Three days ago I wrote about risk, greed and fear. The response was predictable. The blog was overrun with scared people who predict collapse. Stocks. The bond market. America. The economy. And me. Apparently we are all doomed.

For four years now, smart real estate marketers have capitalized on Canadians’ irrational and paralyzing fear of loss. This has led to the greatest wave of speculative buying in history, with an estimated 70% of all recent condo sales in Toronto, for example, going to ‘investors.’ Now whole developments are being marketed to amateur landlords, instead of end users. Condos are the new mutual funds, but without the white knuckles. Buyers are told they’re not only getting something physical, but also cash flow plus a no-lose deal. And eye-popping profits.

All this is helped along immeasurably by the condo hucksters’ completely-legal ability to mislead, deceive and misstate. If they were selling mutual fund units at $8 a pop and promising a 5% return, they’d be in serious trouble with regulatory bodies equipped with judicial powers. But if you want to flog a $274,900 condo and fib to sucker in the unsophisticated, well, go right ahead.

So let’s dash off to a sleepy little city of 127,000 with a couple of decent rivers and a medium-sized university in the middle of it, for an example that even Brad Lamb would be proud of. Guelph sits about an hour and a half west of the GTA, where a company called Hip Developments (seriously) is building a hip condo building and marketing the units to young hipsters who want to be hip investors.


Isn’t it hip? A design for the ages. But the most interesting part of the project is the virtual guarantee the developer makes that investors will earn between 39.5% and 44%. Per year! So, sucks to a 19% gain in the Dow or the S&P, with their constant volatility and potential for bubonic-style losses. Just buy a condo in the Solstice building for “lucrative investment returns” on the part of “new and savvy investors.” If that sounds like promising future gains to inexperienced people, you understand completely. What’s illegal in the business of selling financial assets is mainstream with real estate. And why so much hurt may lie ahead.

Here is the ‘pro forma’ given the hipster investors, proving these annual riches:

Pro Forma

Simple, right? Cough up $54,980 and enjoy a 40% annual return – doubling your money in two-and-a-half years. Yahoo! Free Vespas for everyone!

But all is not as it appears. For example, the $1,695 monthly rent that the three-bedroom Zenith condo is promoted as generating is at odds with the average $1,400 rent for similar units in the area (Kijiji). So after the developer’s ‘rent guarantee’ of one year runs out, it means the hipster investor is suddenly facing negative cash flow. Whoops.

And counting the reduction in the principal owing on the loan as an absolute  return on the invested capital (the downpayment) is typical voodoo accounting (it’s already included in rental cash flow). Repaying a portion of the money borrowed and amortized reduces debt and increases equity but does not constitute earned income. Actual cash-on-cash return is negative 3.05%. Hey, the orange guy’s shorts beats that.

But how about that 5% annual capital appreciation in the value of the condo promised in the proforma? Fiction. There is no published statistical evidence to support it. In fact condos in the area, based on actual sales tracked by the local real estate board show a two-year increase of 1.94%, or an annual average appreciation of 0.97%.

So, adjust the numbers for reality, and a more realistic one-year profit for the average hipster investor is $988 on a $274,900 unit, which is 0.35%, or about what your chequing account pays. Meanwhile, what about the risk of rising mortgage rates? Or the punitive taxes levied on rental income? Or an allowance for vacancies? Or landscape charges after your student tenants pee off the balcony?

I’m sure this is a cool building. Too bad they have to fib to sell it. Tells ya something.

*     *    *

Now, a few words about Calgary, where there’s a serious case of horniness sweeping the city. No, I don’t mean the latest realtor crud about a mad rush for multi-million dollar homes, or the usual humping by the local board. This is more profound.

Attainable Homes Calgary is a non-profit, taxpayer-supported, municipally-owned organization with ‘the goal of property ownership, helping Calgarians with a midrange income bridge the affordability gap in the real estate market.’

Sounds nice, right? Helping homeless people out of cardboard boxes and into decent, clean spaces?

Not exactly. Three days ago the criteria of who’s eligible for a subsidy changed. Now couples with kids can earn $90,000 and people without chldren making $80,000 qualify. Savings or investments can’t exceed $100,000, and the applicants need to come up with a $2,000 downpayment to qualify.


Families are given the 5% downpayment in the form of a forgivable loan, and then offered a portfolio of new homes from which to choose – nicely soaking up some unsold builder inventory.

When people making 50% more than the average national income with a  hundred grand in the bank are given homes (as below), we have lost our way.



#1 T.O. & GTA bidding wars debunked June 04 on 06.04.13 at 8:08 pm

#2 tigerbaby on 06.04.13 at 8:08 pm

am I reading this right? 4 bedrooms and 4 bathrooms in 1130 sq ft??

> … her Dad said that she should share her good grades with other students …
people often study together and help each other, and grades are earned in a fair and strictly regulated environment. so what is the lesson here?

#3 Chopper on 06.04.13 at 8:13 pm

I cannot fathom how people would make such a major decision as buying real estate without doing some research. I have no sympathy for fools who rush head in because they have been told by realturds that real estate always go up.

#4 Derek R on 06.04.13 at 8:15 pm

There is a way to provide homes for the poor that makes them better off but that’s not it.

#5 NFN_NLN on 06.04.13 at 8:23 pm

Ack… CPD (Canadian Preferred Share Index Fund ) started retreating recently. Is this a buying opportunity or should we hold off?

Normally it is quite stable…!?

You can wait and buy it for more later, if you prefer. — Garth

#6 Boo Radley on 06.04.13 at 8:23 pm

As we all know, the media is our friend; doling-out fact-based, fact-checked *cough* fact-up *cough* coverage of all things timely and pertinent. With the stage set, I present to you Hamilton, where, according to the media, it really is different!

We Hamiltonians have yet to see any HAM per se but according to the article, we’re getting lots of out-of-town RE buyers in the form of GTA run-off — H(GT)AM?!?! (Hot GTA Money). Enough of them, says one scared sheep, that residents had better hurry-up and buy now or be priced out of their own city and have to live in Dunville (hmm, small bucolic town…sounds horrible).
Now to be fair, as I mentioned a week or so ago, these bidding wars are happening, I’ve seen them myself. Frustrated buyers are pouncing on things that again, as the article says, would have been unloved, and unsellable in a normal market. Not to be lost however, is the point about the engineered bidding wars complete with one property being listed $100k under “fair market value” (um, in my opinion fair market value is something not seen for over a handful of years around this RE market, but I digress…). Every dog house on a ‘premium’ corner lot, or close to high tension hydro lines, bordering a park, playground, school or other such blight, is hiking up its skirts, showing a little leg and thinking of Engla.., er, Equity.
I don’t refute the truth of bidding wars, though I wish the article had covered more of the reasons for the price increases, things like the economics of rising prices in a declining sales volume environment, not just the easy-pickins of H(GT)AM. Over-priced GTA makes Hamilton cheap…correct…but could we have some statistics about how many people did or didn’t, flood into the area in the past when GTA prices rose? How is the oft maligned Hamilton suddenly the belle of the ball? Have the denizens of the GTA forgotten how they have historically shunned Hamilton as the dirty, stinking, crime-ridden, poverty-stricken, Armpit of Canada? Have people suddenly embraced the idea of the commute again? Remember after the GFC how everyone was going to flood back to the cities because they needed to save on gas? Remember when those same people originally left the city for a slower pace, some trees, and yep…lower prices? You remember them, the ones who later started to complain about yep…the commute, and in Hamilton’s case, the city, the smell, the urban sprawl, the decaying lower city, the one way streets….and quickly moved back to the GTA, quickly that is, so as to not be priced-out forever. *sings* To everything ( Turn, Turn, Turn), There is a season (Turn, Turn, Turn)…..or perhaps, Why do you build me up (Build me up) Buttercup baby just to let me down…?

You can put lipstick on the pig, but it will still be Hamilton. Don’t worry though, when the GTA’ers finally wake up and smell the bay, they will be able to avoid too much $$ damage and correct their mistake by returning to Toronto and, en masse, joining the subjects in the following article who will soon be marshaling in the T.O. hoods, to snap up….condos!

Or perhaps they could try Guelph.


*slips back under the porch*

#7 Bill Gable on 06.04.13 at 8:25 pm

As Foghorn Leghorn would say “Son, I say, Son, we are done like a TV dinner….”
(*For the uninitiated, Mr. Leghorn was one of Warner Brothers Cartoon characters – a ‘know it all rooster’…as Boomers will attest).
The cartoon theme, blends nicely with that atrocity in Guelph.

Mr. Turner – one Vancouver anecdote. A Condo sold for $25 million – this past week. The monthly condo fee is around $6200.00; rumour has it some Middle Eastern Royalty snapped up this little fixer upper.
People have LOST THEIR MINDS. Vancouver is NOT PARIS, or NEW YORK, or LONDON.

#8 Sideline Sitter on 06.04.13 at 8:26 pm

Same story in DT T.O. where ‘investors’ sued Trump for their misleading investment “guarantee”… Buying a house to live in is one thing, buying for an investment is an entirely different beast – you better cover rent (and easily) if you plan to stay above water.

#9 Uwinsome on 06.04.13 at 8:28 pm

Garth, you always refer to the S&P and Dow being up 19% in a year. You’re other job (besides being a Blogger extraordinaire) is a financial advisor. Could you please give me an idea of what percentage the average portfolio, that you manage, gained last year and has averaged over the long haul.

You couldn’t handle it. — Garth

#10 Boo Radley on 06.04.13 at 8:36 pm

Chopper, I couldn’t agree more.

My mind still boggles about part of one of Garth’s post a few months ago that quoted a survey or some such in which something like 70% of recent condo buyers (BUYERS, as in fait accompli) had no idea that condo fees could, let alone do, and will, go up over time. It still boils and at the same time freezes my blood. How do these people function in day to day life? How could you miss that little factoid? No blaming others for that oversight…they have to accept some degree of personal responsibility at some point.

