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Discussion Starter #1
78% of Canadians wealth is residential real estate yet the primary focus on CMF seems to be stocks then probably bonds. The Bond market is something like 10 times the size of the stock market. The primary focus of CMF should probably be residential real estate as it is by far where the wealth is in Canada.

Though a contrarian might say focus where no one else is focusing & invest where least amount of investors are investing which would probably be precious metals @ this point in time
 

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If most people already have RE covered as an "investment", then we should focus on everything else. I have a friend who has $3,million in RE and is afraid to be forced to invest in other things. That attitude has already cost him the wherewithal to snowbird in Mexico last year and this while the house has languished as an overpriced white elephant.
 

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That 78% number doesn’t look right. In 2016, 36% of Candians’ assets were in their principal residence. If you factor in debt then 31% of Candians’ net worth is in their principal residence.

https://www150.statcan.gc.ca/n1/daily-quotidien/171207/t002b-eng.htm

The 78% number may be looking at the non-financial assets (principal residence, other real estate, vehicles, and other non-financial assets) as a percent of Total assets excluding private pension assets as that would give 73%. Doesn’t really make sense to me why you’d exclude RRSPs though.
 

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Home ownership is more of a forced savings plan than an investment for 98% of the people out there. Most people get a terrible return on it as well, except we went through a 20 year boom, so everyone thinks they’re geniuses. We’ll see what happens in the next 20 years.
 

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RE is my primary focus. It sucks joy out of my life in ways that my stocks do not. Fortunately my stocks make considerable returns that can subsidize the RE losses.
 

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Discussion Starter #6
Home ownership is more of a forced savings plan than an investment for 98% of the people out there. Most people get a terrible return on it as well, except we went through a 20 year boom, so everyone thinks they’re geniuses. We’ll see what happens in the next 20 years.
The boom is over though the Canadian Real Estate Association would like you to believe other wise i.e when they say for the last 4 consecutive months the housing market is starting to get busier again yet across Canada for 4 consecutive months fewer & fewer homes have been purchased by Canadian home buyers. How can more homes be selling when fewer homes are being sold ? They use seasonally adjusted numbers when the market starts to correct to fool the Canadian public to going out & buy a home. Fewer home buyers have purchased homes for over 24 consecutive months yet you will not find the data printed by the media.
 

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Just because the market is slowing, doesn't mean there aren't opportunities. Unlike the stock market, where prices are fixed, real estate always has deals that pop up and allow people to make money if they look. Someone always has to sell for some reason (a move, a death, a foreclosure, etc.) which allows for someone else to benefit moreso than the average market.

That, and leverage, are two benefits that real estate has over other forms of investing. It allows you to make money even at times when the market says you shouldn't be able to. As long as you're smart and disciplined that is.
 

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Fewer home buyers have purchased homes for over 24 consecutive months yet you will not find the data printed by the media.
Yup the RE industry are masters at manipulating data in their favour.
Just because the market is slowing, doesn't mean there aren't opportunities. Unlike the stock market, where prices are fixed, real estate always has deals that pop up and allow people to make money if they look. Someone always has to sell for some reason (a move, a death, a foreclosure, etc.) which allows for someone else to benefit more so than the average market.

That, and leverage, are two benefits that real estate has over other forms of investing. It allows you to make money even at times when the market says you shouldn't be able to. As long as you're smart and disciplined that is.
Yes but that segment is reserved for the savvy investor as you say. Most RE buyers are far from savvy!
 

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Same could be said for any investments. People who abdicate responsibility tend not to do well in stocks, business, real estate or anything else. Of course, it also has to fit your investment personality. Real estate isn't for everyone, neither is day trading.
 

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I'm a great believer in real estate investing but, it is as much a business as an investment. One often overlooked advantage to real estate is leverage. You can buy property for as low as 5% down, and 20% or 25% are routine. I have bought property for no money down, more than once, and have sold that way too. Another advantage is stability. It may not go up every year, it may even go down, but if you keep up your payments you won't be frozen out and it always comes back.

The big advantage to stock market investing is, it is so easy. But you need a substantial amount of capital to make it worth while.
 

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Leverage has killed many a real estate empire as well. When one is highly leveraged, an economic downturn can wipe one out. Think of all the high profile RE moguls who were wiped from the face of the earth during severe down markets. It is false to say that even 20%, never mind 5%, down is a sound RE play. The best REITs are not more than 50% leveraged.
 

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The amount of leverage isn't the issue alta, it's a combination of many factors. Such statements as you must have less than 50% leverage just shows you don't understand the true power that lies in real estate.

For example, the properties I look for have at least 100% leverage. I buy below current market value, sometime I renovate to increase its value, then I leverage it for at least 100%. Let's say I find a two bedroom for 65k, put in 5k and the bank appraises it at 100k. With an 80% LTV, I'd get upwards of 80k for something I paid 70k for. Is this highly risky? That depends on other factors, mainly cash flow.

