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Baby, we got a bubble!?

I probably should have typed ARE, but after thinking because I'm on the fence about everything and maybe AREN't was more appropriate... some Canadian's ARE really heavy in debt... 150% average household debt over average household income. That's like $145,000-ish per average household.. average income per household in Canada is approx. $90,000 x 1.5. But we... ARE talking average... so there's a probably a few million households that ARE really skewing the national average... that ARE really heavily in debt... but we aren't given that data. So the majority of Canada's have debt that is likely manageable, even with other average expenses... and there are probably Canadians without debt... but... austerity is coming... and what kinda effect is that going to have on the markets. Are we really too far in debt???... and where is the tipping point???... And are Canadians going to be able to continue to gouge on debt to pay for more things and stuff. I'm willing to be proven wrong... but I need clear data to tell me to change and alter my opinion... so I'm okay with inflation eating my investment, and letting some bank earn money off my money... rather than losing it... same with I'm okay with watching the price of houses and condos take off... because eventually.. that price will fall. Some random event is going to hit the Toronto downtown condo market. Whether it's something like SARS, or just a lack of demand from investors worldwide... because maybe Mr. (no-Gravy) Ford implements a non-resident foreign property tax rate, or worse rent controls. Or interest rate knock the wind out of the sales... or some other event has some unintended consequence which cluskerfucks everything... and we all eat humble pie.

If it consoles you at all, people just bought German bonds going out 6 months at -1% interest. Yes, that is right, people are so worried in Europe that German bunds were sold to investors which guaranteed to return them 99 Euro for every 100 invested.
This situation has occurred in other parts of the world in the past as well and briefly occurred in the US last year on Money Market funds but the banks lowered their commissions to make return of Money market funds 100% whole.

The fact that people are willing to lend the US government at 2% or under for 10 year money is a good indication that a fair amount of people share your concerns.
 
Don Campbell shares his prediction for 2012. I know he's not a popular guy here, but thought I would share in any event.

http://www.donrcampbell.com/2012-th...fect-environment-for-a-sophisticated-investor

Here is the article:

2012 is going to be a year of confusing economic signals, mixed real estate messages and fearful investors. In other words: the perfect environment for the sophisticated long-term real estate investor.

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

Using this approach is now more important than ever with the European debt crisis, turmoil continuing in the Middle East, a US government unable to solve their massive job loss problem and soaring world oil prices. In fact, never before have investors been faced with so many mixed signals.

We call this the Long Term Sustainable Market Indicator approach, a long name with a long history of correctly predicting real estate market trends. Here are five insights to ensure you cut through a lot of the confusion and take the sophisticated approach in 2012 and beyond:

#1 Ignore Real Estate Statistics

If you are trying to predict what is coming in the real estate market, don’t look at the real estate statistics – they only represent the past. That would be the equivalent of trying to drive across the city while only looking in the rear view mirror. A sophisticated investor understands that what is going to occur in the market is more important than what has already happened. Sounds simple, doesn’t it? Yet, people still allow monthly headlines to dictate how they invest and how they feel about their portfolios.

To accurately predict where the market is going, an investor must understand the basic principle of “No economic growth = no sustainable real estate market”. If you pay close attention to economic and population growth, you can accurately predict the direction of a real estate market 18 months in advance of its move. These are called the Key Drivers of a market.

The Sustainable Momentum Graph (below) shows the impact of economic activity on a real estate market.

In a nutshell this graphic states the following:

GDP growth = Job growth = Population growth = Job Growth = Population Growth = Increased rental demand (12 months later) = Increased rents = Property purchase demand (18 months later) which eventually leads to property price increases.

This cycle works in the opposite direction as well, over roughly the same time lines. Sustainable real estate price increases occur approximately 18 months after a region’s economy begins to grow and they drop approximately 18 months after the economy in a region begins to shrink.

As you can see, if you are only analyzing the real estate market using real estate numbers you are at least 18 months behind the sophisticated investor. Below is my most recent interview with BNN talking about these very points. Give it a watch to help you set up the rest of the article.


