I've been feeling a bit anxious about the number of people who have come in with loan inquiries in recent weeks. Instead of buying houses, people are rushing to put cash into properties. The more unreliable a person is when it comes to loans, the more anxious they seem to be. The current impetuous mood is more serious than at the end of 2016. A family with an annual income of 110,000 yuan still has a home loan of 400,000 yuan, and is anxious to get a loan to buy a house for an 18-year-old child; a person with no Canadian income does not know how to increase the home loan loan to 1.2 million yuan, and uses the money to buy several off-the-plan properties, and asks me how to get a loan for the off-the-plan property. . . In coffee shops and restaurants, everyone is talking about the house. I think it is necessary to write an article to help everyone reorganize the underlying logic of real estate investment in Canada.
Real estate investment is a good investment, but there is no need to rush. When I started investing in real estate, I didn’t listen to anyone’s advice, but in the process of writing loan applications over and over again, I discovered that some families did not have a particularly high annual income, but had a very large net worth. After careful analysis and in-depth conversations with clients, I gradually realized the way to get rich in Canada. In fact, the truth behind each one has been mentioned in the "Poor Dad" series of books a long time ago, but I just didn't understand it. Only when I saw someone do it with my own eyes and followed it in practice can I really understand "Poor Dad". I now understand very well why Robert Kiyosaki was so anxious when he saw people not enlightened in financial management, and at the same time, how grateful he was to those seniors who enlightened people's minds in financial matters. I can’t find a specific person to thank for giving me important inspiration in financial business and debt management, but I know it must be my clients who inspired me. Like "Poor Dad" author Robert Kiyosaki, I'm doing my best to pass on my experiences without creating anxiety. Just like what is said in "The Pilgrim's Progress", my sword must be passed on to those who can wield it. Those who are incapable of wielding the sword will hurt themselves.
01 Understand capitalism
The capitalism I learned about from textbooks when I was in school, and the capitalism I saw in reality, can be said to be inverted. Among the social systems that humans have experienced, capitalism is not perfect, but it is the most suitable for human development. Only when private property rights are sacred and inviolable can there be free market exchange and fine social division of labor. It is the market and division of labor that create wealth. Social redistribution policies have the function of robbing the rich and helping the poor, but social practice has proven thatRobbery from the rich will not leave them; helping the poor will not leave them. People who are not ideologically aware of the power of capital will become poorer the more they help.. Piketty cited a large number of facts in "Capital in the Twenty-First Century" to prove that capital makes money faster than people, so wage growth in capitalist countries is lower than GDP growth, and asset price growth is higher than GDP growth.
Canada is a typical capitalist country. In terms of resources and social system, Canada is a first-class capitalist country. In terms of national wealth and overall quality, it is a second-rate country. From the perspective of governing ability, it is a third-rate country, because second-rate citizens can only elect third-rate politicians. Canadians are generally satisfied with the security and prosperity of their own small families and do not seek to be the best. This culture has given rise to a phenomenon,The people who actively participate in voting are those who hope that others will change their democratic destiny., you can imagine the people elected by these people. In capitalist countries, unless there is a major crisis such as war, elites will not stand up to stand for election, which also leads to the current quality of politicians from the supply side. Canada's cabinet ministers must be elected members of parliament, so the overall level of governance has been locked in. Although I am not an elite, I feel offended when I hear people urging me to run.
Canada has almost no class conflicts and little racial conflicts, which is much better than its neighbors to the south. Vulnerable groups are particularly well protected, so I think Canada is very likely to be the first to realize communism, and we will not be too far away from a basic income of 2,000 yuan. Now, the entire North America has fallen to the left, and Canada is slightly better. Although the NDP is crying and making trouble, the liberals have stopped issuing epidemic subsidies, and Biden is still running on the extremely left road, insisting on promoting 175 million functional fiscal MMT. Once you reach the left extreme, it is time for the right extreme to appear. Biden is probably an excessive president, and the next president is likely to be a Republican. Canada's liberals may remain in power if they don't go too far. From the perspective of a market economy, conservatives are more conducive to economic development and require less government intervention. Canada's liberals have been in power for six years, but they have done very little actual intervention in the market. At most, they promised to intervene in this and that during the election, but once they were elected, they began to be lazy and inactive. What I have observed is that no matter which party is in power in Canada, there is very little interference in the market. The well-being of ordinary families still depends on their own competition in the market.The government is only responsible for the distribution of poverty, not for the distribution of wealth, if you want to live a prosperous life, you need to struggle and work hard, and you need to know how to use capital. In Canada,Capital makes money faster than people. If there is no capital to serve you, then you are serving a certain kind of capital.Canadians have low expectations of the government, so the government does very little. Economic life is mainly guided by the market. The government has no obligation to boost the economy and will not carry out any large-scale infrastructure construction. It is the central bank that cares about the employment rate, but it also relies on interest rates to indirectly affect the market, rather than directly participating in the economic operation.
