Housing Bust 2016

Leveraging, renting vs owning, making an investment or buying a home?
Just a Guy
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Re: Housing Bust 2016

Post by Just a Guy » 23 Nov 2016 00:50

adrian2 wrote: For most large cap stocks, you can use your own $3,000 to buy $10,000, borrowing 70% of the purchase price.
That's not so far from 25% deposit required to avoid CDIC mortgage insurance for a personal property.
For an investment property, it becomes even closer.

Of course, the risk profile would be very different.
Just wanted to set things straight on the margin rules.
Mortgage insurance is required for 80% LTV, not 75%. Also, the LTV is based on the assessed value of the property, not the purchase price which, in some cases, can let you leverage for more than 100% of your purchase price. Can't do that with a large cap.

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Re: Housing Bust 2016

Post by Just a Guy » 23 Nov 2016 00:54

Flaccidsteele wrote:I love reading the de-evolution of the thread since SkaSka's benign "anecdote".

And I enjoyed reading SkaSka's anecdote as well. Thanks for posting that. Interesting.

As opposed to the pages and pages of the "Vancouver is run up by foreign investors", "no it isn't" de-evolution that went on for months?

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Re: Housing Bust 2016

Post by twa2w » 23 Nov 2016 11:29

Just a Guy wrote:
adrian2 wrote: For most large cap stocks, you can use your own $3,000 to buy $10,000, borrowing 70% of the purchase price.
That's not so far from 25% deposit required to avoid CDIC mortgage insurance for a personal property.
For an investment property, it becomes even closer.

Of course, the risk profile would be very different.
Just wanted to set things straight on the margin rules.
Mortgage insurance is required for 80% LTV, not 75%. Also, the LTV is based on the assessed value of the property, not the purchase price which, in some cases, can let you leverage for more than 100% of your purchase price. Can't do that with a large cap.
Actually for most FI'S the LTV is based on the lessor of the appraised value( not assessed value) or the purchase price.
Of course 2 days after you have title, it is the appraised value.

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adrian2
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Re: Housing Bust 2016

Post by adrian2 » 23 Nov 2016 13:39

Just a Guy wrote:
adrian2 wrote: For most large cap stocks, you can use your own $3,000 to buy $10,000, borrowing 70% of the purchase price.
That's not so far from 25% deposit required to avoid CDIC mortgage insurance for a personal property.
For an investment property, it becomes even closer.

Of course, the risk profile would be very different.
Just wanted to set things straight on the margin rules.
Mortgage insurance is required for 80% LTV, not 75%. Also, the LTV is based on the assessed value of the property, not the purchase price which, in some cases, can let you leverage for more than 100% of your purchase price. Can't do that with a large cap.
Actually you can do exactly the same with a large cap: margin is based on current value, not purchase price.
If the stock goes up after the purchase, you can leverage it more (not that I'd recommend that).
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Re: Housing Bust 2016

Post by Just a Guy » 23 Nov 2016 23:32

Another big difference between stocks and real estate is you can sometimes buy a place well below market value as each property is sold individually as opposed to market value.

For example I just bought a place for $70k, another smaller place recently sold in the same complex for $130k. The seller needed it to go quickly, so dropped the price accordingly. There are three other places in the same complex all listed over $100k.

I figure it should rent for around $1200-1300/month based on current market rates.

Between the comparable and the rent, I expect it to easily appraise for a more than 100% margin.

Now, deals like this aren't common in today's market, but they do exist unlike any stock, let alone a blue chip one.

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Re: Housing Bust 2016

Post by patriot1 » 24 Nov 2016 06:07

Just a Guy wrote:Another big difference between stocks and real estate is you can sometimes buy a place well below market value as each property is sold individually as opposed to market value.
Market value is what a property sells for given normal market exposure, by definition.

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Re: Housing Bust 2016

Post by kombat » 24 Nov 2016 07:53

patriot1 wrote:Market value is what a property sells for given normal market exposure, by definition.
Agreed. You can't buy a property for below market value. The price you paid, by definition is "market value."

Unless you could turn around and resell it immediately for substantial profit, you paid a fair price.