If the property rents for between 1-1.2k/month there is no risk really. The 1% rule basically says I could rent for $800/month and easily make bank. Where can you rent a two bedroom for $800/month in a major city? Those are slum prices these days.

With the current interest rates, half of your mortgage payments are going toward principal pay down. That's a significant reduction.

As you can see, the leverage in this scenario isn't the problem, factors like cash flow, purchase price and demand all play a role in success. Now, if I bought a $500k property, which I leveraged 95% and could only rent for $2k/month, I'd be facing a lot of problems down the road. There is a big difference between an "investor" who understands how to use the tools available to them and someone who "owns real estate".

P.S. In the above scenario, just because the bank offers you $80k doesn't mean you have to take it, you can always take less and reduce your risk.
 

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I beg to differ at the macro level. I am talking about 50% leverage based on NAV, which is a function of Cap rate....which of course includes an interest rate factor. Yes, if you buy below market, add value enhancing renos, etc., you will end up with an asset that has a NAV more than what you paid for it. It is no longer 100% leveraged then from an investment perspective. You cannot cherry pick RE (of multiple properties) specifics any differently than a brokerage margin account of select stocks. If RE really was different, then more of our blue chip corporations would be into real estate investing than building pipelines or making widgets, etc, etc.

You cannot be more leveraged for very long than what it will take to manage through a significant market event. In stocks, it might be a 40% decline. In RE, it might be a 20% decline aka AB in the '80s, TO and Vancouver in the late '80s/early '90s, etc. Think about the crises Dundee REIT went through, H&R REIT, Boardwalk REIT which is still recovering from the AB funk, etc. An individual having 1-10 properties cannot really look at their asset base any differently than a much larger business entity.

I don't actually care about *your* individual circumstances, just like I don't care about any individual's specific portfolio of 10 stocks and how well they do, or don't do. That is not relevant in a discussion of macro principles...which was the point of my post as a push back at Rusty. The best REITs are 50-60% leveraged (relative to NAV) and that is the measure of long term success through market cycles.

Added: I will agree there are circumstances where an individual might be able to hold more leverage relative to NAV than a REIT. For example, one's own personal labour on maintenance and upkeep, and property managing one's own property rather than having a property manager, etc. Those are simply personal mechanisms to allow for more leverage in the Cap calculation.
 

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NAV is a made up number when it comes to real estate. The only time you know what a property is really worth is when someone writes you a cheque. Until then, it's all guesswork. This is the reason I can buy properties "undervalued". I'm willing to cut the cheque when others aren't. Does that mean the NAV is 65k or 100k like the bank thinks, no one really knows unless I sell.

That's why I don't give a real fig about the NAV of my holdings, I care about the cash flow which happens every month and is truly measurable.

I agree that a correction is a concern, that's why I price that into my purchase price up front. You can't do that in the stock market...I can't go to my broker and say I think apple is overpriced, give it to me for $100/share. It won't happen because the market sets the price. In real estate however a foreclosure, an estate sale, a move, a divorce, etc. Can all force the prices down for an individual unit because the seller is forced to take what they can get at the time.

As for your statement about not being over leveraged through a downturn, why can't you as long as the cash flow supports the debt. If my rental pool (where demand would increase in a housing meltdown as people lose their houses to costs) generates enough cash flow to support the debt, the banks won't ever think of calling my loans.

These aren't, by the way, *my* individual circumstances though I take advantage of them all the time, these are basic facts about real estate investing which anyone, or any corporation can (and do) take advantage of. I didn't invent any of my strategy, I just use it. I know companies and corporations who do the same thing on a bigger scale.

Also, if you look into some of the biggest companies (McDonalds for example) you'll see they are actually very big into real estate.
 

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As I mentioned, I don't care about your specific circumstances so I don't know why you insist post after post, and thread after thread. They aren't applicable to anyone else who is contemplating investment real estate either directly, or indirectly any more than my brokerage portfolio is any more applicable to you than it is to me.

FWIW, you can only buy below market when someone is willing to sell below market. It is the same with stocks. I bought CN at <$95 this summer because it was on sale. I am not surprised, but am disappointed, at your tunnel vision. BTW, ask Boardwalk how they felt through 2016 and 2017 when vacancy rate went up and rental rates softened and more enticements had to be offered to retain tenants or gain replacement ones.

I have been in REITs* now and then and have studied the metrics down to the last charts so I am not at all naive about RE metrics. As I mentioned, I understand an individual can carry more leverage (and thus higher cost) if they can reduce other costs like property management that they do themselves. Which is what DW's son-in-law does as well as his own father with their collection of rental units.

* Including BEI.UN, CAR.UN, CSH,UN, AAR.Un, REI.UN, REF.UN, etc. The residential ones are usually the most stable which I like best, but AAR.UN in industrial warehousing was my home run until it was bought out.
 

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Also, if you look into some of the biggest companies (McDonalds for example) you'll see they are actually very big into real estate.
According to Ray, the real estate investment was to enable and control the franchise model, i.e. not an investment but a business strategy.

