oil edmonton's re investing final aug13
TRANSCRIPT
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OIL … EDMONTON’S REAL ESTATE INVESTING
FOUNTAIN OF YOUTH
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THERE ARE 5 KEY STEPS TO REAL ESTATE PROFITS
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5 KEY STEPS TO REAL ESTATE PROFITS
Drives Population Growth - Immigration
IntraProvincial Foreign
Drives the Economy & GDP GrowthIncreased Jobs Increased Wages
Alberta Oil Reserves Attracts Investment Infrastructure/Operations
Step 1
Step 2
Step 3
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OIL DRIVES REAL ESTATE PROFITS
Results in Real Estate Profits
Positive Cash Flow Appreciation/Principle Pay Down
Higher Real Estate PricesHomes Apartments
Increased Rental DemandHigher Rents Lower Vacancies
Step 4
Step 5
Profits
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WHY IS OIL SO IMPORTANT TO THE WORLD?
Before we can look at the 5 key steps to profitable real estate investing, we must first determine how important oil is to the world
We will look at which countries have oil, the world demand for oil and finally the world supply of oil
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WHY IS OIL SO IMPORTANT TO THE WORLD?
Oil provides over 1/3 of the worlds energy requirements everyday
Oil is the world’s transit fuel
Approximately 90% of every barrel of oil is consumed through transportation
Cars
Trucking
Rail
Air
Shipping
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WHY IS OIL SO IMPORTANT TO THE WORLD?
Food Consumption
For every 1 calorie of food that you eat …
10 calories of fossil fuels are used to process & transport it to your table
Energy from Oil is Unique vs. Other Sources
Natural gas has only 2/3 the energy of oil
Oil has two times the energy of coal
Inexpensive Energy Source
Oil does not spoil
Can be stored easily … not like electricity
Has an established world wide infrastructure
Easily moved through pipelines, trucks, rail and tankers
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CAN ALTERNATIVE ENERGY REPLACE OIL?
Electricity – Wind, Solar, & Battery
No infrastructure set up to handle the demand as a transportation fuel
Electricity is extremely difficult and costly to store
Natural Gas
Infrastructure is the biggest hurdle and will take decades to become a reliable alternative
Alberta has one of the largest natural gas reserves as well
Coal
Does not have energy equivalent to compete with oil
Primarily used for electricity
40% of the world’s electricity comes from coal and 75% is for
China
Coal is 20% dirtier than oil and 2 times more than
Natural Gas
Alberta also has large coal reserves to supply the world
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SUMMARY OF ALTERNATIVE ENERGY
Most alternatives fuels don’t have the cost and energy advantages of oil
It will take trillions of dollars to build out the infrastructure for alternatives
This will take several decades if it started now and will require both a national and international energy plan
None of this has been started or is even being discussed
It will take a major crisis before governments around the world turn this into a reality
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WHAT COUNTRIES HAVE THE OIL?
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WORLD OIL RESERVES ALBERTA 3RD LARGEST
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81% OF WORLD OIL INVESTMENT IS RESTRICTED
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ALBERTA HAS 55% OF THE INVESTIBLE OIL
Canada has 56% of the worlds only investible oil
Alberta 171
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WORLD OIL RESERVES
Alberta has the 3rd largest proven reserves in the world at 171BB (Billion Barrels)
They have mined only 3BB since the start of mining in the oil sands
Alberta has total reserves of over 2 Trillion Barrels which include all 3 categories of (proven, probable and additional probable)
This is more than all other countries proven reserves combined
81% of the worlds known reserves are owned by their respective governments
Canada has 56% of the investible reserves with Alberta controlling 55%
Companies can not or will not invest in government owned reserves for fear of nationalization like what has happened in Russia and Venezuela
Triple digit oil prices will shift the economic and political power from the major oil consuming countries to the major oil exporting countries
As oil shortages begin to appear, countries will begin to hoard oil creating even more of a supply issue
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Requires significantly more energy to mine and refine
Oil Sands takes 1 BTU to produce 3 BTU
Alberta and Venezuela have the largest reserves
All deep water drilling and new shale plays are consider non-conventional
Requires very little processing
Takes 1 BTU of energy to produce 100 BTU’s
OPEC is the largest supplier
US is the second largest producer but consumes 100%
TWO MAJOR CLASSIFICATIONS OF OIL
Conventional Non-Conventional
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WORLD OIL SUPPLY VS. OIL DEMAND
Oil Shortfall?