Grumpy cat is not happy with these morons :(

#11 Uwinsome on 06.04.13 at 8:37 pm

#9 “You couldn’t handle it. — Garth”

Enough said.

#12 Frustrated Kiwi on 06.04.13 at 8:43 pm

Was curious enough to go to the Attainable Homes website. Their funding model is: “If you live in your new home for less than a year before selling, then we retain all equity (the difference between your original purchase price and the price you later sold it for). If you live in your home for three or more years, then 75 percent of the equity belongs to you and 25 percent comes back to the program.” Curiously absent from their FAQ is who is on the hook for lost equity if it sells for less than the puchase price. Hmmm, good thing housing only goes up.

#13 Adam on 06.04.13 at 8:50 pm

#2 “am I reading this right? 4 bedrooms and 4 bathrooms in 1130 sq ft??”

That was my first thought. Apparently these “condos” must be just off-campus dorm rooms.

4 beds and 4 baths in that spaces – I’m assuming there must be just one communal kitchen/common area per floor.

#14 blah on 06.04.13 at 8:52 pm

principal repayment is earned income, cra knows it and so does garth – garth at least be fair. if you borrowed money on a margin account you don’t pay principle just interest, you count all those gains, if you decide to pay off you margin account with your dividends it’s not like you don’t count those gains because you choose to pay off principal – make it apples to apples. Now the IRR on a mortgage is the interest rate and they don’t mention that versus say DRIP which is whatever the asset is – but common garth don’t trick people by claiming something is voodoo accounting when it isn’t – you just lowered yourself down a few notches by denying reality

And you just made no sense. — Garth

#15 Freedom First on 06.04.13 at 8:52 pm

#9 You couldn’t handle it. – Garth

Best line ever! …….One of the perks I enjoy as an anonymous guy, is I don’t have those questions put to me by anyone. I learned years ago (but it has taken me a while to implement), to not put myself in front of people with my financial beliefs/status, as the arrogant ignorant will not change their thinking by anything I say. And……people who ask those type of questions face to face usually ask them with a snotty tone and a look of contempt. Funny thing, the “Greater Fools” do not know who they are until it is too late, and they have been screwed by their own house hornyness. I don’t know how you handle it Garth, and yet I see your interviews time after time where you are interviewed in this way, and yet, you remain calm, cool, collected, balanced, liquid, diversified, humble, and undefeated. I love it that those ass….s can come to your blog and read what you have to say about the RE industry and everyone else pumping them with lies, and unethical bs
:) ……..Freedom First.

#16 AK on 06.04.13 at 8:55 pm

“And counting the reduction in the principal owing on the loan as a return on the invested capital (the downpayment) is voodoo accounting.”
Geez. Companies listed on the Shanghai Stock Exchange have more trustworthy accounting proctices.

#17 Sebee on 06.04.13 at 9:05 pm

Watch out, if the policy makers have anything to say about it…80% ownership here we come!

#18 The Affluent Boomer™ on 06.04.13 at 9:05 pm

When was the last time a Realtor was fined for recommending an investment that was unsuitable for the client’s financial situation, investment knowledge, investment objectives and risk tolerance? There seems to be a double standard, a very restrictive standard for the investment advisory industry and almost none for the Real Estate Industry. See How many first time buyers and retiring Boomers fall into this category?


#19 Dr. Hoof-Hearted on 06.04.13 at 9:08 pm

Condo Hell

A senior we know(almost 80) widowed at 50….has been in a condo she bought over 25 years ago.

She confided to another family member that she is tapped out of her savings…

If she had stayed in her home…would have been better off…ie be worth over million….. 4-5 times what she sold it for…condos are money pits

Luckily her son and her wife are retired (Freedom 55 civil servants ) and able to help her out.

#20 Surprise — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer on 06.04.13 at 9:09 pm

[…] via Surprise — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#21 TurnerNation on 06.04.13 at 9:09 pm

(Different here!?!)

DJ FX CHAT: Affordable homes blunts impact of higher rates

Goldman Sachs analyzes how much of a drag higher interest rates will have on the progress being made in the US housing market. It finds home prices are indeed highly sensitive to mortgage rates (a 100bps increase from 4% to 5%, for instance, reduces fair house price by 10%). But there’s a catch in that home affordability today (measuring household income against monthly mortgage payments) is still historically high. A 30-year fixed at 3.81% now, which is the highest in a year, still affords a homebuyer a house worth $279k assuming a 25% debt-to-income ratio. That price is 45% above the current median sales price. All this means that there’s room for rates to rise further before it seriously stalls rebounding home prices.
Dow Jones Newswires

#22 Twooping on 06.04.13 at 9:10 pm

For a laugh, take a drive through the Clayton area of Langley. There are thousands of town homes and detached homes just mashed together like sardines. A lot of them have basement suites and coach homes (400 sq ft apt above garage) so there are cars overflowing everywhere you go. All the houses look exactly the same and there aren’t any ammenities. Great city planning!

#23 Dr. Hoof-Hearted on 06.04.13 at 9:11 pm

Coffin Condos.

These should be boycotted…they only exacerbate the problem….an RE Virgin trap.

#24 DaleFromCalgary on 06.04.13 at 9:22 pm

For those not familiar with Calgary, the Attainable Homes sites listed are in the far, far distant suburbs, some actually out of sight of the downtown skyscrapers. No LRT, but buses that meander about before finally heading downtown and getting there in about 45 minutes. You absolutely need a car to take your kids to school or go shopping. Any sort of cultural event or specialized amenity is a half hour drive off-peak hours. Add another thirty minutes if you’re going to a hockey or football game, or driving to work. Does not include winter driving problems.

#25 Mister Obvious on 06.04.13 at 9:22 pm

#7 Bill Gable

“As Foghorn Leghorn would say “Son, I say, Son, we are done like a TV dinner….””

Even for the geezer contingent who frequent this blog, ‘Foghorn Leghorn’ is an extremely obscure cartoon reference.

Naturally, I’m fully acquainted with that rooster.

In other news.. you can’t get 10 pages into the latest ‘Georgia Straight’ (crappy Vancouver weekly advertising & pseudo-news rag) without encountering 3 full-page ads for condo box developments just coming on line.

I like the one for The Rolston

Vancouver is not affordable?… THE ROLSON IS!

You can own a two bedroom home in downtown Vancouver for less than it costs to rent a one bedroom.

Until June 5th, purchase with 5% down and receive $1000 off your mortgage every month for the next three years. With a mortgage payment starting at $995/mo, the ROLSTON is affordable!

Units start at $459,900. Yep, we’re toast.

#26 dave b on 06.04.13 at 9:22 pm

Chldren spelt incorrectly

#27 T.O. Bubble Boy on 06.04.13 at 9:35 pm

Yep, those are Hip alright… Tragically Hip.

Thinking of a 4-bdrm/4-bath 1130 sfqt condo made me Guelph a little bit in my mouth.

Anyone know how big a standard Canadian prison cell is?

#28 Dr. Hoof - Hearted on 06.04.13 at 9:40 pm

Iron Mountain- Blueprint to Tyranny (Full Documentary)


Made in the 1990’s…quite amazing how prophetic it is.

First portion discusses the faux economy, Nations and how we are being sucked in to accept tyranny .

#29 bobnbmore on 06.04.13 at 9:44 pm

according to attainable homes

“The Calgary Herald raised concerns about a declining market and potential mortgage defaults, but I’d like to highlight that we are fortunate we don’t have the same banking and mortgage conditions that caused the major meltdown in the United States. AHCC partners with CMHC and Genworth to ensure our homebuyers qualify for mortgage insurance, which is an important safety net to our financial system.”

see it’s different here

#30 T.O. Bubble Boy on 06.04.13 at 9:57 pm

Fairly big news in the world of Canadian mortgage rates:

Given that (the largest U.S. rate comparison site) is publicly traded with a $1.4B market cap, I would imagine a healthy sum was paid for

#31 Chickenlittle on 06.04.13 at 9:59 pm

#25 Mister Obvious

“Even for the geezer contingent who frequent this blog, ‘Foghorn Leghorn’ is an extremely obscure cartoon reference.”

I know who he is and I am not geezer! Having said that, I enjoy myself because of the geezers on this blog. I do NOT like people my own age!

The top 3 things people my age (35 and under) talk about:

1. The last time they got drunk and what they drank.
2. When they plan on getting drunk again.
3. The extremely loud, obnoxious parties they have that piss their neighbours (including myself) off.

I mean, come on! Why would anyone get mad at them when they are just having fun blasting their music, yelling and screaming with their friends, and destroying the neighbourhood all while keeping everyone else up? If you complain, then you just aren’t any fun!

Rude, irresponsible, and inconsiderate sums it up perfectly.

I can only imagine who will be living in those tranquil condos in Guelph.

Does it all make sense now? How can anyone make a rational decision when they are hung over? They are definitely screwed.

I actually just got happier thinking of them losing it all in a RE crash…YAY! That should sober the lot of them up…

#32 the turd star on 06.04.13 at 10:02 pm

How can I get on on this Hip development deal, before all the good deals have been picked over. A chance to get in on the ground floor, and make big profits. I don’t want to miss out!

#33 coastal on 06.04.13 at 10:12 pm

According to GlobalBC tonite, the market is about to go up, as some agent expert claims to have sold a home in a bidding war. Of course no mention where the house was, what the asking price was etc, just another bullshit spam attack on common sense via the real estate corps who pay for a good portion of Global’s business . No wonder the rumors of a declining viewership numbers has legs to it.

Listening to that barfbag via Chris Galius’es smiling mug was enough to turn the channel. This after they recited falling numbers and prices yet one agent can magically claim the market is turning up?? No wonder real estate agents are the most despised group these days. There’s liars then there are outright fraudsters.

