It’s still debt

Kevin rides a giant, black Harley about the size of a backhoe. A car would be more mobile (and go in reverse), but way less cool. Kev has a house, too, with a mortgage that’s getting tougher to pay down. Life, ya know.

So he wrote me with an idea and a question:

I’m curious to know if you’d recommend pulling out 100k in equity in a house NOT to buy a rental house but to invest in a diversified portfolio and hopefully make a 6% to 8% yearly return only to turn around and put it back down onto the mortgage to pay it off faster? I’ve been contemplating on things to do to pay down the mortgage and create some income, no good having this equity just sitting here when it can be working for us! Seems starting a corporation is out of the question now thanks to T2 and his finance guru.

Given that real estate’s fat days are behind us but debt isn’t going anywhere, does this make sense? Maybe. Let’s roll it around.

Millions of people have, collectively, billions in real estate equity. When house prices stop going up, this becomes dead money. The only value you can really ascribe is what it might save you in equivalent rent. For example, a $1.5 million house can normally be rented for $3,000 a month. The family with a $500,000 mortgage and $1 million in equity is spending $2,400 (monthly) on the mortgage plus about $600 in property tax, insurance and utilities (water, sewer) that renters never pay. So they ‘own’ a home for the same monthly outlay as the family who rents it.

But they have put down $1 million to live there. If that were conservatively invested, and returned 6% annually, it’s $5,000 a month. So the house actually costs $8,000, and  could yield a non-deductible capital loss as easily as a non-taxable capital gain.

In other words, in a declining, flat, comatose or normal housing market, the cost of ownership when real estate has climbed to these levels is insane. Renters who invest win, ten times out of ten. If interest rates creep up and mortgages renew higher, the economics of owning get worse. In the current environment, a lot of people have to be asking themselves – like Kevin – if there isn’t some way to use that dead equity which is no longer supporting a rising asset.

Yes, a HELOC is one way of unleashing equity. It’s a line of credit secured by real estate, which means the debt is registered against the property but also that it comes with a preferential rate of interest. That’s normally prime + 0.5%. These days that equates to 3.45% (and it may rise to 3.7% in October). The line’s rate is almost always variable, so it will increase along with the bank prime. And HELOCs are demand loans. If real estate prices truly collapsed or another credit crisis hit, the bank could ask you for the money back in, oh, 30 days.

The good news is all of the interest is deductible from your taxable income if the money is used to generate more money. Yup, that could be real estate paying you rent or (wiser) a balanced and diversified portfolio of financial assets. So, if you earn $120,000 and live in BC, for example, you effectively reduce the loan interest rate by 41%. Now the HELOC costs you just 2%.

Given that well-managed, non-cowboy, globally-balanced and diversified ETF portfolios have pumped out an average of 6.5% over the last seven years (two of which were market stinkers), this mean a spread in the 4% range. Last time I checked, that was better than the 0% home equity is currently paying.

So to Kev’s question. If he borrowed $100,000 on a HELOC and invested it for a 7% return, then used the cash flow generated ($7,000) to pay down his existing mortgage faster, would it make sense? Well, interest-only payments on the line would cost $3,450, but he’d reduce his income tax by $1,400 (if he earns enough). So he’s up five grand. That’s cool – it can be used as a pre-payment on the amortized mortgage. But wait. Kevin now owes another $100,000. But wait again. He has a $100,000 liquid investment portfolio.

By removing equity and borrowing, the Harley dude has (a) diversified his net worth, (b) reduced his income tax bill and (c) accelerated the mortgage payments, saving a whack of interest.

This is not a slam-dunk strategy for everyone. If rates rise and the payments get hard to make, you lose. If the world goes to crap and the loan is called, you lose. If your house craters and the bank finds out, you lose. If your job fades, you lose. If you invest in the wrong stuff (like gold, bitcoins, weed stock or junior oil & gas), you lose. If the feds drop the hammer on HELOCs again, you lose.

Debt is debt. The world’s soaked in it. Most people would be unwise to shoulder more.

The best strategy, history will show, is to trash debt by selling high. This is high.

159 comments ↓

#1 DAVE J STACH on 08.07.17 at 4:12 pm

You should redo your website to allow mobile devices.

#2 Jacques_Strappe on 08.07.17 at 4:23 pm

“For example, a $1.5 million house can normally be rented for $3,000 a month.”

——————–

Wha??? Where is this? A $1.5M house in my neighborhood rents for $8K or $9K per month. And they go quickly. If life were that easy I would have sold my pile of bricks by now.

You must not live in 905, or are looking in the wrong places. — Garth

#3 Leverage on 08.07.17 at 4:28 pm

This is nothing new… It’s called the Smith Maneuver and is a great way to pay off your mortgage faster assuming you can handle leveraged investing, which is what your doing here.

No it has nothing to do with the Smith Manouevre, which is not recommended. — Garth

#4 Stone on 08.07.17 at 4:30 pm

Drove through King City, Ontario. Was never there before but lots of people I talked to said it was a great place with real McMansions so I wanted to see. I pulled out my MLS app while there to take a look at what these houses go for. OMG and capital Wow! This place is in the middle of nowhere and looks like people are asking for between $1.5-$2 million. Aside from the one off property which has nice landscaping, the rest have wilted grass and weeds. Also, for houses that have been around for about 10 years or so, you can also see who doesn’t have the cash to maintain their properties by the way the shingles on the roof look like. Alot of curled up shingles that need to be replaced is what I saw. Maybe it’s just me but there really wasn’t anything special about the area.

As for today’s subject, don’t do the heloc thing! I tried it when I still owned a house that was paid off. Yes, you can make some good coin and deduct the interest but I was always sweating about a downturn in the market that could occur at the wrong moment. Thankfully, it didn’t happen but didn’t take away my feeling of dread. Was happier when I got rid of the heloc. I recommend investing without using leverage. Being able to sleep at night without worry is priceless.

#5 Looney Baloney on 08.07.17 at 4:42 pm

So if all the debt in the world gets called simultaneously, and everyone has to sell all their assets to cover all their debts, will we
A) have no money in circulation but own nothing and owe nothing
B) some winners (assets or liquidity) and some left holding the bag. If so, what % in each camp?

Is the stick (debt) as good a master as the carrot (equity)? If not, and if there is a final straw (ratio of Delta debt to Delta equity) that breaks the peasants’ backs, could this be monitored to identify the exact moment the credit taps will be turned off?

#6 dosouth on 08.07.17 at 4:42 pm

….”So, if you earn $120,000 and live in BC, for example, you effectively reduce the loan interest rate by 41%. Now the HELOC costs you just 2%.”

Or if you have an above average credit rating you get offered 0% over 10 months after a 2% fee like CIBC without all the fuss.

The catch is of course, above average credit and repay rating.

#7 mouldyinYVR on 08.07.17 at 4:45 pm

http://www.vancourier.com/news/vancouver-housing-market-ain-t-seen-nothing-yet-1.20550940
….more of the same………..

#8 Ian on 08.07.17 at 4:45 pm

It doesn’t surprise me at all that someone would consider this strategy, but I think at this juncture it will end in tears.

The US stock market is now the third most overvalued it has ever been. Yes, it could keep rising to early 2000 valuation levels. But it is ultra dangerous now.

I’m loving precious metals here…gold has been in a slow grinding bear and I am slowly loading up. I think a balanced portfolio will run into big trouble with rising rates crushing bonds, and equities at severe risk.

#9 Wrk.dover on 08.07.17 at 4:46 pm

Using a house as an ATM was encouraged by tax deductible mortgage interest Stateside. I forget how that worked out in 08. Anybody?

#10 Smith M. on 08.07.17 at 4:57 pm

“The Smith Manoeuvre is an efficient strategy to use equity in your home to invest for your future without using your cash flow. It converts your mortgage into a tax deductible investment credit line (HELOC)”

I did not describe the SM and nobody should employ it. — Garth

#11 Jeremy on 08.07.17 at 5:03 pm

It’s equivalent to gambling. Not for me.

#12 Confused on 08.07.17 at 5:17 pm

Explain to me how this isn’t the Smith Manuever Garth? Other than not describing how you would take the equity you unlock each mortgage payment and invest it as well, there is no difference and has all the same risks.

Do some research. — Garth

#13 Penny Henny on 08.07.17 at 5:22 pm

DELETED

As will be every link to Douglas Todd. — Garth

#14 sunpack on 08.07.17 at 5:29 pm

So to deduct the interest on HELOC the funds must buy investments to be placed in a non-registered account. From my recollection you cannot deduct the interest on money borrowed if it is to go into a registered account (TFSA, RRSP, etc). To take advantage of the dividend credit one would have to choose investments that are Canadian companies. Would non-Canadian index ETF’s that are bought on the TSX be eligible (for example XUU – iShares Core S&P U.S. Total Market Index ETF)? Just curious about how diversified I can get if I have to stay within the border.

#15 mike from mtl on 08.07.17 at 5:42 pm

#2 Jacques_Strappe on 08.07.17 at 4:23 pm

Wha??? Where is this? A $1.5M house in my neighborhood rents for $8K or $9K per month. And they go quickly. If life were that easy I would have sold my pile of bricks by now.

////////////////////////////////////////////////////

He’s right, decent 700k+ condos offer for rent around here 2.5-3k. Unless you’re talking about a 1hr drive no 1$ million joint in the city proper rents for 3k.

#16 Greater Fool on 08.07.17 at 5:46 pm

Why Bitcoin is a bad investment? Can you explain?

#17 Phil on 08.07.17 at 5:49 pm

No tax on the income generated by the investments???

#18 Robert White on 08.07.17 at 5:53 pm

The Royal Bank of Scotland called the top on the worldwide housing portfolio back a few years ago.
Today, all are experiencing the full blown implosion of the worldwide housing portfolio in Toronto, Austrailia, et cetera. Debt-to-GDP ratios are the best indicator of financial stress, and one cannot borrow one’s way out-of-debt. The BIS warns all that CANADA is overextrended via debt-to-GDP and that we must reduce debt servicing costs or sink. The only option in this market is to sell everything just as the BofS recommended. Moreover, buy low & sell high means you should have sold back when the BofS called the top on housing.

#19 Dan.t on 08.07.17 at 5:53 pm

Rates can’t rise fast enough…debt pigs everywhere. Every cowboy strutting around with a big hat but no cattle.

Everyone all pumped because they have a bit of equity and yet can’t wait to use through HLOC it to buy more stuff they never could afford otherwise and it seems to cover basic expenses too…

Debt debt and more debt, I guess maybe debt pigs have been doing it right for the past 14 years with savers just getting abused. Life lesson, when the powers that be want you to spend and borrow your little brains out, just do it, sure a bail out will happen.

Everyone bitching about no supply, of course there is no supply when everyone owns 10 investment properties curtesy of the big banks giving out free money for 16 years. The herd fight the herd to borrow and leverage as much free money as possible … no correlation I’m sure.

#20 rainclouds on 08.07.17 at 5:53 pm

Speaking of avoiding taxes…………

“His worries echo a Transparency International report that says stronger tax enforcement is desperately needed in Canada and especially for Metro Vancouver, where governments can’t identify the owners of almost half the region’s 100 most valuable homes.”

http://nationalpost.com/news/local-news/douglas-todd-new-10-year-visas-stoke-housing-booms-in-vancouver-and-toronto/wcm/6f99babd-167c-4cbc-830d-5b6461877690

#21 the Hammer on 08.07.17 at 5:54 pm

If you pay 1.5 to 2 million for a house and it has asphalt shingles, you have made a big mistake.

