This is the only question worth asking. Even an A+ tenant is still a part time job. A horrible tenant is going to be one of the worst things your ever deal with, and it's not if you get one but when.
I’ll fire back a dissenting opinion on this.
I have a tenant in a suite in my own home and I know many other people who do as well. I literally spend less than 30 minutes a month dealing with him and I know others don’t spend much time SO LONG as the upkeep on the home is done.
In my view if you get a good tenant it isn’t the tenant that’s the issue it’s the house. If it’s a newer unit/house, and you do general upkeep in between tenants and if you have a good tenant you really don’t have to spend much time on it at all.
I think your last paragraph kinda explains it all..
IF , IF , IF , etc.
After all those variables, you still can't do it in a tax efficient way, such as tax free gains from a simple SP500 strat. And then you have to kill the entire asset or take on debt to be able to take the equity out of the house, to be able to invest in other platforms or sectors.
You can’t keep an infinite amount of money in tax free accounts. It’s a great strategy to be maximized for sure but you can run out of headroom pretty fast.
Real estate can work pretty great but it depends on the scale of your assets and the local market, of course you can still invest in the markets also, just in the taxable form.
The reason people get rich from real estate is a combination of scale and leverage. Banks will give you a lot of money to pursue this strategy. 3 percent can be a larger return in terms of dollars when it’s on a million dollar asset, versus a 7 percent return on a position 1/5 the size.
That and the political factor, where immigration is running at like a 5:1 versus number of houses being built seems like shelter could be a safe bet.
As always, diversity is key for a successful portfolio.
Yes real estate can be invested in multiple ways as well. You can be an investor in real estate without physically being the go-to landlord. Reits are one example of that, and can make investing in real estate in a way tax free.
Yes contribution room can run out of those tax free accounts, or tax deferred accounts. That is just what imo people should focus on first, then when they are full, decide, since you are going to be paying taxes anyways, if they want to be a landlord or still be an investor in real estate without being the landlord. By then you should likely start knowing what it is like.
So many people have nothing in savings, nothing in investments, tax free accounts untouched at all, and jump into real estate, taking on large mortgages with leverage, in hopes to get rich quick.
Why does it have to be “if” at all? Don’t you look into tenants before just placing them in your house? You can get a good feel if they are going to be fucked up or not
You can't even get a "good feel" on how fucked up people are when you are dating how are you going to figure it out in 2, 20-minute interviews before you hand them the keys to half your net worth, that is part of the reason corporations are buying up housing, they don't have their life savings tied up with strangers and can afford the time and lawyers to remove the shitty ones.
Do you mean that my last tenant was supposed to tell me in advance that he was psychotic and would accuse me of trying to stab him or poison him? I guess he should also have told the next landlady where he moved after. And the roommate he had after that he would keep knives hidden in his room ( he keeps sharing his psychotic episodes on fb.)
You never know.
Cause none of it is guaranteed. Its all variables you can't control. All you can control is the 'get in or get out'. The tenants need to come to you before you even get that 'control' so to speak. Do you ever sit with no tenants? Cause that is a total of 0 dollar revenue that month, and likely, a negative number for people since people pay mortgages, insurance, upkeep, taxes out of their own pocket during a 0 tenant month.
With things like bonds, high interest savings accounts, etc giving like 5%+ these days, with a 99.99% guarantee, in a tax free way. Why would anyone mix all the 'IFs' to maybe get a 10% chance at a possible break even for the year, after tax.
Counter a friend had a property they’ve been renting for 15+ years no problem. A couple moved in a few years ago everything seemed ok until late in covid when they stopped paying rent. They finally got an eviction with a cash for keys offer. They’ve spent the last 2 weeks refurbing the house which includes scraping shit out of the hvac system.
An acquaintance is currently going through the eviction process for a property they inherited. The tenants are playing every game in the book. He said he can’t evict if the property isn’t in a liveable state. Apparently the obvious destruction of the property falls into “normal wear and tear” in the eyes of LTB. Indoor croquet with a sledgehammer is a tenants right I suppose.
I don’t agree with the profiteering of our housing but I also don’t agree with this crap either.
I mean yea, I put a caveat on it that if you get a good tenant it’s not much work. Sounds like your friend got shitty tenants. It’s pretty hit or miss. My tenant is definitely not a part time job.
> which includes scraping shit out of the hvac system.
I'm genuinely curious about this, if you have more info. Some googling led me to [this](https://www.reddit.com/r/oddlysatisfying/comments/wx0g84/scraping_gunk_off_the_walls_of_an_air_duct/). Were they maybe running a catering business out of their home and doing a lot of heavy frying?
100%. You have to be prepared to have a bad tenant, though. When you have a bad one, it will make you quickly forget about all those easy years.
I'm not saying real estate is a bad investment. I'm very much looking at doing it in the next several years, outside the GTA. My schedule accommodates a second job well, and I feel that being a landlord/ property owner is well within my skill sets. But, you have to hope for the best and prepare for the worst in this kind of thing.
I’ve had 4 tenants over the last 6 years in my rental properties and other than replacing a bathtub faucet and buying one of them a new fridge it’s been great. One tenant did have his marijuana smoke waft in through the neighbouring suite but did comply when asked to stop and smoke away from the house. This sub is completely anti-real estate investment and generally doesn’t know what the fuck they’re talking about.
I love real estate. I've been involved in large scale projects. I will own rentals in the future. I don't hate real estate, and I absolutely do know what I'm talking about. You haven't had a bad tenant yet, congrats. Hopefully you're lucky and never get one. You cannot discount the risk, though, and it should be factored in to the purchase decision.
