# Is it wise to double my mortgage payments?



## gentlepuppies (Jan 17, 2016)

I'm 27, my net income is about $50K. Have a $300K mortgage, 30 year ammortization, which at 2.14% interest for the next 2 years, comes to about $1100 a month. I don't know what to invest in, so I maxed out the monthly prepayment allowance and now pay $2200/month. Combined with condo fees, utilities and taxes, that's almost 2/3 of my after-tax income spent on my home - double the recommended 1/3. This means i'll be saving only 5-10k a year, barely enough to put enough RRSP to get the maximum employer contribution. Theoretically I should save over $60K in interest over the life of the mortgage and shorten the term to 12 years not even accounting for annual lump sum payments (which I doubt I can afford anything significant). Is there anything else with better yield that I could have put the money towards?

Also I'm a first time homebuyer, but since I bought the place on assignment through someone who wasn't a first time buyer, I had to pay the HST upfront and then apply for the rebate. Been waiting for that $27K rebate for 3 months now... I'm absolutely gonna get it back right lol?


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## mordko (Jan 23, 2016)

Yes it is. It is a large mortgage and making a substantial dent in the early years will help you to deal with a potential interest rate rise over its lifetime.


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## Nerd Investor (Nov 3, 2015)

gentlepuppies said:


> I'm 27, my net income is about $50K. Have a $300K mortgage, 30 year ammortization, which at 2.14% interest for the next 2 years, comes to about $1100 a month. I don't know what to invest in, so I maxed out the monthly prepayment allowance and now pay $2200/month. Combined with condo fees, utilities and taxes, that's almost 2/3 of my after-tax income spent on my home - double the recommended 1/3. This means i'll be saving only 5-10k a year, barely enough to put enough RRSP to get the maximum employer contribution. Theoretically I should save over $60K in interest over the life of the mortgage and shorten the term to 12 years not even accounting for annual lump sum payments (which I doubt I can afford anything significant). Is there anything else with better yield that I could have put the money towards?
> 
> Also I'm a first time homebuyer, but since I bought the place on assignment through someone who wasn't a first time buyer, I had to pay the HST upfront and then apply for the rebate. Been waiting for that $27K rebate for 3 months now... I'm absolutely gonna get it back right lol?


Even with cheap rates, it's pretty hard to go wrong paying down debt. Do you have any kind of RRSP matching through work? That's the only thing I would say 100% you should prioritize over the mortgage, never turn away free money.


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## AltaRed (Jun 8, 2009)

Nerd Investor said:


> Even with cheap rates, it's pretty hard to go wrong paying down debt. Do you have any kind of RRSP matching through work? That's the only thing I would say 100% you should prioritize over the mortgage, never turn away free money.


+1 Fully agree. The OP already says he has employer matching so I agree that comes first to take advantage of matching....then mortgage debt buydown comes second. I never once regretted zeroing in on buying down mortgage debt. It is liberating when it is gone.


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## amitdi (May 31, 2012)

you are doing all the right things, just continue to do what you are doing. if you are not comfortable with investments, then its better to reduce the debt.


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## Mookie (Feb 29, 2012)

As previously mentioned, be sure to take care of that employer match on RRSPs (and also consider the 20% free money for RESP contributions if you have kids), but after that, Yes! Pay down as much of that mortgage while the rates are low. You won't regret it - I know I didn't.

In the meantime start reading up on investing strategies, because the day you pay off that mortgage you suddenly have this "terrible problem" that the money just keeps piling up, and you need to do something with it.


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## nobleea (Oct 11, 2013)

I don't think it's fair to assume that a paydown of principal now is the same as getting a guaranteed return of your current mortgage rate. Unless you pay it off in the current term, that's not correct. Your return is the average rate on your mortgage until it's paid off. Since we're at historical lows, you're guaranteed saving 2.14%, but could be much higher depending on how rates trend until your house is paid off.


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## My Own Advisor (Sep 24, 2012)

Folks will say you can make more money over time investing your money vs. paying off your mortgage - but I've never read or met one person in my life that said they regret being debt-free. 

