What do you do with your down payment?
Assuming you are looking to buy at some point, you’re likely saving up your down payment. Especially after the stress test, some people may be saving up more of a down payment than before in order to get the mortgage down enough to qualify for it.
What to do with the money while you wait to buy? With a well-diversified low-cost investing strategy you should expect a long term annual return of about 6%, but what if your investment drops by a third right when you want to buy? Even worse, these things are correlated so when there are deals in real estate you may be poorly positioned to take advantage.
So what do you do with your down payment? “High” interest savings accounts? REITs to hedge your bets? Stuffed under your mattress? Bitcoins? Silver? Does anyone have a particular strategy or recommendations to share? Should your down payment investment strategy change based on current stock valuations? Is there any way to reasonably invest a down payment at all or should you just keep it in cash and hope for low inflation?
@Barrister
The state of the housing market is about more than me. Wanting the bubble to pop for myself is perhaps selfish, but it’s also something our society needs.
Josh:
That is perhaps just a little harsh. Those people gambled on the market and so far they have won. But to wish others ill fortune says more about you than them.
@oopswediditagain
“The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions…”
Story time. I went camping at Horne Lake and beside us was a local family with an RV so big I needed to move my car for it to fit in their spot. They also had a brand new truck and loads of toys for their 4 kids. They were there with friends that had just bought a similar RV and during their stay, more friends visited from their cottage on the lake in their expensive looking powerboat. It was so so cringe worthy listening to them talk. They were all talking about who sold what and for how much and how much money they had made in the last 2 years and who their favourite realtors were. They actually said things like “well it’s real estate right, the market is just going to keep climbing” and “well just access more liquidity in your house to pay the bills, your house makes more money than you do”.
I long to hear such people weep over their poor choices. I can’t wait. Only their tears can sate my justice lust.
As we a wait for the Monday numbers.
Personally I’d advise moving out of the more volatile investments (stocks, equity ETFs) and into something cash like over the 3-12 months before you are ready to pull the trigger. The opportunity cost of doing so is not that great. (The average stock market return over six months). It gives you some relatively cheap insurance from your plans being mucked up by a sudden bear market.
Even though the stock market rises much more than it falls, when it does fall it often falls quickly. Starting to liquidate to cash a bit early buys you some insurance against the high magnitude, low frequency bear market.
I think a down payment in cash is fine if you are looking to execute soon as in weeks or months. Otherwise some form of investment is prudent. Mukluk says what I said in another way. Put yet another way; Your savings are chasing an asset you will need to buy with leverage that is inflating by 4% a year… So essentially you cash is losing half it’s value every ten years. Oh shoot. I said it exactly the same way again.
Outside of rare cases you should put your down payment savings in an index fund, either an S&P or World fund, and you should accept that you may lose money in the short run, and the reason is simply that the odds are so substantially in your favour that you will benefit. Historically, there has been approximately an 80-85% chance the S&P will increase in a given year. It may feel like you should avoid risk while saving for a down payment, but why? It’s much more likely that investing your partially-saved down payment in the stock market will allow you to reach your down payment goal sooner and get you into your dream home that much quicker. It might even get you into a better class of house or a better neighbourhood.
People are so concerned with a chance of loss that they don’t realize missing out on a possible gain is another form of loss.
@ VicInvestor1983
“Seems like a lot?”
I didn’t say so.
Although if most doctors are married and if most doctor’s spouses are also working professionals, at least half of BC doctors’ families are likely in the top 1% by family income, which seems adequate.
Anyway, doctors chose the profession they’re in. If they wanted a profession where incomes can be astronomical, they obviously made a poor choice.
If on the other hand they went into medicine to help people, as so many say when applying to med school, why should they be so upset at having to pay tax at the same rate as other people?
As WAC Bennett remarked when there was a row about doctors’ pay, “the doctors are so busy caring for their patients, the don’t have time to understand what a good deal they have from the Province” or words to that effect.
Obviously, if recruitment to med school begins to fall, or if significant numbers of doctors seek greener pastures elsewhere, the Province will act.
One thing the Province might do is set up a program at BCIT for BC Professional Medical Diagnosticians, who would be trained in the use of artificial intelligence in medical diagnosis. Graduates would be qualified to screen patients, prescribe standard medications and refer those needing medical treatment to a specialist. That way, it would not be necessary either to train of pay nearly so many doctors, and those doctors who were trained would be specialists earning more than today’s GP.
@CS
Average overhead is around 30% for GPs. So using your $240k a year, the net billings are $170/year. Seems like a lot? It’s not. Let me explain:
-Massive debt loads once done and entering the profession. $150-2ook is pretty average
-Very long education with lost opportunity (both life and income). Remember, that they enter the profession at 30.
-Total hours worked > hours spent in the office with patients. Remember that GPs take lots of paper work home (e.g. labs, imaging results, documentation). This is hours and hours of unpaid work. Plus, all physicians need to engage in CME (continuing medical education), which is getting more onerous as medical literature expands at record pace.
-No pension or benefits
Conclusion: medicine is not lucrative. At best, GPs are fairly compensated.
Regarding the tax situation: The provinces have been negotiating fees under the assumption that physicians can incorporate to receive favourable tax advantages. The feds have now changed the rules and those advantages will be reduced. Thus, the provinces will have to cough up more $$ in terms of fees to compensate physicians for the tax changes.
Hawk- here’s a dry report from the IMF that supports a few of your predictions.
https://www.imf.org/~/media/Files/Publications/GFSR/2017/October/chapter-1/Documents/C1.ashx?la=en
“Global Financial Dislocation Scenario” is their way of saying “crash”
or their other phrase for ‘crash’:
“concerns about a continuing buildup in debt loads and overstretched asset valuations could have global economic repercussions”
Even the IMF is listening to you Hawk…!!!
There are even a few warnings for you investors within the report.
We seem to be in a bit of a plateau market at the moment. While sales of SFH are down from last year the amount of inventory for the last few months seems to be holding steady. MY impression, at least for SFH homes is that the prices are pretty well steady as well.While this does not meet the VREB metrics it seems to me that, at least for the moment, we are in a balanced market. But maybe we are just in the fall doldrums.