BNN: December 30, 2011

#2 Ignore National “Averages”

Using the Long Term Real Estate Formula is key; however, it is important to not try to predict your specific target region’s market using national numbers. For instance, it is impossible to predict Ottawa’s or Calgary’s real estate market when only looking at GDP or job stats for Canada as a whole. This is especially true when analyzing markets in countries with a large geographic size such as Canada, the US and Australia.

Averages Don’t Matter

Market averages are areas of confusion for most real estate investors. Real estate values are measured in various ways throughout the world, including averages, medians and other forms of indexes. Some of these measurements produce an inaccurate indication of what is actually happening to real estate values.

It is surprising how often less reliable data, such as averages or median sales prices, are quoted as a representation of what’s happening in a real estate market. These figures often present a distorted view of a market’s performance. For instance, when there is a disproportionately high level of sales activity of superior real estate in an area in a given period, it may appear that values in the whole region are increasing purely because the average and/or median price will look higher than it had previously. Prices as a whole may have actually decreased, but this may not be represented by the average or median figures.

The reverse is also true. A high level of sales activity of inferior or lower-priced real estate in the same area may indicate that overall values in the area are decreasing purely because the average and median sales prices are lower. In reality, that period may have been characterized by a few sales of higher priced real estate, so while the average and median figures indicate that values are declining, they may actually be increasing.

In order to cut through the confusing signals, it is important to look at your target city’s specific economics, rather than real estate market numbers. A great place to begin in 2012 would be to get answers to the following questions on your region:

1. Are long term jobs being brought into the region?
2. Is the unemployment rate dropping?
3. Is population growing with younger families?

Real estate investing involves a lot of variables, so minimizing your risk is imperative. The best offence is a good defence, and making sure you’re informed and on top of the latest trends and research is going to keep you ahead of the curve. Be proactive – get out there and find as much information on your target region as possible. This is going to give you the confidence to make the right decision when you need to.

#3 Be Aware of Key Influencers

Key Influencers differ from key drivers in that they often prove to have a shorter term, yet dramatic, impact on specific markets. These key influencers can confuse a real estate investor as they make it look like a boom or bust is occurring when it really isn’t. These influencers can be economic or government based.

For instance, the introduction of HST in BC and Ontario created mini-booms in new housing during the period between the announcement and the implementation as buyers tried to ‘avoid’ the new tax on their purchases. And now that BC has voted to remove the HST, the market is once again confused and there is a slow-down in new property purchases until the repeal.

A second influencer we are witnessing in some cities across the country is the ‘Canada as a Safe Haven’ trend. With world economic confusion occurring, investors large and small across the globe are parking their money in Canadian real estate and other assets. This influencer has pushed property demand beyond the true economic demand of the region, making it over-priced. How long this influencer will be in effect is more difficult to predict. However, as we have seen in the past, once the economic confusion begins to clear, a lot of this money will be repatriated to higher yield economies and when that happens, an increase in supply will hit these markets.

Remember: influencers push real estate markets outside of their predictable real estate cycles and can lead to a false sense of security to those investors who don’t understand that they are temporary.


#4 ALWAYS Invest Based on Cash Flow

Ensuring that your portfolio and each property within it creates positive cash flow from the beginning is extremely important in economic times like these. There is no telling what can happen when an unidentified market influencer hits your target market or one that is currently pushing your market goes away. The only way to ensure that you can hang on during dips in the market is to ensure that you are focusing on creating positive cash flow.

Many speculators whose only profit model is one where markets go up in value call themselves investors, which unfortunately is just not true. Investors focus on buying positive cash-flowing properties in areas of strong economic and job growth while considering the increase in value to be a bonus.

With a positive cash flow portfolio you can weather any storm, you can get additional bank financing for future investments and you can begin to replace your job income. If, on the other hand, you can only profit if the market goes up at the right time for you, then you have just added a substantial level of risk to your portfolio and in today’s market conditions, added risk is not a great choice to make.

#5 Invest Green – and I Don’t Mean Eco!

There is a lot of talk about “Going Green” these days, but when I say that you should invest “Green” I don’t mean buying a property and outfitting it with solar panels. What I am talking about is identifying how one specific green choice being made across Canada by your future tenants and buyers can dramatically increase the value of your property. If you want to own in an area that will increase in value, or increase in rents – upwards of 15% faster than similar properties in your region – then it must be in an area where major transportation changes are taking place. In fact, over the next 5 years, this demand trend will increase more quickly than it has in the last decade, providing you a unique opportunity.