#22 tb on 08.07.17 at 6:01 pm

Sure, it’s not Smith Manoeuvre per se, because he doesn’t already have investments, which he would sell and reacquire through the HELOC.

Having said that, the end result is quite similar, in that it’s building an investment portfolio on principal residence equity/leverage so as to make the debt deductible.

Btw, please account for some tax (though I understand it’ll vary a lot) in the 6% income from the $1M portfolio. They’re certainly not going to get $5K in their pockets per month.

Finally, the $1.5M renting for $3K/month is only for a limited market area. We don’t all live in GTA or Van ;)

The numbers do shift quite a bit when you move to normal markets where $3K/month gets you a $600K-$700K house instead.

#23 jimbob on 08.07.17 at 6:01 pm

If Kevin is deducting interest on his loan then the hoped for 7 % return on his investment will also be taxable. Compare apples with apples Garth. A 7% pre tax return less a 3.45% pre tax interest costs gives a 3.55% pre tax rate of return. After 41% tax the rate of return is about 2%.
Is it worth risking your equity when markets Price to Earnings ratios are at or near all time highs for a 2% rate of return; especially given that HELOCs are demand loans and if the market dips the investor would be forced to sell at a low

#24 Dolce Vita on 08.07.17 at 6:02 pm

I do not know if marketing studies about individual debt in Canada will prove to be correct (the majority $300/mo away from not meeting debt obligations), but if correct, then it would appear there are a lot of Kevin’s out there looking for a way out.

And Kevin is in an enviable position.

He should sell, pay off the mortgage, invest most of the $1 MM in equity and rent a house instead. Sell at the peak is good advice I think.

Garth’s method works if he wants to “own” his house but most of the time too risky in an average or down RE market.

As #4 Stone stone said:

“Being able to sleep at night without worry is priceless” after he got rid of his HELOC.

So true when it comes to debt. Sell at peak Kevin and enjoy a debt/stress free life.

#25 ANON on 08.07.17 at 6:06 pm

Debt is debt. The world’s soaked in it. Most people would be unwise to shoulder more.

Amen

.

#26 Taxman on 08.07.17 at 6:09 pm

I believe you conveniently forgot to mention that the cash flow from the (unregistered) investment would be added to Kevin’s taxable income. Therefore if Kevin earns $120,000 and lives in BC, he is paying an additional ~$2K+ in tax on the annual distributions, depending on their form (interest vs dividends vs cap gains vs ROC)

Less. Much income can be taken as return of capital. Or none, using TFSAs. — Garth

#27 dakkie on 08.07.17 at 6:10 pm

Wolf Richter – Canadian and US Auto Markets, Vancouver and Toronto Real Estate Bubbles
http://investmentwatchblog.com/wolf-richter-canadian-and-us-auto-markets-vancouver-and-toronto-real-estate-bubbles/

#28 Raging Ranter on 08.07.17 at 6:12 pm

Small correction: with the exception of some apartment buildings, renters do pay utilities. All of them. I pay gas, hydro and water. (And of course phone cable & Internet.) Same deal for any house I have ever rented. The cash flow still works out heavily in favour of renting though – and at these lofty values and low interest rates, I am not crazy about the risk of buying – so I keep renting.

Perhaps Mattl will be along later to tell me how stupid I am. Obviously I should just build a time machine and buy a house 15 years ago like all the smart people are doing these days. Think I’ll buy some Apple shares while I’m at it.

#29 For those about to flop... on 08.07.17 at 6:15 pm

Pink Lemonade stands in North Vancouver and Richmond.

Here are a couple of my older cases that have just knocked a bit more off and seem to accept they will be lucky to be made whole.

Clements is now asking 1.89

Musgrave is now asking 1.99

Bank is now asking to still be paid….

M43BC

1002 Clements Avenue, North Vancouver paid 2 million in June 2016

Oct 28:$2,099,000
Apr 6: $1,998,000
Change: – 101000.00 -5%

https://www.zolo.ca/north-vancouver-real-estate/1002-clements-avenue

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAyODYyMg==

5711 Musgrave Crescent, Richmond paid 2.49 million in March 2016.

Jan 5:$2,788,000
Apr 4: $2,600,000
Change: – 188000.00 -7%

https://www.zolo.ca/index.php?sarea=5711%20Musgrave%20Crescent,%20Richmond&ptype_condo=1&ptype_house=1&ptype_house=1&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA1WEY2TQ==

#30 tb on 08.07.17 at 6:23 pm

Less. Much income can be taken as return of capital. Or none, using TFSAs. — Garth

Sure, $100K in TFSAs, not the $1M as in the example. Then you’d be discussing $500/month pre-tax return though… not as sexy.

Apples and oranges. The HELOC money is intended to provide a=returns to reduce a mortgage in this instance. The equity money is the basis of a long-term investment portfolio. — Garth

#31 Captain.Super.Duper on 08.07.17 at 6:25 pm

I live in the USA and perhaps the earliest indicator that the bubble had popped was when furniture stores began to drop like flies. At the time I didn’t know why so many stores suddenly went out of business. Years later I learned that roughly half of all furniture sales occur when a home is purchased.

#32 Penny Henny on 08.07.17 at 6:30 pm

#13 Penny Henny on 08.07.17 at 5:22 pm
DELETED

As will be every link to Douglas Todd. — Garth
///////////////////////////

Why censor? Let others read and make their own decisions. If it was printed in The National Post it can’t be so un politically correct as to create too much of a stir.
I will give you points for actually showing “DELETED” instead of making it disappear into the either.
Different viewpoints should be discussed.
And I suppose the lawyers quoted in the article have an agenda too?

My blog. My rules. Feel free to leave anytime. — Garth

#33 For those about to flop... on 08.07.17 at 6:32 pm

Pink Lemonade stand in Vancouver.

This one is a bit of a heavy hitter in a segment of the market that is having a Maggie Thatcher style power nap.

On the hook for 3.88 after replacing another fish on hook who owned it for a year.

If you look at the assessment the previous flipper was on the hook for 3.65 and so as I document this current case ,I guess we could say there were two fish on the hook and the first one turned out not to be a brown trout but a CONFIRMED PINK DRAW…

M43BC

4626 W 12th Avenue, Vancouver

Apr 1:$4,490,000
Aug 1: $4,150,000
Change: – 340000.00 -8%

https://www.zolo.ca/index.php?sarea=4626%20W%2012th%20Avenue,%20Vancouver&ptype_house=1&max_price=1300000&min_price=600000&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAwMDJFSA==

#34 Grandson of King on 08.07.17 at 6:35 pm

Stone,

To me King City is a perfect example of how insane the GTA market is.

Consider this:

King City to Bay Street is about the same commute as Greenwich, Connecticut to Wall St.

On the one hand, you have a modest, small Canadian town full of average Joes and Janes, in the middle of generic Ontario farmland.

On the other, you have the hedge fund capital of the world within a reasonable train ride of NY, a city with a GDP about equal to Canada’s. Oh, and Greenwich is right on the water and chock full of New England’s uppity-est upper crust.

Yet houses cost about the same.

#35 Crazy Pills on 08.07.17 at 6:41 pm

#16 Greater Fool on 08.07.17 at 5:46 pm

LOL! think about what you are saying! Bitcoin does 30%+ price moves in as little as 24 hours. This is an incredible high risk investment. It’s bad enough suggesting someone puts their house up for leverage to invest, but to invest in something so volatile, you would have to be batshit insane!

#36 crowdedelevatorfartz on 08.07.17 at 6:44 pm

@#31 penny Henny
“making it disappear into the either….”
+++++
Its actually spelled/pronounced “ether’…..but I knew what you meant….

Reminds me of a defendant in an armed robbery case in Toronto that decided to “defend” himself in Court.
When he cross examined the Crown Councils’ expert witness on the bank robbery photos he demanded to know what the number of “pickles” the photo resolution was…..
gales of laughter from the courtroom caused a recess

#37 M. Friedman on 08.07.17 at 6:45 pm

Expanding the money supply for moisters causes inflation. Opening of Starbucks cafes increases the cost of living.
Government intervention of the foreign exchange market causes stagflation.
Please, for the sake of good, do not let Bank of Canada Poloz manipulate the Canadian dollar any more, for Trump will teach Canada a lesson on Inflation.

#38 crowdedelevatorfartz on 08.07.17 at 6:48 pm

ooops.
Really @#31 Super Duper
“when furniture stores began to drop like flies. At the time I didn’t know why so many stores suddenly went out of business. Years later I learned that roughly half of all furniture sales occur when a home is purchased…”

******

Does that mean we wont have to listen to endless Sleep Country Canada jingles by The Mattress Maven Magee?
Thank God.

#39 Old Ron the Realtor on 08.07.17 at 6:55 pm

Most asset classes are currently inflated into record territory. That includes real estate and equities. Free money has done its work.

Garth’s bike riding friend is having trouble paying down his exiting mortgage, so saddling him with an extra $100k in debt on the hope that the Stock Market (which is at an all time peak) will somehow bail him out is a bad idea.

Its is not sexy to hunker down, but sometimes it is the best move. Remember that 29% of Ontario’s economy is involved with real estate so this “correction” may spread into a regional recession by Winter. Cut expenses and get ready to ride this out. Now pass the beans and rice.

#40 Waiting and waiting and waiting and waiting ....on the west coast on 08.07.17 at 7:01 pm

Still waiting ……………..

#41 For those about to flop... on 08.07.17 at 7:06 pm

Pink Lemonade stand in Burnaby.

This one is borderline at the moment,but there is reason they only took 1% off and that because it’s getting down to the nitty gritty if they want to walk away with no harm done.

Have showed a few condos lately that were picked up in 2014/2015 that took a loss and this one was picked up in late 2015 as ball and chain for Christmas.

On the hook for 1.93 ,the assessment that followed came up around 700k to help them out in that regard ,but it was built back when the Beatles were creating some of the best music ever made.

Are these guys in trouble?

Yeah,Yeah, Yeah…

M43BC

4955 Grafton Street, Burnaby

Mar 8:$2,180,000
Aug 1: $2,160,000
Change: – 20000.00 -1%

https://www.zolo.ca/index.php?sarea=4955%20Grafton%20Street,%20Burnaby&ptype_house=1&max_price=1300000&min_price=600000&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVzdWTg==

#42 Nonplused on 08.07.17 at 7:06 pm

I like to think my home equity is returning around 3% in the form of owners equivalent rent. That’s not great, but it’s tax free so I’d have to probably earn 5% on the money were it invested otherwise, just to cover the rent or the mortgage depending on how I did that. Garth says 6-7% is realistic long term, so that means a profit of 1-2% if I go this way, of which some will go to the CRA, so my net profit is likely to be on the order of 1% or so. Call me a chicken but I don’t think the additional market risk is worth the 1%, it doesn’t suite my “investor profile”.

