Toronto's economy and real estate: How much does one affect the other?

[cornflakes]

Some of you may have heard about the economic collapse that is bound to happen very soon in America as a result of their endless printing of currency and the growing debt. Fiat currencies have ALWAYS failed and it's not a matter if IF but WHEN the US Dollar will come crashing down, too. This would obviously have a global affect since the world's currency is pretty much the US dollar, but I'd imagine Canada, being neighbours, would be affected even greater and faster.

My question is, if there is an economic collapse that hits the US in either the end of 2015 or next year in 2016, does that mean that Toronto's economy would also go into recession or the greatest depression we've ever seen? And if so, will that directly affect the real estate industry in Toronto (meaning, real estate values will crumble, and people could lose all sorts of value on their houses, assets, etc.)?

If this is true, then would it also be true that any prospective investors who are thinking about putting down some serious money for a condo investment this year or next year, are better off holding out and waiting until the crash happens? Then when the real estate is dirt cheap, that would be the best time to start buying condos or houses? From my understanding, the rich get richer during economic collapses and depressions, because that's when they scoop everything up for dirt cheap prices and low interest rates. The poor get poorer because they panic and sell everything off for a loss when things get bad. But the market always rebounds and value always comes back up.

Right now, I've been told that Toronto's condo market is booming and it's looking really good, trending upwards. It seems like nothing can really stop this momentum EXCEPT the worst case scenario which is a worldwide economic depression thanks to the US economic crash. So, wouldn't that directly affect Toronto, as well? Then we had better not invest 300k for a condo unit right now because it might only be worth 150k after the economic crash?

Please feel free to correct my misinformed or misguided beliefs. Just try to explain in some detail why my assumptions are not correct, so that maybe I can learn something that I don't currently know. AFAIK, this is exactly how it works: economic depression = real estate bubble burst = lower real estate value = best time to buy = market will rebound and value will eventually go back up and even higher than before the crash = that's how you make big money and get rich.

Thanks.

 

[rbt]

My question is, if there is an economic collapse that hits the US in either the end of 2015 or next year in 2016, does that mean that Toronto's economy would also go into recession or the greatest depression we've ever seen? And if so, will that directly affect the real estate industry in Toronto (meaning, real estate values will crumble, and people could lose all sorts of value on their houses, assets, etc.)?

A collapse of the United States and devaluing of their currency (see Russia in the early 90's) would have massive impact to Canada if for no reason than most of us have a huge amount of wealth directly tied to the US economy (personal investments, pension plans, even CPP holds US equities).

I think it's safe to say that you should not rely on anything which has monetary value holding that, or any, value through a US collapse.

Some of you may have heard about the economic collapse that is bound to happen very soon in America as a result of their endless printing of currency and the growing debt.

Very soon? Greece and Japan are both far worse off than the USA and neither of them is close to economic collapse. Greece might get kicked out of the Euro and be forced to stop borrowing but that's about the worst of it; due to their black market it's official unemployment numbers do not reflect reality. Japan seems content to chug along for another few decades without any changes at all.

Here's the indicator: when the world struggles money rushes into the USA for safety. You don't run towards instability when you expect problems are ahead. So, the vast majority of people in control of large amounts of money believe the USA is the LEAST LIKELY country for economic collapse to occur.

If we ever hit $2 CAD per $1 USD and that trend isn't turning back; then it's time to get worried.

As it is, the USA could solve most of their government funding issues by creating a 2% federal sales tax. They choose not to; but it is still a choice they have since their creditors have zero concern about getting their money back (see extremely low T-Bill rates).

 

[TheKingEast]

lol. you woke up with this on the mind, huh?

 

[cornflakes]

A collapse of the United States and devaluing of their currency (see Russia in the early 90's) would have massive impact to Canada if for no reason than most of us have a huge amount of wealth directly tied to the US economy (personal investments, pension plans, even CPP holds US equities).

I think it's safe to say that you should not rely on anything which has monetary value holding that, or any, value through a US collapse.



