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Old 01-13-2008, 11:22 AM   #61
Claeren
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It is funny that buying is ALWAYS better and you can 'never lose on real estate long term' when real estate has probably bankrupted more people in the world than ANY other thing?!


Renting v. buying (and most other questions in regards to real estate) have EVERYTHING to do with timing.

Timed right, even marginally right, and real estate is one of the best investments you can make.

Timed wrong, even marginally wrong, and it can be one of the worst investments you can ever make.


Renting, beyond offering flexibility to move about, is also about staying out of a bad market until a better market presents itself.

I have a friend who paid ~$289k for a downtown (Bridgeland) condo in Calgary a year ago at the height of the boom - at what SEEMED to be a FANTASTIC price at the time. The unit one floor below them just sold for $259k after sitting on the market for 2 months. My friend would have been FAR FAR FAR better renting for that year, saving the difference between rent and the mortgage payment, and then buying today. Factoring in an extra ~$6000 in downpayment and the $30,000 savings over 25 years? It is not even close.


Lots of people will time it the opposite way, and lose out due to renting though...


Perhaps the most interesting thing is that the market almost always moves in large dramatic shifts after years of inactivity. You can rent for 20 years of stagnant market, buy a house right before an upwards shift, and have been far better off than someone who owned that entire time (More cash flush, less downside exposure, more life-flexibility, less maintenance/tax/etc.) The leveridged equity shift was worth more than the slowly accumulated after-bank-interest equity in the actual house. The real reason buying is likely better is that (despite peoples confidence to the contrary) timing the market is so incredibly difficult, that by buying you are guarenteed to be in the market when prices shift dramatically upwards in a 1-3 year period.




Claeren.

Last edited by Claeren; 01-13-2008 at 11:25 AM.
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Old 01-13-2008, 12:48 PM   #62
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I started up a blog to discuss the Calgary real estate market:

http://calgaryrealestatemarketblog.wordpress.com/

I hope to add more and more content.
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Old 01-13-2008, 06:05 PM   #63
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Quote:
Originally Posted by Radley77 View Post
Or spend $450,000*.06= $27,000 to bank in interest
vs. renting at your $1000*12= $12,000 in rent?

It's a game of which is the lesser evil...

By the way, I agree that bonds aren't the best investment vehichle, but I think it is a valid comparison because bonds are 100% safe, so I'd hope that anything I invest in has a spread above the long term bond to compensate me for taking that risk.
How about some real numbers. I rent a condo out for $1200/month that is worth about $260,000 or so.

So, following your math:

$260,000*.06=15,600 in interest to the bank (+ the equity built up as the property increases in value)
$1200*12=14,400 in rent with no return.
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Old 01-13-2008, 08:34 PM   #64
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Originally Posted by Eric Vail View Post
How about some real numbers. I rent a condo out for $1200/month that is worth about $260,000 or so.

So, following your math:

$260,000*.06=15,600 in interest to the bank (+ the equity built up as the property increases in value)
$1200*12=14,400 in rent with no return.
What if it doesn't go up, but down instead?
What if you bought a year ago and are now "down" 40K or more? It'll take more than a few sleeps to get that money back. Plus ownership includes property taxes and upkeep which could easily add 2-3K a year.

Not direct questions to you, but a few points nonetheless.
Renting makes a lot of sense in certain markets.
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Old 01-13-2008, 09:26 PM   #65
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I realize that. The fact is with every mortgage payment you are contributing to your own equity. At first it's not much but eventually you will own it outright plus all the appreciation that has occured over the term of the mortgage.
Now you're either contradicting or changing your argument. Previously you stated:

Quote:
If you put 10% down on a house and it appreciates 10% (whether that takes 1 year or 10 years) you just made 100% return on your money.
So if your house appreciates 10% in one year you don't make 10% on your money because you've been paying pretty much your entire mortgage payments towards interest. That also doesn't take into account closing costs on your house or the annual property taxes.

Whether or not renting or owning makes the most financial sense is not a black and white question. It depends on the market.
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Old 01-13-2008, 09:33 PM   #66
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Dude, you have to pay to live somewhere. If you manage to overlap that cost with an investment (ala "owning real estate") you have a net gain when your property appretiates in value.
Are you just playing devils advocate here? I mean, there's nothing wrong with not owning (hell, I'm in real estate and I don't own) but it has much more to do with lifestyle than with dollars and sense.
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Old 01-13-2008, 10:37 PM   #67
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Quote:
Originally Posted by Red View Post
What if it doesn't go up, but down instead?
What if you bought a year ago and are now "down" 40K or more? It'll take more than a few sleeps to get that money back. Plus ownership includes property taxes and upkeep which could easily add 2-3K a year.

Not direct questions to you, but a few points nonetheless.
Renting makes a lot of sense in certain markets.
You need to buy in a market that has a good chance of properties going up in value. Alberta, and specifically Calgary, is a market that CMHC expects to rise in value. I wouldn't buy in a place like PEI right now, because their depressed economy doesn't look like it is going to improve any time soon, and therefore their properties may decrease in value.

I bet those who bought in Calgary at the height will be in good shape in a year or two. Over time, real estate increases in value in places where the economy is good. As long as we are driving gasoline powered engines, Calgary's economy will be good. With oil prices over $100/barrel, we are in good shape here. Our real estate blip will correct itself soon enough.

I do agree that renting makes sense in certain markets - like ones that have large vacancy rates on rentable units, which would drive down rents.

