# First Signs of the End of the Real Estate Bubble



## Belguy

For the first signs of the end of the real estate bubble in Canada, cast your eyes westward:

http://www.greaterfool.ca/2012/08/23/a-little-fear/?utm_source=twitterfeed&utm_medium=twitter


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## dogcom

No need to cast ones eyes westward as that has already been done. Garth is probably right after a decade or so of trying to call a top in real estate. In real estate it is best to let it speak to you on your budget and more to your terms rather then panic and try to get in at any price or settle for whatever location you can afford.
.


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## andrewf

Garth is somewhat the boy who cried worth.

The credit tightening should have interesting effects. The hard cap on CMHC insurance is making banks hesitant to grant mortgages between 65 - 80% LTV in certain markets. Just the fact that credit expansion is going to grind to a halt after a decade of growing significantly faster than GDP might have some interesting impacts on the overall economy.


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## kcowan

The title is a bit wrong. The Victoria market peaked in 2010. It has been flat to slightly down ever since. Garth should look at the sales figures.

And Gulf Island properties are down 35% since 2008. An NDP government elected in mid-2013 will accelerate the downward cycle.


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## martinv

kcowan said:


> And Gulf Island properties are down 35% since 2008. An NDP government elected in mid-2013 will accelerate the downward cycle.


Waterfront West of Victoria is down about the same, that is if you can find a buyer at all. Terrific value for buyers not so much for sellers!
The real estate "bubble" if there was one was very isolated in a few areas.


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## Square Root

It's just a place to live. I figure I have more real estate than most but I don't fixate on the ups and downs of the RE market, Ignore this stuff and enjoy your property!


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## Belguy

Work around the homestead that used to be enjoyable is fast becoming drudgery the older that I get. A retirement home is starting to look more attractive with each passing year. Enough with the leaf raking, snow shoveling, weeding and maintenance jobs already!!:frown::frown-new::sour::disgust:


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## blin10

buy a snow blower, boggles my mind when I see million dollar houses and everyone using shovels 



Belguy said:


> Work around the homestead that used to be enjoyable is fast becoming drudgery the older that I get. A retirement home is starting to look more attractive with each passing year. Enough with the leaf raking, snow shoveling, weeding and maintenance jobs already!!:frown::frown-new::sour::disgust:


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## chaudi

Don't worry ever minute in China and India there is another millionaire created and every day another one want to come to Canada. It won't stop why would it? They'll just let in more people in.


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## NotMe

Belguy said:


> For the first signs of the end of the real estate bubble in Canada, cast your eyes westward:
> 
> http://www.greaterfool.ca/2012/08/23/a-little-fear/?utm_source=twitterfeed&utm_medium=twitter


Wait what? Garth Turner said real estate has peaked? Let's go sell today, Garth called it in 2012 (and 2011, and 2010, and 2009, and 2008, and 2007 and 2006 and ....)


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## Just a Guy

Gee, multi million dollar homes are decreasing...all those people who earn 40-60k a year better panic.

Although I agree that real estate prices are out of whack, sometimes there are reasons for it. In Vancouver, you've got mountains on three sides and a ocean on the other. In Alberta you've got people flocking in to work in the province, on the east coast Hebernia is finally giving them something other than fish to make a living...those places will be out of whack for years.

Now, Victoria is a place to retire, not work. Most people aren't multi-millionaires so they choose to live elsewhere...simple supply and demand. Someday, someone will be left holding the bag in Alberta, but I don't see it happening for years yet. Ontario, Manitoba, and Quebec however...


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## kcowan

Victoria is government, university, tourism...


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## Just a Guy

And which of those supports multi-million dollar housing? I'd grant you government corruption is pretty bad these days...


