Renting is much maligned. Nesting spouses hate it. Helicopter parents are embarrassed by it. Society misunderstands it.
Especially these days when anyone can buy a house – even if you have no savings – renters get an undeserved rap as misfits. I mean, doesn’t everyone want to be in debt? What right has a tenant got living in the same condo as the owner next door, paying far less per month, enjoying the same amenities, and yet having total mobility and liquidity?
Well, the good news for people who understand why renting is a totally legitimate option is that 2010 will bring even lower housing costs. Rents are going down and the number of available units is going way up. Three reasons: (1) unemployment has thinned the ranks of young workers who traditionally rent, (2) hundreds of thousands of couples sagely decided to buy houses when they were the most expensive, and (3) the real estate market will get a bit ugly next year, turning a lot of speculative owners (especially of condos) who wanted to be flippers into reluctant landlords.
Already started, of course. The national vacancy rate has jumped by 27%, with more accommodation available in almost all urban centres. And P/R ratios are rising everywhere.
As I have said before, a truly rational investor right now would sell residential real estate at the top of the cycle, astutely invest the capital for growth, then rent digs in a market of falling costs, only to rise as a wise vulture in a year or two. Seems even some landlords are coming to this conclusion:
Hello Dr. Garth: My wife and I own several income properties in Brantford, Ontario – a small, blue collar city that has been ravaged by the recession.
It has becoming increasingly difficult to find quality tenants due to the proliferation of renters who have purchased homes in the current low interest rate, high amortization, and zero-down environment. At the same time, the cap rates for investment property have plummeted resulting in very high market values of rental properties. I have no idea why investors are paying so much for investment properties…there is no way they are producing any respectable cash flow at the prices they are paying. I can only assume the low interest rates have goosed this market too.
I am tempted to sell all of our properties to these crazies that are paying way too much and take the capital gains (approximately 200 grand). The only problem is…where do I then invest the proceeds? I try to keep my money in the following percentages: 40% in rental property, 40% in paper investments (stocks, fixed income), 15% in cash and 5% in other assets such as automobile, etc.
The rental properties provide diversification and relatively safe cash flow, not to mention the tax write-offs. But as much as I love fixing toilets, interviewing lowlifes and going to the tribunal…I can’t help thinking it would be a good time to sell. Add to that the coming HST harmonization and smart metering, which is going to kill me on utility costs, and the future doesn’t look as appealing for rentals.
I know you prefer to feature the questions of delusional dipsticks from BC, but I though this might be an interesting case study for the blog dogs. Cheers mate, Bluey.
Well, Bluey, I think you already know the answer. Cheap money has convinced a lot of myopic people they should be buying up all kinds of real estate, even the kind which won’t generate enough money to carry itself. Mind you, these are usually small and unsophisticated investors, because the big guys are bailing out – one reason commercial real estate in the US looks like this:
So, selling and reaping your capital gain is a grand idea. You may not have this opportunity again in your lifetime. Your investment portfolio, however, sucks. Having 40% in investment real estate is vastly overweight since this tends to be an illiquid asset with a relatively low ROI. And 15% in cash is three times too much.
Over the next few years I’d be loading up on preferred shares paying me 5% or 6% in tax-advantaged income, sector ETFs in areas like energy, commodities and health care. I’d stash $20,000 in a TFSA next month between you and your spouse, and chunk it into equities – well-correlated growth stocks that can ride out what promises to be an explosive year. Remember that asset allocation accounts for about 90% of the return a portfolio gives, so include some short-term corporate bonds inside that TFSA or your RRSP (for tax-free interest). And if you have the contribution room, you might also consider creating an RRSP mortgage. Alternatively if your principal residence is paid off, use some cheap leverage to create a tax-deductible mortgage and augment the dynamic investment portfolio.
But, mostly, sell the apartments to a greater fool.
Fortunately, they’re everywhere.
Related: A renter gloats in Vancouver
Garth's latest podcast is here.
100 comments ↓
Easy to see why bluey can’t find tenants. Renting lowlife’s know a scumbag when they see one.
FYI bluey..we’ve rented for years, mostly due to the fact that our landlord is a kind and humane soul (and because we’ve saved boatloads of cash doing so)
I am not totally convinced that ETF’s are the way to go. There is a lack of management to them and my guess is that this is a year to pay a little more and have the majority of money in mutual/Seg funds.
Individual preferred shares are nice and everything but tell that to the people who owned shares in Big “safe” companies that tanked.
Garth when is your new book coming out.
Remember seg funds require a 10-year hold. Book available here Jan.15. — Garth
“I’d stash $20,000 in a TSFA next month between you and your spouse”
Is a TSFA different than a TFSA?
I thought the maximum contribution per year was $5,000.
It’s $5K per year per person or $10K for a couple, with no lost contribution room. So, that’s ten for ’09 and ten for ’10. And every typo is proof positive I write this drivel myself. — Garth
Timely post Garth.
Victoria vacancy rates have tripled to 1.4% from a year ago. It was nearly impossible to rent a decent house in a decent area for under $2000/m just a few months ago. Now renters have a selection of properties to chose from.
A rental agent quoted in a recent article noted that many of her new properties are recent investment condos that need to be rented out.
Plus even if they rent the condos out at current rates they are subsidizing the properties by several hundred per month.
Savvy investments – just wait ’til they start depreciating.
Where is the best place to learn about preferred shares? I know nothing about investing in stocks or shares. I have sold and am getting 1.25% in the bank. Are preferred shares a safe investment and will I be penalized if I want to withdraw it?