Very soon? Greece and Japan are both far worse off than the USA and neither of them is close to economic collapse. Greece might get kicked out of the Euro and be forced to stop borrowing but that's about the worst of it; due to their black market it's official unemployment numbers do not reflect reality. Japan seems content to chug along for another few decades without any changes at all.

Here's the indicator: when the world struggles money rushes into the USA for safety. You don't run towards instability when you expect problems are ahead. So, the vast majority of people in control of large amounts of money believe the USA is the LEAST LIKELY country for economic collapse to occur.

If we ever hit $2 CAD per $1 USD and that trend isn't turning back; then it's time to get worried.

As it is, the USA could solve most of their government funding issues by creating a 2% federal sales tax. They choose not to; but it is still a choice they have since their creditors have zero concern about getting their money back (see extremely low T-Bill rates).

Could you please explain why you believe the US is least likely to face an economic collapse? You said that when countries face instability, they tend to run towards stability and so they are rushing money into the US. I've heard both sides now. Some said that the US is most profitable and safest place to invest your money into and the USD is the same thing (safest and most profitable), but haven't they also been saying that money is leaving the US fast? Of course I don't know for sure who exactly knows what they are saying, and what is the real truth, but I've heard people saying how big time investors and companies have been quietly selling off their USD and US assets and trying to put it elsewhere, while the mainstream media keeps telling us that we should continue to invest and put our trust in the USD. Maybe what you are saying is that considering how unstable most of the world's economies are, the US included, the US is still the best bet to invest in and have confidence in. That must be why they are saying that if the US/USD collapses, pretty much the whole world will go into a collapse.

And what about the ridiculous debt the US continues to rack up and the endless fiat money they keep printing? Isn't that something to be worried about or are you saying that this can continue to go on for another few decades so we should have nothing to worry about right now?

 

[NorthYorkEd]

Isn't that something to be worried about or are you saying that this can continue to go on for another few decades so we should have nothing to worry about right now?

We should always be worried. We're due for another major wealth swindle, similar to 2008, where the elites basically rode off into the sunset with billions of the peasantry's retirement funds and savings. Has anyone of consequence ever been held accountable for this blatant fraud against the common people? Nope. In fact, many of the accused helped themselves to billions more of the "bailout" funds provided by complicit government officials, sourced (of course) by the taxpayer. Classic double-dip. They sit back, light their fat cigars, and laugh at our powerlessness.

Now we've seen household debt skyrocket over the past decade as people are manipulated into borrowing, borrowing, borrowing, to get iPads, iPhones, trips to Cuba, high-end retail items, and yes, overpriced and overvalued housing. Enticed by cheap rates and the rush of the herd, most people have piled on debt without a second thought, so long as their monthly payment can be reasonably met. For now.

The long-term interest costs of this type of lifestyle is staggering. But once a population is completely indebted, they are enslaved. We are all like frogs in a slowly boiling pot of water. Once we realize what is happening, it's already too late. They've convinced us that debt = wealth, and housing has played a large part in it. You can't eat bricks, you can't eat a Coach bag, and that ruddy old dump you are overbidding on to beat 10 other buyers is likely going to consume every cent you will ever have once you discover the asbestos, faulty wiring, leaking toilet, sinking foundation, and termite-infested walls.

True wealth is in being debt free, while saving and investing whatever is left over after the essential needs and (reasonable) wants are met.

 

[Mislav]

Now we've seen household debt skyrocket over the past decade as people are manipulated into borrowing, borrowing, borrowing, to get iPads, iPhones, trips to Cuba, high-end retail items, and yes, overpriced and overvalued housing. Enticed by cheap rates and the rush of the herd, most people have piled on debt without a second thought, so long as their monthly payment can be reasonably met. For now.

