Daveroo
Active Member
Personally, I think residential real estate is great if it your house and your are living in it, but it makes a pretty poor investment for a number of reasons. First, if you already own your own house, you will doubling your exposure to the residential real estate market and unless you have a "large" portfolio ("large means different things to different people, but in this case lets say real estate is <20% of your net wealth) could end up with essentially all your eggs in one basket. If anything were to happen to lower mainland house prices (and nothing goes up for ever...), you could be out on not only your own house but also your "investment". Modern portfolio theory dictates having your capital invested in a diversified portfolio of uncorrelated assets. Don't forget about your human capital (i.e. job), if you work in the real estate sector, you are already getting lots of "exposure".
Second, residential houses are quite an illiquid asset class - if you need to sell, it takes a long time and the costs are high. Compare to stocks/bonds/mutual funds which can be sold at the click of a button with minimal fees. If you really want to invest in real estate, you can do it via a REIT which are currently yielding 2% - 9%.
Third, leverage. The reason people think their real estate returns are so great is that the returns are amplified via leverage (i.e. their mortgage). If you leveraged your stock / bond investments via a home equity loan, options trading, second mortgage, etc. and put that money into a stock/bond portfolio (and treated it like a mortgage by using the returns to pay down debt) you can generate similar returns with less risk. A good example pointed out by @Rain City is that Canadian banks have returned better over the medium and long term than even lower mainland real estate. The other way to think about this is if you wouldn't leverage up your stock/bond portfolio, why would you be so keen to do the same thing and take out a mortgage to buy one house?
Fourth is the regulatory/tax issues that others have been brought up - RTA is not your friend.
Lots of other things to consider as well. Over the long term, real estate has actually been shown to be a pretty poor investment compared to other asset classes. A good place to start as others have mentioned is talking to an accountant / investment adviser you trust. A sportfishing forum is an interesting place to come for investment advice...
There is something to be said in investing your money in sectors/stocks that you know. The one advantage that real estate over stocks/bonds for most people is that they have (or think they have...) a better understanding of their local real estate market than other asset classes. However, this needs to be weighed against the facts above.
Great points here to follow. Unless you are comfortable with some very difficult situations with tenants, real estate investing is best done with buying REIT's. Here is the EXTREME example of renting gone wrong.
https://www.cbc.ca/news/canada/nova...on-selby-rent-dodger-nadav-even-har-1.5387558