# Buying and renting real estate vs Buying REIT stock and getting dividends



## gibor365 (Apr 1, 2011)

From what i've heard if you buy and rent house/condo, your profit will be max 4-5% per year.... and it make sense , if you buy 400K property and rent for $1,500/months , you will get 4.5% yield on your investment (assuming that no mortgage is taken)...

So, what is the difference if i buy solid REIT stock like REI or AX and get 5-8% yield without any hassle involved when bying house, looking for tenants etc?
More than that, buying REIT you can diversify you REIT allocation (industrial, apartment, hotels etc)....
Can somebody explain what is advantages of buying preperty for income?


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## tygrus (Mar 13, 2012)

gibor said:


> Can somebody explain what is advantages of buying preperty for income?


Well other than you control it, there aren't really any. The hassles that come with being a landlord are wiped away by simply owning reits.


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## Just a Guy (Mar 27, 2012)

As a landlord, if you buy the right property, you can make a lot more than 4-5%. In 2013, I found 5 units, they averaged $75k each, they rent for an average of just under $1100/month. Now, they needed about $5000 in renovations each, but I was able to finance them 100% (of what it cost me) after renos. After all expences, they clear $2500 per month, plus the principle pay down. Not a ton, but considering I've got no money in, the rents are inflation protected and the places will be clear title and still generating more than a grand a month inflation protected in about 15 more years, I'd say it's a lot better than any REIT.

Leverage is where real estate makes you money. 

Of course, in 2014 I didn't buy any properties...only a few met my criteria, and I didn't manage to purchase those.


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## gibor365 (Apr 1, 2011)

tygrus said:


> Well other than you control it, there aren't really any. .


You control only that you can sell it, on other hand you also can sell your REIT stocks.... and you have even more control with stocks because you can sell 10 or 20%, you cannot do it with property you own...

Just a Guy, so you bought property for $75K , spent $5K on renovation and rented for $2,500/month?! In which province is it?!


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## Just a Guy (Mar 27, 2012)

No, the rents average just under $1100/month. 

My clear profits from the 5 come in at about $2500/month. The rest goes to mortgage, taxes, property manager, condo fees, maintenance, etc.

It's easy for me to break these properties out as a case study as I didn't buy anything the year before or the year after, so tracking them is much easier. It was also the most I ever found and acquired in one year...before that I usually only found a couple of places in a year at most.

I'm not restricted to one province, and from PMs from others on this board who asked me specific questions, we've found places in every province under $100k/door. I admit, your unlikely to find places like this in Vancouver or Toronto, but I usually only buy in major cities. 

The deals are far from common, and I usually make unconditional, cash offers the day they come on the market. I seek financing afterwards to free up my money. Also, these aren't slums. They aren't the high end of the market, but they are in good neighbourhoods, usually foreclosures, estate sales, or things that have been on the market a long time. Most of them were more than double what I paid for them when they last sold.

There is a big difference in buying a revenue property than buying a home. Not all houses are good revenue properties.


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## My Own Advisor (Sep 24, 2012)

As a former landlord, I prefer REITs. Own 5-6 of the biggest Canadian REITs and act like Donald Trump owning thousands of properties without the bad hair and headaches. No babes though 

Kidding aside...

For those RE moguls that can pull it off, renting out multiple units, kudos to them. They are more disciplined and active than I was. After my tenants flooded our old condo, caused over $10k in damage, that was it for me, I was out after the repairs were done.


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## gibor365 (Apr 1, 2011)

> For those RE moguls that can pull it off, renting out multiple units, kudos to them. They are more disciplined and active than I was. After my tenants flooded our old condo, caused over $10k in damage, that was it for me, I was out after the repairs were done.


 multiple units in different provinces .... it should be full time job 
Long time ago, talked to my neighbor who told me that his tenants just stop paying rent, telling that they don't have money... and to get them out was a huge headache ...don't know if he succeeded 



> No, the rents average just under $1100/month.
> 
> My clear profits from the 5 come in at about $2500/month. The rest goes to mortgage, taxes, property manager, condo fees, maintenance, etc.


 so, your yield is under 8% ....


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## Just a Guy (Mar 27, 2012)

Yes, you have to keep emotions out of the game, and treat it like a business. I've found there is a double 90-10 rule. 90% of tenants are fine, 10% are bad...of those 10% are really bad (1 in 100). I've had my share of bad tenants over the years...

Then again, I look at people I know who work for a paycheque, they seem to have a lot more bad days than I do by a long shot.

The idea of selling after a bad tenant is the same as selling your stocks when it goes down to lock in your losses. Over time, real estate will make you money if you bought properly in the first place.

Make no mistake though, real estate is not free money, it's work. I usually find it well paid work. As I got more, I was able to hire others to deal with the problems.


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## Just a Guy (Mar 27, 2012)

gibor said:


> so, your yield is under 8% ....


No, my ROI is infinite ($2500/0). I've got none of my own money in these properties, they are 100% financed. I clear, just on these 5, $2500/month. Everything, including profits are paid by someone else (tenants)...in about 15 more years they'll be paid off completely without any money from me, plus still generate rent (or I could sell). If I sell, even for the price I bought, I make $75k tax free (no capital gains as it was the same price I paid). 

I'm literally creating money from nothing for myself.


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## andrewf (Mar 1, 2010)

No such thing as 100% financed, given that your personal net worth is at risk.


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## Just a Guy (Mar 27, 2012)

Well, the banks lent me all the money I put in, the tenants pay all the bills...I didn't get CMHC, so the appraisal says market value is at least 25% higher than what I'm on the hook for...but yes, there is some risk.

Unlike a REIT, where 100% of your money is invested and controlled by someone else...and we've all read about fraud cases when other people control your money. That doesn't mention the risks if the market feels like REITs are suddenly risky and you lose money regardless of what actually happens...


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## larry81 (Nov 22, 2010)

tygrus said:


> The hassles that come with being a landlord are wiped away by simply owning reits.


x10, just buy ZRE, VRE, XRE and forget about the hassle.


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## CPA Candidate (Dec 15, 2013)

I agree with REITs over owning investment properties directly. I had a friend who bought a new house, kept his old house and began renting it. It was a real disaster for him, so many problems with tenants. He ended up selling his new house and moving back home, spending a lot of money in the process.

It is only in the past few trading days that the markets have woken up and realized that REITs are too cheap compared to 10 year bond yields and bid them up. There was a huge mispricing going on for several weeks.

I recently bought units in True North Apartment REIT. A year ago when bond yields were 2.75%, it was trading at a 9% yield. Now, with bonds 1% lower, it still trades at a 9% yield. A 7.3% spread to own low risk midmarket apartment buildings is a risk premium I will happily take.


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## Chris L (Nov 16, 2011)

Buying rental property is currently dead. I used to purchased in 2001-2003. Those days are over. Buy REITs. Leverage them if you want similar returns 

Way less hassle.

I still retain a rental today - paid for.


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## Westerncanada (Nov 11, 2013)

gibor said:


> You control only that you can sell it, on other hand you also can sell your REIT stocks.... and you have even more control with stocks because you can sell 10 or 20%, you cannot do it with property you own...
> 
> Just a Guy, so you bought property for $75K , spent $5K on renovation and rented for $2,500/month?! In which province is it?!


Did you find any in Alberta? Lol if so.. where?


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## gibor365 (Apr 1, 2011)

Westerncanada said:


> Did you find any in Alberta? Lol if so.. where?


I also wanted to know in what provinces/cities such prices (even in 2013).... I didn't search all provinces, but in NS Amherst or even smaller towns you can find house under 40K .... but not sure if it will be easy to rent  We can buy such house just from my wife's annual bonus .... but mine won't be enough


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## Just a Guy (Mar 27, 2012)

There was a listing which was discussed just before Christmas on a different board that was in alberta, Edmonton to be exact. 2 bedroom, foreclosure, under 80k, looked like it had had flood damage but had already been gutted. There was a similar unit in the same building that someone found was renting for $1250/month.

Tried to get my guys to look at it, but the listing was pulled before they did.


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## Westerncanada (Nov 11, 2013)

gibor said:


> I also wanted to know in what provinces/cities such prices (even in 2013).... I didn't search all provinces, but in NS Amherst or even smaller towns you can find house under 40K .... but not sure if it will be easy to rent  We can buy such house just from my wife's annual bonus .... but mine won't be enough


Geez what does your wife do to get that kind of annual bonus and where do I sign up?