#34 Hiram Abif on 06.04.13 at 10:17 pm

House for sale in T.O. was originally $684K (4 weeks)
Taken off market for 1 day and re-listed for $649K
Sold for $650K. Sign on lawn says SOLD for over asking!!

What kind of BS is this?

#35 will on 06.04.13 at 10:19 pm

What a shitty looking building. The units don’t even have patios. Where is the bbq supposed to go? Nothing hip here. Maybe the paint job is supposed to be hip. Well what do I know, maybe shitty IS hip. My god. Thanks for this evening’s entertainment Garth.

#36 Kevin on 06.04.13 at 10:20 pm

Garth, this affordable home ownership program is not just limited to Calgary. It’s all over the country.

Heck, even Moose Jaw has an affordable home ownership program

That’s right, Moose Jaw! I’m sure every major, mid level and small city in Canada has a program like this.

So how did it get to this?

First, municipal governments create a problem when they charge up to 300% more for lots in a decade.

Then they talk the “affordable housing problem”

Then they offer a solution by creating affordable housing programs that are backed by taxpayers like in Moose Jaw!

The thing is, city lot sales are a cash cow for municipal government finances. And affordable housing programs are welcomed by almost everyone in society and this in turn makes city councils look good.

But history has shown us that the more people that are “helped” into home ownership, the more that the housing market becomes vulnerable. History shows us that 11% defaulted from the Assisted Home Ownership Program from the 70’s.

#37 screwed on 06.04.13 at 10:24 pm

40% ROI? Get Wall Street on the phone. This is a good deal and they will jump on it. Their banks could leverage this thing sky high based on book value alone.
Seriously if homeowners or RE investors had the kind of ability that investment banks have, this would be the land of milk and honey.

This all sounds great on paper. Why can’t we mere mortals flip the paper back to a bank once cash flow is established over 3 months. We keep a quarter of the returns for ourselves and the banks buy the title from us and keep the rest. I could do this every day and twice on Sunday. In essence, I’d sell my rentals to a buyer, probably a bank and keep a portion of the cash flow. I’ve seen this done with leases on medical equipment in the US. Pretty good biz model, guaranteed cash flow (royalties) over the span of the lease and the risk gets flipped to the bank after 90 days. That’s what Wall Street is all about.

#38 ozy - Devil's advcate on 06.04.13 at 10:25 pm

Garth, talk is cheap, why does not anyone start buiding in best city locations for $100 dollars a SQF so all low income buyers can afford 1500 SQF at $150000 ?

Do this and you’ll become a real hero!

#39 Smoking Man on 06.04.13 at 10:30 pm

Commen theme today by posters.

Media lies
Real estate cartel lies
Lies lies lies..

What are guys 4 years old, why aren’t you lying for profit.

Oh I forgot, someone who is trying to control you said it was bad too lie.

#40 Fling it on 06.04.13 at 10:42 pm

In Canada they are advertisements, and Proforma sales documents. Here they used to be called fraud.

Where has the “F” word FRAUD gone?

gone to sellers everyone

#41 Tom Vu on 06.04.13 at 10:48 pm

#30 Chickenlittle on 06.04.13 at 9:59 pm

The top 3 things people my age (35 and under) talk about:

1. The last time they got drunk and what they drank.
2. When they plan on getting drunk again.
3. The extremely loud, obnoxious parties they have that piss their neighbours (including myself) off.


Oh good , and here I was worried that we would leave the next generation a worse place.

#42 Devore on 06.04.13 at 10:52 pm

Simple, right? Cough up $54,980 and enjoy a 40% annual return – doubling your money in two-and-a-half years. Yahoo! Free Vespas for everyone!

If this is such a great deal, why the need for so many suckers to buy in? Why don’t these developers just hold these units within their exclusive club where the rich get endlessly richer? Why aren’t REITs tripping over themselves building their own condos for 40% returns?

Because no such thing exists.

#43 Questions on 06.04.13 at 11:01 pm

Hahaha, Yes!!

“A design for the ages.”

#44 Devore on 06.04.13 at 11:09 pm

#7 Bill Gable

A Condo sold for $25 million – this past week. The monthly condo fee is around $6200.00; rumour has it some Middle Eastern Royalty snapped up this little fixer upper.

It’s been on the market for 2 years, I would hardly qualify that as “snapped up”.

#45 Piccaso on 06.04.13 at 11:11 pm

Vancouver condo sells for $25M

The penthouse condo at the Fairmont Pacific Rim has sold for $25 million, making it one of the most expensive condos to ever be sold in Canada. The condo was listed at $28.8 million and had been on the market for nearly two years. The new owners, whose identities have not been disclosed, will be paying $68,000 a year in taxes on the property, along with $4,200 a month in condo fees.

#46 Roy on 06.04.13 at 11:22 pm

Average non-mortgage debt grows to $38,619 in B.C.

Up 3.2% y/y.

Wow, wonder if this debt is mostly in things like depreciating objects, consumable trinkets and electronics that don’t last, excess clothing purchases for women, Starbucks? Assorted junk, a borrowed vacation or two, and other items that will be garbaged upon usage completion.

This society is way far over the edge. Even a small reversal in the cost of money is going to be hugely problematic.

#47 Calgary Car Guy on 06.04.13 at 11:22 pm

Mister Obvious @#25
Even for the geezer contingent who frequent this blog, ‘Foghorn Leghorn’ is an extremely obscure cartoon reference.___________________________________

Really? Foghorn Leghorn is “extremely obscure”? Wow, I’m part of the “geezer contingent”. Yikes!

#48 Ron on 06.04.13 at 11:32 pm

1100 sqft and it’s 4 bedroom and 4 bathrooms? I guess their is no living room????? Is their a kitchen???? Or just a hotplate and a fridge? Most of the condos they are building now aren’t even livable.

People are just buying a brochure and have no clue what it is. And they don’t care because they have no intent on living there. We are going to end up with a whole bunch of concrete cubicals in the sky that nobody wants.

Also, the rental asking price on kijiji is just an asking price. It will go for 10% less than asking. It’s always negotiable.

#49 Mike T. on 06.04.13 at 11:39 pm

this attainable home thing is everywhere…I’m sure there are more examples than this in the Okanagan, but my buddy was just helped out by (read: sentenced to financial prison) these nice people

I guess if you have never had an experience that makes you question the establishment, there’s no reason not to think this is actual help.

this is the link for the development

Earth is a school. The greaterfool will hopefully learn the lesson at hand.

#50 lulu on 06.04.13 at 11:39 pm

@Uwinsome. U lost.

Like a lot of people who are surrounded by the same sort of ostriches that I had always been, I have a hard time suggesting to my friends and family that they read this blog.

Let’s just say, having lived a lifetime of mistakes, I don’t have the greatest credibility when it comes to making recommendations related to finances.

And of course, their cynical comeback is always, what’s he selling?

You, Uwinsome, gave Garth a golden opportunity to brag and bring in more clients, and he gracefully and ethically declined.

I love that I can sincerely plug this blog, because THIS IS NOT a business Web site. It sells NOTHING. It never displays an ad for anything. Period.

Here, a good, wise man gives back to his community and country in the best way he can. Where or how do you give back, Uwinsome, or is it all about winning and only winning for yourself?

Anyway, small signs tell me that a few of the people I care about the most are indeed reading this dear pathetic blog on the sly, not quite ready to admit it, but I do see and hear signs… maybe it has to do with the fact that I am gaining financial ground in leaps and bounds, making up for many, many lost years and dollars and blondnicity, thanks to the advice that abounds here. And it’s being noticed by those closest to me.

Thanks to suggestions made Garth as well as others on this blog, I found a wonderful fee-based financial coach, so far my first very worthwhile investment, and the rest is starting to unfold… as long as I do my homework.

I am finally excited about money, in a good way, a responsible way. Freedom 75 maybe, but better late than never!

#51 Mick on 06.04.13 at 11:46 pm

Colony and American Homes 4 rent just pulled their REIT IPO’s today, citing “market condtions.”

ie; rising interest rates leading to unfavorable rental conditions are making this so-called real estate recovery untenable for the institutional investors who are behind it.
So much for Garth’s prognosis that the US real estate recovery is for real. Smart money pulling out fast, let’s see how long this “recovery” lasts after billions of dollars makes for the door.

#52 Peter on 06.04.13 at 11:57 pm

Hi Garth , I am a rental property owner since the 90’s , I have always paid the portion of debt paid down as income on my taxes , I would think I have to, if you could explain how this is voodoo accounting , I would like to know.. thank you

#53 T5_INCOME on 06.05.13 at 12:02 am

This is truly shameful tactics and shows the government is leading the sheep to slaughter. Also Garth, is there any way I can borrow a “mortgage” to buy say, 10,000 shares of CHB.TO at a mortgage level of interest. I am not talking about margin or a LOC, but maybe signing a private loan or anything like that ?

I have a 6 figure income and want use my borrowing power to get ahead like everyone else did in real estate. Except I DONT wanna be in real estate except it seems thats the only place to attain easy leverage, unless I want to buy a top of the line, fully loaded, rust protection and extended warranty Kia.

Seriously, anyone with advice on how to borrow cheap ( sub 5%) money please let me know

#54 CaptainObvious on 06.05.13 at 12:18 am

Maybe they should market that development at boomers and throw in a replacement hip? The colours are kind of psychedelic and should bring back some good memories.

On a more serious note, seeing some price reductions in our ‘hood in (very) south Ottawa. Not much yet, but it is happening on those properties that have been listed for a couple of months.
Builders are also still building what seems like a gazillion new houses here.

#55 Miguel on 06.05.13 at 12:23 am

I like this blog, but the sad reality is that as long as there are more fools than rational people, the bubble will not pop as it should. And In Vancouver, the ratio of fools/smart individuals is pretty high.