Chinese Canadians have made great progress in recent years. In the past, we rarely cared about what the central bank governor said, but now it is different. Many people have entered the state of living in a capitalist country and pay close attention to the capital market, the country's monetary policy and fiscal policy. In the past, in China, few of these people cared about what the governor of the People's Bank of China said. Those who do not believe in the power of capital and the role of the market have been severely punished by housing prices in the past 10 years. The families that have been punished the most have been priced out and may never have anything to do with buying a house for the rest of their lives. Low interest rates and over-issuance of currency will definitely push up asset prices. For a family, real estate is the most important asset. Families who do not seize the time to buy a house will not be able to change the harm caused to themselves by not understanding capitalism, no matter what excuses they make today. Compared with families who repeatedly failed, those who dared to start over and learn from practice how to survive under the capitalist system benefited greatly. This year, my parents have been in Canada for 13 years, and they are increasingly fond of capitalism with Canadian characteristics. Canada's social system has many flaws, but the Chinese living in Canada are the Chinese who live the most dignified life. If they can use the capitalist system to obtain existing wealth, that will be the icing on the cake.
02 the power of capital
We often see those who work for capital arbitrarily guessing the minds of capitalists and explaining capital in a messy way. Capital is a means of production that can generate income. Capital goods such as land, manpower, and machinery and factories can all be counted as capital. Since human capital is limited by life span and physical condition, we cannot expect our own body to always generate income for us. Therefore, when our income is high, we must convert human capital into non-human capital, and when we are unable to work, let other capital create income for us. Irving Fisher defined investment as balancing a lifetime of consumption.I define investing as balancing a lifetime of income.To put it simply, when we can make money to support our own consumption, we must transform the surplus part of our income into two other means of production, namely, land and capital goods. The capitalist system not only protects individuals’ freedom of movement and labor, but also stipulates the sanctity of private property. Investment is a future-oriented activity. If people have doubts about whether their careers and property will be protected by law in the future, investment activities will often evolve into short-term behavior of taking money for safety, or even speculation. Under the rule of law, there is no situation where a piece of paper can wipe out an industry or turn private property into ashes. Most families who defect to capitalism attach great importance to the institutional superiority of capitalism in protecting private property rights and encouraging investment.The basic power of capital is to replace human labor, create income, and maintain our consumption after we retire; the ability of capital to continue to generate income requires the protection of a sound legal system and a market environment free from administrative intervention.
Capital goods, excluding cash. When we search Cash is trash on Google, we will see discussions between Buffett and Ray Dalio on this topic. Their opinions are consistent, that is,Cash is garbage. Not only does cash fail to generate income, but its purchasing power depreciates as more and more fiat currency is printed. Only people who don’t know how to invest think cash is king/cash is king. Cash can only generate income if it is converted into capital goods that can generate income. Which kind of assets you turn cash into involves investment issues. Insurance consultants say that insurance can preserve value. In fact, insurance does not generate income and cannot be counted as capital. However, insurance can share losses and uncertainties caused by accidents. Real estate agents say that real estate can beat inflation, and stock brokers say that buying stocks can make you rich. In short, assets that can bring income have the function of balancing lifetime income. It is up to the investor to decide how to choose.The power of capital is also reflected in its ability to transform continuously depreciating cash into assets that can maintain value and generate income.
Assets that can generate income can usually be used as collateral to borrow money from banks to generate capital that can be used to purchase more assets that can generate income. De Soto revealed in "The Secret of Capital" that under the capitalist system, a house can be continuously mortgaged, repurchased, remortgaged, refinanced, and repurchased. He believes that due to the lack of protection of property rights in non-capitalist countries and excessive interference in the market behavior of banks, people in these countries only struggle for a house throughout their lives, which is the root cause of lifelong poverty.If the power of capital is combined with a sound property rights system and market environment, there will be a chemical reaction of benign conversion of capital and assets, promoting the spiral appreciation of personal assets.