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Re: Housing Bust 2016

Post by Shakespeare » 24 Nov 2016 09:03

Unless you could turn around and resell it immediately for substantial profit, you paid a fair price.
Or you're a real estate agent. (Bargains are snapped up and resold by the agents.)
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Re: Housing Bust 2016

Post by Just a Guy » 24 Nov 2016 09:23

You can buy below market and then turn around and sell at a profit in real estate. In fact, there is a whole group of investors who do this all the time, they are called flippers.

True, they usually make some improvements, but I have known a few who do t even do that.

A market value, when applied to stocks is the price anyone pays regardless of where they buy. It is much more ridgid, and he product is the exact same thing (stock in a company is stock in a company). I'll bet you if more real estate investors knew about the property I just bought and had been able to see it, it's location, etc., not to mention the seller leaving it on the market for more than a day or two, there would have been more competition and the price would have been higher. Real estate is sight specific, people rarely buy sight unseen or are able to research a specific property quickly to find out what, in their mind, a property is worth. There are many reasons why properties may sell cheap that are bad (Ufi, build on a toxic waste sight, huge special assessment coming, building needs to be torn down, etc.) and there are some good reasons why it can be selling cheap (estate sale, divorce, foreclosure, time of year, etc.).

Many things affect the price, so there is no standard market price in real estate, there is only a subjective price range, thus you can turn around and sell right away if you wanted to for a profit.

The price you paid may, by kombat's definition, be the market price of the moment, but it has no bearing on the market price right after that.
Last edited by Just a Guy on 24 Nov 2016 09:30, edited 1 time in total.

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Re: Housing Bust 2016

Post by Just a Guy » 24 Nov 2016 09:29

Shakespeare wrote:Or you're a real estate agent. (Bargains are snapped up and resold by the agents.)
Many realtors do do this, but many have also been burned trying to do this. When you're closely involved in the market, it's hard to remain objective. What seems like a bargain, may just be a turning point in the market.

There is also some ethical guidelines which means they should be buying from someone they aren't representing, which means they could miss listings for bargains if they don't look for them like everyone else.

They do have an advantage in finding them though no doubt, especially those who don't follow the ethical guidelines too closely.

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Re: Housing Bust 2016

Post by Flaccidsteele » 24 Nov 2016 15:44

Just a Guy wrote:For example I just bought a place for $70k, another smaller place recently sold in the same complex for $130k. The seller needed it to go quickly, so dropped the price accordingly. There are three other places in the same complex all listed over $100k.

I figure it should rent for around $1200-1300/month based on current market rates.
$1200-$1300/mo off a $70k purchase? Damn that's good rent for such a price. Kudos!
Just a Guy wrote:Now, deals like this aren't common in today's market, but they do exist unlike any stock, let alone a blue chip one.
JaG I agree with most things you write about real estate, but this is an unfair comparison. We can't compare an investment property in a singular location to a blue chip business that has been running as a global going concern for decades.
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Re: Housing Bust 2016

Post by Just a Guy » 24 Nov 2016 15:58

We're agreeing on that point. I was pointing out the same thing to Adrian when he was saying stocks are the same or better than real estate...

You can't compare the two, that's why they are different investments. Also the mentality to succeed in one, doesn't mean you'll succeed in he other.

As for the return on a 70k investment, if you compared it to the $130 average price in the building it doesn't look that outstanding.

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Re: Housing Bust 2016

Post by adrian2 » 24 Nov 2016 16:54

Just a Guy wrote:We're agreeing on that point. I was pointing out the same thing to Adrian when he was saying stocks are the same or better than real estate...
I was actually comparing the available leverage. Other things are apples and oranges.
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Re: Housing Bust 2016

Post by patriot1 » 15 Dec 2016 19:16

B.C. offers interest-free down-payment loans for first-time buyers
The B.C. government plans to offer first-time home buyers interest-free loans toward their down payments to help them purchase in a market where skyrocketing prices have fuelled an affordability crisis and cut out many people entirely.

Premier Christy Clark says the government will match the money first-time buyers put toward their down payments, up to a maximum of $37,500. The program applies only to homes priced up to $750,000 and applicants can only get the loans – which are free of interest for the first five years – if they commit to living in the unit for that initial five years.
Might this be an attempt to pull the curve back up:
teranet.png

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Re: Housing Bust 2016

Post by nisser » 15 Dec 2016 19:50

Just when you think they can't possibly be more inept and clueless they prove you wrong.

