# Stock Investors Prefer The Toilet



## dogcom (May 23, 2009)

Stock investors always say real estate doesn't pay like stocks. Maybe that is true in some experiments of the past and is true in the US today. Bottom line is rent goes in that toilet and gets flushed every month. Living is a expense every month that renters pay in todays price and owners pay at the day they buy. Owners get the advantage that dividend stock owners receive at the day they buy.

Stock investors mistakenly assume they have won and real estate only appreciates at some lower return while they continue to throw rent in the toilet. This is all true if the real estate owner is an idiot and leveraged to the hilt on their own residence and can't afford even a 1 percent increase in mortgage rates.

In the end stock investors start from zero and will lose or gain from there. The real estate owner gets to increase equity as they go while the stock owner puts rent in the toilet.


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## Berubeland (Sep 6, 2009)

How about both? 

A sweet portfolio & paid off modest house? 

If you stop buying the crap that your personal residence is an investment rather than an expense and buy something that's just a house rather than some kind of p#nis extension or social status certificate, I'm sure you can make out ok


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## andrewf (Mar 1, 2010)

Long term capital appreciation is about 2.5 percent. Nothing to write home about. Depending on the price/rent ratio, it might make more sense to buy than rent, but at current housing prices, it seems doubtful.


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## CanadianCapitalist (Mar 31, 2009)

dogcom said:


> Stock investors always say real estate doesn't pay like stocks. Maybe that is true in some experiments of the past and is true in the US today. Bottom line is rent goes in that toilet and gets flushed every month. Living is a expense every month that renters pay in todays price and owners pay at the day they buy. Owners get the advantage that dividend stock owners receive at the day they buy.
> 
> Stock investors mistakenly assume they have won and real estate only appreciates at some lower return while they continue to throw rent in the toilet. This is all true if the real estate owner is an idiot and leveraged to the hilt on their own residence and can't afford even a 1 percent increase in mortgage rates.
> 
> In the end stock investors start from zero and will lose or gain from there. The real estate owner gets to increase equity as they go while the stock owner puts rent in the toilet.


That's only true if owners pay a reasonable price for their home. It seems to me that owners today are stretching their finances thin to buy that home. 

I don't believe this has to be an either or decision. You can choose to buy a modest home with a comfortably affordable mortgage and also start building a portfolio. In fact, I'm convinced you have to do both. You need a home to live in and you need a portfolio to help cover your expenses.


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## MoneyGal (Apr 24, 2009)

CanadianCapitalist said:


> You can choose to buy a modest home with a comfortably affordable mortgage and also start building a portfolio. In fact, I'm convinced you have to do both. You need a home to live in and you need a portfolio to help cover your expenses.


Ding ding ding ding ding! This post gets the winning bell from me. 

A corollary is that if housing is not reasonably priced (i.e., buying means that you are unable to build a separate pool of wealth in addition to paying your mortgage down), you should not buy.


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## brad (May 22, 2009)

I would also add that I throw more than twice as much money into the toilet every month in the form of interest on the mortgage on our three-bedroom house than I threw away in rent each month when we were renting a three-bedroom apartment. An apartment vs. a house is not an apples-to-apples comparison, but it's a real-life comparison. Most people who "graduate" from renting to owning don't look for a new dwelling that's the same size as the one they were renting; they usually want something bigger and better.

But anyway, yes, both is the way to go.


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## dagman1 (Mar 3, 2010)

dogcom said:


> Stock investors always say real estate doesn't pay like stocks. Maybe that is true in some experiments of the past and is true in the US today. Bottom line is rent goes in that toilet and gets flushed every month. Living is a expense every month that renters pay in todays price and owners pay at the day they buy. Owners get the advantage that dividend stock owners receive at the day they buy.
> 
> Stock investors mistakenly assume they have won and real estate only appreciates at some lower return while they continue to throw rent in the toilet. This is all true if the real estate owner is an idiot and leveraged to the hilt on their own residence and can't afford even a 1 percent increase in mortgage rates.
> 
> In the end stock investors start from zero and will lose or gain from there. The real estate owner gets to increase equity as they go while the stock owner puts rent in the toilet.


Convincing, cogent "analysis" here, folks. Renting *always* = money down toilet. Buying *always* = a good investment. Now I finally understand.

P.S. Where do you think all that interest you pay goes to? Answer: Toilet paper.


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## m3s (Apr 3, 2010)

Buying a house is a lifestyle choice not an investment. Owning a house has more expenses IMO but the lifestyle is better. Buying a 2nd investment property is the question, and since I'm already overweight in RE why buy another one when stocks return more for less work. Have you replaced a roof yet?


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## dogcom (May 23, 2009)

Canadian capitalist is quite right, but stock investors often try to make their losing arguments and rent.

As long as you buy in a good area and follow the 25 year, 33% of gross earnings and also allow for interest rate increases you will probably destroy stock investors. If you buy your principal residence using every means possible to shoe horn in you probably will end up in trouble unless you are confident of salary increases in the future.


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## m3s (Apr 3, 2010)

Newest development in town, 12% of gross, down to 17 years I think. I still think maintenance is expensive and time consuming. A lot of up keep expenses is flushed down the toilet other than having a nice place to live. When you subtract the expenses and work from the RE appreciation those effortless dividends look nice


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## slacker (Mar 8, 2010)

Buy now or be priced out forever !!


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## Cal (Jun 17, 2009)

dogcom said:


> Canadian capitalist is quite right, but stock investors often try to make their losing arguments and rent.
> 
> As long as you buy in a good area and follow the 25 year, 33% of gross earnings and also allow for interest rate increases you will probably destroy stock investors. If you buy your principal residence using every means possible to shoe horn in you probably will end up in trouble unless you are confident of salary increases in the future.


Too many people have bought too much house. Carrying costs have been too low in recent years, and unfortunately, I don't think some homeowners really know that they have bit off more than they can chew.


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## kcowan (Jul 1, 2010)

dogcom said:


> ... while the stock owner puts rent in the toilet.
> ...
> As long as you buy in a good area and follow the 25 year, 33% of gross earnings and also allow for interest rate increases you will probably destroy stock investors. ...


