Canadians Precariously Close To Financial Instability

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (Rickson9 @ Sep 13 2010, 01:18 PM) I just saw this in the paper. It`s disturbing. Personally I find it hard to believe. Thoughts?

http://www.thestar.com/business/article/86...ity-study-finds
I tend to agree .. more or less .. without being an expert in stats or economics. One reason is that too many people have TOO BIG A HOUSE .. and the second that they drive TOO BIG A CAR. I call this "house poor" i.e. despite having a nice job and a nice income the payment on the house and the 2 cars every month makes you poor.

When I arrived in Canada in 1986 in my mid to late 20`s I owned nothing (except a used bicycle and less than $1000 cash). I was astounded how big a house people had when in their late twenties ! 3000 sq ft, double car garage, two cars, .. and a view that this is normal.

One reason for this indulgence is that cars can be leased for next to nothing down .. and houses can be bought with 5% down .. both essentially enslaving you to the bank !

Instead of renting from a landlord, and being flexible to move (up, down or sideways) any move now costs you ten`s of thousand of dollars in mortgage break fees and realtor fees !

A CMHC policy of more money down (say 10% for your first home, 20% for any subsequent, capped at a value that states "small is beautiful") and a more strict lending policy for car loans or leases would change that.

Canada`s financial strength was well admired during the crisis .. but what was not mentioned was that it did and continue to rely heavily on high demand resources and in-migration.

So yes, more savings and less big a house or car (until you can truly afford it) is in order in Canada !!

How about this: increase gasoline taxes by 500% from currently 20 or 30 cents to $1.20 to $1.50, add a 15% luxury good on every car over $20,000 and reduce CMHC insurance lending guidelines as stated. Not in a year .. but perhaps phased in over five .. beatifully simple without disrupting the economy too fast but to ensure saner consumption, a greener planet and a cleaner personal balancesheet !
 

Berubeland

New Forum Member
Registered
I`m not at all surprised.

I also remember seeing that the average Canadian renter`s savings were a total of $2000 and that is also probably true from what I`ve seen.

Many of my friends have asked me why I don`t buy a leased car or a bigger house in a better area. I tell them I hate monthly payments. Lots of them think I`m nuts, but my income varies from month to month and some months of the year are consistently horrible every year. For instance December has been a bad month for rentals for 13 years now. But lots of them get sucked in by the low low monthly payments without counting the annual cost of their decisions.

I have noticed is that the poorer people are the worst financial decisions they make. For instance some of the poorest people I`ve rented to are single moms on Ontario Works that seemed to be the majority of the applicants for that townhouse complex I was managing out in Oshawa. Almost all of them have rent to own furniture, which is crazy. Then none of them actually have bank accounts, they take their meager checks and pay Money Mart to cash them 3% I think it is, then they buy a money order for another 10$ to pay the rent.

Another weird factoid, when people get evicted they always seem to leave an inordinate amount of change on the floor. You never seem to see this in regular apartments vacated by normal tenants. Sure it may not be a fortune maybe a dollar or two but to me it signifies a lack of respect for money. Not sure if someone else has ever noticed this.
 

ontariolandlord

New Forum Member
Registered
I would always caution anyone when they quote the Toronto Star. It is a very Liberal paper with a clear agenda...usually against landlords and for government control. The Star is currently being sued by the Rob Ford for Mayor campaign team for libel.

I have many tenants on OW or ODSP who have expensive Blackberry`s, Apple computers, and always order the most expensive Vodka. The are not garnishable and thus landlords should be wary.
 

bizaro86

Frequent Forum Member
Registered
QUOTE (Berubeland @ Sep 13 2010, 04:29 PM) I have noticed is that the poorer people are the worst financial decisions they make.

This is certainly true, but the causation is backwards from this sentence. People who make bad financial decisions become poor people. They stay poor people, because they continue to make bad financial decisions. If they started making good financial decisions, then they would no longer be poor (or at least not for very much longer).

Michael
 

GarthChapman

Frequent Forum Member
REIN Member
QUOTE (bizaro86 @ Sep 14 2010, 08:16 AM) This is certainly true, but the causation is backwards from this sentence. People who make bad financial decisions become poor people. They stay poor people, because they continue to make bad financial decisions. If they started making good financial decisions, then they would no longer be poor (or at least not for very much longer).

Michael

Keen insight. And education is the key...the earlier the better, as the older we are the less willing we are to change our habits. And the `high` one gets from the instant reward of a bad financial decision is like a drug. Withdrawal is painful, but only for a short time.
 
R

RussellWestcott

Guest
Guest
These stats do not surprise any REIN™ members... you were presented all these and more many months ago. This is why we congratulate the REIN™ members for taking action and taking control of their financial futures. REIN™ members are not part of the masses, and are far from `normal`.

You can look at these stats from 2 angles

Oh no 6 out of 10 Canadians live paycheck to paycheck... or
... what am I willing to do to be one of the 4 out of 10, and how do I create a strong cash flowing real estate portfolio that will take care of me and my family in my retirement?


