Author Topic: Garth Turner - Real Estate in Canada  (Read 488377 times)

KCLarkin

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Re: Garth Turner - Real Estate in Canada
« Reply #350 on: February 13, 2015, 08:23:30 AM »
I think at the end of the day one has to come up with an absolute value for an asset.

No asset has an absolute value. All values are relative.


wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #351 on: February 13, 2015, 09:41:56 AM »
http://www.bloomberg.com/news/articles/2015-02-13/5-reasons-sweden-s-red-hot-housing-market-won-t-crumble

Canada could be like Sweden - in answer to why housing prices could keep increasing.

RichardGibbons

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Re: Garth Turner - Real Estate in Canada
« Reply #352 on: February 14, 2015, 02:01:25 PM »
1. For those who have been renting over the past few years rather than owning - as of today, how has that worked out for you financially?

I fit in here.  A decade ago, I could have afforded to purchase a home with cash on the west side of Vancouver. However, I rented instead.  This allowed me to get aggressive in wealth building, both in investing and starting a business.  Now my net worth is roughly 4 times what it was then.  That said, I might have done better if I bought 8 houses with maximum leverage.  But I think that's irrational outcome-oriented thinking.  (i.e. the same seeing a 10 come up in roulette in Vegas, then saying that I would have been better off if I bet all my assets on 10.)

2. Do not apply principals of investing to home ownership.

If the value of your shares drop by 50% tomorrow, half of your money is gone. Gone, disappeared, poof.

If the price of your home drops by 50% tomorrow, you still have a place to live, its value to you is the same as it was yesterday. The drop in price is only a number.   

These are mostly the same thing.  In the first case, your ownership of businesses and their cash flow is the same, while the price people will pay you for them declined.  In the latter case, your ownership of the house and its implied rent is the same, but the price people will pay for it has declined.  I think the main difference is that the former is likely much more diversified and much more liquid, and therefore less risky.

You likely think there is something magical about owning a house and that it shouldn't be evaluated based on its cash flows because you live in Vancouver.  Lots of people think that here.

Is housing really more expensive than it was in the past?

Years ago I paid a mortgage as high as 17.5% - and others paid higher. At that time you could pay your mortgage every month for five years and at the end of that period you had only reduced your total amount owing by a few hundred dollars. Nearly all of your payments went to pay interest.  And that was with 20 year amortization rates. Today the reverse is true, most of your payments are going against the debt itself.

It only makes sense to use this sort of reasoning if the cost of the debt is fixed over the lifetime of the debt.  Since, in Canada, almost all first mortgages are for a small fraction of the period of time that the debt is paid off, then this is bad analysis.  If you want to use this sort of reasoning (which I think is a bad idea, but I'm conservative when it comes to large  bets), then the most reasonable thing to do is to estimate the cost over the full life of the debt, then add a margin of safety.

The funny thing is that most of us would say that it would be a bad idea to use 5 year debt to finance a project that will take 30 years to pay off that returns an extra 2% a year above cost of capital. The risk of interest rates rising or the business environment worsening is just too high to make a it a sensible bet.  But call the project a "home" and suddenly people think it's a good idea....

Range

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Re: Garth Turner - Real Estate in Canada
« Reply #353 on: February 14, 2015, 02:36:01 PM »
Thanks for that last post Richard.

I didn't feel like taking the time to address those points but I'm glad someone did.

cwericb

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Re: Garth Turner - Real Estate in Canada
« Reply #354 on: February 14, 2015, 07:29:45 PM »
I  fit in here. A decade ago, I could have afforded to purchase a home with cash on the west side of Vancouver. However, I rented instead.  This allowed me to get aggressive in wealth building, both in investing and starting a business.

That is not the scenario I was comparing. Very few have the cash to buy a home in Vancouver. That is not the same as comparing a mortgaged home to renting. Yes, with cash you can compound it through investments. But the average person does not have that cash to invest, nor can he borrow it without collateral. He has to live somewhere and for most the choice is to either rent or buy. 

There also seems to be an assumption on this thread that all Canadians live in Vancouver, Calgary, Toronto or Montreal. Certainly prices in those cities are high. But the combined populations of those cities represents only one third of the Canadian population - two thirds of us live elsewhere where prices may not be as unreasonable.

The extreme, of course is Vancouver. And it seems that people here frequently tend to reference Vancouver in their examples. In comparison to the rest of the country Vancouver seems dysfunctional when it comes to housing prices. But those prices are driven by a lot of unique factors not shared by most of the rest of the country. Vancouver prices are double the average and perhaps three or four times the price of many other areas of the country so it is a rather unique example.

Now for those who believe that investments in the market and home ownership are essentially the same thing, try living in your investments. As I said previously, if home prices drop substantially, you still have a place to live. Perhaps the difference here is that I am talking about the average person, not wealthy, successful investors.

Personally, home ownership has worked out well for me over the years. But I have never looked at my house as an investment, it is my home.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

cwericb

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Re: Garth Turner - Real Estate in Canada
« Reply #355 on: February 15, 2015, 07:28:32 AM »
Not really a fair comparrison. What happens if your stock drops by 50% and you lose your job? What happens if your stock drops by 50% and you do not have the funds to buy more? What happens if your stock drops to zero or close to it by bad management?

Further, if your house drops and you lose your job, you still have to live somewhere. That is the difference. You are still going to have to pay either rent or mortgage payments. And, one other thing. Even in bankruptcies, few people lose their homes today.
Politicians and diapers must be changed often, and for the same reason. - Mark Twain

alertmeipp

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Re: Garth Turner - Real Estate in Canada
« Reply #356 on: February 15, 2015, 07:33:45 AM »
yes, I didn't buy a house and get crashed by using into oily stocks.

rb

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Re: Garth Turner - Real Estate in Canada
« Reply #357 on: February 21, 2015, 08:15:15 AM »
Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?

Jurgis

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Re: Garth Turner - Real Estate in Canada
« Reply #358 on: February 21, 2015, 08:51:08 AM »
Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?

You got it! You buy a bus for $198K and it provides 12% yield when you use it to show RE to Chinese RE tourists.  8)
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plato1976

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Re: Garth Turner - Real Estate in Canada
« Reply #359 on: February 21, 2015, 09:27:12 AM »
Did we take the depreciation into consideration?

Forget the yield. Where do I get something for 198k in Vancouver. Or maybe that's the price of the bus?

You got it! You buy a bus for $198K and it provides 12% yield when you use it to show RE to Chinese RE tourists.  8)