Is this a realtor talking?

Ownership is a lifestyle expense. Any capital appreciation after home maintenance, and interest expense is a lucky fluke of leverage.


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## Guest (Nov 13, 2010)

Well wait a minute ... isn't the question which pays better ... investment in equities or investment in real estate ... "Stock investors always say real estate doesn't pay like stocks" ... nothing to do with home ownership.

So, which is the better investment?


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## dogcom (May 23, 2009)

All things being equal stock investors usually do not do nearly as well as real estate investors whether it is your principal residence or as a landlord. Sure enough you buy at the wrong time, do stupid things in both stocks and real estate you will not do well. 

That said real estate is not manipulated like the stock market and the land is still there and the stocks can easily disappear. Of course you can point to the US who did manipulate the real estate market but that was easily seen by the no interest or 35 year plus mortgages, teaser rates and all that garbage. Canada I am sure was on to that path as well but luckily we did not get that far.

But overall if you ask an accountant who does better from what they see and it would not even be close. The real estate investors would have done far better by a mile. But still the stock investors try to cling to their dividends and so on pretending they are rich, but really it is what they put into the market that makes them rich.


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## andrewf (Mar 1, 2010)

Seems like a pointless discussion. Anecdotal evidence rather than historical returns...

I'll agree that most retail investors who invest in the stock market are their own worst enemy. They buy high and sell low, do not diversify, etc. and their returns tend to lag the index by miles. But this is just like people who buy too much house, or pay too much for a property in a bidding war, etc.


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## bgc_fan (Apr 5, 2009)

The problem with real estate is that every market is different and when you jump from market to market, you can not guarantee the results. As an anecdotal example, I moved this year and was able to make some money on my house (Quebec). Another co-worker also moved this year, but from Edmonton and is looking at a $50+K loss. Now, can you say that he was stupid because the job dictacted that he move and has to take a loss? I would say that with that kind of loss, he might as well have been renting if he could find an equivalent dwelling. Work will probably dictate that I move again in a few years, and given the current market, I'll be happy to break even.

All that said, when you're talking about your principal residence, you really can not equate it to an investment because it is a lifestyle choice. As for manipulating the real estate market, I'd say low interest rates and growth spurts (in Edmonton, Calgary), can do it on its own. And that is not including schemes to have 'straw buyers' purchase houses: http://www.cbc.ca/money/story/2010/05/06/mortgage-straw-buyer.html


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## kcowan (Jul 1, 2010)

Also I believe that people who cling to the notion of real estate being a good investment have not moved extensively. When you have bought and sold in Alberta over different decades, you can no longer cling to the fallacy that RE always goes up.

I had a colleague who was transferred from Vancouver to Toronto in 1984. He had to buy at a comparable price to preserve his RE equity. So he bought in The Bridle Path. As a 20-something living there, he was miserable because all his neighbours lived a different lifestyle.

Eight years later, he was transferred back to Vancouver and could not afford to buy in his former neighbourhood. Now he can retire but keeps working to enable him to continue to live in his expensive RE. To him, downsizing is an indication of financial failure.


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## Jungle (Feb 17, 2010)

dogcom said:


> But overall if you ask an accountant who does better from what they see and it would not even be close. The real estate investors would have done far better by a mile.


Can anyone recall what percentage of self made millionaires in the book "millionaire next door" owned their house, rather than rent?


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## m3s (Apr 3, 2010)

dogcom said:


> All things being equal stock investors usually do not do nearly as well as real estate investors whether it is your principal residence or as a landlord. Sure enough you buy at the wrong time, do stupid things in both stocks and real estate you will not do well.


During the recent RE boom you mean?



dogcom said:


> That said real estate is not manipulated like the stock market and the land is still there and the stocks can easily disappear. Of course you can point to the US who did manipulate the real estate market but that was easily seen by the no interest or 35 year plus mortgages, teaser rates and all that garbage. Canada I am sure was on to that path as well but luckily we did not get that far.


I think stocks are more efficient than RE. All stock investors are investing.. lots of home owners are just owning a home. Lots of buyers pay more than they should which makes the RE boom



dogcom said:


> But overall if you ask an accountant who does better from what they see and it would not even be close. The real estate investors would have done far better by a mile. But still the stock investors try to cling to their dividends and so on pretending they are rich, but really it is what they put into the market that makes them rich.


Of course they have done better during the recent RE boom. If I decided not to buy stocks and just invest in RE only, I would be investing 100% into 1 market and hoping it will boom again


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## Berubeland (Sep 6, 2009)

To qualify the argument...

Buying a personal home is to real estate investing what starting a business is to the stock market. 

I wrote a post about it http://landlordrescue.ca/personal-residence-expense/

If you paid your house off in 5 years, and minimized the interest you paid, it would work out, but people don't add up what they actually paid for the house after their financing costs, but rather what the "nominal purchase price" was. 

For instance my house's nominal purchase price was $150,000 but even in 5 years I paid about $50,000 in interest. The cost was $200,000 and the guy down the street just got $380,000 for his house so I made $180,000 not $230,000. But I have to live somewhere... so I'm not selling because I'd have to buy at today's much higher prices. 

Now when you buy an actual investment property... the mortgage interest is deductible so you will actually pay the "nominal price". The interest is claimed against your rental income. 

Comparing your personal residence to publicly traded stock is like comparing apples to oranges. 

Furthermore, skillful investors in both worlds will find that the skills acquired in one arena are entirely applicable to the other. Being a good stock picker requires just as much due diligence as buying income property, both are about the numbers. 

If you're the guy who buys Bre-X on advice acquired at the office water cooler, you'll be slaughtered in real estate as well. If you take your time, follow the market, learn a competency in the stock market or real estate you will do equally well. 

Appreciation has spoiled real estate "investors" it's just one of the ways real estate investors make money and for the savvy ones it's just icing on the cake rather than the plan. It can provide for unexpected returns but it's not even included in the initial acquisition plan. Real estate investing should be a lot like buying blue chip dividend funds for income, do you buy hoping for capital appreciation? 