That's the guide I use for my life - become debt-free sooner than later. Good luck with slaying the mortgage dragon!


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## Pluto (Sep 12, 2013)

yes it is wise and safe, especial during the first 5 to 10 years as the mortgage interest is front end loaded. Every extra payment you make now means the can not charge you interest on that anymore, so you end up saving a lot of cash. 

You mortgage seems huge relative to your net income, so forget about the RSP for now is my opinion. Did you think about renting out some of the space in the house? You get rental income and a % of the of the mortgage interest become a tax deduction.


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## Just a Guy (Mar 27, 2012)

My Own Advisor said:


> Folks will say you can make more money over time investing your money vs. paying off your mortgage - but I've never read or met one person in my life that said they regret being debt-free.
> 
> That's the guide I use for my life - become debt-free sooner than later. Good luck with slaying the mortgage dragon!


Well, now you can say you've met one. I was living debt free for several years before I got injured and couldn't work. I'd even saved up about 6 months of expenses...problem was I wasn't able to work for over two years and, being self employed, didn't qualify for any benefits.

First thing I did upon getting injured was use leverage to buy more investments, saved my butt, as well as my house for that matter. Not saying it was easy or fun, but I learned that passive income is way more important than being debt free.

I learned to use debt the right way, and still have a lot of it...fortunately I also now have many assets to pay for that debt. If I could go back in time, I'd tell myself to leverage much earlier than I did, I'd be way better off today. 

Of course, being desperate and not being able to afford making mistakes was a good teacher. I probably wouldn't be where I am today had I not been hurt. I also wouldn't say anyone can do what I did, but I do regret being debt free back then knowing what I know now. Passive income kept me from being in unmanageable debt and probably losing everything.


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## gentlepuppies (Jan 17, 2016)

^^But can't you just borrow against your home equity if you need emergency funds? If the mortgage interest rate went up to 6% the interest savings from an extra $1100/month would be up to $220K rather than $60K. Assuming that I have no interest being a full time day trader, is it safe to say that there's no way playing the stock market passively will make money at a greater rate than hemorrhaged through mortgage interest?

Of course, I would max out my RRSP contributions up to employer limit.

Also I would probably sell and upsize long before I pay off this mortgage lol. A one bedroom shoebox can't be a forever home.


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## mordko (Jan 23, 2016)

Just a Guy said:


> Well, now you can say you've met one. I was living debt free for several years before I got injured and couldn't work. I'd even saved up about 6 months of expenses...problem was I wasn't able to work for over two years and, being self employed, didn't qualify for any benefits.
> 
> First thing I did upon getting injured was use leverage to buy more investments, saved my butt, as well as my house for that matter. Not saying it was easy or fun, but I learned that passive income is way more important than being debt free.
> 
> ...


You are biased by the recent bull market combined with low interest rates. The future doesn't always follow the same pattern as recent past.


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## Just a Guy (Mar 27, 2012)

Actually my injuries happened before the bull market really took off, though I did benefit from it later. I guess you could say I benefited because I was forced to start in a bear market, when prices were cheap. I didn't make money overnight, not even enough to barely survive on, I streatched my savings and went quite far into credit card debt to survive until my investments started to bear fruit. Once they did however, they grew exponentially almost. It happened so fast actually, that it took me several years to come to terms with not being broke. I was able to get out of credit card debt relatively quickly, and even had enough passive income to survive on, however I was still convinced I was broke and lived that way...

Being broke affects you in ways most people can't understand, even today I'm a bit paranoid about getting back to that stage.

As for being able to borrow against your home if you get into trouble, first off I was self employed so borrowing money wasn't easy in the first place back then, and nearly impossible once I got injured. The banks only really like to lend to you when you don't need it. In fact, when I once tried to sell buy a new house in a market boom, the bank told me they wouldn't fund me on my old house (clear title) because it didn't have a mortgage on it, so it was valued at nothing in their eyes. They couldn't easily put a lien on it (the appraisal, legal papers, etc. were too much trouble for such a short term loan) as I planned to sell it after I bought a new place (being a boom market, I didn't want to end up homeless by selling before I found something). 