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## gibor365 (Apr 1, 2011)

Westerncanada said:


> Geez what does your wife do to get that kind of annual bonus and where do I sign up?


Nowhere  people who get such bonuses work really hard and don't have time to spend on forums like CMF , especially during working hours.... this is why my bonus will be enough to buy maybe ....tent :biggrin:


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## sags (May 15, 2010)

Westerncanada said:


> Geez what does your wife do to get that kind of annual bonus and where do I sign up?


Walmart pays attractive bonuses.................but you have to be a store manager or higher.

Oil patch workers can get significant "retention bonuses"...........but they could be done away with in cost cutting measures.

Both in the 70K - 100K bonus ranges.


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## Rusty O'Toole (Feb 1, 2012)

The big advantage to me was leverage. This was an absolute necessity for me since I didn't have any money. I did my first rental property deal at age 21 with NO money down, and this was before any of the "no money down" books and courses. Since then I have done several deals with no money or very little out of my pocket. In one case I did a deal that was more than 100% financed, I put $9000 in my pocket from the mortgage advance and the property (a duplex) had $500 a month positive cash flow after all expenses including mortgage payment.

It was pretty common to make 50% to 100% a year on my money. Before you laugh, consider this. Do you think someone could buy property with a 10% down payment? Do you think it would be possible to get a good deal 10% below market value? Do you think it would be possible to increase the value of a run down property by 10% or more with intelligent repairs and improvements?

If you only put 10% down, a 10% increase in value is a 100% gain on your investment. You may only get it once, but you can get it.

The down side is, this kind of investment is as much a business as an investment and requires management and even manual labor. If you are too lazy, uncoordinated or stuck up to work, it's no good. Since I want to be lazy, uncoordinated and stuck up, I want to get out of real estate and into something where I can sit on my fat *** with my feet up on the desk and let someone else do the work.

When REITS first came out in the seventies I thought they should be the greatest investment in the world. But as soon as I started investigating I found out they were run by people who didn't know anything about real estate, and were managed mainly for their own advantage. Maybe things have changed, I haven't looked into the REIT situation in 40 years.


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## lonewolf (Jun 12, 2012)

Rusty

Wow if you get out now I think you might have timed near perfect


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## Rusty O'Toole (Feb 1, 2012)

I'm already out but NOT because of timing. Because I got tired of tenant bullshit after 40 years. I want to sit on my *** with my feet up on the desk and watch the money roll in. I seem to be getting there, made $787.50 today, $3659 YTD trading stock options. If I can do that consistently every week I will be ok.


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## Westerncanada (Nov 11, 2013)

If you sold off all of that real estate that I assume was paid for in full after 40 years and lets say you conservatively made $1,000,000 total and invested that 100% into D.UN Dream office REIT who is paying .186 per share per month you'd be pulling in over $7000 per month in dividends ballpark. 

Might be a pipe dream etc... but would be nice bringing in that kind of cash!


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## Rusty O'Toole (Feb 1, 2012)

I wish I had that much. It took me 30 years to learn how to do it for one thing, and I made a living every year out of my investments for another. But, I am not complaining.

Today I was perusing the real estate ads and saw a small brick 3 story commercial building, built in the fifties, in good condition, in an Ontario city for $179,000. It should bring in $2500 a month.

If I pay full asking price and buy it with 20% down, an utterly conventional 3% mortgage, and pay the usual expenses it will line up roughly like this. Income, $30000 a year. Outgo, $15000 a year for taxes, insurance, mortgage payment, everything. Net cash flow $15000 or about 40% a year on an investment of $35800. I didn't even bother counting mortgage amortization, price appreciation, tax savings or possible value increase from renovations or improvements.

How good do you want it?


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## Rusty O'Toole (Feb 1, 2012)

I didn't buy everything 40 years ago (I wish). I bought ONE property. A couple of years later, sold that one and bought another. Got in a jam and lost a lot of money. Made some good deals, some bad deals, and eventually learned to tell the good deals from the bad deals (most of the time). Doing all this with little or no money. Working at minimum wage jobs when necessary to make ends meet. Renovating junky properties, and making $10 do the work of $100.

If I knew then what I know now, and had just a few thousand in back of me, could do twice as well in half the time. But, we only get one chance at life. Nobody was willing to tell me anything back then, I had to learn it all the slow hard way. Now if I want to share and save someone 30 years of beating their head against a stone wall, nobody wants to listen.


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## blin10 (Jun 27, 2011)

I think the only advantage with buying RE is that you don't need to put up entire amount right away, you can finance/mortgage it. But if I had 400k cash and was deciding between being a land lord or just buy REITS it would be REITS all day long.


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## Just a Guy (Mar 27, 2012)

You still ignore the leverage part of the equation. If you have 400k of reits, and earn 10%, you make 40k/year. 

If you put 20% down on real estate, you'll control 2 million in real estate, if you only make 5% return (unlikely, to be that low) you'd still make 2.5x the return (or 25% ROI if you only consider your $400k investment). 

As a bonus, in 17.5 years, you'll have a further 2 million in assets, assuming no appreciation (tax free, as there was no capital gains)...vs your $400k of reits. Plus your return would increase significantly, as you no longer have to pay the bank. 

Heck, let's say real estate tanks 50%, you'd have 1 million vs 200k. Plus the rental income vs. dividends.


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## Mookie (Feb 29, 2012)

Just a Guy said:


> Leverage is where real estate makes you money.


But I could leverage a REIT investment too, so what's the difference? 

I'm both a landlord and a REIT investor and I definitely prefer REITs as they are hassle free.


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## Just a Guy (Mar 27, 2012)

Well, you leverage a reit, you've got nothing backing it but the stocks. If the reit isn't being run properly (and there are plenty of fraud cases out there), you could lose your shirt. 

With real estate, you've got tangible assets that the banks can see. 

There is also the tax benefit I added in an edit above. 

Plus, I've never seen a reit share as much of the profits as I've just outlined above.

Oh, and if you own 2 million in real estate, you probably own at least 20-30 doors...I assume you'll have hired a property manager, so where are all the "hassles"?


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## gt_23 (Jan 18, 2014)

gibor said:


> From what i've heard if you buy and rent house/condo, your profit will be max 4-5% per year.... and it make sense , if you buy 400K property and rent for $1,500/months , you will get 4.5% yield on your investment (assuming that no mortgage is taken)...
> 
> So, what is the difference if i buy solid REIT stock like REI or AX and get 5-8% yield without any hassle involved when bying house, looking for tenants etc?
> More than that, buying REIT you can diversify you REIT allocation (industrial, apartment, hotels etc)....
> Can somebody explain what is advantages of buying preperty for income?


I buy investment real estate directly, but never with less than 20% annual return (excluding capital gains). IMO, 4-5% is probably in a city like Toronto where the rents aren't high relative to the prices, or in certain parts of Europe or the US, where there is lots of real estate investment capital. I think this low return can be satisfactory if it includes property management expense and regular Capex (making it truly passive) AND if it's in a high demand location. However, I think it makes you overly dependent on capital gains.

REITS are a good option if you don't have a lot of money or you want a 100% passive investment that you don't have to put unexpected time or money (Capex) into. However, in my experience they suffer from a couple issues which limit their risk/return profile vs. direct real estate:

1) They are operating companies and are subject to the usual anti-shareholder limitations of such, like equity dilution, constant acquisition/divestititure, and management behaviors to enrich managers at shareholder expense.
2) Canadian REITs are highly levered and thus, quite sensitive to interest rate increases, which is a big risk in today's economic environment. Markets will react immediately to any hint of rate increase by lowering the multiple even if the REIT has locked-in long-term debt rates. Direct real estate investors are not subject to this discounting and can lock in their debt cost for as long or short as they wish.
3) Competition cycles and deal flow. During periods of low borrowing costs or low asset values, lots of new REITs are created, they issue lots of equity and acquire, pushing down cap rates and vacancy, and increasing rents. These cycles make all but a few REITs long-term holds and you have to keep on top of them regularly to know when to cycle out.
4) Higher degrees of financial leverage are available through direct real estate investing than through REITs.
5) A lot of REITs regularly sell at significant discounts to NAV (10-20%). If you sell real estate through a real estate agent, it is unlikely that you will get less than 95% of market value.


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## gibor365 (Apr 1, 2011)

> Well, you leverage a reit, you've got nothing backing it but the stocks. If the reit isn't being run properly (and there are plenty of fraud cases out there), you could lose your shirt.