Knowing this fact, we have completed an extensive analysis of transportation changes implemented in regions across North America and Europe. These peer-reviewed journal articles provide us with a snapshot of what we can expect in terms of the impact on real estate prices by major transportation improvements. The findings are quite remarkable for real estate investors.

As fuel prices continue to rise, commute times, commute costs and accessibility to job centres become key determinants for potential home buyers and renters. Residents now measure their commute distances in minutes, not kilometres, a process that leads to higher demand for properties that are located farther from their jobs in distance, yet closer in terms of commute time. Combine this fact with a larger cohort of people choosing to use transit for ‘green’ purposes and you have a dramatic increase in demand around rail and light rail stations.

In Canada, we have just surpassed a record number of people riding public transit and this positive trend has increased at an even faster rate than first expected. This increase in demand is beginning to provide property owners who own within 800 metres of a rail based transportation station an increase in value of 15% more than similar properties outside of this zone. This is also proving to be true with rents, as 2-bedroom apartments are shown to be renting for over 16% above similar units in the same city.

This is a trend that will continue no matter what the economic conditions are. To conclude, buying near a transit hub is the equivalent to playing both offence and defence with your real estate portfolio. You can have free access to our research on the effects of transportation changes on housing values for many major centers across Canada at the following link:

http://myreinspace.com/downloads/research_reports/m/research_reports/default.aspx

Conclusion

As I have emphasized many times over the last 20 years, it is great being a strategic investor during boom times, but it is critical to be a strategic investor during confusing economic times.

As we enter 2012 it is important to remember the 5 Insights above but to also remember that strategic investors always think and plan long term. For the long term investor, there are no other real estate markets in the world with the resilience of key Canadian real estate markets. It will not be a straight line – we will be influenced by what goes on elsewhere in the world. The position in which we sit as a country is quite remarkable.

Currently, during the economic turmoil, we are a safe haven for capital and investment which supports our economy. When the economic turmoil begins to disappear over the next decade, we will then step in to being the safe and secure supplier of the 4 key commodities the world will need during its recovery. Each of these commodities will bring strong job growth to specific regions of our country and, as you read in Insight #1 above, these jobs will further fuel demand for rentals and property purchases.

Markets are very specific (regional), and the fundamentals must be heeded exclusively to each individual area.

The 4 F’s the world is going to need (and we are going to provide) are:

Food:

Higher food prices are coming, with some saying they’re already here. As a matter of fact, the key food items around the world (i.e. rice, corn, wheat, soy) are already bouncing off of record prices and this is during an economic downturn. The world’s population just surpassed 7 billion and it is not shrinking, so food demand is going to increase. Canada, as a major food producer, will benefit from this trend: on one hand you will have to pay more for food, but the Canadian economy will also benefit from higher prices.

Fuel:

There is no hiding from it. Petroleum based products are becoming increasingly more expensive, solar power is still very expensive, coal demand is through the roof as China tries to keep up with power demand and nuclear power is still increasing despite the Japanese disaster. What you’ll notice about all of these sources of fuel is that Canada produces all of the main components for these. In fact, we have quietly become a safe and secure source of these critical commodities and our influence will continue to grow as demand outstrips supply around the world.

Fertilizer:

The three primary macronutrients of fertilizer are: nitrogen (N), phosphorus (P), and potassium (K); large reserves of potassium are found in Canada and the other components are created by our petroleum industry. More than 150 countries use potash, but only 12 countries produce significant amounts. As a result, about 80 percent of the potash produced moves across borders.

Canada is one of the world's largest exporters, accounting for about 40 percent of the total world potash trade. It is a world priced commodity, so as demand in other parts of the globe increase, the price we receive also increases.

The largest markets that Canada exports to include: US, China, India, Latin America (primarily Brazil), and other Asian countries (Malaysia, Indonesia, Vietnam, Thailand, Philippines, Taiwan, Korea and Japan).

With food shortages throughout the world, countries will try to get a higher yield out of their food production, while trying to improve the quality of the food. Fertilizer will be required to support the global food demand and Canada is poised to grow, based upon this trend.