Thanks
Quite safe if you buy into large banks or utilities. 100% liquid, no penalties. And taxes which can be 80% less than on GICs. I detail how in my new book, but there are many excellent sources of information. — Garth
renting is a sin, according to the so called ‘owners’ unfortunately the ‘owners’ dont realize they are actually the ones who are ‘owned’
According to this article personal lines of credit in Canada are up 20% in the last year. This apparently is mainly due to the “wealth effect” of higher house prices.
http://www.theglobeandmail.com/globe-investor/e-zines/globe-investor-magazine/capitalize-on-the-housing-boom/article1409057/
The piece goes on suggesting now may be a good time to invest in Canadian furniture (Leon’s) and building supply (Rona) retailers. The author is actually serious.
Bluey only has a $200K cap gain total on several properties? I dont know the market in Brantford, but it
seems kinda low. Dont know how long he’s owned or how
much if any is still oweing.
But why not hang onto one? Maybe pick the gem, or the dud if the gem scores the biggest gain, or the one that is givng the best ROI or is easiest to rent. I just dont like the thought of being completely out of any market at a
given time.
Poor Brantford – the town produced Alexander Graham Bell’s inventions and Wayne Gretzky, and now all they have are shady renters for “Bluey” and that wonderful casino.
In 3-5 years (or less), I expect there to be a flood of cheap condos in Toronto ready to be snatched up by vultures for income properties. Many of the 1989-era condos left over from the last bubble in Toronto became cheap rental units.
Renting beats paying ridiculous house prices anyday!
Newsflash – Health Canada releases new health alert, the R1E1 virus and This time is different virus have merged and mutated into a superbug.
Symptoms intially include euphoria, happiness, and ego-stroking. However the later stages, include depression, fever, extreme hypertension, sadness, stupidity and in some serious cases divorce. But don’t worry, lead doctor, Dr Carney said that the vaccine will be ready by Oct 2010 to prevent a “pandemic.”
Hey Bluey!
I’m from B.C. and I’m a smart kookie!
#10 mooncake
Funny : )
#2 ETF’s or Exchange Traded Funds are an elegant investment vehicle in that they have low overhead, target a particular sector, and can be traded very quickly.
I was burned on Mutuals during the last crash and will never go back there again. The problem with mutuals (by they way, they are dying a miserable death while ETF’s are taking over) is that they are expensive and worse yet, only have the semblace of being managed. A real money manager will go to cash when a bear rears it’s head – you’d be hard pressed to find a mutual fund manager who will sacrifice his incentive by doing this. Mutual fund managers are ‘all in’, ‘always’ – ask a gambler what his game would look like if he’s all in, all the time.
What you need is a money manager who utilizes ETF’s as an investment vehicle. That way, you have the best of both worlds – elegant vehicle for quick and low cost trading of anything including stocks, commodities, bonds…and management to ensure you don’t loose during a bear but gain during the bull. These managers are out there, do a little searching, I have one.
50% of my assets are managed this way.
#4 OMG – vacancy rates tripled to 1.4%!
Down here we’re geeked ’cause our vacancy rate dropped to 13% from 14.6% (yoy).
Bluey, if Brantford is going anything like Windsor I feel for you. Sell baby sell, before you can’t move them at all. Last week the news here was that RE values had dropped 10% in the past year.
At least we’ve got the #1 junior hockey team in Canada.
I do remember the 10 year hold. That really only comes into play if the guarantee is needed. Speaking of which, many people who purchased seg funds in the year 2000 are getting their guaranteed top ups this coming year.
Quite a few NASDAQ warriors happy that they bought a seg fund.
#1 lowlife
Hey, at least he fixes toilets!
Where is this new book then!? If you wait until Spring the way things are going who knows what to expect.
“lowlife on 12.22.09 at 9:40 pm Easy to see why bluey can’t find tenants. Renting lowlife’s know a scumbag when they see one.
FYI bluey..we’ve rented for years, mostly due to the fact that our landlord is a kind and humane soul (and because we’ve saved boatloads of cash doing so)”
Awe, Bluey struck a nerve, eh?
Hey, if that’s been his experience, that’s his experience. Who are you to say that it’s not? It’s not hard to believe that you’d encounter such people. Such stories are plentiful. Renting is associated with a various socio-economic demographics.
Don’t be so insecure. If you’re not one of those low lifes, great.
Garth, you always say that we should get a good financial advisor – where do I look? I am with Investor’s Group and I have a feeling that this was not what you had in mind.
Email me. garth@garth.ca. — Garth
” Book available here Jan.15. — Garth”
GARTH, January 15th/2010 is the day of Solar eclipse ; anything has started at that day would not succeed.
It would better for you to release the book on the site a week later – say on Jan 20-21.
Just think about it.
If Branford’s condo market has shown any increases since you owned the property to outway the cap gains it’s a no brainer to get rid of them.
If it doesnt, then holding them is a real risk anyhow given there is only downside coming in valuation and even when your rental pool becomes filled with “medium lifes” they will be looking for a deal.
SELL THEM! SIDELINE YOURSELF! PROTECT YOUR ASSETS BY STAYING LIQUID!
Dividend paying stocks banks utilities ideal.
5-6% is still 50% more than staying in RE and associated costs will net you.
Renting has always been a loser’s game. Garth’s counsel is invaluable but even he has stated repeatedly that he is not advocating a crash in real estate prices, merely a price correction. I know people who have rented their whole lives and have nothing to show for it because they didn’t have the discipline to save the difference. Perhaps in real estate markets such as Vancouver, it may be disadvantageous to purchase a house right now as even a slight percentage drop in prices can translate into tens of thousands of dollars in savings for the new buyer, so one would need to tread carefully in these marketplaces. But elsewhere if you are making decisions in buying your first house, and you live in a market where you are likely facing a 10-15 percent correction over the course of the next few years, it may not be worth waiting and recouping a few thousand dollars you save by waiting and renting for the forseeable future. And if anything, a few years down the road, the feds are already talking about inflation rearing its ugly head again, and real eatate is one of the best assets as a hedge against inflation from my understanding.