I know somebody that was waiting for the bus for 1hr as he refused to take a taxi that would cost him $20, his car was being repaired. Talking to him on the bus, he was telling me how proud he was of having his offer accepted for a 1.2M house, frankly it looks like a 40 year old shack. He said that his initial offer was 1.18M, but then accepted a 1.2M counter, the original price was 1.25M. So here you have a guy that could not stomach to pay a 20 dollar cab ride, but he could happily over pay hundreds of thousands.


#56 Shawn on 06.05.13 at 12:26 am


Blah at 14 disagrees with Garth and says repayment of principle by the renter should count as return.


I agree with that. If the cashflow were zero but was reducing the mortgage by $6,375 per year as in the example then that is a positive return assuming the value of the units stays flat and assuming that there are no other expenses or accruals for wear and tear etc. The equity is growing in that case.

Having said that I totally agree with Garth that the 5% capital appreciation is bogus and also the rents immediately appeared high in relation to the cost of the units.

And any return goosed through leverage is always risky even with real estate. So, a 15% return on a $54,980 cash investment is grand… until you get a year with no renter and realize that really you have an asset of $275,000 that is at risk of a devaluation and also you have a $220,000 mortgage that must be serviced whether you have a tenant or not and whether the unit rises to $400k or falls to $150k.

#57 Mike on 06.05.13 at 12:37 am

Hi Garth, nice to see you writing about Guelph. I’ve been driving past the corner where the “solstice” condo is to be built for over a year.

This project was originally called “serene” condos and were being marketed as executive 2 bedroom units starting in the mid $400K. Hip developments, which is a subsidiary of a Waterloo construction company, built a stand-alone sales office across the road from the site, where they have yet to break ground. I cannot recall ever seeing more than one car parked in front of this office. I was glad to see that they weren’t selling, as a $400+k 2 bedroom is an abomination this far from downtown Toronto.

The site itself hasn’t changed; it is still a grassy field backing onto a conservation area. It is just the signage that changes. The latest one says “Coming in May 2013”

#58 coldlazarus on 06.05.13 at 12:38 am

Guelph?? “International hot spot”??
Not sure who is mixing up the kool-aid but appears that almost everyone in the “international hot spot” is drinking it.
When even little old Guelph is now filled with pumpers spouting about worry free investment, it must be getting very late in the game….

#59 Pounding sand in Peachland on 06.05.13 at 12:53 am

You can wait and buy it for more later, if you prefer. — Garth

#60 Bast on 06.05.13 at 1:09 am

#24 Dale from Calgary

Some, but not all. This one is in Bridgeland, right next to the LRT and within walking distance to downtown Calgary:

#61 Bailing in BC on 06.05.13 at 1:42 am

Anyone interested in Squamish Data. I have been compiling some here:

Feel free to add your own and update the spreadsheet

#62 Canuck Abroad on 06.05.13 at 1:43 am

The Guelph apartments look like suite-style student residence accommodations. One-two bedrooms in each apartment have no exterior window, and there is not a bathtub to be seen anywhere, only showers. This screams student housing to me. Will U of Guelph students pay this sort of rent? Will anyone else want to live there besides students? Why hasn’t the university bought the building if it’s such a goldmine?

#63 Joe Calgary on 06.05.13 at 2:15 am

Looked at the attainable homes website. Wow just wow! Ppl are messed. How feeble does your brain have to be to do that?

#64 jl on 06.05.13 at 2:34 am

“And counting the reduction in the principal owing on the loan as a return on the invested capital (the downpayment) is voodoo accounting.”

Garth, you are just as slanted and misleading in the other direction as the pumpers who promoted the investment in the building.

To say that the principal reduction in not factored in to ROI and Total Return is flat out wrong and you know it. You invest in commercial real estate and residential and you know damn well that principal reduction is absolutely factored in. What are you talking about that its “voodoo accounting”.

Really?? So I buy a condo today with a $300,000 mortgage, rent it and hold it for 25 years. Downpayment of $60,000. 25 years from now its going to be worth whatever its worth, who the heck knows what price, but highly likely higher. When I calculate my return on investment for the $60,000 you’re saying I ignore the hundreds of thousands in equity as I own a property mortgage free???

#65 Paul on 06.05.13 at 2:52 am

The 40% ROI is indeed real, based on the assumptions utilized. Remember the effect of LEVERAGE is what is providing the the return. The downpayment is the investment. So, the 40% gain is based on the fact the investors equity has increased by 40%. This number is established by the fact the mortgage has decreased using OPM from the assumed rent, the net positive cash after all assumed expenses and the assumed increase in equity. The key word here is assumed! I think more appropriately the assumptions should be heavily scrutinised. When leveraging into any asset class, the assumptions are key. In this scenario, it is the perfect world scenario. If off just a little on any if them, the ROI changes dramatically. I am not a fan of direct rental investing purely for the fact I don’t actually want to ‘work’ for my passive income. Also, there are way too many risk variables and costs involved in real estate. Whoever says MERs are high on investments in Canada should look closely at the expense ratio on real estate!

#66 Buy? Curious? on 06.05.13 at 3:09 am

Wow Garth! It’s amazing with the new ideas people come up with.

Here’s a video of one of those lying developers who had a revelation and got out while the getting was good. He’s now developing honest products and selling them ethically.

#67 Julia on 06.05.13 at 3:37 am

If you didn’t catch Mary Wiens on Metro Morning on CBC Radio Monday it’s worth a listen. She’s interviwing someone who lives in the building where Ford’s crack video was alleged to be. What’s interesting is what the interviewee says about being trapped in a deteriorating condo that’s been mismanaged into a trap he can’t leave. One of those “affordable” rental buildings converted to condos in the Mayors ward. Half absentee landlords, the other half low income newcomers who foolishly thought buying is better than renting and now they can’t sell.

#68 juno on 06.05.13 at 4:54 am

Just remember if it was a win win situation, the market would of corrected itself and these houses would be selling closer to the 44000/year gains X 5 year PE. therefore tag on another 250,000 gain to the selling price.

Its all hog wash. It all comes down to regulation. Someone has to regulate these guys just like they do with stock brokers. We have use car sale man selling probably the biggest asset anyone will buy in their lifetime.

#69 Calgary Dave on 06.05.13 at 5:25 am

I went to one of those Attainable Homes Calgary meetings – even though we make too much to qualify, we have friends that are in the program. Not a good deal! I don’t think that people knew what they were getting into, and I don’t think I’d want to live next to someone who can only come up with a $2000 downpayment.

Sure, you get 75% of your ‘equity’ back if you sell after three years, but some of those units you have to sell back to the corporation. No word on who sets the price then! They didn’t dwell too long on what happens if the market goes down, but, ultimately, you are on the hook and probably won’t be able to move for awhile.

Some of the units (the new ones) seemed nice, but they made no bones about the old ones. ‘These are 25-year old town homes, with 25-year old furnaces and hot water heaters.’ The one benefit with my friends’ unit is that there always seems to be a policeman in the neighbourhood.

#70 jess on 06.05.13 at 7:35 am

unsuitables in suits

“FINRA found that brokers with the firms made unsuitable recommendations for clients to purchase floating-rate bank loan funds, which are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade. The funds are subject to significant credit risks and can also be illiquid, it notes.
SEC Suspends Trading of 61 Companies Ripe for Fraud in Over-The-Counter Market
Washington, D.C., June 3, 2013 — The Securities and Exchange Commission today announced the second-largest trading suspension in agency history as it continues its “Operation Shell Expel” crackdown against the manipulation of microcap shell companies that are ripe for fraud as they lay dormant in the over-the-counter market.
This latest sweep is the largest since last year’s “Operation Shell Expel” move by the SEC, which it removed a record 379 companies from trading in one trading day
Companies House
Where there’s muck, there’s brass plates: on the trail of UK ghost companies

#71 Stickler on 06.05.13 at 7:41 am

taxpayer-supported house buying for couples earning $80-$90K!

I am speechless.

#72 Bigrider on 06.05.13 at 7:53 am

Garth, you really blew it today.

Ignoring principle reduction on a rental property mortgage, when calculating a total return on investment, regardless of how you choose to label such reduction for tax purposes or other, is just plain wrong.

In the above example, even if the investor was not cash flow positive but completely break even year after year and the condo did not appreciate in value over 25 year amortization period, to deny the fact that it would be paid for in full after 25 year amort. period ( or 30)and not factor that in as a gain is just plain wrong.

How you label that gain is somewhat irrelvent to the issue at hand, which is, is it indeed a worthwhile investment.

The post deals with incomplete and misleading marketing of a questionable investment. Telling people repayment of debt is the same as a 40% return on cash invested is, as I said, voodoo accounting. And you know it. — Garth

#73 jerry on 06.05.13 at 7:55 am

Kinda makes you wonder why the seller would want to part with an asset that earns up to “40%” annual returns.

Unfortunately the University of Guelph is known more for its animal husbandry graduates than its accounting graduates.

#74 Smoking Man on 06.05.13 at 7:57 am

What is this I read, can it be true..?

No they are lying, ba hahaha.

Bad day to be a bubble head, good news for owners.

Financial post reporting Vancouver bottomed out, sales and prices up over last to months…

Just saying……

#75 jess on 06.05.13 at 8:00 am

#67 Julia
rinse lather repeat ….public private public private back and forth
Over the past 10 years, Toronto Community Housing has struggled to find stable, sustainable funding to maintain its housing in good repair. Today, our buildings have a $751-million repair bill, an amount that grows every year. Too many Toronto Community Housing residents live in buildings that are falling apart because we can’t afford to fix them.


Rent Supplement Toronto

What is the Rent Supplement Program?
The Rent Supplement Program is rent-geared-to-income housing with private landlords. Housing Connections uses the centralized waiting list to fill rent supplement units on behalf of the landlord. The household pays their rent-geared-to- income amount directly to the landlord and Housing Connections pays the rest of the rent to the landlord.