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## Barwelle

Belguy said:


> Work around the homestead that used to be enjoyable is fast becoming drudgery the older that I get. A retirement home is starting to look more attractive with each passing year. Enough with the leaf raking, snow shoveling, weeding and maintenance jobs already!!:frown::frown-new::sour::disgust:





blin10 said:


> buy a snow blower, boggles my mind when I see million dollar houses and everyone using shovels


Or: If you dislike it so much, support the local economy. Hire a kid to do the work. Probably less expensive than a retirement home... just moved my grandparents into one, and it is not cheap. While you're at it, do your beneficiaries a favour and get the kid to help you purge through your stuff. 



Just a Guy said:


> Someday, someone will be left holding the bag in Alberta, but I don't see it happening for years yet.


 I agree. Some day the oil and gas will be gone... or there will be a feasible alternative energy source developed that will revolutionize how we live. Or, it won't matter because World War III / Alien Invasion / Zombie Apocalypse could ensue, destroying humanity.


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## kcowan

The house prices were just updated today. Here is Victoria:









You can see that prices have been flat since 2008.


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## Jay

Well...given where interests rates are (and have been), the amount of credit that's been flowing, 40,35 and 30 year mortgages, global economic conditions, etc... I think anyone that was calling for a housing correction would eventually be correct - the only question is when...this year? next year? 2 years? 5 years? 10 years? The only disagreement at this point seems to be the extent of the correction - will prices just flat line until market fundamentals catchup? Or will we see a hard crash of 25% or more? There a lot more credible people than Garth calling for the later... The banks (with a vested interest in a healthy housing market, seem to be calling for a ~10% decline, and few people who aren't heavily invested in real estate seem to be calling for any less of a decline. The caveat as always is that it depends on your local market - and of course yours is "different" for many reasons.

So...long story short, there are many more signs than Garth's blog that the real estate climb (I'll call it that rather than a bubble) is about to come to an end. Perhaps Garth will finally be able to declare himself correct.


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## sags

At least those who paid heed to Garth Turner's advice last year, the year before.......or the year before that............aren't going to be among those trapped in a negative equity home. Given the huge expansion of CMHC insurance, it looks like a lot of homeowners would have built up little equity.


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## sags

The worst part of negative equity in a home was manifested in the US.

People can't sell their homes and move to find employment. They can't sell and move up. They can't borrow against the equity.

Of those three...............probably not being able to borrow against rising equity in a home.........is going to hurt a lot of people the most.

In the US..........banks scaled back on HELOC limits in areas where house prices fell. As people made their monthly payment.......the credit limit was lowered accordingly.


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## dogcom

I like this one I found from Garth.
http://howestreet.com/2012/08/very-disappointed/


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## ddkay

I was looking at some aerials of Toronto from the early 80s and 90s, it's fun to see/remember how many suburbs in present-day GTA didn't exist when I was growing up. Cities like Mississauga, Brampton and Markham pretty much didn't exist a few years before I was born. Empty fields were turned into hundreds of thousands of homes. It really wasn't that long ago years ago even downtown was kind of a wasteland with parking lots and rail yards.

I wonder what Teranet's House Price Index would look like if they didn't lump together a bunch of unrelated CMA's with a landmass roughly equal to Trindad & Tobago. Orangeville and Stoufville in the same index as Toronto doesn't really make sense IMO, but anyway... it will be interesting to see how a big downturn plays out in different regions and what sectors will feel it the most.


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## andrewf

The methodology used to create the Teranet index basically requires large enough urban areas to generate statistically useful numbers of transactions. Orangeville is too small to have its own measure. I can see your point that it may not make sense to include them in the greater Toronto market, but I doubt they have much influence on the index value.


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## Causalien

ddkay said:


> I was looking at some aerials of Toronto from the early 80s and 90s, it's fun to see/remember how many suburbs in present-day GTA didn't exist when I was growing up. Cities like Mississauga, Brampton and Markham pretty much didn't exist a few years before I was born. Empty fields were turned into hundreds of thousands of homes. It really wasn't that long ago years ago even downtown was kind of a wasteland with parking lots and rail yards.
> 
> I wonder what Teranet's House Price Index would look like if they didn't lump together a bunch of unrelated CMA's with a landmass roughly equal to Trindad & Tobago. Orangeville and Stoufville in the same index as Toronto doesn't really make sense IMO, but anyway... it will be interesting to see how a big downturn plays out in different regions and what sectors will feel it the most.