Today, lending is even more strict, the hoops I need to jump through are incredibly difficult, even though my liquid assets are greater than any loans I've got. 

As for day trading, I don't gamble, I'm an investor, there's a big difference. My money isn't made fast, but it is relatively safe and consistent. I'm a buy and hold value investor, be it stocks, real estate, or business. I have been lucky to benefit from some of the bull markets, but I've also survived the bears quite well as well.

P.S. Oh, and despite what the government continually tries to do, I've never met a person who was able to borrow their way out of debt without using that debt to produce income. If I'd just borrowed money to pay the bills, how would I eventually pay them off? I'd have lost my house in the long term. I did borrow against my house back then, and bought investments. Had I started years before, I probably would have had a steady stream of income (remember I said it took years to produce) by the time I got injured. Of course, being injured was what drove me to learn investing, I probably wouldn't be this successful today had it not happened.


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## AltaRed (Jun 8, 2009)

Just a Guy, I have great admiration for your success story, borne out of hardship, and built on hard work, timing, discipline and acumen. This combination is a rarity and most people trying to follow in your shoes would crash and burn. Being highly leveraged is a reason for many spectacular failures, many of them high profile. The probability of failure is high enough that it is not a recipe for success for the masses. Most folk can barely get by with a leveraged principal residence, never mind leveraging to invest. 

The market, whether real or capital, is not kind to those who are exposed for one reason or another, and it takes no prisoners. Just look at companies who leverage up their balance sheets for a strategic opportunity and crash due to markets turning against them. Dozens of resource companies are currently in this position.


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## Just a Guy (Mar 27, 2012)

I agree completely, and originally stated not everyone could do what I did. However, I think the main reason many of these things explode is because of short term thinking. 

I never said be highly leveraged, I said I wouldn't be debt free. Today, even though I have large debts, I'm probably much less leveraged than the average person...my numbers are just bigger, so they sound scary. 

When I buy real estate, I look for places that are selling well below market average (sometimes close to 50% because they need to be fixed up). I buy stocks when things are going wrong in the industry or market and everyone is being unjustly punished. I build safety nets into my investments, since I couldn't afford to be wrong. 

Many "investors" or companies which are highly leveraged and implode are those looking for the quick buck. Look how gentlepuppy immediately thought of day trading. In the book "A Random
Walk down Wall Street", the author clearly illustrates how companies cook the books with mergers and leverage to improve profits on paper without actually making any changes. To me, investing is all about the long term, I look out 10 years minimum, I've never looked short term, even when I was broke. I always look for worst case scenario, probably because that's where I started. I don't inflate numbers, or lie to myself, or look for the paper profits like capital gains (I don't sell, so they don't really benefit me unless I can leverage it). 

I learned debt is a tool, just like a gun. If used properly, it can feed you. Used improperly, it can kill you. I also learned not to be afraid of the tool. 

Investing is a disciplined, long term thing. Most people don't have the patience to do it properly, heck I didn't want to do it either. The other thing is, you need to know your investment personality, not everyone can be a day trader or a buy and hold investor. If you fight your personality, you're probably going to fail.


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## gardner (Feb 13, 2014)

Just a Guy said:


> use leverage to buy more investments, [....] passive income is way more important than being debt free.


Using debt to leverage an income-earning investment is totally different from the OP's situation which is a residential mortgage with no income stream.


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## gardner (Feb 13, 2014)

Pluto said:


> forget about the RSP for now is my opinion.


I don't agree. Taking maximum advantage of the employer-match amount is the minimum to put in the RSP. Free money is free money.



> Did you think about renting out some of the space in the house? You get rental income and a % of the of the mortgage interest become a tax deduction.


This is a great way to go and I would recommend it too, if possible.


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## andrewf (Mar 1, 2010)

gentlepuppies said:


> Combined with condo fees, utilities and taxes, that's almost 2/3 of my after-tax income spent on my home - double the recommended 1/3. http://www.ctvnews.ca/business/mortgage-rules-what-do-the-changes-mean-1.3102794, barely enough to put enough RRSP to get the maximum employer contribution.