There are about 2900 units in this program with about 130 private market landlords. Housing Connections conducts unit assessments to qualify rent supplement landlords.

To apply, add rent supplement sub zones to your Housing Connections application and you will be added to the waiting list for all rent supplement units within each sub zone you choose. See the rent supplement sub zones in our online interactive housing listings

#76 NRI13 on 06.05.13 at 8:26 am

#72 Bigrider

Principal not principle.

#77 Old Man on 06.05.13 at 8:30 am

Its a European concept for communal student living, but wears a different hat called Condo. This will turn into a disaster with parties all night long, as this is none other than Rochdale phase 2 in disguise – omg!

#78 Tony from Calgary on 06.05.13 at 8:48 am

Goodbye US housing “recovery”; we barely knew thee…

Sales the best since 2006. New housing starts back over 1,000,000, Prices ahead 12.1% in twelve months. Zerohedge? Zero. — Garth

#79 Min In Mission on 06.05.13 at 8:49 am

omg! That is one ugly building!

Over 300K for 1k sq ft! In a condo?! S**t unbelievable!

Thankfully I am allergic to condos and crowded places.

Great picture, one that I never got a copy of for the wedding album.

#80 Gotthardbahn on 06.05.13 at 8:55 am

Hey Garth –

Great blog, especially about that ghastly Lego building in Guelph. Looking at all those numbers got me thinking: If this property is such a great investment, why are the developers selling it? Why wouldn’t they want to keep all these profits for themselves? Potential ‘investors’ looking at this thing really should ask themselves that question. But I doubt they will.

#81 Dupcheck on 06.05.13 at 9:08 am

That extra colourful building looks like was designed from an architect from Tirana-Albania

#82 Mike on 06.05.13 at 9:10 am

If paying down debt builds equity, then wouldn’t that be part of your return. I understand that that portion is illiquid, since you don’t actually receive the principle in the form of a cheque, but it builds assets

#83 T.O. Bubble Boy on 06.05.13 at 9:18 am

@ #74 Smoking Man on 06.05.13 at 7:57 am
What is this I read, can it be true..?

No they are lying, ba hahaha.

Bad day to be a bubble head, good news for owners.


If you use last year’s reported numbers (10,850), YOY sales are down 6.5%, and over 7% down in the 416.

Condo sales in the 905 down 17.5% from the reported numbers of May 2012.

May 2012 reported data is here:

The average price increase doesn’t surprise me, as any detached SFH in the 416 goes for at least $1M.

#84 @72 Bridger and others on 06.05.13 at 9:18 am

How you and others can’t see it is beyond my understanding. It’s called double dipping. They are counting the same money twice. Once as rental income and another time as principal repayment. Simple like that.

Like I said. Voodoo. — Garth

#85 sciencemonkey on 06.05.13 at 9:21 am

At what income is a house affordable? Mr. Turner’s point about buying something you can afford is important, but it’s not the whole story.

If we take a $500,000 bungalow in a large city as an example, and a price/income of 3, then the household needs $167,000 gross income, or $83500 per person. This means that the top 10% of earners can afford a modest detached house in a large city.

On the other hand, we have this program where household incomes up to $90,000 should be helped to buy a house. A personal income of $45000 is in the top 32% percentile of income earners.

Let’s ignore the fact that there are more pressing ways to use charitable money.

Is there an inherent assumption in this charity? Is it saying that the top 1/3 of earners in our society should be able to afford a house? It doesn’t seem like such an unreasonable thought.

Why form these useless charities? Why not fix the underlying problems that make housing unaffordable, such as low interest rates, land-use restrictions, poor city planning, and over-immigration?

#86 Ballingsford on 06.05.13 at 9:33 am

I’m thinking I should probably buy a house so I don’t have so much disposable income.

I was just checking out the mercedes-benz roadster and did the calculation for the monthly payments after a sizeable down payment and it’s quite large; more than I pay in rent!

I must be going through a mid life crisis to even be considering this.

#87 Ottawa on 06.05.13 at 9:45 am

Hello Garth,

I am wondering if you know anything about the possibility of “Importing” a house from the States. I was looking at high quality prefabricated homes from Forest River(Hart Homes) and Clayton Homes(owned by Warren Buffet). The price for a turn key solution, 4 bedroom Home is around 60K. Building a basement costs around 20K. I only need to find a lot at a reasonable price. Do you think this would be a solution to avoid the housing bubble in Ottawa?
I contacted one company in Ontario that imports those homes from the US and their price was around 160K. Then I called the US distributor and they offered me the exact same home for 56K. I dont know what kind of fees and duties I need to pay and if there is any other requirements. They can build the home to Ontario Code.
Our family is currently renting a 4 bedroom townhouse in a Coop for 941$. We “only” make 150K gross family income. Dont think we can afford to own a house at the current price level?
Thank you for the nice blog. Very much appreciated!

Best regards

#88 Patiently Waiting on 06.05.13 at 9:49 am

#82 Mike on 06.05.13 at 9:10 am
If paying down debt builds equity, then wouldn’t that be part of your return. I understand that that portion is illiquid, since you don’t actually receive the principle in the form of a cheque, but it builds assets
The key is not whether you are “building equity” or “assets as you call it. What it really comes down to is whether or not the property has gone up in value, or at least retained it’s value. If the property has retained (or increased value) then yes you have built some additional equity. If the property has gone down in value there is no equity or asset gain … in fact you are loosing money …


#89 Bigrider on 06.05.13 at 9:56 am

#72 Garth’s response to Bigrider -“The post deals with incomplete and misleading marketing…voodoo accounting, and you know it”

Absolutely no doubt that the post is misleading and the investment is questionable. Only fools would fall for the assumptions given.

There is no doubt what my own personal views are, on the likelyhood of investment success , on a rental condo unit today..been here a long are correct.. ‘I know it’

I think what everyone is up in arms against you when it comes to your analysis Garth, is not the fact that you question the viability of the condo investment based on the assumptions given, but that you seem to negate the retirement of the mortgage principle as part of it’s overall viability.

You should address this.

You can’t count rental income as cash flow and then add the same money in again as debt repayment to come up with an inflated ROI. — Garth

#90 Gunboat denier on 06.05.13 at 10:09 am

84 – @72 – no they are not. The entire mortgage payment is listed (P + I) so the principal reduction is removed then put back in to calc total return. Alternatively the amount can be removed from both figures.

#91 Sunny on 06.05.13 at 10:11 am

Just saw the month of May sales from TREB. There is no crashing market as this blog asserts. Now we know who the greater fool is.

Actually this blog made no prediction of a ‘crashing’ Toronto market. That was some other fool. — Garth

#92 Herb on 06.05.13 at 10:24 am

#52 Peter,

would you mind telling me where in CRA’s T4036 – Rental Income Tax Guide you found the requirement to report “the portion of debt paid down as income on my taxes”, or where you reported it on Form T776?

You report the income paid by tenants, deduct the expenses of your rental operation, and add the difference to your income. What you pay down on the mortgage you borrowed is irrelevant. When you sell the rental unit(s), the acquisition cost is the biggest part of your Adjusted Cost Base, and you recover the amount of capital you paid down on the mortgage.

You pay tax on any capital gains between ACB and the selling price realized, but no tax on “the portion of debt paid down”. Unless you can prove me wrong (and I paid tax on rental income for 29 years and went through three audits) I suggest you get your income tax returns reopened and adjusted for the last 10 years.

#93 Daisy Mae on 06.05.13 at 10:27 am

#33 coastal: “According to GlobalBC tonite, the market is about to go up, as some agent expert claims to have sold a home in a bidding war. Of course no mention where the house was, what the asking price was etc, just another bullshit spam attack…”


And that, too, was the moment I switched channels…

#94 Smoking Man on 06.05.13 at 10:32 am


Seams condo rents in Toronto up 10 Precent

O my…….. That rent to own gap getting tighter….

Every one thought leaves where going to beat Boston in game 7

Every bubble head dancing re crush pre celebration..

Jokes on you….

#95 GoodbyeBFSMortgages on 06.05.13 at 10:34 am

#96 Dr Hoof-Hearted on 06.05.13 at 10:48 am

As alluded to earlier, boycott these condo coffins.

This will only encourage developers to lobby Gov’ts for this as affordablity , and put more product on the market.

Any realtor will tell you that a bachelor suite is the slowest to sell.

#97 Bigrider on 06.05.13 at 10:52 am

#76 NRI13- to Bigrider ” principal not principle”

I no maka da scuola here ina kanata. back ina italy we no care howayu spella only howa you maka da money ona da realestata.

Ima sorry NRandI pleasa no maka toomucha da fine froma da spelling polizia..

#98 Nemesis on 06.05.13 at 11:01 am

“Like I said. Voodoo.” — Garth

I thought we’d already settled this. “VooDoo” accounting/economics is so GH Bush/20thC…

The NewParadigm is Ricardian BaBaLu!

#99 Dr Hoof-Hearted on 06.05.13 at 11:02 am

Which is the greater rip-off … pimping of Real Estate or Education ?



A student that does poorly on a placement test, no matter how poorly, is never turned away. Never. “No problem,” says college admissions, “you’ll just need to take a developmental course or two and then you’ll be fine!”…as though a person that’s blown off education for twelve years is really going to make it all up in a few months.

So higher education is mostly about remediation and has been for years, but does it really help these people? One might think that the answer has to do with those useless degrees people talk about, but only the lucky ones get a useless degree. The answer comes from the black secret of higher education:

Fewer than 1 in 10 remedial students will get a 2 year degree within 3 years1.

That’s above a 90% failure rate, quite possibly after the college soaks up $20,000 or more in loans. All the growth in higher education is in remedial students, and they’re being horribly abused by the system.