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100% INCREASE IN WORLD CAPITAL SPENDING ON OIL PROJECTS
$300B
$600B
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WORLD OIL SUPPLY IS FLAT DESPITE $300B SPENDING INCREASES
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WORLD OIL PRODUCTION FALLING SHORT
Production of transportation fuels for the last 12 years has remained very tight within a 5% range
Despite higher oil prices over the last decade, this has not produced additional production
Capital spending has doubled for exploration from $300B to $600B to deliver the same
This is why oil cost $100/b and is rising
It is estimated that if China and India continue to grow their imports at current rates it will cause the world to run out of available oil for export before 2030
In time nearly every country in the world will become a net importer of oil including Saudi Arabia
This leaves Alberta in a very powerful position
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ALBERTA OIL OUTPUT GROWING WHILE OTHERS ARE IN DECLINE
Alberta has 98% of Canada’s Oil
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THE WEALTH SHIFT IS STARTING
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WHERE IS THE DEMAND FOR OIL COMING FROM?
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WORLD OIL CONSUMPTION
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BRIC COUNTRIES OIL CONSUMPTION EQUALED THE US IN 2011
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BY 2040 CHINA’S ENERGY USE WILL BE DOUBLE US
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WORLD OIL DEMAND CONTINUES TO GROW Despite a slow down in the industrialized world emerging market growth is
more than off-setting the decline
Emerging market demand is growing at 10%/yr.
The greatest demand is coming from Asia and the Middle East
Many of the top exporters are seeing continued domestic demand erode their exports and will become net importers in the near future
BRIC countries are growing at 20% - 30%
Much of the growth is coming from
additional vehicles on the road
There are 42 gallons of gas in 1 barrel of oil
There are 159 liters of gas in 1 barrel of oil
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CARS PUTTING THE STRAIN ON OIL
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CHINA THIRST FOR OIL
China is the largest auto market in the world 50% larger than the USA
1000 new cars are going on the road on Beijing road system each day Car ownership is 1/10th of the USA with massive upside potential
Sold 18M cars in 2011 and expected to
grow to 35M by 2020 Sells more cars than any country in the
world Gas is subsidized by the government
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OTHER OIL DEMAND PRESSURES
Saudi Arabia
Population continues to grow consuming more and more gas at a growth rate of 5%/yr
Saudi Arabia and most of the OPEC countries subsidize gasoline
Currently burning over 1mb/d of oil to run desalination plants
The large demand for water is causing their aquifers to dry up and therefore the number of plants continue to grow
India
Sells 11M cars per year and growing
Gasoline is also subsidized
Japan
Nuclear power represented 1/3rd of all their energy needs until it was shutdown
Oil had represented 50% of their needs but has now become a growing part of their needs since the nuclear issue
Countries are terrified to cut their fuel subsidies for fear of riots
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OIL COST TO THE WORLD IS GROWING
Year Oil Brent Price World Oil Bill
2000 76mb/d $28.50 $791B
2010 87mb/d $79.50 $2.5T
2011 90mb/d $100.00 $3.0T
2015
There are 2B people not currently consuming oil and gas There is a tremendous wealth transfer taking place in the world
Cash is moving from the oil consuming countries to the oil producing countries like Russia, Venezuela and Canada/Alberta
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IS THERE AN OIL SUPPLY SHORTFALL?
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IS SAUDI ARABIA RUNNING OUT OF OIL?