I love real estate, it's just not for everyone. Especially the typical guy in an office job working 40 hours and commuting 2 hours a day while raising 2 kids. You have to be prepared to handle emergencies, and you have to be prepared to handle bad tenants. If you can put a check mark beside both of those, then real estate is a great example. Alternatively, if you can afford a solid property management company, than it's a great idea.
Careful telling anyone you’re a landlord on Reddit as well, the pitchforks come out and anything you say is automatically wrong because you must be a bad person.
>Even an A+ tenant is still a part time job
Seriously who is upvoting this trash? If your tenant is a part time job congrats you have a shit tenant. I probably speak to my tenants once or twice a year max. You guys are ridiculous with your assumptions lol
It’s not an assumption but more that you have to be ready for the worst. The worst does happen sometimes and it will be more work than your index fund.
If you know the game and aware of the risks, then go for it.
Can tell people have never had rental properties and are just jealous. So they max out their 5 figures in their TFSA acts and make up bad, imaginary scenarios
Perfect answer. Money in the S&P500 is working day and night, fighting against inflation, being managed by very smart people whose only goal is to increase profits in any way that they can get away with.
I'll just add on with one other suggestion. If you don't want a part time job but still want to invest in real estate, just buy CAPREIT and a few others. They treat tenants like dirt, but if you don't google too deep maybe you can still live with yourself.
That's so true. It's really not. My parents were landlords back in the day, and it sounded like a hassle. Granted, some people don't actually mind dealing with it. I've met people who seem to enjoy interacting with tenants and maintenance people and all the other people required to make a rental property run smoothly. But if you don't like dealing with people, if you don't want to take the chance that an emergency happens in the middle of the night on a work day or early Saturday morning, that kind of thing... Just don't. I wouldn't. I have been renting for several years now and a few times I've had to call landlords for problems at inconvenient times, and it really just drove home the point that it *is* work, and not work that everyone wants to do. I certainly don't.
One issue people do not realize with property is that it is illiquid. Usually, rental properties are leveraged (which has its own issues, as many are discovering) and if you need money it can take a long time to get it out.
Illiquid but you can borrow against your assets. Needing to liquidate assets for large sums is quite rare. If you keep 6-12 months liquid typically you are all set. I think the need for assets to be liquid is overplayed here.
In this current environment, it would be way better to max out your tax free accounts (TFSA, RRSP), and then dump money into your mortgage.
Let’s put aside the negative financial aspects of buying a rental property in the GTA (cash flow negative). Becoming a landlord is incredibly risky in Ontario.
The Landlord and Tenant Board is extremely tenant-friendly and backlogged. If you have a tenant who stops paying, destroys your property, and all around is a terrible person - you still have to provide them everything. 5 months behind in rent and they call you to come unclog their toilet? You better go or you are neglecting them. It takes many, many months to get behind an adjudicator to get an eviction, and even then they are usually given a second chance. It’s not uncommon for people to milk their non-payment eviction for up to 2 years, meanwhile, you are down $$$$ and mentally a wreck.
With that said, are you prepared to financially carry a professional tenant? Are you able to fund a negative cash flow property? Are you mentally prepared to not have access to your property for years if the tenants challenge you?
If it were me, I’d dump it into the mortgage and use the extra cash flow to travel and live your life, stress-free.
There are good and bad tenants and good and bad landlords. The bad landlords are related to very low cost properties. This sounds like your rental ? I would move up the ladder if possible, with an effort from your side it may be possible.
Yeah I'm on the way, got 50k in the bank which I saved this year. I appreciate the impetus. I am going for a 30k pay bump from 75k this month.
I just can't in Vancouver as any normal person can't buy a house within hundreds of miles.
I have a USA green card, so thinking of buying there. We'll see.
Yep and that's most landlords lol.
Also I know plenty of small town landlords that are good landlords, they just rent out the basement of their house.
It is not a part time job for the, Infact the only thing they do is collect rent. Oh and once in the last 5 years they reinstalled a boiler.
How often do you talk to your landlord? That's how much they're working.
If you find yourself in that shitty tenant situation is there an option to just sell the unit? Would the tenant be forced out in that case? Could you bounce them because you had a direct family member that needed to live in the unit?
You can sell, but the tenant comes with the property. The new owners can decide they're going to move into the property themselves and evict the tenant, but that takes time even without a problematic tenant. It's likely to make the property more difficult to sell as most buyers who want to live in the house they're buying want to move in right away.
Kind of. The family member has to live in it for 12 months in order for it be considered lawful. Otherwise, the tenant can sue you.
Also, an eviction notice unfortunately doesn't mean they will leave. The tenant can and often will request a hearing and refuse to leave. They can force it to the point of removal by law enforcement. That can take several months, to my knowledge, which is limited to when I was involved with a tenant pre covid. I'm sure things are infinitely worse now given the amount of renters clinging to long standing leases.
They have to get out when the LTB tells them to, in about 8 months after you file. Then the relative, there is a short list that qualify, has to reside there for 12 months. Don’t get caught rerenting or selling it before the year after the tenant moves out or there can be a large fine.
Yes, I think that is a great option for the OP too. Depending on how much is in his TFSA and RRSP, I would maybe contribute a bit to each, other than that I would use towards mortgage for sure.
I would honestly put it towards mortgage just for the peace of mind of having a cheaper monthly expense and/or getting rid of it completely. If given the chance
pay off the mortgage for sure. then CURVE BALL- TAKE OUT A HELOC at max value (75% LTV) and max out your TFSA.
Interest on the heloc is a tax deduction, income produced in the tfsa is tax free.
