Housing-Bubble-Headedness – “Since I want to open a wine bar one day, I figured house-flipping was one way to jump-start a savings plan at the beginning of my career, when the money is still tight.”


“George, who lives with his mother in a townhouse, wants to open a wine bar. To get a leg up given his modest income, he is looking to speculate in real estate.”

“George has the lofty goals and dreams befitting a budding entrepreneur: He wants a business of his own, easy money, and the freedom wealth brings to put up his feet and retire by the time he is 55 – with an income of $150,000 a year after tax.
Back down on earth, George is 23, recently graduated from university and has just landed his first “real” job earning $35,000 a year plus bonus and other benefits. He lives with his mother in a townhouse in the Guelph area that they plan to flip for a $60,000 profit. He wonders how best to use his share of the anticipated gain.
George’s big dream is to open his own wine bar. He aims to save $70,000 over the next 10 years as a down payment and wonders whether that will be enough to enable him to get the financing he will need. To get a leg up given his modest income, he is looking to speculate in real estate.
“Since I want to open a wine bar one day, I figured house-flipping was one way to jump-start a savings plan at the beginning of my career, when the money is still tight,” he writes in an e-mail. Mind you, that $60,000 profit he and his mother expect has yet to be realized, and they’d need at least half of it as a down payment to buy a bigger, better home.”


“We asked Kurt Rosentreter, a senior financial adviser at Manulife Securities Inc. in Toronto and author of Wealthbuilding, to look at George’s situation. /… As for house-flipping as a way of making money, “Be careful. A real estate correction in the future could leave this ending badly for a young guy with not a lot of wiggle room.”
Mr. Rosentreter says George would need to accumulate $2.5-million by the time he is 55, excluding his home. Assuming a 5-per-cent rate of return on his investments and a 32-year time horizon, he would have to save $33,000 a year to achieve his goal, so he may want to set his sights a little lower. Mr. Rosentreter’s suggestion: “Save what you can.”


– from ‘Champagne dreams with a chaser of realism’, Dianne Malley, Globe and Mail, 2 Mar 2012

See how the distorted economic playing field that results from the speculative mania in housing has perverted the thinking of the young?
It’s all very distracting.
– vreaa

70 responses to “Housing-Bubble-Headedness – “Since I want to open a wine bar one day, I figured house-flipping was one way to jump-start a savings plan at the beginning of my career, when the money is still tight.”

  1. Joe_Blown_Away_By_High_Housing_Costs

    I just want to let you know that I found this blog 2 days ago and I haven’t been able to pull myself away. This is the best blog I have ever found. I am a renter originally from Vancouver who has been slowly pushed out to Surrey by high housing costs and renovictions. I have a lot of experiences relating to high housing costs that many of the readers of this blog might want to hear about.

    For now, I just want to share something that might give you a few laughs.

    Check out “The Reality Report” by Don Campbell, Jan. 2012 issue (link: http://cdn3.reincanada.com/images/January-2012-The-Reality-Report-2012-the-Year-of-Confusion-Concern-and-Consternation.pdf).

    It’s pretty hilarious stuff. More like the UNreality Report. Check out the second paragraph:

    “Over the last 20 years, my research team and I have been analyzing the Canadian real estate markets from a unique point of view — we don’t look at the real estate numbers. This approach has allowed us and the sophisticated investors who understand this approach to move forward when real estate signals all seem to be showing “stop” –and stop when signals all seem to be green.”

    What a load of crapolla!!! SOPHISTICATED INVESTORS DON’T LOOK AT NUMBERS!?!?!?! The paragraph contains two mentions of “this approach”. But he still hasn’t told us what the approach is. All he’s told us is what the approach ISN’T.

    That last sentence should be criminal–of course they don’t want you to look at the numbers because if you did those numbers would tell you to stop investing in overvalued real estate.

    So what is their approach for predicting the real estate market? If you read further, it’s some rubbish called the Sustainable Momentum Graph.

    “In a nutshell this graphic states the following: GDP growth = Job growth = Population growth = Job Growth = Population Growth = Increased rental demand (12 months later) = Increased rents = Property purchase demand (18 months later) which eventually leads to property price increases. This cycle works in the opposite direction as well, over roughly the same time lines. Sustainable real estate price increases occur approximately 18 months after a region’s economy begins to grow and they drop approximately 18 months after the economy in a region begins to shrink.”