But it lets us turn to other topics such as whether it is just a urban myth that having a live crucified politician in hanging in your front yard actually keeps the deer away
@ Marko
“If a GP in BC is pulling in $240k in fees after you lease space, staff, accountant to run your corp, etc., I can’t see how you would clear $140k which seems like ”
The G & M article I cited estimated overheads at 25% of gross, which would mean an average net of $180,00, and that is based on fees paid in 2013. Presumably rates are higher now.
“150 people at City of Victoria making over $100k and those are cushy jobs were you have flex Fridays, stats, pension, sick days, and little to zero reponsibility. ”
As for pensions, BC doctors are elligible for the Contributory Professional Retirement Savings Plan which is worth up to more than $7000 a year. And as noted, most doctors graduating today are women, many of whom work only part time, i.e., many take flex Fridays and maybe Mondays too. So net benefits of around $200 K don’t look that bad. As for the problems of running an office, dealing with staff sick days etc., welcome to the world of small business. Plenty of roofers, carpet cleaners, plumbers and electricians have the same problems, so why should we shed tears over the trials of the medical profession.
“Honesly, you would kind of have to be dumb to open a GP practice. Throw in unfavorable tax policies and just add more fuel to the fire.”
In fact there are many more fairly to very bright students seeking entry to med school than the med schools are willing to take. So are those prospective doctors dumb? Probably not. Certainly they should be aware when they embark on a medical career that they are entering a publicly funded service and will have to take whatever pay the government of the day deems suitable.
As for unfavorable tax policies, they’re no more unfavorable to doctors than to any other small business. So why are the doctors allegedly so fussed about recent tax changes? Either they’re a bunch of complainers or we gonna see a flood of plumbers, dentists, electricians and garbage pick-up guys leaving for greener pastures in the US of A.
josh
October 20, 2017 at 8:31 am
@Deryk Houston
I can’t help but think that you are exactly the kind of investor which has exacerbated this insane bubble.
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Josh, I believe that you are right … to a certain extent. I think perhaps B.C. residents are caught up in all of that “quick money” and are outdoing the immigrants.
http://vancouversun.com/news/local-news/surrey-man-sentenced-fined-for-real-estate-income-tax-evasion
B.C. title documents show that Dhudwal currently owns 10 properties in Surrey, valued at $8.8 million in total. In various mortgage documents for these homes, Dhudwal lists his occupation as “self-employed” and also “janitorial,” as well as “sawmill worker.”
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It does make you wonder how much closer to the U.S.A. implosion we can get.
https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/
“The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.”
“$307,000 – how much, on average, a doctor receives in payments for his services, his salary, every day tasks and his client list. This increased by 3.1 per cent compared to last year, but it’s the smallest increase in five years. This is the average gross income and not necessarily the take-home pay.”
That’s their salary not their gross billings.
Imagine if we did have medical practices competing against each other. That would lead to innovation in the system where the practice have to the satisfy the patient’s needs rather than the governments. We might even get doctors that make house calls.
Let’s get rid of billing numbers for doctors that restrict the number of doctors in Victoria. Open up the medical system so that doctors from other countries can easily move here without having to meet the old boys club of Canada’s restrictions on the number of doctors to keep salaries high. You want to set up practice in Victoria come on over and start working. Let the free market determine who is or is not successful as a doctor.
How about an uber like system for doctors. You don’t have a doctor then go on line to see who is available. Then the Uber like system can have the doctors compete for the lowest price and fastest turn around times. My guess is when you call a doctor for a check up and she books you for 3 weeks from now there is probably a doctor in Victoria that is available that same afternoon.
Let’s give some of the power back to the consumer. The doctors should give every patient a print out when they leave of what they did and how much they charged the medical system. I have my dentist do this and I catch extra things billed to my dental plan that I did not receive and have her correct the errors. Let the consumer be the watch dog.
Want to improve the medical system for the consumer. Then double the amount of doctors and halve their gross billings.
How much competency does a General Practitioner need these days anyway to diagnose 99 percent of the problems so that they can send you for tests and to other specialists. If they don’t know the answer they just send you to someone else anyway.
We would be the healthiest city in the world if we had as many doctors as real estate agents competing against each other to get you as a patient.
This says $307,000 average gross. That sounds a little more like they can pay rent and a receptionist.
https://globalnews.ca/news/381781/by-the-numbers-doctors-fees-across-canada/
Do GPs in Victoria work full time? My gps office closes at 3pm and half day on Friday and Monday. And specialist office hours can be less. average salary isn’t bad if not working full time.
I hope those stats are what the doctors pay themselves and not sales otherwise they are going broke! No wonder GP’s are relatively useless and can only prescribe antibiotics and shoo you out….
Seems like the obvious solution to me.
Anyhow, according to this Globe and Mail article: Canadian doctors have an average annual income (before taxes) of a little more than $225,000, which seems adequate to save most from the necessity of flight.
That would be the average. Fees structure is much better in Ontario. You have specalists making $500k/year+ in Victoria such as intensivists, orthopods, ear and nose, cardiac surgeons, etc.
If a GP in BC is pulling in $240k in fees after you lease space, staff, accountant to run your corp, etc., I can’t see how you would clear $140k which seems like a lot but there are 150 people at City of Victoria making over $100k and those are cushy jobs were you have flex Fridays, stats, pension, sick days, and little to zero reponsibility. Bridge 50 million over budget and three years late, that kind of stuff is ok.
As for GPs 10 years of schooling (assuming you get in first time around after your bachelors) and half decent schooling too (I got 30% on my first organic chemistry exam), having to run your own business (your staff call in sick and a million other problems), no sicks days, no pension, and a job where you have to deal with crazy people all day long.
Honesly, you would kind of have to be dumb to open a GP practice. Throw in unfavorable tax policies and just add more fuel to the fire.
Crisis will reach a point where fees will be re-negotiated and then we won’t talk about this for a few years.
Aaron,
TQQQ is up 87% percent YTD / 86% over the last 12 months. That’s roughly the same as a 5x levered house (20% down) appreciating 17%.
It’s very easy to look like a hero when using leverage during a bull run, but it’s very hard to maintain market-beating returns over the long term. If beating the market were easy, everybody would be doing it. But that isn’t possible by definition.