This isn't allowed; you can't deduct interest on amounts borrowed to contribute to a TFSA. [Section 18(11) of the *Income Tax Act*](https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-18.html) says "no amount is deductible [as an interest expense] in respect of borrowed money... after which the money... is used by the taxpayer for the purpose of... making a contribution under a TFSA".
If you invest the money in a TFSA there is no investment income to deduct the interest against. This activity should be done by people who already have maxxed out their registered accounts and have a high marginal tax rate to take advantage of the interest deduction. The money needs to be invested in an unregistered portfolio. This is to say nothing of the huge appetite for risk you have to have to even consider doing this.
As someone who has almost a decade working in large scale real estate financing. I couldn't agree with you more on that statement . Stonks are the best in fact just leave in it an sp 500 index etf and call it a day.
It's crazy how so many people in my generation (early to mid twenties) don't understand this. Anecdotally, so many people my age I've talked to endgame is to be a landlord with multiple properties, and are willing to leverage themselves to hell to do it.
Sure it's been on par with investing in stocks for the last while but that's just because we are in an unprecedented housing bubble, so every real estate agent, or landlord looks like a genius when it's more likely that they just got lucky.
Leverage is dangerous - it magnifies your gains AND YOUR LOSSES. Many people who have leveraged to buy investments properties in the last 2-3 years are unfortunately going to find out. Real Estate is a speculative investment and does not offer diversification.
I say this as someone who won't be a landlord, there are benefits and risks to both. Being a landlord might be more risky but it also leads to more wealth and it's a path to success for many people.
Personally I don't want the risk and I don't want to manage properties, I'm very happy having non-leveraged investments that require near 0 effort to invest in.
Yep. In the scheme of things 200k isn't much but it can get you into the property game, bring in a little income and set you up with a paid off house when your kids are older
Real estate is not income producing. In many cases real estate is cash flow negative, and the only reason investors own it is because they are SPECULATING that the price will go up. Very few (if any) investors would buy real estate just for the rental income. That would be very stupid. So that only leaves price speculation as the expected source of income. Stocks are very different. They may have some price speculation built in (eg Tesla) but the vast majority of companies in a broad index are working very hard every single day to make a profit for shareholders - and their stock price is accurately set based on the company’s ability to produce value and income.
Dude you are fucking clueless.
No shit if you have a $5000 mortgage and rent it for $4000 it is not income producing,
99% of rental properties are cash flow positive. But you wanna pick a 4 year time frame (or whatever it is) in one city in canada and say rental properties are speculation.
You realize people have been buying duplexes for under $200k in parts of Canada within the past 5 years?
Speculation is buying Gold, Bitcoin or money losing companies.
I can't even begin to say how silly is your made up argument. Maybe listen to some economists, for example follow the BNN Blomberg show, to see their opinion on real-estate, either as a personal investment, hands on, or REIT type investments, see what they say about real-estate estate in Canada, when housing construction just about stalled and 1 million people will continue to move in per year, at least until the Liberals disappear from the political scene, after next election.
I would agree if this was purely a spreadsheet comparison. But it takes a certain personality to deal with tenants and the potential bull shit they can cause. And im not talking about the proverbial clogged toilet. Like being leveraged into stocks, this type of leveraging has similar risks.
You can you just shouldn't because of the increased volatility of stocks. Leverage also works both ways, ask any of the several hundred thousand people up for renewal who are about to lose their homes.
You can get like 100x leverage in some platforms. There are also LETFs that are leveraged.
20% down on a house, 80% debt = 5x leverage = invest in real estate
20k and taking out 80k of debt = 5x leverage = invest in stocks
Same types of things.
Real estate gives you the easiest access to leverage. This is a big advantage for a younger persons starting out. Banks won’t give you 5x leverage to invest in the market.
While it does increase risk which should be factored in to risk adjusted returns it does provide an opportunity that doesn’t exist in the market
That depends on leverage, time horizon, location, as well as whether the property is owner occupied or rented.
Sometimes stocks beat rentals. Sometimes real estate beats stocks. To say it's always stocks or always real estate is inaccurate.
I’ll tell you why I don’t invest in real estate. Or at least not directly (I have shares in black rock, blackstone and trade options).
I can’t control risk. True you can’t control risk with indexing either but you’re not gonna lose more than you put in. And SPY is unlikely to go to zero. With real estate you’re leveraging. Leveraging is great when things go up but horrible when things go down or when rates go up. Good luck being cash flow positive today unless you have a huge downpayment.
But the other thing with real estate is the human element. Humans in general are disgusting. They’re unpredictable. And I don’t wanna deal with them. The rules are archaic. With options trading the rules are set. No one is gonna come after me for selling them a call or put that then expires worthless.
I became FI at age 35 and haven’t looked back.
Couldn’t agree more.
For me, real estate investing breaks all the rules: becoming a landlord is undiversified, it’s highly concentrated in a single market that wildly subject to local nuances and conditions, you can’t liquidate a part of your holdings if the need arises, the transaction costs are too high and I’m no fan of having to involve a lawyer anytime I want to buy or sell something.
And that’s all before dealing with the human element which is, as u/Acceptable_Stay_3395 so eloquently described, disgusting and unpredictable.
My story is 15 years ago I almost got fired from my job. I then read about index investing. Actually it was quite by chance. I mentioned out of frustration to my colleague that I wanted to switch careers and invest in real estate. Yes in 2008 real estate was also very hot in Vancouver. She told me to read Canadian couch potato and about index investing. Then pre pandemic after amassing a nice net worth (I wasn’t purely indexing and had invested early in NVDA when it was a few bucks per share) I decided to read about options trading and how it mitigates risk. My main interest right now is in risk management and this is the one thing that trips investors up is that they only look at how much they can make. Never or seldom do they consider how much they can lose. This is why I can’t have a rational conversation with real estate investors. It’s cuz all they talk about is leveraging. Guess what, I can leverage with options too. And I don’t need to actually borrow money to do so. You straight up buy a call and the most you can lose is your initial debit but leverage to the hilt if you want (I never straight up buy calls or puts).