    Population growth and job growth appear twice. So does rental demand increase 12 months after the first spike in population or the second?

    For those of you who know more about real estate than I do: Is there any theoretical justification for the claim, “real estate prices increases occur approx. 18 months after a region’s economy begins to grow and they drop approx. 18 months after the economy in a region begins to shrink”?

    Is there really an 18 month lag time? Once the job market starts to heat up or go south, isn’t the effect in the real estate market a bit quicker than 18 months? Where do all the new workers live for the first 18 months? I guess they rent (assuming there’s more than 0.5% vacancy rate).

    Anyways, I got a good laugh from reading this and I thought I would share it with this blog. Thank you to whoever created this blog and to everyone who contributes to it. There’s a lot of valuable information here and it’s great to know I am not the only one who can see through the cult of homeownership.

    • This is a great local blog. But also check out http://www.greaterfool.ca if you haven’t yet. Both are great with tons of info.

    • Anyone who claims that prices lag some macroeconomic event by 18 months is missing several variables that screw this up every so often.

      There is no sense of absolute price levels, things are viewed in terms of relative valuations — changes year-over-year. Using relative valuations gives no sense how deep the water is under your feet.

      Spread the word, this is a fun blog

    • Everybody has a great plan, but the best investment is in yourself first. Remember you are dealing with people. Then buy low, sell high.

    • Welcome, Joe. You’ll fit right in.

      About Greater Fool, I used to read that, but I stopped because I saw a lot of inconsistent messages from Garth and a lot of vitriol in the comments. Also, Garth’s hidden agenda is to get him to join his wealth management firm. Vreaa has had a consistent message for years, and as far as I can tell, he (or she) has no hidden agenda. And the comments here tend to be quite civil and informative.

  2. Renters Revenge

    “Mr. Rosentreter says George would need to accumulate $2.5-million by the time he is 55, excluding his home.”
    How many people actually achieve this goal?

    • Guess it depends how much 2.5m is worth in 30 years..prolly not nearly as much at this rate…

    • The “financial advisor” is also assuming a good rate of return on his investments and no market crash(es). Good luck with that one going forward.

  3. Well you cant fault the kid for having lofty dreams, many people in Vancouver and Toronto have doubled or tripled their money on similar speculation, however the game seems to be getting long-in-the-tooh and the government has stopped blowing wind into RE’s sails.

  4. Vintners vint, and speculators speckle. Let the dream not be the goal, but the route. Wealth happens when you don’t notice, when you’re too busy to stop and acknowledge it.

  5. It’s because many have gotten ahead in life all from selling their principal home and collecting the tax free gains. The young ones are followers and see that it’s an easy way to making $.

  6. “Save what you can”

    That’s like a doctor saying to try to cut back on the bacon. Senior advisor is senior.

  7. I want a wine bar and I want to flip houses to get it. Am I the only one who *automatically* figured this guy must live in the glorious BPOE?

    • That was my thought too. But the funny thing is, flipping houses is like a drug. Once you do it once, if successful, you’ll use most of the proceeds to leverage yourself more on the next flip. And like a drug addict, once you’ve tasted the easy money, you just can’t stop… until you’re forced to! These guys will just be two of the sheeps that will get slaughtered in the coming bust.

      As Vreaa said, this is just an example of how distracting RE has become in our city/country. This guy should be thinking about developing his career and find ways to go up on the corporate ladder, and not about becoming a parasitic RE speculator.

      • “find ways to go up on the corporate ladder”

        If his ambitions turn first to easy money and flipping, I’d prefer it if he kept himself occupied in real estate speculation.

      • It’s gambling. Like all the Chinese people at the casino. It’s a much different addiction than drugs. Everyone wants and needs money and it’s not illegal. So that’s not a good comparison. If you want to flip, roll the dice. If you had a crystal ball, you would do the same.

      • Van guy – “It’s gambling ….”

        If I can speculate on shelter and regulators promote profit, then let me run a private hospital. By comparison, healthcare is cosmetic to the lives saved by shelter.

        I would also like to bid on running government and the people can lease it back.

