# The crash of 2018



## TomB16 (Jun 8, 2014)

Well, it's approaching that time of year again. Soon, it will be time to stop talking about the real estate crash of 2017 and start talking about the real estate crash of 2018.


When I bought my first apartment building in 1994, I was told by a couple of folks with experience that I was crazy to pay $20K per door. Only a few years earlier, buildings were going for $16.5K per door. Just wait for prices to return to reality....

The crash of 94 didn't happen, nor did the market crash the following year. Oddly, the market hasn't crashed between then and now, in my city, and yet discussion of an imminent housing crash has been going on at the water cooler since I entered the workforce.

http://www.reginarealtors.com/web/A...spx?hkey=496b7bdc-428c-48fe-b864-dc5974960683

For those looking to get into real estate, here is some advice.

- Don't fixate on market timing
- Look at each project on it's own merit, instead of trying to "get in on a movement"
- Don't get into real estate unless you are interested in owning assets for 10+ years
- Find a forum, other than this one, where there is more rational thought regarding real estate

None of this is to appraise the state of the current market; just the opposite. This is the point of my post. R-E is a business. You buy. You hold. You troubleshoot problems. It's a big commitment that should be prefaced by big research and study. If you want to succeed, you need to be an independent thinker and a hard worker.

If you want to make a lot of money fast, I wish you well but suggest you ignore the R-E market and go to the casino.


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## Just a Guy (Mar 27, 2012)

Ahh, but in 1994 no one would ever have predicted that interest rates would go to zero (okay 0.5%). That was something no one would ever have thought possible especially after the 80's where they hit 20%. 

The diffference today, and I'm not saying the crash will happen in 2018, my crystal ball is in the shop for repairs, is that interest rates have actually started to rise.

If you're going to be in the real estate "business", you'd better understand the macroeconomic issues which affect the industry, not just the direct microeconomic ones like cost per door, location, location, location, etc. 

Also, don't buy the koolaid that people were wrong about the correction before, so they're probably wrong about any future ones as well.


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## TomB16 (Jun 8, 2014)

Ah yes,... macro factors. The underpinnings of all predictions which cannot be reliably made.

Again, I'm not predicting the market will not crash. I'm not predicting it will go up, either. I'm saying that by ignoring these market discussions and focusing on the business of landlordship, you can buy a building, hold it for 10+ years, and do OK regardless of the market conditions. That is, if you're a good business person, know what you're doing, and work hard.


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## hboy54 (Sep 16, 2016)

Hi:

I don't make predictions. I use the principle of expected value. Just as a too high stock ratio, say price to sales of 10, or PE of 100, would lead me to see a weaker expected value in a stock selection, so does something like price to income of 10 or 15 in real estate lead me to see a weaker expected value in RE.


At any time in the last 15 or 20 years, in Toronto and Vancouver, I might have judged a low expected value, and missed out on all the gains that others have enjoyed. I have also missed weed stocks, pet rocks circa 1975, BreX, and thousands of other things no doubt that have in the fullness of time, despite low EV, made some people boatloads of money.

No, I just plug away in stocks and am grateful for 10-11% PA. I don't get rich as quickly as others, but am quite confident the process. Not much work either.

Hboy54


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## Just a Guy (Mar 27, 2012)

Macro economics, such as which political party is in power (which could affect the local economy), economic factors such as softwood lumber tariffs, etc. All play a role in how much demand there is for your units as well as the price you can charge for he units. Getting in at any cost because in the long run you'll do fine is a fool's advice. I switched from. Buying buildings to individual units because I could reduce my purchase price by at least 25%/door. That gives me a much better chance of success in the long run I figure. 

Running a business takes a lot more than hard work and focus on your business...it doesn't always just work out as many of the people I purchase places from found out the hard way.


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## Mortgage u/w (Feb 6, 2014)

Those who live by negative predictions tend to be negative in nature and question why bad things always happens to them.


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## lonewolf :) (Sep 13, 2016)

Have to take the math past that of Newton to sine & cosine of cycles.

Mans biological distinguishable trait is reason or his ability to think. In order to survive man must examine ideas both positively & negative. It is what it is regardless of perception of cycling from lemon to lemonade & back again.


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## nobleea (Oct 11, 2013)

lonewolf :) said:


> Have to take the math past that of Newton to sine & cosine of cycles.


Why not Tan of cycles? Why just Sin and Cos? Tan seems more reasonable what with blow off tops as it approaches 90° or Pi/2.


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## Just a Guy (Mar 27, 2012)

Mortgage u/w said:


> Those who live by negative predictions tend to be negative in nature and question why bad things always happens to them.


I’ve always found those who live with a positive attitude tend to be caught off guard and often act surprised when things don’t always work out. 