No, you buy for steady and sustainable returns. If the stock goes up, there's your icing...if the stock goes down who cares you're getting your income anyways and you can wait for it to go back up as the market cycles.


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## dogcom (May 23, 2009)

I still think you need to be lucky, an insider, work at or have some kind of inside knowledge to really do well at stocks. The homes are there to look at and you can see much more clearly what you are getting into in real estate. Real estate of course takes a lot more time to upkeep then stocks do so that is the big difference.

But we know a lot of people have made it in real estate and that is simply not true with
stocks. Again stocks are preferable because we can sit on the couch and try to make money but with that we can be lied to and cheated by these companies.


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## kcowan (Jul 1, 2010)

dogcom said:


> ...But we know a lot of people have made it in real estate and that is simply not true with stocks. Again stocks are preferable because we can sit on the couch and try to make money but with that we can be lied to and cheated by these companies.


When we were buying in the GTA, we liked a house just off Bayview south of Highway 7. The house backed onto a forest. It had 3-stories at the back. The realtor said it was greenbelt and secure. We took a pass because of the uncertainty.

Eventually the forest was plowed under to make way for an electrical power right-of-way (beside soon-to-be-constructed Highway 407). And there was a big ugly tower directly behind the house where it had looked out on the forest.

Buying real estate requires a lot of due diligence and some luck. Schools get built and schools get closed. Plazas get built on rezoned land (often zoned as park or greenbelt). Edgar and Sedar filings enable me to get under the happenings of a company.


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## Eclectic12 (Oct 20, 2010)

rikk said:


> Well wait a minute ... isn't the question which pays better ... investment in equities or investment in real estate ... "Stock investors always say real estate doesn't pay like stocks" ... nothing to do with home ownership.
> 
> So, which is the better investment?



I'd say the better investment is what you understand and are comfortable working with. Your results tend to vary by who you are, what your plan is and what your time/skills allow for.

Most buy their first house because they like the size, like the neighbourhood etc. etc. Then too, they are selling to move up to something bigger or to move into a retirement home - not usually when the market is at a high. Any gain is luck based on the broader housing market in the area instead of a plan.

The ones who are buying to flip or rent out are likely do better investment-wise.


Similarly, those who learn about investing and have a plan to invest in stocks/bonds etc. tend to do better than those without a plan.


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## Eclectic12 (Oct 20, 2010)

dogcom said:


> All things being equal stock investors usually do not do nearly as well as real estate investors whether it is your principal residence or as a landlord. Sure enough you buy at the wrong time, do stupid things in both stocks and real estate you will not do well.
> 
> That said real estate is not manipulated like the stock market and the land is still there and the stocks can easily disappear ...
> 
> But overall if you ask an accountant ....


That's the thing - all things are not equal. 

You mention "real estate investors" where most of the people I know who are buying/selling are not real estate investors. They want somewhere to live. Stocks on the other hand, I suspect have a much higher percentage of people buying for one reason only.

Hmmm ... land can't disappear? I guess I'll tell that to the family in Quebec whose house was swallowed by a sinkhole. Or perhaps you've head of governments expropriating land for roads or airports? 

Also if you sold your land and then discovered the buyers were reselling to the city to build a stadium where the buyers are close friends with the mayor, would you think it was a "bad move" or manipulation?


As for the accountant ... why do I care what he has seen? 
For all I know a good chunk of his clients are successful real estate investors. Or if he favours stocks, maybe he's Warren Buffet's accountant. Anecdotes can work either way and still be meaningless to what works for me.


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## Larry6417 (Jan 27, 2010)

Eclectic12 said:


> That's the thing - all things are not equal.
> 
> You mention "real estate investors" where most of the people I know who are buying/selling are not real estate investors. They want somewhere to live. Stocks on the other hand, I suspect have a much higher percentage of people buying for one reason only.
> 
> ...


+1

Some facts would be useful at the moment. See http://torontorealestatenews.posterous.com/appreciate-your-house-but-dont-expect-it-to-a

Homes in Canada have appreciated about 2.4% after inflation since the 1960s, according to the president of Royal Lepage. Add in the cost of home insurance, maintenance, and mortgage interest (non-deductible for a principal residence), and that 2.4% real return drops in a hurry. 

Canadian Capitalist has a nice piece looking at real estate over the past 25 years. According to ReMax, homes appreciated at a nominal rate of 5.31% (~ 2.3% real return), not that different than the rate quoted in the first article. www.canadiancapitalist.com/real-estate-returns-2/

The first article also points out the drastic swings in real estate investing. Overall home prices rose sharply in the 1980s as boomers bought homes then fell in the 1990s. In fact, real home prices declined. Home prices rose again in the 2000s far above historic norms. It's extremely risky to assume this will continue. Prices tend to revert to the mean. "Investing" (I use the term loosely) in a principal residence is no sure way to wealth. The longest record of real estate prices is from Amsterdam, which found that real price increases were zero over the long term. Some people in "transition areas" make "windfall" money (think Fort McMurray over the past several years), but that's the exception.


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## m3s (Apr 3, 2010)

If you want to know how to make the absolute most of your personal investments, I would say live in the cheapest apartment as humanly possible and invest in a tax efficient diverse portfoio of equities, REITS, bonds etc... hands down no argument what so ever imo

Owning a house is likely a better quality of life, and with a better quality of life comes expenses no question. The only reason owning seems so smart is that it forces people to save some money by making mortgage payments. I think the quality of life is well worth the cost, but I don't see it as the best investment (unless I was building and flipping etc or speculating) A building does completely wear out over time so I don't agree that "paying rent is flushing money down the toilet" or "the rent they pay me is all gravy"


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## dogcom (May 23, 2009)

Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.

I know a couple in the last 12 years who wanted to buy a house but didn't because they kept saying they are not sure about where they are going and so on and kept renting and put all their saving in bonds and mutual funds. They have not even done half as well as the people who have bought houses since then and now they can't even enter the single house market and there stuck paying rent.