One thing that hasn't been brought up is the tax implications. Whatever increase in value on your principle residence is tax free. Any investment that you have, you will have to pay significantly more tax on your earnings.
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Old 01-13-2008, 11:17 PM   #68
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Quote:
Originally Posted by Claeren View Post
It is funny that buying is ALWAYS better and you can 'never lose on real estate long term' when real estate has probably bankrupted more people in the world than ANY other thing?!
Funny, it's probably made more people rich then anything else in the world as well.
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Old 01-13-2008, 11:47 PM   #69
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Funny, it's probably made more people rich then anything else in the world as well.
90% of the world's wealth was created through Real Estate.
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Old 01-13-2008, 11:48 PM   #70
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^^is that a jab at the catholic church...
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Old 01-14-2008, 08:41 AM   #71
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Clearly there are a lot of factors to consider when thinking of real estate as an investment. One thing to keep in mind, however, is other value home ownership brings.

For instance, my wife and I lived in a basement suite until we bought our house. We had a decent landlord and really nice people living above us. The rent was a steal and the location worked out nicely for both of our commutes to work.

Then we went and had a kid. It got to the point where we just didn't want to raise our child underground anymore. We enjoy natural light too much. Plus, dealing with the generally cold temperatures and abundance of spiders often associate with basement suites became too much.

Even after running the numbers and knowing we would be better off financially if we continued to rent, we decided to purchase. The increased cost and lost investment opportunities, to us, are just the premium we pay for other things that we value. It's a fantastic feeling to unlock the door to your new home or pour over a plethora of potential colours to paint your child's bedroom. Knowing we have full control over the thermostat and other utilities in our home, not hearing neighbors walking around above us (no matter how nice they were) and being able to turn my music up as loud as I want without worrying about disturbing others are all of significant value to me.

Call me financially irresponsible. Call me an idiot. There is more to home ownership than simply dollars and cents. If you're looking at purchasing from a purely financial point of view, you might be missing out on some things. For us, buying a home was the right decision despite the costs. Your results may vary but you shouldn't discount these other reasons simply based on a balance sheet.
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Old 01-14-2008, 09:17 AM   #72
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Early 80s Calgary is NOT the same as 2008 Calgary.

The economics of each situation are completely different. The only similarity I can see is the cost of housing was high in both times.
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Old 01-14-2008, 11:22 AM   #73
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There sure are a whole lot of very wealthy intelligent dummies out there.

95% of people did not buy there home at the absolute peak (unlike fredr123 of course) so any retreat in prices will be equity that was never realized.

Wait... what did you call me?
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Old 01-16-2008, 12:14 PM   #74
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For what it's worth, CREB predicting a 5% increase in the average price for single family; 6% for condos: http://www.canada.com/calgaryherald/...a50aa92&k=9483
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Old 01-16-2008, 12:33 PM   #75
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Originally Posted by fredr123 View Post
Even after running the numbers and knowing we would be better off financially if we continued to rent, we decided to purchase. The increased cost and lost investment opportunities, to us, are just the premium we pay for other things that we value. .
Lost investment opportunities?

Home ownership, through time, is probably the best investment you'll ever make.

It should be the underpinning of planning for any younger couple in particular.

After all, you could end up being one of those little old men renting downtown, seeing his rent jacked to the moon and unbelievably complaining to the Calgary SUN that his landlord somehow owes him a cheap place to live in the hottest real estate market in the country.

He probably made a lot of deliberate choices earlier in his life that led him to end up in that situation, where someone had control over his destiny.

I have zero sympathy for him.

So . . . . I think you did the right thing in buying that home but I don't think you were sacrificing as much as you think . . . . . the sacrifice would have been the circumstances you found yourself in for not doing it eventually.

Absolutely own your own home. Own the place where you live. ASAP.

My two cents.

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Old 01-16-2008, 01:17 PM   #76
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New real estate boss takes out crystal ball

Ed Jensen predicts a year of balance

http://www.canada.com/calgaryherald/...a3bffc&k=42233

Q: What is going to happen this year?

A: That's the crystal ball. Employment is great, net migration is going to be down . . . but it still shows a great number which supports demand, interest rates (are good as is) the general economy of Alberta and the energy sector, inventory (of homes) is coming back down from a high standard. . . .

Using the basic principles of supply and demand, we're moving towards a balanced marketplace . . . 2008 is going to be a great year of opportunity for both sellers and buyers.

Q: What is your advice to buyers in this market?

A: Buy as soon as possible. Buy now.

. . . From the buying perspective, there's no question in my mind that 2008 is going to be an excellent year and I believe that the prices will increase. So buy now while there's selection.
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Old 01-16-2008, 01:50 PM   #77
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A couple of quick thoughts.

I find it funny how anyone associated with the real estate industry has only one piece of advice. Buy Now.

Good market:
- Buy now because prices are going up.

Bad market:
- Buy now because the selection is good and it is a buyers market.

I like Scott Adam's 9 point financial plan. In it he says: "Buy a house if you want to live in a house and you can afford it".
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Old 01-16-2008, 02:08 PM   #78
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A couple of quick thoughts.

I find it funny how anyone associated with the real estate industry has only one piece of advice. Buy Now.

Good market:
- Buy now because prices are going up.

Bad market:
- Buy now because the selection is good and it is a buyers market.
Good Point. Jensen's advice to sellers:

Q: What is your advice to sellers in this market?

A: Sell now.
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Old 01-16-2008, 02:09 PM   #79
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The absorption rate is abysmal at 4.68 according to the website at: www.andrewkyle.com

You can use the following methodology to help predict the price change per month. Notice that if the absorption rate is much more than 3.5 it is very likely that there will be price decreases. According to the calculation, with an absorption rate of 4.68, I end up with a price decrease for $16,000 for the month.

If you are interested in following the Calgary real estate market I made a blog at, I hope to be posting more information soon:

http://calgaryrealestatemarketblog.wordpress.com/


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Old 01-16-2008, 02:31 PM   #80
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Never mind...

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