Oh no 59 per cent are stretching their pay to the absolute limit and expect they would be in financial difficulty if their pay was cut or delayed by one week... or
... what actions am I going to take today to ensure I increase my revenues, build my savings, and create a strong financial reserve that can weather any storm?

etc.... no matter how thin you slice it there are two sides to the story, you either use it to your advantage or pack your bags and be part of the masses... and REIN™ members have made the choice to take control of their financial futures

I love when these stats are published... I use these statistics to help present myself to potential money investors, it gives them a sense of financial urgency to get off the fence and look to creating income to help support themselves in the future.
 

JDaley

New Forum Member
Registered
QUOTE (RussellWestcott @ Sep 14 2010, 12:08 PM) Oh no 6 out of 10 Canadians live paycheck to paycheck... or ... what am I willing to do to be one of the 4 out of 10, and how do I create a strong cash flowing real estate portfolio that will take care of me and my family in my retirement?

If (short and long term) interest rates shoot up quickly and higher than people expect, the stats won`t be 6 in 10, it`ll likely be higher with an unexpecetd wave of foreclosures that is now drowning the US economy - and it can happen here. I think we should all be weary of these kinds of reports (Calgary Hearld/Toronto Star/OECD). What action would one take other than to sell-off non-performing RE/assets and/or reduce debt. In some cases where investors purchased at the peak, they can`t rid themselves of poorly performing assets without taking a significant loss (e.g., negative cash flowing properties, strutural problems, asset value decline etc), and buying in an uncertain economy (looking for a deal) when you`re (over?) leveraged is not wise. I think it would be interesting if REIN could establish a metric that defined what appropriate levels of leverage are for a RE investor in these uncertain times?

QUOTE (RussellWestcott @ Sep 14 2010, 12:08 PM) Oh no 59 per cent are stretching their pay to the absolute limit and expect they would be in financial difficulty if their pay was cut or delayed by one week... or
... what actions am I going to take today to ensure I increase my revenues, build my savings, and create a strong financial reserve that can weather any storm?

etc.... no matter how thin you slice it there are two sides to the story, you either use it to your advantage or pack your bags and be part of the masses... and REIN™ members have made the choice to take control of their financial futures

I love when these stats are published... I use these statistics to help present myself to potential money investors, it gives them a sense of financial urgency to get off the fence and look to creating income to help support themselves in the future. Respectfully.

The situation in the US will likely drag on for another 5 yrs or longer, why would I buy RE any time soon ? I respect your view, however I don`t agree this is a good time to buy RE, its akin to catching a falling knife - so to speak. As far as I understand, the recent surge in home purchases and the corresponding increase in home prices (now ended) was driven largely by younger couples with little to no net worth taking on large mortgages with artifically low interest rates (VRMs and even FRMs) - this isn`t the kind of buyer a wise investor would predicate a large long term investment on? I`d like to see stronger fundmentals in the RE market and the general economy as a whole before making further purchases.
 

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (JDaley @ Sep 14 2010, 04:03 PM) .. I`d like to see stronger fundmentals in the RE market and the general economy as a whole before making further purchases.
MANY cities in Canada, especially W-Canada have those strong fundamentals TODAY .. "the real estate market" doesn`t exist .. similar to "the stock market" .. many lose their shirt and many make a killing ! It is the flawless execution of a VERY SPECIFIC investment decision .. both in stocks and in real estate !

Many people have drowned in rivers one foot deep on average !!
 

JDaley

New Forum Member
Registered
QUOTE (ThomasBeyer @ Sep 14 2010, 05:53 PM) MANY cities in Canada, especially W-Canada have those strong fundamentals TODAY ..

Many people have drowned in rivers one foot deep on average !!

Given the lack of specifics in your message, I can only respond by saying I don`t agree.
 

housingrental

Frequent Forum Member
Registered
I support JDaley`s post
I think investing with much leverage, or in residential housing at this point in the vast majority of area`s in Canada is reckless
 

GarthChapman

Frequent Forum Member
REIN Member
QUOTE (JDaley @ Sep 14 2010, 05:13 PM) Given the lack of specifics in your message, I can only respond by saying I don`t agree.

I think Thomas is saying there is not a Canadian Real Estate market, but rather there are many individual markets, some of which are performing very well and have good economic fundamentals.

Or, said another way...water is good for you, on average. But some water can kill you. Now you don`t drink average water, you drink specific unique water. So make sure you know that the water you drink is of the good healthy variety...

Make sense?
 

2ndstory

New Forum Member
Registered
I also read somewhere that the average Canadian tax payer gives about $100 annually to charities. It may be more now, but that`s also pretty pathetic and a possible indication of poor financial health.

Nik
 

bizaro86

Frequent Forum Member
Registered
QUOTE (2ndstory @ Sep 15 2010, 09:43 AM) I also read somewhere that the average Canadian tax payer gives about $100 annually to charities. It may be more now, but that`s also pretty pathetic and a possible indication of poor financial health.
Nik

That`s quite sad, actually. I firmly believe anyone in Canada (who by default is probably in the top 20% economically worldwide) could be doing more than that. Of course, many contribute in other way, (ie volunteering, etc) so money isn`t the only way to give back, but still.