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HOW RELIABLE IS OPEC AND SAUDI ARABIA?
OPEC/Saudi Arabia
2/3rds of the worlds exportable oil comes from the 12 member states which equals about 30mb/d
Saudi Arabia represents about a 1/3rd or 10mb/d
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THE ONCE GREAT SAUDI ARABIA OIL FIELDS
5 oil fields represent 90% of their production
Ghawar is the largest and oldest currently producing 60% of the country’s output
It has produced over 55 BB to-date
It was founded in 1940 which is over 70 years ago
Safaniya and Abqaiq make up two of the other fields and were found at about the same time
There have been no significant oil field discoveries in Saudi Arabia to compare with Ghawar
All other fields are much smaller
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DO THEY HAVE WHAT THEY SAY THEY HAVE?
Saudi Arabia states that they have about 260BB of proven reserves
This has not and cannot be verified
1979 was the last time an independent party audited their reserves and they said
110BB proven reserves
66BB probable reserves
69BB additional probable
Total 245BB
No company was allowed into SA after 1979
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THE BIG COVER UP
In 1982 OPEC including SA stopped reporting their reserves
8 years later SA changed their reporting to 260BB proven reserves from 110BB
All the probable and possible reserves were moved to proven
The world only uses proven to determine reserves
There was never any announcement of any new oil fields found
They are extracting about 3BB/yr. and since 1980 they have extracted between 90-100BB of oil … yet their total reserves have not changed???
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THE BIG COVER UP These fields have been aggressively mined and their life expectancy
has been significantly shortened because they are pumping water into them to maintain pressure
The 1979 projections had these fields starting to decline by the 1990’s
Saudi Arabia and OPEC do not want the world to know the true numbers because they would lose control and influence in the world
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BIG COVER UP
It is suspected that Venezuela and other nationally controlled reserves are also being fudged to protect influence
Remember if Alberta combined all 3 types of reserves they would have over 2 Trillion Barrels of oil
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USA TO BE ENERGY INDEPENDENT … REALLY?
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USA TO BE NET EXPORTER OF OIL IN FUTURE
Largest consumer of oil in the world at about 19mb/d
Currently the second largest producer of oil in the world
Produce 8 - 9mb/dNo oil is exported and they import 8 – 10mb/dReached peak oil in 1970 and oil production has been
declining ever since until the recent shale oil discovery
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SHALE OIL TO GIVE U.S. OIL INDEPENDENCE … NOT!
The recent shale oil discoveries in the US have been known for several decades
It was never mined because it requires over $75/b to mine cost effectively
It is forecasted that under the best case scenario all shale reserves combined will produce 3mb/d by 2020
If we assume no decline in their current production
(Unrealistic – Peak Oil 1970) they would be
producing up to 12mb/d
This is significantly short of their
current 17 – 19bb/d requirement
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EIA FORECAST FOR OIL SUPPLY & DEMAND
Demand
60mb/d
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PROJECTED OIL SHORTFALL
The EIA projects the decline of all known oil projects US shale boom is projected to peak at only 3mb/d (million, barrels/day)
Production to slip from 85mb/d of crude oil to just 45mb/d between 2012 and 2030
IEA forecasted in 2010 that 80% of the oil fields operating today won’t be producing in 25 yrs.
Total oil supply is declining at about 4mb/d per year
2030 is only 17 years away
The projected shortage is compounded by the fact that oil companies don’t talk about their oil reserve shortages because that lowers their valuations
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WE NOW KNOW HOW IMPORTANT OIL IS!
Cheap Oil Expensive Oil
Abundance Shortage
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STEP 1 - OIL ATTRACTS INVESTMENT
Drives Population Growth - Immigration
IntraProvincial Foreign
Drives the Economy & GDP GrowthIncreased Jobs Increased Wages
Alberta Oil Reserves Attracts Investment Infrastructure/Operations
Step 1
Step 2
Step 3
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MINING ALBERTA’S BLACK GOLD
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WHERE ARE THE OIL SANDS?