Forestry:

The images coming from the Japanese earthquake and resulting Tsunami were horrific but, as things starting to settle down, the task of rebuilding will begin. Japan is a large importer of high-quality lumber and will be importing this from Canada. In October of 2011, China imported a new record amount of Canadian forest products with no end in sight for this demand.

Couple those two facts with the forecasted recovery of the U.S. residential construction industry in 2014, the Canadian forest industry is soon to be entering a super-cycle. You are going to see lumber markets spike in the next few years, translating into more Canadian jobs.

So at the end of the day, what do these facts mean to you? Simply, 2012 – 2015 will be the years that the strategic, long-term thinking investor will come out on top. In times of confusion the more sophisticated investor digs deeper for the hidden trends behind the monthly headlines in order to position themselves best for what is coming… rather than continually looking in the rear view mirror.
 
a fair amount of people share your concerns.


The herd (stupid sheeple) is/are usually always wrong... and the contarian (the guy that said I told you so) usually walks away as the winner because he did his homework and bet against the crowd.

But as David Rosenberg said today, and I'm paraphrasing... what is the good thing you can say about the market today? and it's that investors are looking at quality and great an attractive rate of return on their investments. When you apply that to downtown Toronto condo investing... is the massive boom a place to earn an attractive investment? Considering the Star's article http://www.thestar.com/business/article/1113760--skyscraper-boom-may-herald-economic-downturn?bn=1 one has to question of wisdom of investing in the boom considering Toronto is now the leader in highrise construction in North America. But, I could be wrong, similar to Harry Dent Jr who is predicting bad news http://www.theglobeandmail.com/glob...t-for-a-crash-forecaster-says/article2298020/ I don't think it's going to be that bad... but... really can this growth keep going?
 
The herd (stupid sheeple) is/are usually always wrong... and the contarian (the guy that said I told you so) usually walks away as the winner because he did his homework and bet against the crowd.

I love your contributions macookie. Nice change to this thread.

I don't think the 'winner' is necessarily Silent Sam who squawks about a market correction but keeps his equity in a 0.5% interest bearing savings account. I was sounding off alarm bells to everyone about the US housing catasphrophe in the making back around 2005/6 when I noted that the average home price in California topped $500,000. I was simply astounded that a state the size of Canada could possibly afford to carry homes in that price range. At the time I saw a few funds that were shorting CDS on subprime mortgages. They came from start up hedge funds and were run by people with no track record. I resisted investing because frankly I didn't understand the mechanics of that market very well and thought even if the market corrects as it should how do I really get out of this trade?

The real winner is the investor who has the ability to see that trade and the confidence to follow through with it.

Forgot to add this link:

Condo risk bubbles up

http://business.financialpost.com/2012/01/10/highlights-from-a-strong-december-for-housing-starts/

Personally, I would rather own $1,000,000 of prime Toronto real estate than have $1,000,000 in cash because I have confidence that I can generate a stable ungoing cash flow from that prime real estate. If I pay $1,000,000 today will that property be worth $1,100,000 tomorrow or $900,000? I'm slightly indifferent if my plan is not to cash in my investment anytime soon but rather generate some (partially) tax sheltered income off it. It's not too dissimilar to buying dividend paying bank stocks for the long run in my opinion. You just have to be comfortable enough to withstand the shocks along the way.

The real question you (all of us) need to ask ourselves is- do you believe in the future growth of this great city?
 
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If the US economy regains some of its health I doubt very much we would see any sort of softening of the real estate markets..those waiting for a price decrease shouldnt hold their collective breathe.Vacancy is heading to all time low in Toronto and migration of new residences has increased greatly the last three years..
 
http://www.thestar.com/business/article/1113760--skyscraper-boom-may-herald-economic-downturn?bn=1

Skyscraper boom may herald economic downturn

MUMBAI, INDIA — A skyscraper building boom in China and India may be a sign of an impending economic correction in two of Asia’s largest economies, according to a new report by Barclays Capital.

Barclays has mapped an “unhealthy correlation” between construction of the world’s tallest buildings and impending financial crises over the last 140 years.

Today, China is home to half of the world’s skyscrapers — defined as buildings over 240 metres tall — currently under construction.