      • Good point Makaya. Right now I know of three people who are actively speculating on property. That is to say, they are fully invested in projects which they believe will return handsome profits and they are doing this as a living.

        Not one of them is willing to admit there is any danger. It is maddening really. They spew all the common arguments we all know so well, point to all the reasons why it is different this time or in this location and take any criticism as a personal affront. They honest to God sound like broken records repeating all the realtor mantras.

        And they get aggressive when confronted with contrary information.

        I don’t know whether to think they are just ignorant or plain hard-headed. To me it seems they are just one bad flip away from becoming real losers. One failed sale could wipe out years of equity and earnings. That is the risk. Guess they know it at heart.

        They just feel you are crapping on their parade if you worry out loud or try to offer words of warning. Like you are making them look bad in front of their peers. Some advice is never welcome.

    • “this guy must live in the glorious BPOE?”

      Huh? It says he lives in the Guelph area.

  8. “Back down on earth, George is 23…”

    doesn’t this tell us everything we need to know about his financial planning?

    • True enough. It used to be that teenagers were knuckleheads. That hasn’t changed.

      What has changed is the fact that nowadays most people in their early- to mid-twenties are still basically teenagers in adult disguise.

      This guy will bump into reality in a couple of years, give or take.

      • Aldus Huxtable

        Welcome to the age of infantilization! People programmed to never grow up, just to transition into a 20s and 30s state of endless consumerism trying to attain youth and bombarded by distractions. Spend the first 18 years of your life trying to act older, spend the rest of your life holding on to a false youth.

    • 4SlicesofCheese

      What a great lesson we have taught the next generation.

  9. keep blogging all days and your dream will come true! blogging and make money – way to the future!

    • Ah Fred, we didn’t miss you! How did you pass the filter this time?
      If you could adopt Formula 1’s new attitude, we would enjoy your presence much more…

  10. Garth Turner wants to sell his books and his lectures. To that end, he needs RE to take a tumble AND he needs there to be no threat of another economic downturn. He sees a house price correction but not a stock market correction. So he is as guilty as the “greater fools” he disses. His “greater fools” believe what they want to believe, so does Garth. Also, unless you agree with him, there’s no point in posting on his blog. It’s a worship Garth website, which is why only 3% of the people who read his blog actually post anything.

    The VREAA website, on the other hand, is much better. It seems to be a true forum for opinions of all sorts.

    • I’ve given up on his blog as well…

      The funny thing is, he quite often compares buying RE today as buying Nortel’s shares before it collapsed.

      Here is an abstract from an article I found, very funny:

      “In a Canoe “Money” chat room back on Sept. 27, 2000, Turner assured participants that the stock market was undergoing a mini-correction, that the Dow would hit 30,000 by 2006, and that “Nortel [then trading at $96.60] is a wonderful company and, given the recent decline, I think it is a strong ‘buy.’” That day, the TSE closed at 10,250.

      Barely two months later his enthusiasm refused to wane, despite a TSE index of 8,945 and a price for Nortel stock of $56.35. “Will the Nasdaq again reach 5,000 and the TSE attain 11,000?” Turner asked. “Will it be warmer again in April? How about clipping this column and taping it to the fridge?”

      Those who did would have noticed that, as of March 26, 2001, the TSE had slipped to 7,686 and Nortel, at $25.60, had begun its slide to penny-stock status. Turner remained confident: “By the time the flowers bloom in Saskatoon, the back of the bear market will have been broken. We will see sustained gains in Toronto and New York, and those who fled from stocks and equity funds into cash and money-market funds, taking a loss in the process, will be sorry indeed.” The bull was still charging.”

      The irony is, anyone listening to him for financial advice is also a greater fool.

      Nothing can replace education and experience when it comes to investing your own money.

    • I believe most of what Garth has to say about RE. He was right about the panic in the markets last fall. He told people to buy as that was an opportunity. Then the markets rebounded 30%. He now says that the 30 amortization will be canned at the end of the month. Let’s see how accurate he is. Although his timing is off for an RE correction, so are most predictions on other blogs. I don’t like how he insults posters, but it makes the blog more interesting. His posts are full of laughter too. I don’t worship the guy, I like his writing 👍

  11. Nice stairwell there – love the torn out drywalling to his left. I’m sure they’re just in the midst of replacing that and making the place look fabulous. A little “staging” and he’ll be well on his way to house-flipping heaven, and maybe even featured on HGTV.