Principle repayments should be counted as savings. It is not 'spending' like mortgage interest, condo fees, etc. 


Accelerated paydown of the mortgage is not a bad idea at all. Especially if you are uncomfortable with its size relative to your income and are averse to investing in other asset classes.


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## Just a Guy (Mar 27, 2012)

Condo fees are not really expenses. Much of the money is spent on maintenance and upgrades to the building. Condo fees, used properly, can greatly enhance the value of a property. 

Principal paydown can also be worthless if property values decrease. 

Just another, non conventional, way to think about these things. No one way of viewing these things is always correct.


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## My Own Advisor (Sep 24, 2012)

Just a Guy said:


> Well, now you can say you've met one. I was living debt free for several years before I got injured and couldn't work. I'd even saved up about 6 months of expenses...problem was I wasn't able to work for over two years and, being self employed, didn't qualify for any benefits.
> 
> First thing I did upon getting injured was use leverage to buy more investments, saved my butt, as well as my house for that matter. Not saying it was easy or fun, but I learned that passive income is way more important than being debt free.
> 
> ...


But you don't really regret being debt-free - do you? 

You simply regret not investing more earlier to generate more passive income earlier in life. You couldn't leverage anything if you were under mountains of debt.

Sorry about you being injured JAG.


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## Just a Guy (Mar 27, 2012)

I don't really regret anything, as they are all stages in my life that led me to where I am today. I was never the type of person to be under mountains of debt, my wants have always been relatively modest and I was brought up to work for things (translation: have the money first) before you buy your wants.

I suppose, while injured, I had high debt, even bad debt, but I had assets that I could have liquidated to pay them off and get back to even. Of course, had I done that they'd never have grown to produce income.

Some people also wonder if I regret being injured, I don't. While I don't like being in chronic pain, it played a huge role in changing my life for the better. I learned how to invest and do it well. Probably not something I'd have accomplished nearly as well had I not been injured. 

That all being said, i certainly don't teach my kids to be debt free. I teach them the difference between good debt, bad debt, to trust the numbers and not to fear big numbers.


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## My Own Advisor (Sep 24, 2012)

"That all being said, i certainly don't teach my kids to be debt free. I teach them the difference between good debt, bad debt, to trust the numbers and not to fear big numbers."

Interesting. I'm almost the opposite when it comes to big debt numbers. I don't think they are good for the average person. I would potentially take on some leveraged investing when I'm older, and mortgage-free, but not until then. I guess I am very risk-averse when it comes to money management. I work too hard to save it. Just me of course.


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## hboy54 (Sep 16, 2016)

My Own Advisor said:


> Folks will say you can make more money over time investing your money vs. paying off your mortgage - but I've never read or met one person in my life that said they regret being debt-free.
> 
> That's the guide I use for my life - become debt-free sooner than later. Good luck with slaying the mortgage dragon!


I have never explicitly said I regret being debt free. I was leveraging for 7 or 8 years to buy stocks, then sold the second house which resulted in my being debt free for a month or 3. Then I have been in debt ever since. So implicitly it looks like I regretted being debt free.

I see owning a house say 1/2 million free and clear to be a riskier scenario than owning a 1/2 million house, 1/2 million in diversified large cap stocks and having a half million debt. The main reason is no diversification vs diversification. (A very strong secondary reason is that stocks historically return 8% and borrowing costs have been well under that for a very long time). People have been winning for 15 or so straight years owning a single instance of real estate, but the truth of the matter is that it is not diversified. This issue is really how I started out in leveraged investing. I wanted something other than just one house in one market purchased on one day. In the fullness of time, the stocks have done way more for me that real estate ever did, and that includes 6 stocks that went to zero.

