“I am amazed financial gurus seldom suggest buying a second property. We live in a real estate hot spot. If you buy a house or condo with 25 per cent down and it appreciates by 25 per cent, you have doubled your money.
Rents in Vancouver have seen stagnant periods but have rarely dropped, allowing the investor to wait out temporary downward blips in the market.
There is no tax payable on appreciation until the property is sold and then capital gains tax apply based on the owner’s (retirement?) income.
Obviously such an investment requires some management effort but in the past 35 years a 33-foot lot in Vancouver’s West Side has risen in value from $14,000 to over a $1,000,000 ($28,000 per year!) and I’m sure the next 35 years will bring golden returns to lucky owners.
I wish my RRSP (registered retirement saving plan) had done that well!”
- ‘Saving for retirement? Real estate is your best bet’, Andrew Renton, ‘Opinion’, Vancouver Sun, 18 Feb 2012 [hat-tip E.G.]
Haven’t we been saying we’re in speculators up to the eye-balls?
Most are ‘shadow’ speculators, unaware themselves that they are speculating.
But guys like Andrew are aware of what they are trying to do, and are examples of one of the purer breeds, just one step away from the pure short-term flipper.
How do these RE holders respond when “golden returns” don’t accrue in the imagined fashion?
When 15% drops mean you’ve lost 60% of your money, and prices then keep dropping??
They bail — All those second and third and fifth properties become supply.
Also, they cease to be demand.
- vreaa
“If you buy a house or condo with 25 per cent down and it appreciates by 25 per cent, you have doubled your money.”
If you buy a place with no money down and it appreciates by only 1%, you have multiplied your no money by infinity. The point being…?
Funny how home-equity junkies always leave out mortgage interest, property tax, repairs and maintenance, home insurance, mortgage insurance, closing costs, inflation, utilities, etc when gushing about how much money they made on their ‘investment.’
Any financial guru worth his weight in salt (Peter Schiff, Robert Kiyosaki, Mike Maloney, etc) will be the first to tell you your home is not an investment. Buying a second property is like trying to put out a fire with gasoline with all the risk in today’s market.
“in the past 35 years a 33-foot lot in Vancouver’s West Side has risen in value from $14,000 to over a $1,000,000″
For it to do the same thing again, that property would have to appreciate to $71M. Does anyone really believe a 33 foot lot would ever sell for $71M. The only way that is going to happen is if there is a massive hyper-inflation. If anything, the fact that you have seen prices appreciate by such remarkable amounts would indicate you are in for a long stagnant period.
How much would the total value of Vancouver real estate be if these appreciation rates carried through for another 35 years?
Yes, that’s right, Vancouver home owners won the real estate lottery. But if you won a $1m on the lottery last Saturday would you take those winnings and buy $1m worth of new tickets for this Saturday?
As for the 33 ft lot going from $14k to $1m in 35 years…does ANYONE realistically think that same lot is going to be worth $72m in another 35 years?
“But if you won a $1m on the lottery last Saturday would you take those winnings and buy $1m worth of new tickets for this Saturday?”
Some people would. We call them addicts.
Property flippers and various “upgraders” are doing just that.
Past results are not an indication of futur… Oh never mind.
Anyone who takes financial advice from this guy deserves everything they get.
His credentials? “In January 2001, I qualified to join TMAC: The Travel Media Association of Canada”
http://www.writerrenton.com/about.html
“with 25% down and it appreciates by 25%, you have doubled your money.”
“with 25% down and it depreciates by 6.25%, you have wiped out your downpayment.”
Aaahhh, the magic of leverage…
…technically not, but maybe counting transaction costs and interest rate differential!
Real Estate gurus suggest it all the time. And they’re generally the ones referred to as ‘gurus’. I haven’t seen too many Renaissance gurus who talk both about financial and real assets. Maybe because you can write a book about finance for the whole country which generally applies, excepting a few provincial tax quirks, but real estate is so local that anyone who doesn’t take local conditions and prospects into account is a quack?
If I said “anyone who’d bought McDonald’s stock in 1978 for an adjusted $1.125 would now have stock worth $100, plus a huge pile of dividends,” people would accuse me of hindsight, cherry-picking, and being dangerously undiversified.
“Real estate hot spot!”, “$28,000 a year!”
just… nauseating.
The thing that I found weirdest about it was that it just seemed to be a rather random insertion in the letters-to-the-editor. No real provokation. None of the normal “won’t people pick up their dog’s poop” complaints or fussing about the BCTF strike or transit woes.
Just… this. Unsolicited real estate “financial” advice in the opinion page.
I’m surprised he didn’t mention the interest deductibility. Usually that’s the first thing these pumpers tell you about. “Dude, you can deduct the interest rates! You can’t lose!! It’s like, dude – here’s some free money. I mean…… dude.”
The sad part is the author likely believes what he is writing about. Just another of the brainwashed masses whose big investments will get flushed down the loo when it all comes apart.
On that note it does appear that Vancouver is meeting its Waterloo. It has been a long ride to get to this point but those of you who predicted the wheels would fall off this machine will be proven correct soon enough.
How can there be a consolation though. The economic damage that is wrought by a bursting housing bubble affects everyone. You will see the outcome in your higher income tax bill and reduced services from the federal level. You will notice a serious decline in local services and at the municipal level too.
Some here hope for a crash. Perhaps pray is a better word. They are delusional if you ask me. We are not collectively better off when our friends and neighbors fail. We can resent them until the cows come home for their profligate and wasteful ways (I do) but in the end we can only hope the damage is not too severe.
Some of you out there will lose your jobs though. Some of you who were good, who saved, who behaved responsibly and did not participate in the real estate madness will still be victims of the excess wrought by others.
Far from being vultures and speculators when the bubble unwinds, you may find the closest you ever come to taking advantage of the golden opportunity to buy at the bottom will be when you witness a real saver sign the papers on a house you rent.
You might not want to hear that but be forewarned. If you have not taken this time of excess to save and prepare for the day of falling prices then you will have wasted one of the biggest opportunities ever handed to you.
You will have missed two chances actually. The first when you did not buy in to a rapidly appreciating asset class, the second when you were not ready to capture a steal of a bargain when it hits bottom.
Real estate is not falling to zero in Vancouver. Not anytime soon anyway and not unless there is a magnitude 7.5 earthquake or greater. You still need money and in a tight credit market you may need both excellent credit and a significant down payment.
Few of the so-called vultures understand this dynamic. They are more bluster and bluff than substance as they look forward to the loss of others with more enthusiasm than they do to the opportunity to buy in at the bottom.
I will only offer this small piece of advice once here. Now is the time to save if you have neglected to do so until now. Indeed, time is now short before Canada’s credit contraction and housing correction takes many people out of play altogether and employment levels begin to rise.
The first big cracks have now appeared in Vancouver’s market. It is slowing as a combination of rising listings and falling demand finally push the market over the edge. As you who follow this site should know well, once that downturn begins in earnest it will not end until prices have reverted to the mean.
Save now or forever hold your peace.