So when you look around you do you see anyone who is successful and don't own or have owned a house.


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## kcowan (Jul 1, 2010)

dogcom said:


> So when you look around you do you see anyone who is successful and don't own or have owned a house.


No, but some that have owned now choose not to because they now understand the real costs.

I think the point is that investing in real estate CAN be a good move but to do so blindly on faith is folly. Having 20% of your net worth in real estate is probably fine. Forced savings by paying for a mortgage is probably fine.

Paying above market rent for a long period is probably not fine. Owning when you move every few years is probably not fine. Owning more house than you need and paying 40% of your net income to do it is probably not fine. etc.


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## the-royal-mail (Dec 11, 2009)

kcowan said:


> No, but some that have owned now choose not to because they now understand the real costs.
> 
> I think the point is that investing in real estate CAN be a good move but to do so blindly on faith is folly. Having 20% of your net worth in real estate is probably fine. Forced savings by paying for a mortgage is probably fine.
> 
> Paying above market rent for a long period is probably not fine. Owning when you move every few years is probably not fine. Owning more house than you need and paying 40% of your net income to do it is probably not fine. etc.


Excellent post which covers the common situations that make renting more attractive for certain people. Everyone is in a different situation and your post nicely refutes that blanket statement that 'owning is always better than renting'. It is simply not true.


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## GeniusBoy27 (Jun 11, 2010)

I think using rate of returns, i.e. gains on the prices of a house is not the right term to use in comparing stocks vs. properties. Instead, I think the more accurate measurement should be return on investment (ROI), since property is far more likely to be a leverged investment (for most people), compared to stocks and bonds.

For example, a house that gains 2% from $500 to $510 K, while putting $25 K down, has a ROI of 40%. Compare that to investing in stocks and gaining 5% to go from $500 to $525 K, but requiring the full 500 K, where the ROI is only 5%. I don't think the comparisons are necessarily on the same page. (Yes, you can make the argument of leveraging stocks, etc ...), but to me, the comparisons are never the same.

Furthermore, there are potential benefits and/or costs of owning property, from potential income/loss, so that not all the gain is accrued through changes in property value.


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## CanadianCapitalist (Mar 31, 2009)

dogcom said:


> Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.
> 
> I know a couple in the last 12 years who wanted to buy a house but didn't because they kept saying they are not sure about where they are going and so on and kept renting and put all their saving in bonds and mutual funds. They have not even done half as well as the people who have bought houses since then and now they can't even enter the single house market and there stuck paying rent.
> 
> So when you look around you do you see anyone who is successful and don't own or have owned a house.


It is true that homeowner ship and higher networth have a strong correlation. But I don't think you can infer causation from this data. It might be just that higher net worth households like to (and are able to) own a home.


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## slacker (Mar 8, 2010)

dogcom said:


> Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.
> 
> I know a couple in the last 12 years who wanted to buy a house but didn't because they kept saying they are not sure about where they are going and so on and kept renting and put all their saving in bonds and mutual funds. They have not even done half as well as the people who have bought houses since then and now they can't even enter the single house market and there stuck paying rent.
> 
> So when you look around you do you see anyone who is successful and don't own or have owned a house.


It is true that Canadian residential real estate had far out performed the Canadian stock market in the last 10 years. If this trend continues indefinitely, then of course it's better to buy than rent.

Will it continue indefinitely over the next 35 years (my investment horizon) ?


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## Potato (Apr 3, 2009)

dogcom said:


> Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.




In addition to the responses other people have made to this comment, I'll make a few points. The first is that you may not know that many people that never owned a house, period (aside from the one case you mentioned). Of the people that did own a house, when did they first get into the RE market? I'm not privy to the inner financial workings of most of my friends' parents, but I can say that some of them are young enough to have bought their first house around 1989, at the peak of the last bubble in Toronto. They are not as well-off as their peers who bought a few years earlier, or a few years later. They're not destitute; overpaying has not financially crippled them... but if you're a typical family that's only saving ~10% of your take home pay each year, then there' s a big difference between your housing costs being 25% of your pay or 30% of your pay.

I'm a huge housing bear as you may well know, but even then I would say that _most of the time_ owning your shelter is the better way to go. After all, under normal conditions landlords make money.

But, my contention is that for the last few years these have _not _been normal conditions, and that first time buyers would be better off continuing to rent, and putting their money to work for them in the stock market. In a few years, things should return to normal for housing, and it will once again make sense to own.


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## Larry6417 (Jan 27, 2010)

GeniusBoy27 said:


> I think using rate of returns, i.e. gains on the prices of a house is not the right term to use in comparing stocks vs. properties. Instead, I think the more accurate measurement should be return on investment (ROI), since property is far more likely to be a leverged investment (for most people), compared to stocks and bonds.
> 
> For example, a house that gains 2% from $500 to $510 K, while putting $25 K down, has a ROI of 40%. Compare that to investing in stocks and gaining 5% to go from $500 to $525 K, but requiring the full 500 K, where the ROI is only 5%. I don't think the comparisons are necessarily on the same page. (Yes, you can make the argument of leveraging stocks, etc ...), but to me, the comparisons are never the same.
> 
> Furthermore, there are potential benefits and/or costs of owning property, from potential income/loss, so that not all the gain is accrued through changes in property value.


Return on investment takes into account the cost of investment as well, which your example excludes. See www.investopedia.com/terms/r/returnoninvestment.asp

In this case, costs would include mortgage interest, legal fees, house insurance, property tax, maintenance, etc.


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## furgy (Apr 20, 2009)

dogcom said:


> Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.
> 
> I know a couple in the last 12 years who wanted to buy a house but didn't because they kept saying they are not sure about where they are going and so on and kept renting and put all their saving in bonds and mutual funds. They have not even done half as well as the people who have bought houses since then and now they can't even enter the single house market and there stuck paying rent.
> 
> So when you look around you do you see anyone who is successful and don't own or have owned a house.


I don't own a house , I have owned five in the past.
After our kids left home , we decided to sell the last house and buy a large top of the line 5th wheel trailer and travel around for a few years , that was 13 years ago.