India, which has just two skyscrapers, is seeing its first skyscraper building boom, with 14 under construction, including the world’s second-tallest tower, in the financial capital Mumbai.

“Building booms are a sign of excess credit,” Andrew Lawrence, director of property research at Barclays Capital in Hong Kong, said Wednesday.

Historically, skyscraper construction has been characterized by bursts of sporadic, but intense activity that coincide with easy credit, rising land prices and excessive optimism, but often by the time skyscrapers are finished, the economy has slipped into recession, Lawrence said.

The Great Depression hit as the finishing touches were being put on three record-breaking buildings in New York: 40 Wall Street, the Chrysler Building and the Empire State Building, which were all completed between 1929 and 1931, Barclays noted in a Jan. 10 report.

The economic and oil crises of the 1970s coincided with the completion of the twin towers at New York’s World Trade Center, in 1972 and 1973, and Chicago’s Sears Tower — now called the Willis Tower — in 1974.

The Asian financial crisis hit as Kuala Lumpur’s Petronas Towers were finished in 1997.

Dubai’s $4.1 billion Burj Khalifa, completed in 2010, is now the world’s tallest building. As it was being built, Dubai nearly went bust and the world slid into the Great Recession.

“Thankfully for the world economy, there is not currently a skyscraper under construction that is planned to overtake the height of the Burj Khalifa,” the report said.

However, signs of trouble are escalating in China and India.

Today, China gets the dubious distinction of being the world’s “biggest bubble builder,” as it erects ever more and ever higher towers, Barclays said. Home to 53 per cent of the 124 skyscrapers now under construction globally, China is primed to increase its stock of skyscrapers by 87 per cent.

About 80 per cent of new buildings are going up in tier two and three cities, away from developed coastal areas of the Pearl River Delta and Yangtze River Delta, which Barclays called “evidence of the expanding building bubble.”

Lawrence, who was lead author of the report, said China’s property market is already wobbling.

The number of residential property sales has decreased 40 to 50 per cent in Beijing and Shanghai and developers have slashed prices 5 to 20 per cent, he said.

India, which has just two skyscrapers but is building 14 more, takes top honours for hubris: The second tallest building in the world, the Tower of India, is now under construction in Mumbai.

Non-performing loans in India, a substantial number of them to real-estate ventures, grew by nearly a third in the first half of this fiscal year, more than triple the average annual growth rate since 2006, according to the Reserve Bank of India.

“If history proves to be right, this building boom in India and China could simply be a reflection of a misallocation of capital, which may result in an economic correction for two of Asia’s largest economies in the next five years,” Barclays said.
 
If the US economy regains some of its health I doubt very much we would see any sort of softening of the real estate markets..those waiting for a price decrease shouldnt hold their collective breathe.Vacancy is heading to all time low in Toronto and migration of new residences has increased greatly the last three years..

That's a pretty big "IF" for the US economy to right itself, not that it's impossible... but here's an article written by Edward Harrison in of October 2009, ask yourself if his article is still relevant... and ask those that are expecting price increases not to pass out from lack of oxygen... from the smoke and dust that finally settles this issue in the next 3 years.

http://www.creditw...as-just-begun.html
 
I love your contributions macookie. Nice change to this thread.

I don't think the 'winner' is necessarily Silent Sam who squawks about a market correction but keeps his equity in a 0.5% interest bearing savings account.

The real winner is the investor who has the ability to see that trade and the confidence to follow through with it.

Forgot to add this link:

Condo risk bubbles up

http://business.financialpost.com/2012/01/10/highlights-from-a-strong-december-for-housing-starts/

Personally, I would rather own $1,000,000 of prime Toronto real estate than have $1,000,000 in cash because I have confidence that I can generate a stable ungoing cash flow from that prime real estate. If I pay $1,000,000 today will that property be worth $1,100,000 tomorrow or $900,000? I'm slightly indifferent if my plan is not to cash in my investment anytime soon but rather generate some (partially) tax sheltered income off it. It's not too dissimilar to buying dividend paying bank stocks for the long run in my opinion. You just have to be comfortable enough to withstand the shocks along the way.

The real question you (all of us) need to ask ourselves is- do you believe in the future growth of this great city?

