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The only down side is you can't live in your ETF.
That is the standard argument about real estate that does not really hold water on a full cycle basis. Yes, one has to factor in alternative rent in the overall calculation to compare apples to apples, but owning RE on a non-investment basis (not able to write off costs) does not cut it in most jurisdictions. I agree there have been periods in Toronto and Vancouver in particular where real money has been made, and in Calgary/Edmonton if one could market time correctly (like sector investing in commodities), where CAGR in RE ownership has beat capital markets, but so have there been times of great strength in capital markets.

My own spouse refuses to be rational about the investment value in our own home because she doesn't want to convert emotional ownership into hard numbers, and won't admit to the massive bleed of money sunk into it on an ongoing basis. That is fine. Just admit it and call it a day.....
 

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The only down side is you can't live in your ETF.
I disagree. I actually just converted some units of an ETF into Vancouver housing.

In fact, this kind of liquidity (from an investment portfolio) is far easier to convert into the kind of housing you need, with flexibility. I can rent in one spot for a month, then get up and go somewhere new. I can go to a foreign country for a year and rent a temporary home or vacation spot. Or hop over to a city and do an extended hotel/apartment rental.

You should know this Eder, as a guy who spends a lot of time in Hawaii.
 

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To be clear I'm not defending the OP's proposition. In fact I disagree with the entire premise of buying real estate for capital gains.

No one could have predicted what happened in Vancouver, but the fact remains that it made a lot of people wealthy. These are mostly regular people who would not otherwise be wealthy... the sort of people who know nothing about investing, and wouldn't know the difference between a couch potato portfolio and whatever high fee funds the big banks want to sell them.

The average person knows very little about markets, CAGR, or whether their investments are returning more than inflation. They see their house double in price, and they feel like a genius. As you can see from the chart AltaRed posted, the average detached home increased in value by about 300% since 2002. That fits with the anecdotal stories I've seen firsthand.

That's a pretty good return by any standards, and a crazy good return to someone who has money sitting in chequing accounts or saving accounts earning 0.25% interest... that's assuming they have any savings at all!

It's difficult to generalize and say everyone would have been better off renting. For my mom, renting made no sense whatsoever... she could afford to buy clear title. Her monthly costs including maintenance are lower than what it would cost to rent a similar house. For others, buying was either a lifestyle decision, or a gamble that just happened to pay off.

Anyhow, what happened is in the past, and I've said before that I think the party is over for Vancouver Real Estate. I certainly wouldn't buy today expecting capital appreciation.
 

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Here is another angle on calculating RE Gains:
1. Supposing in the Y2K year, 2000, one bought a 400,000 Van house with 100,000 down. Your outlay is 100,000, not 400,000.
2. Now supposing some years later the house is worth 600,000 a 50% gain on the nominal price of the house. Your equity is now 100,000 downpayment plus 200,000 appreciation = 300,000.

What is the gain % on your outlay? 200%.
The point is that a 50% gain on the nominal price is actually a greater gain on your actual outlay, of 100,000 due to the leverage.

3. Supposing one had rented. Instead of putting their 100,000 into a down payment they put their 100,000 into index funds gaining 7% annually. By the time you get a 50% gain here, you could have a 200% gain on downpayment on the RE.


The reality is, In the RE example you are controling a 400,000 dollar asset with a 100,000 outlay. but with the index funds you only control a 100,000 asset. that's why RE, with a modest gain on the nominal value of the house, can translate into huge gains on your actual outlay. Its the leverage that does it. It is not easy to get a 300,000 loan from a bank plus your 100,000 savings to purchase 400,000 worth of index funds. But a house? heck easy peasy.

If it came down to a house or index funds, I wouldn't rule out the house automaticly.
 

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Your equity discounts years of costs of maintaining the property as well as transaction costs. You might have increased equity from $100k to 300k, but how much did it cost you over those years? It's not zero, and in a city like Vancouver with a massive mortgage, there is no guarantee that those costs are less than renting. It could easily be more, it would be today. If you could even afford the mortgage. A $400k mortgage in 2000 would have been incredibly hard to afford. Most people I know had mortgages at or under $100k at that time, and most houses were under $150k, even brand new, in many cities around Canada.
 

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Yes,, well, it would have been a 300,000 mortgage, as 100,000 was the downpayment, but you have valid points, nevertheless. Your figures are more realistic for the time. So a 150,000 house with a 50,000 downpayment, and 100,000 mortgage. In Van, that house could have doubled by 2008. the 50,000 equity at the start, would become 200,000 by that time, a 300% gain. CAGR: About 25% annual tax free as it is a principle residence. But there are expenses: -

In 2000, taxes would be about 1500 - 2000 annual and maintinance about 100 a month on a 2000 sq ft house. A 100,000 mortgage about 600 a month? Expenses would eat into the picture a bit, but not overwhelming if one discounted what rent would be.

My main point is that with the house you have leverage, with the stocks, you don't. Plus, with the house, the % gain should be calculated on the outlay, the downpayment, not the total price of the home. Index funds could not beat that during those years.