Like anything balance is required. 

Of course, if you always expect the worst, when you’re wrong it’s to your benefit. P-)


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## Mortgage u/w (Feb 6, 2014)

^ Call it what you wish......but for me, being caught off-guard has to do with being careless.


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## lonewolf :) (Sep 13, 2016)

nobleea said:


> Why not Tan of cycles? Why just Sin and Cos? Tan seems more reasonable what with blow off tops as it approaches 90° or Pi/2.


 or simplify & go with pictures i.e., chart when parabolic curve line broken to downside short


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## Nerd Investor (Nov 3, 2015)

Can the real estate crash hold off until after I sell my home in the spring please?

Thanks


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## lonewolf :) (Sep 13, 2016)

The crash might have to hold off longer then the spring. As down payment could be made & buyer just walk away from deal unless you agree to lower price even after deal was made.


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## TomB16 (Jun 8, 2014)

Just a Guy said:


> I’ve always found those who live with a positive attitude tend to be caught off guard and often act surprised when things don’t always work out.


I've often found my fears to be unfounded and my reactions unwarranted, to the point that I would have been better off to not react at all, over the years.

Times when I've ignored the hysteria, I've done very well. In 1994, despite news and water cooler chatter about a pending real estate market crash, I bought an apartment block.

The key for me has been to look at each project in isolation; it either makes money or it does not.


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## olivaw (Nov 21, 2010)

Rental real estate is a business like any other. You need a solid business. Most years are good. A few years are lean. If you don't have access to the cash to see you through the lean years then you will go out of business.


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## sags (May 15, 2010)

It has begun.

Overall prices for the GTA are down 8.8% since May.

Prices for single family homes are down 12% since May.

Home sales are down 13% and more homes are being put on the market.

http://business.financialpost.com/r...ices-fall-amid-growing-pool-of-homes-for-sale


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## TomB16 (Jun 8, 2014)

The Toronto market could certainly crash. 9~12% is a correction, not a crash, but it could happen.

The reason I created this thread is this:

If you bought an investment home in May, at the peak, and you determined that it would pay an average of 20% annually, over ten years,..... it still will. Could you have made more money if you had waited a few months and had perfect market timing? Of course. ... but that project is a business and you will be far more successful to simply buy when it makes sense and then see the project through to completion.

Speculators might sell on a small market correction, such as this, and wait for the market to bottom out. These people are unlikely to succeed in real estate.

Investors will keep the property, work with it as best they can, and hold it for ten years. These people are extremely likely to succeed in real estate.

I have property that is earning like crazy and I have property that is earning modestly. That's all part of being an R-E investor. You roll with it and make the best you can out of what you have.


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## peterk (May 16, 2010)

TomB16 said:


> This is the point of my post. R-E is a business. You buy. You hold. You troubleshoot problems. It's a big commitment that should be prefaced by big research and study. If you want to succeed, you need to be an independent thinker and a hard worker.





TomB16 said:


> The Toronto market could certainly crash. 9~12% is a correction, not a crash, but it could happen.
> 
> The reason I created this thread is this:
> 
> If you bought an investment home in May, at the peak, and you determined that it would pay an average of 20% annually, over ten years,..... it still will. Could you have made more money if you had waited a few months and had perfect market timing? Of course. ... but that project is a business and you will be far more successful to simply buy when it makes sense and then see the project through to completion.


I'm sure this thread and your advice has good intentions Tom. My concern is that of all the people out there that might come across your or any other useful real estate content is that it might be received like the (fictionalized) breakdown below:

1 of 10 would be real estate investors will read it and say: You're right, this is a seriously risky and complicated business, and I haven't looked at it seriously at all. I will.
2 of 10 would be real estate investors will read it and say: Ya I get it - Real estate is risky. But _as long as I'm smart_ about it and I _treat it like a business _ I'll probably not lose my shirt, and be successful, like Tom. 
7 of 10 would be real estate investors will read it and say: Look at all these people on the internet talking about real estate! And they are all making a killing! Oh they said something about a small market correction but it worked out fine for them...so I'll do it too!

_What if_ the next market correction is not a 20% drop followed by a full recovery after 3 years and subsequent doubling after 10 years, like you're used to? What if it's a 40% correction and prices go down 20% further over the following 20 years, and and prices languish for another 20 years before slowly rising? I don't see how your optimistic guidance is geared to help in that case. The 30 year old with $2M of leverage in Toronto will be ruined, regardless.

We talk about stocks on this forum a lot... The general guidance for a new comer is to start slow and don't take on more risk than you're comfortable with. That a balanced portfolio of index funds is a fundamentally solid investment for all walks of life, and that branching out into stock picking and ramping up your stock allocation is alluring, but realize that in all likelihood it could be a waste of time and all you're doing is increasing your risk for no reward, that it might lead to your financial ruin if you dive in too deep.

