“Right now I am betting about 85% of my life’s savings in small town Canadian real estate. I am buying nice houses in quiet small Canadian towns for the rental income.”

Ben Rabidoux, of the Economic Analyst, has a fine post headlined at zerohedge.com 24 Jun 2011, ‘What’s Really Driving House Prices In Canada? The Must-See Graph Of The Day…’.
Here’s ‘Diogenes’ in the comments section, 24 Jun 2011 19:55 and 19:45-
“I don’t know why house prices are still climbing. I figured the US crisis would spill over into Canada so I sold all my rental properties between 2008 and 2010. I was wrong, now I am buying other properties at higher prices. Right now I am betting about 85% of my life’s savings in small town Canadian real estate, the balance being in physical gold and silver. I am buying nice houses in quiet small Canadian towns for the rental income. If they go up that’s nice but I can hold on quite comfortably and live on the rental income. If they come out with some kind of draconian rent control due to runaway inflation I can sell them at a profit. So no, I am not afraid of a Canadian real estate collapse. I expect prices to continue rising as long as governments pursue inflationary policies. If they ever decide to go for the balanced budget, higher taxes and higher interest rate policies I expect the market to dip then stay flat for a while. That is what typically happens in Canada. Yes we have boom and bust cycles but not to the extent of the US.
Examples of my purchases, in small towns in the neighborhood of Belleville Ontario.
Latest purchases, a 1400 sq ft bungalow on 2 1/2 acre lot on the Moira River, 265ft water frontage, $85,000 plus another $50,000 in fix up costs.
2500 sq ft solid brick Victorian 2 story 4 bed 2 bath house in a small town, $124,000.
1000 sq ft raised bungalow, circa 1987, 3 bed one bath, quiet neighborhood $140,000
All bought since last fall, rents $1000 to $1250 per month.
I leave it to you if these are “bubble” prices.”

As we all know, these returns are far, far better than any in Vancouver.
The prices seem very reasonable to us, partly because prices here in Vancouver have become so very unreasonable.
In the coming crash, some small towns in parts of Canada may suffer less of a price drop than in the bubble centres, but we’d still expect RE to underperform across the country. And are those rents possibly vulnerable to economic climate?
It’d be interesting to know if ‘Diogenes’ is using any leverage, in which case, considerably more than 100% of their net-worth is in RE. – vreaa

10 responses to ““Right now I am betting about 85% of my life’s savings in small town Canadian real estate. I am buying nice houses in quiet small Canadian towns for the rental income.”

  1. It depends on how much he put down and how much of the monthly rent he puts aside for future repairs if he pays a property manager and so on. The thing about small towns is that the prices tend to be lower but the rents tend to be lower as well. One thing that is not lower is the cost of renos so it takes you a long time to get your money back.

    • nobody you know

      Yeah, this is one thing that I always find ridiculous about the “My tenant pays my mortgage!” claim. People tend to only focus on the money coming in, and not the time and money going out. Property doesn’t manage itself, and you pay a lot more than the mortgage to own a house.

    • If the guy does this as a job, great, otherwise it just sounds like a second job.

    • Liquidity and unemployment are exacerbated in small towns as well but they are getting close to 10% so their returns are off-setting the ‘small town’ risks somewhat.

      I doubt this is strictly passive income but this portfolio (along with the precious metals) seems like a perfectly reasonable strategy for a semi-retired, handy person.

      Cash is risky too. And so is betting everything on an RE crash, especially if you get the timing wrong.

  2. Meanwhile, ‘In extremis’/other news, ‘A Tale of Two Cities’ beginning with a fascinating glimpse into the BlackArts/crafts of ‘Fluffing’ London’s ultra-prime properties…

    [FT] – Dressed to sell: As competition in the property market intensifies, methods for polishing up homes to attract wealthy buyers are becoming more extravagant

    “In London, more than 60 per cent of £10m-plus houses sold in the past year went to foreign buyers, according to estate agent Knight Frank, with 52 per cent more of these sales going to Chinese buyers than last year.”

    http://tinyurl.com/62bkwao

    And to conclude, some other Londoners appear not to be doing so well….

    [UK Guardian] – Southern Cross’s incurably flawed business model let down the vulnerable: The collapse of Southern Cross has re-ignited the debate over the role of private finance in the care-home sector

    http://tinyurl.com/5taxpnd

  3. pricedoutfornow

    My family has had some experience with owning rental properties in small town BC. Not to generalize, but we ended up thankfully, selling a house for less than the assessed value because the tenants had completely trashed the place. The tenant quality was quite low (I mean, if houses are only $85k, most of the more responsible people with good jobs already own, so what you’re left with is people who for obvious reasons-bad credit, low-paying jobs, have to keep renting) and my parents spent a lot of time chasing after tenants trying to get them to pay the rent (which was only $500/month!) You definitely don’t have your pick of tenants in a small town. My father says he will never again own rental properties after such a bad experience. I don’t blame him, he lost a lot of money.

  4. I’m ignorant of Greek classical history so I had to laugh when the wikipedia told me that Diogenes made a virtue of poverty.

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