- Joined
- Aug 30, 2007
- Messages
- 13,879
I received this personal message .. and it is abbreviated .. but I thought I'd give this answer here and my world view right now for those who like to hear it .. for those you were spooked like me for the last few months .. for those who've lost 20% (or more) of their RRSP or stock portfolio (like me) .. and for those with a large or small cash-flowing real estate portfolio (like me) who wonder: buy more, sit tight, sell everything, do nothing, improve what we own or what ....
QUOTE
...
With everthing thats talked about and guys like harry dent talking of large scale depression. I'm not sure of anything these days.
The event talked about for late 2009 happened a year earlier: a collapse of trust and failing banks in the last few months .. this is now being dealt with .. and thus, stock market tanked 40-50% .. and real estate values went down to more normal levels .. from -10% in Alberta to -30% in Kelowna/Vernon/Canmore to perhaps -60% in some overheated California and Florida markets ..
The world's government action has been UNPRECEDENTED, both in terms of size and speed: flooding the system with low interest rates, $s, bailouts, loan guarantees, buying back commercial paper and mortgages, stimulus packages .. all that means to me: higher inflation going forward .. after a value calibration back to normal.
So, the 50 year view depicted here is still quite accurate:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
So, if you can borrow money at 4-6% with inflation being 6% or so .. and buy real estate at 75% leverage WITH CASH FLOW .. that is a very prudent investment. While we will not have the booming 2000's going forward, with prices doubling in an unhealthy 4-5 years, we still have
a) inflation of easily 5-7% once this calibration down to a normal level is over
b) in-migration / population growth of over 1% into North-America (and thus, no deflation like Japan which has a declining population) or higher in certain sub-markets
c) A huge and growing Asian + South American middle class that wants cars, fridges, A/C, cell phones, travel, lifestyle, condos, .. i.e. everything we take for granted in NA (thus driving Canadian supplied resource demand for uranium, oil, gas, copper, nickel, cement, steel, coal ...)
d) a growing world population until about 2050
e) a stable (or being stabilized) banking system
f) no major wars between developed nations
g) more cars will be on the world's roads .. and gasoline is still the cheapest way to propel them for many decades to come ..
h) some markets where you can buy well below replacement (or build) cost .. so that oceanfront condo in Miami that costs $400/sq ft to build is now selling for $200 / sq ft .. how long will this last .. or some incredible bargains in the stock market
What has changed is that banks will lend less, ask for more security and thus, you'll be less levered .. but still you can get 95% financing on Canadian real estate as an investment or as your own home ... we just bought a property in Sudbury, ON (93 units) and one in Campbell River, BC (65 units) with leverage over 80% and rates well below 5% .. with cash-flow even with a 20% vacancy .. and excellent rental upside on renovated units ... with tremendous cash-on-cash ROI ... WHERE IS THE RISK HERE ??
Yes, lending environment is more difficult .. yes, it will take a more normal 15 years for real estate to double in value .. yes, some markets will still have to decline some more .. yes, we still have some unstable banks and manufacturing companies out there .. yes, oil might go down to $30 for a while .. BUT very healthy growth is in the pipeline despite all the gloom-and-doom media reports due to items a-h above !
Happy, but more prudent investing !
QUOTE
...
With everthing thats talked about and guys like harry dent talking of large scale depression. I'm not sure of anything these days.
The event talked about for late 2009 happened a year earlier: a collapse of trust and failing banks in the last few months .. this is now being dealt with .. and thus, stock market tanked 40-50% .. and real estate values went down to more normal levels .. from -10% in Alberta to -30% in Kelowna/Vernon/Canmore to perhaps -60% in some overheated California and Florida markets ..
The world's government action has been UNPRECEDENTED, both in terms of size and speed: flooding the system with low interest rates, $s, bailouts, loan guarantees, buying back commercial paper and mortgages, stimulus packages .. all that means to me: higher inflation going forward .. after a value calibration back to normal.
So, the 50 year view depicted here is still quite accurate:
http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-6621-50_Year_Calgary_House_Price_View.html
So, if you can borrow money at 4-6% with inflation being 6% or so .. and buy real estate at 75% leverage WITH CASH FLOW .. that is a very prudent investment. While we will not have the booming 2000's going forward, with prices doubling in an unhealthy 4-5 years, we still have
a) inflation of easily 5-7% once this calibration down to a normal level is over
b) in-migration / population growth of over 1% into North-America (and thus, no deflation like Japan which has a declining population) or higher in certain sub-markets
c) A huge and growing Asian + South American middle class that wants cars, fridges, A/C, cell phones, travel, lifestyle, condos, .. i.e. everything we take for granted in NA (thus driving Canadian supplied resource demand for uranium, oil, gas, copper, nickel, cement, steel, coal ...)
d) a growing world population until about 2050
e) a stable (or being stabilized) banking system
f) no major wars between developed nations
g) more cars will be on the world's roads .. and gasoline is still the cheapest way to propel them for many decades to come ..
h) some markets where you can buy well below replacement (or build) cost .. so that oceanfront condo in Miami that costs $400/sq ft to build is now selling for $200 / sq ft .. how long will this last .. or some incredible bargains in the stock market
What has changed is that banks will lend less, ask for more security and thus, you'll be less levered .. but still you can get 95% financing on Canadian real estate as an investment or as your own home ... we just bought a property in Sudbury, ON (93 units) and one in Campbell River, BC (65 units) with leverage over 80% and rates well below 5% .. with cash-flow even with a 20% vacancy .. and excellent rental upside on renovated units ... with tremendous cash-on-cash ROI ... WHERE IS THE RISK HERE ??
Yes, lending environment is more difficult .. yes, it will take a more normal 15 years for real estate to double in value .. yes, some markets will still have to decline some more .. yes, we still have some unstable banks and manufacturing companies out there .. yes, oil might go down to $30 for a while .. BUT very healthy growth is in the pipeline despite all the gloom-and-doom media reports due to items a-h above !
Happy, but more prudent investing !