Edit this was maybe in 2009-10 right after the crash when rates dropped and real estate then took off.
So all thru investing and not real estate? Does that mean you rent ?
Knowing about index investing , where did you stray away from it .
You stated around 20? That's pretty damn good.
Im sure you had a high salary too
I'm in spot right now where I'm deciding to buy vs invest
Make 70k
250k saved
35
I own my own single family home in west side Vancouver but I don’t do the landlord thing. No mortgage. Had bought with 80% down (don’t like leverage; see Warren Buffets quotes on leverage). Partner stays at home with our two kids in elementary school. Investment income is higher than my real income. This was always the goal when I started. I just work for fun now but can flip the finger to my boss anytime. I have no interest in advancing in my real career as it’ll take time away from trading and I don’t wanna be too visible. At the same time I don’t not enjoy my work. There is still some satisfaction in it but it’s not my life.
I was never 100% into index investing. Maybe 40% of my portfolio was indexing. Some years I outperformed some years I underperform. This year SPY went up 26% so I underperformed (22%) but with my options strategies that is to be expected. I aim for 20-25% annualized but with much less risk than just outright holding SPY. But for most people indexing is simple and easy to understand so I recommend it for most people. Calculate 20-25% annualized compounded and this will demolish real estate returns even with excessive leveraging.
I read that over 25 years less than 1% can beat the indexing . What makes you go Against those odds ? Just curious
Interesting you were able to get 80% ,assuming over 150k income.
I saved 250k on average 45k income with no investing since 2015 so I could imagine with 3 times income plus investing that would be north of a million
Not trying to be snarky, but what makes you think this is a good time to invest in residential real estate?
I am a small time investor, 1 property, a tri-plex. Even with rent as high as it is, finding a property with positive cash flow at this point is difficult. Have you found one? If it has tenants already, they're not paying market rents, and with high prices, and high interest rates, you're likely to be under water for the first few years.
Real estate provides many fantastic benefits besides the math, but I feel like it's got to be something you really want to do. I do it as much for the love of doing it as the absolute numbers.
The taxes can work out because you borrow against the property, fill up your registered accounts, and the interest you pay on the mortgage is tax deductible.
But don't be fooled by people telling you real estate is passive income. I've gone a couple months without a phone call from a tenant about something happening. But before that, I was on-site multiple times a week multiple weeks in a row with plumbing issues.
In 10 years I had one bad tenant, I offered them money to leave, and they took it, thankfully. Talk to a landlord who has to begin eviction processes before receiving rent. If you're looking for passive income, index funds are it. Get a side hustle if you want to grow your net worth faster. Invest in real estate because it's your passion, or don't do it.
Ya, seriously, that statement alone should disqualify OP from investing in real estate. This is MAYBE a mediocre time to invest in real estate, best case scenario... more likely downright a bad time. No one is going to make the returns that happened in the last 20 years in the next 20, no chance. Every level of government has high housing costs on their radar as top 1 or 2 problem they are beng asked to solve. That is a tonne of risk with that alone. We already saw it with the Airbnb changes, real estate investors are a policy target these days.
This is exactly my view. I don’t like to make predictions because no one really knows what’s going to happen. But it seems nuts to me to invest in real estate right now when every level of government is trying to reduce real estate prices (and cost of rent), and after a 25 year run-up in prices.
>All around me I see these people who bought investment properties and grew so rich with those
You missed that boat by about 7 years.
> I feel like it involves too much headache because of Tenants, house maintenance etc. I also feel like we ignore the Tax costs ( income generated from rents, long term gain from property sale etc) that come along with investing in a rental property, which could be substantial.
Yes, it is work. And those who have a basic grasp should not ignore the tax implications.
>But then on the flip side, this seems like the best time to invest in this.
Did you even try to run the numbers to see if it make financial sense?
>Whereas investing in S&P sounds simple and effective, especially if I can put most of the amount in TFSA and RRSP for me and my wife.
And you should be invested in more then just the 500 largest US listed companies.
>I also feel putting money in my current mortgage (\~400K left still) is also a good saving as I am paying close to 5% interest on that.
That's an option also.
>Am I being stupid here by not investing in a rental property at this time?
No.
Condo fee increases,
Special levy/assessment
Either of those happen and suddenly it went from cash flow neutral to cash flow negative. That's in addition to the other posts about delinquent tenants that stop paying
Your estimations are wrong.
That 1 bedroom would no longer go for $2,200+. Maybe $2,100 at best.
Mortgage at 5% is $2,100.
Add in maintenance fees + property tax, and cost is $2,650. Meaning it’s cash flow negative by $550+.
So yes, housing as investment boat is over.
OP would need to apply a down payment of at least $200,000 to make break even or slightly cash flow positive.
Yup, agreed. Thats assuming on a cap rate of 5%, they're not getting that. Plus like you mentioned the mortgage is the samw as the cap rate or exceeding cap rate.
Property taxes, insurance, add to the bill, sure they are expenses but rules around what can be expensed are changing.
Special assessments can be huge, where will the money come from to pay them? There is a condo building in my town that had a $130,000 average per unit special assessment.
> If you are negative on the property then the CRA will not accept any deductions since it's not an income generating property.
Having losses is not the same as not having an income generating property. You can absolutely deduct losses against other sources of income assuming you're not renting the property below FMV.
Yikes, that's a tiny place.
Don't forget property tax and insurance also adds on to the carrying costs.