I've never understood how people sleep at night while in debt with depreciating assets. Housing, on the other hand, appreciates in the long run but I agree with you it's extremely overpriced, not just in Canada but worldwide.

cornflakes - It's extremely difficult to predict when the real estate market in Toronto will crash. Back in 2008-2010 people were expecting a huge correction because of the great recession and what was going on in the States. Nonetheless it never really happened. I'm just thankful that I was bold enough to buy stocks during that period since they were dirt cheap. I don't know how old you are or how long you've been analyzing stock or real estate markets but when the crash does happen there will be a lot pessimism and doom and gloom predictions by the media, so called pundits/experts and even your friends. I speak from experience since back in 2008/09 everybody was saying how we were on the verge of a great depression and you shouldn't buy anything since there's no telling how low the market will go.

As for whether or not you should buy a property in Toronto. Look at this way, if you live in Toronto you need to live somewhere in the city. By this mean unless you're living with your folks, you'll need to either rent or buy. If rent costs you $1,200 a month and a 25-year mortgage of a similar place with let's say a 25 % down-payment costs you $2,000+ a month then it's probably better to rent. But then again if you just want to buy an investment property then it's probably better to wait for the crash (no telling when that will happen) and then buy it in cash if you can and interest rates are high.

 

[riffraff]

cornflakes, as with any problem, the solutions you come up with will depend on the questions you ask to frame the issue. Are you asking if something like the 2008 Crash can happen again, since the banksters all claimed No One Saw It Coming even tho it was largely their doing then maybe they won't foresee it happening again. Since nothing has been done to prevent it happening again, and since we all jumped in and bailed them out we should perhaps be asking someone other than the bankers and the real estate industry insiders, and the pundits.

You don't say much about your own situation. Do you have a "good" income? Is your employment "secure" (is anybody's)? Are you looking for a place to live, or looking at a purchase solely as an investment? What's your current debt-load? Could you reduce some of your current expenses. like transportation/commuting, by moving? Then there's the intangibles like quality of life, however you define that for yourself.

Rental has its risks - rents are high because very little new "stock" has been produced for decades, so many renters are renting condos. The condo owner retains the "property asset" and can manage it as an investment like any other commodity. Foreign investment companies are buying up older existing rental buildings in Toronto and other cities around the world, evicting existing tenants. fixing up the units and renting them to new tenants at much higher rents. Tenant protection has been steadily eroded and there's very little security of tenure left.

How are you going to finance the purchase? Are you using "new" money (an inheritance, or other infusion of cash) or savings, or liquidating other forms of investments which may be more risky in the current economic environment as well as in the long-term?

Have you looked historically at the local market? Like any investment the advice would be to hang on, retain the (in this case a physical) asset and let the market "bounce back". Returns on "real property" in an established market like Toronto tend to do better over time than other commodity markets.

And finally, who are you getting your advice from - not just us I hope! I'd suggest you consult a Credit Union. They'll be less high-pressure and provide more information than the banks and can look at your banking and financial options in a more wholistic way.

For what its worth, based on my homeownership experience.

 

[rbt]

Could you please explain why you believe the US is least likely to face an economic collapse?

That's not my opinion. It's the opinion of their creditors who loaned the USA trillions and respond rapidly to give them more at all opportunities, even (perhaps especially) during 2008 through 2010.

Countries which are considered to be struggling, which included Canada in the '90's have much much higher interest rates.

 

[cornflakes]

We should always be worried. We're due for another major wealth swindle, similar to 2008, where the elites basically rode off into the sunset with billions of the peasantry's retirement funds and savings. Has anyone of consequence ever been held accountable for this blatant fraud against the common people? Nope. In fact, many of the accused helped themselves to billions more of the "bailout" funds provided by complicit government officials, sourced (of course) by the taxpayer. Classic double-dip. They sit back, light their fat cigars, and laugh at our powerlessness.

Now we've seen household debt skyrocket over the past decade as people are manipulated into borrowing, borrowing, borrowing, to get iPads, iPhones, trips to Cuba, high-end retail items, and yes, overpriced and overvalued housing. Enticed by cheap rates and the rush of the herd, most people have piled on debt without a second thought, so long as their monthly payment can be reasonably met. For now.