Investing is all about making risk-reward trade-offs. You’ve chosen an extreme and have been fortunate thus far, but just a 20% market dip will nearly wipe out your returns. A little bit more and you’ll have lost it all.
I’m not against using leverage (I use a fair bit myself, though mainly for currency hedging), but I worry you’re not properly appreciating the risks involved.
@Leif. What I am less sure about is active performance before fees, which would be closer to what most DIY investors are doing.
Leo the fee on TQQQ is .95%. and it made 98% this year that is DOUBLE YOUR MONEY. You may have made 10-18% on your house but it pails in comparison to the 3x ETF’s.
The great thing about these levered ETF’s is you can wake up and be frightened or excited 🙂 You can see a 7% drop or rise in a day but over the long term I dont think anyone can top these. Its interesting to see financial advisers tell me not to invest in 3x ETF’s because of the daily erosion but when you put it up against the overall ETF its leaps and bounds ahead. If we hit a down turn its the total opposite. Your going down very quick. The rise and drop are way more intense than the Nasdaq. Being in IT and even buying FB at opening IPO its up 380% which was my best preforming stock but TQQQ still killed that. When you continue in this bull market (until it goes south… 😉 ) the more and more you try to call a top you realize there is no way unless you really know what is moving the markets.
Once the next recession starts though you will want to swap out of these and into there shorts. Its interesting that every leveraged ETF goes the opposite way… but who can time that? 😉
Anyhow, according to this Globe and Mail article: Canadian doctors have an average annual income (before taxes) of a little more than $225,000, which seems adequate to save most from the necessity of flight.
I’m pretty sure the doctors will be ok. So in Victoria they cant get through 1000x customers a day (patients) from what I see at the walk in clinics and also every Doctor or Dentist I know they are all well off.
Steve Saretsky has a very informative video out today on his Facebook. Touches on a few interesting things like a credit union he knows of maxing out mortgage lending back in April. As well as an alternative lender he knows whose scrambling to find money to lend as there has been so much lent out already the well is running dry.
Also how those who bought pre-sales and now have to go through stress tests they never dreamed about 2 years ago. Sounds like my prediction of a potential liquidity crunch coming with a condo/house bubble bursting has some legs. 😉
Thank you for the price on St Charles.
820 St Charles
Sold Price: $1,160,000
List Price: $1,175,000
To get back to houses for just a second does anyone know what 820 St Charles sold for?
Well dumping mutual funds is certainly good advice. I can’t think of any scenario where a traditional mutual fund with a high MER is the right answer.
Surprising numbers but goes to show it’s better do it yourself. Most sound like they don’t like a little hard work to make money. Very strange for all the time spent on here.
This also applies to real estate.
I buy that. I don’t know how to play poker; and I don’t invest.
What do Victoria real estate prices do every ten years? Crunch that for us, mathletes.
Similarly, we need an analysis of HHV contributors’ prediction accuracy over the years. Pretty sure we’d see a few folks, like Just Jack (a.k.a. John Dollar, John Drake), near the bottom of the pile.
The performance record of the pros shouldn’t dissuade one from investing but rather warn them about investing with the pros. My RRSP started performing well as soon as I fired my financial advisOr and dumped all the mutual funds….
Found the data. How do the professional stock pickers do before fees (gross return)?
The answer is in this report: https://us.spindices.com/documents/spiva/research-spiva-institutional-scorecard-how-much-do-fees-affect-the-active-versus-passive-debate-year-end-2016.pdf?force_download=true
So even before fees in the long term (10 years), the large majority of active fund managers can’t even match the index. The only possible exception is large cap value funds, where some 53% beat the index. For the rest it was mostly 60-90% doing worse than the index.
@Leif. What I am less sure about is active performance before fees, which would be closer to what most DIY investors are doing.
@ Local fool, if you are looking to make a move with the cash shorter term then a larger percentage of cash would probably be prudent. Markets can turn fast. But saving implies longer term.
BTW, 90% of professionals being wrong sounds like bullshit or there wouldn’t be so many brokerages and investment companies. They may have a tougher time moving large cash around versus joe average who can get in and out much easier but they usually have an edge and can hedge their investments.
“Over the longest span, the numbers were particularly brutal. The S&P 500 outperformed more than 92% of large-cap funds over the last 15 years. Mid- and small-cap funds fared no better over the time period, with their benchmarks besting them 95.4% and 93.2% of the time, respectively. Overall, 82.2% of all active funds were outperformed over the 15-year period. (Over the both short and long term, actively managed bond funds were more likely to beat their benchmarks.)”
http://fortune.com/2017/04/13/stock-indexes-beat-mutual-funds/
JD, that’s already happening. Nurse practitioners and ND doctors are making good incomes doing just that.
Hawk, very soon you can start posting re-sales where the most recent selling price is less than the total cost the seller paid within the past 24 months. For example, during this past spring, only 6 months ago, someone paid $1,235,000 for a property at 4313 BLENKINSOP RD, and now they are desperately trying to unload it for $1,290,000 but so far there are no takers. They might break-even, but could also lose $50k or more as winter desperation sets in. Monthly holding costs are probably about $5000.
This property was purchased during peak spring prices (not average price).
Do you need a prescription from a doctor to buy pot from a dispensary?
Because if you’re a doctor and want to make cash why not set up a desk in one of the dispensaries and write prescriptions for a $100 a piece. You’d make a couple thousand a day with no overhead costs.
Here is the source for that claim:
Over 15 years, “92.2 percent of large-cap managers missed their marks, while the number was 95.4 percent for mid-caps and 93.2 percent for small-caps.”
https://www.cnbc.com/2017/04/12/bad-times-for-active-managers-almost-none-have-beaten-the-market-over-the-past-15-years.html
Note this is net of fees I believe and those fees are often north of 2% on active funds.
http://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/charts/2017/04/1492018512_0412_active.PNG
“You are comparing US dollar SALARY vs CND fees paid by government to GPs.”
That’s true. But remember, a lot of those people are women, now the majority among med school grads, who often work only part time.
Anyhow, according to this Globe and Mail article: Canadian doctors have an average annual income (before taxes) of a little more than $225,000, which seems adequate to save most from the necessity of flight.