April,
You can get 2% at Canadian Direct.
After inflation and taxes that is a negative return. — Garth
If you have a mortgage, you are not an “owner” – the bank is. You are an “OWER”, renting,with interest, from the bank, to whom you’ve also given all your savings in the form of a downpayment.
The only real “owners” are those who own outright with no mortgage (or home equity loan,or line of credit) at all.
Renters have all the same amenities but do not give their landlords all their savings,pay interest,maintenance or property taxes.
Real estate has become a scam we’ve collectively bought into. Literally.
I always wondered how can people buy investment properties with 2 to 3 % cap rates! It is insane.
“. . . I write this drivel myself. — Garth” — Now the real truth comes forth. You have been masquerading as a Sheeple in a Wolf’s Clothing device! GGAAAAAHHH! Is it any wonder I read Dilbert daily for stock market tips?
Actually, playing the stock market and buying lottery tickets are one and the same — a person is almost guaranteed to break even or lose on either option.
——-
#126 Onemorething on 12.22.09 at 7:48 pm — “GREAT GLOBAL RESET! Are you ready?”
Ready as I’ll ever be, although not looking forward to world food shortages, civil unrest (imagine: Cdns. misbehaving or just plain angry at being led down the garden path? How frightful!).
Guess a major reset is necessary, primarily to turf those bums in high places who chose to live snobbish lifestyles, while average people had to put up with layoffs, factories / jobs moving overseas etc., etc. Next few years ain’t gonna be pretty.
——
Owning vs. Renting. We own our home and live a quiet life by our choice, but there’s absolutely no question at all that if I were living by myself, renting is my option.
No trouble paying rent as there aren’t any property taxes to pay. Sure there are good and bad things about any situation, but I know that in the long run, I would be better off having a roof over my head and paying for that privilege.
At our age, and soon to be empty-nesters, a paid-for home is nothing more than a millstone around our necks.
However, “You Can’t Always Get What You Want, But Sometimes You Get What You Need” (Jagger / Richards). ‘Spose we’ll stay here for some time to come.
——
Take a look at the pic on http://rense.com/ — how close is it to the reality of life? / An interesting Kelowna site. Further down, says Avoid RE and gives a portfolio. I didn’t know of this site until a while ago.
——
I imagine these two, in a much bigger picture go together. This makes sense, because if Russia (plus Iraq and Iran) are gone it gives the west almost free energy sources.
When you read about Thailand, and the m$m screaming about “Iran’s weapons” today, it will not be pointed out that it was a CIA sting op., which again will backfire on the US, but leads to this.
——
It is one thing to talk about homelessness but quite different to experience it. Credit to him for experiencing it first-hand.
#4 omg
Further proof to your claim about Victoria here. Notice the comment at the very end of the article. Smart Kid.
Curiously the Star identified lower renting costs a few weeks ago (since so many greater fools bought instead of rented):
http://www.yourhome.ca/homes/realestate/article/736303–it-s-a-renter-s-market-as-condo-building-booms
The article says the next rental price decrease in T.O. is expected as builders are relentless in popping up more and more condos.
For a good laugh check out the idiot from the comment sections that commented on how he thinks its moronic to rent.
This is the beginning of the end! Hopefully with increased down payment, decreased amortization period, and increased interest rates, prices can come back down to sane levels.
Here’s hope to 2010!!!
Booo to bidding wars!
For some of us, it is a home, it is shelter.
For # 4 OMG,
The true vacancy rate in Victoria is way, way higher. If you read the fine print of the vacancy stats, it is for properties built specifically for rental. Not many have been built in the last decade. It doesn’t include all those empty new condos. And there are a lot of them looking for a renter.
so true! I rent a 2 bedroom in a poured concrete 4 storey walk up for $940/month. nice size too. i could cash in my well diversified life savings and move into a 1 bedroom in the 4 story tinderbox next door and increase my monthly cost by 50% if I chose too. But why would I? Peer pressure?
Living cheap/investng the savings. what could be better? And if i wanna skip town I can leave in a heart beat.
Immigrants’ Canadian dream of owning home
We view it as a sign of commitment to our new homeland and security…
The people in southern Ontario actually had two opportunities to sell. Pre-September 1987 and now. It’s very rare to get more than one opportunity in a lifetime in the same location.
Me thinks Bluey is indeed lowlife himself ….. not be unkind Sir but as mentioned 200K from “several” income properties it would appear y’all made lawyers and RE more money. In any rate do take Garth’s “Free” advice, start with buying his book and study it, repeat study it!
Merry Christmas.
#22 Joseph
And if anything, a few years down the road, the feds are already talking about inflation rearing its ugly head again, and real eatate is one of the best assets as a hedge against inflation from my understanding.
________________________________________
I’m not completely disputing your “hedge against inflation” claim but would appreciate a link.
When inflation rears its ugly head again, the feds will raise interest rates, which’ll reduce the number of interested homebuyers and, possibly, force some homeowners into foreclosure. All of this should, theoretically, reduce the price of a home during inflationary times.
#24 LB, so true.
The biggest joke, on all of us, is that the bank gets to create the money to buy the house out of thin air!
They don’t trapse down to the vault, and count up a pile of deposited money, and hand it over to the house seller at closing time….. no, it’s just conjured up out of nowhere.
Then the cruel part is that the new mortgage payer gets to pay back that “out of nowhere” money plus compunding interest, with real hard-earned after-tax hard-laboured dollars.
Bank shells out basically “nothing”, receives a lifetime of labour in return.
Good job when you can get it!
Oh, and miss a bunch of payments? They take the house, even though they got their money by imagining it into existence. Such a deal.
The “Gold Bubble”…?
