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Debt is very useful when used properly
This is such an important message for this thread. Even credit cards can be used to save money or generate income. I have a debit card but can barely remember my pin because it never gets used. If I pay the balance off before interest occurs I'd be foolish not to use someone else's money. Businesses use other peoples money all the time to reduce overhead, create cashflow and fund investment in their business. Many of the wealthiest people use leverage for their investments. If one can use others money to safely build wealth. The danger comes when one doesn't understand or chooses to ignore the risks. Some will do well in a correction of an asset, some will get lucky in spite of their poor choices and some will lose. Good or bad it is the nature of capitalism which is likely a topic for its own thread.
 

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How many leveraged property investors successfully navigated the RE bear markets in the US, UK, Spain, etc and came out unscathed?

Even publicly listed property companies (REITs) had an awful time, and some collapsed. Were they not professionals too?
Who says they were all professionals or made wise choices? I know just as many smart, professional investors and business owners as dumb ones. The key to their success is making wise decisions.

Its not only housing prices that can affect a property manager or REIT in a negative manner. There are operating costs involved, vacancies to manage and shareholder obligations (if public) to maintain. Screw-up on any of these and you risk insolvency.

Like I mentioned, not all debt is bad. Use it wisely and you can be rewarded. In times of uncertainty, get informed and protect yourself accordingly.
 

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James you have been in this forum for 10 years and since day one you have claimed to have decent income and some savings , if you bought in 2012 you would have around $600,000 more in net worth now .Do you regret not purchasing? My Dad always told me a mortgage is forced savings ,he seen rent as a waste of money ,we got our first house making $44000 a year and bought it with a basement apartment plus rented a room for $500 a month .I am not sure of your age now but for somebody like my son ,buying now and taking 30 years to pay off a house is his dream , being mortgage free at 59 .You have to start somewhere and not sit on the sidelines , I have seen year round mobile homes selling for less than $200,000 in Kingston and same in Belleville .Not exactly 'living the dream' but it is a great start over paying high rents.
 

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Discussion Starter · #204 · (Edited)
James you have been in this forum for 10 years and since day one you have claimed to have decent income and some savings , if you bought in 2012 you would have around $600,000 more in net worth now .Do you regret not purchasing?
This has nothing to do with my point. What I don't like are the distortions to the housing market, and the unhealthy (and dangerous) economic situation that has resulted from many years of a real estate mania, assisted by bad government policies + rampant investor greed.

I also don't like how greedy property investors keep making a bad situation worse.

Those problems have nothing to do with whether I personally own a house or not. Say that I bought a house 20 years ago. Would that solve the distortions to the housing market? Of course not.

Maybe you don't realize how bizarre and out of control our housing market is. This isn't normal.
 

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Discussion Starter · #206 · (Edited)
Greedy investors?

James, if it wasn't RE, it would be something else. Have you seen crypto or stocks? How about PS5's or Graphics Cards?
Ah yes, but those don't impact a basic life necessity: a house.

That's why I've been saying for years that I wish these property investors would buy dividend stocks instead. They will still get the yield they want, but without contributing to runaway house prices, which price people out of home ownership.

I'm asking property investors to consider that hoarding properties as a financial asset causes harm to society. There are other things you can buy instead, that won't cause as much harm. Buy stocks, dividend stocks, bonds, or for all I care, buy graphics cards or iPhones.

That's one thing I'm raising, is asking you to consider the harm to society. The other thing I'm raising is that we're now in a tightening liquidity environment where interest rates are shooting up. The "punch bowl" is being pulled away, and real estate people aren't used to that. I think it's in their own best interest to deleverage because this is going to become dangerous for them. If interest rates really keep rising, property investors are going to have lots of problems.
 

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That's why I've been saying for years that I wish these property investors would buy dividend stocks instead. They will still get the yield they want, but without contributing to runaway house prices, which price people out of home ownership.
The risk is the same though.
Buying stocks creates a debt for someone else. Now you become dependant on someone else to preserve your capital. Inflation and rising rates are problematic for everyone, not only RE investors.
 

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I agree with @KaeJS

A place to live is a necessity. Owning that place is not. There is a lot of things that can be done to "fix" the RE industry. I am not sure if there is a win win solution. Not every province has rent caps and there are mixed opinions on how effective it is. I am not a renter nor am I a landlord. I believe there are as many good landlords as good renters. There are probably just as many bad renters as bad landlords.
 

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I'm asking property investors to consider that hoarding properties as a financial asset causes harm to society. There are other things you can buy instead, that won't cause as much harm. Buy stocks, dividend stocks, bonds, or for all I care, buy graphics cards or iPhones.
Everything is driven by free market incentives

RE is a good investment because you can leverage up so much. The banks love it, the mortgage brokers love it, the RE agents love it, the home inspectors love it, the home improvement stores love it, the contractors love it etc

The root cause is the artificially low rates thanks to an artificially easy monetary policy. Only Pierre can save us. Look at Germany for an example
 

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Ah yes, but those don't impact a basic life necessity: a house.

That's why I've been saying for years that I wish these property investors would buy dividend stocks instead. They will still get the yield they want, but without contributing to runaway house prices, which price people out of home ownership.