@ Dasmo
Perhaps. What you’ve said is at odds with some investment folks I’ve talked to, but at the same time that hardly means it’s the end of the conversation or even meaningful in a particular circumstance. But yes, if I planned to buy 10 years from now, investing the money over just having it rot in a savings account all that time would be the way I’d probably go.
And according to this report, the average US general practioner makes a rather modest US$179 K, annually equivalent to C$225 K, whereas a general practioner in BC was making $241 K in 2013.
You are comparing US dollar SALARY vs CND fees paid by government to GPs. Office staff, medical space, accounting fees, etc., is not exactly free last time I checked.
“a landlord should only ever be allowed to raise the rent on a unit up to the maximum allowable increase — whether or not there’s a change in tenants”
What if you’re renting to a family member at a discount? Can you raise back to normal after they move out?
Or if a tenant moves and you improve the unit? If it’s worth more now, how do you charge more?
Or if you invest in a building where some units are renting below market. Can’t you raise the rent to reflect the current market after those tenants leave? It sounds like you can’t.
How is this enforced? Will leases show what the previous tenant paid, so they can compare and know how much the rent has been raised? And if not, who would know if the law is being ignored?
Saving cash for a down payment is more risky than investing. Money loses half its value every ten years.
I’ve only been doing it since about 2011. Left it alone, made a few good choices, figured I was “good at it”, then found out I wasn’t. hahaha. Only 20% of my holdings are in Canadian EFs. I have a GIC, which in retrospect was kind of a lame move, at least for me. I wanted something “secure”, but better than 0.05%. Future down payment is all in cash, albeit getting gnawed on a bit by inflation, but the rate of addition to it in a sense “hides” it, although it’s there just the same.
If you’re saving a down payment on a house – if you’re going to buy within 5 years, I think cash is one option. Liquidity is good. You can get that through investing too, but with a less than 5 year time frame, I think it’s risky. Less than 2, and I think that’s just a bad idea. If you don’t lose in a less than 2 scenario, you’re just lucky IMO.
Anyone can beat the market by speculating.
Thing is they may beat it on the upside or the downside.
That is why many rich people go broke. They got rich taking a chance and then lost it taking another chance.
Some, like Donald Trump, who once pointed to a drunk asleep on the sidewalk saying, “that guy is worth $900 million more than me,” have a good credit rating and so have the chance to get back on top even after they’ve blown everything.
And it’s all very well to say that the crash of 07/08 was an opportunity that most were too blind to see. But market tops and bottoms are always impossible to see with clarity except with hindsight. Many no doubt saw Black Tuesday of 1929 as an opportunity, but it wasn’t. And in fact the market did not regain its high of ’29 until the 50’s when many an investor of the twenties was long dead.
The same can be said of market tops. If Victoria house prices continue to slide, there will be those who say how smart it was to exit the market today. But without hindsight, no one can be sure that this is the tippy top. South, for example predicts continuous 4% annual appreciation from here on. He might be right.
Re: Doctors:
“Doctors are people too…when you spend a large chunk of your life in school you would like a bit of reward.”
You could say that, I should think, about almost anyone commenting here, but how many of us are planning to move to Trumpistan to save a bit on taxes. And according to this report, the average US general practioner makes a rather modest US$179 K, annually equivalent to C$225 K, whereas a general practioner in BC was making $241 K in 2013.
So if doctors want to leave Canada because of having to pay the same taxes as everyone else, let em go: they’re probably the dumb ones who can’t add up.
Without question luck is involved. I’ve always equated investing to playing poker. There is skill but the cards can be cruel. I’ve always invested with the bankroll mentality for that reason. That said, even though by mustachian standards I am a cowboy stock picker, in fact I have been conservative. If I wasn’t I’d be very wealthy. For example When Apple sunk to $13 pre 2:1 and 7:1 splits I was spouting off to my friends who were into this that I was going to borrow $10,000 to invest…. I did not as I have never borrowed to invest. Then again, if my former self was like that I might have put it all on Liquid Audio to win and lost it all….
“Just put your money in, leave it alone and let it grow (and sometimes shrink)”
If you bought the TSX back at the last peak in 2008 (like Mike is saying you should now) you’re just starting to make money now, 9 years later. Great investment. You need to lose a few to strengthen you’re resolve, even the pros lose too.
New build in Gonzales at 52 Maquinna Street slashed $150K. Ouch. Lotsa lost profit there.
There’s a similar statistic out there for economic forecasts (ie they’re worse than chance). But on investing, that’s where a long time frame also plays a role. Most investing that makes money (or at least beats inflation) is done so on the long term, spread out among many assets and left alone. Active investing has more stress and peril. I had one I bought a few years ago which worked, but I tried a similar tactic again at the end of 2015 and beginning of 2016. Not once was I successful – never did that again. Just put your money in, leave it alone and let it grow (and sometimes shrink). It’s not always easy, especially if you’re watching a major change unfolding.
“Dasmo being the one exception on this blog and there I’d be interested to see if it can be sustained over 20 or 30 years.”
As I recall Dasmo owns 40 stocks so might as well own an index fund for tech etc or whatever is trending. A monkey can throw at a dart board with 40 stocks and do just as well.
Mike The Prophet never tells us how many condos he’s bought to back up his claims. Anyone can say buy condos, but no proof he had the balls to step up to the plate or he is pumping because he’s dumping from the last peak he was a bagholder. Just like his fake bear BS.
If you work hard and research undervalued companies and follow the markets close on the companies news, developments, etc you can beat the market in the good years and can ride out the bad years in cash or some other safe investment. I know many who do. It’s higher risk but buying a house in Victoria right now has never been higher with all the new changes and roadblocks coming for speculators and FTB’s.
BTW, 90% of professionals being wrong sounds like bullshit or there wouldn’t be so many brokerages and investment companies. They may have a tougher time moving large cash around versus joe average who can get in and out much easier but they usually have an edge and can hedge their investments.
I have a harder time with the agents saying condos are flying off the walls then see a handful of slashes in the core that same day and for days afterward.
Legislation to close fixed-term tenancy loophole may be introduced next week
Super curious to see the details of this. Hopefully some common sense was applied and it doesn’t result in landlords taking suites off the market.
