Historical article note: This article was originally published on 2019-01-03. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
On the occasion of the first anniversary of this public account, I would like to thank all the readers for their support and encouragement along the way, and wish everyone in the new year to follow their plans, take proactive action, and continuously move toward their small goals. A year has passed, and I can proudly tell myself that I have achieved the commitment to writing articles. Some young friends have come visiting, asking me to share my experience in writing public account articles. I honestly told them: There are two ways to write articles. First, writing articles to attract attention—whether in the short term or long term, the content of the articles is for selling, selling ads, selling traffic, seeking rewards, building platforms… and other such distracted intentions. Such articles make up 99% of public account articles. Second, writing articles for one of the "three immortals of life"—achieving contributions, virtue, and words—specifically "words," which can withstand the examination of the author’s conscience and stand the test of time. Readers can distinguish between these two ways of writing articles.
In his 2018 New Year’s Eve speech of "Time's Friend," Luo Zhenyu said, "Only long-termism can make you a friend of time." I would like to add: "Only by starting to take action can you become a friend of time." My understanding of being a 'friend of time' is: when 2018 ends, feeling at ease that you have not wasted it; when 2019 arrives, feeling confident because you know what should be done. Those who just read motivational articles all day and never take action will feel emptiness for the past year and confusion for the coming year. Everyone, in their own battle with time, achieves their set goals within the limited time, and time becomes a friend, winning this war of the year; those who do not complete their goals or have no goals at all will see time as an enemy, losing the war of each year. Life is short; the more wars you lose, the fewer opportunities remain. In the countdown of life, one gradually falls into a difficult, irretrievable, and hard-to-restructure state. In our lives, the number of people who never take action but know a lot accounts for 90%, while those who know and also act are few, only 10%. Therefore, wealth distribution is such that 10% of people hold 90% of the wealth. People who never start acting, no matter how much they know, will never become friends of time. Below, I will make a brief and highly condensed summary of the golden sentences from the 2018 whole year of this public account, to see which content everyone knows but has not acted on yet, so that in 2019 we strive to achieve it and become friends of time.
Investing requires independent thinking. People who follow the crowd are prey in the hunting ground, while those who think independently are the hunters. One must have the ability to identify 'herd behavior' and act in opposition to the direction of the crowd, performing contrarian operations. Otherwise, one will be swept up by 'herd behavior' and become a member of the rabble, turning into prey for those who think independently.
Because the job market is constantly being flooded with new immigrants in technology fields who are affordable and of good quality, the only way to increase your income is to keep learning and improving yourself. In Canada, there is no such thing as talent going unrecognized; low income can only be due to one reason: lack of talent.
Families that do not report income, underreport income, or pay less tax are having a hard time getting loans because they have affected the federal government's interests. Do not believe the reasons the government gave when announcing B20; interest rates have entered a hiking cycle, and to prevent excessive borrowing risk, strict stress tests are implemented. The federal government requires banks to follow a policy of not lending without seeing the income—a long-term policy, not a temporary one.
The expenses arising from income earned through real estate investment, such as interest expenses, property taxes, and management fees, are tax-deductible. The tax incentives provided by the government for real estate investment have never changed. Real estate investment is encouraged by government tax policies, which is an indisputable fact. All rumors about the government cracking down on real estate investment are fabricated.
The impulsive actors in real estate transactions are those without accumulated knowledge, without practical experience, who are running out of time yet dream of getting rich overnight—diligent slackers. The lesson they give us observers is that growth is more important than success. Spend time on growth, and the results you want will naturally develop. Those without accumulation lack the ability to distinguish between opportunity and disaster. Under the pressure of limited time, they treat gambling and foolish risks as investments. Sooner or later, they will either be taught a lesson by reckless policies or be overwhelmed by the turbulent market.
Financial historian Charles Kindleberger once said, 'Nothing disrupts one’s comfortable state of mind and judgment more than seeing a friend make money.' Robert Shiller, author of "Irrational Exuberance," believes that the madness process escalates in the form of 'positive feedback': the initial price increase encourages more people to buy, which in turn drives prices even higher, thereby enticing even more participants. Nobel laureate psychologist Daniel Kahneman believes that trend-following investors, because of herd behavior, rush into unfamiliar investment areas at the wrong time, causing devastating harm. These are all conclusions in behavioral economics that have been widely recognized in recent years. Simply put: collective consensus in investment leads to the group becoming deaf and blind, losing rationality, and ultimately resulting in market inefficiency, with latecomers losing their stakes.
In the real estate market, look at the trend in the long term, land supply in the medium term, and monetary policy in the short term. For mega-cities, the continuous concentration of population is the trend. As long as there is money and credit, cycles are inevitable. However, cycles cannot change the trend.
As a value held as an asset, it is increasingly prominent, and the financial attributes of housing are reinforced by widespread recognition. That is, the functions of real estate as a store of value, as a medium of exchange, its liquidity, and its characteristics as collateral are increasingly acknowledged, even amplified. Housing is inseparably linked with education, social status, living conditions, health, and even lifespan. Therefore, real estate is not just an ordinary investment; it also carries the label of social status and an emotional attachment that is hard to let go of.