We find a semi-minimalist existence in some ways to be very rewarding , I still own and operate my own business which is worth more than most peoples homes that I know.

We have virtually no debt , fantastic credit if ever needed , and more money than I have ever had in my life as a homeowner.

Minimal upkeep , no mortgage , no taxes , no insurance (I figure if it burns I'll go buy another one , piss on the insurance companies) , small pad rental ($200 per mo.) and I get the use of over 1/2 acre of land , water supplied , garbage removal , snow removal , all courtesy of the park owner and only 5 minutes from town in a beautiful rural setting.

I even built a small guest cabin this summer for people who want to come and stay over.

Home ownership is the American Dream , just another commodity pushed on the unsuspecting public by banks , government and others who can profit from taxes , interest and other such by-products asossiated with ownership.

If you want to own a home , go ahead , but it's really not all it's cracked up to be.

And it has no bearing at all on ones success in life , in fact , I find the masses who buy homes in excess of what they can afford , and find themselves trapped in jobs they detest just to pay for them , are the biggest losers out there. JMHO.


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## MoneyGal (Apr 24, 2009)

CanadianCapitalist said:


> It is true that homeowner ship and higher networth have a strong correlation. But I don't think you can infer causation from this data. It might be just that higher net worth households like to (and are able to) own a home.


This is a really interesting line of inquiry. I have a whole lot of data from the U.S., but I haven't looked for it in Canada. 

In the U.S., home ownership is strongly associated with college education: that is, a much larger fraction of college graduates owned a principal residence than those with only a high-school diploma. In addition, the median value of principal residences owned by college graduates was much higher (almost double) than the value of residences owned by high school graduates. 

At the same time, more than 3x as many college graduates owned individual stocks than those with only a high school diploma. 

All of this data builds from findings about the earnings of college graduates in the U.S. versus those with only a high school education: in aggregate, college graduates earn more than 3x per year than those with only a high school diploma. 

(All my stats are from the 2007 Survey of Consumer Finances.)

I'm not going anywhere in particular with this. I know that when the next SCF comes out, data on the housing crash will have been incorporated. The (U.S.-based) picture I have right now is that higher levels of education are associated with higher net worth, higher annual income, increased rates of home ownership, and increased stock market investing: in general, higher education seems to lead to greater net worth AND potentially a more volatile set of assets. It's probably misleading to take a single factor - "stocks versus real estate" - and draw conclusions about the relative net worth of different groups based only on one variable.


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## kcowan (Jul 1, 2010)

MoneyGal said:


> ..in general, higher education seems to lead to greater net worth AND potentially a more volatile set of assets...


Probably a correlation to taking risks, i.e. spending on a university education is a huge risk, with big time expenses and often debt for some future potential returns...


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## kcowan (Jul 1, 2010)

furgy said:


> ...in fact , I find the masses who buy homes in excess of what they can afford , and find themselves trapped in jobs they detest just to pay for them , are the biggest losers out there. JMHO.


Major milestones in the last 20 years include taking a DB pension in 1992 so that I did not have to work, paying off the mortgage in 1997 by selling the McMansion, and selling my business in 2002 in order to play fulltime.


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## furgy (Apr 20, 2009)

kcowan said:


> Major milestones in the last 20 years include taking a DB pension in 1992 so that I did not have to work, paying off the mortgage in 1997 by selling the McMansion, and selling my business in 2002 in order to play fulltime.


I like that term "McMansion".

I also am glad I sold my last one , as for selling my business , it's seasonal so I have just about 6 months or better every year to play.

I also enjoy what I do , it's sometimes like a holiday in itself , for instance , I spent two full summers working at a world class ski resort with my crew , lodging and meals included while we were working there , and getting well paid for it.

Here it is , you may have been there.


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## humble_pie (Jun 7, 2009)

does that photo ever bring back memories.

did you have time to hike up mount victoria to the teahouse just under the glacier ?

is the stone hut built by the swiss mountain guides still standing ? in the pass, over the glacier, right at the top of the continental divide. You hike up the glacier at night, to avoid the avalanches. Nothing but rocks, stones, ice, snow, water, moon. Sleep in the stone hut. In the morning descend the western side into british columbia.


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## kcowan (Jul 1, 2010)

furgy said:


> ..I also enjoy what I do , it's sometimes like a holiday in itself , for instance , I spent two full summers working at a world class ski resort with my crew , lodging and meals included while we were working there , and getting well paid for it.


My former partner offers many things to ski resorts. You might benefit from connecting with him. But I would need to know more about your business. Please PM me if interested.


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## Eclectic12 (Oct 20, 2010)

dogcom said:


> Of all the people I know I don't know anyone who has done well in stocks or mutual funds and never owned a house. Everyone I know despite the expenses who owns a house and have kids and the whole bit are worth a lot more then those who have always rented.
> 
> [ ... ]
> 
> So when you look around you do you see anyone who is successful and don't own or have owned a house.


I've worked for executives who rent as they move so quickly from company to company, buying a house doesn't make sense. In some cases, the company pays the rent anyway. Some of them setup holding companies as their investments were generating "too much tax". This would qualify as "successful", IMO.


On the other hand, who we know and intereact makes no different for what is a better investment for us.

Then again, I could be Warren Buffet's best friend and still be a bad stock market investor.


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## kcowan (Jul 1, 2010)

Eclectic12 said:


> On the other hand, who we know and intereact makes no different for what is a better investment for us.
> 
> Then again, I could be Warren Buffet's best friend and still be a bad stock market investor.


The problem is that friends and associates seldom share enough information to make what advice they provide relevant and actionable.


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## I'm Howard (Oct 13, 2010)

*House pays for itself*

We exit for warmer climes and make our home available to people who wish to ski in our area.
First time, we were very nervous, but we use a local RE Company, they look after everything, we have had no problems.
Rental Income pays for all costs of being down South, plus we have some one in our home while we are away.
Home will be Tax Free Inheritance, better than RRSP.


