real estate..... is it true??

[wonkyknee]

Rogers communications

This stock was 60 cents back in 1985. paid dividends for those 30 years and is now 45 bucks...no comparison to real estate. by the way, interest rates were close to 20 per cent in the 80s.....now were close to 2 per cent. buying real estate today and expecting rates to stay this low for another 10-20 years is a long shot......possible, but a long shot.

 

[Denmae]

I think that comment answered the most to my questions. I still have a lot of doubt in what i should do but thank you for your answer everyone!

I think the following paragraph should be of concern, for anyone thinking about entering the market.


If you are looking for a quicker ROI, look to buying single detached in the city. Your property value will rise much quicker. I purchased a WWII style bungalow in Scarborough in 2008 for $320,000. This past summer an identical house next door without any improvements or upgrades sold for $610,000.

 

[Perry Mason]

A smart man once told me that your principal residence is not really an investment.

I have been hearing this mantra for a long time and I think it is bull shit.

I don't count day-to-day expenses of a home in the sense that they are a cost of living or the equivalent of rent if I did not own, but when I compare how much cash I have invested to how much cash I have put in the bank or re-invested over the years, I can think of no better investment. If all my other investments had done as well as my homes, my net worth would be much higher!

And make no mistake, one of the reasons is that the taxman does not get to share in your profits!

The only sense in which it is not an investment is that you don't buy and sell a home as easily or frequently as you might an investment because you live there; a home is more "permanent," so to speak. But in terms of ROI, there are very few investments that are better... unless you got lucky and bought a stock that went ballistic.

Perry

 

[Barca]

I have been hearing this mantra for a long time and I think it is bull shit.

I don't count day-to-day expenses of a home in the sense that they are a cost of living or the equivalent of rent if I did not own, but when I compare how much cash I have invested to how much cash I have put in the bank or re-invested over the years, I can think of no better investment. If all my other investments had done as well as my homes, my net worth would be much higher!

And make no mistake, one of the reasons is that the taxman does not get to share in your profits!

The only sense in which it is not an investment is that you don't buy and sell a home as easily or frequently as you might an investment because you live there; a home is more "permanent," so to speak. But in terms of ROI, there are very few investments that are better... unless you got lucky and bought a stock that went ballistic.

Perry

Your opinion is slightly influenced by a unique feature we have in Canada where the gains in your primary home are tax free. That is not the case in all countries, particularly in the US.

You mention that you wish your other investments had done as well as your home. I am assuming your feelings are influenced by the growth in real estate value of the past 10 years. What you are failing to account for is that a) the rate of growth in this particular time period has exceeded historical averages and b) the rate of growth has declined in the last couple of years.

The reality is that history shows a well managed stock portfolio returns better performance than real estate. There is no reason a good family financial plan should not include both types of assets, but the rationale behind owning each of these types of assets are very different. A portfolio of securities is about income and growth. Real estate should be more about personal need.

 

[Perry Mason]

Your opinion is slightly influenced by a unique feature we have in Canada where the gains in your primary home are tax free. That is not the case in all countries, particularly in the US.

But we are talking about Canada, not the US, UK, France, Germany, Australia, etc.!

I am assuming your feelings are influenced by the growth in real estate value of the past 10 years.

No... I am talking about a much longer term than that... more than 40 years, in fact! Including the residence in which I now live, I have owned 4 homes.

Whatever I have earned in each of the first 2 homes was re-invested in the next one. When we sold the 3rd and downsized to the present one, I took out quite a bit of capital and when I sell this one my total earned [based on present value] is a much better ROI than I have done in the stock market [with lots of winners and losers] with my other investments.

Real estate should be more about personal need.

Why?

I know more than a few people who buy, move in, fix up and sell in 4 to 5 year cycles... and they have done extremely well... better than they would have done in the stock market over the years.

Of course, those who have more money than what they can invest in a home have no choice but to invest it in other places. The one limitation about investment in a home is that you can only have one home at a time... well, two, in some circumstances, if your spouse can own a cottage, for example...

My point is that, historically, a residence has been a damn good investment. Of course, I am talking about experience, not theory... :eyebrows:

Perry

 

[Barca]

But we are talking about Canada, not the US, UK, France, Germany, Australia, etc.!