The doctor shortage in Victoria is mostly, I believe, something of doctors’ own creation. It is now virtually impossible to sell a medical practice in Victoria, not because there are too few doctors, but because a family practice in Victoria is deemed not sufficiently profitable. One reason is the large proportion of elderly patients who tend to have multiple complaints and are not easily rushed out the door.
Not sure how this is the doctors’ own creation? Fees are set, taxes are set. Market for office staff is probably relatively inelastic in terms of cost.
Do you really think that doctors are going to decamp to the US or somewhere else, merely because they have to pay the same taxes as everyone else. And if there are some doctors like that, as I suppose there must be, then good riddance.
Doctors are people too…when you spend a large chunk of your life in school you would like a bit of reward.
Legislation to close fixed-term tenancy loophole may be introduced next week
B.C. Housing Minister Selina Robinson is expected to introduce an amendment to the Residential Tenancy Act in the legislature next week. It would eliminate “vacate clauses” from fixed-term lease agreements.
“It’s imminent,” Robinson told the Times Colonist on Thursday. “Next week is a good bet.”
Robinson has not specified what the changes will look like, but the Together Against Poverty Society will be watching closely, said Doug King, the group’s new executive director.
“We’re happy the government is addressing this issue,” King said. “That being said, we do believe there is a right way and a wrong way to fix this problem.”
The rules should tie rent values to the unit, rather than to the tenant, he said.
In other words, a landlord should only ever be allowed to raise the rent on a unit up to the maximum allowable increase — whether or not there’s a change in tenants. If landlords can raise the rent by changing tenants, they have a financial incentive to do so, regardless of tenant behaviour.
Former Liberal housing minister Rich Coleman committed last September to closing the loophole. In March, he told reporters that after studying the issue, ministry staff were unable to find a way to adjust the act that wouldn’t be vulnerable to a court challenge.
http://www.timescolonist.com/news/local/b-c-to-close-loophole-that-gets-around-rent-controls-1.23070867
Also interesting to see that some condo’s that are for sale are still advertised as short term rentals even though they are not in the allowed zone.
Example?
When someone makes a claim that they can consistently beat the market in the back of my head I immediately classify them as a idiot. If anyone could do better than the market with a bit compounding YOY you would be rich within a relatively short time span and certainly not worried about home prices in Victoria.
The best you can realistically do is average and avoid management fees. If you are beating the market you’ve had luck on your side.
It’s a slow time for real estate—and for blogging about real estate. So here’s a good Saturday morning political read:
Globe editorial: After two years, the real Justin Trudeau emerges
https://beta.theglobeandmail.com/opinion/editorials/globe-editorial-after-two-years-the-real-justin-trudeau-emerges/article36675600/?ref=http://www.theglobeandmail.com&
It auto-expands jpg/png/gif links.
As for beating the market, it’s a fools game for most. Many people claim they do but almost no one is able to prove it. Dasmo being the one exception on this blog and there I’d be interested to see if it can be sustained over 20 or 30 years.
The average retail investor does a horrible job investing and 90% of professionals do worse than the index after fees.
Interesting to see people posting specific stocks for purchase.
Who is beating the index’s? Especially when you can buy 3x index’s ETF’s on the S&P and Nasdaq? I’d be curious to see who beat TQQQ this year? Yes you can talk about erosion of a 3x ETF but still demolish any stock in the markets that have been running wild since 2008.
TQQQ / UPRO / FANG this year
https://imgur.com/j6DL0Z8
TQQQ / UPRO over the past 7 years since they have been out.
https://imgur.com/ymsfdpx
I’m not sure how to add tags to embed images on this site so you don’t have to click to view.
Lol, hawk just imagine if you’d taken my advice, the very next comment after you said you were shorting 🙂
Or, had you bought condos that I said they were about to launch, etc (and btw, GE shot up for months after I suggested it…hmm, thx for bringing that one up, starting to look somewhat interesting again)
Intriguing. I’ll have to take a look at this. Thanks.
True. But we don’t have significant assets in savings, because we prefer to aggressively pay off our mortgage.
When the RESPs get sizable we may look at investing, but we’ll only invest if we’re comfortable that we’re not helping destroy the planet in exchange for a good return.
We have a solid emergency fund, but we wouldn’t consider investing our emergency fund because we look at it as insurance rather than as an investment.
Coast Capital Savings is going national. Members voted on it not long ago.
I believe it has shut down, but can’t recall where I read that.
Huh. I had no idea.. Interesting. Also the association of credit unions was strongly against the new B20 rules. That would not be the case if the rules were going to push a ton of business their way.
“I am sceptical of unverified claims of investing skill. But, if you are actually making 400% returns on a consistent basis then congratulations to you. If you maintain that pace over a stretch of years then Victoria home prices will be irrelevant to you.”
I’m skeptical of claims of massive home owner wealth. I’ve said multiple times I had one good year for the first time in a few years and doing well this year too but so are many others. Blowing it into something I never said is what makes you pumpers lose credibility with all your so called real estate market expertise.
That is a good idea until you have significant assets. Then the return matters more than what you can add on a regular income.
Seems to be in general worse than a high interest savings account. https://beta.theglobeandmail.com/globe-investor/investment-ideas/still-in-money-market-funds-heres-a-better-way-to-park-your-cash/article19058090/?ref=http://www.theglobeandmail.com&
Also interesting to see that some condo’s that are for sale are still advertised as short term rentals even though they are not in the allowed zone.
A few friends have been contacted by City by law officers on there short term rental sites. Asking them to shut down. Wonder what the next step will be if they don’t.
New interest rates and now short term rental action will be interesting.
Wonder how Lisa Helps landlord’s Air Bnb is still in operations?
Mikey has to keep dredging up a few cheap put options for insurance versus all his pathetic calls of GE at $30, now down almost 30%, the commodities boom call that tanked, etc etc. Always makes his calls at market tops right on cue.
I do like their approach. You can argue that you can easily replicate their portfolios without paying them 0.5% but you do gain a nice app and the convenience of set and forget for much lower than most other options.