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TOTAL INVESTMENT IN ALBERTA CONTINUES TO GROW
2013 Over $70B in Total
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HISTORICAL OIL & GAS INVESTMENT IN ALBERTA
$48.1B
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PROJECTED INVESTMENT IN OIL & GAS
Oil & Gas investment remains at nearly $50B out to 2016 and will stay the same or increase as new projects are announced in the future
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OIL SANDS - ONLY CAPEX INVESTMENT GROWING
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ALBERTA OIL IS REFINED IN ALBERTA AND US
Bitumen (Oil Sands) after it is refined is of higher quality than Saudi Arabian oil and trades at a premium
Operating expenditures alone on oil and gas are approximately $20B/yr. and growing
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OIL PRICES ARE FORECASTED TO INCREASE
Higher Oil Prices Drives Investment
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ALBERTA OIL PRODUCTION FORECASTED TO DOUBLE
6.5mb/d
3mb/d
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WHO ARE ALBERTA’S OIL CUSTOMERS?
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ALBERTA IS THE LARGEST SUPPLIER TO U.S.
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CANADA IS THE ONLY COUNTRY GROWING EXPORTS TO U.S.
U.S. needs the Keystone Pipeline
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THE U.S. WILL CONTINUE TO NEED OUR OIL
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PIPELINE IS THE MAJOR MEANS OF TRANSPORTATION
There are 4 key major pipelines being proposed to accommodate the oil sands growth
1. Keystone pipeline to US Gulf (800kb/d – 900kb/d)
1. Requires presidential approve and is expected 2013 – 2014
2. Northern Gateway pipeline (800kb/d – 900kb/d)
1. Provides access to the west coast and the Asian market
2. Currently under environmental review and expected decision by 2015
4 MAJOR PIPELINES PROPOSED
3. Eastern Pipeline to Canada’s east coast (850kb/d – 1,200,000kb/d)
1. Eastern Canada imports 700kb/d of oil
2. Will allow Canada to become truly energy independent
3. Provides access to Europe
4. Completion expected by 2017
4. Trans Mountain Pipeline Expansion to Canada’s west coast
5. Expansion from 300kb/d to 890kb/d
6. Access to Asia and US by ship
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Keystone
East Coast
Gateway
Trans Mountain
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ALBERTA INVESTMENT SUMMARY
We have demonstrated the world’s need for oil for many years to come
Alberta will be one of the only places in the world to supply that oil … tremendous wealth and influence transfer
This will attract continued investment into Alberta and Edmonton economy for many decades to come
Edmonton is the hub that services the oil and gas industry
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STEP 2 – OIL INVESTMENT DRIVES THE ECONOMY
Drives Population Growth - Immigration
IntraProvincial Foreign
Drives the Economy & GDP GrowthIncreased Jobs Increased Wages
Alberta Oil Reserves Attracts Investment Infrastructure/Operations
Step 1
Step 2
Step 3
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ALBERTA GDP GROWING AT STEADY RATE
Growth Rate at 3% to 4%
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CALGARY AND EDMONTON GDP HAS FASTEST GROWTH
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GDP GROWTH DRIVES JOB AND WAGE GROWTH
The tremendous investment into Alberta is creating continued job growth and very low unemployment which in turn drives rents up and vacancies down
Some forecasts project that Alberta will create over 20k new jobs per year
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ALBERTA HISTORICAL EMPLOYMENT & UNEMPLOYMENT RATE
Employment
Unemployment
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ALBERTA’S POSITIVE QUARTERLY EMPLOYMENT GROWTH
TOTAL OIL SANDS EMPLOYMENT IMPACT
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ALBERTA CONSTRUCTION JOBS FORECAST
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ALBERTA PROJECTED TO HAVE VERY LOW UNEMPLOYMENT
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ALBERTA WAGES ARE INCREASING
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ALBERTA HAS HIGHEST WEEKLY EARNINGS
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EDMONTON ALSO SEEING THE JOB AND WAGE GROWTH