Most of this advice is given with the assumption that the new investor is youngish and might have something like 10k-100k to invest and a stable job and a normal risk tolerance. Sometimes we get a lottery winner, octogenarian widow, or other non-standard candidate on CMF and then the advice drastically changes because all of a sudden it's serious money, life and death, and the playtime stock picking advice/warnings _still_ seem far too reckless to give out. That's it's best to remain silent about such subjects and steer the advice seeker to something else entirely. (GICs, annunities, insurance, mutual funds, pension planning)

But with real estate... the advisors, all 40-60 somethings with a cool couple million of gains to walk away with (at this point), seem perfectly comfortable telling people that their $1M real estate investments of choice will probably work out just great so long as you "do the research" and "treat it like a business". And that even if things turn south in the housing market you can just "adapt" with your "independent thinking" and _then_ it'll probably all work out all OK...

The best advice about real estate that can be given to a young person from an older person (and I don't mean this at you Tom, just for dramatic effect  ) is to shut the hell up about real estate! We young folks are wholly exposed to far too much real estate talk from all corners of our lives already. Even the good advice (Tom's, JAG's) is unnecessary, and only serves to lull 9 of 10 people into thinking that real estate is what they should be thinking about in the first place.


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## peterk (May 16, 2010)

sags said:


> It has begun.
> 
> Overall prices for the GTA are down 8.8% since May.
> 
> ...


Just wondering how that graph is created and if the April-May prices in the $900k range are truly relevant and real? Couldn't it just have been a fluke of more expensive than average houses selling that month? If you take those months out then the graph is just flat, and we wouldn't be reading any newspaper headlines for the past 6 months about 10% declines at all.


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## Just a Guy (Mar 27, 2012)

Peterk, 

I don't think I've ever not said that I believe a 40-60% price correction is unlikely. The difference in real estate vs. Stocks is that real estate doesn't always follow a market price. 

If I want to buy Apple stock at 40% below market, I don't have a chance. Even a desperate seller can call up the broker and get market rates. Not so with real estate.

There are places listed well below market price in every market. They aren't always common, but they do exist if you look for them. If you buy a place with the correction already built in, you may take a hit, but you won't lose your shirt like you would if stocks corrected. 

So, while we may look like we promote real estate as a "sure thing", that's just selective reading of what we are actually saying. People see what they want to see, no necessarily what the person is actually saying. 

I suppose that's why, if you read my postings, it looks like one minute I promote real estate then the next posting trash it. It does depend on what you buy and how you treat it (as a business or not). It's a complex investment, much more so than a stock which has one price and no management aspect to it. That being said, if done properly, you can actually buy real estate below value, without any money, and have someone else pay for the whole thing and more. No stock investment can claim the same. That's what makes it worth thinking about as an investment.

Done properly, you have a lot more control over it and it's value (you can even add value by renovating) than any stock.


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## peterk (May 16, 2010)

Ok, so there's some minor amount of control to be had in costing and managing your business, yes that's better than nothing and certainly helps. There's also 5:1 leveraging and market volatility beyond your control to be had. Yes I read your above stuff about looking at macros and not taking things lightly. I completely agree and your writings on the matter are some of the best, but still... As the seasoned advisor on the matter, you saying "*have someone else pay for the whole thing"* is extremely reckless wording to be throwing out there on the internet for every millenial to read. We need to be focusing on growing families, careers, and non-housing ways to contribute to the economy. Too many are being pulled into this game of musical chairs that shouldn't be. Part of it is lack of opportunity for _anything_ else due to government regulation and corruption, and part is too much hype on the internet.

Yes, it can be a business, but I can't walk into a bank on Monday and get a 700k business loan. I _can_ show up for a mortgage though. It is not the same animal.


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## Just a Guy (Mar 27, 2012)

Do you own real estate, not including your home?

Since I literally have a business based on these principles, and have other people paying the whole thing and have been doing so for decades, I don't lightly throw out these statement. In fact, many times I've gone on to explain my system as well as refer people to a book which outlines a very similar system in great detail. 

Being risk adverse will likely prevent anyone from ever achieving financial independence.

I don't see why you can't walk into a bank on Monday and get a 700k business loan if you have a well thought out and supported business plan. I can tell you that, if you walk into a bank on Monday for a 700k mortgage on a property worth 500k and rents of $2000/month you certainly won't walk out with any mortgage. 

You may qualify for a personal home for $700k based on your personal income, but that's certainly not the same animal. 

The hoops to jump through for investment financing of properties is completely different from personal residences.