And yes I realize the entire equity in the house is exposed to market risk as well and that looks to be nearly as dangerous as the stock market right now, but that risk would remain even if I took out a mortgage for investment purposes. Only in that case I could lose twice, once on the house as it corrects and then again on equities or bonds as they correct. In short all I would be doing is increasing my leverage, which I can already do in my margin account without risking my principle residence. So I don’t think mortgaging to invest is necessarily a clear cut strategy for everyone, and even with today’s ultra low interest rates I am not sure it is worth the bother.

Sure, I have some upkeep costs like property taxes and maintenance that I have not included, but I’d have to sell and rent to avoid those, and to some extent landlords try to bake those costs into the rent where they have the pricing power to do so. Most rental situations do not include utilities so I pay those either way. LED bulbs are the only solution there and they only save so much. Pretty much everything in the house is high efficiency and it’s new enough to have the 6 inch walls and R40 in the attic so about the only thing that could be improved is the windows, which would be a great expense and the ones I’ve got ain’t that bad they are tinted and double pane, just the wood frames are a concern. But it would cost a lot of money to replace them. More than a brand new Harley.

So anyway back to Kevin. I suppose he could sell the Harley. If you have a mortgage and a Harley what you have is a mortgaged Harley. And if Kevin is making payments on the Harley (it is surprising how many people buy such things on credit), it’s a doubly mortgaged Harley. But the same thing applies to boats, RV’s, a new iPhone 7, anything you buy on credit or before the mortgage is paid off. But I guess there are some things you just have to have. After all you’ve got to live.

Actually now that I think about it, this is a point often alluded to but not often directly addressed on this blog. Garth has done a great public service and dedicated no doubt countless hours to educating the financially illiterate on how to manage their money. But unfortunately the advice is only good for people who have some money to manage. We can’t ask Garth to do everything, so if there is anyone who frequents this blog who is wondering how to come up with the money in the first place I’ll handle that part. Here it is:

Work hard, and spend less than you earn. Spend substantially less than you earn if you can.

I know, it sucks, but it’s the only thing that works. And it works for everybody. Even Bill Gates had to do it at one point in his life. Actually his whole life, I guess in his case there just came a point where he was out-earning anything he could think of to spend the money on. We won’t all be that fortunate but the rule remains inviolate. On the flip side we can look at all the lottery winners who go broke within a few years of winning the jack pot. The government puts a few million in their bank account, and whereas that should set them up for a worry-free life, instead they quit their jobs, buy houses, cars, vacations, boats, 4-wheelers, RV’s, keep gambling, generally carrying on as if the money can’t be spent until it is too late and it is all gone. Not all of them do that, but a surprising number do. And it lends some insight into human nature and why many people cannot save: They spend more than they make, and they cannot help themselves.

Oh and beware of “get rich quick” schemes. If somebody actually could figure out how anyone could get rich quick, we’d all be rich. Somebody is getting rich, but chances are it’s the guy running the scheme not the investors. This is one reason I missed out on the Bitcoin thing. Once that bubble bursts it’ll be harder to exit than Bre-Ex was, and there is just about the same amount of real gold behind it. You can look like a fool early for missing out on the rise, or look like a bigger fool later. Hmm kind of like Garth’s real estate message.

Garth does not peddle “get rich quick” schemes, and he never has. He has always advocated managing your money well, saving, and investing wisely. But that lifestyle sucks and have you seen the new Milwaukee 8? I gotta get me one of those.

#43 Why not on 08.07.17 at 7:14 pm

Hey Garth, why pay down the mortgage faster when you could just let that interest compound and keep adding more monthly. You have a 100k loan that the interest is 100% tax deductible, it costs you nothing. Am I missing something here?

#44 Stone on 08.07.17 at 7:15 pm

#21 the Hammer

————

So true. I pity the fools. I forgot to mention in my earlier post about the wooden garage doors with the peeling paint as well. The contrast of that against the Audi’s, BMW’s and other “luxury” cars in front of these ghastly garage doors is mind boggling. If they really want to play $30,000 millionaires, they should at least cover all their bases. Don’t these homeowners invite guests over. What will their guests think? It doesn’t set a good example. LOL

Oh, life choices. You have been so good to me. I’m grateful every day I never fell for these financial traps just to impress others.

#45 T.lien on 08.07.17 at 7:21 pm

DELETED

#46 For those about to flop... on 08.07.17 at 7:22 pm

Pink Lemonade stand in Burnaby.

Not too sure hats going on with this one.

It shows this massive price reduction to get some eyes on it yet the zolo is still showing it for 1.5.

Either way there in a spot of bother after picking it up for 1.39 in April 2016.

These guys look like their playing silly buggers.

Berk(e)ley ,I thought that’s where all the smart people went…

7725 Berkley Street, Burnaby

Jun 21:$1,500,000
Aug 1: $920,000
Change: – 580000.00 -39%

https://www.zolo.ca/index.php?sarea=7725%20Berkley%20Street,%20Burnaby&ptype_house=1&max_price=1300000&min_price=600000&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzV0EwVA==

#47 Cici on 08.07.17 at 7:26 pm

#1 Dave

He’s trying to help us: he doesn’t want us to waste our lives reading the comments section. I get around it with my iPad

#48 NoName on 08.07.17 at 7:30 pm

#16 Greater Fool on 08.07.17 at 5:46 pm
Why Bitcoin is a bad investment? Can you explain?
—-


Meet ‘Spoofy’. How a Single entity dominates the price of Bitcoin.
This story is about a trader, or a group of traders, or possibly even Bitfinex themselves manipulates the price of Bitcoin. The past few months I’ve slowly collected screenshots of a trader I like to call ‘Spoofy’. You’ll see evidence of spoofing, wash trading, a sketchy scheme associated closely with Bitfinex known as ‘Tether’ among other shenanigans.
Spoofy makes the price go up when he wants it to go up, and Spoofy makes the price go down when he wants it to go down, and he’s got the coin… both USD, and Bitcoin of course to pull it off, and with impunity on Bitfinex.

https://hackernoon.com/meet-spoofy-how-a-single-entity-dominates-the-price-of-bitcoin-39c711d28eb4

#49 Too bad ... on 08.07.17 at 7:34 pm

He couldn’t buy a place for $250,000 ,have monies left over to invest with . Rather than pouring most of disposable into the house

Affordability in greater Toronto is long gone.Sorry .

Rent. And when the owner throws you out ? Pack the kids and rent another place .

Welcome to Canada

#50 S.Bby on 08.07.17 at 7:46 pm

It’s ok Penny we all know what that link was and what the article said. Google works great. No one can sensor the internet except China and North Korea.

Keeping the cockroaches out is not animal cruelty. — Garth

#51 re., jimbob on 08.07.17 at 7:56 pm

If Kevin is deducting interest on his loan then the hoped for 7 % return on his investment will also be taxable. Compare apples with apples Garth. A 7% pre tax return less a 3.45% pre tax interest costs gives a 3.55% pre tax rate of return. After 41% tax the rate of return is about 2%.
Is it worth risking your equity when markets Price to Earnings ratios are at or near all time highs for a 2% rate of return; especially given that HELOCs are demand loans and if the market dips the investor would be forced to sell at a low
……….

spot on. The chap may need diazepam to help him sleep if the second longest bull market in history takes a turn….or scotch

Like when the housing market declines 20% and his mortgage rate doubles upon renewal? — Garth

#52 Grantmi on 08.07.17 at 7:58 pm

#32 Penny Henny on 08.07.17 at 6:30 pm
#13 Penny Henny on 08.07.17 at 5:22 pm
DELETED

As will be every link to Douglas Todd. — Garth
///////////////////////////

Why censor? Let others read and make their own decisions. If it was printed in The National Post it can’t be so un politically correct as to create too much of a stir.
I will give you points for actually showing “DELETED” instead of making it disappear into the either.
Different viewpoints should be discussed.
And I suppose the lawyers quoted in the article have an agenda too?

My blog. My rules. Feel free to leave anytime. — Garth

I love it when you get feisty in the evenings!!! Smells like victory!

#53 burnaby guy on 08.07.17 at 7:59 pm

This strategy by Garth is dangerous. The balanced portfolio doesn’t return 6% like clockwork every year. Some years the return could be +20%, some years -15%, some flat years. If another 2008 returns it could go down 40% that particular year. Over 10-15 years the average return is rough 6%. Can you handle and make your loan payment based on that? I doubt many people can handle that emotion rollercoaster.

I did not promote leverage for investing, but presented benefits and risks. BTW, a balanced portfolio does not swing wildly, and has never declined 40%. How can we live in the age of instant info and yet so many are financially illiterate? — Garth

#54 jas on 08.07.17 at 8:00 pm

#28 Raging Ranter
I think what Garth meant is that renters do not pay property tax and by utilities he meant water and sewer + garbage collection.
And yes, these utilities + property tax does come to around $700 in Surrey, BC. certainly much more in Van/GTA area.

I try to tell this to my wife that even if we don’t live in our house, it is costing us $700/month, so why not downsize? And the answer? Nope! I’m stuck.

#55 MF on 08.07.17 at 8:01 pm

#164 Fake News Again on 08.07.17 at 3:00 pm

“Sorry your wrong. The counter culture is just more vocal. They only time the majority of readers “write here” is when they are upset that their 350K combined pubic sector income can’t buy them something.”

-So become a public sector worker?

MF

#56 Reximus on 08.07.17 at 8:04 pm

DELETED

#57 Concrete guy named Joe on 08.07.17 at 8:11 pm

So this non smith manouvere that you speak of..

would you recommend doing it if you’re an Italian that owns rental properties with lots of equity in them? yank some out, invest it, beef up the mortgage interest that’s deducted against rental income.. win win right?

except what about when mortgage rates start creeping up to 3.6-4.2% for us mortgaged rental property folk? then it’s not cool anymore?

#58 paracho on 08.07.17 at 8:24 pm

Another great blog !
In this case, and most cases now, it is not advisable to add debt to more debt.
Garth is correct once again ( at the risk of sounding like a brown noser).
With a high probability of interest rates increasing and at TFSA capped at $52,000…I do not see how this can really be highly profitably without losing sleep .

#59 Wetrock on 08.07.17 at 8:27 pm

#2 Jacques – I live in a house in South Surrey worth 1.7m, rent is $2,600/mo

#60 Cottingham a bargain on 08.07.17 at 8:36 pm

#56 Concrete guy named Joe on 08.07.17 at 8:11 pm
So this non smith manouvere that you speak of..

would you recommend doing it if you’re an Italian that owns rental properties with lots of equity in them? yank some out, invest it, beef up the mortgage interest that’s deducted against rental income.. win win right?

except what about when mortgage rates start creeping up to 3.6-4.2% for us mortgaged rental property folk? then it’s not cool anymore?
——-

No way any Italian in the GTA would be remotely interested in leveraging into ” da stocka markato” . You would be a long stretch to get them to invest a dollar out of hundred first of their savings. No way buddy.. RE all the way and only way for the loyal worshippers of land and bricks from the country of fast cars and preeminent fashion.

#61 Sam the Sham on 08.07.17 at 8:44 pm

#13 Penny Henny on 08.07.17 at 5:22 pm
DELETED

As will be every link to Douglas Todd. — Garth

—————————————————

It is probably more revealing what someone doesn’t want to discuss than what they do want discuss. What’s going on?