 This is why I said to buy big and well-established REITs, like REI, AX, HR, CUF, D ... or just ZRE


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## gibor365 (Apr 1, 2011)

> I buy investment real estate directly, but never with less than 20% annual return (excluding capital gains). IMO, 4-5% is probably in a city like Toronto where the rents aren't high relative to the prices


 Yes, I meant in GTA ... and my friends who own such properties told me 4-5% in the best case.... I just cannot imagine hassle involved in buying properties for rent in NL or PEI if you live in GTA or BC


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## Just a Guy (Mar 27, 2012)

Oh, that reminds me, with all the capital going into REITs, they are forced to overpay for properties, since they can't sit on the investor's cash (which doesn't generate returns). 

They also can do "creative bookkeeping" like reporting that they've increased rents, but they don't have to mention that they've signed a "first two months free" which actually lowered the overall rent.

Moneytalks by Michael Campbell had a guest on this week's show that mentioned this very issue. 

If REITs use leverage to buy their properties (mortgages) what do they do with all the invesment money? Are the REITs Book value only 20% of the nav? Personally, I've never looked...if not, where's all the money going?


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## Just a Guy (Mar 27, 2012)

gibor said:


> This is why I said to buy big and well-established REITs, like REI, AX, HR, CUF, D ... or just ZRE


Would that be like big, well established companies like Nortel, Enron, Worldcom?


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## Just a Guy (Mar 27, 2012)

gibor said:


> Yes, I meant in GTA ... and my friends who own such properties told me 4-5% in the best case.... I just cannot imagine hassle involved in buying properties for rent in NL or PEI if you live in GTA or BC


What's wrong with surrounding towns like Barrie, Hamilton, etc? There's no need to go out of province, but maybe there's a need to go out of town.


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## Westerncanada (Nov 11, 2013)

Just a Guy said:


> Would that be like big, well established companies like Nortel, Enron, Worldcom?


Lol... to be fair, there's just as many stories of housing markets going bust and renters moving out that bankrupt landlords etc.


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## gt_23 (Jan 18, 2014)

gibor said:


> Yes, I meant in GTA ... and my friends who own such properties told me 4-5% in the best case.... I just cannot imagine hassle involved in buying properties for rent in NL or PEI if you live in GTA or BC


I live in downtown Toronto, and all my properties are within 45 min drive. There are lots of alternatives to downtown condos.

Personally, I wouldn't invest in NL or PEI no matter how cheap. Demand and economic growth are important.


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## My Own Advisor (Sep 24, 2012)

I still think REITS are a good option even you have money (I don't, working on it!).

Passive income, 4-5% yield, some capital appreciation, keep investments in registered accounts and no tax headaches or tenants to deal with.

Sounds great to me!


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## HaroldCrump (Jun 10, 2009)

Just a Guy said:


> As a bonus, in 17.5 years, you'll have a further 2 million in assets, assuming no appreciation (tax free, as there was no capital gains)


Why would there not be any CG taxes for disposition of investment property?


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## Just a Guy (Mar 27, 2012)

My understanding is capital gains is based on appreciation from the original purchase price. Not on the amount of money you put into it. So, if you buy it for $100k and you use rent to pay it off, then sell it for $100k, there is no capital gain, but you collect the $100k. 

As I've never sold a property, I'm not sure of this, but it fits with my understanding of capital gains. 

You do, of course need to pay tax on the rental income over the years.


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## Pluto (Sep 12, 2013)

I prefer REITS myself, but not anytime at any price. In 2009 I bought XRE on 100% borrowed money. Sold all the units in 2013 for a great profit. Due to the distribution and leverage the approximate 4 year trade far outperformed any index. A few minutes to buy, a few minutes to sell, no tenants, no agents, no mortgage, no banks. Wait till the economy is in trouble, and the unit price is low, then buy and sit back and enjoy the ride. When the economy and unit price recovers you can sell and have some fun, or hold on collect the distribution, and then watch your capital gains melt away as the next economic downturn approaches.


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## GOB (Feb 15, 2011)

Some good points on both sides. My thoughts:

1) REITs do often sell at discounts to NAV, but that means they can be bought at those same discounts. I wouldn't call this a negative if you know what you're doing. 

2) With leverage comes risk. 

3) Rate increases will affect REITs but they will also affect renewal rates for personal mortgages. This could greatly reduce profitability depending on your equity. 

4) Extra cash for an REIT goes to increased distributions or debt repayment. Same as anything else, really. 

I don't doubt being a landlord can be very profitable, and if you know what you're doing probably more so than REITs. However, for the average person who is already employed full-time I think it's too much trouble and it can go wrong just as easily as an REIT can. Considering all the headaches of being a landlord I would recommend REITs as real estate exposure for the average person.


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## Just a Guy (Mar 27, 2012)

Well, I know a guy who is a baggage handler full time. He inherited several 3 storey walk ups, which are clear title and professionally managed. He's worth millions and makes way more a month from rents (probably by a factor of 4-5 times) than he does from working. Doesn't do a thing other than cash the cheques. The guy likes his work though. 

The other big difference is the tenants pay back the leverage...and you still own an asset. That usually doesn't happen with reits. Also the interest rate to get that leverage is also the lowest rates available.


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## GOB (Feb 15, 2011)

Inheriting a bunch of property is a much different risk profile than financing it yourself. 

I don't know if I agree about REITs not owning assets. As they pay back debts they end up owning their properties, do they not? The reason they always have debt is because they keep acquiring new properties for growth. Book value should increase over time for a well managed REIT. 

I certainly couldn't handle being a landlord in addition to my regular work and the time I spend on the markets. Kudos to you and others who can - it is impressive.


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## gibor365 (Apr 1, 2011)

> Rate increases will affect REITs


 True.... but it wouldn't affect dividends and i consider dividends like I'm getting cash by renting property


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## Just a Guy (Mar 27, 2012)

My bet is you may not own the real estate in all reits. You should probably read the perspectus. Just like the Boston pizza reit, you don't own the chain, or even the logos and stuff that the fund licenses to generate funds...

Some reits may give you a share of the real estate, others may give you a share of the rents, some may do something else completely...I wonder how many reit owners actually know what they own...

Also, why does everyone keep ignoring the fact that you can hire property managers? Berubeland, from this board, is one. You never get calls, deal with tenants, or anything...

But, all that being said, it's not for everyone...


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## GOB (Feb 15, 2011)

If you find a good property manager, great. But it is taking another cut out of your profits. I know a few people who've got duds and ended up having to manage the manager, and pay him for the privilege. No fun.


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## Just a Guy (Mar 27, 2012)

You know, I find it interesting that most people who are against real estate investing have never done it themselves, but they all know people who have...

When I talk to people who aren't on this board about investing, I get a similar reaction...

If I bring up the idea of starting a business to someone who hasn't, similar reaction...

I would imagine that many of us wouldn't be where we are today if we had listened to these others.

Nothing is easy, making money is work, there are risks, but we all seem to be able to overcome it if we can overcome the doubts.


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## SkyFall (Jun 19, 2012)

Well that was a very interesting read, learned a lot thanks guys!


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## GOB (Feb 15, 2011)

Just a Guy said:


> You know, I find it interesting that most people who are against real estate investing have never done it themselves, but they all know people who have...
> 
> When I talk to people who aren't on this board about investing, I get a similar reaction...
> 
> ...


That is a good point...though I would say opting for REITs captures a lot of the benefits while avoiding a lot of the (real or perceived) headaches. It's a little different than being scared of investing and doing nothing. Closer to somebody index investing vs. picking individual stocks, which is probably the best approach for the nmajority.


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## Just a Guy (Mar 27, 2012)

In my experience, people who relegate their finances to someone else are usually disappointed in their results, and often suseptable to things like fraud.

I look at people I know who bought mutual funds on the advice of their advisor, then sold when they lost money...

People who don't take an interest in their finances, trusting it to the safe route of the experts, don't do well.

People seem to think a lot of this is "too difficult" to do on their own...and thus refuse to try.

I've always been the type to try things...usually I find them a lot easier than I expected. Of course, I'm willing to learn new things, other than that, there's nothing special about me.

I agree it's better to at least do something, but it's not the best result, nor can you compare the returns as being equal.