You say you're a seasoned advisor, and I do respect that, however I'm a actual multi business owner, real estate investor with a large portfolio, and a stock investor. I've actually done all three forms of investing and continue to do so. I see the pluses and minuses of all three forms, not from a theoretical side but from a practical side. Each has its advantages and disadvantages. A case could be made that each is risky and dangerous if done improperly. The same case could be made about walking out of your house (very risky) or making a sandwich (especially if you use a knife). 

When my kids were babies, I didn't let them use a knife. They then started with a butter knife, and progressed to cutting ones. Eventually they learned to use saws and chainsaws. 

I don't think anyone would ever start off with a chainsaw, but that doesn't mean you should never learn to use one because it's dangerous used incorrectly. Those who think like that are permanently limited in how far they can go. 

True, not everyone has my level of expertise (I'm currently working on an 8 property deal. Average price $75k/door average expected rents about $1100/door), but that doesn't mean they can't start with one and learn. If they don't try to jump in at any price, and buy something with a good cash flow today, the odds of success are quite high, especially as costs go down in the long run. As you increase your holdings, assuming they are cash flowing, your risks actually decrease since the extra properties cover the expences of vacancies that creep up. Of course there is the long shot risk that there would be a total meltdown where ever property becomes vacant, but if that were to happen, the world would probably have a lot more problemsand no investment would be safe. 

I can tell you though people need places to live more than they need the latest iPhone, so real estate would probably retain value longer than Apple stock.


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## peterk (May 16, 2010)

Noo I was calling YOU the seasoned advisor here on CMF about real estate, JAG. 

I'm just a goofy kid with no house at all. :stupid:

The markets and the banks are skipping the butter knife these days aren't they? I've got to go straight to the big sharp knife or nothing at all (expensive property and big mortgage).

As you say you have a nice big diversified, mature portfolio now. Great that those decisions, hard work and the timing of that worked out for you. I'm concerned about the millenials who in the past 5 years bought an expensive condo as soon as they could, upgraded to an expensive house as soon as they could and kept the condo as an "investment". They have maybe 200k in equity (from appreciation) if they're lucky, and have their entire net worth in real estate. They are all over the place, sitting ducks, my friends and young relatives. If they read your well thought out lengthy paragraphs I promise the only parts that the majority are going to remember are "have someone else pay for the whole thing", as they start thinking about a 3rd real estate property in the back of their minds...

My 20 something sister who only just recently has a permanent job, no spouse, no downpayment doesn't need to be talking about buying a townhouse...but she is. She is because she hears too much damn information about it from everywhere. Even good information and well thought out, nuanced advice, like yours... in the end it's all distilled down to "buy house = good" and another huge mortgage is born.

Promoting the virtues of real estate has put us in this bubble. We don't need more real estate talk, even good stuff. Let's get us millenials thinking about _anything_ else, can't we?


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## hboy54 (Sep 16, 2016)

Hi Just a Guy:

Not sure I agree. For example, I bought more RUS at IIRC $16 once on margin, I declared it below value and I might be right cuz it is $28 now, the dividend yield at the time was 9.5% while the margin interest was 3%.

I think the above matches what you said is possible in RE, but not stocks.

Hboy54


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## Just a Guy (Mar 27, 2012)

Buying any real estate isn't the same as buying a smart investment property. The same is true of stocks, buying breX, worldcom, Nortel, yellow pages, Enron (all highly touted stocks) wasn't a good investment just because "everyone" was doing it. I can tell you I looked at each of these stocks at one time and avoided each one of them while my peers thought I was a fool. They looked at what the market was doing, I looked at the financials and couldn't understand the money trail. 

One can't stop a fool from buying the wrong thing, however there is nothing saying you have to be the fool. 

Also, don't confuse the fact that I built my portfolio over years with the fact that I'm still buying today. The properties I buy today are often MLS listings sometimes I find things through word of mouth though. Deals have existed throughout the boom and I've bought them all along it. The difference is, I'm not buying just anything, I'm buying places that meet a specific criteria. 

Just because someone hands you a chainsaw, doesn't mean you can't say "I'm not ready for this, do you have a knife?" You'll see many postings on here where someone says I've got an opportunity to buy this $500k property that rents for $2500 and cash flows. They usually get a fairly blunt education on how that's a stupid investment. However, if you can find a place that costs you $75k (and they do exist) that rent for over $1000/month in today's market (and those do exist as well) you could probably still break even if the rents drop to around $600. You don't really need to worry that the property value may have dropped as well since you're worried about cash flow not the resale value (you're renting it, the "value" is meaningless unless you sell or refinance, as a landlord you rarely do either). 

Fear shouldn't be your limiting factor, especially if you're basing it on the experiences of fools. You can't stop stupid, you can't even legislate it away, but you don't have to follow their example either. 