If there were any integrity to higher education, administrators would look at the 90% victimization rate and say “we need to stop doing this.” Instead, the bar just gets moved lower and lower and lower…administration responds to failure by increasing the amount of failure. One might well conclude they just want the checks and don’t actually care about the students at all.

etc etc.


The unifying theme is selling false hope like any other snake oil salesmen.

#100 hopeful on 06.05.13 at 11:11 am

Based on the article in thestar, everything is looking up. Hope the prices reach hign up in the sun so everybody gets burned. Just a renter with a vengeance.

#101 calgary on 06.05.13 at 11:36 am

perhaps i should lose some savings and reduce my earnings to be eligible for this Calgary program! hate it when my money is being wasted by elected officials, which is almost all the time.

#102 elchavo on 06.05.13 at 11:36 am

and riding my new 650 around Regina, I had never seen so many for sale signs on the streets. A lot of them, and they’re everywhere… specially the comfree variety.

And sales are down 20%+ from last year.
And the sprawl keeps sprawling.
And money continues to be cheap.
And prices get more and more absurd.

And people keep being people. They don’t care about prices in this city. As long as the mortgage is available and the monthly payment is manageable, they’ll take it.

What could be wrong… everybody is doing it.

Ignorance is bliss.

#103 young & foolish on 06.05.13 at 11:55 am

If I use $50K to secure an income property which is cash flow positive, say 5%, for a yearly return of $2500 does it matter if the property devalues by, say15%?

Am I a loser? Or do I just collect my 5% on the original $50k and leave it there ….. $2500 returned annually (albeit taxed at an unfavourable level) on original down payment?

#104 broadway skytrain on 06.05.13 at 12:04 pm

vancouver sales numbers UP, prices down

residential property sales in Greater Vancouver reached 2,882 on the Multiple Listing Service® (MLS®) in May 2013. This represents a one per cent increase compared to the 2,853 sales recorded in May 2012, and a 9.7 per cent increase compared to the 2,627 sales in April 2013.

#105 The Prophet Elijah on 06.05.13 at 12:16 pm

Calgary’s Western Canada Select oil is been holding steady in the mid $70 range, way better than the $51 several months ago, and squeezing the gap between West Texas crude at $93.
This tells us 2 things:

1) We could be waiting longer then anticapated for any major housing correction in Calgary.

2) The USA Wall Street hyped shale oil plays that were suppose to save the American’s from their debt and create energy indepedence was that, just hype. Like the .coms and RE bubble where it will NEVER go down.

I’m guessing now the Keystone pipeline will be permitted as the Yanks will absolutely need the oil.


#106 Old Man on 06.05.13 at 12:30 pm

#105 The Prophet – USA needs none of our oil or natural gas, and one day will disclose the ace they have hidden since the late 1970’s under a Presidential Order. In the meantime will dry up resources in Canada, and one day will spring the trap on us all.

#107 Student Investor on 06.05.13 at 12:38 pm

This actually does make sense. Strip out the leverage and you have a 6% cap rate (Net Income over Purchase Price). Toronto Apartment Buildings are trading at 3-4% cap rates so this on the surface is a better deal. With leverage the returns are 15-19% per year with no appreciation of the unit (counting principal reduction as it is a return on your investment). The appreciation factor of 5% (while perhaps not achievable every year) is in line with market appreciation over the past 5-10 years. The rent and expense assumption in the pro forma look reasonable ($575 per month per bedroom for student rental…..find that in a nice new dorm in Toronto!).

Plus – University rentals are not cyclical. Enrollments grow every year and local economic impacts don’t effect them. We don’t want our kids to get less education….so there’s always demand. CMHC reported no vacancy in their Fall 2012 for the south end of Guelph on 3 and 3+ bedroom units. Local rents are $550-$575 per month right now for bedrooms with their own ensuite baths. Do your homework and don’t make such broad and inaccurate conclusions…….student housing is a great money making and sure beat rolling the dice on equity markets.

(a) The stated rent is inflated and guaranteed for one year only. Actual real-world cash flow is negative. (b) Leverage is already factored in. The cap rate is dismal. (c) The building’s economics and market demand have kept construction from being started. Everything looks great on paper, especially when numbers are fictionalized. (d) Equity market returns have far exceeded those of rent, at half the tax. (e) You sound like the perfect investor for this project! — Garth

#108 fred forten on 06.05.13 at 12:42 pm

Canadian housing market among most overvalued in the world: OECD

#109 AndrewAB on 06.05.13 at 12:44 pm

Edmonton Month End Report:

“Housing sales dropped 10% when compared to May 2012. Sales of single family detached homes (SFD) were down 14.4% Y/Y and duplex/rowhouse sales were down 20.3%. ”

Source: EREB

Realtor Spin:

“Residential sales were strong in the region, although they were down slightly from last year…”

A couple of lines later:

“As we reported on the weekend, single family home sales in Edmonton were down significantly from last year…”

Source: Edmonton Real Estate Blog

Okay to summarize, On the one hand they are saying Edmonton RE sales were “strong” in May and two lines later sales were “down significantly”

Oh Okay, very good then.

And finally, the official company line is:

“Shortage of Affordable Single Family homes in Greater Edmonton Area”

EREB and the fine regurgitators at the Edmonton real Estate Blog

Ta Da! There you have it! Sales are down because there is nothing to buy in Edmonton!

#110 broadway skytrain on 06.05.13 at 12:48 pm

the US needs MORE canadian oil every year, not less.

Canada bb/day ,thousands.

#111 oldgeezer on 06.05.13 at 12:57 pm

Garth – the discussion between you and Big Ride does require some clarification. I believe both your positions merit further comment.
Firstly, let’s assume that the investment property will hold it’s value only and not appreciate at all. I Suggest that the principle paid off plus the net cash flow, could be added to the initial down payment and now considered his equity (growth over the one year period). This growth is compounded as each year brings more and more principle reduction to the bottom line. If only this scenario were a guarantee.
The problem is, and I agree with you here, is that you can’t take the principle reduction in absolute terms. Reality of equity upon sale is quite often different than that on paper. Other assumptions like continued appreciation, staid interest rates, etc., draw an unrealistic portrait of the potential for growth.
Numbers manipulation is not a new art. Realtors as well as government and media, all tend to use the same brush.

#112 Ray Skunk on 06.05.13 at 1:00 pm

Guelph, eh?

Well, I lived there for three years so this story piqued my interest.

Numbers aside, the location for that condo is horrible. Horrible.

It’s in the arse end of nowhere, nothing sought-after about it. No self-respecting student will want to live there. The students I knew (and I knew a lot) would live along the arc from Stone Rd, via the campus, to downtown.

The whole project from the building, the location and the hideous marketing seems like it was put together by some wannabe property magnates who just graduated with their BComms from a tinpot university and have strongarmed their grandparents into some angel investment.

With any luck this will project will be stillborn.

#113 EdmontonJim on 06.05.13 at 1:01 pm

To be fair, adding the reduction in principal owing is fine to calculate the return on the leveraged investment.

If all there numbers are accurate (probably not), what you are really getting is about a 10% return on money that you are borrowing at about 2%, so a net of about 8%.

But with reality, you are getting about 5% on money borrowed at 2%. So your net is about 3%. This is a middling return on a risky investment.

#114 Mick on 06.05.13 at 1:05 pm

Uh oh!
New mortgage applications in the US down 11%. Banks laying off staff in their mortgage division.

#115 Mick on 06.05.13 at 1:08 pm

@broadway skytrain

Sir, the oil the US buys from Canada is unrefined and has spurred an industry unto itself. The only reason they’re buying our oil is because they are making a killing off refining it, thereby paying us substantially lower prices than the market value.

So many people read nothing more than headlines.

#116 Shawn on 06.05.13 at 1:14 pm


You can’t count rental income as cash flow and then add the same money in again as debt repayment to come up with an inflated ROI. — Garth


With respect, as others have pointed out they are (quite properly) adding back the pay-down of principle because they had substracted it from rental income in arriving at cashflow.

The analysis seems correct based on the (very optimistic) assumptions.

Take a breath and think it over…

Or do the calculation as rent minus expenses minus just interest (not minus mortgage payment) and you arrive at the same net cash flow they claim. Same 15% ROI, higher if you assume property appreciation. It’s the assumptions that are too optimistic. The math is fine.

#117 VMD on 06.05.13 at 1:20 pm

Battle of Vancouver: May 2013 SFH Battle Update

– Fraser River turned crimson with Bovine blood as the REBGV Bulls failed to defend their Last Stand in Coquitlam. The Bear Army pressed forward and took control of North Surrey for the first time in this War.

– The Bears diverted their main attack forces in Van West & Richmond to solidify control of outskirts such as West Van, Burnaby, Ladner, Poco & Tsawwassen.

– The following Bull Territories are facing imminent defeat: Surrey.

#118 The Prophet Elijah on 06.05.13 at 1:32 pm

#106 Old Man on 06.05.13 at 12:30 pm
#105 The Prophet – USA needs none of our oil or natural gas, and one day will disclose the ace they have hidden since the late 1970′s under a Presidential Order. In the meantime will dry up resources in Canada, and one day will spring the trap on us all.
And where is it all going to come from, Texas?

#119 The Prophet Elijah on 06.05.13 at 1:33 pm

#110 broadway skytrain on 06.05.13 at 12:48 pm
the US needs MORE canadian oil every year, not less.

Canada bb/day ,thousands.

#120 Snowboid on 06.05.13 at 1:35 pm

#49 Mike T. on 06.04.13 at 11:39 pm…

It appears this development is on leased land – since they say there is no property transfer tax.

With the very low strata fees and no mention of the land lease fees I would be very, very cautious.

#121 Dr. Hoof - Hearted on 06.05.13 at 1:37 pm

#106 Old Man on 06.05.13 at 12:30 pm

#105 The Prophet – USA needs none of our oil or natural gas, and one day will disclose the ace they have hidden since the late 1970′s under a Presidential Order.


I agree.

