Spot The Speculator #14 – “Third generation Alberta real estate investor” recommends a fail-safe retirement plan

This young RE bull not only suggests a ‘money-for-nothing’ ‘retirement plan’ that is downright dangerous at this stage of the market cycle, he also implies that those who foresee a RE crash are somehow mean spirited and somehow against “offering something that people can do to help themselves”. In reality, most of the bears I know have become more and more vocal about the preposterously overvalued RE market for the very reason that they DO care… They care about the effect of the bubble on themselves, their families, their friends, and their society. From the bearish perspective, “something that people can do to help themselves” is to sell their overvalued speculative RE now and save themselves a lot of suffering later. -vreaa

The image above and the article below from 30 year old “third generation Alberta real estate investor” W. Chris Davies at his blog 31 Jul 2010
My $200,000 Retirement Plan.
So, this is actually really simple.

  1. Buy a $200,000 house today.
  2. Rent it out, making sure you’ve picked a house where the rent covers the expenses with a bit leftover.
  3. Wait 20-30 years. That’ll make me 50-60.
  4. You’ll have (at least) a $200,000 asset free and clear that you can sell, remortgage or light on fire.
  5. Repeat Step 1 as able while you’re young.

Make sense? What do you have that’s better? What’s holding you back?”

In response to comments below his post, Chris added:
“It’s not rocket science and I’m always reminded of the (now) cliche ‘don’t wait to invest in real estate. Invest in real estate and wait’”
[in response to a comment that “Alberta will crash”] “It’s easy to say things will explode. How about offering something that people can do to help themselves?”

Elsewhere on his blog, Chris describes himself thus:
“I have worked for a property management company in a variety of positions, including resident manager and property management assistant. I have been involved with real estate since I was born. I am a third generation Alberta real estate investor.  I am a member of the Real Estate Investment Network. My parents are as well. I do not have any financial ties to the property management company I formerly worked for, or to any corporate body involved in the real estate industry, except my own. I’ll do my best to disclose conflicts of interest where they exist.”

[This link via e-mail from a reader who wishes to remain anonymous. Hat-tip to them. -ed.]

17 responses to “Spot The Speculator #14 – “Third generation Alberta real estate investor” recommends a fail-safe retirement plan

  1. If there were lots of houses out there that cost $200,000K and for which the rent covers the mortgage with a bit left over, I wouldn’t be a housing bear.

  2. His plan is pretty simple in theory, but I think the tough part is finding a place where rent covers expenses.

    He also leaves out the painfully obvious cost of replacing the house. If there is a house out there for 200K where rent covers expenses I’ll bet its pretty old and will need a rebuild in 20-30 years.

  3. It sounds so simple. Have other people work for you. Use leverage to your advantage. I wish the gentleman luck. No more bets!

  4. I’m currently in Alberta for work. A starter home is ~400k +/- 25%.

  5. Thanks for the mention and the link.

    @Absinthe Give me a shout if you’re ever in Edmonton and I’ll show you a bunch.

    @Davers I left out replacement costs because the oversimplified idea of a 20 year hold would take into account the economic lifespan of the property. Everything I buy or own currently is based on a 5-8 year hold, and I have an active maintenance program, so there’s no 20-year hangover.

    @jesse Thanks, and it can be quite simple. Do what you know, learn lots and partner with those people with strengths that compliment your weaknesses.

    @buff_buttler I bought my first principle residence at the start of this year, a very nice 1980 townhouse in a nice complex on the north side of Edmonton, well renovated 3-bedroom ~1500sqft, straight off MLS for ~$250k. For the plan I talk about, I’m only talking about non-principle residences. Where you live should be about your life, not just how much you think you can make off it.

  6. @Chris, I don’t think people are maligning you for sticking to a profession and being fairly compensated for it.

    There have been times in history when having leverage is decidedly bad. If I take 100 Chris Davies clones who buy at today’s prices, I can guarantee you a couple will go bankrupt in the best of times. If property prices fall significantly and mortgage rates increase, that number ticks up even more. Most of you will come out fine but there are ones that won’t. As long as your clones know the risks.

    That said, I wish you the best at what appears to be your labour of love.

  7. @Jesse, you’re right and I didn’t mean to come across feeling maligned. Actually VREAA did more than the average bubble blogger level of homework in bothering to read and quote my about page. I appreciate people who look behind the curtian, but I’m also a big fan of people with creative, proactive suggestions.

    I actually had a non-real estate full-time day job until this week.

  8. @chris, first off congradulations on your purchase. It sounds like you did quite well actually and its not a crasy purchase.

    From looking arround myself, townhouses arnt as extreme as houses especially if you consider housing in the burbs such that some of them do quite well. The reason you probably made it here wasn’t of your actions but because of the general advice. You, personally will probably do quite well given your experience and dedication; this is a whole lifetime focusing on details and reading through you have some great posts that are very smart. I’m not sure if this is what Jesse was saying; the risk is in the people that follow generically as easy money.

  9. “townhouses arnt as extreme as houses especially if you consider housing in the burbs such that some of them do quite well”

    should be

    “townhouses arnt as extreme as houses especially if you consider houses in the burbs. Some of them are quite questionably priced.”

    I regularly forget to proofread… id be a terrible blogger 🙂

  10. “I actually had a non-real estate full-time day job until this week.”

    If you don’t mind me asking, what happened to the day job?

    (sorry if I missed something)

  11. CanuckDownUnder

    So as a “third generation Alberta real estate investor” Chris would surely know that Alberta real estate prices dropped 32% between 1982 and 1985?

  12. @Bailing I’ve decided to leave both the firm and the industry (Digital Marketing). I’ll probably blog on the transition and what comes next sometime in the next week.

    @CanuckDownUnder Since my post was about a 20 year strategy intended to make money, and not to panic during a down turn, here’s two numbers from you. Buy in 1982 and hold through the recession. You’d be up ~64%. Buy in 1985 and in 2005 you’d be up 120%+. There’s always a way to make lemonade out of lemons.

    • FYI chris,

      64% or even 120% return over a 20 year period is nothing to brag about. I’ve been told a good investment doubles in value every 7-9 years.

      However those numbers dont include what (if any) profit you made in rent. I guess that is the big kicker. If you can get a place that rents for more than the ownership costs (mortgage included) and pays you a decent wage for your time then it could go pretty well even if prices drop.

      The trouble is, I dont know of any places around Vancouver that rent for more than ownership costs.

      • @Davers, Except if you only put down 20% your return is then 300%+.

        There’s better cash flow in the suburbs, like Maple Ridge, Pitt Meadows, etc. However most of the Vancouver folks I know who are active investors are buying in Alberta.

      • Chris -> Leverage works both ways.

  13. You’d be up 64% or 120% only if you sell. Otherwise it’s back to what you make of the rent.

  14. CanuckDownUnder

    @Chris – You buy at the top and enjoy lemonade in your retirement, I’ll buy at the bottom and enjoy limoncello in mine. 🙂

    You always hear the same reasoning on gold forums where lots of people have this mantra of buy no matter what the price. I suppose people just get attached to an investment class and decide there’s never a bad time to buy.

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