The 3-L's

You may recall reading my blog about investing in the 5B’s (Big, Basic, Boring, Brand-named Businesses). Well, our theme for 2023 is the 3L’s (Location, Location, Location).

You know me. I love using analogies as a way of explaining things so here goes.

As we have all witnessed lately, prices have come down a lot in the residential, industrial and commercial real estate market to the point that now may be a very good time to consider becoming a landlord. In this case, think of these properties as the 5B’s, all in prime locations based on their business sectors and very attractively priced based on what they should be selling for. I would argue that now is one of the best opportunities we have seen in a long time to benefit from the more affordable prices of quality properties on the stock market.

If you take the view that as long as you own an investment property, its market value is academic as long as it’s fully occupied and you are collecting enough rent money to cover carry costs and leaving you with a surplus. You also know that over time, the value of the property will rise despite the odd dip in resale prices.

You have also been hearing a lot lately about the flippers who bought rental properties with the hope of selling them for a big profit down the road. Some of these buyers/speculators have done very well while others have been burned because of higher carrying cost today, lower selling prices and fixed rents. If you bought this property in the first place with the view in mind of generating cash flow and not just to flip it in a hot real estate market then you were fine.

Think of it this way. You buy a house you can afford to raise your children in or decide to continue living in after they have grown up and left. Do you really care about the market value if you have no intention of selling it?

If you are a buyer then prices matters a lot and unless you are really desperate you would typically wait for prices to drop before making a bid. If you are a seller then naturally you will try to get as much as you can for it unless you are desperate of course and then you would drop the price. What dictates the most about whether prices go up or down are two things; supply & demand with location playing a pivotal role on both sides of this equation. The stock market works the same way. Supply & demand just like with real estate are influenced by a number of factors but quality and valuation are key.

Following along with this analogy, if you think of the 5B’s as great rental properties you can buy that are in fabulous locations, fully occupied and paying attractive tax-efficient increasing rent, why wouldn’t you own more of them?

If we take the same view of owning and occupying quality companies as we do with real estate and show patience in the process, we will not only live a more comfortable, worry-free life but we will have more to show for it at the end of the day.

David J. Angas, CEA
Senior Vice President, Financial Advisor
Family Wealth Counsel Advisor Group/Raymond James Ltd.

The views are those of the author, David Angas, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.