Its all tied to the Middle East and the Petro Dollar

Alaska apparently has 200 years supply of known reserves. Whats up with that ?

Why do you think they took Saddam and Gaddafi down?
They wanted to break free of the OPEC BS and not be tied to the Petro Dollar.

Its all about supply and demand.

Every peak demand time you get some BS about this refinery X or Y or Z is down because the toilet paper holder broke, or the bosses Harley has low air in the tire…whatever.

Rockefeller figured it out years ago, the rest is history


Slight seguay on future jobs.

As TSHTF and more University Grads can’t find work, and that these degrees are as useful as $#%*…funny how they (Gov’t)are shifting to” Skills ie trades training”..creating more false hope and jobs for those that teach…using these pipeline pipedreams as the main bait/carrot.

#122 jess on 06.05.13 at 1:41 pm

bankers who threathen to leave great britain
some humour ….

#123 Ballingsford on 06.05.13 at 2:07 pm

#107 Student Investor
Great response Garth!

How come repairs to the unit from partying students isn’t being factored in? That would come to about 5 grand a year.

#124 Old Man on 06.05.13 at 2:09 pm

#107 Student Investor – Guelph is not Toronto, but can blow you away with a dorm cost. So how about a AAA location in an 18 storey modern building with the same format beside the subway in a prime location? Lets look at a double room 15′ x 10′ that even includes free internet access at $450.00 each with a pantry and a small fridge. This includes a huge common kitchen area with several bathrooms, and a large laundry facility on the 18th floor. Hey, just beside the subway too, so never knock Toronto the good.

#125 angela on 06.05.13 at 2:11 pm

All this is helped along immeasurably by the condo hucksters’ completely-legal ability to mislead, deceive and misstate.-Garth
lol Garth that sounds like you about the markets because we all know the stock markets only ever go up, dont you think perhaps its time to cash in, you know sell high buy low

Did you read this? — Garth

#126 Doug in London on 06.05.13 at 2:19 pm

@NFN_NLN, post #5:
Garth: Yes, I see that CPD and XPF are on sale this week. This is great news for buyers looking for a bargain, but why would anyone sell these shares at such a reduced price? Aren’t preferred shares a practically guaranteed payout of dividends? If a company is experiencing financial difficulties won’t they cut common share dividends before even anyone even thinks about cutting preferred share dividends?

#127 Chris on 06.05.13 at 2:35 pm

Hey Garth,

Judging from this report, it looks look like most homeowners have a lot of equity in their home. And the percentage of high ratio loans are low.

#128 Sebee on 06.05.13 at 2:40 pm


Everything you say makes sense. Your logic cannot be argued.
“Realtors, please don’t report foreclosures”
“Media, pump it up!”
“Boards, fudge number and put some HPI in those Kias”
“Condo pedalers, claim 40% returns.”
“F, 40 years, 0% down, then ‘fix it'”
“BoC – hold rates”

Can’t we at least agree the crazy lengths they will go to, in order to hold this market together? Your logic applies to free market, and this market is as free as those girls in that Ohio basement, and there is no Charles Ramsey coming to the rescue. All the parties that have a stake in this distorted market, well, they eat ribs together.

#129 Spiltbongwater on 06.05.13 at 2:46 pm

Is that social housing in Calgary waterfront? If not, then the paupers in Cowtown are better off moving to Van. and seeking waterfront social housing in the Olympic village. Who says you cannot be poor and enjoy a view from your balconey.

#130 Tom Vu on 06.05.13 at 2:54 pm

Future condos !!!

Asian ingenuity !!!!

#131 Old Man on 06.05.13 at 2:58 pm

#118 The Prophet – better get a new gig, as does February 20, 1959 ring a bell? This is when Canada had manufactured the best fighter jet in North America and perhaps the world called the Avro Arrow. So USA made us destroy everything, and 30,000 people were out of work directly and indirectly. A secret deal was made, as USA told us what we had to do. Well dozens of the best engineers in Canada were out of work, so went to NASA for employment. The best kept secret is that it was Canadians who made the first moon landing possible, as they had all the senior positions; the brains; and knowledge to make it happen. This is called hidden history that we are not allowed to know about.

#132 Canadian Watchdog on 06.05.13 at 3:03 pm

#91 Sunny

Just saw the month of May sales from TREB. There is no crashing market as this blog asserts. Now we know who the greater fool is.

Yep. No crashing market until you consolidate new and resale data like the rest of the developed world. Here's a page from one Hong Kong government agency, that like every institutional and analyst report compares new and resale data (shown as primary and secondary). Why is comparing two markets important? Because while it appears that resale is stabilizing, the reality is, some demand from new homes has shifted to resales that are currently being reduced. As a whole, GTA along with every other major city in Canada continues to decline, and that means trouble ahead, especially for developers and builders.

Canada has a serious RE statistics disclosure problem that needs to be addressed before more idiots jump in this market thinking it's safe. It's not. Unfortunately, nothing is likely to change until something dire happens. Hong Kong learned this in 1997 after adopting the shadow presale system a few years earlier. At that time, new inventory was being snapped up by speculators, taking supply away from end users, which caused resale prices to surge. Then this happened without any notice.

You're not gong to see a crashing market in prices yet because of the way it's reported. What you will see first is problems in new housing and lending, such as lenders scaling back on developer loans, builders going bankrupt, lawsuits relating to presales, etc. Eventually it becomes so dire that the data nor any headline can hide reality.

Until then, we're running on borrowed times.

#133 Dr. Hoof - Hearted on 06.05.13 at 3:19 pm

” Living small isn’t what it’s cracked up to be”

Take it from me, eco-density is not all it’s cracked up to be. After years of single-family ownership in North Vancouver, my wife and I downsized last year and moved into a nearby condo.

Though much less spacious than the Coal Harbour condo that’s just sold for a cool $25 million, our one-bedroom-and-a-den is in a well-run complex with beautiful views and generally friendly inhabitants.

It’s far cheaper to maintain than any detached house I’ve lived in, except possibly the Alaska Highway cabin I once called home.

But there’s a downside: a distinct lack of elbow room. I can’t help feeling, well, a bit like a battery hen.

Not that I have anything against being frugal and making do with less. Folks have had to do that for ages. The big difference now, though, is we’ve allowed ourselves to be brainwashed into thinking it’s the righteous thing to do.

Living small has replaced living large as the bicycle path to salvation. And it doesn’t seem to matter what kind of shoebox you live in, as long as it’s “eco-friendly.”


But if micro-living is so good for us, why is it that environmental crusaders like Vancouver Mayor Gregor Robertson, David Suzuki and Al Gore, who deliver stern lectures to people about the need to reduce their carbon footprints, all own large detached homes?

Why aren’t they shoehorning themselves into tight, little eco-friendly boxes? Could it be that they know something about humans – especially those with children – functioning best when they have ample space?

No wonder veteran city-hall watchers like Vancouver lawyer Jonathan Baker have become so skeptical about the whole notion of eco-density.

Baker, who recently joined the revived TEAM civic party, told me he believes the ruling Vision Vancouver council is misusing its green ideology to ram through projects that are both environmentally doubtful and neighbourhood unfriendly.

No, whether you live in a small or large home, the best way to live is one that’s true to yourself – not the way others want you to, especially those who don’t practise what they preach.


Jonathan Baker is a municipal lawyer and ex COV Councillor…good common- sense no BS guy.

Like any decent magician, the aim is to distract the audience, in this case green metro tree-hugger leftie ret*rds to feel bad and thus live like a caged animal ,which is exactly what Gov’t wants.

Environmentalism ? = C-O-N-T-R-O-L! ..get it?

“Bad Leftie…. Bad leftie …..back in cage”…as the Cadillac Commies ROTFLAO

#134 Ballingsford on 06.05.13 at 3:30 pm

Garth, the link you provided at #125 is broken or someone removed it. What was it about?

#135 Devore on 06.05.13 at 3:44 pm

#72 Bigrider

Ignoring principle reduction on a rental property mortgage, when calculating a total return on investment, regardless of how you choose to label such reduction for tax purposes or other, is just plain wrong.

Isn’t it just analogous to return of capital, basically? If you borrow a bunch of money, and pay yourself a sum every month, is that counted as an investment return?

#136 An Cat Dubh on 06.05.13 at 4:15 pm

Good news lower mainland residents. You no longer have the most expensive gas in BC. The Okanagan and Prince Rupert area are more expen$ive even without transit taxes etc.
Then they want people to visit BC. I say boycott BC or don’t buy gas there if you can avoid it.Especially the Brokanagan.
Take heart your real estate is still the most pricey.

#137 RWZ on 06.05.13 at 4:26 pm

That “attainable homes” thing made me significantly angrier than almost all of the stories I’ve been reading on here in the past year.

#138 Mike2 on 06.05.13 at 4:49 pm

Our recent REIT “buying opportunity” is like catching a falling knife. Holding has been painful. “Rebalancing my portfolio” will soon look like selling stocks to buy more REITs in my shrinking pie.

Oh well. I’m out of ideas in this economy. Nowhere to shove money.

The analysts seem to be conflicted. REITs will be up because commercial vacancies will be down in a solid economy.. but interest rates going up eat their bottom line? What gives? I feel like I’m leveraging *in* to the housing bubble. My portfolio will be trashed before any buying opportunities appear.

Any comments on REM and what it is? Why it’s earned so well the past few years, and why it’s been beaten so hard the past few days? I thought I understood it, but now I’m quite sure I don’t.

#139 Piccaso on 06.05.13 at 4:51 pm

Canadian housing market among most overvalued in the world: OECD

#140 sickofbc on 06.05.13 at 5:10 pm

Canadian homes among most overvalued in the world
OECD report ranks Canadian real estate 3rd-most overvalued among developed countries.