Want to bash Chinese? Not here. — Garth

#62 Concrete guy named Joe on 08.07.17 at 8:46 pm

59 Cottingham a bargain on 08.07.17 at 8:36 pm
#56 Concrete guy named Joe on 08.07.17 at 8:11 pm
So this non smith manouvere that you speak of..

would you recommend doing it if you’re an Italian that owns rental properties with lots of equity in them? yank some out, invest it, beef up the mortgage interest that’s deducted against rental income.. win win right?

except what about when mortgage rates start creeping up to 3.6-4.2% for us mortgaged rental property folk? then it’s not cool anymore?
——-

No way any Italian in the GTA would be remotely interested in leveraging into ” da stocka markato” . You would be a long stretch to get them to invest a dollar out of hundred first of their savings. No way buddy.. RE all the way and only way for the loyal worshippers of land and bricks from the country of fast cars and preeminent fashion.

——————————–
My partner Tony told me that the fidelity contrafund makes big bucks bro. Bigger than the real estate bucks. Real estate is a little rocky right now even the Italians know.

#63 Richmond poor on 08.07.17 at 8:46 pm

DELETED

#64 Concrete guy named Joe on 08.07.17 at 8:47 pm

To make a proper chicken parm sandwich you gotta toast the bread.

Sauce goes on both sides of the bread. (very important)

Then the cheese, two pieces of chicken and your toppings.

Goes nice with a can of Brio and the latest copy of The Real Estate Book

#65 TZ 401 on 08.07.17 at 8:52 pm

Garth,
For the balanced portfolio, who is assisting the person to choose and manage the portfolio? If that is also recommended, shouldn’t the cost of that be included?

#66 huh? on 08.07.17 at 9:00 pm

Like when the housing market declines 20% and his mortgage rate doubles upon renewal? — Garth

……..

he’s not selling.. He is raising his family in the community he and his wife choose.

He doesn’t need foolish added SIGNIFICANT risk to net$1500. Get a second job. If mortgage rates double ? do what you gotta do. Get a second job if need be. Instead of the Disney cruise go camping, buy a used car not new…… etc, etc

#67 Shortymac on 08.07.17 at 9:18 pm

@31 CaptainSuperDuper

I was just at vaughn mills and orfus road this weekend to pick up some appliances and furniture for my new rental house.

Absolute ghost town in the furniture and appliance stores, especially considering it’s a holiday weekend.

Got a lovely fridge and washer and dryer set tho.

Cant wait to move and wait out this crash.

#68 Dee on 08.07.17 at 9:23 pm

Italians and stock market are not to be in the same sentence together. It’s houses only

#69 Sir James on 08.07.17 at 9:32 pm

#4 Stone – King City has been gettin Ritzy since Bilderbergs held a meeting there in 1996.

#70 burnaby guy on 08.07.17 at 9:35 pm

I did not promote leverage for investing, but presented benefits and risks. BTW, a balanced portfolio does not swing wildly, and has never declined 40%. How can we live in the age of instant info and yet so many are financially illiterate? — Garth

Did I use the word leverage in my original post? No I didn’t. My main point is the balanced portfolio doesn’t return 6% like clockwork. You can’t rely on that to make loan payment or to pay rent like you posted before. #8 ian, #23 jimbob, #41 nonplused all question this strategy. They just said it in a different way.

#71 InvestorsFriend on 08.07.17 at 9:40 pm

Kevin of the HELOC…

Kevin’s wife is not going to allow him to borrow another $100k.

So, I agree totally, if you want your equity out of your house then sell.

I don’t get the bit about borrowing and investing in something that gives no taxable return. Return of capital. Return OF capital is not return ON capital.

Investments that give return of capital may be wasting assets like mines. How will the share price maintain or grow if the investment hands back the cash flow associated with depreciation?

I don’t trust return of capital plays. Anyone can give you 5% return of capital for 20 years by just giving back your own money. Followed by nothing as the money is all gone.

Instead, in taxable accounts, go for capital gains, no tax till you sell and then half the regular tax rate or dividend stocks.

To me, the spreads of borrowing to invest are too thin to be attractive if the investment is reasonably safe. You need to borrow massive amounts to generate interesting annual returns. It’s all too stressful for the reasons Garth mentioned.

#72 Millennial905er on 08.07.17 at 9:42 pm

#49 S.Bby on 08.07.17 at 7:46 pm
“No one can sensor the internet except China and North Korea.”

Incorrect.

“Google, Inc., isn’t just the world’s biggest purveyor of information; it is also the world’s biggest censor.”
-https://www.usnews.com/opinion/articles/2016-06-22/google-is-the-worlds-biggest-censor-and-its-power-must-be-regulated

“The war on conservatism has been waging on the internet for years, and now, YouTube is looking to get in on the action.”
http://constitution.com/youtube-begin-censorship-via-mob-rule-internet-titans-turn-liberal/

Garth removing comments should be the least of your concerns.

#73 InvestorsFriend on 08.07.17 at 9:46 pm

What If all the debt in the world is called?

#5 Looney Baloney on 08.07.17 at 4:42 pm said:

So if all the debt in the world gets called simultaneously, and everyone has to sell all their assets to cover all their debts, will we
A) have no money in circulation but own nothing and owe nothing
B) some winners (assets or liquidity) and some left holding the bag. If so, what % in each camp?

*********************************
Who is this “we” that would own nothing? Someone or some bank would own each and every house.

Every house in the world has been fully paid for by someone from the moment it existed. The farmer got paid for the field, The developer got paid for the lot, the builder got paid. The laborers got paid. The suppliers of all the components got paid. (anyone who did not get paid effectively paid for part of the house involuntarily).

Debt is just a way for someone to enjoy today what someone else already paid for. Money after all is an intangible with no real inherent value. Houses have real inherent value.

#74 Ian on 08.07.17 at 9:51 pm

Just noticed a new show on Netflix tonight…’Buy Herself’. Realtor helps women buy a home. First stop…helping a 37 year old single woman buy a condo in downtown Toronto. Yep, that will turn out well.

I think I will be able to stomach about one episode. Luckily they are only 21 minutes long.

Key sign of market top…real estate shows on TV!

#75 D.O.N (DON rebranding) on 08.07.17 at 9:51 pm

#52 burnaby guy on 08.07.17 at 7:59 pm

This strategy by Garth is dangerous. The balanced portfolio doesn’t return 6% like clockwork every year. Some years the return could be +20%, some years -15%, some flat years. If another 2008 returns it could go down 40% that particular year. Over 10-15 years the average return is rough 6%. Can you handle and make your loan payment based on that? I doubt many people can handle that emotion rollercoaster.

I did not promote leverage for investing, but presented benefits and risks. BTW, a balanced portfolio does not swing wildly, and has never declined 40%. How can we live in the age of instant info and yet so many are financially illiterate? — Garth
*********
How?

1. Blissful ignorance
2. Wilful ignorance
3. Laziness
4. Extreme laziness
5. Too busy to be bothered
6. Can’t locate the Internet?
7. Not from this planet and don’t speak our languages??

#76 Smith Maneuver on 08.07.17 at 9:56 pm

#12 Confused on 08.07.17 at 5:17 pm

Explain to me how this isn’t the Smith Maneuver Garth? Other than not describing how you would take the equity you unlock each mortgage payment and invest it as well, there is no difference and has all the same risks.

Do some research. — Garth

It does look like the Smith Maneuver.
Btw, what’s wrong with that?

If I remember well CRA tried to tank it but failed.

This guy documented his journey to implement it with success:

https://www.milliondollarjourney.com/

A HELOC used to fund a diversified portfolio has nothing to do with the systematic withdrawal plan which is at the heart of th SM. Nobody should use that strategy. Thread over. — Garth

#77 Trumpocalypse2017 on 08.07.17 at 10:01 pm

Everyone, including our federal government, is now planning for total catastrophe:

https://www.thestar.com/news/canada/2017/08/07/funeral-homes-warned-to-be-prepared-in-advance-of-possible-pandemic.html

Urgent need for caskets and mass death planning outlined by Public Health Agency of Canada.

Are you ready? Or did you spend the long weekend wasting your time drinking, instead of planning for your survival?

Ebola, influenza, Trump nuclear war, any or all of these are just around the corner.

When the feds talk like this, you are an idiot not to pay attention and read between the lines.

#78 Rockylal on 08.07.17 at 10:03 pm

I live in Streetsville (Mississauga). House is worth $1.4M, Rent is $2700 per month. Was looking at Markham a few months ago because I work there and even better deals. Houses worth $1.8M renting for just under $3000.

#79 Ian on 08.07.17 at 10:03 pm

Happy Housing will snap if he sees this Buy Herself show. Realtor so bullish: ‘this place is perfect for you!!’

#80 asphalt on 08.07.17 at 10:15 pm

#21 the Hammer
If you pay 1.5 to 2 million for a house and it has asphalt shingles, you have made a big mistake.

Oops, that’s what I’ve done, almost 5 years ago.

But I like to think that I’ve paid it for the land, not the house (which is just saw dust and glue, really.)

BC Assessment thinks so too, btw.
Land values dwarf the house values.

My neighbour takes the cake here: his lot is valued almost 82x the value of the house he lives in.
Granted, just one floor and it lacks central heating; just a fireplace.
The ‘hood is basically waiting for an up-zoning, really, for the big pay out.

#81 Raging Ranter on 08.07.17 at 10:34 pm

Buy Herself has been showing since 2012. I never watched it, but I recall the gushing Globe and Mail article promoting the show when it launched. I left a comment suggesting that the sequel be called Sell Herself, as that was what some of these women would have to resort to after Susan (the host) sold them a condo they couldn’t afford. I was called a misogynist. :)

#82 rental property math on 08.07.17 at 10:35 pm

@31 CaptainSuperDuper

I was just at vaughn mills and orfus road this weekend to pick up some appliances and furniture for my new rental house.

Absolute ghost town in the furniture and appliance stores, especially considering it’s a holiday weekend.

Got a lovely fridge and washer and dryer set tho.

Cant wait to move and wait out this crash.

———–
you had to supply your own appliances for your rental?
do you have to make the repairs also?

some rental..

#83 rental property math on 08.07.17 at 10:40 pm

Like when the housing market declines 20% and his mortgage rate doubles upon renewal? — Garth

……..

he’s not selling.. He is raising his family in the community he and his wife choose.

He doesn’t need foolish added SIGNIFICANT risk to net$1500. Get a second job. If mortgage rates double ? do what you gotta do. Get a second job if need be. Instead of the Disney cruise go camping, buy a used car not new…… etc, etc

——————-
this exactly.
not gamble the family house…
what if the stock market is down a year or two and your mortgage is up for renewal at a higher rate.

great advice! just like not buying a house and rent!
and then when the landlord isn’t leveraged anymore and wants to sell you can go find a new place to live with all that money you made making 6% year over year.

you should start an advice column on what to do when your landlord is actually a slumlord and doesn’t make repairs. now you have to make those repairs out of your own pocket as if you owned the house.
would you suggest moving?
that would be just great in a tight rental market.

Who left the gate open tonight? — Garth

#84 45north on 08.07.17 at 10:50 pm

dakkie: Wolf Richter: I listened to him. I got the idea that North America is deleveraging.