After listening to Jim Sinclair, I traded another 14,000 of those pieces of paper for 13.5 ounces of gold today.
We shall see. Someone is repeatedly, almost desperately trying to cause the gold price to slide, usually at the same times daily.
But continued demand stymies them yet…
Yes this is Bluey.
We’ve had the three properties for 2 years, one is flat the other two have appreciated a hundred grand each. ROI for the two good ones averages 15% based on cash invested so the return is decent; plus they keep my retired father-in-law busy with maintenance jobs! And I now know a whole lot more about how to fix things – these are the “hidden” returns that are impossible to quantify, but very valuable to me nonetheless.
RRSP’s already maxed out. Just got TFSAs setup…will get those topped up. House paid off, but mortgaged for investment purposes 4 years ago. Two small children, both with RESPs. We’re happy with our finances, but are always looking to improve things.
I actually enjoy meeting lowlifes, makes me appreciate my education and parents more. Btw, we pick through the bad ones to get great tenants…just takes lots of work and time. And we treat our tenants extremely well, in fact, we use current tenants as references for potential new tenants. There are no better landlords in Brantford than us.
Thanks for the advice Garth…now I just have to convince my wife!
More awesome advice from the MSM:
http://www.yourhome.ca/homes/realestate/article/742160–home-buyers-face-mortgage-rate-roulette
“Buyers today can get a variable-rate mortgage at prime or 2.25 per cent, and in many cases cheaper after discounting.
But even at the prime rate, it would cost only $1,347 to carry a $400,000 home with an amortization of 35 years and a 5 per cent down payment. By comparison, an average two-bedroom condo in the Toronto area costs $1,487 per month to rent.”
Way to exclude all of the extra costs, Toronto Star columnist Tony Wong! Saving $100/month, but not including property tax, condo fees, CMHC fees, insurance, and other goodies.
At least the graphic is somewhat more meaningful, although it doesn’t factor in that 35-yr amortizations soon may not be possible:
http://media.topscms.com//TheStar/Published/images/10/f2/66d6140f4538983062ccf2843dce.jpeg
Let’s revisit the P/E calculation (cost of buying the home vs. cost of 12 months rent). Note these are not the same homes but approximately in the same area and the same size.
$249,500 for 3+1 bedroom, 3 bathroom townhouse — granted, condo fees of ~$200/mo, so let’s say the cost of the list should be closer to $270,000 with those fees removed:
http://www.realtor.ca/propertyDetails.aspx?propertyId=8950395
$1600/mo rent (3 bed/3 bath townhouse):
http://www.realtor.ca/propertyDetails.aspx?propertyId=8939073
$270,000/(12*1600) = 14
By historical standards, a P/E ratio of 14 indicates a normal real estate market (i.e. no bubble).
I suggest others do a similar calculation in their city. It starts to get bubbleishous above 15…..
LOL, why don’t we talk about how the GDP numbers werent as good as once mantioned last month.
I am thinking that most of the SIMULOUS went to home purchasing!!!
This GOVERNMENT IS A JOKE.
How can you introduce stimulous without restrictions to lending to home owners?
Canadian banks are so great.
Were different than the USA.
Were running out of land…
Priced out forever.
The world wants to migrate to the best place on earth.
Did anybody notice that its not just the US housing that has brought on the economic downturn but loose lending worldwide!
Me thinks Carney and Flaherty need a lil’ stimulous in the side of the head.
Thanks for playing guys, we have some nice partying gifts for ya.
How can you introduce stimulous without restrictions to lending to home owners?
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Meant, home buyers?
So, Garth, how many rental properties do you have?
Sold! — Garth
Housing Bubble Cartoon
http://canadabubble.com/resources/housing-bubble-cartoon.html
#38 Bluey on 12.23.09 at 9:07 am
———————————————
15% return but how much do you pay your father-in-law? Minimum wage will soon be $10.25/hr you know… http://www.labour.gov.on.ca/info/minimumwage/
On another note, this morning on BNN the anchor was saying how our GDP increase came from consumer spending. She mentioned that the spending was likely due to credit, and mis-using credit was the whole issue that started the economic crisis in the USA. It was great to hear truth coming out of the MSM….
Trade ETF’S, do not invest. The deterioration on ETF’s is bad.
My first thought about Bluey was that he had created a job for himself and I see from above that is in fact the case. Property management companies are suffering right now if they are still in business at all.
But Bluey!!!!!!!!!! You’re the “best” landlord in Brantford?????????? I hope your “L.L.” tenants have the last laugh.
The problem with that U.S. commercial market is that even though rates are low financing is nowhere to be had. That market is about to get much much worse.
I’ll buy in Calgary when my rent to buy ratio is 15:1, the nice house in a great location is currently at 29:1.
#35 Gord in Vancouver “I’m not completely disputing your “hedge against inflation” claim but would appreciate a link.”
Here is a link for starters
http://www.forbes.com/forbes/2009/0907/financial-inflation-treasury-gold-the-contrarian.html
Popeye, the problem with your P/E calculation is that you’re not accounting for expenses that an owner has (and a renter doesn’t) (for instance, property tax). And a 14 P/E is extremely high compared to the stock market once you adjust for the growth rate of real estate (generally, no better than the rate of inflation), or the undiversified risk inherent in owning a single piece of real estate.
More realistically, the $249k condo has $2000/year of property tax, and another $2500/year (or more) of depreciation associated with it. So that makes the P/E almost 19, which is right off the charts (a multiple of 10 is more typical of normalacy for such a no-growth asset class).
Another idea to protect your long position in the stock market via High paying div cmopanies is to purchase an UltraShort ETF S&P 500.
The high div companies are overvalued right now based on P/E’s.
I look at some of my holdings such as
Walmart
Emerson Electric
Canadian Utilities
Bristol Meyers Squibb
Calloway REIT
I am weary of buying anymore of these right now cause they are back in overalued territory.