The Quebec referendum really helped with the buildup of Toronto. I was in Montreal for a while during the mass exodus of English speaking Canadians. If memory serves correctly, Montreal roads basically started its decline to the cesspool that it is today with car sized potholes at 60% of the roads unsafe to drive. Oh well, at least I enjoyed a few years of the glorious days.


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## canabiz

Just chiming in with some Ottawa perspective: We sold our house earlier this year prior to moving into a new place and as part of intel-gathering for our benefits, I actively monitored house listings and prices around my area for several months.

The market here has definitely slowed down, houses are sitting on market for longer period and i have seen some pretty drastic price reduction (could be due to marital breakups, job moves etc but I am not privy to all of that). 

Ottawa used to be a 2-horse town: tech and government back in the 90s when Nortel and JDS Uniphase and a host of other tech companies were flying high. This is obviously no longer the case, there are still some solid tech companies in this area but they are smaller and not as flashy...Regarding government, you guys were all aware of the Fed's plans to reduce close to 20,000 positions. It's a 3-year plan so the true impact won't be felt for a little while, there are all kind of stuff to be sorted out from the time an employee is notified he/she is affected to when he/she is actually let go.

My friends work in the trades and they have also seen less business, many people are taking a *wait-and-see* approach and are not spending on (big) reno projects. I am still keeping an eye out for real estate and financial news, with an emphasis on the local regions, and like I said we just have to wait and see if the market will suffer any more damage.


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## sprocket1200

kcowan said:


> The house prices were just updated today. Here is Victoria:
> 
> 
> 
> 
> 
> 
> 
> 
> 
> You can see that prices have been flat since 2008.


This is a perfect picture of the crash as it is already happening. Our place just north of Victoria has stayed the same since 2007. The slow erosion of wealth has stolen 15% from us already. The great news is that it hasn't really affected us at all. Our house is a home, not an investment...

It is better that so few realize just how big the erosion is. They keep spending their money and feel more secure....


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## Rusty O'Toole

sprocket1200 said:


> This is a perfect picture of the crash as it is already happening. Our place just north of Victoria has stayed the same since 2007. The slow erosion of wealth has stolen 15% from us already. The great news is that it hasn't really affected us at all. Our house is a home, not an investment...
> 
> It is better that so few realize just how big the erosion is. They keep spending their money and feel more secure....


A drop in the index from an all time peak of 148 to 143 in two years is hardly a crash.


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## andrewf

In real terms, perhaps?

Inflation at 2% for 5 years is 10.4% increase in the price level. In real terms a property that doesn't change in value for 5 years has lost 9.4% of its value.


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## kcowan

Yes I would not call it a crash just yet. But following Andrew's logic, flat for 5 to 7 years is close enough for me. And most indicators are that flat is optimistic for RE.


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## Rusty O'Toole

So you guys are saying in the stock market a crash is when prices drop 25% in a day (Oct 1987) or 40% in six months (2008-2009). In real estate a crash is when prices stay the same or drop 1.35% in 5 years.

Makes me glad I stuck to real estate.


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## andrewf

Yeah, but that is not the worst case crash for RE. -30%, -40% is quite possible.


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## Causalien

I define RE crash as a >30% decline in price and a 10 year to recovery. It's the metric I use to determine whether or not I can withstand such an event.

Then a worst case scenario of 40% and no recovery is also used to stress test. There's really no other reason to think about it except to prepare.


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## sprocket1200

Even after a crash, stocks have not stayed flat for five years, let alone two days.

Business esare created for making money. Period. I'll stick with the hundreds of managers I have working for me including the ones managing my real estate holding in Reits...

With the cash balances many are holding I envy their positions as they await opportunity.

