[interested]

Ka1 and Redfirm,

I have to side with Redfirm on this one Ka1. I am sure you would agree that from 2001 with the exception of the brief blip in late 2008 to 2009, prices have gone straight up and have exceeded inflation and historical growth rates. Will it continue for another 10 years, maybe but I highly doubt it. Fundamentals have to have changed for this to be the case. Maybe, as per your article just posted, all the 30 somethings and immigrants have enough money and want to live downtown to continue justifying increased prices but it is in my view sheer lunacy to base all your calculations based on this assumption and not even look at whether or not one can justify the properties on their rental valuations.

To me, it is similar to looking at dividend stocks. I remember being brilliant(read the sarcasm) and buying in about 1996 shares of the major banks. I sold them(incorrectly in hind site) because I bought them for the 5% dividend and they had increased 71% in 2 years not counting the dividend. Was it the right decision at the time; absolutely because historically bank shares did not increase at this rate. Did it turn out to be right long term. Not really to present. Will the banks triple over the next 12 years, I don't know but I would not bank on it.

Unfortunately relying solely on appreciation of real estate in view is akin to speculating. You speculated correctly and I for one am very happy for you. But I believe one should see it for what it is. Buying with the sole intent of price appreciation is speclaltion, not investing. It is risky. I too have benefited from investing/speculating if you like but I bought with a definite plan looking at what the returns would be and was satisfied to allow for reasonable rent and add 2-3% price increases (historical inflation average) and spread my risk. This is a very different perspective from now where frankly at $600/sq.ft.-700/sq.ft. in the downtown core does not make financial sense. This I believe is Redfirm's point if I can be so bold as to paraphrase him. Will Redfirm and I not make potential money.... maybe. However, buying today just assuming prices will increase to justify it becomes less and less tangible the higher the prices become.

 

[redfirm]

KA1,
you referred to my occupation several times in your recent posts. I work for a big tax company and can tell you that I don't know one accountant there that would put $50K down on a $500K rental property at the present time.
I do know a clerical assistant who bought a lower floor Aura, jointly with her brother, with a 20% down. They want to flip.

I did my last round of r/e investing in 1999. And did well. Now I plan to do a little bit more, but not here. As I already mentioned I'm looking south of the border. And some other tax accountants I know are doing the same.

But in reality, someones occupation is not the most important factor in predicting his/her behaviour .... personal risk limit is.

 

[KA1]

Ka1 and Redfirm,

I have to side with Redfirm on this one Ka1. I am sure you would agree that from 2001 with the exception of the brief blip in late 2008 to 2009, prices have gone straight up and have exceeded inflation and historical growth rates. Will it continue for another 10 years, maybe but I highly doubt it. Fundamentals have to have changed for this to be the case. Maybe, as per your article just posted, all the 30 somethings and immigrants have enough money and want to live downtown to continue justifying increased prices but it is in my view sheer lunacy to base all your calculations based on this assumption and not even look at whether or not one can justify the properties on their rental valuations.

Unfortunately relying solely on appreciation of real estate in view is akin to speculating. You speculated correctly and I for one am very happy for you. .

First of all, welcome back Interested. We-- or at least, I -- missed your thoughtful contributions to this thread.

Let me make it quite clear. I did not speculate. I am willing to admit that prices increased lot more beyond what I had expected. I agree with you that relying solely on appreciation of real estate is akin to speculating. However, it is a combination of rental income plus small increase in the price is the combination to go for. 1% increase in the price of a 500k unit comes to 5k. It should wipe out the negative cash flow.

CDR got chicken by looking solely at negative cash flow of a unit in RoCP and missed the boat in a big way.

Specifically for you, Interested. You have been predicting values going down to the level of 2008. Has it happened yet? A 830 sq ft 2 bedroom, 2 bath unit in RoCP sold for $ 480k in June 2010. Another 830 sq ft unit 9 flloor above sold for 521k in January 2011. That's what has happened. Where is your predicted drop in prices to 2008 level?