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## donald (Apr 18, 2011)

I was always under the impression that capital gains need to be paid on anything that is not primary residence?
Having built and sold myself and growing up with a father who was a builder i am certain this is the case
If you had multiple rentals and sold you would certainly have to pay capital gains(not to mention of course the certain fact you would have these properties inside a limited company for a multitude of reasons)
how do you come up with not paying capital gains just a guy?in a earlier post-that's pretty standard
i own a roofing company and do business with some landlords and they are all incorporated.


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## Just a Guy (Mar 27, 2012)

I said, "if they don't appreciate", or their value falls I suppose, you could sell and not pay capital gains. If they increased in value, you'd have to pay capital gains of course.

However, if I buy the property for $100k, finance it 100%, pay the mortgage out using rental income (which is subject to tax) I have a clear title property worth $100k that didn't cost me anything. If I now sell that asset, I realize no capital gains as it's the same price as I paid, yet I pocket $100k of money tax free.

Let's say real estate tumbles, and it's only worth $50k, now you have a capital loss of $50k, but you didn't lose any of your own money, the mortgage was paid with other people's money...but you still collect $50k in cash when you sell tax free (plus have a capital loss credit to boot). 

Heck, even if it appreciates to 200k, I only pay capital gains on $50k (200k selling price-100k purchase price = $100k capital gain taxed at 50%), pocketing $150k tax free plus more than $25k depending on your tax bracket from an initial investment of $0.

Real estate is very good at creating money out of nothing. With a REIT, you have to use your own money, as they may not generate enough to pay off any leverage you use.


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## SkyFall (Jun 19, 2012)

I love to read Just A Guy's post.... I learn everyday!


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## Plugging Along (Jan 3, 2011)

P


Just a Guy said:


> You know, I find it interesting that most people who are against real estate investing have never done it themselves, but they all know people who have...
> 
> When I talk to people who aren't on this board about investing, I get a similar reaction...
> 
> ...


Great post and so true. My parent immigrated to Canada and didn't and don't understand the stock market or investing that much. They felt comfortable in real estate, and did well in it. Growing up, the kids were the ones that had to manage the rentals, everyone had a part, starting as soon as you could answer the phone. 

I am comfortable with real estate, yet still use an advisor. Things are hard if you have never done them.


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## donald (Apr 18, 2011)

I guess the challenge(and it's no small one,lol)is getting the financing for 100%
I am not familiar with buying rentals or dealing with banks in that way
I know in order to get a builders mortgage i needed to have my lot paid in full(at that time 75k)for the bank to lend 250k
I understand leverage(when the bank knows you have liquid assets that exceed or meet the risk requirements) 
Which financial institutions were lending to you at the start?
I am not disputing you but i know first hand(the big five anyways)are not like a rich 'uncle' lol
It's the part of getting up the ladder in the first place in order to get 100% financing and using 100k as a example does not seem to realistic going by the average family home is worth north of 400k today in the canadian market.
Are banks not even worse from a risk prospective if your buying in slums?
Curious how you started?who did you deal with when you started?


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## RCB (Jan 11, 2014)

Interesting thread.

My husband and I are three years into rental investment, and very happy with the results. Two properties (sfh), nine units (rent by the room to students). I put a substantial amount of time and energy into research...local market, rents, Ontario's RTA, how to properly screen tenants, etc., prior to making our first purchase. It should be approached as a business. 

I think too many watch Scott on HGTV, and think once the reno is done, or the proprerty is purchased,the work is done and the cash comes flying in. Sure it can come flying in, but the education can't stop at the end of the reno or purchase. I think people hear the numbers, get dollar signs in their eyes, and forget the rest...what you have to do for the next X number of years. 

I haven't yet jumped into other investing yet, but that's why I read here (and elsewhere)...to learn. I won't just jump in and invest in something new with no knowledge. Many do jump in on the word of people they *feel* are more knowledgable. They may be acquaintances or neighbours that have rentals, their buddy that's making a killing (on paper) on the market, the latest Carrick article, or the financial advisor (salesperson) getting rich on trailing commissions. One must make oneself knowledgable, unless you have money to burn.

We have had no difficulty purchasing two properties in three years. One purchase price was under $100,000, the other under $150,000. (These are not in slums, not dumps...average SFH here is between 150,000 and 200,000.). We qualified solely on my husband's blue collar income, the value of the houses, and our credit rating. Maybe the fact that we're only three years from paying off our own mortgage (2003 purchase) helped. I do know our Big Five lender personal banker is happy to see us soon for another purchase.

I recently found an interesting triplex, 6 hours away in southern Ontario. We have daughters about to turn 17 and 20, and I was discussing it with them. Both expressed an interest in becoming involved financially in purchasing rental properties, either with their father and I as partners, or with each other. As each hold two jobs, and have been putting cash aside while living with us, we are about to explore this idea in its various forms. We all bring something to the table, and they are already quite knowledgable in the ups and downs of managing rentals. If only we could have started 20 years ago instead of 3 years ago.

Would I buy more? Believe it. Best move we made.


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## Just a Guy (Mar 27, 2012)

I've always worked with TD, I don't buy slums. I do buy foreclosures, estate sales, places that have been on the market a long time, etc. It was easier back when I started, prices weren't as high, financing was easier to get.

There is a big difference between a rental and a home. Don't confuse the two. A rental will make you money, a home is a place you live. You probably wouldn't consider a rental to be a home, and a home usually makes a lousy rental.

As for the 100% financing, you don't just walk into a bank and ask for it...they'll laugh at you. You ask for a mortgage, usually between 65-80% LTV (I don't like CMHC fees) and then find some way to borrow the remainder (say a heloc). 

What I do now is buy a place outright on a HELOC, upgrade it inside usually costs about $5000 to paint, replace cupboard and fixtures, and lay down new laminate floors so the entire interior looks good. Then I go back to the bank and finance the place. As I usually buy places well below market (since they may be a mess when I buy them), once they are cleaned up, I can usually get a 75% LTV mortgage that allows me to recover my total cost (so 100% financing on a mortgage). There is a loophole in buying a property and getting a mortgage. If you buy a place and request a mortgage at the time of purchase, they take the selling price into consideration when appraising the property. If you pay "cash" for the property and go to the bank to finance it (even if it's the next day) they send out an appraiser to evaluate the fair market value, the sale price isn't a factor.

I've been doing this for a while, so I can see the diamond in the rough, most first time buyers look for a place they'd want to live in themselves. I look for neighbours where people would want to live, I can make the place look nice myself so I don't want to pay for it, plus I've got a standard list of products I use. 

There was a place I was looking at this year, it came up on a different board just before Christmas, in Edmonton. My guys never got a chance to look at it (it was off the market to quick) but when it came up there were complaints that this two bedroom for under 80k list was a mess (it looked, from the pictures, like there had been a flood as all the drywall had been cut away at the bottom). One of the posters who complained, found a suite in the same building renting for $1250/month, but it was nice inside...couldn't equate the two as being equal. A $1250 rental should equate to an appraised value of at least $125k. I don't know about the neighbourhood as it didn't last long enough to research, but at $1250 rent, it wasn't a slum.

So, buy at $80k, invest $5-10k (I'll bump it for less experienced people) , appraise at $125k (mortgage comes to $93,750 at 75% LTV) and rent for $1250/month. I haven't punched in the numbers, but let's budget $100 taxes, $400 mortgage, $350 condo fees, $200 maintenance/management per month (I'm sure this is high) leaving $200 clear profit, plus the $3,750 extra from the mortgage.

Real world, real example, real numbers.

There is a book on www.easysafemoney.com written by a canadian who outlines a system very close to what I do in much more detail. It's a very good beginners book.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> So, buy at $80k, invest $5-10k (I'll bump it for less experienced people) , appraise at $125k (mortgage comes to $93,750 at 75% LTV) and rent for $1250/month. I haven't punched in the numbers, but let's budget $100 taxes, $400 mortgage, $350 condo fees, $200 maintenance/management per month (I'm sure this is high) leaving $200 clear profit, plus the $3,750 extra from the mortgage.
> 
> Real world, real example, real numbers.


You have not included taxes in that calculation. $200/mo cash flow plus the 3700 in principal repayment is going to result in ~200/mo in taxes. Is this really a cash flow positive property?
The location you mentioned wasn't the best part of the city, but not the worst. The building was on a major thoroughfare. If it's the one I'm thinking about, the outside looks like its falling apart, but maybe that's just temporary plywood on the walls. 1250/mo is a bit steep for a 2BR in that area, especially a gnd floor unit. $1000 for sure, maybe 1100.