I'm asking property investors to consider that hoarding properties as a financial asset causes harm to society. There are other things you can buy instead, that won't cause as much harm. Buy stocks, dividend stocks, bonds, or for all I care, buy graphics cards or iPhones.

That's one thing I'm raising, is asking you to consider the harm to society. The other thing I'm raising is that we're now in a tightening liquidity environment where interest rates are shooting up. The "punch bowl" is being pulled away, and real estate people aren't used to that. I think it's in their own best interest to deleverage because this is going to become dangerous for them. If interest rates really keep rising, property investors are going to have lots of problems.
James I think selling them did more harm than holding them ,you are obviously hoping to buy but even if house prices drop 50% that still makes them unaffordable to most. Also 40-50% gets things back to 2020/2021 prices. The mortgage brokers and Real Estate agents can probably tell you there are some uncertain things right now with the interest rates and June 1 will likely have another .50% raise in rates but it only affects people who were shopping at their max price .There will never be more sellers than buyers with the immigration targets increasing every year.
 

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The mortgage brokers and Real Estate agents can probably tell you there are some uncertain things right now with the interest rates and June 1 will likely have another .50% raise in rates but it only affects people who were shopping at their max price .
I find this hard to believe. I'd wager most people shop very near their max price - and usually, people buy before they sell, counting on getting a pretty good transaction (i.e. quick sale for the price they want).
It's hard to argue that rising interest rates will not bring down prices. It's a forcing function. Lenders are quite simply approving people for less. If there are 2-3 more 50bp hikes this might have a material impact on the market.
 

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I mean I guess I understand the sentiment but it's pissing in the wind. The idea of home ownership for the masses is dwindling, maybe the sooner many realize this the better for their finances. Money's always going to make more money, thinking otherwise is not realistic. Real money will always enshrine its ability to make even more through influence at the highest levels. I don't expect that to change any time soon regardless of the colours flying in the capitals. Should the average household be even trying to afford a 700k house just because you can get financing for it?
 

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I mean I guess I understand the sentiment but it's pissing in the wind. The idea of home ownership for the masses is dwindling, maybe the sooner many realize this the better for their finances. Money's always going to make more money, thinking otherwise is not realistic. Real money will always enshrine its ability to make even more through influence at the highest levels. I don't expect that to change any time soon regardless of the colours flying in the capitals. Should the average household be even trying to afford a 700k house just because you can get financing for it?
I love this post.
 

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We didn't have higher inflation in the last decade. But this time is different with higher inflation. Many favorite stocks dropped 50% to 80% in the six months.
Can you give me some examples of favourites that dropped this much?
Spot checking a few I remember ... they are flat or up for six months. If I use the peak then they are down about 10% or less.

If you mean "favourite tech stocks" then I can think of many examples. :)


... Why can't the house price drops 30%?
I'd guess lack of supply, foreign investors, crime groups money laundering and local gov't focusing on out of favour types of housing.

Nothing makes it a rule but I don't seem enough changing for that big a drop, the GTA and GVA potentially being exceptions.


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... As for passing down homes, its essentially already happening - lots of parents are mortgaging their properties to provide down payments for their kids. Once that idea is capped, I could definitely see houses being passed down, debt and all.
My co-workers parents moved into a retirement or LTC home. They sold their house to my co-worker for less than FMV. After moving in, he has sold his former house that was smaller.

I also have co-workers living at home with their parents where the will says they receive the house when the parents die.


It's a complex market with lots of moving parts. :)

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Ah ok, I see the difference. So you're saying people with the expertise to leverage their properties shouldn't be concerned. Rising rates can be managed ...
No different than when I used my HELOC to buy an investment portfolio in late 2008 and early 2009. I planned for what I would do if rates rose significantly.

Turns out they stayed lower and the investments rose faster than I expected some would say I was a fool for not buying a lot more. However, it let me sleep at night plus I did will so to me, it didn't matter.


But more general homeowners and perhaps amateur real estate investors, you would agree, should be concerned and cautious here?
Depends on how stretched they are, what is happening with the income overall and when the rising interest rates will hit them (I know people who took out a ten year mortgage knowing that rates were low).

The stats can be misleading as well. OOH, I'm counted as someone who has significant money on their HELOC. OTOH, interest rates have to go up by 4x to equal the cash paid. More than a 40% drop would be needed to bring the trading value into the neighbourhood of the HELOC value.


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How many leveraged property investors successfully navigated the RE bear markets in the US, UK, Spain, etc and came out unscathed?
It would take a study. I know that the three I worked with in Maryland in 2000 were talking about how their properties were up so much and they were concerned about a crash so they sold and moved further away to lock in the gain. Others stood pat but had been reducing their leverage for years so it didn't affect them much, the last I talked to them.

Others were at the wire and walked away from their property.


... Even publicly listed property companies (REITs) had an awful time, and some collapsed. Were they not professionals too?
Sure ... but they have restrictions that the amateur does not have. Money flows in and it has to be invested or paid back to the investor. Similar to the individual could sell all their Nortel stock before the crash but the indexers could not as it was part of the index for so long.


Cheers
 
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