The long-term interest costs of this type of lifestyle is staggering. But once a population is completely indebted, they are enslaved. We are all like frogs in a slowly boiling pot of water. Once we realize what is happening, it's already too late. They've convinced us that debt = wealth, and housing has played a large part in it. You can't eat bricks, you can't eat a Coach bag, and that ruddy old dump you are overbidding on to beat 10 other buyers is likely going to consume every cent you will ever have once you discover the asbestos, faulty wiring, leaking toilet, sinking foundation, and termite-infested walls.

True wealth is in being debt free, while saving and investing whatever is left over after the essential needs and (reasonable) wants are met.

Thanks again for the response. I liked some of the things you wrote even though I don't think I fully understood it all. I'm not sure how the "rich" swindle and take off with billions of people's retirement funds and savings. I wish I knew more details of exactly how this happens or works and why nothing is really being done about it? Is it simply because too many people (like myself) just don't know or understand, so we pretty much play into their "game"?

It was interesting that you mentioned that people borrow, borrow, borrow and get into debt. But I asked earlier on what some of you thought of Robert Kiyosaki's lessons? He mentions how there is good debt and bad debt. You listed mostly the bad debt that gets people into trouble (iphones, vacations to cuba, high end retail items etc). But he says that good debt is when you borrow money from the banks, invest in real estate, have others pay off the mortgage for you, while at the same time the land appreciates (it is almost a constant that land always appreciates, even if it dips, it's still going to go back up and up). He says that if you have good debt, and the dollar crashes or the economy plunges, you actually get richer because of the good debt.

I'm just wondering if you are familiar with his materials and what you think about it?

 

[cornflakes]

I've never understood how people sleep at night while in debt with depreciating assets. Housing, on the other hand, appreciates in the long run but I agree with you it's extremely overpriced, not just in Canada but worldwide.

cornflakes - It's extremely difficult to predict when the real estate market in Toronto will crash. Back in 2008-2010 people were expecting a huge correction because of the great recession and what was going on in the States. Nonetheless it never really happened. I'm just thankful that I was bold enough to buy stocks during that period since they were dirt cheap. I don't know how old you are or how long you've been analyzing stock or real estate markets but when the crash does happen there will be a lot pessimism and doom and gloom predictions by the media, so called pundits/experts and even your friends. I speak from experience since back in 2008/09 everybody was saying how we were on the verge of a great depression and you shouldn't buy anything since there's no telling how low the market will go.

As for whether or not you should buy a property in Toronto. Look at this way, if you live in Toronto you need to live somewhere in the city. By this mean unless you're living with your folks, you'll need to either rent or buy. If rent costs you $1,200 a month and a 25-year mortgage of a similar place with let's say a 25 % down-payment costs you $2,000+ a month then it's probably better to rent. But then again if you just want to buy an investment property then it's probably better to wait for the crash (no telling when that will happen) and then buy it in cash if you can and interest rates are high.

Yes I agree Mislav. I mentioned a bit earlier in my posts that my situation is sort of favorable right now in that I already have a place to live in (that my job provides for me free), so that's why investing in a condo seems like a great idea for me because I don't need to find another place to live or rent. It's as if though I'm going to live/own 2 places yet, I don't have to pay for either one of them (meaning monthly rent/mortgage). So that's why I was thinking as long as I have free housing, I think I should take advantage of this time in my life and start investing in another place. That way, is it correct for me to say that it's basically like I'm making 2 incomes (my current job and then the rent coming from my condo investment)? Even if there is little to no surplus from the rent, as long as they are paying off my mortgage for me, that's basically money I'm getting in the long-run anyways right? So for example, if I'm earning 3,000/month from my job and my renters are paying me 1,700/month for my condo unit, then it's like I'm earning 4,700/month right? (obviously I know that im putting most of that 1700 back into maintenance, mortgage, and taxes, but even still, the mortgage is being paid off for me).

Also, someone told me recently that the CRA changed the rules and you cannot just flip a condo anymore like you used to. So now, you MUST own/rent out the condo for at least 1 year before you can flip it for profit. Is that correct? So now, I can't just invest in a pre-sale condo for say 300k today, then in 5 years when it's done construction, flip it for 340k and pocket the 40k (minus whatever fees there are to pay)? It's not that easy anymore?