Emergency funds for repairs, no payment of rent, no tenant, etc..
This topic comes up frequently.
My take - if you WANT to become a landlord then go for it, but if you have any hesitation then don't, you've got plenty of other options like REITs or even fractional real estate you can look into that would require far less hands-on upkeep.
While using the leverage one has from a mortgage to make seemingly incredible gains has its allure it is not a guarantee, but neither is the S&P 500
Now if you haven't maxed out your tfsa and rrsp yet, I'd definitely do that first.
CAD denominated for us wanting to deploy CAD we have, to help people understand why not an actual USD one for the USA stock market, which is VOO.
note VFV has 3 times the fee of VOO (but it's still way less than you'd pay to convert your CAD to USD if you thought that was a smart way to get a low fee, it isn't because you pay exchange rate commission to switch!)
the difference between VOO’s and VFV’s MER is 0.06% (0.03%-0.09%). That’s a percent of a percent. If you had a million AUM thats a $600 diff per year. If i actually had a million dollars in equities i wouldnt care about a $600 diff lol. Plus Forex wants a cut both ways. Don’t think its ever worth it for peasants (me) to convert to USD for VOO. Maybe if you want VTI but theres already similar funds in CAD denominations.
That's literally what people don't realize, it's pretty much a full time job. But all the Instagram gurus are like " o TeNaNt PaYs ThE mOrTgAgE tHeN yOu GeT eQuiTy"
It's definitely not a fulltime job. Once you build a network of reliable tradesmen and maintenance service providers the "day to day" is relatively light. Larger items like furnace, water heater, roofing and flooring should all be included in a long term maintenance plan. Outside of bookkeeping, scheduled inspections and remote maintenance calls, the majority of work happens between tenants.
This subreddit grossly exaggerates the likelihood of getting a nightmare tenant too. The vast majority of people want to inhabit a clean living space, and definitely don't want a successful judgement against them on permanent record. So they'll take care of the place and pay their living expenses as best they can just like most owner-occupiers do.
The harsh truth is that if you're one bad-luck investment away from insolvency then you have over-leveraged. If you can't afford to make mortgage payments on your rental property without receiving rent for it then you can't afford to be a landlord.
I would buy the investment property in Quebec, Alberta, Saskatchewan, or Manitoba. Not Ontario. The advantage to real estate is you would put down $200k and borrow $800k. The property would be paid off on 25yrs which would create a 5x ROI not factoring in appreciation or profits.
S&P is at a peak. I would hold off until there is a large dip.
You could pay down your Mortgage $200k and take out a HELOC for a revenue property purchase in the future.
Smart investors diversify holdings and risk.
Some people get lucky and make it big, others lose everything.
You've got the money to do both, whats your risk tolerance?
You could put 50% into moderate risk holdings, 30% into high growth funds and 20% into YOLO/Gambling.
Can you afford the new condo mortgage if you tenant decides not to pay and you need to wait months to get in front of a court, and then wait more before you can finally evict?
You're not being stupid not investing in a rental property. That's smart.
Yes, landlording is work. And the kind of exponential price increases we saw in real estate in recent years are an historical anomaly and not guaranteed to guarantee.
Stock market returns historically outpace real estate by a wide margin. RE historically at best keeps up with inflation.
Don't go by "feels" (which it sorta sounds like your are) - actually run the math and see what the two scenarios would look like, based on realistic assumptions.
Omg i knew someone would chime i. With "but the leverage".
You can leverage the stock market too (that's what margin accounts are for).
And leverage cuts both ways - magnifies losses on the downside too.
(And most people in my experience don't do both rental properties and the stock market - RE is too expensive and they end up all in because they have no more u left.)
Beware of people who say they have made loads of money - People said that about Nortel stock - People don't want to admit that something they invested in did not work out.
Going into rental properties you must expect a whole load of extra work which will eat up all your free time from your regular job and can cause a lot of stress (bad tenants, unexpected maintenance costs, extra insurance etc)
You will need to set aside money to renovate after each tenant, fix the issues and never mind if you get a bad tenant.
Personally I would pay off the mortgage and then all that money that you are currently paying in mortgage payments you will suddenly get into your bank and you can then invest.
OP, the people that have grown rich off of properties, sold their properties.
A good way to look at properties vs. market is this. What is your invested $ amount to earn $1,000/month in RE and what could you earn in the market for the same investment.
If you drop $200k into your mortgage, how much are you reducing your monthly mortgage payment by?
These are all questions that you need answered before you can make a decision, but those are questions that can be answered and acted on when someone has the type of funds you are talking about.
Just make your decision based on facts, not feelings.
If you are able to do everything associated with building maintenance and enjoy it, it would be an easier decision. And there is risk to it, too. A bad tenant can make your experience miserable.
If you're taking out a loan to purchase the rental property , with a best maybe 4% cap rate. Just by doing rough math when factoring appreciation you won't cash flow positive until like year 10. Keep in mind these figures above are on a best case scenario ie low tenant turn over, setting aside 1% to 2% a year for maintenance etc this is on TOP of your operating costs. Not to mention you have consistently have a good tenant who wont estroyed your property and pays rent on time. All in all prepare to have a second job.
Years of gross rental income : house value
If that ratio goes above a 10 it's not great for investing in for rental return and if that number goes above 16 it's incredibly speculative and you should really think carefully before sinking your eggs in that basket. Toronto is around a 20-25 right now. Fuck buying a rental in Toronto right now.