You can get a small 1BR in a nice area for under $100K for sure in Edmonton. Not sure it would rent for more than 1100/mo though. There are also some crappier concrete 1BRs in horrible areas selling for 60K or so.


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## Just a Guy (Mar 27, 2012)

I had taxes at $100, first expense. That's $1200/year in line with Edmonton property taxes. In fact, I'd appeal the tax assessment back to the purchase price of $80k, so the taxes would probably be closer to $800. 

Oh, the $3750 was the extra the bank lent you as opposed to the $90k of expenses to buy and renovate. 

The rental price was based on a different unit, in the same building, that another poster found. I'm going by that. I can guarantee you that $1250 on a $93k property will cash flow a lot more than my outline. I've found the 1% rule works at much higher interest rates to cash flow. 

As for the $200 not being enough, I estimated high on all expenses and still produced $200/month from an initial investment of $0 and no work (as I budgetted in property management as well). The mortgage payment is very high for $93k and I've got no idea about the condo fees. 

Name any other investment where you generate steady $200 income (not to mention half of the mortgage payment is principle pay down) with no investment?


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## donald (Apr 18, 2011)

Interesting Just a guy,thanks for sharing
I did 'investigate' a few yrs ago with rbc(winnipeg branch)and my mortgage banker who dealt with me with my construction mortgage gave me a REALLY hard time when i was investigating alternatives for a second property i wanted to buy(in my company)rbc had insane requirements placed on me to even talk
they wanted me to register an entire different company(i had half the purchase price of the place i was looking at in liquid funds)and that was not enough

I am renting now and even though i have all my investments plus my business with rbc(a substantial amount might i add)they lost me for life the next time i finance something(they are not friendly at least to me they were not)

I just can't wrap my head around sfh that are under 200k(where i live you are in fact buying in the slums,and this is Winnipeg)North end specials etc(something i won't do regardless if they make sense even,i don't want the hassle of buying in the 'projects'


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## Just a Guy (Mar 27, 2012)

Don't get me wrong, there aren't a lot of places on the market these days...I've got automated Lists sent to me from Realtors and it's rare that places come up. When they do, they don't last long. 

There are plenty of places for sale, but few that will make you money. That being said, there are always reasons why someone *has* to sell, so you never know when that deal will come up. It's not like stocks where the prices are always the same for the stock for everyone, in real estate each house is priced separately. 

Manitoba isn't my favourite province, since I don't like rent control, but there are some good places around the university. Also, a lot of retired farmers retire in the smaller towns...which are much cheaper and provide fairly quite tenants who are self sufficient, just didn't want to deal with a farm anymore. 

As for banks, they aren't easy either. I've been told "no" hundreds of times, the trick is to keep asking...eventually I seem to get my way. One time I went to every bank and trust company I could find, twice. They all said no. On the third time around, I found a division back at my first bank that said yes (even though two other divisions had said no already). Turns out the branch has different underwriters than the small business guys and the independent brokers (who only work for TD) have different ones too...all with different criteria. That's not to mention the agriculture division (if applicable) or the private client services group, or other divisions I've hit up over the years.

You only need one to say yes, and by the time you've hit them all up, the lending policies have probably changed and you can start over again. I've never had to go that far yet.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> I had taxes at $100, first expense. That's $1200/year in line with Edmonton property taxes. In fact, I'd appeal the tax assessment back to the purchase price of $80k, so the taxes would probably be closer to $800.


Not property taxes, income taxes.


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## Just a Guy (Mar 27, 2012)

Nobleea, 

I'm impressed, with your ability to "sour grape" this deal...

I overestimated every number, still managed to show how you get money out of free air from *nothing* with no work on your part, and yet you complain about paying taxes on it...

Sadly, you aren't the only one...

For people like you, there can't possibly be a good way to make money from investing. Maybe you should talk your parents into making money and gifting it to you...then you'd Not pay taxes on free money (Probably complain you're not gifted a living wage)

Btw, I assumed most people would understand that owning one property would not make you financially independent...just like buying $1000, 10,000 or whatever in stocks, bonds, whatever...or the day you start your own company.

After you accumulate a bunch, pay them down, etc. Then you can easily replace your salary though...

Think, if you bought 5 places at 20 years old, by the time you were 37.5 you'd have gone from making $1000/month (based on the above example) to $6750 (1250 x 5) - $2750 (550 x 5 in expenses) leaving you a (taxable) income of $4000/month for no work, plus the paid off assets worth $600k (125x5).

I should also point out that real estate, unlike cash, has build in inflation adjustments (as its value, being a need item, increases with inflation). So, even without appreciation, your spending power is preserved.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> Nobleea,
> 
> I'm impressed, with your ability to "sour grape" this deal...
> 
> ...


Really? I point out you're not paying income taxes and somehow that's sour grapes?
I'm only picking on the example you selected in Edmonton because I know the market. You'd never be able to get the renos done for $5K here. $10K is more likely. Contractors are hard to come by. Getting them to call you back is hard enough. Probably won't change your numbers appreciably. Your property taxes are around $1000/yr. You estimated $400/mo in mortgage, but it's more like $500 for a 17.5yr ammortization at the current posted 'low rate'. For sure you could get it for a lower amount, but you're likely going to have to renew at a higher rate in the future. I find it hard to believe that a 20yr old would A) have a HELOC large enough to have bought the first place with cash in order to do your 100% financing trick (would have to have over 80K in accessible equity), B) would be eligible for about 500K in mortgages. You mention they'd have $1000/mo at the start, but they wouldn't. They'd have zero because they have to pay income taxes and that eats up almost all of it. You assume they are rented 100% of the time which is a bit of a stretch. For sure Edmonton has a low vacancy rate, but it's probably a bit higher in that area.

You have provided a real world example, but you have not provided real world numbers. Only back of the napkin guesses.


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## Just a Guy (Mar 27, 2012)

I did budget $10k for renovations

A 20 year old could get a mortgage with a parent's co signature for example...creative thinking allowed me to get 100% financing without any take back mortgages or fraud like is normally promoted...but if you want something spoon fed to you, you'll be out of luck.

Yes, I punched in the mortgage and you're right, $500 is the amount, but I estimated high on everything else (maintenance is $200 over and above the condo fees which cover the exterior for example so that covers vacancy and management), so it's probably a wash. I've found the 1% rule makes me a lot more than $200/month (in the real world) and this is 1.3% which is huge...most people on here are trying to buy $400k places that make $1250/month.


As for taxes, I don't know what country you live in but, the last time I checked, Canada's highest tax rate was not even 50%...so at worst (with a 60k backup income in Ontario) they'd get an extra $500/month income.

You also seem to ignore that rents increase with expenses...

But, as I said, there's no way to convince some people...

The first arguement was "places under 100k don't exist.
Next was can't rent for that amount
Next was can't buy 100% financing
The list is endless...but I never thought of you'll pay taxes on the free income.

continue to fear it, it's less competition for me when I want to buy. I'm tired of trying to convince people. It's not my job to make you rich.

It's much better to work 8+ hours a day, 5 days a week, earning a paycheque, dealing with office politics, paying huge taxes, etc. real estate is way too risky and too much work. Not to mention, it can't be done...nope, no way.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> I did budget $10k for renovations
> 
> A 20 year old could get a mortgage with a parent's co signature for example...creative thinking allowed me to get 100% financing without any take back mortgages or fraud like is normally promoted...but if you want something spoon fed to you, you'll be out of luck.
> 
> ...


As you know, you don't pay income taxes on your positive cash flow. You pay income taxes on your positive cash flow PLUS your principal repayment on the mortgage as that is not deductible. About $225 of every mortgage payment is principal, so the taxable income is 425/month. At a ~36% marginal rate (the person would have to have another job in order to be eligible for the first mortgages), that's about $150 in taxes due per month. Which brings the cash flow from $200/mo to under $50.


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## Just a Guy (Mar 27, 2012)

Man, you'll find a negative in anything...

You can reduce the taxes by buying "stuff" related to the rental, things you may benefit from...for example if you own multiple, you can write off travel used to purchase or maintain your properties. So if you own in multiple provinces, and fly out once in a while to inspect or shop, you can write off the trip. If you extend it into a vacation, you can write off part of the vacation. If you buy tools for your contractor to use, or do the work yourself, you can write those off...the law doesn't say you can't use them for other things...you can hire an accountant so you don't need to do your own taxes, a Bookeeper, etc. Freeing up your time to do something else (like play with your kids). 