#141 Timmy the Greek on 06.05.13 at 5:12 pm

UWinsome: Could you please give me an idea of what percentage the average portfolio, that you manage, gained last year and has averaged over the long haul.

Garth: You couldn’t handle it. — Garth

Notice that he didn’t say that the results were so ** good *** that you couldn’t handle them.

This is not a blog devoted to my business interests. Buzz off. — Garth

#142 mortgagebrokeron on 06.05.13 at 5:26 pm

I live out near ancaster / hamilton area

I still just get this feeling that Garth is right, housing is overvalued out here too.

The new fresh meat is barely qualifying to purchase into the market.

Yesterday i got lenders emailing me that cmhc is limiting again who can purchase into the gta and gva condo market, you must now have a 720 beacon score.

And the stated income program is suspended at various lenders right now.

The government is whittling down how much mortgage people can qualify for.

I believe a 15% – 20% general correction in the price of real estate in this area is going to happen over the next 3-5 years.

This is why I sold my home a year and a half ago , and will rent and continuing investing until it makes sense to get back in the market

Thanks Garth for writing down what is just common sense

#143 Overvalued in Canada on 06.05.13 at 5:38 pm

Chart depicts that Canada has the highest price to rent ratio in the world right now:

#144 jess on 06.05.13 at 5:45 pm

…”87-year-old Jackie Goldberg, a real estate investor and mother of four, who holds a masters in accounting and is a current resident of the Trump Tower, also bought two hotel units for about a million a piece. She put about a half-million down and now wants that money back, plus damages. She is accusing Trump of changing the deal….Goldberg says promises of profit-sharing were reneged on by Trump’s company after she bought and she’s the victim of a classic bait and switch. She claims Trump’s fame and real estate success were part of the sales pitch and that trump himself was “the decider

Read more:

#145 Bargains everywhere on 06.05.13 at 5:47 pm

I always enjoy the insightful comments by Canadian Watchdog and Ralph Cramdown. Have you guys ever thought of starting your own blogs?

#146 Dr. Hoof - Hearted on 06.05.13 at 6:09 pm

#131 Old Man on 06.05.13 at 2:58 pm

The best kept secret is that it was Canadians who made the first moon landing possible,….


C’mon…..the Moon Landing was a hoax, one of the best of the 20th century.

Like the military Industrial complex, it sucked the taxpayers dry.

Lots of information available to debunk it.

#147 observer on 06.05.13 at 6:12 pm

Talking about price appreciation

Looked at the latest price drops in vancouver.
It looks like prices of 1013 has fallen back to 2010 prices now. So If you were a fool and bought in 2011. You would of gotten a huge spankin!

Were talking about losing several 100,000 on your investment, probably more than you 0 or 5% down payment since everything in those areas went completely nuts and all sold for over a million or 2 /3 ..

Wonder how their balance sheets look like now. Maybe they feel like it showering Napon on their head.

I was wandering down in the broadway / burrard to main street area just this weekend. the streets are completely dead. Lots and Lots of empty parking meter. Lots of complaints from shop owner. And many threw in the towel already. You can totally what used to be the heart of vancouver is being ripped out and transpanted in other areas. The fools who bought in those area’s will soon feel the heat

#148 Shawn on 06.05.13 at 6:29 pm


Devore asks:

Isn’t it (the principle payments added back to cash as a return) just analogous to return of capital, basically?


No, it’s not. Retturn of capital is when you add a deprecaition expense that is real to net income. Or its when a dividends exceeds net income. Then cash to you exceeds net income of the asset but some of it is return of your own equity. Your equity declines.

In our example the equity is flat or grows. The assumption being hat any physical depreciation does not turn into financial loss of value as the value of the property stays flat (or grows by 5% for total annual ROI)

And Devore asks:

If you borrow a bunch of money, and pay yourself a sum every month, is that counted as an investment return?


No, you are right it is not a return. But that is NOT what is happening here.

Here a cashflow was calculated as rent minus cash outlflow, where cash outflow included repayment of principal. To get back to return one had to add back the repayment of loan which is not an expense.

Others ask why REITS go down as interest rates rise if REIT distribution is safe.


Same reason that bond values automatically fall when interest rates rise. a $1.00 dividend to be received in one year is worth ever closer to a dollar as interest rates approach zero and is worth less and less as interest rates rise. With true hyperinflation a dollar to be received in a year is worthless in the limit.

#149 TakingResponsibility on 06.05.13 at 6:33 pm

Oh. Calgary. Not just lost the way – totally lost.

Taxpayers footing down payment monies for middle income / or low income / or high income housing is just … just incredibly stupid.

Do Calgarians actually think that Taxpayers monies in the form of a down payment along with Taxpayers monies insuring the Banks (Genworth/CMHC) create more affordable and stable housing??

I can’t believe that all those suits on Attainable Homes Board and all those suits representing their Partners believe this sort of Lemon Socialism creates affordable homes.

They can’t be that stupid.

There must be more to the story. Corruption, perhaps? Whatever happened with the Developers Taking Over City Council story?

I would say Developers have already taken over……haha! Get the taxpayers to pay the kickbacks in the form of a down payment. And, get the taxpayers to insure in the form of CMHC/Genworth. Lemon Socialism creates Corruption.

The question is …. Who is really taking on Risk in non-recourse Alberta?

And, the flip side question is….Who is Not taking on Risk?
Developers. Banks. You, know, the other ‘Partners’…

Tax Payers should be pissed.

#150 Herb on 06.05.13 at 7:02 pm

#147 Dr. Hoof – Hearted,

“Lots of information available to debunk it.”

Any of it good?

#151 Herb on 06.05.13 at 7:07 pm

#150 Dr. Hoof – Hearted,

“Lemon socialism” – as in privatize profits, sozialize risk?

#152 calgarytran on 06.05.13 at 7:10 pm

Canadian housing market among most overvalued in the world: OECD

#153 Nemesis on 06.05.13 at 7:23 pm

“GDP growth 2.5%. Some figment.” — Garth

I say, OldPol… Tell you what… If you stump for the Dancers at that StuffyeOlde BayStreet Gentlemen’sClub… I’ll sport the SingleMalts and wax poetic on Ricardian BaBaLu Accounting&Statistical chicanery.


#154 JuliaS on 06.05.13 at 7:33 pm

HAM coming to Seattle!

They aren’t different after all (Seattle realtors that is).

#155 happity on 06.05.13 at 7:52 pm

The picture is simple:
– drop interest rates to lowest level in man’s history
– get everyone into a house they can’t afford
– QE to nth degree
– food and gas keeps rising
– more taxes and austerity
– housing prices go down, a lot, timeframe irrelevant when 50% plus living paycheck to paycheck
– central and national banks scoop houses at bargain prices
– banking system collapses
– no worries, bail in party all around, one financial entity to rule them all and in the darkness bind them to debt for life

#156 EXILLED on 06.05.13 at 8:26 pm

Mr Turner : Looks like Taylor Swift got stood up again!

No worries. I’ll call her again. — Garth

#157 TurnerNation on 06.05.13 at 8:57 pm

Today we got good bang, for our moderating buck.
I see our forum host has rolled out some good truck.
Weblog is gleaming.

#158 Daisy Mae on 06.05.13 at 9:08 pm

CBC: “Police are warning renters to be careful when looking for apartments after a woman lost $6,000 in a fake landlord scam in Vancouver.”

#159 Al on 06.05.13 at 9:20 pm

Nice Picture Garth ! Wonder if they stayed married.

#160 Peter on 06.05.13 at 9:40 pm

to Herb #92

Hi Herb, I do add all the income and subtract the expenses and add the difference to my income, but the expense from the monthly mortgage only subtracts the interest portion of the loan , not the principle paid. For some years I only made the principle paid down , no extra cash flow, but I still had to pay tax on the portion I paid down, and I can pull equity upon renewal if I choose . I do not do the taxes so I cant give you the tax lines you asked for, sorry , I hope I cleared it up a bit , take care ps.. I do understand Capital Cost and I have an accounting company that submitted my taxes properly. My rate of return has always been tremendous (different time tho) but I always added the principle paid down into MY initial investment (original deposit) to calculate it .

#161 Paul on 06.06.13 at 1:57 am

The principal paydown is merely a by-product of the assumed rental income less the assumed expenses. The investor could have an interest only LoC and be re-investing the excess cash flow in Garths Model Portfolio to diversify. So Garth is correct the principal paydown itself is not causing the return, it is a by-product of the return. The bigger issue is the very favourable assumptions.

#162 Doug in London on 06.06.13 at 10:58 am

Garth said: while I personally do not worry that a housing correction will make any bank insolvent, lesser men do.
Let’s hope there are enough of those lesser men who panic and cause a selloff of bank shares. I’m eagerly waiting for XFN to go on sale for even cheaper than it has been selling for the last few days!

#163 Old Man on 06.06.13 at 12:04 pm

Now if the powers to be want to raise the insurance limits on bank deposits it is all a trap for the herd mentality; there is something afoot. There is an effort being made to con the public to increase bank reserves into worthless GIC’s, Term Deposits, and the so-called high interest Saving Accounts.

These deposits will be rolled into personal loans, car loans, or whatever for a very nice spread. The interest earned is fully taxable, and the suckers will end up with a negative return on capital in the end. But it will all be insured – nonsense, as there is not enough money in this Crown Corporation to cover a default, so now what?

Why not take this capital to buy a preferred share instead with the major bank of your choice, or spread the capital out with several major banks with a coupon yield of about 5%, and hoop the dividend tax credit as a bonus? Give this all some thought, or you too will become the greater fool in the end.

#164 dradak1 on 06.06.13 at 9:29 pm

#103 young & foolish on 06.05.13 at 11:55 am

“If I use $50K to secure an income property which is cash flow positive, say 5%, for a yearly return of $2500 does it matter if the property devalues by, say15%?”

You are gaining 5% on $50K and loosing 15% on ~$300K (approx value of condos in article).