The right way to invest in real estate is to reduce your consumer debt, such as owner-occupied mortgages, car loans and student loans, and free up space to accommodate the negative cash flow of a good house in a good location. This investment method will save you worry and effort.
05 The struggle in the anti-intellectual age
Someone said online that by buying 20 off-the-plan houses, you can quickly achieve 8-digit profits. I think this is just like Trump saying that drinking disinfectant water can cure COVID-19, using stupidity and ignorance to fight reason and science. Anti-intellectualism is a contemporary manifestation of the disdain for civilization and knowledge by those who are eager for quick success. Many people are working hard to find various shortcuts, while ignoring their own ignorance and shallowness, imagining that the results they want can be achieved immediately through some counter-intuitive means.
Real estate investment has become increasingly impetuous in this anti-intellectual environment. While people are keen to learn various tax-saving tips, they also want to take out more loans. This is typical anti-intellectual thinking, Because all tax saving methods are poison pills for mortgage applications. Those families who were able to quickly reduce their mortgages did not use up their RRSP limit every year because they knew that their savings this year would either be used to accelerate the repayment of their mortgages or put into a tax shield. If they chose one of the two, they gave up tax savings. Those who advocate not buying RRSP are also anti-intellectuals. Don’t they know that creating wealth is more important than saving taxes? People who have income but don’t file taxes just don’t want to apply for a loan. If they say anything else, they are overthinking it.
"In real estate investment, is rent more important or value-added?" Many people ask me this question. This is a man-made problem created by some anti-intellectual people who always preach that they can find low-value areas and invest in properties with positive cash flow. Investment is something you should consider only when your income is good and you already have savings and abundant funds. If the income is insufficient and families need to use rent to cover daily expenses, it is not yet time to make any investment. What they should do is to work hard to increase their income, rather than thinking about how to invest. The purpose of real estate investment, like other types of investments, is to balance lifetime income. Families with high income now, but may experience a hard landing in income after retirement, need to invest now. If you buy an investment property now and have negative monthly cash flow, you can use off-site income to make up for it. When your active income decreases after retirement, you can sell some of the properties that have appreciated in value and reduce the loan balance of other investment properties to release positive cash flow from rentals. This is the logic of the entire real estate investment.In real estate investment, passive income is the most important, but it does not mean that positive cash flow will be released immediately after buying. Choosing a property with positive cash flow when buying is anti-intellectual.
"Nowadays, if you buy a second-hand condo, you can't rent it out, so you should buy an pre-construction property." This is the most popular anti-intellectual statement at the moment. Do you know what the rent will be like when the pre-construction property is settled? Do you know what the loan policy is? Do you know what the interest rate level is? Don’t let someone else’s commission dictate your real estate investment decisions.
"House prices have risen very high, so sell it; CONDO rents have dropped, so sell it." This is the most harmful and anti-intellectual statement nowadays. There are only two trigger points for investors to sell their houses: 1. When the yield is lower than the interest rate, the property needs to be sold, otherwise reverse leverage will occur; 2. Canada stopped accepting new immigrants. After selling, you have to pay capital gains tax; if you buy real estate again, you have to pay land transfer tax. If you don’t buy real estate, do you want to buy stocks? Those who sell investment properties this year are destined to be the biggest losers.
If you stay on the high road and block out the anti-intellectual noise, you can hold it for a long time and make long-term profits. I am not a typical successful real estate investor. Let me tell you about my client’s experience: She already owned a condo investment house in downtown Toronto in 2008. At that time, anti-intellectuals who came out to claim that house prices would be cut in half occupied all the media. Even her family members advised her to sell the house, but she did not listen. From 2010 to 2016, the CONDO market was in a downturn, and the growth rate was much lower than that of other types of real estate. She still continued to hold and buy without any haste. From 2018 to 2019, she remortgaged all investment properties and continued to buy. Now she has 10 units of CONDO apartment investment properties in the city center. Regarding long-term investment, Peter Lynch's view is: "You think long-term holding is a smooth upward slope, but the reality is a thorny road full of twists and traps." Taking Toronto's second-hand CONDO as an example, it best illustrates the problem. In 2016, someone sold all the investment housing CONDO in his hand because it had not increased in six years, and he regretted it in 2017. The buying and selling transactions of condos in downtown Toronto will show a clear reversal in February, and there will be transaction reports next week to confirm my view. Throughout the spring and summer, the CONDO market will continue to pick up and even become hot, because the rental market will reverse this fall, and smart investors will not wait until fall to enter the market.
The method that sounds easiest is anti-intellectual, and the method that sounds reasonable is anti-intellectual. The way to invest in real estate is to be clumsy, not smart. Only by being clumsy can you keep your wealth.
Conclusion
Real estate investment and stock investment have one thing in common: those who chase hot spots and frequently buy and sell are speculators who cannot make money, but make money in heartbeats; value investing is the right way and the highest road. At a price with a margin of safety, buy assets with intrinsic value within your own understanding and hold them for a long time. It is best to hold them forever. It doesn't matter even if the market is closed for a year or two. For assets that you are unable or unwilling to hold for a long time, don't hold them for a day.
There is nothing special for real estate investors in 2021. The main line is still: ignore market fluctuations and continue to buy unpopular properties; optimize household debt, maintain and increase active income, resist the temptation to save taxes, use sufficient leverage, and delay the release of cash flow; stick to the second-hand housing position, always walk on the high and right path of real estate investment, stay away from sideways, dangerous roads and misguided paths; learn to be rational, accepting and enterprising, and do not become a victim of anti-intellectualism. The road is rough but the people like it. The road is flat, but people want to find shortcuts. Our nation has had this tradition since ancient times. After bringing it to Canada, we found that it was not easy to use. If you have to find shortcuts even when investing in real estate, then do you also have to take shortcuts when taking a walk? Sowing seeds on the road of real estate investment in 2021 will definitely bear fruitful results in 10 years. I have no doubt about this.