I live in the country now, my kids have been brought up exposed to everything. They can use any power tool you can imagine, they can do repairs, basic electrical, plumbing, construction, they have no fear of tearing apart an engine or broken device, they've been exposed to running businesses, investing, being a landlord, etc. Compare that to the bubble wrapped city kids who fear to touch anything. Which do you think will encounter success going forward? Both will be exposed to the same opportunities.

As for your sister, when I got injured and faced the fact that I wouldn't be able to work for several years, the first thing I did was dog and buy another rental (this was in the early days when I was just starting and only owned one). My family thought I was nuts, limited saving, no ability to work, family to support and I'm intentionally going into more debt...

The thing is, the profits from my two rentals paid the mortgage on my house. I would have lost the house to the bank had I not done it (I was deeply in debt and living off credit cards near the end). I also took part of my minor savings and bought some stocks. There were times during the injured years where I could have sold everything and paid off all my debts, but I also would have lost any earning potential (no more stocks or real estate but no more debt...except I had nothing to counter any future debt and I still had no income and a family to support). Somehow in the middle of all this I added another rental. Eventually I was able to return to my company which had suffered without me and concentrated on getting it fixed. I was so focused on surviving that I failed to notice that my investments had matured. I was earning more from my investment that I was from my company. Instead of spending the profits, I used them for more investments and kept growing my portfolio, but I never changed the strategy.

Hboy54,

While leveraging on margin does improve your returns, it really doesn't hold a candle to real estate. The leverage amount is limited, and the tax advantages aren't the same. When you factor in everything, real estate usually has consistent, easily reproducible results (as opposed to once in a while opportunities in stocks) which, over the long run, can't be consistently duplicated by any other investment strategy. Exceptions do exist however. 

You also can't buy a stock undervalued unless the entire market agrees on the price, whereas I can, and have, found a cheap rental even in a market boom. Two years ago I bought a two bedroom in a building for $75k. The same building had two 1 bedroom places listed for over $100k each and had recently been selling places around that price. I just found a guy who wanted out at any price and I had the cash and no conditions. 

That being said, the odds of getting quick high return results are almost non-existence in real estate and getting 1000x returns is also unlikely (but it can happen in stocks).


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## TomB16 (Jun 8, 2014)

peterk said:


> As the seasoned advisor on the matter, you saying "*have someone else pay for the whole thing"* is extremely reckless wording to be throwing out there on the internet for every millenial to read.


Real estate, done properly, can be a situation where someone else pays for the whole thing, however, achieving this result requires competence and hard work.

I put the odds of my properties, including investment properties I will own in the future, of carrying themselves and even cash flowing at 100%. I wouldn't invest if it wasn't a sure thing.

I have every confidence that JAG has a 100% profitable record, also.

The only problem here is the universal misrepresentation of R-E in television. People think they can pick up a few hundred grand in a few weeks using nothing but a cell phone and a cheque book. That idea is ridiculous.


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## Just a Guy (Mar 27, 2012)

In real estate a short term investment is 10 years, in stocks it can be under a year, in business it can be months or years. In any case, you need a strategy with reproducible results. Don't think I did this once, it will always work like that (house flipping in a boom market is a good example...works great until a correction hits). Success means your strategy works in both an up and down market. As I said before a $75k property renting for $1000/month in today's market is pretty safe even if the market corrects by 40%.


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## Joe Black (Aug 3, 2015)

peterk said:


> As you say you have a nice big diversified, mature portfolio now. Great that those decisions, hard work and the timing of that worked out for you. I'm concerned about the millenials who in the past 5 years bought an expensive condo as soon as they could, upgraded to an expensive house as soon as they could and kept the condo as an "investment". They have maybe 200k in equity (from appreciation) if they're lucky, and have their entire net worth in real estate. They are all over the place, sitting ducks, my friends and young relatives. If they read your well thought out lengthy paragraphs I promise the only parts that the majority are going to remember are "have someone else pay for the whole thing", as they start thinking about a 3rd real estate property in the back of their minds...


So you want advice that is based on actual experience and includes plenty of warnings about the pitfalls and the hard work that is required, to be suppressed so that immature readers are not inspired to do foolish things? Sorry to break it to you, but such people will do those foolish things anyways, because they will search out other places that will tell them what they want to hear. I doubt that such naive people even would be getting their information from posters like JAG and Tom, because their writings are too nuanced and detailed. They would never get as far as the "have someone else pay for the whole thing" line because it is preceded by many caveats and warnings. They will instead be going to articles that start (or have it as the title) with that line.