As other have pointed out, psychological factors weigh heavily, and most people can't do this, but it does not make the idea mathematically unsound.

hboy54


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## Just a Guy (Mar 27, 2012)

Different forms of investing have different levels of risk. Real estate basically requires leverage to make real money. Financially it doesn't really make sense not to use leverage. Having assets you can quickly increase in value (renovate) as equity to back the debt, which in turn produces cash flow each month to pay itself off in the long run is not in the same class as borrowing to day trade. The same could be said of buying a Canadian bank at half price, which paid a 10%+ dividend (based on the amount of the dividend divided by the purchase price) because of a market overreaction to the global meltdown wasn't as risky in my view.

Of course, if you get in real estate, it doesn't take long to have your debts start mounting up (large numbers), but if the assets are worth close to double, and producing income, is it really that risky? Even if the market corrects, you've got equity. 

I hope people can see the difference between what I do, and just the idea of borrowing to produce money. As I said, I'm an investor, not a gambler.


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## gentlepuppies (Jan 17, 2016)

Ok, forget I said day trading. I wouldn't have the time anyway. My RRSP/mutual funds have grown 5% in 2 years - any suggestions for something more lucrative but no more time consuming? The condo that I bought in May for $375k I can easily sell today at $450k based on similar listings in the building.

I plan to sell and buy a bigger place long before I pay off this mortgage - not sure if that affects what the best strategy might be.


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## andrewf (Mar 1, 2010)

Just a Guy said:


> Condo fees are not really expenses. Much of the money is spent on maintenance and upgrades to the building. Condo fees, used properly, can greatly enhance the value of a property.
> 
> Principal paydown can also be worthless if property values decrease.
> 
> Just another, non conventional, way to think about these things. No one way of viewing these things is always correct.


The value of principal paydown is the same regardless of whether the property decreases in value of not. Paying down the mortgage is a transaction that delevers your personal balance sheet but leave net worth unchanged. Expenses like condo fees tend to decrease your net worth. Caveat being that failing to invest in maintenance (directly or through condo fees) can also reduce your net worth through depreciation.


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## Just a Guy (Mar 27, 2012)

Let me give you a few scenarios...

House bought for $100,000, worth $100,000, mortgage $90,000 ($5,000 down, $5,000 paid down) net worth $10,000

House bought for $100,000, worth $90,000 (due to price correction), mortgage $90,000 ($5,000 down, $5,000 paid down) net worth $0

Condo bought for $100,000, condo upgrades windows, doors, siding, now appraises at $150,000 net worth $50,000


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## sags (May 15, 2010)

All the changes to mortgage lending seem complicated.

I heard mention that CMHC won't lend for investment real estate anymore. 

Alternative lenders aren't lending to anyone without big down payments. Some will close up shop in Canada. It has happened before.

What happens to a person who has used high leverage to buy investment properties ? 

Will the banks renew the mortgages if there is no equity in the property ?

These will be interesting times for people involved in various real estate investment strategies.


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## sags (May 15, 2010)

_Condo bought for $100,000, condo upgrades windows, doors, siding, now appraises at $150,000 net worth $50,000_

Wouldn't the net worth of $50,000 would be reduced by the cost of the upgrades ?


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## Emjay85 (Nov 9, 2014)

sags said:


> _Condo bought for $100,000, condo upgrades windows, doors, siding, now appraises at $150,000 net worth $50,000_
> 
> Wouldn't the net worth of $50,000 would be reduced by the cost of the upgrades ?


Upgrades done by condo corp, paid for via condo fees - I assume


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## Just a Guy (Mar 27, 2012)

The nice thing about condo fees can be timing. If a condo puts in a large special assessment, which often forces some owners these days into foreclosure, the banks pay the assessment (property hast to usually be transferred with a clear title), so you can often benefit from major upgrades that were paid by someone else.

Special assessments usually drive prices down temporarily, and don't get factored into the sale prices in a foreclosure because the bank doesn't really pay attention to the details.

Condo accounts are usually built up over several years, so new buyers often have unseen "equity", for lack of a better word, already built up as their portion of the reserve and operating bank accounts. That money is never factored into the selling price directly (though places with large reserve accounts are usually more desirable, and thus sell for more, than places with low reserve accounts). 

Also, not everyone in a condo benefits equally all the time. If the condo decides to replace balconies, and your unit is on the ground floor, he building's value will increase as a whole, but your unit may not see much of a direct benefit. 