Too, considering the average family with average income, I don't see how index funds help them that much. If they can scrape together 1000, or 2000 a year after paying rent, feeding the kids and whatnot, and put it into index funds it doesn't really move the needle that much. Stocks are for people with above average income who can put say, at least 10,000 a year into index funds for 30 years. In that case they could endup with over 800,000. So how does the average family get ahead? A house. It makes more sense to them. Its just adding and subtracting to figure out their equity. And if they get the bright idea to have a rental unit in the basement, things look even better for them. They don't know what stocks are. Stocks don't make sense to them so they don't make good decisions in that area.

I rest my case for now.
 

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My main point is that with the house you have leverage, with the stocks, you don't. Plus, with the house, the % gain should be calculated on the outlay, the downpayment, not the total price of the home. Index funds could not beat that during those years.
If you're comparing apples to apples, then one would borrow in their stock account at the max margin to also leverage. That is certainly doable, especially with a 100K account. Year 2000 would probably have been a horrible time to do that, but if there was no margin call, the index would still have seen a double from 20yrs ago. Plus dividends and low cost of ownership. Balance that against CG exemption on primary residences vs taxable gains on a stock account.
 

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Well margin is an option, but the average family with average income doesn't know what margin is. They don't really know what stocks are either. They are not dumb, they just never took an interest. They know what a house is, however.

Stocks are for people with higher than average income who can afford a house and a stock portfolio. For average income folks, who are barely making their bills, stocks and margin is a far away abstract idea that doesn't mean much to them. They need something concrete, something they can kick, like a house on some dirt.
 

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My main point is that with the house you have leverage, with the stocks, you don't.
With a house you get 80% leverage unless you want extra insurance fees and with equities you get 50% leverage. It does influence the ROI calculation.
 

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My Vancouver area Home .1984 - 167k. Today an easy sell at 1500k. 6.25 % compounded. Good or Bad? Nice, but doesn't matter I'm not moving into a strata box which runs about $1000 sq ft.
My neighbour's in their 90s, on a double lot since 1957. Probably worth lot value 2m, but so what!
 

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My Vancouver area Home .1984 - 167k. Today an easy sell at 1500k. 6.25 % compounded. Good or Bad? Nice, but doesn't matter I'm not moving into a strata box which runs about $1000 sq ft.
My neighbour's in their 90s, on a double lot since 1957. Probably worth lot value 2m, but so what!
I would hope your Van home, purchased for $167K in 1984 would be worth a lot more than $1.5 million, unless perhaps it was new construction. That was a fair chunk of dough back then. Must be in a decent West Side location unless it was a nice new home on the East Side.

I bought a house in Van in 1979 for $110,000, sold in 1989 for $525,000. On W 35th west of Arbutus. It was a 1914 bungalow. Paid land value only and sold for land value. Lot was 60' x 130'. Because it was a lot value purchase, never put any money into it. No paint, nothing. A new house (built around 1995) is on it now. Here's the BC Assessment figures:
Total value

$4,533,000
2020 assessment as of July 1, 2019
Land $2,847,000
Buildings $1,686,000

Previous year value
$5,012,000
Land $3,305,000
Buildings $1,707,000

Took that $525,000 (less $15K RE commission) and bought a house on Adera St. for $770,000 in that same year (1989). Paid slightly above land value. Lot was 64.7' x 135'. Later owners tore down and built new. Here's the current posted BC Assessment info:

Total value
$4,532,000
2020 assessment as of July 1, 2019
Land $3,054,000
Buildings $1,478,000

Previous year value
$5,260,000
Land $3,763,000
Buildings $1,497,000

So, I would guess a conservative estimate for a 1984 Vancouver purchase at $167K would be $2.5 million on a bad day. Unless BC assessments are radically wrong.
 

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I had just sold a home for 150k . and bought - new build - on the North Shore for 167k. My current assessment is 1289k

West side of Vancouver is a different story. Friends of mine bought west of Dunbar 35th I think it was for 214k in 82-83, - old house I think it was a 50 ft lot. I just looked and a new house on a lot there has an assessment of about 5M (lot 3M) They sold several years later and moved to a new build not far away 29 & Blenhem. Don't know what they sold and bought for.
Another friend of mine had his home listed over there @ 11m last summer, which is below assessment, and has it now listed for 8m.
 

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Thanks Retiredguy, that explains some. New build and North Shore. Nothing wrong with North Shore. I was born in West Van. I'll take just about anywhere on North Shore over anywhere on East Side. Especially if you can work on the North Shore and don't have to cross a bridge to get to work.
 

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My wife's cousin bought a home in West Vancouver in the Eagle Ridge area on the coast in 1967.

Her husband owned land along the coast and ran some docks and fishing supplies.

Last we heard she still lives in the home and it has been designated as a heritage home in West Vancouver.

Before the designation it was valued in several millions.

I think it may have gone down some in value since they designated it as a heritage home as rich people can't buy it and tear it down to build a new one.

She also has some family ties in Vancouver. She is related to the late Richard Krentz who carved the totem poles in Stanley Park.

Unfortunately, we never seemed to find the time to drive out and visit her relatives out there.


 
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