Old Ron: Remember that 29% of Ontario’s economy is involved with real estate so this “correction” may spread into a regional recession by Winter. Cut expenses and get ready to ride this out.

good advice

#85 For those about to flop... on 08.07.17 at 10:56 pm

I remember the guys at howmuch doing this last year also.

Here is the updated version of the richest person in each State of America…

M43BC

“An outright majority of the richest people in the states are self-made. Nearly all of the wealthiest people in Western states are self-made, while a more mixed group is found among the richest individuals in Northeastern states. There is also a small trend found in familial ties. The wealthiest person in both Texas and Arkansas – Jim and Alice Walton – are from the family that founded retail giant Wal-Mart. The Mars family, the founders of the Mars candy company, also appears twice on the map; John and Jacqueline Mars in Wyoming and Virginia.

Although the individuals found on the map represent the wealthiest person in each state, the net worth of each person varies to a significant degree. The West Coast – California, Oregon and Washington – is home to some of the wealthiest people in the country. This includes Bill Gates, the wealthiest man in not only the U.S. but the world. The wealthiest person in states with a small population, like Midwestern America states, tend to have a relatively lower net worth compared to larger states. But there are a few notable exceptions, including the world’s second wealthiest man Warren Buffet in sparsely-populated Nebraska.

There are many millionaires and billionaires found throughout the United States. But some states, particularly highly populated states, are home to the ultra-rich, while other states with smaller populations tend to be home to individuals with relatively lower net worth. It appears that the further you go West, the more you find wealthy individuals that are self-made, rather than inheritors of large fortunes.”

https://howmuch.net/articles/richest-person-in-every-state-2017

#86 Reddit0r_Anonymous on 08.07.17 at 11:09 pm

What’s the chance of this bill getting passed: http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&Intranet=&BillID=4959?

#87 BC_Doc on 08.07.17 at 11:28 pm

In 2008/09, I threw every cent I could find into the market– unsecured LOC, margin, spare cash, you name it. All debts are now paid off. Given how far we are into the current bull market (supposedly the second longest in history), I’ve taken profits and built up cash. For me, the bull is too far along to consider leveraging. But if the bear makes an appearance again, I may reconsider…

Sounds like you had no balance. Unwise. — Garth

#88 Happy Housing Crash Everyone! on 08.07.17 at 11:31 pm

Feel bad for the delusional on here. RE is done. Just like all other bubbles many will see why it’s called easy come easy go. The rug is being pulled and if the delusional can’t see it then they will learn a painful lesson. I hear many plan on listing in fall. Everyone reading the same playbook and expect the same results. LOL. Game over RE. Happy Housing Crash Everyone! :-)

Reality shows are all fake. True will come out after the crash.

#89 Karlhungus on 08.07.17 at 11:49 pm

Since when can you deduct interest from the investment loan when the investment is in a tfsa?

Figure it out. — Garth

#90 dave on 08.07.17 at 11:51 pm

#49 S.Bby on 08.07.17 at 7:46 pm
It’s ok Penny we all know what that link was and what the article said. Google works great. No one can sensor the internet except China and North Korea.

Keeping the cockroaches out is not animal cruelty. — Garth

^^^^^^^^^^^^^^^^^^^^^^^^^

You call people cockroaches….??????

Prejudice, hate, ignorance, envy, intolerance. They are the bugs. — Garth

#91 paulo on 08.07.17 at 11:51 pm

interesting and informative post garth.
it is always interesting to be able to get a quick education
on the risk and reward of possible investment angles from a old pro. what i found interesting, was that Harley dude clearly stated he was not interested in real estate from a landlords or speculators point of view, refreshing and indicative of a subtle change in peoples view of the real estate market? i am thinking so.
i think Harley dudes post/question clearly shows that folks are sensing a storm coming.
so a old saying that my grandmother always used:
watch the pennies the dollars will take care of themselves…..

#92 Richmond poor on 08.08.17 at 12:53 am

Last report in 2011 had Richmond average gross income at $35,000.00. Per year. So with average house now about 1.2 million, that is an outrageous amount of household debt or wage increases have blown away any increases anywhere in the world to afford these homes. Must be money loaned from bank of mom, who had a large bag of gold fall on their heads. Or maybe there is money coming from family in Regina.

#93 Pete from St. Cesaire on 08.08.17 at 1:12 am

Urgent need for caskets and mass death planning outlined by Public Health Agency of Canada.
——————————————————–
The powers-that-be aren’t planning anything positive either in terms of our well-being our our protection. There is no civil defence plans for us in case of a disaster.
Stories like these are just fear mongering meant to set the stage for people to accept mandatory vaccinations. Well, I won’t be having any; my body my choice, same for my wife. All women should understand this, it’s been ingrained in their psyche for years now. Your body, your choice, “just say NO to the prick” should be their anti-vaccine slogan.

#94 Dolce Vita on 08.08.17 at 1:18 am

#39 Waiting and waiting and waiting and waiting ….on the west coast

What is it exactly you are waiting for? A YVR RE crash?

YVR RE is correcting slowly, bit by bit, and has been post Spring 2016.

Flop’s posts today show 1%, 5%, 7%, 8% drops in YVR property prices and an extreme drop at 39%.

List price changes are down, at a 2:1 ratio at least, vs. up changes and very consistent with Flop posts that are actual, real price changes and more importantly, selling price drops (http://www.myrealtycheck.ca/).

As said by many (Flop, Ross Kay), YVR hipsters are buying turnkey high end condos that have ammenities on ground level or very nearby; yet, YVR Condo volume sales remain unchanged from a year ago and significantly lower than early 2016 (per Saretsky, a Vancouver Realtor & author of VancityCondoGuide; although, he touts that inventory is dropping/struggling to keep up in July – yet his column chart shows Condo sales unchanged from a year ago…see his Twitter account for the chart).

It appears that 1st time buyer, YVR hipsters have no interest in SFH or Townhomes (cheap fixer uppers as Flop says or otherwise).

People selling them are stubbornly hanging on to list prices that are simply science fiction and pre-April 2016 prices – hoping the market will return to FOMO. Clearly, in most cases, they can afford to do so but I think they are kidding themselves.

Greed and avarice will get you in trouble all of the time, not just some of the time.

As Garth said today:

“The best strategy, history will show, is to trash debt by selling high. This is high.”

I think your “crash” will come after the October and and another rate increase, if, and that is a big IF, all these doom & gloom marketing reports are correct about how financially overextended Canadians are (e.g., the $300/mo more would result in not meeting financial obligations for a majority of Canadians).

In conclusion, you will have to wait some more for much lower prices to come.

#95 Dolce Vita on 08.08.17 at 1:37 am

And more bad news for those blaming the Chinese for high Cdn. RE prices (or for some that hope the Chinese will rescue correcting YVR & 416 RE markets…from CNBC, link below):

“But for the Chinese firms that spent a record $200 billion in outbound deals last year, things aren’t quite as rosy. Regulators are looking into bank loans used to finance the buys. They’re also reviewing the overseas purchases, and there’s a chance the government may ask firms to dispose of some assets.”

And furthermore:

“Starting on August 21, Chinese banks will be required to report daily to the government ATM withdrawals and domestic bank card spending overseas of more than 1,000 yuan (about $150).”

and,

“On the whole, Chinese companies are buying less — outbound mergers and acquisitions dropped 43 percent to $74 billion in the first half this year, according to financial markets platform Dealogic.”

______________________

The evidence is that China is arresting capital flight overseas with a new 9 month high in reserves along with a strengthening Yuan.

Canadians now, can no longer blame the Chinese for high RE prices, YVR, 416 or elsewhere; rather, look in the mirror.

https://www.cnbc.com/2017/08/07/chinas-crackdown-on-money-fleeing-the-country-looks-like-its-working.html

#96 Dan.t on 08.08.17 at 3:13 am

#76 Trumpocalypse2017

There are also plans in place and emergency handbooks in place if a tsunami hits YVR or an earthquake rocks YVR…done by government just in case… conclusion, not good, and good luck getting in or out (oh, think of all the lost equity).

It doesn’t mean it is likely to happen. I m sure many scenarios are examined by emergency response (sponsored and looked at by government officials) if worse case situations arise, health related, natural disasters, bubonic plague etc…

I bet if you saw half of them you wouldn’t leave your bedroom.

I would love to get my hands of the one that shows the economic blueprint for massively indebted Canadians and how they plan to go forward if and when the beavers wake up and realize their 1972 Bungalow really should NOT be worth 1.4 Million based on any economic fundamental calculator in the known world.

Then again, in bubbles, fundamental do not apply, it’s all on the herd.

#97 Victor V on 08.08.17 at 6:34 am

#53 jas on 08.07.17 at 8:00 pm
#28 Raging Ranter
I think what Garth meant is that renters do not pay property tax and by utilities he meant water and sewer + garbage collection.
And yes, these utilities + property tax does come to around $700 in Surrey, BC. certainly much more in Van/GTA area.

===============

Depends. We rent a single detached home in Toronto. We pay all the utilities and are also responsible for snow removal and gardening. The landlord pays for the grass cutting and leaf collection. So a reasonable balance.

My parents are renters too, but in a condo. In their case, all their utilities are included in the rent and they even got cable thrown in as part of their lease.

Naturally, in both cases property tax, home insurance and maintenance are the responsibility of the landlord.

#98 unbalanced on 08.08.17 at 7:03 am

$ 600.00 renters don’t pay. Landlord just adds it into the price. Who do you think pays for it? DUH !!!! I guess we live under a rock.

#99 Wrk.dover on 08.08.17 at 7:08 am

#77 Rockylal on 08.07.17 at 10:03 pm
I live in Streetsville (Mississauga). House is worth $1.4M, Rent is $2700 per month. Was looking at Markham a few months ago because I work there and even better deals. Houses worth $1.8M renting for just under $3000.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This story tops anything Trumpocalypse has said or thought of. Horrifying. Totally.

After the first day driving to that job, I would have either quit (second choice) or moved to Markham (first choice).
Over half of the people on earth are living on a few CDN dollarettes a day, and Rockylal has to commute this grind to eat! Probably carrying a balance on some cards too I suppose. Not alone either, there are 6 million of you movers and shakers all lined up inching through “life” in the big smoke, right? Gaaaah.

#100 Julia on 08.08.17 at 8:22 am

#15 mike from mtl

#2 Jacques_Strappe on 08.07.17 at 4:23 pm

Wha??? Where is this? A $1.5M house in my neighborhood rents for $8K or $9K per month. And they go quickly. If life were that easy I would have sold my pile of bricks by now.

////////////////////////////////////////////////////

He’s right, decent 700k+ condos offer for rent around here 2.5-3k. Unless you’re talking about a 1hr drive no 1$ million joint in the city proper rents for 3k.

***
In my Toronto ‘hood, houses that sell for $1.2MM – $1.5MM rent for $3,500 to $4,000 a month.

#101 KLNR on 08.08.17 at 8:27 am

out of curiosity i looked up douglas todd.
no wonder Garth doesn’t want links to that tripe posted here. what a nutcase.

#102 Asterix1 on 08.08.17 at 8:39 am

This article in CBC takes the cake as one of the worst I have seen in a while!