And now to you redfirm. You have confirmed a statement made to this old hog long long time ago by someone -- that is, bean counters will never become enterpreneurs. They will never have enough of what it will take to make others count their beans.

Happy career to you, redfirm.

And the last word to you, Interested. With cyber cafes sprouting every where, you had no excuse to not to make your contribution to this thread, even while you were away. Buy an Ipad and have internet connect at your finger tips. You have made enought money on your 'investment' in Shangri-la to be able to afford an Ipad.

 

[redfirm]

Hahaha .. enterpreneur. No, I will never be one. You are right KA1. And can you imagine this: my wife is also an accountant?

 

[cdr108]

First of all, welcome back Interested. We-- or at least, I -- missed your thoughtful contributions to this thread.

Let me make it quite clear. I did not speculate. I am willing to admit that prices increased lot more beyond what I had expected. I agree with you that relying solely on appreciation of real estate is akin to speculating. However, it is a combination of rental income plus small increase in the price is the combination to go for. 1% increase in the price of a 500k unit comes to 5k. It should wipe out the negative cash flow.

CDR got chicken by looking solely at negative cash flow of a unit in RoCP and missed the boat in a big way.

Specifically for you, Interested. You have been predicting values going down to the level of 2008. Has it happened yet? A 830 sq ft 2 bedroom, 2 bath unit in RoCP sold for $ 480k in June 2010. Another 830 sq ft unit 9 flloor above sold for 521k in January 2011. That's what has happened. Where is your predicted drop in prices to 2008 level?

And now to you redfirm. You have confirmed a statement made to this old hog long long time ago by someone -- that is, bean counters will never become enterpreneurs. They will never have enough of what it will take to make others count their beans.

Happy career to you, redfirm.

And the last word to you, Interested. With cyber cafes sprouting every where, you had no excuse to not to make your contribution to this thread, even while you were away. Buy an Ipad and have internet connect at your finger tips. You have made enought money on your 'investment' in Shangri-la to be able to afford an Ipad.

someone is getting really defensive and offensive.
it seems like we've hit a 'nerve' with you, rather than us.
we've given empirical data/info to explain our reasons and you've thrown insults at redfirm, interested and myself.

as previously stated, several negative factors contributed to my decision not to buy at RoCP ... not just cashflow, which is fundamental to any seasoned R/E investor.

you make it sound like we missed an opportunity of a lifetime and that RoCP is the only project in the city to appreciate during the past 10 years.
IIRC you mentioned units there increased 110% during that time ... that's within the range of everything within dt Toronto central / west / east, so what was your point?

we've all benefited from price increases, but some of us realize to buy in 2011 at today's prices and expecting the same rate of appreciation of the past decade without recognizing the factors that have lead to the dramatic increases is foolish.

 

[KA1]

someone is getting really defensive and offensive.
it seems like we've hit a 'nerve' with you, rather than us.
we've given empirical data/info to explain our reasons and you've thrown insults at redfirm, interested and myself.

as previously stated, several negative factors contributed to my decision not to buy at RoCP ... not just cashflow, which is fundamental to any seasoned R/E investor.

you make it sound like we missed an opportunity of a lifetime and that RoCP is the only project in the city to appreciate during the past 10 years.
IIRC you mentioned units there increased 110% during that time ... that's within the range of everything within dt Toronto central / west / east, so what was your point?

we've all benefited from price increases, but some of us realize to buy in 2011 at today's prices and expecting the same rate of appreciation of the past decade without recognizing the factors that have lead to the dramatic increases is foolish.

Let me state one thing quite clearly. This is a friendly board/thread where we exchange our thoughts. There is no room here for throwing insults at anybody.

You can read redfirm's latest post. He did not take my comments as insulting. You feel insulted. For that, I tender unqualified apology. As far as Interested is concerned, I will wait for his response.

Going forward from here, just like you, I do not expect same rate of appreciation as in the past. But I do expect, on an average, about 1% appreciation for the next few years. This increase should take care of any negative cash flow. And when the market resumes its appreciaton to 2/3% per year, money will be made then.

Cheers.