For those thinking of this strategy this is something to consider.
What premium are you willing to pay for these dividends.
The TSX has a P/E of 33, and the Royal Bank has a P/E of only 22, while paying a hefty dividend. Looks like value to me. — Garth
Re: New Book
I was wondering if there was anything in your new book about urban decay ( US , Detroit style ) and it`s consequences ? I `m near U of T and Bloor st. and the smell of sewage at street level in every direction is amazing. I`m glad I rent because “out of here” real soon.
I have known Toronto for long while but recently the decline seems to be accelerating .
Support for Garth’s hypothesis that interest rates will be going up shortly:
http://www.theglobeandmail.com/report-on-business/bonds-point-to-hot-recovery-but-few-believe-it/article1409456/
Hey Garth
Would you mind disclosing the basis on which you are calculating “E”. Are you using Trailing or Forward, and if Forward … which estimate do you use?
Thanks (I hope)
PS … your commentaries are always informative and enlightened and your site provides (for me anyway) a valuable window on the Canadian scene.
Regards … and best wishes for a meaningful holliday season.
Popeye:
“I suggest others do a similar calculation in their city. It starts to get bubbleishous above 15…..”
I did. Even with your pretty high ratio of 14 we have market overpriced by around 70K.
And 14 is well too high. It should be anywhere 10 to 12 and for high maintenance condos – 100 monthly rents.
The sewage must be affecting me. I`m having trouble writing !!!
I `m in Claymore ticker CPD. Diversified preferred share basket. So far so good. Down a little but it pays a good steady dividend.
Hey Bloggies,
Has anyone here ever pulled off this move successfully?
- instruct your RE Agent to find buyers interested in an Investment Property
- Sell to them with agreement, you’ll stay on the property and rent from them?
What are chances of doing this, and negotiating a fair rent rate at the same time?
Thanks,
Mel
Re: TSX PE of 33.
Good point Garth I overlooked that.
I was using the historical P/E of the S&P 500 of around 15 as my comaprison.
RBC would be over valued versus this but not versus the current TSX. Guess our definition of oervalued’ness depends on what you are comparing it to
I like RBC though. I bought some in the high twenties.
Looking forward to the new book. Will add it to the collection.
#48 Larry
EXACTLY — the ratio for our rental here in NW Calgary is 23 — the landlord just put it on the market a month ago for $449,900 and we pay $1600/month rent.
I offered her $350k for it (18 P/E but better), but she passed, saying she owes more than that. Used her HELOC to buy another place, and stopped working so she’s scrambling.
Three showings and one open house. Not a nibble. House same size, same street around the corner listed at $424k.
Some ppl are greedy and/or dug themselves too far into the hole they can’t see out.
RE: 57
That is a sweet idea. To make it work you will have to think like the investor who would want to buy your property and rent it back to you.
If you are successful with that Zen process then you should also be ok with
a) Paying a real estate agent extra % to achieve it
b) Selling the home yourself because you feel empowered.
If you can give a guarantee to the investor on length of tenancy it will obviously improve the deal.
The Irony! Intrawest could be in Default by days end!!
Just in time for the Olympics!!
BC is different.. remember! Can’t happen here!!
*****************************************
Fortress’s Intrawest Said to Be Near Missing Payment
Dec. 23 (Bloomberg) — Intrawest ULC, a Vancouver-based ski-resort operator owned by private-equity firm Fortress Investment Group LLC, may miss a debt payment due today on a $1.4 billion loan, according to two people with direct knowledge of the situation.
http://bit.ly/4Sm8U3
My condo fee is going up 10.5% on Jan 1. Thanks HST! In case you’re wondering it not HST applicable but everything it pays for is.
Can’t wait till Property Tax assessment comes in with all the stimulus support to city is kicking in, the signs are everywhere. Won’t be as bad as Toronto’s (our Mayor isn’t quitting). Garth, how do you put your mortgage in your RRSP? (just in case it doesn’t sell)
Hi Garth,
I was doing some more reading last night and came accross some of the data that you are probably already aware of.
The question is simple. If in fact that the “average” house price is so high in Canada, being an average, does that not seem to make sense that an adjustment in the homes that moved in the greatest value is most probable?
I ask because if you take a crusie on the MLS site and take a peak at Fort McMurray you see pieces of crap going for half a million and up. Many are EMPTY
So simple logic would have it that if there was such an ajustment, those homes would be first to drop.
Again, I am using pesronal experience in my neighbourhood as a comparison, where $450,000 gets you a 2 story 2,300 sq foot house with double car garage.
not exactly outrageous.
And I am located 40 minutes from Toronto, and 10 minutes from the go train.
Thoughts?
Garth …
Re: #54 … Was that a NO?
I keep seeing references to preferred shares on here, and have a question. My mom is in her mid 70′s and has very little money – less than $25K that she has invested now in a RRIF with mutual funds.
I’ve recommended that she move the money into something less volatile, but she’s afraid to take any chances after already losing about $10K last time we had a crash. Her funds have been going up again in the past year, but of course could fall dramatically again anytime.
Does she even have enough to invest in something like preferred shares, or is that a waste of time considering? (Not to mention her money is in a RRIF).
Anyone have any advice?
I think when looking at historical PE’s you need to take into consideration a few factors….
1.) Interest rates play a huge role. Lower interest rates and bond yields are inflationary on stock prices. All asset values adjusted for risk and liquidity should normalize against each other. This means low interest rates increase stock prices to the point that the differential in rate of return is based on liquidity, risk and expectations on changes in the return in future periods. This is one of the reasons that the overvaluation of real estate has taken a bit of a beatig before the recent increases because lower rates means that the phenomonally low returns on rental properties has been mitigated by lower returns on savings deposits. This has boosted real estate ot just based on afodability for homeowners but lowered opportunity costs for speculators. Yes…..”change is gonna come nephew”….but don’t forget the role of interest rates on other non-interest bearing assets.