ANALYSIS: What slowdown? Vancouver and Toronto real estate markets still hot and unaffordable for many
Housing prices are once again climbing in Vancouver and Toronto may soon follow
http://www.cbc.ca/news/business/real-estate-housing-toronto-vancouver-prices-1.4236245
___

Some of the highlights just in the intro:
– “With recent price declines in Canada’s hot real estate markets, there’s been talk of a slowdown. But, so far, it’s hardly something for prospective buyers to get excited about”.

– “While prices did drop after the introduction of a foreign home buyers tax in Vancouver last year, they’re once again surging to new highs.”

– “Some had hoped a combination of recent government rule changes making it harder to get a mortgage, higher mortgage rates and the foreign buyers tax might have a lasting effect in cooling the market.”

– “However, Toronto home prices are still up compared to last year and some industry experts predict, that as in Vancouver, the city’s recent dip will simply be a blip”.

– “And as long as Toronto and Vancouver’s real estate markets continue to sizzle…”
___

Highlight of conclusion of article:
David Fleming, a Toronto-based agent with Bosley Real Estate predicts the waiting game won’t last and when buyers return, prices will tick back up. “I think it’s going to be insane,” he says about the fall market. But if that happens, just as in Vancouver, Toronto real estate will remain out of reach for many people, despite policies put in place to help them — policies that might temporarily temper prices but may not have any lasting affect.
___

BANG! Lets end the ANALYSIS with more FOMO and lies!

Crazy! Does the CBC have no shame? Calling this an Analysis piece! She just quoted real estate agents! On top of that, she is wrong on everything. Toronto (GTA) is not sizzling, prices have been heading down fast!

Once again, the “holy grail” of these articles and industry is that prices are “up” compared to a year ago. Soon enough my friends, that stat will be down!

#103 Grey Dog on 08.08.17 at 8:42 am

Note to Pennyhenny,
Thanks for retirement calculator reference, there is one major glitch…in retirement it is NOT taking out any money to live on thus my savings keeps COMPOUNDING thus making me a very nice MULTImillionaire, which I know will be a nice alternative reality .

#104 How do you manage Garth? on 08.08.17 at 8:55 am

Sir Garth, I’m always impressed that you keep writing this blog. I anticipate that many of the comments drive you mad – yet you put up with it. There is a limit to how much cortisol the body can manage. Take care of yourself.

#105 Bob on 08.08.17 at 8:56 am

Thank you Garth for the insightful post. Always entertaining!
Thank you for censoring useless comments as well!
You are very good at handling cry babies! Something I am still trying to learn as a new father

#106 Penny Henny on 08.08.17 at 9:37 am

#102 Grey Dog on 08.08.17 at 8:42 am
Note to Pennyhenny,
Thanks for retirement calculator reference, there is one major glitch…in retirement it is NOT taking out any money to live on thus my savings keeps COMPOUNDING
///////////////
Not taking money out??
maybe you forgot to input a value into this field.
“Desired annual retirement income:”

#107 Tony on 08.08.17 at 9:39 am

Re: #94 Dolce Vita on 08.08.17 at 1:37 am

What they need to do is freeze all assets bought with laundered money.

#108 Ret on 08.08.17 at 9:44 am

“Everyone, including our federal government, is now planning for total catastrophe.”

T2 didn’t look too worried when he was kayaking last week.

One has to ask W.T.Flip is going on at Public Health.

#109 waiting on the westcoast on 08.08.17 at 10:04 am

#39 Waiting and waiting and waiting and waiting ….on the west coast on 08.07.17 at 7:01 pm says… “Still waiting ……………..”

Thanks for the troll! Now I feel special…

Yep – I have a lot of patience. I may have misjudged the continued insanity on the way up but that won’t make me buy at the peak.

I can wait longer for the market to correct. And it will…

#110 n1tro on 08.08.17 at 10:10 am

GBTC…Bitcoin Investment Trust. Up 21% since last week when I picked some up. Nuts.

Do not trade if you have a week stomach.

#111 BC_Doc on 08.08.17 at 10:18 am

#86 BC_Doc on 08.07.17 at 11:28 pm
In 2008/09, I threw every cent I could find into the market– unsecured LOC, margin, spare cash, you name it. All debts are now paid off. Given how far we are into the current bull market (supposedly the second longest in history), I’ve taken profits and built up cash. For me, the bull is too far along to consider leveraging. But if the bear makes an appearance again, I may reconsider…

Sounds like you had no balance. Unwise. — Garth

*********************************************

Hi Garth,

I went 90-10 equity to FI at the time. In another lifetime I studied history, economics, and political science. Back at the time, I saw the investing opportunity of a lifetime develop. It worked out well and having enjoyed the ride up/won the game, my portfolio is now balanced (stodgy with age in FI).

While 2017 seems safer than 2008/09 (minus the orange guy in the White House), I would consider buying equity ETFs far riskier now as compared to back in the heat of the Great Recession– valuations are too high, and the bull has run too long.

While I don’t expect a 2008/09 scenario to come along again in my lifetime, if it did, I would be tempted to make hay again….

Cheers,

BC Doc

#112 not here on 08.08.17 at 10:21 am

#32 Penny Henny on 08.07.17 at 6:30 pm
#13 Penny Henny on 08.07.17 at 5:22 pm
DELETED

As will be every link to Douglas Todd. — Garth
///////////////////////////

Why censor? Let others read and make their own decisions. If it was printed in The National Post it can’t be so un politically correct as to create too much of a stir.
I will give you points for actually showing “DELETED” instead of making it disappear into the either.
Different viewpoints should be discussed.
And I suppose the lawyers quoted in the article have an agenda too?

My blog. My rules. Feel free to leave anytime. — Garth
*******************************************

Maybe if you had kids in this game you would think a little differently. Your dog will always have a home in your expensive house, my kids will need to earn their own and compete with whatever the market price is.

Stupid comment. Does having children justify being prejudiced, intolerant and narrow? Glad I passed. — Garth

#113 n1tro on 08.08.17 at 10:44 am

#47 NoName on 08.07.17 at 7:30 pm

How is “Spoofy” in the Bitcoin realm any different than a MM (Market Maker or Market “Manipulator”) in the stock market? Nothing that I can tell. Smart thing to do is trade/gamble with Spoofy instead of sitting on the sidelines calling manipulation.

#114 45north on 08.08.17 at 10:51 am

Happy Housing Crash Everyone: The rug is being pulled

it’s generally not going to be so happy

#115 hadotiw on 08.08.17 at 11:15 am

Garth or anyone else; would love input why Smith Manoeuvre is a bad idea. I understand it’s high risk (exposure to interest rate risk as well as investment risk) but if you’re in it for long term and can absorb those risks; still not a good idea? TIA

The strategy relies on sustained investment asset performance to support debt payments most people could not afford to make in a downturn. Thoroughly bad idea. — Garth

#116 IHCTD9 on 08.08.17 at 11:19 am

If Kevin owns and works in the GTA:

1. Start fishing for a decent job in small town Ontario, once one is hooked – sell the GTA digs for a million+, move; and buy an awesome place for 500K cash and invest the rest. No brainer of the century.

2. If the above is somehow not an option, then sell the Harley and every other expensive toy you own and make a big lump-sum off the principal of your mortgage. If you are indeed a GTA owner with a 750K+ mortgage and an average GTA income – then hunker down for a couple decades of extreme debt servitude. There is no quick easy way out of 3/4+ million worth of debt on a normal salary. Chances are, you already know exactly what your chances are of knocking 5-10 years off your mortgage.

Last thing to do is try some shenanigan like you talked about. Chances are much better you’ll end up in worse shape than if you just sold out or hunkered down.

#117 Renter's Revenge! on 08.08.17 at 11:31 am

#109 n1tro on 08.08.17 at 10:10 am
“GBTC…Bitcoin Investment Trust. Up 21% since last week when I picked some up. Nuts.

Do not trade if you have a week stomach.”

You must have an epoch stomach!

#118 El Joko on 08.08.17 at 11:40 am

CBC with the biggest shill job so far on the Toronto crash.

http://www.cbc.ca/news/business/real-estate-housing-toronto-vancouver-prices-1.4236245

#119 IHCTD9 on 08.08.17 at 11:41 am

#116 Renter’s Revenge! on 08.08.17 at 11:31 am
#109 n1tro on 08.08.17 at 10:10 am
“GBTC…Bitcoin Investment Trust. Up 21% since last week when I picked some up. Nuts.

Do not trade if you have a week stomach.”

You must have an epoch stomach!
__________

Stomach like Komodo Dragon :)

#120 n1tro on 08.08.17 at 11:47 am

#116 Renter’s Revenge! on 08.08.17 at 11:31 am

Epoch stomach? Nah…just know my limits when it comes to gambling. Get in and get out as fast as I can and repeat. <– :P

#121 NoName on 08.08.17 at 11:49 am

#111 n1tro on 08.08.17 at 10:44 am

Doesn’t, but you can carry over stock loss, but not loss on bitcon.
That alone is good enough for me.

#122 Dissident on 08.08.17 at 11:54 am

Risking a loan (HELOC) of $100K just to glean $5K doesn’t sound like its worth it to me. Yes, selling that house asset at a ‘high’ price would be the bigger bang for the buck.

I find it odd for a blog that has a clear bias against buying and selling real estate, it still applauds people who post that they’ve sold their real estate at a premium gain and who state they are going to invest that cash, whereas those who write about how they’ve lost on real estate, or want to buy some are made to be the ‘greater fools’. (Granted, now may not be the best time to buy).

…each scenario requires the purchasing of real estate.

Sounds like real estate is only ‘good’ on this blog when you make money on it and want to then invest it? But otherwise, its a ‘bad’ investment…weird double standard.

Also, $3,000/month on just rent (not including utilities: $400+) is not usually ‘affordable’ for most GTA couples.

If I can own a home for less than $3,000, then that’s ideal. Right now, I own a Toronto condo for $2,300/mo, everything included. Granted, its a condo, with maintenance fees, but still. At least I own it for the same cost as renting. Upgrading from that 900 sq ft space to something larger will require double the purchase price, we’re talking $760K and up. That would definitely bring the monthly cost to just under $3,000/mo. If I was renting the same space, it would cost me approx $3,400+, in the same area for a full house including basement, one that is not decrepit and rotting and mouldy.

#123 Karlhungus on 08.08.17 at 12:04 pm

Since when can you deduct interest from the investment loan when the investment is in a tfsa?

Figure it out. — Garth

I’m too dumb. ELI5

#124 Asterix1 on 08.08.17 at 12:14 pm

Another CBC gem! She interviewed a real estate agent and a BMO economist.

“Toronto real estate cool-down could be short-lived”
http://www.cbc.ca/news/thenational/toronto-real-estate-cool-down-could-be-short-lived-1.4234918

Enough of these lies, pathetic reporting, zero analysis, zero searching for the truth, printing lies etc..

PS: Garth, is there any way that you could get interviewed more often to counter these ridiculous claims from bankers, mortgage brokers, real estate agents and journalists? Its always the same people getting interviewed by the MSM, preaching the same lies over and over…

#125 AJ Smith Manuevre on 08.08.17 at 12:33 pm

Confused- this is for you. Let me see if I can get an A from Garth for being a smart student here. SM only works in high interest rate environments otherwise it makes no sense. Viola. Garth, do I get a voucher for a free ice cream an some dog biscuits for my cats? ❤️

#126 Ponzius Pilatus on 08.08.17 at 12:41 pm

Garth is in a feisty mood today.
Could be because it’s International Cat Day.