Given the special feature available Canadians can and should take advantage of it. However since it is not available beyond the first home, subsequent purchases should be evaluated on their merits vs other opportunities and frankly don't stand up to the test. That's my point.

No... I am talking about a much longer term than that... more than 40 years, in fact! Including the residence in which I now live, I have owned 4 homes.

If you've done the research over that period then you'd know the rate of return of real estate is average at best and other asset classes far outperform RE. My guess is that your return is more attributable to the leverage you used rather than the actual rate of return.

Whatever I have earned in each of the first 2 homes was re-invested in the next one. When we sold the 3rd and downsized to the present one, I took out quite a bit of capital and when I sell this one my total earned [based on present value] is a much better ROI than I have done in the stock market [with lots of winners and losers] with my other investments.

Did you have similar leverage on your stocks? If not, it's not apples to apples comparison.

Why?

I know more than a few people who buy, move in, fix up and sell in 4 to 5 year cycles... and they have done extremely well... better than they would have done in the stock market over the years.

And I know people who have done better starting businesses in risky industries like restaurant and hospitality than they've made in their home purchases. Is that then a better investment option? Obviously not. If someone has a knack for making money in real estate (or restaurants) by all means they should do it. My problem is with the irresponsible promotion of real estate investing as an easy sure thing (it isnt) or as the best performing investment option (far from it). These days everybody and their brother thinks they're going to make a quick easy buck in real estate and they're going to get a harsh wake up call when they realize the bull market has run its course. But everybody needs to live somewhere which is why I advise friends to buy based on need not on speculative hope.

Of course, those who have more money than what they can invest in a home have no choice but to invest it in other places. The one limitation about investment in a home is that you can only have one home at a time... well, two, in some circumstances, if your spouse can own a cottage, for example...

My point is that, historically, a residence has been a damn good investment. Of course, I am talking about experience, not theory... :eyebrows:

Perry

Real estate is a good investment only within the context that it is a basic need where the sunken costs can be returned or as in the case of the last decade, an appreciated return of principal. That's a good thing. Other high cost needs don't do that (ie. automobile, utilities). But if the conversation is as a comparison of ROI, then I'm sorry real estate provides only average returns.

In the end it doesn't matter, I think a good family financial plan should include the purchase of a family home so I'm not against purchasing real estate, I just think people should be more sensible about how to view this important purchase.

 

[Perry Mason]

Real estate is a good investment only within the context that it is a basic need where the sunken costs can be returned or as in the case of the last decade, an appreciated return of principal. That's a good thing. Other high cost needs don't do that (ie. automobile, utilities). But if the conversation is as a comparison of ROI, then I'm sorry real estate provides only average returns.

But did you do the tax calculation?

What we are comparing - at least, I was - is a residence vs. stock market, not real estate in general...

Perry

 

[SkyRider]

Yes... location, location, location!

Almost as important, just as important or more important for real estate success is:TIMING, TIMING, TIMING!

 

[Barca]

But did you do the tax calculation?

What we are comparing - at least, I was - is a residence vs. stock market, not real estate in general...

Perry

Yes, I did the tax calculation. I did various scenarios including non real estate investing using tax minimization tools and including all costs on both sides. Real estate is fine. It isn't spectacular. Average is a word I'd use.

 

[Perry Mason]

Yes, I did the tax calculation. I did various scenarios including non real estate investing using tax minimization tools and including all costs on both sides. Real estate is fine. It isn't spectacular. Average is a word I'd use.

Well, I am always ready to learn something new...

Perry

 

[red]

buy a house/semi detached in an up and coming nieghbourhood in T.O if you can instead of condo. If you dont like maintenance issues than stick with condos. However, i probably would stick with a condo in the downtown core.
http://www.torontolife.com/informer/toronto-real-estate/2013/08/14/toronto-best-neighbourhoods/
no, condos will not go down in the next few years. reasons:

1.) interest rates are low and the market can still stand a increase in it anyways.

more importantly:

2.) immigration is still strong and no indication the govt will change it. over 100,000 people per year coming into GTA. ask where these people will live? unless this changes there still will be demand even as rental units.
3.) no purpose built rental buildings being built. Condos have been the de facto supplier of rental units. only recently have some builders started toying around with rental buildings now that rents have risen so much to justify the economics of building rental buildings. However, these purpose built rental buildings are more highend to justify the rents.
4.) Greenbelt Act will restrict urban sprawl thus increasing demand on existing lands. Hence reason why detached homes are rising in prices and lower price condos are in demand.

all good points

 

[nottyboi]

Is it true that the property in average will loose 10 to 30% in value in the next few year in canada? Appenrently the property are 30% overvalued... Im looking to invest in real-estate, i just don't know when and what!!! I've been reading a lot about it but everyone says the opposite! What do you guys think about it? especially toronto market i'm talking about.

which market in Canada? That is the big question.

 

[nottyboi]

Yes, I did the tax calculation. I did various scenarios including non real estate investing using tax minimization tools and including all costs on both sides. Real estate is fine. It isn't spectacular. Average is a word I'd use.

did you also include the value of the accommodation it provides?

 

[one.of.a.kind]

With the exception of Toronto and Vancouver the real estate market is down. Toronto continues to be strong and will be for the foreseeable future.

I just sold a condo and got the second highest price ever fetched in that building. The building is five star, extremely well maintained and in a demand location.

A detached house is the best route presently and hold for five to ten years. Quick flips are rare these days.

 

[TaliaTeal]

What goes up eventually goes down doesn't it?

 

[Barca]

What goes up eventually goes down doesn't it?

Yup. Except real estate has longer cycles and is impacted by wider macro pressures that take longer to show up. Which makes it easier to forget the lessons of the past when an entire generation can't remember the last correction. To date however nobody can prove real estate is immune to basic economic principles and so it would be foolish to ignore them.

 

[Smallcock]

Every year for the last 10 plus years I hear the same thing. Wait for a correction and with waiting now you're priced out.

Correct. Waiting is foolhardy. If you can afford to buy, then buy. Gambling on a correction that may or may not happen is . . . gambling, and nobody wins big in gambling except the 0.000001% who hit the jackpot.

Just don't expect the property value to increase.

 

[Barca]

Correct. Waiting is foolhardy. If you can afford to buy, then buy. Gambling on a correction that may or may not happen is . . . gambling, and nobody wins big in gambling except the 0.000001% who hit the jackpot.

Just don't expect the property value to increase.

Overleveraging on real estate is also gambling.

The smart thing is to buy yes, but buy smart and buy what you can afford. Both of which isn't happening these days.

I like this column by a Manulife executive.

(I can't post it from my phone. Let me try it from home.)

 

[Smallcock]

^^

Completely agree. Only buy what you can afford (i.e. you can still afford it if mortgage rates increase by several percent; you can rent it and the rent will cover the costs, etc). Be realistic with your numbers and always calculate costs using worst case scenarios.

 

[Smallcock]

If you believe real estate is an attractive area to invest your money (as I do) - rather then buying a specific property I would invest my money in one of the many REITS (Real estate Investment Trusts) that trade on the TSX. You can choose a REIT that specializes in retail shopping plazas (eg. Riocan, Calloway), commercial office buildings (H&R, Allied) residential apartment buildings (CAP Reit, Boardwalk), nursing homes, industrial or some that invest in all areas. There are even REITs that were spun off from individual retailers - eg. Canadian Tire, and Sobeys each have associated REITs. The benefit of a REIT is that you don't have all the hassles associated with property ownership, you are buying into a portfolio of good quality and professionally managed properties, most pay a monthly dividend (probably in the 5% - 6% range), there is the potential for good capital gains over time, and most of all it is liquid - you can sell it any time.

Other things to consider about REITs:

1) High Fees - a private REIT can charge up to 17%

2) Lower average returns - the average pubicly traded REIT dividen is 3.4%, which is significantly lower than average returns for direct real estate ownership

3) Volatility - REIT shares are typically stocks traded in a public stock exchange so they're subject to market shifts of the stock market

4) Lack of control - you're diversified but you don't have control over which assets are being purchased

5) Lack of transparency - most investors know little about the properties in a REIT portfolio


The greatest benefit of REITs is that it's liquid real estate investing. But because of the reduced risk and liquidity, you get lower returns.