 

[cornflakes]

cornflakes, as with any problem, the solutions you come up with will depend on the questions you ask to frame the issue. Are you asking if something like the 2008 Crash can happen again, since the banksters all claimed No One Saw It Coming even tho it was largely their doing then maybe they won't foresee it happening again. Since nothing has been done to prevent it happening again, and since we all jumped in and bailed them out we should perhaps be asking someone other than the bankers and the real estate industry insiders, and the pundits.

You don't say much about your own situation. Do you have a "good" income? Is your employment "secure" (is anybody's)? Are you looking for a place to live, or looking at a purchase solely as an investment? What's your current debt-load? Could you reduce some of your current expenses. like transportation/commuting, by moving? Then there's the intangibles like quality of life, however you define that for yourself.

Rental has its risks - rents are high because very little new "stock" has been produced for decades, so many renters are renting condos. The condo owner retains the "property asset" and can manage it as an investment like any other commodity. Foreign investment companies are buying up older existing rental buildings in Toronto and other cities around the world, evicting existing tenants. fixing up the units and renting them to new tenants at much higher rents. Tenant protection has been steadily eroded and there's very little security of tenure left.

How are you going to finance the purchase? Are you using "new" money (an inheritance, or other infusion of cash) or savings, or liquidating other forms of investments which may be more risky in the current economic environment as well as in the long-term?

Have you looked historically at the local market? Like any investment the advice would be to hang on, retain the (in this case a physical) asset and let the market "bounce back". Returns on "real property" in an established market like Toronto tend to do better over time than other commodity markets.

And finally, who are you getting your advice from - not just us I hope! I'd suggest you consult a Credit Union. They'll be less high-pressure and provide more information than the banks and can look at your banking and financial options in a more wholistic way.

For what its worth, based on my homeownership experience.

Thanks, all great questions and things to know ahead of time for sure. I did sort of mention what I was looking for somewhere near the beginning of my posts (or maybe it was on another thread called, "Why North York is expensive...." something like that.

So to answer your questions: I'm only looking for an investment property right now. I don't need a place for myself. Right now I have about 100k saved up and I'm looking to do something with it other than just leaving it in savings account where it only grows about 2% a year. I heard that stagnant cash is bad...cash velocity is good. In another words, saving is actually losing money. Investing is what I'm learning is the way to go. Most of my information I'm gathering is from either local realtors or online real estate agents/companies in Toronto area, some from the responses here which have been very helpful so far, and also I've been watching as many videos on youtube about real estate investing, trying to sift through all the info and discerning which ones are sound advice and which ones are probably just clueless people. I've just started listening t a lot of Robert Kiyosaki's stuff, even though he's been around for a while, I never knew anything about what he did until just recently lol. So, I've been getting some good insights about real estate investing, but it's still mostly broad and general information, and getting down to the nitty gritty details, the pitfalls, the loopholes and tricks of the trade that I should watch out for etc., is what's tough to handle. Sometimes, we just have to learn from experience and fail, to learn faster for the next time.