#127 Gravy Train on 08.08.17 at 12:57 pm

How can we live in the age of instant info and yet so many are financially illiterate? — Garth

I don’t claim to be an educator or expert in education, but I believe that the high-school curriculum should include basic statistics, finance, and economics. Colleges and universities should not be the exclusive domain for these subjects. Imagine how many businesses and marriages could be saved if everyone in society had such core competencies!

The questions that come to mind are: How many parents and educators would agree with this proposal? If there’s general agreement, should educators expand the curriculum? If such expansion is not feasible, which existing subjects, if any, should we exclude? If such exclusion is not advisable, may we group subjects as either essential or elective (depending on each student’s career aspirations)? Are there other solutions?

While I’m on the topic of high-school curricula, a full-year course on career exploration and job-search methods should be taught also, so as to give the kids the best chances of succeeding in life.

Well, Flopster, how did I do? If you score me low, at least give me some constructive feedback! :)

#128 My Wife Loves Garth on 08.08.17 at 1:26 pm

Rentals are plentiful in the 905. I lease a 1.7 million dollar home for $2350. My landlord is begging me to stay.

#129 BC_Doc on 08.08.17 at 1:33 pm

Dissident on 08.08.17 at 11:54 am
Risking a loan (HELOC) of $100K just to glean $5K doesn’t sound like its worth it to me. Yes, selling that house asset at a ‘high’ price would be the bigger bang for the buck.

I find it odd for a blog that has a clear bias against buying and selling real estate, it still applauds people who post that they’ve sold their real estate at a premium gain and who state they are going to invest that cash, whereas those who write about how they’ve lost on real estate, or want to buy some are made to be the ‘greater fools’. (Granted, now may not be the best time to buy).

*********************************************

The problem right now, IMO, is all three of the major asset categories (equities, bonds, RE) are overpriced due in part to low interest rates/quantitative easing. I don’t see a lot of good investment opportunities for new money out there and consequently am piling up a fair bit of cash waiting for better conditions to arise.

Then you are unschooled. — Garth

#130 not here on 08.08.17 at 1:51 pm

#111 not here on 08.08.17 at 10:21 am
#32 Penny Henny on 08.07.17 at 6:30 pm
#13 Penny Henny on 08.07.17 at 5:22 pm
DELETED

As will be every link to Douglas Todd. — Garth
///////////////////////////

Why censor? Let others read and make their own decisions. If it was printed in The National Post it can’t be so un politically correct as to create too much of a stir.
I will give you points for actually showing “DELETED” instead of making it disappear into the either.
Different viewpoints should be discussed.
And I suppose the lawyers quoted in the article have an agenda too?

My blog. My rules. Feel free to leave anytime. — Garth
*******************************************

Maybe if you had kids in this game you would think a little differently. Your dog will always have a home in your expensive house, my kids will need to earn their own and compete with whatever the market price is.

Stupid comment. Does having children justify being prejudiced, intolerant and narrow? Glad I passed. — Garth
********************************************

Right, because it is prejudice, intolerant and narrow minded to have a reasonable expectation that:

1. Your children can live/own/work/raise a family/ somewhere near to where you did. You know, not living like nomads and being forced to travel where the caribou go. . .like back thousands of years ago when people decided there were benefits to creating communities and building them and living in/near them for generations.

Your blog is out of touch, so are you, but that doesn’t surprise me one bit. No one is being prejudiced and intolerant by expecting that the people that were reared in this country and their families that contributed to taxes for decades should not have a fair shot at living a decent life close to relatives with a decent paying job. I am all for immigration, but there needs to be checks and balances so that our housing (which is where our children need to live) is not treated like a speculative investment to be bottled and sold to the highest bidder.

And now for your answer. . .just move 3000 miles to somewhere more affordable and wash windows at traffic lights to make ends meet if your job doesn’t follow you. . . and meanwhile let the rest be sold to the highest bidder as is the right of global capitalist currency flows. Just as sound as your financial advice today about taking a heloc out and robbing Peter to pay Paul.

Amusing. The stupid comment is yours.

Extreme comments weaken your argument. Unworthy of a reply. — Garth

#131 InvestorsFriend on 08.08.17 at 1:55 pm

Too Dumb to figure out interest deduction for TFSA

#122 Karlhungus on 08.08.17 at 12:04 pm
Since when can you deduct interest from the investment loan when the investment is in a tfsa?

Figure it out. — Garth

I’m too dumb. ELI5

**************************************
Me too. Debt for TFSA is not deductible.

If one happened to have cash or non-appreciated stocks in a taxable account they could be transferred to the TFSA (They should have been there already) and then the home equity loan used to replenish the taxable investments and deductible that way.

I agree with those who say don’t borrow against house equity to invest. It does diversify but that benefit is offset by the increased risk of associated with debt. Forget about it.

You figured it out. Smart boy. — Garth

#132 IHCTD9 on 08.08.17 at 2:05 pm

#98 Wrk.dover on 08.08.17 at 7:08 am
#77 Rockylal on 08.07.17 at 10:03 pm
I live in Streetsville (Mississauga)….

Was looking at Markham a few months ago because I work there…

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This story tops anything Trumpocalypse has said or thought of. Horrifying. Totally.

After the first day driving to that job, I would have either quit (second choice) or moved to Markham (first choice).
Over half of the people on earth are living on a few CDN dollarettes a day, and Rockylal has to commute this grind to eat! Probably carrying a balance on some cards too I suppose. Not alone either, there are 6 million of you movers and shakers all lined up inching through “life” in the big smoke, right? Gaaaah.
______________________________

Something special has to happen to allow a human being to willfully partake in what must be one of the most horrible commutes on the planet.

Maybe Rocky was born into this type of travelling never knowing anything different.

Maybe Rocky’s lifestyle inflation has gone too far, and the option to just say no to that higher paying job died a long time ago.

Or, maybe that’s just how bad the job market is in the GTA.

As for me, I stepped out the door heading for work this am, and quickly encountered two headless bunnies proudly displayed for our admiration by our family cat. This required an unexpected change to my commute.

I walked back to the garage to fetch a shovel, and as I heaved the furry little corpses out into the field, I glanced at my watch. I was now 3 minutes behind schedule. I remedied this by driving 90 km/hr. instead of my usual 80 km/hr., and cutting my regular 12 minute commute down to about 9 minutes.

#133 SilverSon on 08.08.17 at 2:05 pm

#121 Dissident on 08.08.17 at 11:54 am

“I find it odd for a blog that has a clear bias against buying and selling real estate …”

Been reading this blog a while and Garth has never seemed to me to be biased against buying and selling real estate. Garth has said many times things like “buy real estate if you want it and can afford it” and I wouldn’t say that’s biased against real estate. I own a house and I don’t think he’s biased against me or owning real estate. All the evidence I read here suggests that Garth is biased against risky and dumb investments which he clearly points out is the case with residential real estate. Not sure about you but I prefer my financial advisers to be biased against risky and dumb investments. They make me more money that way. Some of the comments, of course, are biased against buying and selling real estate but that is evidence of all the people who have been financially burned in doing so.

“Sounds like real estate is only ‘good’ on this blog when you make money on it and want to then invest it? But otherwise, its a ‘bad’ investment…weird double standard.”

Huh?? Don’t see the double standard to which you are referring. Almost every day this blog talks about the risks of having all your money invested in one asset instead of diversifying. As such it makes complete sense to me that this blog would applaud people diversifying and balancing their investments, which is the case when you sell one investment (like real estate) and spread that cash around several different types of investments. That’s not a double standard.

#134 SilverSon on 08.08.17 at 2:15 pm

#127 My Wife Loves Garth on 08.08.17 at 1:26 pm

Agreed. Those that say differently either aren’t looking hard enough or are expecting a $2500/month rental house to be fitted out like one that would attempt to sell at the $3-million level. Keep in mind that in March things selling at the $1.7-million level were particleboard palaces, not real palaces.

#135 hadotiw on 08.08.17 at 2:19 pm

The strategy relies on sustained investment asset performance to support debt payments most people could not afford to make in a downturn. Thoroughly bad idea. — Garth

====

Thanks for the response. Is it still a bad idea if the buyer was prudent with the house purchase? Not in a bubble, not stretching to make mortgage payments, price of home < 3x household income, building a nest egg outside of the home (not treating home as an investment), etc etc …

#136 Ponzius Pilatus on 08.08.17 at 2:26 pm

Chill, Garth.
Only a few hours of International Cat Day left.

#137 A Reply to #122 Karlhungus on 08.08.17 at 2:36 pm

“Since when can you deduct interest from the investment loan when the investment is in a tfsa?”

Figure it out. — Garth

“I’m too dumb.”

Here, read these:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-221-carrying-charges-interest-expenses.html

https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-6-interest/income-tax-folio-s3-f6-c1-interest-deductibility.html

#138 Deep dark smoldering secrets on 08.08.17 at 3:17 pm

Debt is debt. The world’s soaked in it. Most people would be unwise to shoulder more.
———————————————————-
I’m not sure that people would shoulder more debt? So Garth,the obvious choice is to sell everything you own, all assets, home, car, boat, cottage. Take your left over money funnel it out of the country to some island bank in the Caribbean and run up your credit card to the hilt by say purchasing a car on it and leave the country. Then vowing to screw the big boy RBC by not paying your credit card invoice, trash the vehicle whilst going dark in the neither-lands of the deep, deep south of the USA. Sounds like a plan to me! Nothing like a road-trip.

https://www.youtube.com/watch?v=MSu25pQ4iFw

#139 Dissident on 08.08.17 at 3:37 pm

#132 SilverSon on 08.08.17 at 2:05 pm

The point I’m trying to make, which I think you basically got the gist of, is that some people are not trying to use their house/home as an investment vehicle, rather, sometimes its a better deal if they bought at a sane time, the asset is not overvalued, and still has some margin of profit attached to it if it were to be sold today, and its still cheaper to own it than to rent at today’s current prices for the same space in the same location. That to me is not ‘foolish’. Its partly luck and good timing, and it doesn’t involve being greedy or over-extending one’s credit. At least I own it, affordably, and am paying less than renting the equivalent. Therefore, I have more money to throw towards savings, etc. than if I were to do otherwise. And I still own. You can own (with mortgage debt), and still save. Renting and saving are not mutually exclusive.

Its a different story if I were to enter the market today, versus 5 years ago, which, relatively speaking, was a ‘good time to buy real estate’, in retrospect. The numbers would be a completely different story.

#140 jess on 08.08.17 at 3:58 pm

#16 Greater Fool on 08.07.17 at 5:46 pm
Why Bitcoin is a bad investment? Can you explain?

https://hbr.org/2017/01/the-truth-about-blockchain
—-

#141 I'm stupid on 08.08.17 at 3:59 pm

The strategy relies on sustained investment asset performance to support debt payments most people could not afford to make in a downturn. Thoroughly bad idea. — Garth

If you could afford to support the payments during a down turn and you’re in it for the long term does it make sense?