2.) Be super careful with today’s PE’s based on TTM. It’s a fuzzy market….you need to balance pro forma income against trailing.
>#32 Amy on 12.23.09 at 3:35 am
>Immigrants’ Canadian dream of owning home
>
>We view it as a sign of commitment to our new
>homeland and security…
It’s great that they are commiting to the country. I know of a few new immigrant families who are committing to buying condos.
I am glad they are building more condos to house these people. The sad thing though is that condo builders face a bigger fee when building larger condo units, ie. a 3-bedroom condo will cost more to build than a 2-bedroom which is more than a 1-bedroom. I think the government here should change the law to make it cheaper to build units with more bedrooms. I believe that more condos ultimately helps the environment. Instead of people commuting into toronto from Hamilton & Richmond hills how about they just walk to work or take the TTC? This is would be totally possible if more condos are built inside the city.
But anyway, I read about the higher fees for more bedrooms condo units and I can see why people with larger family need to buy bigger houses instead of choosing condos.
Hi Popeye
We rent a 4 bed town home in down town T.O. for
$ 2550.00 per month.
The owners tried to sell it for 660000.00 last summer.
Didn’t happen.
That puts the P/E at 21.6 or so and that is why we rent.
This market needs to fall by 40 to 50 % to get back to normal.
Later
Bluey,
if it’s cash flow positive, then consider keeping them. it’s not good to jump in and out of real estate. there are way too many people owning right now that should be renting. keep the places filled, write everything off and drop the rents if you have to and ride this one out.
Best of luck,
Overvalued or not, this thing keeps moving up despite what everyone has been saying. The US is gonna keep rates low into 2011. The Canadians will probably do something similar. This will make a bubble even bubblier.
The economic numbers in the US are not getting much better and their market keeps moving up everytime there is bad news coming knowing that rates will be kept low for an eternity.
I don’t see the catalyst for falling houses. We are in an era of zero rates. Inflation is here to stay. My biggest fear as a renter is I will be priced out forever. I thought the crash would come two years ago yet here we are. There is no amount of money the govnt won’t throw at this problem. The canadian govnt is INSANE for keeping zero rates in this environment. Its unethical and borderline criminal.
I don’t know why people are ragging on Bluey. Seems like a sensible guy who sees what’s happening and is ready to take some profit while it remains to be had.
Also, he is correct about the general quality of tenants. Aside from a minuscule percentage of conscious bears, everyone else who can swing 0 or 5% down is diving headfirst into the shallow end of housing, which means that those who remain renters are increasingly those with risky financial lifestyles.
I’m currently renting by choice, as are many who believe a correction is coming, but we are in the minority and Bluey isn’t wrong for suggesting as much.
It is very difficult to find a decent
2 bdr 850+ sq in Downtown Toronto right now
for less than $2000.
(downtown Toronto = Bloor to Front, Church to est of Spadina)
We are looking…
Most real estate agents make a face when we tell them our budget (-$2000) and say they only have 1 or two units that would fit our price range.
To quickly find out how much a house should be worth if you know how much it would rent for, use this P/E calculator
http://www.howtosellyourhouse.net/value.html
If you live in Vancouver, it would make you instantly poke your eyes out if you recently bought a house.
What a big difference one year make. Wow!
http://www.theglobeandmail.com/news/national/people-flowing-out-of-alberta-for-first-time-in-15-years/article1410656/
#72 Patrice
We have a fully furnished 2 bdr corporate suite with satellite tv and hi speed internet for $2000 a month in Midtown TO and I walk to work. We have a waterfall with pools and fish and baby grand piano in the atrium. It’s pretty friggen nice!
Oh and the girl sitting beside me at work is a newbie 5/35er, lol
“This market needs to fall by 40 to 50 % to get back to normal. ”
This is the realistic range for a sensible fallback in Vancouver as well, but the entire system is so heavily gamed now, and the government apparently so committed to doing whatever it takes to sustain current pricing forever more, that I fear we won’t actually see it.
Turn out the Lights Calgary!! The Party is over!!
http://bit.ly/7bhBeH
More people leaving Alta than moving in for 1st time in 15 years: Stats Canada
By Shannon Montgomery (CP)
CALGARY — Saddled with dwindling employment and shrinking energy prices, Alberta seems to be losing its status as the promised land for job-seekers from across Canada.
For more than a decade the province’s resource-rich economy has drawn in hundreds of thousands of people from Saskatchewan, Newfoundland and Labrador and elsewhere.
But Statistics Canada’s third-quarter population estimate for 2009 shows more people left Alberta for other provinces than moved in.
That’s the first time that has happened since 1994.
Latest arrears data for Alberta is out…
http://edmontonhousingbust.blogspot.com/2009/12/happy-festivus.html
As it stands now we’re up 0.55% from the record low reached in May ’07, and this will be the 25th consecutive month of increase. We are up 0.34% year-over-year and 0.02% month-over-month. The rate in Alberta continues to have by far the highest in the nation, with the Atlantic provinces coming in second at 0.50% (up 0.01% MoM, and 0.10% YoY).
Nationally the rate stands at 0.44%, the highest it’s been since March of 2002. Up 0.01% from a month earlier, and 0.15% from a year earlier. Ontario was the only province that had a month-over-month decrease (down 0.01%) to 0.42%. Manitoba continues to have the lowest rate in Canada, holding at 0.26% (up 0.06 YoY).
#65 Mr. I Don’t Know,
It’s complete nonsense that your mother of 75 has all her RRIF money invested in a MF. She should be invested in GIC’s. Only the most of unethical salesperson would recommend a 75 year old to invest all her cash into a MF.
