Investing money....

[Mike Oxlong]

Originally posted by I-Hate-Hulse@Feb 14 2005, 09:14 PM
Mike, we agree to disagree on real estate as an "sure thing investment", particularly around carrying costs of capital.

However, there's one thing I think we can both agree on is that there are lot of variables and factors to consider in real estate, for which small subtleities can make or lose you a lot of money.

I guess I'm just trying to say that an individual person has to consider these variables as it pertains to themselves and their situation, and without doing that it's wrong to say that real estate is a surefire thing.


YMMV

I have never said that Real Estate Investing is a "sure thing". I don't think there is any such thing.

I just feel it is the safest most profitable investment out there. Especially when you compare it to stocks.

As far as variables affecting prices go, I feel that Stocks are far more vulnerable to these variables and as a result way more volatile and risky.

To each their own though......

[Claeren]

The worst (well, not the best anyways) time to buy investment real estate is when interest rates are low, ironic of course considering the hype in Calgary these days....

You are buying in at the wrong time in the cycle. Sell when rates low, buy when high. Stocks are usually the inverse of real estate, so buy when returns are low (and prices low) and sell when (or after really) returns are high (when prices are high).

The VERY significant majority of return on investment in stocks in history has taken place over a dozen or two DAYS. Likewise with real estate, the majority of profit is made when a bad (high interest) market turns the corner and, as people cash out of the stock market, buy homes en-mass.

The only way to capitalize on those major profit periods is to have invested counter to what might 'feel natural' (ie: buying a house when rates are low).


Claeren.

[dustygoon]

Originally posted by Mike Oxlong+Feb 14 2005, 06:37 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Mike Oxlong @ Feb 14 2005, 06:37 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-I_H8_Crawford@Feb 13 2005, 05:24 AM
If you really want to learn about investing; get a couple of books, the first one is titled "Rich Dad, Poor Dad" and there's a couple after that... great ideas on how to invest and such, as well see a professional, but whatever you do, don't diversify your portfolio!

I couldn't agree more!! Those Rich Dad Poor Dad books are the way to go. Reading them has completely changed my outlook on finances.

Stay away from Mutual Funds, they are not performing right now and the management fees are the biggest rip off in investing right now.

I think land and real estate are one of the best investments you can make. 90% of the worlds wealth has been created through Real Estate and there are now opportunities for people like us to get in on these land investments where before it cost hundreds of thousands if not millions of dollars to invest and buy land.

The very wealthy have been using land to get rich for YEARS. It is an amazing investment, especially since they aren't making anymore of it. Plus it is one of the safest investments out there. Have you ever seen land values decrease? Especially in a city like Calgary where the demand for more and more land is constant because of so many people moving here.

Let me know if you are serious about making some money and I can give you some more information on these land investments. All you need is $5000 to get going and it sounds like you have that covered. Another bonus is that they are all RSP eligible as well so you get the tax benefits of mutual funds but a WAY better return.

I didn't even have $5000 to start but I have transferred my Mutual Funds (which were getting terrible returns) into this investment. That is another option for people who don't have the cash laying around. Transfer your lousy RSP's into this land investment.

PM me if you are interested. I promise you won't be dissapointed. [/b][/quote]
If you want equity exposure through a mutual fund but with minimal management fees, try Exchange Traded Funds (ETF's).

www.ishares.com

The units trade like shares of an individual company. You are buying an index when you buy one of these. Many mutual funds benchmark to these funds.....these mutual funds perform pretty similar to the index once you take out their management fees.

[InTheSlot]

The stock market. (But only if you're ok with losing that 7K)

[V]

Here's my math for the real estate route, and I'm using numbers that are probably more generous to the anti-real estate argument.

Invest 15,000 to purchase a $150,000 house. Sell the house after 5 years. Rent the house for 850 bucks a month, pretty cheap rent.

All rent money goes to pay mortgage.

After 5 years the 135,000 mortgage is now 112,000.

The house increases in value by 6% per year. Again, pretty small increases. This means that the house is worth 200,000 after 5 years.