Condo fees usually cover maintenance, upgrades, and utilities. The cost savings by doing "bulk" work often offset the other fees (like management) that homeowners don't have to face. It's ridiculous to think of condo fees as an extra expense that homeowners don't have to pay. Homeowners have to pay utilities and should be saving for maintenance and upgrades (they rarely do however and has are more aptly facing the equivalent of their own "special assessments"). Of course, in this case, their "upgrades" are offset by the expenses (since, as a homeowner, you're on the hook for the entire amount).


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## Just a Guy (Mar 27, 2012)

sags said:


> I heard mention that CMHC won't lend for investment real estate anymore.
> 
> Alternative lenders aren't lending to anyone without big down payments. Some will close up shop in Canada. It has happened before.
> 
> ...


1) CMHC has rarely insured investment property for a while now, most banks have required a 20% downpayment minimum, so no real change here. Those who already have CMHC, won't lose it going forward. I'm sure there will still be special CMHC programs designed to encourage things like "affordable housing", however most of those were so restrictive and complicated than few investors actually ever bothered with them. In my opinion it was a typical government program designed to allow them to say "we've set aside millions to address this problem", but it's designed so that it can't actually be claimed, thus hey renew the same money allocation back into the program every year. I've worked in government before, and seen this "scam" done on a lot of "grant" programs. 

2) Alternative lenders usually only insured "high risk" people and charged a big premium on it. With the recent changes, I'd bet we just see a shift in who is classified as "high risk". Those who used to be "high risk" won't qualify anymore, but those who were "marginal" under the old rules and squeezed in before, will now fall to the alternative lenders. Demand will remain.

3) it depends on how they arranged the "high leverage", if they bought properties well below market (let's say $75k), renovated them (cost $5k), and had them appraised for significantly more (let's say $100k), then they'd qualify for an 80% LTV mortgage, yet be 100% leveraged. In this case, they'd be fine as they have 20% equity on paper. Before you say this is impossible, this is the model I've been doing for years, it's not easy but it is possible.

Now if they buy a place that's overpriced, got second or even third mortgages on the property, and have poor cash flow to cover the expenses...well they weren't investors to begin with. The place will get foreclosed on and I may make an offer on it if it becomes realistically priced down the road...

In investment lending, rents (debt servicing) is often more important than the loan amount. One has to be more concerned about your cash flow at renewal time than you do about your debt load. 

4) it has happened in the past, though many people think that it can't happen. If it does, there are "alternative" lenders who will fill the demand or foreclosure. Property prices will drop as a whole, as a lot of properties will enter the market, feeling more forecloses as more properties go underwater...look at alberta in the last year for a small scale version.

Rents will probably increase as demand increases, and investors will start buying the once overpriced properties as they come down to more reasonable levels.

5) actually, these could be times where real estate investing actually becomes easier. Prices are and have been too high on average for the past decade or two, finding a cash flow property has been nearly impossible. The typical real estate "investors" out there have been riding an unsustainable bull market, while patting themselves on the back for being geniuses. The next couple of decades could be a great time to make money in real estate for the true investors as we buy out all the fools.

In investing real money is rarely made in bull markets, the real money is made in the bears.


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## hboy54 (Sep 16, 2016)

Just a Guy said:


> In investing real money is rarely made in bull markets, the real money is made in the bears.


So true. I lost about 30% last year, and it will likely be my most successful investing year ever... in the sense that it set up what I am reaping now.

People sell something today for a gain ... and assign in their heads the profit to today. The reality is that it is a pair of buy-sell transactions, or a sequence of transactions that lead to profit (or loss) and the gain cannot be ascribed to a single moment in time.


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## 1980z28 (Mar 4, 2010)

Correct


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## gentlepuppies (Jan 17, 2016)

I just got my HST rebate, and have an extra $30K lying around. Is there general consensus that I should dump as much as possible into mortgage, and leave just enough to max out employer RRSP matching? No couch potato portfolio will have a better return on risk, right? lol


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