Why I Will Always Buy Real Estate

[qdsouza]

I found this an interesting and motivating read by Ozzie Jurock:
Why I Will Always Buy Real Estatehttp://http://www2.jurock.com/articles/columnist.asp?id=8237

Take Care,

Quentin

 

[wealthyboomer]

QUOTE (qdsouza @ May 28 2008, 12:50 PM) I found this an interesting and motivating read by Ozzie Jurock:
Why I Will Always Buy Real Estatehttp://http://www2.jurock.com/articles/columnist.asp?id=8237

Take Care,

Quentin


As long as you understand demographic investing, then you will do well. Demographics always tell 2/3 of everything.

 

[wealthyboomer]

QUOTE (qdsouza @ May 28 2008, 12:50 PM) I found this an interesting and motivating read by Ozzie Jurock:
Why I Will Always Buy Real Estatehttp://http://www2.jurock.com/articles/columnist.asp?id=8237

Take Care,

Quentin


History suggests that flat real estate prices (flat, that is, once you deduct the effects of inflation) are the norm. Robert Shiller, a Yale economist, tracked U.S. real estate markets between1890 and 2005 and found that home prices edged up a mere 0.4% a year in real terms over more than a century. Another study, by Dutch economist Piet Eicholtz, traced prices in a neighborhood of Amsterdam over 345 years and found they went up and down a lot, but over the long haul averaged a miserly gain of only 0.2% a year after inflation. The conclusion: real estate seems to keep pace with inflation over the long term, but that`s about it.

So why have so many cities in Canada experienced such huge gains in home values over the past decade? In Toronto, for instance, an average resale home went for $195,000 in 1995. If it had merely kept pace with inflation, it would be worth $242,000 today. Instead, it fetches more than $375,000. No doubt a strong economy and continued immigration have played a role in boosting prices so far and so fast, but it`s not clear why those forces should boost only home prices and not rents for apartments as well. Rather than soaring like home prices, rents have inched up only at about the rate of inflation.

 

[JohnS]

QUOTE (wealthyboomer @ May 29 2008, 04:24 AM) No doubt a strong economy and continued immigration have played a role in boosting prices so far and so fast, but it`s not clear why those forces should boost only home prices and not rents for apartments as well. Rather than soaring like home prices, rents have inched up only at about the rate of inflation.


There`s at least one fairly obvious reason why rents haven`t gone up more, at least in recent years - Or, I guess, it`s obvious if you live in or invest in Ontario. The government limits the amount that rents can go up, but it doesn`t do the same for house prices. Offhand, I don`t know the rental increase percentage for 2008, but I think it`s either 1.8% or 1.4%. Either way, though, it`s low.
Now, we haven`t had that policy for the entire history of Ontario, but it at least explains the recent lack of rental increase movement.

Have a good one!

JohnS

 

[Thomas Beyer]

QUOTE (wealthyboomer @ May 29 2008, 02:24 AM)
History suggests that flat real estate prices (flat, that is, once you deduct the effects of inflation) are the norm. Robert Shiller, a Yale economist, tracked U.S. real estate markets between1890 and 2005 and found that home prices edged up a mere 0.4% a year in real terms over more than a century. Another study, by Dutch economist Piet Eicholtz, traced prices in a neighborhood of Amsterdam over 345 years and found they went up and down a lot, but over the long haul averaged a miserly gain of only 0.2% a year after inflation. The conclusion: real estate seems to keep pace with inflation over the long term, but that's about it.




EXACTLY !!!



We live in inflationary times. Inflation is around 5%, not the published 2% !! So if you use on average a 5% annual upside on an asset with no cash flow and 25% down you would make 20% cash-on-cash .. which is HUGE compared to the stock market of around 8 - 10% ! Take that same condo or apartment building and put down only 20% with break even cash-flow and you'd make 25% YEAR OVER YEAR !!!



THAT's WHY YOU SHOULD BUY REAL ESTATE: to hedge against inflation . as anything you buy today will be worth more in 5, 10, 20 years .. even if only by inflation. Combine appreciation and leverage (i.e. a mortgage) and you win .. assuming an at least break even, or hopefully, positive cash-flow holding period with decent leverage (say 75% +)



I take a growth of "only inflation" all day long !!!



P.S.: if you buy in growth markets with some smarts you can usually beat inflationary growth for the first 2-4 years of your holding period !

 

[housingrental]

This only applies to current tenants. Once vacant rents can be set to market level, which in most (all?) markets in Ontario haven`t increased as much as prices. This can be partly explained by increased supply of rental stock (even if officially listed as residential construction, especially some condo`s) increased home ownership levels, and an increase in multi generational households reducing rental demand.


QUOTE (JohnS @ May 29 2008, 04:59 PM) There`s at least one fairly obvious reason why rents haven`t gone up more, at least in recent years - Or, I guess, it`s obvious if you live in or invest in Ontario. The government limits the amount that rents can go up, but it doesn`t do the same for house prices. Offhand, I don`t know the rental increase percentage for 2008, but I think it`s either 1.8% or 1.4%. Either way, though, it`s low.
Now, we haven`t had that policy for the entire history of Ontario, but it at least explains the recent lack of rental increase movement.

Have a good one!

JohnS