Spend 2,000 dollars per year in upkeep for the house. Maybe a little high, but I'm going for worst case scenario here. At the same time, this money being spent for upkeep can be used as tax deductible.

Transaction costs for selling the house at 10,000 dollars. Again, a little high. Quite high if you sell the place yourself.

So the math looks like this.

Invest 15,000
Take 88,000 out of house after five years.
Spend 20,000 in upkeep and transaction costs.
Walk away with 68,000 dollars.

That's 450% over 5 years. I'd say that's a pretty good return for a pretty safe investment. Now I just need to find 15,000 bucks.

[jam26]

Craps is fun.

[flamesfever]

MMM

As some have suggested, what you do with the 7K depends on a number of factors. For example your risk tolerance i.e.how much you're willing to lose, or how much volatility you can stand before it affects your sleep, blood pressure, etc.
In addition, how much time you have to invest, what field of expertise you have the most knowledge in etc.

I would suggest looking for an investment advisor that you can trust, feel comfortable with, and that has a solid track record.

I also have a few rules that I believe help build wealth, if that is your goal:

1. Limit yourself to one credit card and pay off the balance every month.

2. Never buy a new vehicle, unless you intend to keep it for 10 or more years.

3.Have most of your investments in real things like real estate, land, etc.

4. Don't spend a high proportion of your income on toys like skidoos, ATV's, boats, trailers, etc.

5. Start learning to invest as young as possible. You may want to consider taking the Canadian Securities Course.

[albertGQ]

Bet all your money on red in roulette!!!

Double your money in less then 5 minutes!!!

[I-Hate-Hulse]

Dominic - there a few other things to add to your analysis to get a true cost.

First, your residual portage principal is off by about $10,000 after 5 years. Here's a great little calculator I found that generates amortization tables (using $135K loan, 6% rate, 25 yr amort, 850 payment)

http://mortgages.interest.com/content/calc...amort_chart.asp

Property Tax: $7500 (1% of $150,000 over 5 years, would theoreticaly be higher as house appreciated)

CMHC Insurance (You're only putting 10% down, 2.5% x $135K). $3375

So to recompute:
Value of Home in 5 yrs: 200,734
Remaining Mort Princiipal after 5 yrs: 122,790
Transaction / Upkeep: 20,000
Prop Tax: 7,500
CMHC 3,375

Gain after 5 years. 47,068


Not bad. But this model has 2 major areas of sensitivity:
1) Mortage rates don't rise. (TD has a posted 6% 5 yr close today)
2) Real Estate values will continue to rise 6% a year.

As for 1), if the mortage rate were to increase to 7% , you would pay about $8,000 less against principal. That makes your total gain about $39,000.

As for the continuing rise of real estate values, that a matter of considerable debate. Google "real estate bubble" and you'll find a variety of debate on the topic. I'd tend to say no, but of course, this is all dependent on the characteristic of the house or type of dwelling you buy.

By contrast, $15,000 invested at a compounded avg growth rate of 20% yields $37,325 after 5 years. Potentially less than real estate, yes, but the gap is not a big as it would seem at 1st glance. Arguablly, depending on your skill in the markets, you might even be able to get more than a 20% CAGR.

The point of all this number crunching is to show how sensitive an investment decision such as real estate are to a number of variables, just like all other investments. A small change or costs omitted from that analysis can have a big impact on the actual return. One of the biggest variables is whether you'll living in your property or renting it out to someone.

I'll say it again, real estate is certainly one option for investing out there but it's quite situational to the person involved. As such it doesn't always provide big returns for everyone.


Want to really blow your mind? The Rent vs Buying your decision for a house..... (cashing out your equity in your house, and compound saving the difference between owning and rental costs...). Again, all situational.

I just bought a Super 7 ticket today myself.... :P

[V]

All very valid points Hulse hater.

I guess the stocks scare me because of the unknown, whereas I feel comfortable with owning a house because I already own one, and I can do my own renos. So I have my eyes open on the way in. Getting into stocks means I have to rely on 'experts' to tell me the truth, and I really won't be able to tell what's good advice and what isn't.

I've never heard of anyone going bankrupt from buying houses. There are plenty of stories of people picking the wrong stock and losing everything.