    • Says George, townhouse co-owner, “After I shoveled out the crap from the last guy who tried a grow-op, the dank and dim cried out for cottage industry” The dedicated Guelph vintner makes arduous trek into the mortar and pea-gravel vault that hosts aging vats of turbid Welches pre-pack. This is the frontier in taste bud alchemy. Hooch or Merlot? Each morning, after the titillating performances of Judge Judy and Ellen, a daunting wait is met with a glass of avid expectation. Plonk rating: 3 out of 4 dry heaves for a moment shared between good friends. With a few simple building materials from the local lumber depot, an unused crawl space transforms into a profit center, bottling 24 gallons of bush party concentrate, eighteen kilos of bathtub cheese, and an alternating crop of Shitake mushrooms.
      “Hundred and fifty thou a year and I didn’t have to buy a single baggy,” extols entrepreneur George. And fans, too, here come his high noon neighbors, Bob and Weave. Mais oui!, this is the new economy.

  12. Obviously Garth is as wrong as he is right. He is a talented writer, definitely pompous and full of himself. I just don’t find his blog as helpful as it could be if he was actually a professional. He enjoys dissing people, which is really high school. And he is as much in denial as the “greater fools” he enjoys berating. He doesn’t criticize, he berates. The bottom line is, it’s about selling something for him (books, lectures, his ego) as much as it’s about selling something for realtors (houses, condos).

    • After my piece in The Sun last year, Garth named me the “the blog dawg star of the day” or something like that. So he’s okay by me. 🙂

      But seriously, he *is* the figurehead of the “this RE stuff is insane” movement. He’s an entertaining writer, he’s verbose enough to come up with something new and generally enjoyable every day but Saturday, and he’s gutsy enough to seemingly debate anyone, anywhere. And he’s defintely the guy who prompted me to stop being a slave to a 2400-sq ft box.

      I *totally* hear what you’re saying – and lord knows his Comments section is a tough read these days – but I’m glad he’s there.

  13. pumping investment in real estate doesn’t help Garth Turner’s personal finances. He’s heavily invested in equities and needs “greater fools” to jump aboard to further buoy his bottom line. He’s so desperate to have this happen that he’s wrongly encouraging people to invest rather than provide a roof over their heads (i.e. the 90 minus your age recommended % real estate exposure can only be achieved by investing first and heavily in stocks).
    Your first investment should always be real estate, and, if you only have one investment in your protfolio it should be your home. Imagine carrying a huge visa balance each month at 18.5% interest while maintaining the equivalent in your savings account at 1% interest. This one is a no brainer.

    • “First investment should always be real estate?”

      *Always*? Seriously?

      I’ve owned a home locally (for a decade) and I’ve bought and sold several properties in the US (prior to the bubble pop in 2005-2006). So I have nothing against putting money into RE.

      But you’re dead wrong – especially about this “always” business.

      When I bought my place in 1999, I did so with 35% down on a $275,000 purchase price (a very decent house in the pretty Sunshine Hills area of North Delta). But to make your first investment real estate at this point in time is the very definition of idiocy – in so incredibly many ways.

      Why do you say things like this?

      • “But to make your first investment real estate at this point in time is the very definition of idiocy – in so incredibly many ways”.

        this is your personal assessment. It may or may not be correct.
        Was it idiotic 10 years ago to buy at those prices, or five years ago, or now? See the pattern? You can only positively rate a decision to buy property in hindsight. Five years from now you’ll be talking about the “good ole days” when house prices were at levels of 2012. So when is a good time to buy? It isn’t 1999 anymore, nor is it 2008.
        Moreover, if you have money where should you put it? I assume it’s not under your mattress or in a low interest earning GIC or bond, so where is it? Chances are it’s probably in an investment vehicle that has as good a chance than real estate of losing money.
        I’m not advocating buying anything anywhere. But telling others not to invest because “I say so” ignores that our population grows by 50,000 each year, mortgage rates have never been more affordable, and that investing in yourself isn’t such a bad idea after all.