I currently have no plans to invest in real estate, but if I ever do I will be much better prepared having read posts like those from JAG and Tom, and I'm trying to absorb everything, not just the "someone else pay for it" lines. I shouldn't be deprived of this information for the purpose of protecting the naive and foolish. It won't help them anyways, if it's not this they will just find some other way to lose their money. Even if they buy conservative index funds, they are the type who will panic sell on minor downturns because they didn't bother to learn about long term investment strategies. So let's not suppress information to protect the naive, OK?


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## TomB16 (Jun 8, 2014)

peterk said:


> Promoting the virtues of real estate has put us in this bubble. We don't need more real estate talk, even good stuff. Let's get us millenials thinking about _anything_ else, can't we?


It sounds like what you are advocating is a good, old fashioned, book burning.


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## peterk (May 16, 2010)

This is what I get for trying to be diplomatic I suppose... Accusation of suppression and book burning, in a self-congratulatory thread mockingly entitled "The crash of 2018", no less.

Good luck with your book.

Sorry for picking on a few of your sentences JAG. The quality and length of your posts in an inspiration to us all.


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## Just a Guy (Mar 27, 2012)

I don't take offence, it's good to question because then I can expand on the explaintion to ensure clarity. As you said, a lot of people get sucked into mistakes because they don't understand. Personally I'd prefer not to contribute to that if I can avoid it.


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## TomB16 (Jun 8, 2014)

The long term nature of real estate investing, as described by Just a Guy, is why it is necessary to have higher returns.

RE is like a GIC, in that sense. You wouldn't buy a 10 year GIC with 0.5% rate of return.

If there isn't a reasonable rate of return, right from the outset, you should not do it, IMO.


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## latebuyer (Nov 15, 2015)

I would advise millenials to read the Wealthy Renter to get another perspective on the buy versus rent debate. There is certainly a lot of pressure to buy, without looking at the argument for the other side. Renting isn't the worse thing you can do as some people present it to be. Not everyone is cut out to own rentals, certainly. However, with rents as high as they are in Vancouver and surrounding areas I don't know that I can afford to rent. I am actually thinking of selling next spring, but i'm not sure if it is the right time. It would probably cost me more to rent then own.


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## TomB16 (Jun 8, 2014)

latebuyer said:


> Not everyone is cut out to own rentals, certainly.


Extreme few are suited to landlordship.

I don't fully understand why you're arguing rent vs buy in an R-E crash thread.

My trajectory has involved owning homes for most of my life. My new goal, that I hope to realize in the next several years, is to own none. I too will be a renter.

Renting can be a good strategy.


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## latebuyer (Nov 15, 2015)

I may sell this spring so i hope there is no crash next year. I am thinking a correction may happen in 2019 after a few rate hikes. I guess i am hoping to sell, rent, then buy again so when the crash happens matters to me. Or maybe i'll stay put. I will post for feedback in a different thread some time as i'm not sure what to do.


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## Just a Guy (Mar 27, 2012)

It's hard to time the market. It's also hard to know how long a down market will remain down.


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## Earl (Apr 5, 2016)

I just stay out of real estate altogether (except for my primary residence). Dealing with tenants, chasing after deadbeats for their rent, repairing their appliances, cleaning the units between tenants, etc... it's not for me.

To the guy who started investing in real estate in 1994... if you had invested the same amoutn of money in low risk dividend paying stocks and REITs, what would your net worth be today compared to what it is?

Sure you can make more money by investing directly into real estate than in low risk stocks/reits... but is it really worth the hassle? A stock is never gonna call you on the weekend to come fix a bad faucet. And let's be honest, there is a significant luck component involved, even more so than investing in the markets.


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## Just a Guy (Mar 27, 2012)

1994 would not be a good time to pick, since it was near the beginning of an unprecedented increase in real estate prices. Buying almost anything in 1994 saw prices double, then double again at least. Not many stocks performed as well over that time. 

As for the hassles, it’s usually not as bad as you think it is. I rarely get calls from tenants (but then I screen mine). If I get a call, I make a call and get it fixed. 

One always hears the horror stories (I’ve had my share), but they really aren’t that common. For the amount of work I’m required to do, I get compensated very well. 

Also, you rarely hear about the 10+ year tenants that always pay on time and never bother you. They exist too, but don’t make god stories. I find most people stay beteeen 3-5 years and are generally quiet and undemanding. 

People always use the scary stories to talk themselves out of “risky” investing. Doesn’t matter if it’s stocks, starting a business, or real estate. Those who actually try it, and do it properly always shake their heads at those people. 

Then again, investing or running a business isn’t for everyone.


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## latebuyer (Nov 15, 2015)

People may have forgotten the real estate bubble in japan

https://mobile.nytimes.com/2005/12/...bles-hurt.html?referer=https://www.google.ca/

According to this article (old but interesting) the crash was caused by japan raising interest rates too quickly. So perhaps if Poloz raises rates gradually there will be a gradual decline instead of a crash. (I realize their bubble isn't the same as ours but still lessons to be learned.)