Rusty, sounds like you made it big in real estate. How is retirement??


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## kcowan

The thing to keep in mind is that RE appreciation is a bonus that you can only claim if you downsize. For everyone else it is just an increase in the cost of living (higher taxes, realtor fees).


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## HaroldCrump

kcowan said:


> The thing to keep in mind is that RE appreciation is a bonus that you can only claim if you downsize.


You _could_ set up a HELOC that increases with the equity (essentially, a re-advanceable mortgage) and then invest in equity markets, if you really wanted to monetize the equity without selling the property.
That will also diversify your risk from just RE to both RE and equity.
May or may not be a good thing.


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## sprocket1200

kcowan said:


> The thing to keep in mind is that RE appreciation is a bonus that you can only claim if you downsize. For everyone else it is just an increase in the cost of living (higher taxes, realtor fees).


Great point. So few even consider the annual costs of RE. Just looking and you assessment and calculating its increase does not make a gain!

I am glad the majority do this though as it makes them feel wealthy.


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## Rusty O'Toole

sprocket1200 said:


> Even after a crash, stocks have not stayed flat for five years, let alone two days.
> 
> Business esare created for making money. Period. I'll stick with the hundreds of managers I have working for me including the ones managing my real estate holding in Reits...
> 
> With the cash balances many are holding I envy their positions as they await opportunity.
> 
> Rusty, sounds like you made it big in real estate. How is retirement??


Real estate has been good to me but it is a lot of work and it takes a long time for inflation to work its magic. If I could find a stock or paper investment that offers the safety and returns of good real estate I would take it like a shot. Right now I'm still looking.


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## Guigz

@Rusty

You mention that with RE, you "wait for inflation to do its magic". In that case, are you not only hoping to break even (i.e., preserve the capital)? 

If not, do you believe that RE can appreciate faster than inflation forever? I can't remember who did it, but I recall a thread where someone appreciated housing by inflation +1% from ancient greece to now and the end result was that the modest 2,000 year old craphole house from ancient greece could not be bought with all the money in the USA. At one point, it will revert to the mean(relative to inflation).


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## bgc_fan

Just keep in mind that RE is not the silver bullet for investments either. It depends on the market and timing. If you were in Edmonton and try selling now, you could have a significant loss depending if you purchased at the peak.


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## Berubeland

It's a combination of inflation or deflation if that's the case (rarely) and mortgage paydown. While Rusty says he waits for inflation to do it's magic, everyone has been investing in a rising real estate market for years. 

Not to mention through skill and or luck and or sheer hard work you can outperform the "market" as well. It's not as much fun to try catching a falling knife...


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## sprocket1200

I never have the patience to wait for magic. I use compound Interest every day.


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## marina628

Here is the way i see my RE investments , I put the downpayment in and the tenant is going to pay the house off for me in 15 years.Even if the house does not go up a penny they paid off the mortgage and built me up $xxx,xxx.If the house appreciates that is an additional bonus.It has worked for the past 19 years for me anyway...


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## sprocket1200

Investing is always better than spending.


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## Rusty O'Toole

Guigz said:


> @Rusty
> 
> You mention that with RE, you "wait for inflation to do its magic". In that case, are you not only hoping to break even (i.e., preserve the capital)?
> 
> If not, do you believe that RE can appreciate faster than inflation forever? I can't remember who did it, but I recall a thread where someone appreciated housing by inflation +1% from ancient greece to now and the end result was that the modest 2,000 year old craphole house from ancient greece could not be bought with all the money in the USA. At one point, it will revert to the mean(relative to inflation).


You are overlooking the power of leverage or using borrowed money. Suppose you buy a house with 10% down payment and a CMHC insured mortgage for the other 90%. 

Now suppose real estate goes up 10%. That means you just doubled your money. This is not at all unusual. It is not even especially creative.

I have bought rental properties with no money down, that brought in enough rent to pay all the expenses, pay the mortgage payments, and leave me $1000 cash at the end of each month.

