is actually one of the easiest countries on the planet to start a bank.
Disclaimer: Do I necessarily encourage investors to start a bank in the USA? Not necessarily. In fact, there are many arguments why you should not – especially if the bank does not have significant competitive advantages. We’ll discuss this issue in another installment.
Splurge on that new Ferarri. Hey, a new luxury condo penthouse is on the cards, fully redesigned and Feng Shuied too. Take a few friends in a private jet to the Caymans once a month. It’s partying every night. Until one day, it all comes to a sudden end.
Is there a way out of that whirlwind?
There is, but first we must look at why this happens. Instead of letting money control you, you need to be ready to control your money.
Let’s take a second look at what tends to happen.
As egos rise with that big lottery win, so does the ‘must spend’ habbit. Afterall, before the win, you lived well enough. But now, there’s really far more than you need. So, you spend uncontrollably and enjoy life without end, until it really ends when money runs out. Why?
It’s to do with the way one feels before and after. Often enough we all hear about how unprepared most people are to handle sudden wealth. As a result, the winner will become the loser very shortly.
The Problems Why, become the answer:
1) Without the experience of living with lots of money, the understanding of what is needed and not needed is blurred. This is a time of exploration. However, this is when the very acts of exploration of the new found wealth has limits. Those limits are often met as another experience of going too far.
2) Going completely wild, unrestrained, being totally free to choose. The constraints of mum and dad, the job, the credit cards, the rent, the endless bills and society are suddenly gone. What happens next is the sudden liberation of that old restrictive world into a world with apparently no limits, no worries. Therefore, going wild is the fun part of life, not yet explored.
3) Where does it end? It does not. At least not in this person’s mind. Living the life that was not disciplined in such wealth, money is used without knowledge or care. Ignorance is bliss.
Is there a way to prevent this?
Of course. It really requires the recoqnition that that winner needs to learn to handle money all over again, on a different level. Besides that, there are a series of things the winner can do to remain the winner.
1) Education. As already mentioned, education is the very first thing that is needed. But self development is more important than even learning to handle the money. As already aluded to, it’s the lack of self esteem that causes the extremely foolish behaviour of loss, using money to buy friends’ loyalty.
2) A course or series of courses in learning what is available to invest your money in, to spread the risk, etc. instead of learning the hard way – through loss and negative experience.
3) Investing in your lifestyle. The ratios often used in any lifestyle management is really moot and never cut in stone. The best strategy is to step back, and ease yourself into your new world. Certainly, get a home that you would be very comfortable in, perhaps with your family too. Personal transport, clothing and all those niceties should also be eased into place. Experiment and experience life and events one at a time. Find your likes and dislikes. Waste far less.
4) In the meantime, never put all your eggs in one basket. Place your money in several banks as a strategy. Take advantage of international banks and their banking system around the world for your travel needs and as you advance your knowledge and experience, investments as well.
5) Mentorship. Yes, even now, a good mentor is one of the best things you can do for your new lifestyle. What to invest in really takes education about each and every project. It takes experience.
6) Tax Planning. Don’t lose most of your income to taxes there are many ways to reduce taxes and also to defer taxes. Get a series of experts to help you and again, educate yourself well here.
7) Educate, live, learn and experience. Be the expert in your lifestyle and wealth building. Cut out the bad, include the good.
Time to create my Personal Bank. This is a personal resolution for the new year. Out with the old and in with the new.
This was supposed to be a secret and personal endeavour. Heck, my great business mentors each had their own banks and taught this to me. I’ve done it before. Why not do it again? It’s time.
If I have your attention, please read on. You may not be dissapointed.
Out With The Old
It’s the new year and I made a resolution to remove all that is really – old. Even if it’s my site content. But perhaps, I can change and use them all somehow.
You see, using the title “Financial Freedom” is really outdated. It was in the late seventies and early eighties of the American MLM frenzy that sunk that old term into me. I had the best of intentions, but really, it’s very worn. Very much a cliche.
So what can I use to brighten things up a bit? Research didn’t produce the desired result. Keywords produced no keys.
How a “Personal Bank” was Born
Then an off the cuff, “With all this content and if I want to write a book, what would I call it, dear?” “Oh, Create Your Own Bank!” Came the reply. Now, that’s an idea.
Somehow, then exactly as I had intended to do for myself using the past journey from an apparently hopeless situation (almost bought the farm – no joke) a year ago to come this far and create my own bank.
Now, talk about in with the new and living up to my new year’s resolution! The “Personal Bank” it is! This is where I started some research for keywords and Google served up some great dishes. And so did You Tube…Serendipity?The skit is in fun but the message very serious. Please watch.
Thanks guys. “Featuring Todd Shaeffer, Jill Donnelly, Lucia Aniello, Rory Panagotopulos and Craig Rowin. Written by Andrew Ford. Shot by Gus Sacks.” I hope you’ll contact me as I’d love to make use of this video some more…
Now, check out my simpler and cleaner new theme on a wordpress blog – what else?
So, it’s official folks! the new Blog Title is now “PERSONAL BANK“ and shout it for me too will you?
It’s a journey to this title. Let’s call it finding my comfort, my calling. It was “Sovereign Journeys” first and then “Financial Freedom” . But “Personal Bank” is a far better descriptive title. After all, I had always intended this blog to bring money making ideas and building wealth to achieve financial freedom to everyone so that you can do things your way. Your Sovereign Journey.
Splurge on that new Ferarri. Hey, a new luxury condo penthouse is on the cards, fully redesigned and Feng Shuied too. Take a few friends in a private jet to the Caymans once a month. It’s partying every night. Until one day, it all comes to a 
This was supposed to be a secret and personal endeavour. Heck, my great business mentors each had their own banks and taught this to me. I’ve done it before. Why not do it again? It’s time.