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## hboy43 (May 10, 2009)

Hi:

Well, I recently sold my first house held since 1985 for about $270K net. Bought at $88K including costs. Put in the equivalent of $40K or so capital improvements. Bottom line is return on the capital value of about 2.9% PA while inflation was something like 2% PA. If I had sold 7 or so years ago, my then 18 year history would have been highly negative.

After the above, I also lived in the house with roommates for the first 12 or so years, then with my wife for 7 years, followed by it being a rental for the last 6.

You, know, I did OK in the end, but only because the last 7 years or so produced a RE boom. It would be a completely different story if I had sold in say 2003. My positive experience was entirely a matter of luck, as it pretty much has to be when one owns a single instance of a particular asset class.

I also bought my first stock around 1985, probably 1983. I have had at least 5 if not 6 stock positions go bancrupt.

Sounds like I am arguing in favour of RE.

Well, actually no I think RE is the inferior asset class. It needs to be insured. You pay taxes on it every year. These two items alone run > 2% of the value of the house. You need new roofs, and windows, and electrical services. (The last is not hypothetical, it cost me $2800 in the process of selling the house.) It is anti-diversified, pretty much by definition it is not a financial investment, but a speculation, unless you can buy 10 properties in 10 markets.

On the other side, to balance the bancruptcies in stocks, I also have some close to 10 baggers in companies like SNC-Lavalin and Methanex. I must have owned those companies for 15 years or so now. Six instances of foolishness were far outweighed by other stock choices. Plus the instances of foolishness, being only 5% or so of net worth, spread out over many years, are not fatal. Being unlucky once in RE can be financially fatal.

I don't have the slightest doubt that if I had rented all these years and instead invested the capital in stocks, I'd be ahead now. But I have discipline for saving and investing. The forced savings and illiquid nature of RE probably works in favour for the average Joe.

I still own one property, but I am certainly not counting on it to ever add to my finances. It is just that I like to have a workshop, and garden extensively. These activities are not really feasible in a rental situation. So it is a lifestyle choice, not part of the financial plan.

My 2 cents.

Regards,

Hboy43


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## kcowan (Jul 1, 2010)

hboy43 said:


> I don't have the slightest doubt that if I had rented all these years and instead invested the capital in stocks, I'd be ahead now. But I have discipline for saving and investing. The forced savings and illiquid nature of RE probably works in favour for the average Joe.
> 
> I still own one property, but I am certainly not counting on it to ever add to my finances. It is just that I like to have a workshop, and garden extensively. These activities are not really feasible in a rental situation. So it is a lifestyle choice, not part of the financial plan.


That is why I call it a lifestyle expense. You could probably find a rental with a workshop and garden but why bother if you can afford to own?


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## CanadianCapitalist (Mar 31, 2009)

hboy43 said:


> Well, I recently sold my first house held since 1985 for about $270K net. Bought at $88K including costs. Put in the equivalent of $40K or so capital improvements. Bottom line is return on the capital value of about 2.9% PA while inflation was something like 2% PA. If I had sold 7 or so years ago, my then 18 year history would have been highly negative.


Aren't you forgetting the rents you paid yourself for living in your home? This is not a trivial benefit. You should include it in your return calculations. If you ignore it, it's a bit like ignoring all the interest you get from bonds and saying bonds provide you with 0% returns.


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## Four Pillars (Apr 5, 2009)

CanadianCapitalist said:


> Aren't you forgetting the rents you paid yourself for living in your home? This is not a trivial benefit. You should include it in your return calculations. If you ignore it, it's a bit like ignoring all the interest you get from bonds and saying bonds provide you with 0% returns.


+1


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## andrewf (Mar 1, 2010)

CanadianCapitalist said:


> Aren't you forgetting the rents you paid yourself for living in your home? This is not a trivial benefit. You should include it in your return calculations. If you ignore it, it's a bit like ignoring all the interest you get from bonds and saying bonds provide you with 0% returns.


Indeed. This probably boosts the return from 2.9% to perhaps 7% or 8%. But buying property for capital appreciation is pretty risky.


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## kcowan (Jul 1, 2010)

And then you may have forgotten to include those weekly trips to Canadian Tire to buy something else to improve your lot. A friend and I did an informal summary and came up with $100 a week. So you "could" add $5000 to your maintenance budget every year and deduct that from your proceeds.

Is that informal $5k/year in addition to your $40K? If so, then there is another $125k over 25 years that you have continued to sink into your project. Only you can be honest with yourself on that score.

OTOH every one of those $100 projects may have contributed to your mental health. So maybe you just write it off to your health budget. Like I say, home ownership is a lifestyle expense! Just look at all those Canadian Tire Bucks!


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## dogcom (May 23, 2009)

Let us say you and the wife bought a house and it dropped 25% in price, stock prices stay the same as a side note, but you can still afford it, so you continue on living.

Let us say you and the wife want to buy a house but you tell her it is better putting it into the stock market. The market drops 25% but house prices stay the same and now you have to pay 25% more for a house. You still can afford a house but now it is on a tight budget.

The cost of wife beating you on the head for years for putting it into stocks, not to mention paying rent is priceless.


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## Jungle (Feb 17, 2010)

kcowan said:


> And then you may have forgotten to include those weekly trips to Canadian Tire to buy something else to improve your lot. A friend and I did an informal summary and came up with $100 a week. So you "could" add $5000 to your maintenance budget every year and deduct that from your proceeds.
> 
> Is that informal $5k/year in addition to your $40K? If so, then there is another $125k over 25 years that you have continued to sink into your project. Only you can be honest with yourself on that score.
> 
> OTOH every one of those $100 projects may have contributed to your mental health. So maybe you just write it off to your health budget. Like I say, home ownership is a lifestyle expense! Just look at all those Canadian Tire Bucks!


Well your friend has a spending problem, $400 a month on Canadian Tire? Canadian Tire is a men's sore for junk. I've never seem so much crap in my life. I hate that store. 

I would not consider that a cost of housing, but rather foolish spending. 
And same can be said for renters, spending money on lawn, gardening or what ever inside home maintenance.