@Introvert: They even have a Socially responsible option for portfolios. Maybe time to graduate past your GICs? https://www.wealthsimple.com/en-ca/socially-responsible-investing
This is what we did as well. Luckily in 2013 when we had to sell some investments for a down payment it wasn’t a bad time to do so.
The logical conclusion is that soon everyone will be Priced Out Forever http://pricedoutforever.com/learn.html
Michael and Caveat,
I don’t know what either of your sources are in relation to the psychology of people who are bearish about a particular RE market, so I can’t really refute either. Kind of sound like generalizations, though.
One of the basic points of active investing is to “sell hubris, buy humiliation”. Caterpillar (NYSE:CAT) is a good example. When the oil bubble burst, everyone was dumping it – who would need their product any more? Oil was done, kaput – mining for it henceforth? What a joke of a prospect.
Except…oil is in everything – the car you drive, the food you eat, the medicine you take, the clothes you wear, the furniture adorning your home. Many people don’t realize how pervasive oil really is and its enabling of our modern life. So, boom – I bought. And guess what? That turned out to be a great time to buy in. No one wanted it, but the underlying potential was still good. Just one example, but it makes the point.
Right now and with the same lens, that is precisely the opposite of certain RE markets in Canada. Everyone wants it, and will pay whatever price for it. You can’t lose, it’s safe, it’ll go on forever, different this time etc. You cannot find the real value in something wildly popular.
When people are falling in over themselves to get into something, that is usually not the time to buy. When people think that price corrections are now either meaningless, or a thing of the past, you need to make a careful assessment. It’s an almost elementary principle of investing. Ergo, I find that this is not the time to buy a house if you’re an investor.
Michael’s broader point about the S&P actually kind of demonstrates the point he was trying to refute. Yes, someone who had holdings within that index likely would have done well. However, this incredible and extended run is starting to show signs of weakness, by virtue of its seemingly unstoppable momentum. Look at what’s happening to those markets now. They don’t respond to real economic information or political dangers as much as they respond to Janet Yellen’s latest commentary. There is a pervasive sense of, again, “this time is different”, and lately, “the fed’s got your back”.
The US market IMO, has lost its ability to price in risk, and it’s now going up just because people think it will. Real inflation is in the tank, asset inflation is rampant, the VIX is as flat as pancake, and investors are euphoric. This relates to my post a few days ago, where I referred to the large scale asset mispricing we’re currently seeing. And the end result of this non-stop party is as certain as a crooked tree having a crooked shadow.
Is that bearish? I guess. It doesn’t mean there’s not good opportunity out there. Canadian real estate though, at least in some markets, probably isn’t one of them.
Hawk
October 20, 2017 at 2:22 pm
Vancouver still in a bloody mess. 75% of listings slashed so far this month.
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Hawk, with the B20 legislation kicking in soon I don’t think that you’ll be able to keep track of the price slashes.
A lot of posters on various blogs think that the Credit Unions are going to keep the party going but Credit Unions will not be taking up the slack after the B20 legislation comes through.
http://www.digitaljournal.com/pr/3465967
Collectively Canada’s 278 credit unions generate over $6.5 billion in economic impact, are leaders in small business lending, and have assets of over $205.3 billion.
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By comparison, a bank is a corporation that’s owned by its shareholders. In 2017 the big 5 banks had combined assets over $5 trillion.
https://www.relbanks.com/rankings/top-banks-in-canada
Oh, by the way, any Credit Union that goes national is covered by OSFI.
https://www.cujournal.com/articles/canadas-biggest-credit-union-looks-to-go-national
Coast Capital Savings is two weeks away from OSFI regulation.
http://www.fic.gov.bc.ca/pdf/fid/decisions/NOD-CU-20170814.pdf
http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/Pages/hst.aspx
Federal credit unions
Over the past few years, significant consolidation occurred with the ten largest credit unions representing about 40 per cent of system assets. Until 2016, credit unions were regulated exclusively by the provinces.
To promote the continued growth and competitiveness of the sector and enhance financial stability, the federal government introduced amendments to the Bank Act and other federal acts to enable credit unions to incorporate and continue federally. The legislative model was based on the framework applicable to banks. The model wove in unique cooperative elements for federal credit unions and established transitional elements to facilitate the migration of credit unions to federal jurisdiction and subject to OSFI’s regulation.
@ Barrister
“Now if you where arguing that real estate agents are not paying their fair share I would be in complete accord with you.”
I guess that’s one thing the entire world agrees on.
As for the tax changes, I don’t understand much about them, although the intent to prevent income sharing with non-working family members and the attempt to keep tax rates on owners of incorporated and unincorporated businesses more ore less equal seems unreasonable to oppose.
In my view, the greatest unfairness between incorporated and unincorporated small businesses is in the treatment of capital gains on the sale of the business. Those who sells shares in a business get a capital gains exemption of up to eight hundred and something thousand dollars, worth over $200,000 in after tax receipts, whereas a proprietor of an otherwise identical business gets no exemption at all.
I see no justification for such a difference in treatment. One might say everyone should incorporate, but for most small businesses incorporation is a tiresome hassle. Moreover, it makes selling a business more difficult, especially if one is selling to to a buyer abroad who doesn’t want the hassle of winding up a Canadian business corporation.
I also wonder about doctors and other professionals incorporating to avoid personal liability. Would it not be better if they simply had adequate insurance? That way patients would have a better chance of full compensation for the many errors attributed to the medical profession.
My own view is that if we wish to reward professionals and entrepreneurs better, and indeed almost everyone else too, we should slash government spending, slash taxes and greatly simplify the tax code. that way nearly everyone would be energized, including the ex-bureaucrats, for the most part competent and intelligent people, who released from the mindless drudgery of government paper pushing, would make a real contribution in the private sector.
The other thing I have noticed is that people have a hard time getting out of the bearish mindset once their predictions come true, the markets fall and hand them a valuation gift. How many stock market bears went all in in March 2009?
One risk for non-owners and their downpayment fund is in ‘bearish spillover’. Non-owners tend to be bearish toward many investments, leading to poorer decisions.
I thought I’d give an example from the guy who enjoys calling me a douche bag 🙂
The S&P500 (SPY) is up 45% since then.
CS:
What clients, I have been retired for years. But to be clear I am not against the changes to the tax act but at some point we do have to give some thought as to how to keep certain professions from brain draining out of the country.