      • 4SlicesofCheese

        We are talking about first investment. Not the “best investment”

        Maybe people should start with something smaller with less leverage first to get experience with risk/reward.

      • Randy Lahey

        @forumla1
        “I’m not advocating buying anything anywhere.”
        Really…???

        “Moreover, if you have money where should you put it? I assume it’s not under your mattress or in a low interest earning GIC or bond, so where is it?”
        Why so negative on financial safety??

        When I was a kid there was a saying. “Dont put all your eggs in one basket”
        The concept behind this relates to a diverse financial porfolio, where smaller investments can be sold to provide cash flow during lean times or down markets. Not having to sell one big giant invesment under pressure. Also most young people are not only taking risk on the money they invest initally, but the balance of mortgage, which is many many times their yearly salary.

        But I guess RE Bull Logic doesn’t allow for the idea of anything but appreciating prices

      • “investing in yourself isn’t such a bad idea after all.”

        Don’t equate investing in RE with investing in yourself. Investing in yourself means getting a good education, developing business skills, and building your career. Many of those activities often require frequently moving from city to city. For people who move frequently, it is usually more financially prudent *not* to own RE.

    • home, house and investment are separate, distinct concepts. they generally do not coincide, though sometimes can under the right circumstances. confuse them at your peril … which obviously, is what many people did.

    • Uggh! Ever hear of earnings / yield? Buying a negative yielding asset is not an investment even if it’s a home. If you want to buy a million dollar home that was worth a third of that just 5 years with no improvement in cash flow and deteriorating fundamentals, then call it what it is – a speculative / momentum trade.

      • you are assuming your property is going down in value. So far you’ve been wrong…for about 11 years now. The way you’re speaking it’s like you’re talking about Las Vegas

    • formula1 -> Regardless of whether it is a good time to buy RE now or not (we’re on opposite sides of that divide, clearly), there is one thing about your comment that is absolutely definitely incorrect: Garth Turner does not recommend equities for the reason you suggest, that he “needs “greater fools” to jump aboard to further buoy his bottom line”. To suggest such a thing is complete and utter insanity… there are almost no players/commentators/advisors out there (short of the Fed chairman) who are capable of moving markets, and all knowledgable players know that.
      No, Garth seems to suggest buying equities because he appears to genuinely believe they are currently good investments.
      It also seems that he offers to manage portfolios in the capacity of a financial advisor, which would entail him taking an annual fee (something like 1% of money under management). Thus, it could be argued that he has an interest in keeping people who have sought out his services invested in the markets. [This is the risk one takes when having someone other than yourself manage your money: They have more interest in keeping you as a client than they have in doing well for you… and that’s why almost all money managers are sheep. That said, some may outperform the market and are worth their fees. But most don’t, and aren’t.]
      Regardless, Garth very most definitely doesn’t want people to buy equities to “buoy” his own holdings. The daily equity market volumes are in the many, many billions of dollars, many individual instruments trade volumes over a billion dollars a day, and the “blog-dawgs” aren’t going to make even a ripple in that vast sea.

      • right – but he does have an interest in “talking up” equities for his own benefit. Perhaps this is why he discourages people from buying real estate – it takes away potential clients.

  14. Yeah, investing in real estate is important, at the right time. You see…real estate always goes up…until it goes down.

    Herd mentality works in cycles with regard to RE bubbles. Greed feeds it to a boiling point. And then herd mentality kills it off. Herd mentality is what’s going to kill the current RE bubble.

  15. Formula 1 dude, you have absolutely no idea what you talk about. Yes, GIC gives you 1% but guess what? A 30 YR US Treasury Strip Bond would have return something like 15%+ for the last two years. If fact, you only invested in 30 YR US Treasury Strip Bond for the last 10 years (or even better for the last 30 years) and roll all your money into a new 30 YR US Treasury Strip Bond each year, you could have easily turn $10,000 into something like $2M+ by now. Add in a 3:1 leverage, well you can imagine how much more you could have made. Way more than Van RE even if you bought at the absolute lowest power.
    I don’t have the exact numbers with me, but you can find easily find the data by either reading the book “The Age of Deleveraging” by Gary Schiller in a book store, or Google it.