I fully agree that you have been a successful RE investor but I agree with AR that the average guy should not try it, just like the average investor should stay out of individual stocks according to Buffett.
 

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Also, if you look into some of the biggest companies (McDonalds for example) you'll see they are actually very big into real estate.
Apparently, Mcdonalds owns the land of a lot of its restaruants.

Now when you talk about buying your properties, I assume you are talking about buying apartments which may have very little land value. How long do these buildings last? At what age are they expected to be tear downs?
 

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Pluto, JAG's example of McDonalds is really not relevant to the RE business itself for the reasons already noted, i.e. it facilitates the purpose of the business. One doesn't buy McDonald's stock specifically for its RE holdings. One might argue that capital tied up in land is a poor use of McDonald's money. The actual value of the business is ultimately its overall Enterprise Value which may, or may not, reflect the true value of its land holdings.

P.S. NAV in RE is not technically a made up number, but it is only as good as the individual determining market value. Just like one's rental unit or principle residence, one only knows its true value when a buyer makes an offer. https://www.investopedia.com/ask/answers/020615/nav-best-way-assess-value-reit.asp Market prices of REIT units are usually at a discount to NAV for the simple reason that market values of RE investments have an element of subjectivity in them and investors want some conservatism. Example: Boardwalk currently claims a NAV now in the >$60/unit range, but market prices are in the $50/unit range.

Added: WRT to JAG's apartments, their market value will take into account future increasing operating costs of the depreciating building. Teardowns generally only happen in more central locations when increasing land value relative to the building cannot be fully reflected in operating income, i.e. cap rate continues to decline due to capital value tied up in the property. The current GVR and GTA issue in particular.
 

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When I looked at boardwalk's books, I saw that, in many cases, they overpaid for their property acquisitions (in my humble opinion). Of course this was in the bull market times (which is somewhat slowing now) when any idiot couple make capital appreciation. Was I surprised that they suffered when the market burped a little, not at all because their acquisition costs were too high. Boardwalk has a reputation for nickel and dimming its tenants, making false claims of damage and is generally a poorly run company (if you do any research or talk to actual tenants). I'd avoid anything to do with boardwalk personally. They do lipstick repairs on a chewing gum budget from what I've seen first hand.

Pluto, I'm not talking about just apartments, I was talking real estate in general, even those properties owned by REITs at the same basic rules apply to everyone (you overpay, over leverage, over extend, dont do proper maintenance, don't have cash flow, etc. You'll pay big time). As for how long they'd last, it depends on the maintenance side of things. I know buildings that are over 200 years old and still standing doing just fine. I've seen places built 10 years ago that need to be torn down. If you're not going to sell, the land value is rather meaningless, same with capital gains, if you hold for the cash flow, you're not going to realize any other gains. You could, of course, sell and acquire new properties which have less value, but once paid off there is little insentive, especially if you leverage at 100%.

As for McDonald's not being a real estate play, maybe do a little reading...

https://seekingalpha.com/article/73533-mcdonalds-is-a-real-estate-company
http://blog.wallstreetsurvivor.com/2015/10/08/mcdonalds-beyond-the-burger/
https://qz.com/965779/mcdonalds-isnt-really-a-fast-food-chain-its-a-brilliant-30-billion-real-estate-company/

30 Billion in real estate holding is certainly what I'd consider an investment. It certainly plays a role for knowledgeable investors when it comes to investing in the company. You have to understand where the money comes from if you're a real investor.

As for being able to buy stocks below market, you simply can't. Why would I sell you a stock below market price when I can sell it at market? There is no market in real estate. There is no set price for a house. It sells for whatever a specific buyer and seller agree to. True, the market as a whole can undervalue (in your opinion) a company, but it's still all one price, I can buy that company at a further reduced rate. If you can buy apple stock today at $110 (half market rate) tell me how? Can I buy a property today for half of a comparable property? A lot more possible than the apple deal. The NAV in stocks is basically always a known quantity, that's not true in real estate where I could littterally turn that property over in a few days for double or half of what I previously paid and no one would be surprised. I have seen people literally flip a place making 30%+ in a month's time without doing a thing (other than being lucky). They didn't even actually purchase the property or ever own it.

There is a lot of "hidden" money in real estate. One of the reasons I don't like Reits, their returns are very small considering the amount of money available...I wonder where all the money is really going. I don't find it surprising that the majority of scams out there revolve around real estate investments run by other people.

For the record, I agree real estate investing isn't for everyone, but neither is stocks, bonds, owning a business, coin collecting or whatever. Real estate is no better or worse than any other form of investing if done right. It has advantages and disadvantages just like every other form of investing. To simply try to write off the entire sector because it doesn't work for you personally is just idiotic though.

Oh, and by the way, nearly every major company has a real estate department or division. General Motors had to sell it off in 2008, General Electric is big in real estate, PepsiCo, etc. So, to your initial question of why the big businesses aren't involved...they are.
 

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I will refrain from responding in kind as it is definitely not worth my time and effort. Readers of this thread will come to their own conclusions.
 
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