Even if you didn't, you're getting $600k in assets for free, plus income...investments rarely make you rich overnight, and I've never seen where $0 can make you $600k in any other way...

You can lead a horse to water...but I give up, you are right. I think I'll sell out and go work for Walmart...either way, I'm done trying to show you nobleea.


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## RCB (Jan 11, 2014)

Added bonuses: -convert interest on personal debt to tax deductible rental debt through cash damming.
-give your kids a job/paycheque maintaing properties


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## Eclectic12 (Oct 20, 2010)

^^^^

I understand the "job/paycheque" but I'm not following the debt part.

I question the debt as an "added bonus" ... if I borrow to buy a TV for home, how do I convert it to tax deductible rental debt?
If you mean debt for the rental property - investment debt interest is tax deductible whether the investment is stocks or a rental property.


Cheers


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## HaroldCrump (Jun 10, 2009)

Just a Guy said:


> You know, I find it interesting that most people who are against real estate investing have never done it themselves, but they all know people who have...


That is a very good point.

I get the same reaction regarding investing from those that haven't even tried it.
But they always know someone (a cousin, a friend of a friend, etc.) who has, and lost a lot of money.
If you dig deeper, they can usually not come up with any specific examples, or it turns out that the fictitious subject was investing in some speculative venture in a sector he/she did not understand, or based on some "hot tips" etc. 

These are "armchair" investors - whether in R/E or stock markets - and their opinions are often based on blogs they might have read, and not first-hand experience.


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## Just a Guy (Mar 27, 2012)

There is no doubt you can lose your shirt in any kind of investing. You buy the wrong thing, you are almost guaranteed to lose money.

That is the reason why I speak strongly against some posters on this board who want to buy real estate (think the people who want to buy a $500k property which makes $1500 rent and through some alchemy of math they've convinced themselves it cash flows). 

I also don't sugar coat reality, you will get bad tenants. There will be vacancies. You have to keep emotions out of it, the same with stocks (there will be sudden drops) or running a business (there will be bad times). 

But I still don't know better ways of making money with less work than investing (whatever way you want). 

The issue is, in reality, people always seem to focus on the problems...to the point of paralysis. I never look at problems, I look for solutions to things that get in my way. Bank won't lend, ask another, still won't lend what's another way to borrow. Don't like to deal with tenants, hire a manager, bad manager, look for another...still can't find one, hire and train someone to do it your way...

The other thing I find, is that people are incredibly lazy. I can show you, like in this thread, how to do it, limit your work to nothing, still make a profit, and that's not good enough..in reality, they want me to go one step further and do it for them.

I need to think for them, do the work for them, and they want to collect the rewards...I don't even do that for my kids, nor do they expect it. 

But then, once in a blue moon, you actually find someone who gets it...that tends to make up for the frustration.


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## RCB (Jan 11, 2014)

Eclectic12 said:


> ^^^^
> 
> I understand the "job/paycheque" but I'm not following the debt part.
> 
> ...


Example: You have a HELOC for renovations you do at your home. Interest is not tax deductible. You take total rental proceeds to pay off that HELOC each month, and borrow your rental expenses from a rental-only credit product. THAT interest is tax deductible.


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## GOB (Feb 15, 2011)

Just a Guy said:


> There is no doubt you can lose your shirt in any kind of investing. You buy the wrong thing, you are almost guaranteed to lose money.
> 
> That is the reason why I speak strongly against some posters on this board who want to buy real estate (think the people who want to buy a $500k property which makes $1500 rent and through some alchemy of math they've convinced themselves it cash flows).
> 
> ...


Great post. I guess you could say I'm one of those who is "too lazy", but I work hard enough on other investments and REITs do ok for my real estate exposure. Your posts and advice are nonetheless very interesting to me, and perhaps one day I will have the time and motivation to do it on my own.


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## Just a Guy (Mar 27, 2012)

What I said, applies to all forms of investing, so I guess you don't qualify as "too lazy" then...P-)

There are millions of ways to invest or start a business and, while I participate in stocks, businesses and real estate, I realize that there are plenty of other ways, some probably more profitable, to do things. I've found strategies which work for me...you cant possibly do everything. 

What is sad is those who won't even begin to explore the possibilities...

What is frustrating is those who won't, and then complain about how broke they are and how unjust society is...how they deserve to be given what they feel they are due...


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## Rusty O'Toole (Feb 1, 2012)

Just a Guy said:


> Nobleea,
> 
> I'm impressed, with your ability to "sour grape" this deal...
> 
> ...


I call this the creativity of the loser. It astonishes me the amazing creative ways people think up to not do something. If they were as creative at solving problems as they are at inventing them they would be world beaters. 

I am prone to this myself. I think a lot of people are. It is a hard habit to break.


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## Rusty O'Toole (Feb 1, 2012)

Speaking of "nothing down" deals. The first one I did was buying an 8 unit apartment house, a converted mansion. It had just been completely renovated by a contractor who got the property cheap and wanted to cash out. I was 21, had been working full time for 3 years and had some savings but didn't use any of it. My father wanted in on the deal, he did not use any of his money either.

My father borrowed $20,000 on his signature, no collateral. That made the down payment. We got a $45000 mortgage from Victoria and Gray. Full price $65000. Cash flow was so strong, we got a 15 year amortized mortgage and still had positive cash flow. I wouldn't do that now, but that is how we did it.

A year and a half later we sold the property for $110,000. $45000 profit or $22500 apiece. At the time (1975) I had the best job I ever had, or ever hope to have. I made $6000 a year. This sold me on real estate investing.

Another time I bought a duplex for $60,000. Long story short, I used $45000 from a mortgage on some other property I owned, and $15000 advance on 2 credit cards. This meant I bought the house for cash.

As soon as the deal closed I applied for a mortgage. Since it was on a property I already owned, the mortgage was based on the appraisal not on the selling price. I think it appraised for $89000. I know I borrowed $69000 on a conventional mortgage, no CMHC.

That was the one where I got back $9000 change and had $500 a month positive cash flow on an investment of 0 and payment of 0 (covered by the rent). The 2 apartments rented for $1200 a month for both. This was in small town Ontario, 10 or 15 years ago.

There are other ways to do no money down deals but those are 2 I did without hardly trying. The prize is not no money down. The prize is to get some good investment properties and make some money. You use whatever resources you have, or can get. No money down is just one tool in the tool box, and not the most important one.


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## Getafix (Dec 29, 2014)

This is a great thread guys! As someone new to Canada i'm learning a lot! I know real estate is a great investment but considering i don't have my own house here yet, what should come first? Investment property or a house to live in? And do you guys think real estate is a good investment considering the state the economy is in right now (real estate bubble popping?)


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## Just a Guy (Mar 27, 2012)

Personally, it depends what you want. Buying a home won't usually put money in your pocket. Buying cash flow producing properties can pay your mortgage for you. I know people who own multiple rentals and rent themselves, I know homeowners who were able to buy thanks to capital appreciation and a heloc. Some people need the reassurance of home ownership, others see it as a waste of money...

Banks are fickle about lending as well...right now it's all about income, with little regard to net worth...but that could change tomorrow. They may lend you for a house, but not a rental if you don't have one...you never know.

If you are buying real estate, it's all about *what* you buy, not *when* you buy. You can overpay in a down economy just as easily as in a booming economy. If the right property at the right price is available, it's always going to be a good investment.

I look for properties that are already priced with a significant correction to the average selling price but, in reality, I'm looking for a place where the expences are low enough that I can rent it for significantly less and still break even. That way, if the economy tanks, I won't lose money.

Real estate doesn't work like the stock market, there are always a few houses that *must* sell for some reason...unlike say BMO stock which will always sell at the market rate. So, even in a bubble environment, you have a chance at finding a deal, but there will, of course, be less available than in a bad market.

Patience is a key to all forms of investing, but especially in real estate. It's rare to make any real gains in the first 5-10 years (as the fees and interest take up a lot of the profits) but, after that, gains grow very quickly. Real estate is not a get rich quick method of investing.


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## gibor365 (Apr 1, 2011)

Getafix said:


> This is a great thread guys! As someone new to Canada i'm learning a lot! I know real estate is a great investment but considering i don't have my own house here yet, what should come first? Investment property or a house to live in? And do you guys think real estate is a good investment considering the state the economy is in right now (real estate bubble popping?)