I think the answer here is to be diversified. Fine to have $1 mill of real estate but if that represents all your worth, too risky because no matter how much we may believe in growth of the city or our ability to predict trends, all of us can make mistakes.
The last time I looked, the only people who never made mistakes were people who made no decisions. And even then one could
argue that making no decision or opting to stand pat is making a decision.

In any event, I personally have invested a fair amount in GIC's at 2-2.5%. Terrible, I know. But compared to a loss (and I understand nominal vs. inflation values), I am prepared to accept less on my capital. That said, I share your view on R/E and have investments that are well capitalized and while I would not be happy with a 25% decrease, I could easily handle it. I also make other investments which bring in more (and some which have lost money).

My point: I simply have learned through the years that no one gets it always right. At least, no one I know and certainly not me.
 
In any event, I personally have invested a fair amount in GIC's at 2-2.5%. Terrible, I know.

Nah. That sounds like a pretty good hedge against volatility. While it would be nice to make a "safe" 5~8% in ETFs and corporate bonds, every daily 1% blip with have your heart racing if your entire savings in them.

You can jump back in once the world economy has stabilized for a bit. At worst, you'll miss out on a couple points.

I agree 100% that the main thing during these strange times is to be diversified.
 
Personally, I would rather own $1,000,000 of prime Toronto real estate than have $1,000,000 in cash because I have confidence that I can generate a stable ungoing cash flow from that prime real estate. If I pay $1,000,000 today will that property be worth $1,100,000 tomorrow or $900,000? I'm slightly indifferent if my plan is not to cash in my investment anytime soon but rather generate some (partially) tax sheltered income off it. It's not too dissimilar to buying dividend paying bank stocks for the long run in my opinion. You just have to be comfortable enough to withstand the shocks along the way.

That's exactly I have been saying all along to no avail. Doom and gloom sayers -- ably led by Interested and followed by, among others, Redfirm and Daveto --have been throwing back at me ROI and other concepts that have no relevance to the actual situation on the ground.

CN Tower, with his well reasoned post, now has added credibility to what I have been saying all along. As long as one is not speculating, seasonal ups and downs in R/E prices are irrelevant.

I would like to repeat it again: those have waited on the sidelines are gonna regret their decisions.
 
Personally, I would rather own $1,000,000 of prime Toronto real estate than have $1,000,000 in cash because I have confidence that I can generate a stable ungoing cash flow from that prime real estate. If I pay $1,000,000 today will that property be worth $1,100,000 tomorrow or $900,000? I'm slightly indifferent if my plan is not to cash in my investment anytime soon but rather generate some (partially) tax sheltered income off it. It's not too dissimilar to buying dividend paying bank stocks for the long run in my opinion. You just have to be comfortable enough to withstand the shocks along the way.

The real question you (all of us) need to ask ourselves is- do you believe in the future growth of this great city?
If I had $1 million to invest, I would likely not invest it all in real estate, regardless of the time frame.

If I had $5 million to invest, then perhaps I'd invest $1 million of that in real estate. Diversification is key.
 
I would like to repeat it again: those have waited on the sidelines are gonna regret their decisions.

What we have on our hands has been an nice "window dressed" economic revival from the lows of 2007-08 and US market bounce back premised on unprecedented monetary and fiscal stimulus. How the Fed and the US federal government in the future manage to redress their pregnant balance sheets without creating a major disturbance for the overall worldwide economy is a legitimate question. Just based on the fact that austerity is the new minor player that making it's appearance to numerous budgets, households and governments worldwide. How this effects Canada's economy(commodities) and certainly how this effects the downtown Toronto condo boom is but anyone guess... and as such, I'll predict the opposite... those that have entered the playing field will regret their decisions.
 
That's exactly I have been saying all along to no avail. Doom and gloom sayers -- ably led by Interested and followed by, among others, Redfirm and Daveto --have been throwing back at me ROI and other concepts that have no relevance to the actual situation on the ground.

CN Tower, with his well reasoned post, now has added credibility to what I have been saying all along. As long as one is not speculating, seasonal ups and downs in R/E prices are irrelevant.