No. Never. — Garth

#142 Linda on 08.08.17 at 4:41 pm

‘Renters who invest win, 10 out of 10’. Good point but – they don’t invest 10 out of 10, now do they? Most renters don’t invest because they 1) have no ‘extra’ funds left over to do so – those funds were spent on other things & not necessarily ‘the good life’ either. Stuff like utilities or student loans or transportation. 2) they don’t invest because they have no immediate incentive to. Instead, they spend the extra on stuff like new clothes, travel, good times etc. They are thinking ‘I need to live a little’, not ‘I need to set funds aside for my future retirement’. Like it or not, a mortgage does tend to enforce the building of equity, dead money though it may be.

Generalize much? — Garth

#143 Mattl on 08.08.17 at 4:42 pm

Haven’t read the comments yet but I hope someone has pointed out that the large majority of Canadians in 1.5mm homes with 500k mortages didn’t put 1mm down. More likely they put 100k down on a 700k place that went bonkers. 10 years later they have a 1.5mm place, 400k mortage at 2.2% and a ton of equity. Further, rents on their area have gone from 2500 to 4k. No one on yvr is renting a nice house in the city for 3k, that gets you a home in abottsford.

There are lots of reasons to rent but the rent math thrown around here is embarrassing. Everyone assumes their landlord is into the place at todays values. Yes, it
might not make sense to buy a 1.5mm place with 1mm down, duh.

But anyone doing that probably made the mil from putting a small down payment onto real estate so forgive them for rolling free money back into the market. And odds are they will be ok in 15 years when thay house is paid for. It will never be aknowleged here but there is value on not having to pay 30-50k a year in rent the last 30 years of your life. That 900-1.2mm saved has to play into any rent vs own math.

#144 Damifino on 08.08.17 at 4:45 pm

#128 BC_Doc

I find it odd for a blog that has a clear bias against buying and selling real estate…
——————————

This blog has never been biased against buying and selling real estate. It’s been pointed out here ad nauseam that RE is just one of many asset classes, not the end-all of wise investment.

Balance and diversity has been the message since day one. Overpriced assets driven by rampant speculation are to be avoided. Why is that so hard to understand?

#145 jess on 08.08.17 at 4:46 pm

The ruling means HM Revenue and Customs (HMRC) will be able to take action against both companies and employees seeking to take advantage of the “artificial and abusive” gold bullion schemes.

HMRC said accountants had created schemes designed to “disguise remuneration to individuals through paying them via a series of transactions buying and selling an asset, commonly gold bullion”.

https://www.theguardian.com/politics/2017/aug/07/payment-in-gold-bullion-banned-under-new-law-to-combat-tax-evasion

#146 Mattl on 08.08.17 at 4:52 pm

Raging Renter – just saw your post. Of course I don’t think you’re an idiot for not buying 15 years ago. Those of us that got in early, in markets that took off got lucky. I am a RE bear and wish I would have bought in Van, we could have afforded a starter home in 2008 but I was sure prices were too high and would come down, so bought a cheaper place in the valley. Did well, valley took off and got lucky, but missed out on 700k plus in upside. Oh well.

#147 Fire and Fury on 08.08.17 at 5:00 pm

Hey, where are you, Trumpocalypse?

“North Korea best not make any more threats to the United States,” Trump told reporters, speaking slowly and deliberately with his arms crossed in front of him. “They will be met with fire and fury like the world has never seen. He has been very threatening … and as I said they will be met with fire, fury and frankly power, the likes of which this world has never seen before.”

Rather chilling, don’t you think?

#148 SilverSon on 08.08.17 at 5:17 pm

#138 Dissident on 08.08.17 at 3:37 pm

“The point I’m trying to make, which I think you basically got the gist of, is that some people are not trying to use their house/home as an investment vehicle”

Agreed. I’m one of those people. I am a real estate owner but not a real estate investor. In other words, my home is a lifestyle choice, not an investment. My investments are elsewhere and in several different places.

But still, everything I’ve read that Garth has written is not against buying or selling real estate, it’s against the notion that real estate is always a great investment. Sure residential real estate has had a good run for much longer than usual and made a bunch of individuals some windfall gains, but the collective losses to individuals overall will be far greater when it crashes. The only winners are the banks, HGTV, and all those businesses that promote emotions of house lust in order to distract people while they hoover their future net worth right out from under their noses.

#149 InvestorsFriend on 08.08.17 at 5:18 pm

Most Renters Don’t Invest

#141 Linda on 08.08.17 at 4:41 pm said:
‘Renters who invest win, 10 out of 10’. Good point but – they don’t invest 10 out of 10, now do they? Most renters don’t invest

***************************************

I am sure that is true homeowners are more likely to be investors on average.

But what about relatively long-term renters of quite desirable homes in good neighborhoods? They might often be investors.

Increasingly, in the last 15 years there would be a small group of professionals that decided homes were too expensive and decided to rent and invest. For the most part their seemingly smart strategy has not worked out.

Fools who made seemingly irresponsible choices to get the largest mortgage possible in order to buy the most expensive home possible have won. Sometimes poor, unbalanced decisions end up winners. Sometimes a decision that was good based on all the facts and probabilities turns out bad. Life is like that. Tail risk happens to come true (on both the good and the bad ends) sometimes.

Who knows what we will find five years from now and looking back? Will prudent choices finally be rewarded?

#150 oncebittwiceshy on 08.08.17 at 5:20 pm

MattL>>>>>>No one on yvr is renting a nice house in the city for 3k, that gets you a home in abottsford.<<<<<<

Unless, of course, you actually get on Craigslist and find one.

https://vancouver.craigslist.ca/van/apa/d/whole-house-1379-w41st-avenue/6236840510.html

https://vancouver.craigslist.ca/van/apa/d/renting-out-whole-house-with/6236136516.html

https://vancouver.craigslist.ca/van/apa/d/whole-house-for-rent-in/6249168394.html

https://vancouver.craigslist.ca/pml/apa/d/vancouver-whole-house-for-rent/6233671847.html

#151 BC_Doc on 08.08.17 at 5:29 pm

143 Damifino on 08.08.17 at 4:45 pm
#128 BC_Doc

I find it odd for a blog that has a clear bias against buying and selling real estate…
——————————

This blog has never been biased against buying and selling real estate. It’s been pointed out here ad nauseam that RE is just one of many asset classes, not the end-all of wise investment.

Balance and diversity has been the message since day one. Overpriced assets driven by rampant speculation are to be avoided. Why is that so hard to understand?

*************************************

Hi @Damifino,

The comment wasn’t mine. I cut and pasted to respond to a comment up stream from mine. If RE prices dropped, I would buy. Ditto equities and bonds. I guess I’m a bit of a value guy– I like to buy stuff when it goes on sale.

#152 aa6 on 08.08.17 at 5:31 pm

Its going to be a long road for the debtors to pay down these debts.

But if the debtor couples really focus on their careers, putting in the big hours and effort.. I think they can chip away at these mortgages.

#153 BC_Doc on 08.08.17 at 5:39 pm

https://www.bloomberg.com/news/articles/2017-08-07/buffett-nears-a-milestone-he-doesn-t-want-100-billion-in-cash

********************************

Buffet may have a bigger portfolio than I do Garth, but even he seems to be having a problem finding good quality assets at a readonable price! :)

Cheers,

BC Doc, Master of Arts from Boglehead University

#154 jess on 08.08.17 at 5:41 pm

interesting
mazda
The engine ignites petrol through compression, removing the need for spark plugs and increasing fuel efficiency.

#155 Mattl on 08.08.17 at 5:55 pm

Those homes are in East Van lol. I’m fully aware that for 36k a year I can live in a house that has a building value of under 100k. As a renter what value do I get in living in a place where all the value is in the 4500 sqft lot?

#156 Dolce Vita on 08.08.17 at 6:50 pm

#106 Tony

Money laundering not my area of expertise Tony; but, if it is true then I agree with you, freeze assets.

If there is a criminal element at work, these will be very difficult people to catch as we have yet to read about anyone yet caught here in Canada money laundering using Cdn. RE purchases, well, from the MSM that I am aware of (not that I go looking for such news).

If so it is wrong of these people to do so in Canada and they should suffer some consequences for their actions, freezing their assets is one way to do it.

Being a Law and Order type of person, I would incarcerate them as well.

#157 Sunnyside on 08.08.17 at 10:23 pm

Five year blog follower Garth and you won’t post a comment with a link to house for sale in Toronto for $888,888? And the obvious market this is being targeted to? Of all the comments you allow to be posted, you’re sensitive to challenges to the 4.7% volume of foreign buyers in Toronto? Why? Thought this blog invited a range of opinions, provided they are respectful, which this is.

Again, here’s the link:
https://www.realtor.ca/Residential/Single-Family/18311739/69-MOULD-AVE-Toronto-Ontario-M6N3Z8-Rockcliffe-Smythe

By the way, I’m only challenging, TREB/ CREA claims. S
Surprised that’s not allowed.

You are disrespecting the culture of Chinese-Canadians. Why? — Garth

#158 house horny stupid on 08.09.17 at 12:47 am

US feds will increase interest rate 100%:

U.S. employers posted a record number of open jobs in June, a sign that the solid hiring of recent months will likely continue.

Job openings jumped eight per cent to 6.2 million, the highest on records dating back to 2000, the Labour Department said Tuesday. Hiring fell, however, and the number of people quitting their jobs also dropped.

The data suggest that employers have plenty of jobs to fill but are struggling to find the qualified workers they need. Typically, employers would offer higher pay to entice more applicants, accelerating wage growth. But the government’s jobs report for July, released Friday, showed that pay gains haven’t picked up yet.

Job openings in construction and manufacturing rose sharply. They also increased in financial services, health care, and in state and local government. The number of open jobs in retail fell.

The report comes after the government said Friday that employers added 209,000 jobs in July and revised its June figure higher to 231,000. Friday’s figures represent a net total of jobs added minus jobs lost, while Tuesday’s report includes overall hiring data.

Tuesday’s data come from the Job Openings and Labour Turnover survey, or JOLTS. They are more detailed and provide a fuller view of the job market than the monthly jobs figures.

The JOLTS suggests that the economy is at or near “full employment,” when nearly everyone who wants a job has one and the unemployment rate mostly reflects the temporary churn of job losses and gains.

Potential inflation spur

If so, that has implications for the Federal Reserve: Businesses would be forced to lift pay and potentially raise their prices to cover the cost of higher salaries if the economy is at full employment.

That could spur inflation. Fed policymakers have been hiking short-term interest rates partly because they mostly think full-employment has been reached.

Yet on Friday, the government’s jobs report showed that many Americans have come off the sidelines and launched job hunts in the past year, and most have found jobs. These newly-employed workers weren’t actively looking for jobs in previous months and so weren’t counted as unemployed.

That is a sign that more Americans are willing to work than the unemployment rate suggests, and indicates the economy isn’t at full employment yet.

#159 A Reply to #156 Dolce Vita on 08.09.17 at 6:08 am

“Being a Law and Order type of person, I would incarcerate them as well.”

Whatever happened to due process and the presumption of innocence? Wouldn’t they first be read their rights, given a jury trial, and prosecuted in accordance with the rule of law? Sheesh!