Now if you where arguing that real estate agents are not paying their fair share I would be in complete accord with you.
I am sceptical of unverified claims of investing skill. But, if you are actually making 400% returns on a consistent basis then congratulations to you. If you maintain that pace over a stretch of years then Victoria home prices will be irrelevant to you.
Vancouver still in a bloody mess. 75% of listings slashed so far this month.
http://www.myrealtycheck.ca/
This made me chuckle. I walked right into that one, didn’t I!
“benefits of requiring low mental energy”
Well that’s pretty obvious that low mental energy goes into your useless posts.
That’s a nice property.
I’ve always loved this little pocket of Oak Bay, west of Henderson Rd, from Frederick Norris Rd to Kendal Ave.
Too rich for my blood, though! I’m just a down-and-outer trying to make it on the mean streets of Gordon Head. Leo knows how tough it is; he had to give up buying gasoline for his vehicle! 😉
My personal approach to saving is to focus more on the principal and less on the returns. In other words, I’m far more concerned with how much I’m saving each month than on how much my savings are earning.
This approach has the concomitant benefits of requiring low mental energy, and of saving a great deal of time.
Amazing how another nice Golden Head at 1581 Mileva Lane, (one house back from the ocean) has to slash $75K just to attract some attention. I swear the Asians were sucking these up mere months ago way over ask, but now they are gone to Seattle it appears as the yuan outflow dries up bigtime.
Another Henderson house taking a major $200K slash at 3552 Kelsey Place.
2931 Sea Point Dr in Ten Mile Point looks like the deal fell through and now relisted $65K less. Are the banks balking at these prices ?
Prime reno flipper at 1273 Alan Rd slashed $30K to $634K. Guess the flipper money is now long gone as many have had to slash the past two months.
Smells like some more major slashing coming round the bend with many other slashes today, too many to list. 😉
How do you feel about a money market fund?
A money market fund (also called a money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are widely (though not necessarily accurately) regarded as being as safe as bank deposits yet providing a higher yield.
“Give it to Hawk to manage. With his 400% annual returns you’ll soon have enough to just pay cash for the house.
Strange how someone with such demonstrably terrible financial instincts (selling his house just before prices increased 40%) manages to reap 400% annual returns in the stock market.”
Amazing how two owners who did nothing but luck out making the easiest money of their life have to taunt someone who worked hard to make theirs.
Shows again how the arrogance and ignorance of this market shuts off all common sense to know when someone’s life/family events and priorities change. Their bubble world must be a very depressing place to not get real life. Sounds like Trump and his bloated head.
BTW, whats 500% times 300% ? Looks like the year end is going to end on a real bang. 😉
For short-term saving, I have a Tangerine high-interest account. Their current advertised rate is 1.00%, but I called them up and threatened to withdraw my money, so they increased my rate to 2.50%.
If you feel more adventurous, try rate-reset preferred shares. They should perform well in a rising-rate environment, and the dividend payments get better tax treatment than interest.
@ Josh:
” it’s hard to quantify how much property prices have climbed exclusively due to slow zoning changes”
Well here’s an indication. In the mid-70”s and Oak Bay bungalow on a 50 foot lot sold for around $60,000, of which $5000, or about 8% was lot value. Recently, the same house would have sold for $1,050, of which all but $80-110,000, or about 92% would have been lot value. If Oak Bay were now to adopt a 4000 square foot minimum lot size, it would likely double the number of potential SFH lots. While the action would not have an immediately overwhelming efffect, it would likely freeze or depress lot prices for a generation.
Now if they were to rezone Oak Bay avenue and adjacent streets to allow five to ten story apartment buildings, Oak Bay’s population could double with ease. And that’s without doing anything about the zoning in the Uplands which represents the most profligate and ridiculous use of urban space.
@CS
Re: the density argument, I can see logic there but it’s hard to quantify how much property prices have climbed exclusively due to slow zoning changes. Hong Kong builds everywhere they can manage it including on “reclaimed” ocean and it’s the least affordable city in the world. As cities increase in density, the perceived promise that urban property will always outpace inflation by a significant % seems to undo any relief that rezoning offers. I think most of the value is just in the idea that it will always climb. Speculators all the way down.
@ Intro:
“The problem, however, is that there are doctor shortages (especially family physicians) in rural communities, and in places like Victoria.”
The doctor shortage in Victoria is mostly, I believe, something of doctors’ own creation. It is now virtually impossible to sell a medical practice in Victoria, not because there are too few doctors, but because a family practice in Victoria is deemed not sufficiently profitable. One reason is the large proportion of elderly patients who tend to have multiple complaints and are not easily rushed out the door.
But I believe that while virtually no doctor advertises being open to accepting new patients, most will accede to a sensible written request for acceptance as a patient, which suggests that any shortage of doctors in Victoria has been exaggerated.
Rather it seems doctors understandably seek to avoid patients who are drug fiends who tell them what to prescribe, malingerers demanding sick notes, people seeking to make dubious insurance claims, or those in need of a psychologist or who come in for a chat.
@ Josh,
“The purpose of humans’ limited time on this planet is not to barely afford property.”
Well said, although to judge by the policies of all levels of government in Canada, one would never have supposed you could possibly be right.
Two factors have been primarily responsible for the run up in housing cost as a proportion of total household expenditure.
(1) Housing costs in Victoria and many other urban areas has increased more rapidly than inflation because we have urban population growth without commensurate densification. Thus the cost of residential land per resident increases because the alternative to paying more is to commute further, which entails costs both in time and money. The tendency to rising price due to city growth could be limited by continual rezoning to allow progressively greater density in what are rather low density cities.
(2) The long-term decline in interest rates combined with loosening of lending restrictions, enabling people to commit a larger and larger proportion of their household income to mortgage payments. The regulatory changes appear to have been made entirely in the interests of raising bank profits at the expense of Canadian citizens. The solution is obvious, tougher borrowing restrictions, which far late in the day, and probably for the sole purpose of protecting banks from their own rash actions, we are seeing through the actions of OFSI.
@ Barrister
“On reflection you got to admit that this was not your finest moment on the blog.”
Irony is not your strong suit is it.