Michael
 

Thomas Beyer

Senior Forum Member
REIN Member
QUOTE (GarthChapman @ Sep 14 2010, 11:04 PM)
I think Thomas is saying there is not a Canadian Real Estate market, but rather there are many individual markets, some of which are performing very well and have good economic fundamentals.



..


indeed .. what has changed is that you need more money down (i.e. less leverage) AND the upside is not as fast (likely not 5-6%/year on average .. but around 3% in healthy cities)



See analysis of an average 14% expected return with 30% down, no cash-flow and an average 3% annual appreciation: http://myreinspace.com/rein_members_only/Members-Only_Discussion/81-17992-91637-3_Rule.html#91637



Specifically, what is a healthy city ? One with

a) in-migration

b) job diversity

c) job growth

d) low taxes

e) improvements for transportation and life style

f) plus a few others such as "growth atmosphere, average income growth, affordability, etc. .."



REIN has their 'Goldmine Scorecard" .. so check out that list of 10 criteria here: http://myreinspace.com/downloads/critical_forms/m/due_diligence_forms/55.aspx



REIN has published the Top 10 report for BC, ON and AB .. so take any 3 cities .. or the Top 3 per province and there you have nine healthy cities to chose from.



Will every townhouse you buy in any of these 9 cities perform well ? No, because some are too expensive and some are in neighborhoods with less growth appeal. But if you do your neighborhood and specific asset due diligence you can find a large number of assets that make sense to own 5-6 (or more) years and you will say 5 years from now: to buy this property was a wise decision !!



On the flip side, what I was saying is that the "old norm" of 20% down (or less), in any city with little research will NOT make you money unless you get lucky. The easy money in real estate is gone for a while. Too many folks (some REIN members included) want an easy, fast, no headache, no work, quick buck .. this is not real estate investing. It is called gambling. Some get lucky .. but on average you lose !
 

safsad

Inspired Forum Member
Registered
Should we wait for the inevitable downturn and buy later.I understand that if a good deal comes along we can act now.however the good deal may be available as a " great" deal in a few months.
 

Rickson9

Senior Forum Member
Registered
QUOTE (ontariolandlord @ Sep 13 2010, 10:49 PM) I would always caution anyone when they quote the Toronto Star. It is a very Liberal paper with a clear agenda...usually against landlords and for government control. The Star is currently being sued by the Rob Ford for Mayor campaign team for libel.

I have many tenants on OW or ODSP who have expensive Blackberry`s, Apple computers, and always order the most expensive Vodka. The are not garnishable and thus landlords should be wary.

Good point! I don`t know what the source of the information is. I originally read it on The Toronto Star, but have since seen it in the other publications (Globe and Mail, National Post, etc.).
 

RebeccaBryan

Inspired Forum Member
Registered
QUOTE (Berubeland @ Sep 13 2010, 04:29 PM) I`m not at all surprised.

I also remember seeing that the average Canadian renter`s savings were a total of $2000 and that is also probably true from what I`ve seen.

Many of my friends have asked me why I don`t buy a leased car or a bigger house in a better area. I tell them I hate monthly payments. Lots of them think I`m nuts, but my income varies from month to month and some months of the year are consistently horrible every year. For instance December has been a bad month for rentals for 13 years now. But lots of them get sucked in by the low low monthly payments without counting the annual cost of their decisions.

I have noticed is that the poorer people are the worst financial decisions they make. For instance some of the poorest people I`ve rented to are single moms on Ontario Works that seemed to be the majority of the applicants for that townhouse complex I was managing out in Oshawa. Almost all of them have rent to own furniture, which is crazy. Then none of them actually have bank accounts, they take their meager checks and pay Money Mart to cash them 3% I think it is, then they buy a money order for another 10$ to pay the rent.

Another weird factoid, when people get evicted they always seem to leave an inordinate amount of change on the floor. You never seem to see this in regular apartments vacated by normal tenants. Sure it may not be a fortune maybe a dollar or two but to me it signifies a lack of respect for money. Not sure if someone else has ever noticed this.


Yes, I`ve noticed the "money on the floor" thing. EVERY TIME!!! Once I actually found 3 loonies!!! Isn`t that crazy? I don`t regularly buy lottery tickets, but just for some fun I purchased lottery tickets with the change. :)
 

RebeccaBryan

Inspired Forum Member
Registered
QUOTE (housingrental @ Sep 14 2010, 06:31 PM) I support JDaley`s post
I think investing with much leverage, or in residential housing at this point in the vast majority of area`s in Canada is reckless


Well, it`s good that opinions don`t change facts. And it`s good that we`re not investing in residential housing in the vast majority of areas, we`re just making sound investments in specific areas and following the REIN system. And.... I might add.... listening to the people with obvious success.
 
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