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## TomB16 (Jun 8, 2014)

In a century, the stock market will crash 10 times. These crashes will be on the order of 30~50% loss of wealth.

In that same century, real estate will crash zero to 3 times and it will be a much smaller level.

For real estate speculators, market timing is everything. For real estate investors, market timing is far, far less important.

How many people who argue against R-E investing because of a pending crash have extensive money in the stock market? Please explain to me how that is objective.


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## Mortgage u/w (Feb 6, 2014)

I get what Peterk is saying. Millennials are quick to jump in RE 'just because someone else said so' without truly understanding the risks associated. Being in the field of lending money, I unfortunately see far too many youngsters looking for loans above and beyond their reach who will do ANYTHING to qualify. These millennials are inexperienced and have a low or negative net worth, yet, they will seek every penny possible just to come up with a down-payment. On the other hand, I would be out of a job if it were not for them!

I also get what JAG is stating. There is a huge difference between investing in RE vs buy a home. They both have unique risks associated to them and its important to understand that. However, most people - and not only millennials - will ignore the warnings because they absolutely want to achieve their goal of owning RE - just like everyone else. No one sees the guy who starts off small and ends up big. They only see the guy who ends up big - and that's where most people want to start.


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## Mortgage u/w (Feb 6, 2014)

TomB16 said:


> In a century, the stock market will crash 10 times. These crashes will be on the order of 30~50% loss of wealth.
> 
> In that same century, real estate will crash zero to 3 times and it will be a much smaller level.......


That's assuming history repeats itself...
We can predict all we want, but the best defense is to be diversified and alert at all times.


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## TomB16 (Jun 8, 2014)

Mortgage u/w said:


> That's assuming history repeats itself...
> We can predict all we want, but the best defense is to be diversified and alert at all times.


Did you just dismiss any differences in volatility and attempt to lead us in the direction of concluding that R-E markets and equity markets have equal stability?


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## Mortgage u/w (Feb 6, 2014)

TomB16 said:


> Did you just dismiss any differences in volatility and attempt to lead us in the direction of concluding that R-E markets and equity markets have equal stability?


no


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## TomB16 (Jun 8, 2014)

Mortgage u/w said:


> That's assuming history repeats itself...


If markets were random, there would be no investments; only gambling. Perhaps this is what some people believe.




Mortgage u/w said:


> We can predict all we want, but the best defense is to be diversified and alert at all times.


I appreciate your point of view and do not wish to disagree with it in any way. While I don't wish to be contradictory, I do wish to share my perspective on this.

Over time, we have purchased assets which we knew would do well. They have.

I have also purchased assets which I thought would be stabalizing to own over a long period and make good components in a diversified portfolio. Most of these assets have done well also, but a few have not.

My best performing assets, in every case, are those which had the most positive conclusion from extensive research. I would have done better to not diversify at all and only engage in the investments I believe in most, even if I had based some of the investments on bad data.

Fortunately, we are heavily skewed toward offensive holdings so we've done pretty well. I continue to hold a modest amount of assets which I view as stabilizers with no immediate plans to sell.

This seems to be the difference between offensive positions and defensive positions.


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## rebel_ins (Apr 6, 2009)

TomB16 said:


> In a century, the stock market will crash 10 times. These crashes will be on the order of 30~50% loss of wealth.


What do you mean precisely? Between 1825 and 2013, the US stock market finished the year worse than -30% exactly three times. The market finished the year worse than -20% at a rate of 1 in 20 years.

http://basehitinvesting.com/the-stock-market-a-look-at-the-last-200-years/


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## Just a Guy (Mar 27, 2012)

The correction amount can be greatly affected by the date you choose to go by. For example, if you took the date just after Black Friday in 1987(?) I'm sure your "correction would look a lot worse for the year than had you waited until December 31 when it had time to recover. 

The market as a whole also isn't a great indicator. Take for example the dot bomb correction where many companies (pets.com) simply ceased to exist, while the market as a whole had a less dramatics correction. Before you start the "yeah buts", here were many people who were solely invested in internet stocks back in those days. Diversification was considered stupid, it was the "new" economy, blue chips were a waste of time...

Of course the same thing happens in real estate. Remember all the "flip this house" type of shows? (A good indicator to get out of a market is when vanilla ice and reality stars get their own "investment" shows) after the correction they became home renovation shows... lots of people burned in the flipping crash.


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## Earl (Apr 5, 2016)

TomB16 said:


> In a century, the stock market will crash 10 times. These crashes will be on the order of 30~50% loss of wealth.