Of course her money should not be in GICs, which pay a maximum of 2% on a 5-year term, and the interest on which is 100% taxable. After taxes and inflation, the woman is earning a negative return. Bad idea. She needs decent and stable income-producing assets and there is nothing wrong with a dividend or bond fund, mixed with preferred shares, a short-term corporate bond or two and some blue chip equities. At 75 she could have 20 more years left to finance. I certainly hope she also has an RRIF and a TFSA. Plus an advisor who knows his or her stuff. — Garth
Got the following numbers from voting on the question at news.ca.msn.com on … “How much was your down payment when purchasing your house?
I finagled zero per cent down
7%
The five per cent minimum
20%
Between 10 and 15 per cent
20%
20 per cent or more
33%
I don’t own a house
20%
24687 responses, not scientifically valid, results updated every minute.”
Kind of shows what the state of things might be when home prices decrease and /or interest rates rise.
what better way to bankrupt the middle class of a nation. Get them drunk on cheap money and over leveraged to the point that even a 1% rise in interest rates would put most of the new homebuyers underwater. This way the people will be willing to accept any solution offered no matter how Orwellian. Garth why do you refuse to tell the people that the United nations is being staged to form a world government that will micro manage every nation with no due process ? But to do this the western world must be brought to its knees and the old reserve currency aka the U.S dollar must be snuffed out. Nothing in politics happens by accident and the people are being led over a cliff with massive debt and the hopes of a jobless recovery if you can believe that.
#82 The Big L has a theory, I have a few myself, we will both be wrong!
Population still increased overall due to immigrants which are better workers anyways.
More people leaving Alta than moving in for 1st time in 15 years: Stats Canada
Adieus–garbage in garbage out–
#83, I wish it was a theory. But it states in the U.N’s own documents that their goal is to unite the world under a common government run by them. Why else was Obam recently elected as the head of the U.N security council? He now serves the U.N interests before that of the U.S citezen which in their constitution is treason. Not a theory at all I am sad to say.
From reading this blog, it looks to me like Canadians are still obsessed with the real-estate-road-to-profit game, a la Robert Kiyosaki.
Playing games around tax deductions, rental income, mortgage fiddling, not to mention GICs, RRIFs, RRSPs, TFSAs, rental-vs.-motgage…a mind-boggling array of acronyms.
Don’t you all realize you’re sunk IF it doesn’t rent, IF interest rates soar, IF taxes rise, IF you lose your job, IF the Canadian dollar plunges. You’re sunk not just under “this government”, but under ANY government: taxes will rise skyward under any party, any leader.
We can see the future for G-7 nations: much higher costs for essentials, higher taxes, fewer services, much higher and pernicious structural unemployment, lacklustre stock markets, greater income disparity, currency turmoil, deflation in debt, in paper assets and in housing.
Canadians should be making every effort to hunker down now and find ways to live on a self-sustaining financial basis without a job, income streams from paper assets or rental income. Cut back consumption. Cut back spending.
Better yet, emigrate.
#49 Joseph
Thanks – I can’t criticize your post as you provided proof but expected the article to provide more evidence or statistical data.
Well I do agree and conclude that there will be a GREAT GLOBAL RESET!
The US does have to take the lead because there are no options for any other country to do so.
Obama agree was elected for something more significant but is it to bankrupt the world first to save the US from imploding, likely!
If what you subscribe to above is in fact true and becomes a reality, we will all be living in uncertainty for many years, likely decades!
And it will take years to unfold and the USD may change as the world currency but will not tank given world trade lies in the balance and other countries will only devalue their currencies to suit.
#89 Gord In Vancouver
If you look at the Prime Rate in Canada in the early 1980s (see link #1) you will see that it was consistently approaching 10 to 20 percent. Inflation peaked at 12.5 percent in 1981 (see link #2 and #3). 5 YEAR Mortgage rates were consistently between 12 and 20 percent from 1981 to 1984 (see link #4). At face value then, you would think that such high rates must have crushed home values. BUT IT DIDN’T HAPPEN! HOUSING PRICES WENT UP RIGHT ALONG WITH THE RATE OF INFLATION AND MORTGAGE RATES (see link #4). And when people’s incomes began to catch up to inflation in 1983 and 1984 home prices surged by 18 percent and 21 percent respectively (SEE LINK #5 – Ottawa numbers).
Renting will always be a losers game.
http://www.bankofcanada.ca/pdf/annual_page1_page2_page3.pdf
http://www.conferenceboard.ca/hcp/details/economy/inflation.aspx
http://www.stephent.com/cdnecon/econ97.html
http://www.bankofcanada.ca/pdf/annual_page57_page58.pdf
http://www.agentinottawa.com/1956_-_2008__Prices/page_491704.html
#89 Gord in Vancouver – Part II
And if you think that this time is different because of high unemployment … think again. Unemployment in the early 1980s peaked at 12 percent (see link) and house prices just kept on rising. I am not saying that Canadian housing prices today will not experience a correction, that very well may be the case, which is why we are avid readers of this particular blog. All I am saying once again is that renting is ultimately a loser’s game.
http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=16
The only notable argument that I have heard from critics that this pattern can’t repeat itself is that Canadians were nowhere near the level of indebtedness back in 1981 than they are today. But will that be enough to compel housing prices on a downwards trajectory when past history flies in the face of this development? I am not so sure. We may simple see a flat line.
#90 that is my point exactly. At the end of 2010 there will be an official devaluation of the u.s dollar. One new dollar for 3 old ones. All currencies will be revalued and devalued against one another. Debt between nations will be defaulted on. In steps the U.N with the new currency and a world central bank and voila. the middle class holding cash are wiped out or at least severelly reduced. The U.S , U.K, and Europe banking and brokerage system is already bankrupt, think of a zombie just living on cheap money. None of this will be good for housing and certainly not good for bank stocks.