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Re: Housing Bust 2016

Post by Rysto » 16 Dec 2016 12:03

The feds must be infuriated over that.

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Re: Housing Bust 2016

Post by gsp_ » 16 Dec 2016 12:10

Bank of Canada warns about huge mortgages, growing housing debt
Nearly a third of recent Canadian homebuyers with so-called high-ratio mortgages wouldn't qualify for their loans under new rules recently implemented by the federal government...

A borrower would be considered a "high-ratio" mortgagee if he or she has less than 20 per cent in equity, and considered especially vulnerable if the total value of a loan is at least 450 per cent of annual income. The bank calculates that almost half of new high-ratio borrowers in Toronto are above that threshold, and 39 per cent are in Vancouver.
Here's the BOC report: Financial System Review - December 2016

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Re: Housing Bust 2016

Post by gobsmack » 16 Dec 2016 18:25

Bloomberg article on BC's plan. I wonder how the BC taxpayers feel about this plan. I find it strange that this can be popular.

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Re: Housing Bust 2016

Post by AltaRed » 16 Dec 2016 18:53

gobsmack wrote:Bloomberg article on BC's plan. I wonder how the BC taxpayers feel about this plan. I find it strange that this can be popular.
Not highly I can say. BUT at the same time, it is hard for current homeonwners to just say...well, tough luck.
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Re: Housing Bust 2016

Post by ghariton » 18 Dec 2016 23:42

Almost time to start the 2017 Housing Bust thread...

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Flaccidsteele
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Re: Housing Bust 2016

Post by Flaccidsteele » 20 Dec 2016 00:08

We should have a reference post like this one *stickied* imo.

housing BUST (1958 posts)

Housing Bust 2009 (422 posts)

Housing Bust 2010 (748 posts)

Housing Bust 2011 (284 posts)

Housing Bust 2012 (234 posts)

Housing Bust 2013 (124 posts)

Housing Bust 2014 (418 posts)

Housing Bust 2015 (240 posts)

Housing Bust 2016 (620 posts; YTD)
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Re: Housing Bust 2016

Post by kcowan » 20 Dec 2016 09:11

Do we really want to remind ourselves that nobody here knows?
For the fun of it...Keith

Just a Guy
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Re: Housing Bust 2016

Post by Just a Guy » 20 Dec 2016 09:28

I think those who live in Calgary and Vancouver may think a housing bust happened in 2016...

Then we could look at the vacany rates across the country which seem to be up and hurting "investors".

Personally, I think these were minor compared to what's coming.

I added several properties to my portfolio in 2016, and helped a few buddies enter the market as well. 2017 looks promising already as I'm in talks with an "investor" who wants to divest himself of his holdings and is willing to sell at a loss just to get out, but we'll see.

Overall, I'd say 2016 has been a bust for a lot of people in terms of real estate but, since some people insist that everyone must suffer or it's not a real bust, I think we'll never have agreement that a bust will ever occur. Even if the massive bust that I think is still coming happens, there's a good chance people like me will profit from it, so some will claim it's not a bust...

P.S. Flaccid, though 2016 had more posts than usual, remember that the majority of those posts consisted of basically...

"Vancouver real estate is being driven up by foreign investors"
"No it isn't"
"Yes it is"
"You can't prove it"
"Yes I can"
"No you can't as I do t believe it"
"Here's an article"
"Bah, that's biased and unproven"
...

And so on.

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Re: Housing Bust 2016

Post by Flaccidsteele » 20 Dec 2016 10:37

Just a Guy wrote: "No it isn't"
"Yes it is"
"You can't prove it"
"Yes I can"
"No you can't as I do t believe it"
"Here's an article"
"Bah, that's biased and unproven"
...
And so on.
hahaha yes, this is true. But that's many of the discussions around here ;)

Personally I also added more property to the portfolio. But all US property. For more taxable rental income.

JaG have you ever considered private money lending? Any experience there?
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Re: Housing Bust 2016

Post by Just a Guy » 20 Dec 2016 13:55

If you mean as a lender, it doesn't appeal to me. I don't get the leverage I'd want and I don't really want to lend to other people who make foolish decisions.

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