I'd definitely buy house first.... We came to Canada in 1999 and 3 months later already bought house for 232K, now it cost close to 600K... and if we would continue renting we'd pay about $1500/month to landlord.... also it much nicer to live in your own house with backyard etc...
About time....you never know...I hear for last 10 years that real estate gonna correct, but it still there ....  amd more expensive every year...

imho, buy house, pay out mortgage and than invest....

Just a Guy, what is your opinion about investing into private REIT, like Skyline?


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## Getafix (Dec 29, 2014)

Thanks for the reply. I'm one of those people who don't really need the reassurance of home ownership. I'd rather just rent and have passive income pay for my expenses, which is why income properties are appealing to me. 

Interesting that you say any real gains are after 10 years. I thought a positive cash flow alone made it a good investment? Suppose i don't plan on being in Canada for over 5 years. Is it better to just invest in REIT's? Since buying/selling costs will probably negate any profits made in that 5 year period?

I have around 50-60k of savings that i brought with me to Canada and still trying to figure out the best way to utilize them. Back home cash is king and the only available investment is land or houses, both of which are very expensive. Coming here, all of a sudden i have so many opportunities that trying to decide on the best one is a challenge in itself!

So far i've decided to invest a small percentage of the savings in energy ETF's. RE i have to wait until i build up some credit history (i've only been here 3 months). So REIT is also appealing to me after reading this thread.


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## nobleea (Oct 11, 2013)

Rusty O'Toole said:


> I call this the creativity of the loser. It astonishes me the amazing creative ways people think up to not do something. If they were as creative at solving problems as they are at inventing them they would be world beaters.
> 
> I am prone to this myself. I think a lot of people are. It is a hard habit to break.


You're effing kidding me right?! I point out that he neglected to mention taxes in numbers and all of a sudden I'm lazy? Get real. I have been a landlord in the past, I have friends who are. The numbers being bandied about it are good numbers, even accounting for taxes. And yes, Just A Guy is being conservative in some of the numbers. I'm not ragging on the concept. But too many times, I've seen people become enamoured with the concept of being a landlord and forget to look at all of the numbers. I still have friends who are small time landlords that think the whole mortgage payment is tax deductible and are only lucky they haven't been audited yet.
I guarantee you there's dozens or newbies, probably hundreds of people reading this thread with interest and possibly thinking about it. You can tell them to do their due diligence, but many won't. Or not to the nth degree. Especially when you start bandying about comments like 'no money down, free money, no work'. While there is some truth in it from your experience, those kind of comments tend to attract the same people who fall for the ' no money down, free money, no work' informercials on late at night.


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## Just a Guy (Mar 27, 2012)

Getafix,

I was talking about the illiquidity of real estate...if you need to sell, you'll likely lose money in the first 10 years or at best break even...unlike stocks or REITs. After 10 years the principle starts decreasing quite quickly and you stand a better chance of getting your money back (assuming the market remained flat). This is one of the reasons I don't like house flipping...its a lot harder to make money than those TV shows made it out...they ignored things like realtor fees, legal fees, financing...etc.

Gibor 

I dislike all REITs, private ones even moreso. Being a landlord I see all the ways I make money in real estate (capital gains, cash flow, tax strategies, etc) and I wonder where all that money goes in a REIT. Plus, with the big sums of money involved, I see it being ripe for fraud and Ponzi schemes. 

The problem with real estate is that you *can* get very high returns, so the private REITs can make legitimate sounding offers...but they also don't have the same type of oversight, and are fairly illiquid...could be dangerous. Maybe I just watch too many shows like american greed.

Nobleea,

You did have a point, and I'm sure some do it yourself people may deduct the principle payments...but, I was showing, by your own admission, a deliberately conservative example, that didn't involve fraud or any *grey* area of the law, where someone else did the work for you and you looked for *any* little technicality to imply it couldn't be done...and even with your complaints noted it made money. 

Now, even I admit this isn't common, and I learned how to do this over years of experience but, I also didn't go into leveraging the properties once they are paid down to buy more, or any of the hundreds of other techniques I've applied over the years...

I think there is a big difference between what Rusty or I laid out and those scams on late night tv. Just because there are shady techniques out there, doesn't mean that there aren't legitimate ways of doing "no money down", "free money" or "no work" (though I don't think I or rusty ever implied there was no work, I said you could hire people to deal with the stuff you didn't want to, I always stress investing is work).

I think it's good to give a counter arguement, but the way in which you conveyed your opinion sounded pretty petty to me, and probably others...I'm glad to see that wasn't the intent now.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> Nobleea,
> 
> You did have a point, and I'm sure some do it yourself people may deduct the principle payments...but, I was showing, by your own admission, a deliberately conservative example, that didn't involve fraud or any *grey* area of the law, where someone else did the work for you and you looked for *any* little technicality to imply it couldn't be done...and even with your complaints noted it made money.
> 
> ...


I never implied fraud or operating in a grey area. And you can hardly call a $200/mo tax liability a 'little technicality'.
Yes, there's a huge difference between what you are doing and the late night scams. I'm sure they're nothing alike. I just ask that when you are selling a concept (which is what you are doing, even if you prefer no one else does it to stay out of your market), that all numbers are laid out. I have a hard time believing that doing a 2min search on MLS and writing a post up with some ball park figures counts as doing 'all the work'.


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## hboy43 (May 10, 2009)

Hi:

I've been a landlord and I have done stocks for 30 years. I much prefer stocks: more diversified, more volatile (yes, this is a good thing contrary to popular opinion, how else can you buy low if low doesn't show up?), more return, less work, tax advantaged (DTC). The only downside and it is a huge one is that you have to have the right psychology and probably only 10% of the population has it. 

hboy43


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## Rusty O'Toole (Feb 1, 2012)

I have done no money down deals and stand ready to prove it to anyone who will put up a $1000 bet.

I have NEVER said "free money" or "no work". Quite the opposite. You earn your money and you work for it. You take risks too. That is why I want to get out of real estate investing. I want to sit on my *** with my feet up on the desk and make money without working like the rest of you bums.


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## Just a Guy (Mar 27, 2012)

I guess we should ask the admins to shut down this board...all the advice and discussion on this board is by far an oversimplification of any topic. Almost like we are posting short responses to very complex topics.

Maybe we should ban books on these topics as well, since they probably don't cover all the contingencies that could possibly occur, and someone may not have considered the implications of an asteroid strike on real estate prices...

As I've pointed out in the past, there is a difference between owning houses/calling yourself a landlord and being an investor. Just because you and your friends owned houses (and from the sounds of it may not have done well) doesn't make you an investor. It's the same as owning stocks doesn't make you an investor.

Yes, I didn't outline every little detail in a few paragraphs, maybe I give people a little credit for having a brain to realize that things are a little more complex than can be outlined in that amount of text. However, I think any intelligent person can see a concept and maybe seek out more information on it. I also expect people will have read several of my postings (which I feel send a fairly consistent message) and will gain a better understanding of the differences and what goes into being an investor.

From what I can see of your arguement, your saying my numbers are fairly legitimate, and I'd only make $50 instead of $200 (ignoring the fact that I budgetted nearly $600/month for maintenance which included condo fees and management fees which would probably cover vacancy and taxes as well) but still insist it's some sort of lie. The fact that you think I picked a property out of the blue and made up a few numbers clearly shows you have no idea about the process I go through, or the experience I have (I find it ironic that you seem to concede that my numbers are realistic, but still criticize them). I'm confused how you classify me the same as scam artists and fools who make actually do use creative math, or commit acts of fraud when you seem to admit, there's nothing actually wrong with what I presented (except the amount of profit). Anyone who reads my posts would see that I'm pretty clear you can lose money, that it is work, but also that there are ways to do things properly and take a lot of the risk and work out of the equation. Something you obviously don't want to see. Is this common, no but that doesn't mean it can't happen and there's a big difference between those two. The fact that you lump this example with all the other newbie examples which are doomed to fail as being equal is just plain brain dead.

As Rusty pointed out, buying a place with no money isn't always the best idea, but that doesn't make it impossible, not does it make it a bad idea... That wasn't the point of this discussion either, this was to illustrate one possible scenario where it could happen, and I believe the outline (while simplified) was rather complete and stands on its own. It also showed how real estate investing could greatly differ compared to owning a REIT (since I doubt any REIT could hope to duplicate this return). 