So what was my percentage return, considering my out of pocket investment was zero? How many could you afford to buy, if your down payment was zero and your monthly payment was zero?

How fast would real estate have to appreciate to make you rich? What if I told you it wouldn't matter if it didn't appreciate at all?

Suppose I bought a million dollars worth of property with low or no down payment but the rental income covered the payments. Now suppose I was DEAD WRONG about real estate and real estate did not go up ONE PENNY in 20 years. This has never happened but suppose it did?

Well at the end of twenty years all the mortgages would be paid off and there I would be, stuck with a million dollars worth of property. Free and clear with a steady monthly rental income and no mortgage payments.

When I started out I made the mistake of selling a property when I saw a juicy profit. Then watched the same property continue to soar in value. Eventually I figured out, procrastination pays! It's the only business where sitting tight and doing nothing pays such big dividends.

This is barely scratching the surface. There are other things you can do that multiply your gains. Unfortunately they require work, brains, knowledge and even a little risk. I want to get away from that and into some sort of investment where I sit with my feet up on the desk and let someone else do the work.


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## Rusty O'Toole

I'm glad you brought up Greece. If that old Greek had bought a house 2000 years ago and passed it on to his heirs, his progeny could be living there yet.

If he invested in nice safe government bonds how much money would they have today? Greece's government bonds have gone to zero about every 50 years as far back as history records. If you don't believe me, they are in the middle of doing it again.

Go ask a Greek if he wishes his grandfather invested in property or government bonds. He'll look at you as if you are crazy.


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## Berubeland

Once upon a time, I bought a unicorn and every time it passed wind rainbows flew out of its ***. It sure was nice. All those rainbows. 

The unicorn never needed a stable, unicorn food, water, brushing, veterinary care or any other things you might imagine a unicorn might need that might cost money it was all free like a magical dream. 

It sure was nice when the unicorn started sweating gold nuggets after 20 years. True passive income, just sit under the unicorn and the gold falls on you.


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## Chris L

If you aren't making money the day you buy RE, it's not an investment. Waiting for 25+ years is ridiculous - especially in hopes of eventually being compensated for the risk you take. People underestimate the huge amount of work and risk that is involved in RE and we've all heard the dozens or so reasons to invest in RE and the ways to make money (eventually or in the present), but it's simply not investing if you're not cashflow positive the day you buy.

If you're subsidizing your tenants, then you're speculating - it's simply not an investment. 25 years to profit is going to wear you down, day in and day out. I'd much rather be paid to do work so a second part-time job would be smarter than going cashflow negative. Do that math.

If you're buying cashflow negative, you're investing at the wrong value. Wait... or start a business.


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## Cal

I agree w you Chris L. It has to be cash flow positive from day 1. It can't break even and hope for inflation to give you capital appreciation.


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## Rusty O'Toole

You would think after 35 years I would be used to people telling me I can't make money in real estate. Fortunately it works whether anybody believes it or not.


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## Rusty O'Toole

So how's that following the herd thing working out for you guys?


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## ddkay

For the average place in downtown Toronto, with no mortgage it's pretty damn hard not to be cashflow positive from day 1. If you add in the expense of a mortgage to vacancy, taxes & maintenance, you are paying down the property with interest, and praying appreciation will outperform inflation+interest.


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## Square Root

Rusty O'Toole said:


> So how's that following the herd thing working out for you guys?


Actually, I think real estate is a place where the herd is pretty well represented.


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## marina628

With real estate you need the right property and the right location.If you get these two things right you usually will find good tenants who will stay.At least it has worked for me,every month my tenants pay the mortgage payment for us they build equity for us and the properties are also appreciating.I sold a house in last couple months and cashed out some equity.I only buy single family homes to rent to one tenant,had a turn at a bungalow renting the basement and was a headache but I made $70000 on the deal in 2 years.


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## andrewf

Up until 2006 or so it was quite feasible to buy rental properties that had positive cash flow. The yields are so poor now that it is a very unappealing option.