I would like to repeat it again: those have waited on the sidelines are gonna regret their decisions.


i don't see how what CN Tower said is an endorsement to randomly buy R/E?

if one bought a principal residence, there is no incoming cash flow.

if it's an investment property, there should be cashflow, but is it positive or negative? - that is FUNDAMENTAL !
any seasoned R/E investor (not specuvestors or flippers) will tell you positive cashflow will help one ride the tides when the market turns down.

the majority of new construction dt TO condos just do not make sense from a financial point of view.

ie. 550 sq ft condo, no parking - cost $360K (approx $650 psf) ; 20% dp of $72K leaves mortgage of $288K
4.5% 5-yr fixed 25 amortization mortgage = $1,594 = ~$524 principal + ~ $1,070 interest

cost to carry per month = $2,244:
mortgage = $1,594
condo fees = $300
property tax = $250
insurance = $100

estimated montly rent for 550 sf condo = $1,400;

so as an owner, one is subsidizing the condo rental by $844 per month

==========

if one assumes the unit was bought outright with cash, zero vacancies, no management costs to lease unit out, etc:
ROI = $1,400 * 12 / $360,000 = 4.6%
NOI = $750 * 12 / $360,000 = 2.5%

referring back to CN Tower's dividend bank stocks; their dividend yields are around 3.5-4.5% (assuming CDN big 5 banks).

there's much greater liquidity, less transaction costs, preferred income tax treatment (dividend income vs. rental income), plus stop losses are able to be put in place should one needs/wants to sell immediately.
 
i don't see how what CN Tower said is an endorsement to randomly buy R/E?

if one bought a principal residence, there is no incoming cash flow.

if it's an investment property, there should be cashflow, but is it positive or negative? - that is FUNDAMENTAL !
any seasoned R/E investor (not specuvestors or flippers) will tell you positive cashflow will help one ride the tides when the market turns down.

the majority of new construction dt TO condos just do not make sense from a financial point of view.

ie. 550 sq ft condo, no parking - cost $360K (approx $650 psf) ; 20% dp of $72K leaves mortgage of $288K
4.5% 5-yr fixed 25 amortization mortgage = $1,594 = ~$524 principal + ~ $1,070 interest

cost to carry per month = $2,244:
mortgage = $1,594
condo fees = $300
property tax = $250
insurance = $100

estimated montly rent for 550 sf condo = $1,400;

so as an owner, one is subsidizing the condo rental by $844 per month

==========

if one assumes the unit was bought outright with cash, zero vacancies, no management costs to lease unit out, etc:
ROI = $1,400 * 12 / $360,000 = 4.6%
NOI = $750 * 12 / $360,000 = 2.5%

referring back to CN Tower's dividend bank stocks; their dividend yields are around 3.5-4.5% (assuming CDN big 5 banks).

there's much greater liquidity, less transaction costs, preferred income tax treatment (dividend income vs. rental income), plus stop losses are able to be put in place should one needs/wants to sell immediately.

To paraphrase part of CN Tower's post that I was, or had intended, referring to was that if he purchased R/E at $ 1,000,000 and the price went up to $ 1,100,000 or down to $ 900,000, it won't bother him because he is in for the long haul.

When I made reference to this type of argument, then, various number crunchers started mentioned ROI and other such concepts ignoring completely opportunity cost concept.

If you were to recalculate your figures with, say, 50% downpayment, then the results wil be entirely different.

There seem to be 2 different types of investors -- like myself, in for a long haul. Give a hefty downpayment, have a positive or very small negative cash flow. Others who go by the text books, calculate ROI and other concepts and hope for a quick spike in the prices for their salvation.
 
That's exactly I have been saying all along to no avail. Doom and gloom sayers -- ably led by Interested and followed by, among others, Redfirm and Daveto --have been throwing back at me ROI and other concepts that have no relevance to the actual situation on the ground.

CN Tower, with his well reasoned post, now has added credibility to what I have been saying all along. As long as one is not speculating, seasonal ups and downs in R/E prices are irrelevant.

I would like to repeat it again: those have waited on the sidelines are gonna regret their decisions.

How can anyone not be speculating in this market? Do you see any reasonable deals to be had? Something where the mortgage would equate to 3-3.5x the average household income assuming a 25% down payment?

I don't.

So you can go on and on about how people shouldn't be sitting on the sidelines, but realize that not everyone wants to become a slave to their mortgage.
 

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