Do you really think that doctors are going to decamp to the US or somewhere else, merely because they have to pay the same taxes as everyone else. And if there are some doctors like that, as I suppose there must be, then good riddance.
But of course, if it’s your clients having to pay a fair share, then that would make it more difficult to ridicule their absurd threats.
What to do with one’s down payment?
Everyone is different. We chose to keep our six-figure down payment in a simple high-interest savings account at our credit union. The deposit interest rate back then (circa 2007) was around 5%, which was plenty for us. (Fast-forward to today, and that rate is 0.5%.)
Strange how someone with such demonstrably terrible financial instincts (selling his house just before prices increased 40%) manages to reap 400% annual returns in the stock market.
I read that there may well be an overall doctor surplus in Canada. The problem, however, is that there are doctor shortages (especially family physicians) in rural communities, and in places like Victoria.
(From the previous thread:)
Same for me, on all three accounts.
My feeling is that most people who take out HELOCs probably shouldn’t. But there are also a few, like totoro, who are shrewd enough to really take advantage of the tool while accounting for risk.
@Deryk Houston
I can’t help but think that you are exactly the kind of investor which has exacerbated this insane bubble. Real estate is not supposed to massively outpace other investments. The purpose of humans’ limited time on this planet is not to barely afford property. I don’t doubt you’ve done well, but you’ve done so at the expense of others.
I’ve got almost all of it in registered accounts in WealthSimple. No clue if that’s the best place for it but I know for a damn sight it’s better than Investors Group. Money weighted return is currently 9.9%. What a sham IG was.
I don’t have the time for self-managed stocks, or perhaps I should say I don’t have confidence that I would make the right decisions at the right time to avoid falling significantly in the event of a correction. I’ve been considering getting a few 10’s of thousands invested in gold specifically for the downturn of real estate, but I’m not sure what the best way to do that would be.
Give it to Hawk to manage. With his 400% annual returns you’ll soon have enough to just pay cash for the house.
Finding the down payment and holding it somewhere is a tough one, because house prices can easily accelerate far faster than anyone can save. It depends on which market you are trying to get into. Victoria for example is likely to make another leap this coming spring. Why? Because it is still very cheap considering it’s one of the most beautiful cities in Canada, if you consider the growing high tech opportunities, the best climate in Canada, the ocean, the capital of the province, all the growth of new construction, etc etc.
People in Vancouver can sell their house, even on the east side, for three million dollars. They can still buy a house here in Victoria in Rockland for one million dollars and stick two million in the bank. (It’s a no brainer)
So how can anyone realistically save for a down payment and expect it to make any difference when house prices could easily rise another one hundred thousand dollars or two or, as I predict, even more?
My advice is try to borrow from family and make a written legal agreement that you will save the money over a set period and pay them back.
If this is not an option, then set your sights lower and settle for an old broken down house. Anything to get into the market. Even if the house is in Sooke or in an outlying area. Rent it out and live where you are. Continue renting where you are, (Or find a even cheaper place if you can.) while you fix up your old beater over time. I hear people say so many times….”I want to buy a newer house”. Well …guess what? Maybe you can’t afford a new house and if you wait until you can afford one….you might never get into the market. Lawyers and doctors in Vancouver were not able to save fast enough to keep up with price increases. And so how is the average joe going to do it?
Lower your standards. Take in some homestays. Rent out a room in your place if you can. Live with tenants in the basement if possible.
Don’t deal with the banks. They are idiots. (For example: They think it makes more sense to lend money to people with high incomes, even though those people could lose their job tommorow, rather than to someone with a huge amount of equity in their homes.) Bypass the banks and Go directly to the private market or through a broker.
Don’t tell me this can’t be done. I’ve done it all my life, even recently, and it always works very well.
Good luck.
Peter R., did you or would you consider maxing the investment in a self administered RRSP to take advantage of the income tax deduction over the years it took to build up the down payment? This is in addition to, and not just in an RRSP.
The best no-risk investment option is a high-interest savings account at one of the smaller or online-only banks. These banks sometimes have special deals like 2% interest, so shop around for that.
Remember each bank insures only up to $100,000, so you might need more than one savings account at more than one institution.
Next best option is quite low risk: a bond fund or bond ETF. For example, XBB on the Toronto exchange currently offers a dividend yield of 2.63%. Make sure whatever product (fund) you choose has a low fee ratio (low MER).
Third, if you”re a risk-taker, invest it in stocks, a stock fund or ETF, or a REIT. I recommend the Automotive Properties Real Estate Investment Trust (APR.UN) on the Toronto exchange because it has a 7.28% dividend and is likely to not decline in value in the short- to medium-term. However, its liquidity can be low sometimes because not many retail investors know about it. (Liquidity is needed to easily buy or sell without driving the price up or down.)
I also recommend Dividend Growth Split (DGS) on the Toronto exchange, which currently has a 14.81% dividend yield. This is a high-risk investment, though, in the sense that it would be hit hard by a market correction and also it declines in value by 5-10% every time it releases more units, which dilutes the value of the older units. You can clearly see this on its chart.
My favorite company stock is Brookfield Asset Management, BAM.A, which has been rising in value lately and has a 1.31% dividend right now. I recommend this stock because it’s not likely to decline much, even during a stock market downturn. (It is a stock, though, so -10% is “not much” if there’s a financial crisis.)
Finally, don’t ignore tax implications if you invest outside a TFSA in a regular, fully-taxed account. Any capital gain and any interest is taxed, often at about a 20% rate but linked to your income. Investing within your TFSA is the way to go for most people.
Referring to CS previous post on the last blog; what a great idea to have lots of doctors leave the country and free up housing. After all we have far too many doctors in Victoria already.If we can get a lot of them to move think of all the money that could be saved from BC’s health budget.In the unlikely event that there is a doctor shortage I am sure that you will be the first to not have you or your family seen by a doctor.
On reflection you got to admit that this was not your finest moment on the blog.
Good question. I treat my intended down payment like any other investment, holding as part of a diversified investment portfolio, with capital spread across different investments (stocks & bonds) to reduce overall risk. Unlike long term investments, liquidity is more important, to be able to move quickly if required to convert holdings to down-payment cash.