So, I know that I'm not doing a smart thing by running around everywhere (facebook, youtube, forums, etc) telling people I have 100k to invest, but I just want to get as much information as I can to learn about investment options, and what might be best for me. I'm not thinking about my retirements savings right now. I'm actually more about how I can make this 100k work hard for me from now on. How can I be smarter with my money and make sure that it's going to work hard for me and earn money for me while I sleep, instead of the old fashion way of thinking which is, just work hard, give your time, and you get compensation in return. We have to think bigger than that in order to gain more wealth. It's not enough to just think linear and spend cash, get cash, and that's it. I need to know how to turn $1 in to 3, $3 in to 9 etc. I've always been a saver, and I've always been conditioned growing up to just save save save. But I'm realizing that it's not actually a smart thing to do. Saving is losing. Currency depreciates, inflation, etc all make your saved up money worth less in the long run. The secret to building wealth is not to save money, but to invest it over and over again. Cash velocity is the key. The faster the money is moving, the harder it is working. So I'm trying to learn how to make this fat wad of lazy money start doing some work for me. It's not A LOT of money I know, certainly nothing to retire on or anything like that, but it's enough money to get the ball rolling and start doing something with my life. I don't have any debt of any kind. In fact, I've never had any problems with debt. I'm not the kind of person who maxes out credit cards, and buys things I can't afford. So debt is not a problem for me at all. But now that I'm learning that good debt is good, I'm wondering, how can I get borrow and borrow more money to get myself into good debt? I heard that basically, banks won't loan you money for things like getting a car or wanting to buy some toys or go on a cruise. These are all liabilities. But if you ask them for a loan for investment property, I heard they will LOVE to give you money and LOTS of it. But you need to present to them a sound business plan. In other words, you have to show them that you are not an idiot and that you know what you are going to do with the money. So it's more about the financial statement than it is about other things. If I want to start a small business, a good business plan will get me a good loan I suppose. If I just say, I don't know what I'm doing but I want 150k to start a small business selling some products, they might look at me like I'm an idiot and reject.

So, the few things that I've been thinking about are: 1) investment property (condo), 2) start a small business or startup, 3) partner with someone like-minded who wants to start a business together or become an investor in a small company that I like and believe in? 4) buy some physical (gold and silver) but I heard that's mainly for insurance only, and not good for ROI, 5) invest in index funds and bonds at ratio of 80% index funds and 20% bonds at all time. If at the end of the year, the market went down and your bonds % is higher than the index %, you simply sell bonds and re-invest in index funds to get back to the 80-20 ratio. If the market did well, and your index funds are well over 80%, then you sell off the surplus and buy more bonds so that you are back to 80-20 ratio. This ensures that you will always be selling when the value is high, and buying when the value is low. Now, I've never tried this strategy yet, but it does sound reasonable to me if I went the index funds/bonds route.

How does that sound?

 

[Riverdale Rink Rat]

Also, someone told me recently that the CRA changed the rules and you cannot just flip a condo anymore like you used to. So now, you MUST own/rent out the condo for at least 1 year before you can flip it for profit. Is that correct? So now, I can't just invest in a pre-sale condo for say 300k today, then in 5 years when it's done construction, flip it for 340k and pocket the 40k (minus whatever fees there are to pay)? It's not that easy anymore?

You were never able to do that, cornflakes. What people are talking about -- and it's a long-standing rule -- is that you don't have to pay capital gains tax on the sale of your primary residence. In order for a pre-sale condo to be considered your primary residence, you need to take possession, move in, and live there for at least a year. Then you can sell for your $340k and keep the whole $40k. Otherwise, you can still sell, but you need to pay capital gains tax.

And -- you can't rent it out and claim the exemption when you sell it. You need to live in it yourself.

 

[cornflakes]

Aha, now I need to look up what a capital gains tax is.

 

[cornflakes]

Oh I see, it's a tax on profits. So how much capital gains tax are we looking at here? Let's use that example again. If I bought a place in 2016 for 300k, and when closing date arrives in 2020 and the place is now valued at 340k, how much CGT do I pay? 5k? 10k?

 

[Cooper]

"So, I know that I'm not doing a smart thing by running around everywhere (facebook, youtube, forums, etc) telling people I have 100k to invest, but I just want to get as much information as I can to learn about investment options, and what might be best for me. I'm not thinking about my retirements savings right now. I'm actually more about how I can make this 100k work hard for me from now on. How can I be smarter with my money and make sure that it's going to work hard for me and earn money for me while I sleep..."

Cornflakes, I think you should make an appointment with a good financial planner. You need to set some financial goals — it doesn't matter what they are, just so long as they are real goals — and build a plan to help you reach them. I may be wrong — and please correct if I am — but from your posts I don't get the sense your familiar with important concepts like asset mix, risk tolerance, opportunity cost etc. You're right in that $100K isn't the kind of money to set you up for life, but it sure is a lot to lose.