The real estate market in Canada shows a similar trend. The homeownership rate is nearly 70%, meaning that 3 out of 10 people rent and 7 out of 10 own their homes. When monetary policy tightens, homeowners simply don't sell, making it difficult for housing prices to drop significantly. On the contrary, during periods of tight monetary policy, it becomes harder to get a mortgage. Due to limited borrowing capacity, more people buy lower-priced properties, such as condominiums, which in turn pushes up the prices of entry-level housing and limits the room for high-end property prices to fall.
The peak in lending triggers the rise in housing prices, not the other way around. The main driving force behind asset prices is almost always the expansion of credit supply. All economic behaviors in this world that buy high and avoid low are essentially bets on who is more foolish, determining who will be the last fool. This applies to real estate, and even more so to the stock market. If you cannot afford it, do not take on debt to take such risks.
Loans for owner-occupied homes are liabilities, while loans for investment properties are leverage. Bad debts include: monthly mortgage payments for an owner-occupied home, property taxes for an owner-occupied home, heating costs for an owner-occupied home, car loan monthly payments, student loan monthly payments, and 3% of credit card consumption. Bad debt affects borrowing capacity; bad debt is debt that must be repaid with your after-tax income; bad debt is basically consumer loans and necessary living expenses. Any household burdened with debt typically suffers from poor consumption management, especially if they took out loans to buy an owner-occupied home or car that does not match their income. Increasing leverage, expanding investment property debt, and withdrawing cash to accelerate repayment of owner-occupied home loans, car loans, or student loans is the shortcut to reducing bad debt.
Large cities have greater agglomeration and scale effects compared to medium and small cities and towns, use land and resources more efficiently, and are more dynamic and efficient. This has been the triumph of urban civilization for centuries and follows the basic law of urbanization. The migration of population to metropolitan areas is a fundamental trend and rule of urbanization worldwide. Wage earners should leverage the local advantage, use bank leverage, obtain mortgage 'virtual capital' to invest in real estate, 'buy early', hold long-term, and during the holding period, arbitrage with additional mortgages from banks to enhance asset liquidity. With urban development and economic prosperity, personal wealth can be preserved and increased, and in the future, the property can be sold to buyers with stronger purchasing power, ultimately achieving arbitrage.
Real estate investment is a T+5 transaction, where 5 refers to 5 years, not 5 months; the achievement of a real estate agent isn't measured by the awards you won this year, but whether you personally invested in a property this year. Real estate investment never loses money, it depends on when you sell. The money people lose in real estate investment is always less than what they would lose in the stock market or entrepreneurship.
The income from real estate investment does not come from rental income. Tenants are like employees, like godly teammates. Investment properties should not be used for Airbnb or homestay; these are all physical labor and do not belong to real estate investment. To use money, go to the bank for refinancing, the bank is open every day.
The biggest advantage of real estate investment compared to stock investment is that landlords are contributing to society by buying houses and renting them to people who cannot afford to buy a home. Investing in stocks, on the other hand, is only for personal profit and does not benefit any third party. A strange phenomenon nowadays is that people who invest in stocks accuse real estate investors of driving up housing prices, calling it immoral. In fact, stock investors still need to work hard, and only when they can afford to buy a house themselves will they change their mindset. In terms of morality, it is the real estate investors who should feel superior.
The future is a mirror of the present. From an investment perspective, the future is exactly the opposite of the present — if you want to achieve high returns in the future, you must buy when prices are low in the present. People with a performative personality live in the present, buying high and selling low; people with an enterprising personality live in the future, buying low and selling high. Ultimately, those who live in the future will definitely have more wealth than those who live in the present.
Cycles cannot change trends; trends need at least two cycles to be determined. By drawing a line connecting the housing prices at the low points of two economic cycles, the trend becomes clearly visible. Long-term investment is the time it takes for income to be four times the investment. Financial intelligence can help people live longer.
The safest investment strategy is to buy low and sell high.
People who feel they are living well now and do not want to plan for the future do not need to make any investments. Only those who are willing to take responsibility for the future and do not want to rely on government assistance will work hard to learn and practice investing. People who cannot delay gratification cannot invest; only those who see accumulating wealth for the future as a necessity and grit their teeth to refrain from immediate pleasure can invest. People without patience cannot make any investments, including real estate, because real estate investments take ten years, even decades, to see cash flow. Those who want to count their cash every day do not have the patience for real estate investment. People who do not believe that future renters or buyers in Toronto will have better affordability than the current population, or that Toronto will become more crowded and housing prices will be higher in the future, cannot invest in Canadian real estate. People who cannot see trends will 'die' in cycles, but no country's economic development is linear. People who fear cycles without experiencing any cannot make real estate investments. Those without long-term plans, or who stop only after making four times their money, cannot earn big profits—they will only make small gains trading back and forth. People who do not dare to buy low cannot invest in real estate; following the crowd means buying high and selling low, which will eventually be swallowed by the market, while providing profit opportunities for those brave enough to enter the market during downturns.
Many friends are very familiar with the golden phrases above and also know that these condensed contents can only represent part of the content of a public account article. Action is what can make you a friend of time. Forward this essence version to the people you care about the most, those most likely to take action with you, as your first action for your New Year's resolution, and tell them: you know, and you want to do it, you want to be a friend of time.
January 3, 2019
Henry Wang is in Toronto