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## dogcom (May 23, 2009)

I am now totally convinced that home investors are better off then stock investors. If you borrow to buy a home even to rent out you can check the area get a good idea about the rent you can get and so on. If you buy at a real hot time you know this and will get punished in a price decline. The thing is it won't be a big surprise to see prices drop.

In the markets if you borrow to invest you have no idea what criminals or central banks can do and do it legally only for them. They can print money out of thin air and sell as much as they want with no risk since the money came from nothing and distort markets so you have no idea what cheap or expensive is. You have to be nuts to do a Smith Manoeuvre knowing that someone can use unlimited money off a computer to go against your position at any time. 

In housing if my neighborhood has 100 houses in total you don't have someone come in with printed money selling 110 homes that don't exist all at once in my neighborhood it just doesn't happen. In the markets this is a real possibility. Sure you can say look what happened in the states with home mortgages but again you could see what was happening and it was clear people were over their heads and risked having to sell. In the markets there is nothing to stop money coming in out of thin air to do whatever they want. You have to know that when you buy stocks the unknown risks are everywhere.


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## Hawkdog (Oct 26, 2012)

dagman1 said:


> Renting *always* = money down toilet. Buying *always* = a good investment. Now I finally understand.
> 
> P.S. Where do you think all that interest you pay goes to? Answer: Toilet paper.


I might be out to lunch here and a little but but even though the rent goes down the toilet, and as pointed here interest goes down the toilet - if the amount you pay in rent equals what a person pays in interest to buy - the person buying actually owns equity at the end (if that person bought wisely).


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## Hawkdog (Oct 26, 2012)

Just to play the devil's advocate here, 

I am curious how the whole hippy 5th wheel thing would have worked before your kids left home? Or are you advocating just for retirement?

Renting or buying depends on your situation and the way you handle it.

buying a house you can't afford is foolish for sure. but paying to much to rent a place is foolish as well.

I am all for buying a house and paying it off as fast as you can so you don't pay interest or rent and you don't have to answer to a landlord.






furgy said:


> I don't own a house , I have owned five in the past.
> After our kids left home , we decided to sell the last house and buy a large top of the line 5th wheel trailer and travel around for a few years , that was 13 years ago.
> 
> We find a semi-minimalist existence in some ways to be very rewarding , I still own and operate my own business which is worth more than most peoples homes that I know.
> ...


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## Robillard (Apr 11, 2009)

@dogcom
It seems like you are confusing the issues of short selling and the expansion of the money supply. 

This whole issue of whether equities of real estate makes a better investment is a false dichotomy. Nevertheless, aside from the obvious differences between the two as investments, one big difference that you alluded to is that stock can be sold short whereas real estate cannot. Your suggestion that because stock can be sold short it must be a bad investment, is false. The markets for real estate and equities both prone to bouts of irrational pricing, where price-earnings ratios can stray far from long-term averages, and prices diverge significantly fundamental value. Short selling can help push stock prices back towards their fundamental value, by creating a profit incentive to do this. Of course, just because stock can be sold short, doesn't mean that it will be fairly valued.

As for whether the ability of central banks to create money is more or less of a threat to stock or real estate, this issue is ambiguous. If consumer price inflation increases to 10% because the central bank is greatly expanding the money supply, it doesn't necessarily follow that stock and real estate prices are going to increase 10% (though the trend would likely be for some kind of increase in asset prices). The effects of inflation are uneven. 

It is worth noting that inflation is generally a boon for debtors, like people with mortgages on houses. 
For example, suppose one buys a $100,000 house, and takes out a $50,000 mortgage at 3% interest. If inflation increases from 0 to 3%, next year, assuming that the home owner's income and the price of the house rise in line with inflation, the real cost of servicing the mortgage basically goes to zero. Moreover, even if the homeowner doesn't pay back any principal on the mortgage, the real burden of debt on the house will decline simply because the nominal value of the house on the market increased. So in this case, the price of the house went up to $103,000, while the mortgage was unchanged, therefore the real value of the mortgage lien on the house declined from 50% of the house's value to 48.5% of the house's value.


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## lonewolf (Jun 12, 2012)

The speculators large or small in the market are the ones that have a worse track record compared to the hedgers.

Buying a house as a long term hedge against paying rent has worked well for a lot of people.

Reducing risk by hedging, not increasing risk through speculation might be the best approach to real estate & the financial markets.

Investors need to protect themselfs from themselfs.


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## dogcom (May 23, 2009)

Robillard my problem is people borrowing to invest are the ones that can get killed by manipulations. I am not against investing as long as you don't borrow to do it. Everyone borrows to invest in real estate and the problems they will have is if they over borrow and can't afford it. The stock or commodities market is easily manipulated and is being done to the extreme today compared to anything in the past.

So again unless you get very lucky you will be very sorry if you try to make it in the stock market by borrowing money.


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## kcowan (Jul 1, 2010)

Buying a home is the least risky form of leveraged investing. But it is still risky with all the same issues that any other form of investing brings. Borrowing money = throwing money away on interest payments. Unless the asset being purchased has superior fundamentals than fixed income.


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## none (Jan 15, 2013)

Buying home versus stock market discussion are always messed up by people cherry picking examples of when one was awesome and the other terrible.

No one can argue that buying residential real estate in the last 10 years in Canada was a phenomenal investment that made people a lot of money - for most likely the most money for the least work many have ever made.

Many people (I think correctly) predict the next ten years will be the exact opposite.


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## Cal (Jun 17, 2009)

There was an article in the G&M today that showed the breakdown of renting a condo in Toronto vs owning the same condo, and it worked out to be cheaper to rent.


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## dogcom (May 23, 2009)

I still disagree none, sure going forward it will be a challenge to have real estate go up but stocks are still very much a smoke screen and hocus pocus, that real estate doesn't suffer from. Stocks are paper except where you are there and able to touch and feel what you own. People just simply don't make it in the stock market except the few who have lots of money to put in and it is well managed.


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## GoldStone (Mar 6, 2011)

none said:


> No one can argue that buying residential real estate in the last 10 years in Canada was a phenomenal investment that made people a lot of money


Not necessarily.