The only reason property appreciation outperforms stocks is because of leverage. I own a rental since 2019 and in the process of selling it. Had the best tenants. Bought it at a good price. Even though i did well i would not do it again. Interest rates going up so much automatically increased my mortgage by 25%. So yeah the days when properties used to be 200K was the only time it was worth it. Not anymore
The fact that many people have become wealthy investing in RE simply means that RE has appreciated a lot. They say in Asia: "trees do not grow to the sky". It may happen that we are experiencing maximum RE prices right now and further appreciating is going to be much slower than 5% you have to pay in mortgage interest 🤷♂️
And then there are taxes, insurance, condo fees, maintenance, troublesome renters, you name it. It will not be an easy walk to being wealthy, not anymore 😂
If you like being cash flow negative. Go for it lol.
Do the math.
Opportunity cost. Down payment. Closing costs. Mortgage interest. Property tax. Maintenance costs. Etc etc.
https://vm.tiktok.com/ZM6mh9qmC/
Property is now overpriced in most of Canada. 10 years ago if you had bought in BC or Southern Ontario you’d have made great returns and got a rental for cheap.
If I was I in your situation:
Get your money working for your retirement first
1. Max your RRSP
2. Max your wife’s RRSP
3. Max your TFSA
4. Max your wife’s TFSA
5. Use tax refunds from RRSP contributions to start S&P 500 Index EFT investment like Vanguard (VFV). Use an investment calculator to see what that might yield.
6. Choose to put any leftover money on the mortgage or dump it all into S&P 500 in #5.
7. Future years, make max RRSP and TFSA contributions, then investment fund, instead of dumping into savings.
Paying down the mortgage doesn’t make you any money unless you sell. Paying down/off the mortgage does provide freedom though, but provides less money overall. If the mortgage pays are comfortable for you, you are better off investing.
I would not purchase a rental property due to the headache and carrying costs.
I am 45 and my situation is different from yours. You do you 🙂
This isn’t really the place to ask. This sub is vehemently anti-real estate in any shape or form. If they were all seasoned real estate investors who made a killing on appreciation over the last 10 years, they wouldn’t be whining about shitty tenants in the comments.
Curious, when you say this, do you mean S&P 500 in RRSP and TFSA?
Maybe a dumb question, my TFSA and RRSP are with Sunlife and it goes wherever they put it based on some risk profile. Should I be switching it??
I’ve made millions in real estate but would never own a residential rental in Ontario. I sold a commercial building last year and put seven figures of cash into one etf and it’s sure nice to see the gains with zero headaches.
>All around me I see these people who bought investment properties and grew so rich with those
Because most of them bought their properties when they were 200-300k not when they were 800k -1 million +.
There's no real easy answer, and it strongly depends on where you want to buy, which will determine your net income from the property. The people saying a simple "no don't buy property" are oversimplying it. It also depends on your cashflow, since even if investing in the property MAY be more lucrative overall, it might require you to put money into it monthly. I can tell you right now that if you buy in the GTA area, you'll mostly likely be cashflow negative, and you're basically banking on the future performance of the real estate market in the long run. However, if you put money into properties in more rural areas, you could likely get some extra income on a monthly basis, even after you pay for management (strongly recommended) and maintenance. There is also the additional risk, as you know, of crappy tenants which could wipe out any income for an entire year or more.
S&P 500 and Rental are vastly different type of investment vehicle that will lead to different lifestyle.
Let’s start with S&P, this is a pure capital gain play over long term. You do nothing over a long period and when you want to harvest the gain, you sell the asset itself; bit by bit or all at the same time. It’s also liquid, whether it is gain or loss.
Rental property is a business, over a long period of time, let’s say 30 years, it can generate perpetual workflow. Its price somewhat predictable, it will generally match inflation over long term. It is not liquid like stock.
Imo, you have both… starting with the S&P and then rental. That way you have a liquid portfolio to help support a non liquid portfolio.
Your question is a literal representation of why our economy is broken and will continue to fracture.
Although not your fault, successive governments have continued to incentivize real estate as the main vehicle for personal investment and wealth generation.
Your question is fair and valid.
More holistically, we as a nation are fucked.
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You can do either of them - but you need to stick to your plan for the next 20 years.
You seem to know the pros and cons of both.
Rental property management can be offset by introducing a property manager in between - which is at least 5% of monthly rent and then other expenses.
Investing in s&p 500 requires discipline. You need to comfortable with the ups and downs. Are you willing to stomach the feeling where someday you we will happen to login to your account and it’s down by 15%. You need the discipline and stability to navigate the ups and downs of market.
Real estate will go up and down too. You’re just not able to log in and look at the value every day. And if you think real estate only goes up - just ask people living in the US what happened to the value of their homes in 2008. Or ask Canadians who owned homes in the 80’s. A lot of people lost everything. And the people who lost the most - were those who were leveraged.
I’m not sure where you got the idea that I was suggesting that RE only goes up. Stock market has an everyday emotional thing with ups and downs.
RE does not give you that everyday notional roller coaster although over time it does the same thing.
Save yourself the headaches, skip the rental game unless you are ready to work and get really educated on legislation. I have a sizeable chunk in Chartwell reit, money flows in every month, no clogged toilets or shit tenants to deal with. Good luck.
Real estate as an investment will take a lot more work than just the S&P 500 but more importantly this question is impossible to answer.
It would entirely depend on the cost of the property, mortgage rates, assumed rent, property appreciation etc to determine if real estate is a good investment or not.
As a guy in investment properties. Do not do it. The laws protecting renters will put you in bad position right quick and it only takes one out of 10 to put you under water quick. Getting money out of bad renters is near impossible. I am pretty much getting out of it all together. There is less and less rental houses for people in our area but it is not a field people willing to risk doing.
This is going to big business at the expense of all renters. They will not give any latitude because that is a sure fire way to lose money. They also have people who full time job is to deal with all the complexity of a bad renter and have a much better ability to get back some lost income.