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EDMONTON NUMBER OF EMPLOYED GROWING
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EDMONTON QUARTERLY NUMBER OF JOBS GROWING
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EDMONTON UNEMPLOYMENT RATE DECLINING
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JOBS DRIVE IMMIGRATION & POPULATION GROWTH
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STEP 3 – POPULATION GROWTH
Drives Population Growth - Immigration
IntraProvincial Foreign
Drives the Economy & GDP GrowthIncreased Jobs Increased Wages
Alberta Oil Reserves Attracts Investment Infrastructure/Operations
Step 1
Step 2
Step 3
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ALBERTA POPULATION GROWTH CONTINUES
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QUARTERLY ALBERTA POPULATION GROWTH
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ALBERTA LEADS CANADA IN GROWTH
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JOBS ATTRACT POPULATION GROWTH
Consecutive Quarters of Growth
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TREND FOR POPULATION GROWTH TO CONTINUE
ALBERTA PROJECTED POPULATION GROWTH
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ALBERTA PROJECTED POPULATION TO DOUBLE IN 15 YEARS
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EDMONTON IS BENEFITING FROM ALBERTA NET MIGRATION
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POPULATION GROWTH INCREASES THE DEMAND FOR HOUSING
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STEP 4 – INCREASED RENTAL DEMAND
Results in Real Estate Profits
Positive Cash Flow Appreciation/Principle Pay Down
Higher Real Estate PricesHomes Apartments
Increased Rental DemandHigher Rents Lower Vacancies
Step 4
Step 5
Profits
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EDMONTON RENTAL RATES CONTINUE TO INCREASE
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EDMONTON VACANCY RATES FALLING & BELOW 4%
4% Balanced Market
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Q2 2013 VACANCY AT 1.2% - WELL BELOW FORECAST OF 2.3%
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LOW VACANCIES AND HIGHER RENTS PUSHES REAL ESTATE PRICES HIGHER
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STEP 5 – HIGHER REAL ESTATE PRICES
Results in Real Estate Profits
Positive Cash Flow Appreciation/Principle Pay Down
Higher Real Estate PricesHomes Apartments
Increased Rental DemandHigher Rents Lower Vacancies
Step 4
Step 5
Profits
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EDMONTON HOME PRICES SHOWING SOLID GROWTH
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MULTI-FAMILY SALES PRICE/DOOR INCREASING
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WHY INVEST IN EDMONTON?
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REFINERY ROW RIPPLE EFFECT
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ONE OF THE BEST PLACES TO INVEST IN THE WORLD
Edmonton is the major hub that supports the oil and gas industry
Fort Saskatchewan is one of the major refining locations for petrochemicals and is supported by Edmonton
Most of the fabrication for the oil sands is done in Edmonton
The massive gas plays in Northern BC and Alberta are supported by Edmonton
Alberta/Edmonton is economically and politically stable
Has the lowest cost of living with no sales taxes and one of the highest per capita incomes
The province supports real estate investors and has the least amount of rent controls in the country
There is no land transfer tax in Alberta
Alberta is one of the only world jurisdictions that still has a AAA rating
A KPMG study once found that Edmonton was the 2nd most diversified economy in all of North America
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OIL + REAL ESTATE = PROFITS
Results in Real Estate Profits
Positive Cash Flow Appreciation/Principle Pay Down
Higher Real Estate PricesHomes Apartments
Increased Rental DemandHigher Rents Lower Vacancies
Step 4
Step 5
Profits
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AN INVESTMENT OF A LIFE TIME
Alberta has been blessed with what the world needs
Oil, Gas and Coal
Mining these resources will provide the fuel needed to drive real estate for many more decades to come
Remember … 4 green houses equals one big red hotel
So what are you waiting for … Invest in Alberta Real Estate Now!