An interesting phenomenon is that de Soto, who discovered the secret of capital, was a Peruvian economist. He discovered this secret from outside capitalist countries. After immigrating to Canada, I found that many people born here actually don’t know the secrets of capital. Maybe it’s because their ancestors have worked for capital for generations and they are used to it. Many Chinese who have immigrated for many years are also trapped in capitalism and their hearts are in China. They do not care about the benefits of capitalism and do not know the secrets of capital. Some even return home. Therefore, I am even more grateful to those Chinese sages in Canada who dared to start over, learn and practice again. If no one abandons the old ideas and has the courage to practice, we will never learn to acquire and control capital, and we will serve capital for a lifetime, or even several lifetimes. Is that any different from not immigrating?
03 The purpose of real estate investment is to borrow money, not to buy a house
I recently watched a season of talk show, and actor He Guangzhi made a joke that touched the hearts of many people - "If you don’t manage your money, it will never leave you.. "This is not a unique phenomenon in China at this time, it is the same in Canada. With hard-earned money, who doesn't want to use money to make money easily. But when you entrust the money to someone to take care of it, you find that the financial consultant and your demands are inconsistent: you want money to make money, and your financial consultant wants commission. Classmate Xiao He is like this The newly wealthy group has no time to learn financial management knowledge, so they can only hand it over to self-proclaimed financial management consultants. However, the financial management consultants that novice investors can see are actually the front-end sales staff of financial institutions. Because the goals of both parties are inconsistent, the result is the same - if you don't manage money, the money will not leave you. People without financial intelligence are like leeks. They don’t know what the underlying assets of financial products are. Front-line salespeople don’t know much more than leeks. They just make a living by selling. You need to understand what assets you exchange cash for, whether these assets are sensitive to interest rates, whether they are leveraged, and what the assets involved. What stage of the industry cycle is it in, what is the impact of technology and demographic changes on asset prices, and the competitive landscape of the industry to which the asset belongs, etc. When novices and their financial advisors are ignorant, financial management becomes the scene of a car accident, because North America has no fewer pitfalls than China in terms of financial asset investment.Financial asset investment is a game that can be manipulated. The dolls in the game are leeks who do not understand the underlying assets and the underlying logic of investment.。
Real estate investment, like financial asset investment, also requires an understanding of the underlying assets and underlying logic. The REITs that have been derived have actually put on a layer of financial cloak. If you don’t understand it, don’t touch it. Some people think that REITs can pay less capital gains tax than buying actual real estate. In fact, they are wrong. Nearly half of the cash distributed by REITs every year is return capital, that is, capital is returned. Therefore, even if it is sold at the purchase price in the future, there will be a lot of capital gains tax. Remember, as long as it is financialized, it will be manipulated, misinterpreted, misled, and even deceived. The biggest advantage of investing in real estate is direct control of physical assets. The core meaning of real estate is real, real property.
Investment is a future-oriented economic decision. It is a plan that works backwards from what assets you want to hold after retirement to maintain income in your later years.In which country you plan to retire, you must care about the country's national destiny. There are three factors that will affect the future of the country: industrialization, urbanization and digitalization. Canada is in the late stages of industrialization and urbanization and the early stages of digitalization. Canada's economy is dominated by the tertiary industry, that is, the service industry, and its economic policy is centered on immigration policy. Canada's industrialization is lackluster, and it is not recommended that you invest or join the industrial industry. There is no leadership position in digitalization, and there are no Silicon Valley banks or venture capital backing digital innovation companies. Only urbanization, although in the process of post-urbanization, is still full of vitality and potential due to the support of immigration policies. The epidemic has accelerated the process of digital office, causing the value of public spaces to evaporate. More time is spent working and studying at home, driving the value of private spaces to rise sharply. As a result, the current situation has emerged. Everyone is rushing to buy a home for the first time, exchange for their own home, buy an investment property, and some people are buying futures of real estate-off-the-plan properties. Realize that real estate investing is a good thing;But real estate investment is by no means blindly buying a house.
We all know that in order to preserve and increase the value of family wealth, the fast track is to allow capital and assets to catalyze each other, so that wealth appreciation enters the fast track. There are three channels for obtaining capital: 1. Savings; 2. Loans; 3. Selling equity. Most people don't have the courage or talent to start a successful business and never even think about selling their equity. The speed of saving lags far behind the speed of money printing or borrowing, so there is really only one shortcut to quickly accumulating wealth: loans. For families, if they want to borrow large amounts of money, they can only buy a house. In other cases, they cannot borrow funds with low interest rates. Therefore, from an investment perspective, borrowing a low-interest rate loan is the best way.We actually bought a house to borrow money, not to borrow money to buy a house. I have seen too many people doing the opposite, trying their best to buy a house, but borrowing money from usurious loans. The house they bought was a futures contract, not a spot, so they didn't need a loan at all. The underlying logic of real estate investment is to borrow money, not to buy a house, so don’t put the cart before the horse.