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## Chris L

Bought in 01 and 03. Sold one this spring and kept one. One was just too easy to run to part with. I sold because I wouldn't buy my place for what I could sell it for. The herd is going all-in on RE right now. Everyone thinks they can just buy RE and make money, so I'm out. I'll buy back in when things look more like the current US does. If that never happens, so what? I guess I'll find something else productive to do with my time...or not, I guess it won't matter either way.

If you buy a place for cash and it yeilds 5% ROI, do you buy? I don't...I don't because I gotta run the place too. I can get 5% doing something else with a lot less risk than a rental property. I need 10-12% ROI the day I buy. 2% goes to inflation, then you got maintenance and expenses, then your salary, THEN what's left is what you buy it for...your PROFIT. Keep in mind that you need to get PAID to carry a rental. You need to add $50/hr into your expense sheet...this goes for every phone call from a tenant, showing to rent it, keeping book or doing taxes, maintenance issues or repairs you might do yourself, etc, etc.

I used to think flipping was a great idea too, but then I figured out it was smarter to do the renos for the flippers instead. I'm usually the guy making out with the better ROI hourly...and I get paid first and guaranteed!

It's always a good time to do a reno! Trust me!!!


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## Quotealex

Cal said:


> ...It has to be cash flow positive from day 1..


 I personally don't believe all properties needs to be cash flow positive from day one. Some properties can be turned into positive cash flow in the short to medium term if you know what you are doing...


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## Guigz

Rusty O'Toole said:


> You would think after 35 years I would be used to people telling me I can't make money in real estate. Fortunately it works whether anybody believes it or not.


How much ROI did the average American make on their homes between 2008 and 2010? YOU made money of off RE, it doesn't mean that RE is the best choice in every situation for everybody.


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## Rusty O'Toole

Guigz said:


> How much ROI did the average American make on their homes between 2008 and 2010? YOU made money of off RE, it doesn't mean that RE is the best choice in every situation for everybody.


About the same as they made off the stock market between August 2008 and march 2009. Would you say any greenhorn can jump into the stock market at any time and buy anything without any thought or study and make a killing? Of course not. So why do you think real estate is any different?

Of course RE is not the best choice for everybody in every situation. I don't like real estate myself. I wish I didn't own any of it. Seriously. I wish I could find some other investment that is as safe and lucrative but haven't found it yet.

Having said that I know a lot of guys who never gave a thought to real estate investing but own their own homes. Almost without exception, they made money. I also know some guys who love the stock market. Almost without exception, they have lost money.


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## Chris L

Could anyone lose money in RE in the last 20 years? Might be why they're absent from your collection of friends. However, there's no reason there can't be a drastic correction on the horizon where you might get to know some people who lose money on RE.

No one denies the 20 year bull run. What we're saying is that the next 20 years will most definitely look much different.


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## ddkay

Most definitely much :tongue-new:


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## Berubeland

I personally know lots of people who have lost money in real estate mostly through ill considered landlording ventures. Most of them never considered if being a landlord was something they could handle. Not everyone is suited to this kind of venture. 

I'm with quotealex on the cash flow situation, in fact the whole cash flow mantra is really simplistic. Land for instance is always cash flow negative and any property can be made cash flow positive by completely paying it off and renting a park spot to the neighborhood drunk.


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## Chris L

It's funny to watch people hold on to existing trends even as the trends start to inflect. Sales are way down in the last few months and there are still people who think that the trend is still ever-rising.

Most people prognosticate by trending what happened in the past, forward (by connecting dots). The trick is in finding the inflection point.

It's anyone's guess as to when price appreciation will inflect, but the fundamentals of investing in RE had reversed a LONG time ago.

10-12% ROI. If you can't do that, walk, wait. That's the only rule that matters.

No individual investor, but a lunatic, would hold RE at less than that.


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## rian

Now that wee see a bigger supply of houses in GTA area for the first time since 2007-2008 it's possible that some dynamics of real estate are changing but if it's just a small bump or a bigger bubble burst remains to be seen.


