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interested

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I think if you are 40% capitalized and 60% leverage, that is fine. One can plan on a downturn but 40% is a good cushion. However, please realize that your cushion is largely due to above average rates of return in real estate the past 16 years. The cushion I assume would be a lot lower if we just go back to historic returns. And now, without the benefit of much further rate decreases, I think there are risks. That is all I am saying.
Toronto's doubling from 1971 to 1976 was largely due to a mass exodus of bank headquarters and people from Montreal due to the FLQ crisis in 1970. Hence the doubling in price of your dad's house. Toronto went on to replace Montreal as the financial capital of Canada. That was a very significant event. Please also remember that back in the late 70's and 80's, you could have obtained double digit returns on money with bond purchases as well. Of course the house today is worth a lot.

Please understand Speculator. I too own real estate but it is part of a diversified portfolio. I get other things have done as well.
I also understand that you picked the winning race horse. My concern is that and perhaps we agree, we are getting to some lofty PRECON construction costs; $700/sq.ft. and surely at these prices vs. $150-400/sq.ft. where a lot of your real estate would have been purchased I am guessing if in downtown, there was a return to be made, and you could refinance because mortgage rates were decreasing. How do you apply the same rationale going forward? I mean with $600-700 / sq.ft. PRECON where you will have to subsidize the rent; therefore how do you refinance and get equity going forward unless interest rates fall further. We are at 50 year historical lows now, so how much lower can they go. Maybe they will pay everyone to buy real estate.
Before this sounds so stupid, this is just what they effectively did with NINJA loans in the US and look how that ended up. I am not suggesting we are the US and I do believe we are better off her with stricter guidelines, but still. I could argue offering 2.99% for 5 years is also irresponsible. We will all have to revisit in 5 years and see if 2.99% was brilliant or a real disaster when those people have to refinance at 2016 rates, whatever they may be.
 

TheSpeculator

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I agree – prices are very lofty, I wouldn’t touch most precon prices today with a 10 foot pole. But you can try to find the needle in the haystack once a year. I only buy very early in precon sales. My last 2 purchases in past 2 years were at $430 psf near the Toronto airport. With prices continuing to shoot higher in the core, I ventured out to the Parklawn area 8 months ago at $365 psf. The math works out on both of these investments. At $600-$700 psf the math never works out. I am now considering Florida properties which is a whole new discussion.
As far as the cushion, I am with you. I could not have purchased as many properties if prices did not rise the way they did. If prices increased half of what they did, I would have ended up buying a few less, always ensuring I kept my cushion above 30%.
 

interested

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Ahh Speculator,
Your name is not in fact accurate. You now sound like an "Investor", not a speculator.
That is a complement by the way.
 

cdr108

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Ahh Speculator,
Your name is not in fact accurate. You now sound like an "Investor", not a speculator.
That is a complement by the way.


i have to concur with interested.
you know your financial situation better than most.

with that being said, although 40% equity / 60% mortgage is good, that is premised on the lofty r/e valuations.

have you done the calculations if values dropped by 10%, 20% or more?
that could quickly put you near your 30% cushion, but still not bad.

chances are you're in positive cashflow, otherwise i can't see any bank willing to refinance you as much as you have.
that bodes well for you in any market situation, just like dividends do for stocks.

if i were you, i'd put r/e on hold for now as it sounds like you're heavily invested in one asset class.
as much as mutual funds haven't done well for you, i'd recommend you put more into equities, but not MFs anymore.
buy some CDN banks shares that pay 3.5-5.0% dividends, or index ETFs if you want diversification like MFs without paying the high MERs/loads and have the ability to set stop losses.
 

interested

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Speculator, I concur with cdr.
The reason he suggests this is because very few people I know get every business decision right. I certainly don't.
I remember I believe it was Roger Smith who was the president of General Motors in the 70's when it was the largest company in the world and a reporter asked him if he ever made a mistake. His response paraphrased: "I consider it a good day when I make more than 51% correct decisions". Now if you were running the largest corporation in the world (highly successful in those days) and that is the best one can do, you can appreciate why cdr and I are suggesting to diversify into some other things.

The advise may well prove wrong as I recall all the experts telling everyone to diversify out of Canada and due to the C$ appreciation, that turned out to be exactly the wrong advise. Staying in Canada was right. Buying Canadian R/E was right.

However, like all decisions, it must be look at in the present. As you said, you were right and highly leveraged. Leverage is a very wicked sword and a 20% drop in real estate would be 1/2 your equity. I am not saying it will happen but if it does, I trust your cash flow is at least neutral because when you go to renegotiate some of those mortgages, they won't necessarily all qualify without CMHC insurance which adds considerably to the interest rate which may be higher. Please remember that TO real estate from Sept 2008 to April 2009 did in fact drop about 15% in Toronto and that was over 7 months. Fortunately, it reversed for reasons frankly that are not totally clear to me.

If there is a Greek disorderly default, if Europe falters more, if we get an oil spike say due to tensions in Iran and the Straight of Hormuz,
if we have the US economy suddenly do worse, or if there is something that happens totally unexpected from left field as it were, confidence could plunge very quickly and then suddenly, everyone sits on their hands.

By the way, I hear in Oakville where I live the over $2 mill market is absolutely dead; about 1 sale/month with approximately 4 years of inventory. The under $1 million dollar market is still brisk. The $1 to $2 mill is sluggish. Generally, those with money tend to act earlier because they see the slow downs beforehand, either at work or through their investments. It then filters down the food chain as it were. So we will see if things pick up again or whether the high end trend translates down to the lower end.

I do appreciate that you are buying condos at the low to mid range which are the correct "investment" condos to be buying in my view.
 
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James

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...
By the way, I hear in Oakville where I live the over $2 mill market is absolutely dead; about 1 sale/month with approximately 4 years of inventory. The under $1 million dollar market is still brisk. The $1 to $2 mill is sluggish. Generally, those with money tend to act earlier because they see the slow downs beforehand, either at work or through their investments. It then filters down the food chain as it were. So we will see if things pick up again or whether the high end trend translates down to the lower end.
...

This is what I'm anticipating in the Toronto market as well, which could be good news for those who are looking to upsize.
 

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