In a capitalist country with a sound rule of law and respect for the market, we can pursue long-term returns on any investment and hold assets for a long time with confidence. We don’t have to worry about being allocated a field all day long and rush to settle down. In Canada, four principles of real value investing can be realized: 1. Hold property rights for a long time; 2. The market exists to serve us rather than guide us; 3. Investment needs to predict the future, and the future is unpredictable, so we must leave a sufficient margin of safety; 4. Establish your own circle of competence through long-term learning, and stick to investing within the circle of competence.
At present, there is an obvious trend of following the trend in real estate investment in Canada. This is mainly reflected in the fact that people who are not qualified for loans, after seeing the irrational rise in housing prices, either seek to obtain exceptional mortgage loans, or blindly lock cash into so-called real estate investments, such as off-the-plan properties. From the second half of 2017 to the first half of 2020, when it was time to buy real estate for three years, many people missed the opportunity because of fear of this and that. Now they are falling into a new kind of fear because they are afraid that they will never be able to afford it again. I don't know when people will be able to make sensible financial decisions, but I have one piece of advice:When most banks can approve your loan, don’t hesitate to buy; when most banks reject your mortgage application and you can only get a loan through some special method, stop immediately; unless you have100%Be sure that your financial situation or borrowing ability is stronger than today, otherwise don't buy off-the-plan properties. If there is a lot of noise, a lot of cars, and fast speeds on the street, and you are at a loss on the street, please look up at the traffic signals. In a country governed by the rule of law, only by obeying the rules can we ensure that there will be no accidents.Many Chinese people don't realize that they are trying to get something out of the ordinary. Think about it, according to Canadian standards, the political and economic situation in many countries is unstable, and it is even difficult to remit foreign currency. This is why most banks do not accept overseas income or guarantees from overseas people. Without Canadian income, at least it means that you are not able to survive in Canada, and you don’t understand Canada’s capitalist system. If you want to get a loan, you can only get it through exceptions.
04 Q&A on current real estate investment dilemmas
Many people invest with the mentality of growing vegetables, and even destroy the growth. What I saw,Successful real estate investors invest with a tree-planting mentality.A tree takes 10 years to grow. The best time to plant a tree was 10 years ago, followed by now. So when planting trees now, do you need to follow the trend like grabbing cabbage? When investing in Canada, you can have a long-term mentality because the political and economic environment here is more stable. This year, the price of townhouses in many areas has jumped from 1 million at the beginning of the year to 1.4 million. I think there is no need for investors to compete with homebuyers. Instead, they should look for properties whose prices are undervalued by the market. In November last year, improvement buyers entered the market in large numbers because the epidemic required people to work and study from home and people needed larger living space. The house-exchange craze reached its peak in March and April this year, so investors followed suit. By November this year, the proportion of investors in the second-hand house buying and selling market had reached 25%, which is a very high proportion. Follow-up investors like to chase hot spots, which conflicts with the underlying logic of value investing. The market serves investors, not guides them. Market quotations reflect market hot spots, and investors need to avoid hot spots and look for investments with a margin of safety through calm thinking. For example, what I have seen is my client’s investment logic this year: At the beginning of this year, there was a large-scale CONDO in a prosperous city with an opening price of 1,200. The pre-sale was a great success, indicating that this place has development prospects in the future. Real estate investors should not chase this off-the-plan property. Instead, they bought the townhouses around this property as an investment. At that time, the price of second-hand townhouses was only 700 yuan per square foot. After the price of townhouses soared, investors should not follow up. Instead, they should calmly return to the city center and look for condos priced at 900 to 1,100 yuan per square foot. Second-hand housing. Among my clients are a group of investors who have good contrarian thinking and are ahead of the market step by step. They are now returning to the city center to buy second-hand CONDOs because as the epidemic is brought under control, first-time homebuyers will return to the market. Because the price of townhouses has been pushed up significantly, first-time homebuyers have no choice but to choose second-hand CONDOs. Speaking of reverse thinking, I think of "Thinking,A reverse thinking question in "Fast and Slow". Let's see if you can answer it correctly. I'll write the answer at the end of this article. Please listen to the question: The leaves of a water lily double in size every day. If it covers the surface of the pond on the 48th day, will it take 24 days or 47 days to cover half of the pond area? Those who get the wrong answer are doing linear reasoning, and those who get the right answer are doing reverse thinking. People who reason linearly follow the trend and believe that what has gone up will continue to rise, and what has fallen will continue to fall; people who think reversely are more rational and wise. They know which type of investment has a larger safety margin through reverse inference of market performance, and stay away from assets with a smaller safety margin.When investing in real estate, avoid following the trend and need to think reversely.