[Mike Oxlong]

IHH

You try to make valid points with Real Estate investing but they just don't work.
No interest rates aren't always going to be at 5%. However, you can get a variable rate mortgage at 3.5% and then lock in for 5 years at 5% or lower. So really you are going to have that 5% security for at least 5 years.

Will housing prices continue to go up? Chances are yes. In Calgary anyways. Look at the prices in Toronto, Montreal, and Vancouver. People there think Calgary housing prices are a steal the same way we think Winnipegs prices are a steal. As Calgary continues to grow the same way Toronto, Montreal, and Vancouver did, our prices climb along with them. So as a whole you can predict that Calgary's market is on the rise. Sure there might be a few ups and downs but overall they are going to rise.

Stocks are just way too hard to pick. Sure you might get really lucky and pick one that makes you 20% a year but how many others have you picked that lose you 20% or more a year. The Real Estate market moves as a whole and is way easier to predict.

Look at housing prices back in the 40's and 50's. People were buying houses for $30,000 and they thought that was as high as prices would ever go. They could not see Real Estate prices ever climbing any higher. Yet over and over again they continue to rise.

Real Estate is a good investment because it is inflation proof. It is actually is one of the driving factors of inflation. So as the cost of living rises so does your Real Estate investment. As opposed to something like a Mutual Fund. Say you decided to retire with $1million in mutual funds in 30 years. The cost of living doubles almost every 15 years. So that million is actually going to be equivalent to $250,000. Pretty scary to think......

Invest in RSP eligible land, the best of both worlds and maintenace free.

[I-Hate-Hulse]

Originally posted by Dominicwasalreadytaken@Feb 15 2005, 03:21 PM
All very valid points Hulse hater.

I guess the stocks scare me because of the unknown, whereas I feel comfortable with owning a house because I already own one, and I can do my own renos. So I have my eyes open on the way in. Getting into stocks means I have to rely on 'experts' to tell me the truth, and I really won't be able to tell what's good advice and what isn't.

I've never heard of anyone going bankrupt from buying houses. There are plenty of stories of people picking the wrong stock and losing everything.

Dominic - Fair enough - any investment "book" will tell you that knowledge is the key to sucessful investing. And I don't mean insider information, but an appreciation for the risk factors that exist, regardless of what you invest in. Mike is saying that the risk levels and rewards associated with Real Estate are far superior to other investment vehicles. I've tried to show that there is a great deal of sensitivity in real estate to risk factors and that the payoff is vulnerable to a series of risk factors too. The numbers and factors are out there and people reading this thread are able to form their own opinions.

If you're OK with the lifestyle and the sweat equity, I think one of the best things to do is buy old dumpy houses in great areas. Fix em up nice yourself, live in them long enough to declare it your primary resident for CCRA, and then sell. Great way to make some money if you like the nomadic and DIY lifestyle. But it's totally dependant in the situation, it DOES NOT work for everyone.

Me? I bought CNRL stock on Jan 25 at $52.50 and I see it's at $66.70 today. That's a 27% gain in about 20 days. 492% per yr if you think it'll rise forever like real estate. Could it go down, yes it's just like all other investments, but in 3 clicks of the mouse I can sell it . Got to love liquidity.

Mean Mr Mustard was looking for somewhere to park $7,000. Poor guy. After all this "advice" he's probably just blown it on sex and booze.....

[Mike Oxlong]

Mean Mr Mustard was looking for somewhere to park $7,000. Poor guy. After all this "advice" he's probably just blown it on sex and booze.....

Sometimes that isn't a bad investment either.....More of my money has been "Invested" in that than I should have.

[I-Hate-Hulse]

The Economist recently put out an interesting article on the "Rent vs Buy" decision. Also speaks to the overvaluation and slowdown in parts of the world in real estate. Not saying that it is entirely applicable to Canada - interest is not tax deductible here like it is elsewhere in the world.

Link

[Claeren]

Great article....

Calgary is such a hard market to read though, where bad things for other regional-markets are good for us and good things for other regional-markets are not necessarily bad for us....

Claeren.