 

[interested]

Hi everyone.
I prepared my response and then double posted it. In my zeal to eliminate the double post, I eliminated both. Oh well.

the gyst of my response was as follows:

As much as I love responding to UT forums, I was on a cruise for a week and I figured there were probably other things I should be doing besides responding to this thread. That said it is good to be back.

I know Ka1 likes to push my buttoms when it comes to my prediction of testing 2008-2009 lows. I will admit I have been wrong so far. However, I have also stated that it is notoriously difficult to predict when exactly a correction will occur. I am prepared to admit that prices have proved remarkably resilient so far so while I concede the battle, I am not yet ready to concede the war.

I personally hope to be proven wrong but I still feel there will be a correction. I could not have forseen QE2, a markedly weakened US dollar and prolonged weakening of the global economies putting downward pressure on the need for the Gov. of Canada to raise interest rates since this results in a relative rise in the C$ thereby keeping inflation more at bay. However, I still do not think we will see QE3 and if/when the excess liquidity begins to be mopped up, I am less certain prices will continue to rise. I believe it is the massive amount of cash around that is going into every asset class, not just real estate.

As for my SL purchase; I haven't made a penny. You only make money when you sell. Right now it is just paper that happens to be theoretically up in value. However, it has it would appear turned out to be fortuitous to buy when I did.

I would suggest and in this I agree with CDR that we have all been fortuitous in the past decade with price increases. However, to apply the above average returns and assume they will continue I think is a very risky assumption. I refer back to my King West Life purchase which I made in 2008 at $410/sq.ft. including parker and locker. This made some economic sense to me. Was it to be a great investment.....no. I figured based on "worst case scenario"(note I am not going with an Armegeddon scenario) of a 15% drop in current rents and could figure that I would get about 3-3.5% return and hopefully over time an inflationary rise in the property value. That would add another 2% on average over the long term. However, I would not have been at all suprised to see in a good case scenario given my beliefs of some downward pressure on prices stagnation on average over the next 3-5 years. As it happens, prices are now closer to $500/sq.ft. So on my 15% downpayment, I am doing great "in theory" but again until sold, nothing is made and please understand while I welcome the price increase, that is the speculation that may if prices hold be the unanticipated benefit. As well, not to harp on the point, but leverage is a very sharp double edged sword. Sure,$90 on $62/sq.ft. is a huge theoreticall profit, but if prices fall or someone buys at the $500 level and it goes to $450, $50 loss on a 15% downpayment of $75 is a bitter pill to swallow. The investment decision I made at the time was to accept 3% as a return for the next few years. I am sure others such as CN Tower will tell me quite correctly that the opportunity cost of my money could be better applied to dividend producing stocks, Reit's etc. My point is I made a decision based on a rate of return for a given investment and accept it. While I hope for price appreciation over the long term, I am prepared over the shorter term to accept less than "desirable" return on my money. However, with prices of $500/sq.ft., let alone $600-700/sq.ft. that the core is now fetching, I just can't justify any of the math any more. So my point is I would not be a buyer at these prices.

Ka1, I still believe that fundamentals are critical and unless 30 year olds as in your article and immigrants are going to continue to make the market and have revenues to justify continued price increases, then trends always go back to the norm and we will have to allow for a slowdown or possibly correction to make up for the 3-4% / year the past few years we have exceeded inflation with gains in Real estate which are beyond the historical rate of growth of this sector.

As for the question of being insulted, I am not at all because I know you put in these jabs to spur conversation and the free flow of thoughts. However, I can see how some mike take offence, especially if not knowing where you are coming from. I actually appreciate CDR and others and concur with him that providing empirical data, actual data and deductive reasoning for arriving at conclusions however is helpful to all of us.

 

[KA1]

As for the question of being insulted, I am not at all because I know you put in these jabs to spur conversation and the free flow of thoughts. However, I can see how some mike take offence, especially if not knowing where you are coming from. I actually appreciate CDR and others and concur with him that providing empirical data, actual data and deductive reasoning for arriving at conclusions however is helpful to all of us.

No further comments.

 

[CN Tower]

. In real easte, you do make money not by renting -- although it helps with the cash flow to get as much rent as possible --but by from increase, on long term basis, in the value of real estate. .

KA1,

My friend, I find it helpful to extricate our own anecdotal circumstances from objective discussions as much as possible in order to create a balanced and high quality discussion. I have not revealed any personal details on my real estate experience here because it's not relevant, although I do draw from my personal experiences in order to form opinions going forward.

Your success and your happiness with your investment and your home is of course paramount and we are all, I hope, pleased that you have made a paper profit on your condo purchase. That however is not remotely importantly to the discussion at hand.

When you say above that you do not make money in real estate by renting I think you severely overlook the basic concept behind real estate investment. Real estate values are completely a derivative of rental income. Sophisticated investors closely analyze cash flows and try as best as possible to determine where market rents are today and where they are going. No sophisticated real estate investor worth a dime would ever buy a property today on a hope and prayer that someone will pay him more tomorrow for the same stream of income. That my friend is called speculation, and while I concede that at the moment it may de rigueur in some circles to invest in that manner I can assure you that over time that trend will reverse and level out. I don't discount that money has been made employing that technique and you can't swim against the current for long without becoming exhausted so there probably is a business case that resolves around that method of speculation but it cannot endure. The giants in this business all know that of course and that knowledge trickles down to the smallest players as well. Smart real estate minds avoid that kind of speculation because it carries too much risk. The central concept behind real estate investment, because it is that linear and banal really, is to mitigate as many risks as possible. If hoping for the market to bail you out is your master plan you are rolling a rigged dice over the long term, in my opinion.

Not to suggest that your success is not worth celebrating, but don't mistake your good luck for good sense.

 

[KA1]

KA1,.... don't mistake your good luck for good sense.

Both Interested and I, and, I am sure, others as well, value your considered opinion. Point well taken. Txs.

 

[interested]

I have to smile a bit.

I have an expression I like to use. It pays to be smart but it is better to be lucky.


There is a lot of informed well reasoned opinions on this forum. I used to think I was quite "smart" but I have been humbled too many times to still believe that.

Ka1 and I and others have been blessed with good fortune, good timing, or just good luck as well as perhaps some savvy to have been fortunate enough to have ridden a rising tide in real estate over the past decade. As Ka1 has admitted, even allowing for his belief that real estate would increase, he (and for that matter I) never thought it would rise by as much as it has and as quickly.

CN Tower, your last post was simply excellent and I concur with Ka1 in his response to it.

 

[interested]

http://www.theglobeandmail.com/glob...es/td-boosting-mortgage-rates/article1969683/

From the Globe and Mail:

TD Canada Trust is raising most of its fixed-term mortgage rates, a move that reflects the bank's increased cost of funds on bond markets.

TD says the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 percentage points starting Tuesday.

The posted rate for five-year closed mortgages – one of the most popular types of loans for Canadian home owners – will rise to 5.69 per cent.


TD mortgages with one-year, three-year and four-year terms will rise by 0.2 percentage point while two-year terms go up 0.3 percentage point.

Six-month and open one-year mortgages, which already bear relatively high rates, will stay the same.

 

[redfirm]

QUOTE: "The central concept behind real estate investment, because it is that linear and banal really, is to mitigate as many risks as possible. If hoping for the market to bail you out is your master plan you are rolling a rigged dice over the long term, in my opinion."

CN Tower, your risk of being deemed a "spring chicken" or "bean counter" just increased 500%!

On a serious note, these two sentences summarize the essence of "smart" r/e investing.

 

[KA1]

QUOTE: "CN Tower, your risk of being deemed a "spring chicken" or "bean counter" just increased 500%!

Redfirm, you are new to this thread. Stick around and you will learn the etiquettes of this thread.

Here, you always show due respect to the individuals like Simuls,CDR 108, CN Tower and Interested who always make rational, reasonable and well thought out posts. If you disagree with their posts you do so with all due respect.

 

[KA1]

http://www.theglobeandmail.com/repo...ket-braces-for-tmx-lse-merger/article1971040/