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## Rusty O'Toole

Chris L said:


> It's funny to watch people hold on to existing trends even as the trends start to inflect. Sales are way down in the last few months and there are still people who think that the trend is still ever-rising.
> 
> Most people prognosticate by trending what happened in the past, forward (by connecting dots). The trick is in finding the inflection point.
> 
> It's anyone's guess as to when price appreciation will inflect, but the fundamentals of investing in RE had reversed a LONG time ago.
> 
> 10-12% ROI. If you can't do that, walk, wait. That's the only rule that matters.
> 
> No individual investor, but a lunatic, would hold RE at less than that.


You'll do ok.


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## Square Root

Rusty said" I know lot's of guys who love the stock market and almost without exception they lost money" Well the guys you know must be a small sample because I've invested in real estate and the stock market and while each has it's ups and downs, I've made more in the stock market than in real estate. 
i always compare my first stock purchase (TD in Sept/97 at a split adjusted price of $21) to my oldest real estate purchase that I still own(cottage purchased for $400k in April/97 now worth a little over $1million) Made a lot more on TD over this period. Certainly not representative but maybe more verifiable than the anecdotes we usually hear.


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## Rusty O'Toole

Latest quote on TD, $82. So you have a profit of $61 per share. If you invested $100,000 it has turned into $390,476.

If you bought your cottage for 25% down with a 75% mortgage, which is conservative, your $100,000 down payment has turned into $700,000 equity.

You had the use of the cottage all these years, priceless memories with your family, and it has cost you nothing. You even end up with a profit on the deal.

And you weren't even trying to make money.You bought some real estate with no thought of making money, and you still did better than the best stock investment you ever made.

Is it any wonder I love real estate?


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## Square Root

Rusty. What you love is debt. I have none. My TD is up almost 400% while the real estate is up about 275% I bought much more TD then you modelled. Actually the cottage has cost plenty over the years. Maybe $40,000 per year. Agree about the memories though.


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## HaroldCrump

There is also growing dividends in the case of TD.
It's got to be one of the best dividend payers in the Canadian market.

Regarding leverage, there is no reason why the same leverage cannot be applied for stock purchases as for RE.
In fact, RE can usually not be 100% leveraged, but stock purchases can be (theoretically) by borrowing against an unsecured LOC.

One of the main reasons, the _perceived_ risk _appears_ lower in the case of RE is because your house is not traded on an open exchange with millions of bidders offering and asking values every millisecond all day and all year round.
Also, the business cycles for RE are far longer than equity or interest rate cycles.

But that does not mean that an individual investor cannot get caught wrong footed during the cycle.
Unlike an equity investor, if you happened to buy at the top of the market, you may have to wait a decade (or two) instead of an year or two to recover your losses.


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## Murph

Latest numbers aren't looking too hot : http://www.thestar.com/business/art...ts-home-sales-forecast-for-this-year-and-next

Should be interesting to see what plays out in the next 3-5 years, especially if Carney decides to hike rates in 2014-2015. Spoke to a realtor here in Montreal, told me a lot of deals have fallen through since the provincial election, maybe it isn't so 'different' here in Canada after all...


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## Square Root

Good post Harold. I would have said the same thing if I hadn't been in an airport


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## Cal

Yes, with the TD example above. The dividends would really make a huge difference as well, on top of the share price appreciation, or accumulation of further dripped shares.

(and Rusty he didn't say it was his best investments, just his first stock purchase-although b/c of the timing of both it does make for an interesting comparison)

A cottage buyer would also have to be aware of the maintenance expenses as mentioned above as well as (assuming it were financed as above over 25 years, even though I know SR said it was paid in cash) there would be approx 200,000 mortgage interest to be paid out of pocket on top of the original $300,000 mortgage. I know it would be a different consideration for a rental property, but a personal usage cottage doesn't make for the same financial investment. I think in general cottages would be more of a family investment passed on to the next generation.