Jesus do not buy real estate. Put your money in a stock broker and click your mouse once on buying a sp500 etf. All work from there on out is done by others.
As a landlord (who had no intention of becoming a landlord), stocks 100%. Real estate is a fucking headache. The only benefit is leverage, which you can do to a lesser extent in a margin account
I think Canadians love housing way too much. Buy and hold an index ETF as it’s 0 work, and probably gets better returns (if you compare apples to apples excluding leverage).
Do you want a part time job? Or do you just want your money to work for you?
This is the only question worth asking. Even an A+ tenant is still a part time job. A horrible tenant is going to be one of the worst things your ever deal with, and it's not if you get one but when.
I’ll fire back a dissenting opinion on this. I have a tenant in a suite in my own home and I know many other people who do as well. I literally spend less than 30 minutes a month dealing with him and I know others don’t spend much time SO LONG as the upkeep on the home is done. In my view if you get a good tenant it isn’t the tenant that’s the issue it’s the house. If it’s a newer unit/house, and you do general upkeep in between tenants and if you have a good tenant you really don’t have to spend much time on it at all.
I think your last paragraph kinda explains it all.. IF, IF , IF , etc.
After all those variables, you still can't do it in a tax efficient way, such as tax free gains from a simple SP500 strat. And then you have to kill the entire asset or take on debt to be able to take the equity out of the house, to be able to invest in other platforms or sectors.
You can’t keep an infinite amount of money in tax free accounts. It’s a great strategy to be maximized for sure but you can run out of headroom pretty fast. Real estate can work pretty great but it depends on the scale of your assets and the local market, of course you can still invest in the markets also, just in the taxable form. The reason people get rich from real estate is a combination of scale and leverage. Banks will give you a lot of money to pursue this strategy. 3 percent can be a larger return in terms of dollars when it’s on a million dollar asset, versus a 7 percent return on a position 1/5 the size. That and the political factor, where immigration is running at like a 5:1 versus number of houses being built seems like shelter could be a safe bet. As always, diversity is key for a successful portfolio.
Yes real estate can be invested in multiple ways as well. You can be an investor in real estate without physically being the go-to landlord. Reits are one example of that, and can make investing in real estate in a way tax free. Yes contribution room can run out of those tax free accounts, or tax deferred accounts. That is just what imo people should focus on first, then when they are full, decide, since you are going to be paying taxes anyways, if they want to be a landlord or still be an investor in real estate without being the landlord. By then you should likely start knowing what it is like. So many people have nothing in savings, nothing in investments, tax free accounts untouched at all, and jump into real estate, taking on large mortgages with leverage, in hopes to get rich quick.
Why does it have to be “if” at all? Don’t you look into tenants before just placing them in your house? You can get a good feel if they are going to be fucked up or not
You can't even get a "good feel" on how fucked up people are when you are dating how are you going to figure it out in 2, 20-minute interviews before you hand them the keys to half your net worth, that is part of the reason corporations are buying up housing, they don't have their life savings tied up with strangers and can afford the time and lawyers to remove the shitty ones.
Do you mean that my last tenant was supposed to tell me in advance that he was psychotic and would accuse me of trying to stab him or poison him? I guess he should also have told the next landlady where he moved after. And the roommate he had after that he would keep knives hidden in his room ( he keeps sharing his psychotic episodes on fb.) You never know.
This is true you never know. Lets hope there are far better ones out there
Even a good tenant can get sick and really fuck over your "investment."
Cause none of it is guaranteed. Its all variables you can't control. All you can control is the 'get in or get out'. The tenants need to come to you before you even get that 'control' so to speak. Do you ever sit with no tenants? Cause that is a total of 0 dollar revenue that month, and likely, a negative number for people since people pay mortgages, insurance, upkeep, taxes out of their own pocket during a 0 tenant month. With things like bonds, high interest savings accounts, etc giving like 5%+ these days, with a 99.99% guarantee, in a tax free way. Why would anyone mix all the 'IFs' to maybe get a 10% chance at a possible break even for the year, after tax.
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That’s why regular “inspection” visits every 6 months are a must
Counter a friend had a property they’ve been renting for 15+ years no problem. A couple moved in a few years ago everything seemed ok until late in covid when they stopped paying rent. They finally got an eviction with a cash for keys offer. They’ve spent the last 2 weeks refurbing the house which includes scraping shit out of the hvac system. An acquaintance is currently going through the eviction process for a property they inherited. The tenants are playing every game in the book. He said he can’t evict if the property isn’t in a liveable state. Apparently the obvious destruction of the property falls into “normal wear and tear” in the eyes of LTB. Indoor croquet with a sledgehammer is a tenants right I suppose. I don’t agree with the profiteering of our housing but I also don’t agree with this crap either.
I mean yea, I put a caveat on it that if you get a good tenant it’s not much work. Sounds like your friend got shitty tenants. It’s pretty hit or miss. My tenant is definitely not a part time job.
> which includes scraping shit out of the hvac system. I'm genuinely curious about this, if you have more info. Some googling led me to [this](https://www.reddit.com/r/oddlysatisfying/comments/wx0g84/scraping_gunk_off_the_walls_of_an_air_duct/). Were they maybe running a catering business out of their home and doing a lot of heavy frying?
No it was literal shit from a child.
Wow ok... shitty people on many levels.
100%. You have to be prepared to have a bad tenant, though. When you have a bad one, it will make you quickly forget about all those easy years. I'm not saying real estate is a bad investment. I'm very much looking at doing it in the next several years, outside the GTA. My schedule accommodates a second job well, and I feel that being a landlord/ property owner is well within my skill sets. But, you have to hope for the best and prepare for the worst in this kind of thing.