We bought this house in 2002 for 191K. The house was worth about 310K at the end of 2012. A gain of 120K in 10 years. Seems like a lot of money, but the nominal rate of return is actually not that impressive: 4.9%

Let's account for expenses. Property taxes alone shave 1% a year. Real estate commissions, legal fees, land transfer taxes and maintenance costs shave another 0.5%.

Nominal rate of return after expenses: 3.4%

60/40 couch potato portfolio returned 5.6% nominal in the same period. 2% better than my house.

Here's the greatest irony: the last decade was great for real estate and lousy for stocks. The difference would much bigger if not for 2008 market crash.

House is a place to live, not an investment.


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## doctrine (Sep 30, 2011)

dogcom said:


> Stocks are paper


I disagree somewhat - stocks are paper that pay you money on a regular basis, if you are investing on companies that give you cash returns.

Everyone does have to live somewhere, so rent vs buy is a value question. Rent can be cheap enough that you'd be insane to pass it up. A house can be such a great deal that you'd be an idiot to rent. And there are an infinite number of combinations in between. 

I am sticking with the "3 times gross income" limit for housing. In my area, it is more like 7 to 9 times income. If you made $100k a year, would you buy a $900k home? That is what a lot of the west coast is like. Buying a place for $300k while making $100k a year seems reasonable to me. And there are lots of places you can do this, and get a great house on a great property. Not in Vancouver or Victoria though - unless it's an empty lot.


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## sags (May 15, 2010)

All the arguments for home ownership were trotted out before the US housing collapse.

Millions of people were financially devastated by the crash. They lost everything and ended up with their credit destroyed.

The blame was placed on subprime lending............but the US wasn't the only place to have housing crashes.

There were crashes all around the world...........from Ireland to Australia.

Canada was one of the few countries that escaped relatively unscathed. In fact home prices continued to go up and up.

So..........Canada avoided a housing crash. Canadian houses cost a lot more than a comparable home in the US, despite the fact that US mortgages are 30 year fixed rates and tax deductible. 

Maybe Canada will continue to avoid a housing crash...........but it is looking more unlikely all the time.

If home prices fall 30-50% in Canada............there won't be a discussion about rent vs buying, from a strictly financial viewpoint anymore.

Not only we did and still do have subprime mortgages..........but they have been the bulk of all new mortgages.

Home ownership is a good thing. Do people expect that it should be profitable as well?

"buy now......before you are priced out of the market"..........if true, who will be buying all our homes in the future that make them "worth" anything?

In Canada, 70% of people already own a home. How many of the remaining 30% want to own a home or qualify to own a home?

We have in Canada, rising house prices and shrinking markets, and perhaps most importantly a complete stagnation of incomes.

We will see how it all ends.

Edit........we are probable buyers of another home in the next year or so, but it is solely a lifestyle choice that has nothing to do with "investments" and everything to do with fulfilling a need and a desire. Needs and desires usually come at a cost.


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## dogcom (May 23, 2009)

Sags I found it easy to make money in real estate by buying moving up and selling when the time not the timing was right. I made sure the housing market was bad when I sold and moved up the first time in 1991, sure my home was worth less but the home I moved up to was pushed down in price much more putting it within reach. The second time a few years ago my home was overpriced temporarily with better homes usually worth much more a few blocks away so I sold and bought there. Again I paid to much for the new home but someone paid way to much for the home I sold. The thing is if you aren't impatient or desperate you can make the deals and do well in real estate.

Now here is the kicker. Since many here think real estate is over priced then go out and borrow $300,000 or more and put it into the stock market instead of buying a home. Sure it seems easy but I would never do such a thing buying a piece of paper and put it to possible risk of manipulation which is everywhere today because of central bank disruptions and to boot the possibility the government will steal my money like Cyprus.


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## Hawkdog (Oct 26, 2012)

Its true its a lifestyle choice. For me if it was strictly about money I would buy a $10000 trailer in the trailer court with the trailer park boys.

Here's where investing in the stock market and and investing in real estate are similar. When it crashes - buy.





sags said:


> All the arguments for home ownership were trotted out before the US housing collapse.
> 
> Millions of people were financially devastated by the crash. They lost everything and ended up with their credit destroyed.
> 
> ...


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## Hawkdog (Oct 26, 2012)

Same, I have bought and sold 4 times in the last 20 years. I have made money each time. Renovate a house that has a view or is near a water feature.



dogcom said:


> Sags I found it easy to make money in real estate by buying moving up and selling when the time not the timing was right. I made sure the housing market was bad when I sold and moved up the first time in 1991, sure my home was worth less but the home I moved up to was pushed down in price much more putting it within reach. The second time a few years ago my home was overpriced temporarily with better homes usually worth much more a few blocks away so I sold and bought there. Again I paid to much for the new home but someone paid way to much for the home I sold. The thing is if you aren't impatient or desperate you can make the deals and do well in real estate.
> 
> Now here is the kicker. Since many here think real estate is over priced then go out and borrow $300,000 or more and put it into the stock market instead of buying a home. Sure it seems easy but I would never do such a thing buying a piece of paper and put it to possible risk of manipulation which is everywhere today because of central bank disruptions and to boot the possibility the government will steal my money like Cyprus.


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## none (Jan 15, 2013)

Hawkdog said:


> Its true its a lifestyle choice. For me if it was strictly about money I would buy a $10000 trailer in the trailer court with the trailer park boys.
> 
> Here's where investing in the stock market and and investing in real estate are similar. When it crashes - buy.


I bought 500K of apple stock when it was at $700 a share (of which I had to borrow 400K to buy that much). Fortunately, I didn't buy it as an investment but rather as a lifestyle choice so it's no big deal.


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## w0nger (Mar 15, 2010)

it takes money to make money, and what better way to make money than borrow money and have someone else pay it back for you.

That's my argument for buying an investment property.


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## dogcom (May 23, 2009)

Hawkdog and wonger know what is good for them and the transparency that goes with owning homes. Stock investors just don't stand a chance in a market that is far from clear.


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