Does this mean REITs are bad? No. Personally I don't like them (for reasons I've often outlined) but that doesn't make me right. It's my opinion that REITs are open to fraud and abuse and that the profits may not be shared as equally as some people think...that doesn't make me right. So far, I haven't heard of any public REITs that have been scams (can't say the same about private REITs though). Does this make real estate investing the be all end all? Not even close. If I believed that, I wouldn't own stocks and businesses. Does that mean they both have their place and people should see both have potential? You bet.

There are many ways to invest in real estate (flipping, developing, presales, etc) and each has their advocates whove probably succeeded in it. Even if you purchase with real money (which would be a different case study) there are ways to get your money back out (cash daming, refinancing, etc.). Sorry readers I didn't cover all these aspects in the few paragraphs on a topic where it would be irrelevant. Personally, I'd rather learn from the people who succeeded instead of those who fear it. I may, someday, chose to explore those avenues myself.

I gather since you don't like real estate or didn't experience success with it, it obviously impossible for others to find success in it (sorry Rusty, marina, mortgage u/w, you all must have been as mistaken as I was). Your experiences, and that of your friends is clearly the better example for others to follow. My guess would be they probably invested in properties I never would have looked at based on the numbers and that they are nowhere near close to the example I gave. 

Since you clearly have no respect for my knowledge or experience, I'd suggest you chose to "ignore" me (there is a setting) so I don't frustrate you in the future with my unintelligent drivel. 

I tried giving you the benefit of the doubt, but I give up...I'll try not to let you suck me into these type of debates anymore.


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## gt_23 (Jan 18, 2014)

GOB said:


> Some good points on both sides. My thoughts:
> 
> 1) REITs do often sell at discounts to NAV, but that means they can be bought at those same discounts. I wouldn't call this a negative if you know what you're doing.


The point was that many REITs _consistently_ sell at that discount, so it doesn't matter if you buy at discount if you sell at discount later on. The market is generally efficient and probably pricing in the likelihood of interest rate increases, a prudent risk measure. Furthermore, in the current stage of economic and interest rate cycle, it is unlikely that the market will give REITs additional price multiples that they aren't already, unless perhaps interest rates fall further.

Buying for nav discount alone is similar to buying stocks simply because they have declined, a lesson many oil & gas investors have probably learned recently.


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## gt_23 (Jan 18, 2014)

@ Just a Guy,

I tend to agree with you. I think of these forums as a tip of the iceberg, where the remaining 90% is still underwater. There is good, objective information based on experience, but a lot of subjective and biased nonsense which make complex issues more complex, regardless of the difficult communication medium (short writing posts).

When it comes to real estate, or pretty much any other investment type, my greatest sources of learning have been from direct experience.

*To the person who started the thread -* I recommend you find and attend a local gathering of investors for whatever you want to learn about (real estate, equity REITs, stocks, etc.), such as those available through MeetUp. I have found these to be a great source of learning, especially for more advanced topics, and its far easier to communicate. I think that one of the greatest advantages of these is that you get to network and meet with real people who you can vet, and choose not to waste your time with the less credible.


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## Rusty O'Toole (Feb 1, 2012)

Owning stocks makes you an investor. Owning real estate makes you an investor. You may not be a good investor, but you are an investor.

The internet is a place for expressing opinions and discussing topics. You must judge for yourself how much credence to give anything, there is no guarantee. It is also expecting a lot, to expect someone to write a full length book for nothing.


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## Just a Guy (Mar 27, 2012)

Rusty, does that make me a nascar driver because I own a car?

To me there is a difference between owning something and understanding how it works, and how to use it. 

I own tools, but I don't consider myself a mechanic, a carpenter or whatever...owning something doesn't make you "professional" or even "amateur", it makes you an owner. Nothing more, nothing less.


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## Rusty O'Toole (Feb 1, 2012)

No, it makes you a motorist. If you owned a race car and you drove it on the track in a race, you would be a NASCAR driver. You might not be a good one but, etc. Someone has to come last in every race, it might as well be you.

The Olympic committee and the cops have the same definition of a professional: If you do it for money you are a professional.

You may not be good at it but, if you do it for money....


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## Rusty O'Toole (Feb 1, 2012)

To you I many not be an investor. To Donald Trump I may not be an investor . I wouldn't disagree, I don't consider myself much of an investor either. But try to convince Revenue Canada of that when tax time rolls around.


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## gt_23 (Jan 18, 2014)

Rusty O'Toole said:


> It is also expecting a lot, to expect someone to write a full length book for nothing.


Un-entitled people do this all the time. Or they charge and donate the royalties.


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## gt_23 (Jan 18, 2014)

Rusty O'Toole said:


> To you I many not be an investor. To Donald Trump I may not be an investor . I wouldn't disagree, I don't consider myself much of an investor either. But try to convince Revenue Canada of that when tax time rolls around.


You're all investors, the question is just whether you're a good or bad investor.


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## Eclectic12 (Oct 20, 2010)

Just a Guy said:


> ... As I've pointed out in the past, there is a difference between owning houses/calling yourself a landlord and being an investor. Just because you and your friends owned houses (and from the sounds of it may not have done well) doesn't make you an investor. It's the same as owning stocks doesn't make you an investor ...


To me, the difference you are looking for here is a good investor, whose comments are worth taking seriously versus a bad investor whose comments may not be worth much.

Whether it's stocks or homes that are generating rents, most people will take this as an investor ... regardless of whether money is made or not ... similar to CRA.





gt_23 said:


> Rusty O'Toole said:
> 
> 
> > To you I many not be an investor. To Donald Trump I may not be an investor . I wouldn't disagree, I don't consider myself much of an investor either.
> ...


 ... which plays into how much weight one puts into the comments and what one will do.


Cheers


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## Just a Guy (Mar 27, 2012)

Actually, CRA doesn't consider you to be a real estate investor until you own multiple properties (I think it's three). Before you reach that stage, you are classified differently, and don't have as many deductions (privaledges).

They also differentiate between and investor and an accredited investor...but then again, CRA allows you just to buy your way into being taken more seriously, it's got nothing to do with ability.

NASCAR won't let you drive on their circuit just because you own the right car, and even the Olympics needs you to qualify...


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## Eclectic12 (Oct 20, 2010)

^^^^

Interesting on the what CRA lists as a RE investor.

I believe the main point is that regardless of one's skill level ... if there's a capital gain or other form of taxable income - CRA wants their cut and doesn't really care what one's skill level is.


As for NASCAR and the Olympics ... if you are saying you had to qualify to get into RE then I can see the comparison. If not, IMO we are back to discussing skill level as well as confidence in the the statements made.


Cheers


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## Just a Guy (Mar 27, 2012)

I think the problem is, to me, just doing or owning something doesn't mean the same thing as a title suggests. I can wire a light or a plug, but I don't call myself an electrician. I can (barely) run 100m, but I don't call myself an athlete, much less an Olympian. I can drive a nascar in a circle, heck, I could even buy my own car if I wanted, but I'm still not a nascar driver...I've got a lot of skills and abilities, some even above average maybe, but I'm not calling myself a doctor, lawyer, construction engineer, or whatever...

I don't believe you need to go to school and be formally recognized to get the title, I know plenty of self taught experts...

Yet people buy a stock and call themselves an investor. They buy a house and call themselves a landlord or a real estate investor...

Rusty, of course, called me out on this pointing out that technically, in the eyes of the world, I'm wrong. By the definition of investor, anyone buying something as an investment (good or bad) is technically an investor.

While I conceed his point, personally I still don't agree with it, and I doubt I'll ever change my mind on it...that doesn't make me right.


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## Eclectic12 (Oct 20, 2010)

^^^^

Or perhaps that with so many willing to comment/provide advice despite what their skill level is ... you'd prefer a skill component to help separate the wheat from the chaff.



Cheers


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## Just a Guy (Mar 27, 2012)

No, I think most people can see a difference on their own. It doesn't take long to figure out who actually knows what they are talking about versus those who talk about what they've heard.

For me, I class those that know as investors...the others I don't think of that way, that's all it is. My personal definition is just different than society's. 

Everyone should contribute, sometimes there is still grain caught in the chaff but, that doesn't mean a person with a pile of grain is equal to a person with a pile of chaff.


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## Rusty O'Toole (Feb 1, 2012)

That is the beauty of jobs like investor, salesman, internet guru. You get to be one by calling yourself one. A hairdresser or garage mechanic has to take a government approved training course and write an exam to get a license.


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