Wednesday, September 1, 2010

Is there an housing bubble in Canada?

I stole this topic and the accompanying links from the REIN forum and posted my own on this topic below:
  1.  http://www.financialpost.com/news/Housing+will+banks+next+sore+spot/3466046/story.html
  2.  http://www.financialpost.com/related/topics/Report+warns+housing+bubble/3462634/story.html
Really, the question should be: If renting is cheaper than owning a house then why buy real estate?

For an investor to buy a rental property is only worthwhile when he/she makes a profit. At REIN we prefer that the rent is higher than the cost of owning the property, how else do you achieve positive cash flow?

The added profit bonus of appreciation most of us consider speculative. First priority is to have enough cash flow to hold on to the property infinitely (we can choose when to sell). As Thomas always points out there is also the mortgage paydown. So when determining when an investment is worthwhile, you may want to include this in your assesment as well. Then you should consider investing only when net income (so net cashflow plus mortgage paydown and excluding appreciation) is positive.

Real estate markets and individual deals should be considered on their own merits not on arm-waving national studies. As pointed out in other posts, don't try to time the market, only buy when the price is right!

So is it always better to invest in real estate? No! Do we have a bubble? Who cares! As long as the property(ies) we buy meet(s) OUR investment criteria and we can hold on to them for the long term.

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