Interest rate increases will not affect your real estate investment unless the interest rate rises above the real estate investment return rate. Therefore, interest rates are not a consideration for current investments. Currently, the interest rates and inflation levels across the world are very similar to those at the end of World War II. Because too many cannons were produced, butter production capacity was destroyed, and it will take some time for butter production to recover. The government has spent too much due to emergencies and is heavily in debt, so it dares not raise interest rates. People's demand is very strong, so there is too much money chasing limited goods, and inflation is high. The supply chain is disrupted and supply cannot meet demand for a while, but production will slowly recover. However, raising interest rates will cause difficulties for producers and cause supply to be hit before recovery. Therefore, the central bank does not dare to raise interest rates in the face of inflation.This epidemic is like going through a war. After the war, the situation of high inflation and high debt, but no dare to raise interest rates, will continue for a certain period of time.If you are a person who has borrowed a lot and is worried that interest rate increases will affect your life, you can ask.If the floating interest rate is now changed to a fixed interest rate, how much will the monthly payment increase? For example, I was told that it will increase300Yuan, then allocate it every month300Yuan is used as a reserve, and when interest rates rise, it can be returned to the principal in one lump sum.
The cessation of QE will cause bond yields to rise, attracting funds from the stock market to flow to the bond market, causing stock price fluctuations. Therefore, if you sell a house and buy financial assets now, you will face greater market fluctuations. Therefore, when you cash out from real estate, you will find that there are no good alternative assets to invest in. It is recommended to hold the property for a long time unless you encounter repayment difficulties.Don't sell your house。
There are many investors who have money in hand and invest wherever investment hotspots are. These people are now eyeing real estate investment. Most of these wanderers do not have the ability to borrow money. They only invest in real estate on a whim, and their minds are full of fantasies about obtaining extraordinary loans. Serious real estate investors, don't fight these people. I said in my previous article that as long as housing prices rise by more than 8% for two consecutive years, speculators will enter the market. These people are speculating on real estate with the mentality of stock speculation. If you compete with these people for a house, you will encounter the "winner's curse" and be punished by holding dumbbells high for a long time.
Many people ask me about problems with off-the-plan properties. I think that as long as we don’t touch off-the-plan properties, we won’t have these problems. Off-the-plan properties are real estate futures, and the deposit is a restriction on the buyer, not the seller.The off-the-plan transaction is a put option by the seller, and the seller has the right to exercise or not to deliver.Many buyers think they are buying a call option, but they are deceiving themselves. The seller's delay in handing over the house is a minor breach of contract. In a serious case, the seller may simply raise the price before handing over the house. For buyers, if the market price is much lower than the market price when the house is handed over, the bank loan amount will be reduced accordingly. The buyer needs to pay a large amount of down payment, and the balance becomes a ransom for the down payment. Starting this year, I have rejected all mortgage loan applications for off-plan properties. Anyone who wants to buy a property off-plan should bear the risk at their own risk. There is an off-the-plan property, YONGE AND RICH, known as the second generation of rich people in the world. It was pre-sold in 2013 and handed over this year. No off-the-plan loan can be locked up for 8 years. The buyer not only bears the risk exposure for 8 years, but also has the down payment for more than 6 years. Let those who claim that the leverage of off-the-plan property is high can speak for themselves.
Conclusion: The underlying logic of real estate investment is to use low interest rates to leverage real estate. All real estate investments that do not require loans or tenant management are pseudo-real estate investments.The income from leveraged investments comes from the fulfillment of debt commitments.Banks do not believe that borrowers with low or even no income can fulfill their debt commitments, so some real estate speculators have been tirelessly looking for unusual ways to obtain mortgage loans. I will not apply for a mortgage for someone who is trying to get a loan under the rules. A few copper coins from the commission cannot buy my values. Real estate investors need to have the investment mindset of planting trees, because we live in Canada, and long-term investment will make every Chinese realize that immigration is worth it.
The water lilies grew to half the pond area on day 47. If you answer incorrectly, you will bang your head against the wall.
Mortgage formula:
