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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 14, 2018 | The Standout Guy

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Brian. He wrote this pathetic blog a month ago, pondering whether or not to sell his condo in Guelph, a stoney place where the swans go to croak.

“I’m in my early 30’s and own a condo in the nice-ish city of Guelph. I paid 250k for it 4 years ago (when the building was brand new) and I figure the market will allow for 330k today (according to recent sales in the building). I’m thinking of unloading the condo for a number of reasons. A year from now I don’t think I’ll get as much as I can today with the stress test touching 6%. As time goes on this building will deteriorate and I don’t want to be around for when the elevator breaks. In this city there are condos going up everywhere. I don’t know why someone would choose an older building with higher maintenance fees when they can purchase a shiny new one with low fees.

I make 70k annually and my girlfriend is fresh out of school and a minimum wager. We have no debt and the small amount in my TFSA is invested in an ETF. We want to travel and work somewhere within the next year or two. I estimate I’ll come out of the sale with 100k. I would like to get your opinion on whether or not it’s the right move to sell and rent for the next two years, and where I should park this 100k.  I could also rent my place out. I just like the romantic idea of having cash invested and not being a slave to the bank for 25 years.”

The advice: sell. Take the tax-free capital gain. Exit the condo market in this tertiary centre where too many units are being built and echo-pricing from the GTA goosed values unreasonably. Wait to buy, since higher rates and the potential of a Trumpian trade tirade against autos will hurt all of SW Ontario. Understand that having 100% of your net worth in any one asset, especially a concrete box with no dirt, is risk. And never, ever, ever rent your condo out while retaining ownership.

Well, incredible as it may seem, some people listen to me.

“I wrote you awhile back and was the subject of your ‘Trapped’ blog post on July 10th. I am writing you again to update. I have decided to pull the trigger and unload this condo I’ve called home the past 4 years.

“A recent development: My best human friend recently spent 930k on an 1850’s farm house just outside of Guelph. He’s my age (32) and earns about the same as I do ($70k annually). He owns another house (a more modest 3 bedroom family home) in Fergus that he is now renting out.

“Since he bit off more than he can chew with the farm house, my lady-friend and I will be moving into it and paying him a total of $800/month. I can’t think of a better situation to be in right now since rents in Guelph are between 1500-1800 for a basement apartment. I’m hoping with my equity invested in ETF’s for a few years I’ll come out in a favourable situation where I can buy again in a better market.”

Brian’s a genius. His friend is a moron. Accommodation costs for B & his squeeze will be less than ten grand a year, while his friend makes just 1% on his ‘investment’ in the farmhouse. After financing, property taxes, insurance and the inevitable maintenance (on a 160-year-old structure), the friend will sustain a deep annual loss and subsidize our standout guy. Meanwhile if Brian invests correctly, his hundred grand condo profit will be 50% bigger in five years – a far better time to be out hunting for property.

The lesson ahead could be a painful one for those who have rolled everything on real estate. What’s happened is unlikely to be repeated. Most people have no idea how much interest rates may creep forward in the coming years. Just look at what the Inflation President is doing. Economic growth in the US has been artificially pumped with a massive tax cut, lowered regulations and now a wave of protectionism. Growth, employment, profits, markets, inflation and rates are all going up. The federal deficit, thanks to more spending and less revenue, will pierce $1 trillion soon – and stay there for a while.

Canada might end up with a sad combo – economic hurt thanks to the Trumpian trade walls and yet higher interest rates forced upon us by Mr. bond market. Also because of you-know-who. And why would you want a condo in a small Ontario city when that happens? Or a mouldy, buggy farmhouse leased out at a loss?

Brian, 1. Friend, 0.

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August 14th, 2018

Posted In: The Greater Fool

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