“Of course her money should not be in GICs, which pay a maximum of 2% on a 5-year term, and the interest on which is 100% taxable. After taxes and inflation, the woman is earning a negative return. Bad idea. She needs decent and stable income-producing assets and there is nothing wrong with a dividend or bond fund, mixed with preferred shares, a short-term corporate bond or two and some blue chip equities. At 75 she could have 20 more years left to finance. I certainly hope she also has an RRIF and a TFSA. Plus an advisor who knows his or her stuff.” — Garth
Thanks for responding to this Garth. I guess the question is, who would you recommend in Vancouver to talk to?
From what I can see, my mother has her money in just 3 funds now since being moved into a RRIF a few years ago, and it turns out the amount is around $20k not $25k.
She lives in a tiny rent subsidized bachelor apartment, and if I didn’t have such a nightmare of a year financially myself in 2009 (and 2008), I would attempt to help her, but sadly she has more money than I do at the age of 44.
Obviously, investing is not something I have much knowledge about, but even I could tell she was being lead down the garden path with her current advisor.
What would you recommend as a next step?
#94 Mr. I Don’t Know on 12.24.09 at 1:31 am
—————————————————–
call around, try to get in touch with smaller scale financial advisors, ones that will do the right job for your mom and not for themselves. Ask if they’ll do it for a lesser charge than usual, seeing how your mom is a little low on the dough. It will take some persistence but I’m sure you could find a decent-hearted person to help you out. You could even search for someone fresh out of financial school, they likely haven’t been corrupted by ‘the system’ yet….
Nobody seems to be questioning the advice about preferred shares. This seems very risky to me. My understanding is that preferreds behave more like bonds than stocks, especially their relationship with interest rates. You get a fixed dividend, but unlike bonds, you don’t get your principal back at maturity. It’s common consensus that interest rates are going to rise, and that means that the price of prefered shares will drop. Prefereds may have some nice yields now, but you risk your equity. Am I missing something?
You sure are. Buying a preferred share for $50 that pays you 5% in annual income which is 80% less taxed than a bond for which you have to spend $5,000 and pay tax on every cent – and which can fluctuate wildly in value as rates change, is hardly comparable. You need to learn more. — Garth
Thanks, but I wasn’t comparing bonds with preferreds, but saying that they are similiar, in that they both have risk of declining price when interest rates drop. I understand the tax treatment of CDN dividends. I don’t understand why you’re recommending preferreds as opposed to common stock. I know the yield will be lower with common stock, but you won’t lose equity as assuredly as preferreds when interest rates rise.
A personal use House/Home is a place to live. Shelter. A dwelling. A place of refuge and rest.
It’s not a central bank. An ATM. A Hedge fund. A tax shelter/strategy. Or an investment.
It’s called a home. Because that’s what it is.
When will you people (boomers) wake up. You’re becoming worse than the greater fools you s**t on.
But, I guess when you have role models like
“I puffed but, never enhaled” Bill.
” I stuck it in but, I never had sex with that woman”
It becomes very easy as a boomer to pervert reality.
Dude, you seriously need an eggnog. — Garth
Re: #98 Weston
I am not so sure #98 has it wrong. The eggnog may need to be passed onto the rest of us after all. Below is an excerpt from the following URL:
http://www.moneyweek.com/news-and-charts/economics/how-you-can-hedge-against-inflation.aspx
BEGIN EXCERPT
This brings me to the all-important concept of ‘current purchasing power’ during times of inflation. An obvious example of this is perhaps the roof over our heads.
After the UK’s prolonged period of rising house prices, it is easy for homeowners to pat themselves on the back. ‘We bought our house five years ago for £250,000 and today it is valued at £500,000. We’ve made a cool £250,000 profit.’ ….. anyone uttering those words is deluding themselves about their profitability. Try replacing that same house today with an identical one and it won’t cost you £250,000 (leaving you £250,000 of cash in the bank). It will cost you £500,000 to replace. You bought yourself a house five years ago, and that is precisely what you have today – a house.
In real, current purchasing power, you are no wealthier. And, as I’ll demonstrate shortly, that same house could now land you with a big tax bill should you fail to take steps to protect your estate from IHT. Oh, and the costs of running that same house – council tax, insurance, utilities, repairs and maintenance – are now a multiple of what they were five years ago. Still think you’ve made a £250,000 profit?
What you have done successfully, however, is ‘hedge’ yourself against one specific component of the overall rate of inflation that affects our daily lives – house prices. Contrast this with someone not on the housing ladder and who held back from buying five years ago. For them the rate of inflation in housing, a necessity of life, has been nothing short of catastrophic.
The lesson to draw from this is that the CPI can be utterly irrelevant and misleading for anyone wanting to maintain their current purchasing power. For anyone trying to get onto the housing ladder – or trade-up into a bigger property – recent house price inflation has been key. Someone dependent on the heavy use of their car will feel the financial impact of an escalation in oil prices more than someone who does not need to travel.
Each one of us must assess what measure of inflation affects us most – and hedge appropriately. A high mileage driver should arguably hold investments that are positively correlated to a rising oil price. He loses at the petrol pumps, but wins with rising dividends and capital gains from his oil stocks.
END EXCERPT
Looking at a house today the way it traditionally was viewed (as Weston #98 is implying) would have kept millions of Americans (i.e. those in the middle class) from being finanically ruined. Those Americans (and potentially Canadians too) who saw their house as an “ATM” instead of a home learned that such a belief system was nothing more than a smoke and mirrors show and it financially ruined those who fell for this deception.
An interesting story. But would recommend the same gameplan to someone who already owns their home outright? Does selling it now and starting to rent make any sense when currently no mortgage is paid?