    • btw, I think the actually number is something like 15% for 1 year and 30%+ for the other year. So total cumulative over 2 years is probably like 50% once you take compounding into effect. This is also btw an unleverage return with no worries about property taxes, bad renters, strata fees, special assessments, fixing toilets at midnights, etc. If you do say the standard Vancouver condo 20:1 (5% down) or 10:1 (10% down) leverage, your total return over the last two years would probably be off the charts.

    • “A 30 YR US Treasury Strip Bond would have return something like 15%+ for the last two years”.

      so this is where you have your money invested?
      BTW, I think Vancouver detached properties are up 25% in the same two year period…just sayin’

      • low risk, sort of like how lehman bonds were golden the day before lehman defaulted. f1, i have to admit those are can’t miss returns. i recommend you lever up. in fact, you should finance my cash-back crackshack purchase. the collateral is a1 primo even if i blow town with the money. it’s the sure thing, fat pitch of a lifetime.

      • Read my second reply, the 15% is the minimum return for each of the two years. The actual total return over the 2 years period is something like 50% on an unleverage pure cash investment. As I said, all the numbers are available either online or in the book “Age of Deleveraging” which you can find in a book store.

        Also, the commission to sell your position is also much less than trying to sell a Van detached and you can sell it in less than 5 mins given how liquid US Treasury Strip market is.

      • “i recommend you lever up. in fact, you should finance my cash-back crackshack purchase”

        and deprive a bear of a much needed home to call his den? I wouldn’t think of it.

      • 4SlicesofCheese

        My money is invested in real estate, but not in Vancouver.

      • “and deprive a bear of a much needed home to call his den? I wouldn’t think of it.”
        f1, hardly. you would be helping me to provide a roof for my family. 25% in 2 yrs is ~11% annualized. and banks are only charging, what, 5%? what a steal. now that’s a fat carry. i’m even more optimistic than you – i’ve been rereading your posts and think we’re going to see 20% yoy gains. so, if you’ll finance the purchase, i’ll pay 12% to you instead of 5% to the bank. i’m still making 8% and i only want $20 cashback on the purchase. my liability is limited to the collateral though – heard some crazy ass bubble rumors and just want to be safe. if you’re worried about that, i’ll pay 15%. how can you lose? that beats the crap out of your old 11% gains.

    • Bond markets did quite well last year. I sometimes laugh at some people I know who look at bond markets simply for yield but look at housing investments based on capital appreciation.

      “The same yet different.” That’s my new catchphrase for Vancouver I’ll be trying on for size.

      • I’m right now 70% in bonds in my RRSP portfolio (kinda counter-intuitive when you’re in mid 30’s) and I did really well last year…

      • Of course, like real estate, you only do well if you sell, depending upon your yield of course.

      • watch out. bonds are setting up to be secular short – just can’t say when. even bill gross missed and went too early. well actually, he probably just didn’t think the idiots in charge were that insane. we will eventually reach the point when too big to fail becomes too big to bail.

  16. Bmo 2.99 is back. 😰 just in time for a spring rush. Looks like the party could still rock. I have a headache now.

  17. Here is a great “spot the speculator” story from the whisperer:

    http://whispersfromtheedgeoftherainforest.blogspot.com/2012/03/more-speculator-panic.html

  18. The article really shows how perverted so many younger people’s views on wealth have become. They want wealth without work, which is a dangerous drug. The article calls him an aspiring entrepreneur in one sentence and talks of his want for easy money in the next. Entrepreneurship is typically tough slugging with a lot of early failures.
    You know the bubble is close to bursting when the young start pondering house-flipping.

    As for his dream of owning a wine bar, well he may want to re-think that one too. All the pseudo-rich in the GTA won’t have money left over for wine once the RE crash hits. A lot of the wine is currently being consumed by RE agents and developers who are barely scraping by in their overpriced condos.

    I can cut him some slack though as prudent financial advise these days is a rarity.

    • Yeah. Great business plan. He can open a bar where a bunch of big shots sipping Chardonnay can bluff their way through an afternoon of boozing and bull shitting about real estate before skipping out on the bill when the credit card gets declined.

      Great plan.

  19. Basement Suite

    “Bmo 2.99 is back. just in time for a spring rush. Looks like the party could still rock. I have a headache now.”

    There are plenty of mortgages way under 2.99. Money is worthless.

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