I think in Canada we are beginning to see how liquid some of our RE is.


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## Square Root

@Cal. Totally Agree. Don't get me wrong we love our cottage and our other personal use real etate(4 places) but don't view them as investments, good or oherwise. My dividends come in pretty handy to pay the real estate costs. Real estate for investment purposes is different in that any leverage can work to your advantage. In my case the work involved is too much. To each their own though. I react negatively when someone says a sweeping generality such as "I know lots of guys who invested in the stock market and they all lost money". A bit like " real estate is the world's best investment because they aren't making any more" As if.


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## kcowan

Anyone that tries to justify a cottage as an investment just does not get it. It is a lifestyle expense that sometimes pays off. If so great. If not, so what?


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## Square Root

kcowan said:


> Anyone that tries to justify a cottage as an investment just does not get it. It is a lifestyle expense that sometimes pays off. If so great. If not, so what?


Absolutely.


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## dogcom

I was reading in the paper today that young people prefer condo's because they aren't interested in having families. I think this is right for now but as these people get older they will want out of these stupid condo's and want a real life and want a house with some space for a yard. As much as people like to pretend that they like the condo life most will eventually wish to have a real house of their own. So because of the cost of housing more condo's will be built and the trend will continue but the real money will be for those who hold onto their land long term.

Older people will move into condo's as well but many will hang onto a home as long as they can and will buy the condo when they are closer to deaths door if they must have one. For me personally I hope I never live in a condo.


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## marina628

We paid cash for our cottage and boat in 2008 ,it cost us nearly $10,000 a year for insurance property tax and storage for our boat.Definitely not an investment but we have enjoyed 5 wonderful summers with our children there and when we bought it we were thinking of the kids and their kids using it down the road.I enjoy the peace and quiet there and probably contributes to my ability to continue working as I do.I grew up with Ocean in our backyard and 33 acres of land ,I lived in an apartment first few years in ontario but I could never live in small space anymore.Even the home we moved to ,we have a huge acre lot and the Neighbour has 11 acres.This year we put a small garden in together and we sit outside enjoying our trees.HE is 85 and when we built 3 years ago it was his first neighbour in 30 years ,He is now trying to get a live in so they can stay in their home til the end.


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## Cal

kcowan said:


> Anyone that tries to justify a cottage as an investment just does not get it. It is a lifestyle expense that sometimes pays off. If so great. If not, so what?


I think the same for principal residence. Rental properties, different story, they provide a steady flow of income. For the most part, cottages, homes, do provide capital appreciation, however most home owners unfortunately do not utilize that equity they have built up in their homes.

Shiller worries about CDN RE: http://www.cbc.ca/news/world/story/2012/09/20/f-rfa-macdonald-housing-prices.html


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## Square Root

The CBC article is sobering. Thanks for posting Cal. Your point about all personal use property is a good one. Our house in Canmore is down about 25% from the peak in 2007 (the week we bought it I think ). I hope the decline is orderly and gradual, but no doubt it will happen.


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## sags

The description "condo" seems to be misleading...........as many people assume that it describes a small unit in an apartment tower.

I don't know about other places, but in our location of London, Ontario..........."condo" describes everything from a highrise apartment unit...........or a townhouse unit of some shape or size...........or a full size bungalow attached to each other only by a garage. The townhouse and bungalow units often offer more floor space than single family homes.

The most predominant are mid price range townhouse condos, followed by the higher priced bungalow style..............and a very limited number of lower priced highrise units

A bungalow style condo offers all the same amenities as a full size home.........with none of the maintenance work.

People with kids like single family homes.............but most everyone else it seems don't want the work involved.

Of course it IS different here...........as $250,000 will put people into a nice home or very well appointed condo.


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## dogcom

When I think of condo I do think of it as a unit in a bigger building and not a townhouse or bungalow. I do believe that a townhouse is a good option if you can't afford the land because at least it can offer you a small yard to tinker around in.


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