But those crashes usually recover quickly. If you look at the 2008 stock market crash, by 2012 people with a reasonably diversified portfolio had regained all their losses. The only people who lost money were those who sold right then, either due to needing the money or just being dumb. Real estate crashes don't usually recover quickly.


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## latebuyer (Nov 15, 2015)

One thing I am considering is if I try and sell my condo before the crash I would probably have to save it in an unregistered account as I am assuming most people would who choose to invest instead of buying. This would result in less returns as returns are taxed.


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## rebel_ins (Apr 6, 2009)

Just a Guy said:


> The correction amount can be greatly affected by the date you choose to go by.


That's true, but that's not the same as generalizing that stock market crashes result in losses of wealth higher than 30% of one's net worth.


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## Just a Guy (Mar 27, 2012)

There is also a big difference between losing your stock net worth (your money) and losing paper value on a rental property that was paid for with other people's money. If I buy a property for $100k (on paper, I finance it upwards of 100%), rent it for 20 years and have it paid off, while I might care if its value dropped by 50%, I still made $50k using none of my own money. 

If I buy a $100k of stocks, and lose half of it, that was 50k of money I had to earn somewhere else. 

That example just used "purchase" price. If we look at appreciation, let's say I buy a property for 100k, and put down 10k as a down payment. The house appreciates to 150k, then loses half its value, I still have an asset worth 75k, but have a 25k paper loss (but probably still a cash flow from the rent). 

I buy a stock for 10k, and it appreciates to 15k, then loses half its value. I now have 7500 in assets, maybe earning a dividend, but unlikely if the stock dropped by half. 

The two investments are completely different and can't really be compared.


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## hboy54 (Sep 16, 2016)

Hi:

I have not lost any wealth in stock market crashes. All the buildings and patents and equipment and oil in the ground is still there. The only thing that has changed is the translation of that more or less fixed wealth into Canadian currency. Like a child that develops object permanency, I think there is wealth permanency. This is for things that are of real use, Bitcoin et al don't qualify.

So I look forward to crashes, and panic and market chaos, as they represent great opportunities to buy real wealth with fewer dollars. While most everybody else's first investing concern is to find some way to avoid volatility, I welcome it and actively seek it out, as it is highly advantageous.

Hboy54


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## kcowan (Jul 1, 2010)

Just a Guy said:


> If I buy a $100k of stocks, and lose half of it, that was 50k of money I had to earn somewhere else. ...
> 
> The two investments are completely different and can't really be compared.


I agree, but the loss in stock value is only on paper unless you are a trader. If you are a dividend investor, the yield just goes up unless the dividend is reduced.

So the only difference in leverage on borrowed money.


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## Just a Guy (Mar 27, 2012)

The loss of house value is also only on paper. The big difference is it was my $100k to begin with, bought with after tax dollars. Real estate, done properly, is bought with pre-tax dollars from someone else.

Another difference is I can buy some paint, some new floors, some cupboards and maybe raise the value of my real estate. I can't do anything to raise the price of my stocks.

Also, the stocks are sold at a set market rate, a house can sometimes find a single fool who's willing to overpay. 

As I said, the two investments can't and shouldn't really be compared.


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## sags (May 15, 2010)

But with leverage the value can go down but the debt remains the same.


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## Just a Guy (Mar 27, 2012)

With inflation the bet also remains the same, while the value money required to pay it off goes down.

Whereas the dollar needed to buy stocks is in today's dollars.


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## AltaRed (Jun 8, 2009)

JAG, of course they should be compared, but on a long term basis. Paper losses are just that, paper losses whether leveraged or not. You are not going to get any return out of improvements to RE unless you can crystallize that at some point as well, perhaps well into the future. There are different levers to pull to (and be pulled by) real vs capital property but the end goal is no different. Some feel they can do better on RE (or like RE) while others feel they can do better on capital property (or like it better). Personally, I don't touch RE if I can, but that is my bias. You, and a few others here, obviously have an RE bias.


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## Just a Guy (Mar 27, 2012)

Actually, I don't have a bias, I invest in stocks and run businesses as well as own real estate. I just don't like seeing only the negatives presented for any of the investment options. There are ways to succeed in all of them, there are ways to fail at all of them. Not all investments fit everyone. Just because they don't work for one, doesn't mean they won't work for all. There are also benefits and drawbacks to each.


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## kcowan (Jul 1, 2010)

Just a Guy said:


> As I said, the two investments can't and shouldn't really be compared.


Right! I can easily get out of a poor stock choice. The frictional costs of getting out of a poor real estate investment are daunting. And if I am willing to actively improve the RE, then that is taking on a new job.


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## jimmiegr (Dec 21, 2017)

*Good advice*

Good advice. Really difficult to make predictions, but better to take care


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