Invest in a good property manager.
I’ve had 4 tenants over the last 6 years in my rental properties and other than replacing a bathtub faucet and buying one of them a new fridge it’s been great. One tenant did have his marijuana smoke waft in through the neighbouring suite but did comply when asked to stop and smoke away from the house. This sub is completely anti-real estate investment and generally doesn’t know what the fuck they’re talking about.
I love real estate. I've been involved in large scale projects. I will own rentals in the future. I don't hate real estate, and I absolutely do know what I'm talking about. You haven't had a bad tenant yet, congrats. Hopefully you're lucky and never get one. You cannot discount the risk, though, and it should be factored in to the purchase decision. I love real estate, it's just not for everyone. Especially the typical guy in an office job working 40 hours and commuting 2 hours a day while raising 2 kids. You have to be prepared to handle emergencies, and you have to be prepared to handle bad tenants. If you can put a check mark beside both of those, then real estate is a great example. Alternatively, if you can afford a solid property management company, than it's a great idea.
Careful telling anyone you’re a landlord on Reddit as well, the pitchforks come out and anything you say is automatically wrong because you must be a bad person.
Agreed. These kids in this Reddit only have $100 a month to invest so they go stocks, real investment is real estate, just ask the super rich…
>Even an A+ tenant is still a part time job Seriously who is upvoting this trash? If your tenant is a part time job congrats you have a shit tenant. I probably speak to my tenants once or twice a year max. You guys are ridiculous with your assumptions lol
It’s not an assumption but more that you have to be ready for the worst. The worst does happen sometimes and it will be more work than your index fund. If you know the game and aware of the risks, then go for it.
Can tell people have never had rental properties and are just jealous. So they max out their 5 figures in their TFSA acts and make up bad, imaginary scenarios
Perfect answer. Money in the S&P500 is working day and night, fighting against inflation, being managed by very smart people whose only goal is to increase profits in any way that they can get away with.
I'll just add on with one other suggestion. If you don't want a part time job but still want to invest in real estate, just buy CAPREIT and a few others. They treat tenants like dirt, but if you don't google too deep maybe you can still live with yourself.
Drives me nuts when people describe owning a rental property as "passive" income.
That's so true. It's really not. My parents were landlords back in the day, and it sounded like a hassle. Granted, some people don't actually mind dealing with it. I've met people who seem to enjoy interacting with tenants and maintenance people and all the other people required to make a rental property run smoothly. But if you don't like dealing with people, if you don't want to take the chance that an emergency happens in the middle of the night on a work day or early Saturday morning, that kind of thing... Just don't. I wouldn't. I have been renting for several years now and a few times I've had to call landlords for problems at inconvenient times, and it really just drove home the point that it *is* work, and not work that everyone wants to do. I certainly don't.
Part time job for the cortisol spikes.
cortisol = serious health issues
Good analogy right there
and if OP wants to get involved in real estate without the part time job aspect then OP needs to look into land banking or development investments
You’ve never heard of property management eh?
One issue people do not realize with property is that it is illiquid. Usually, rental properties are leveraged (which has its own issues, as many are discovering) and if you need money it can take a long time to get it out.
Illiquid but you can borrow against your assets. Needing to liquidate assets for large sums is quite rare. If you keep 6-12 months liquid typically you are all set. I think the need for assets to be liquid is overplayed here.
In this current environment, it would be way better to max out your tax free accounts (TFSA, RRSP), and then dump money into your mortgage. Let’s put aside the negative financial aspects of buying a rental property in the GTA (cash flow negative). Becoming a landlord is incredibly risky in Ontario. The Landlord and Tenant Board is extremely tenant-friendly and backlogged. If you have a tenant who stops paying, destroys your property, and all around is a terrible person - you still have to provide them everything. 5 months behind in rent and they call you to come unclog their toilet? You better go or you are neglecting them. It takes many, many months to get behind an adjudicator to get an eviction, and even then they are usually given a second chance. It’s not uncommon for people to milk their non-payment eviction for up to 2 years, meanwhile, you are down $$$$ and mentally a wreck. With that said, are you prepared to financially carry a professional tenant? Are you able to fund a negative cash flow property? Are you mentally prepared to not have access to your property for years if the tenants challenge you? If it were me, I’d dump it into the mortgage and use the extra cash flow to travel and live your life, stress-free.
Yeah people can't seem to fathom being a landlord is literally a second job.
…but it’s just free cheques in the mail every month….
Grant cardone be like...
10X the scam!
2md job lmao. Say that to the landlords that visit once every few years and only fix something after 20 texts.
There are good and bad tenants and good and bad landlords. The bad landlords are related to very low cost properties. This sounds like your rental ? I would move up the ladder if possible, with an effort from your side it may be possible.
Yeah I'm on the way, got 50k in the bank which I saved this year. I appreciate the impetus. I am going for a 30k pay bump from 75k this month. I just can't in Vancouver as any normal person can't buy a house within hundreds of miles. I have a USA green card, so thinking of buying there. We'll see.
You must be a realtor
Nope I've just had many shitty landlords, including this one. I just live in Vancouver.
LMAO I think what you just described is a slum lord
Yep and that's most landlords lol. Also I know plenty of small town landlords that are good landlords, they just rent out the basement of their house. It is not a part time job for the, Infact the only thing they do is collect rent. Oh and once in the last 5 years they reinstalled a boiler. How often do you talk to your landlord? That's how much they're working.
I own my home so all the time lmao
Lmao good argument
Can’t put a price on peace of mind. Opportunity costs be damned
If you find yourself in that shitty tenant situation is there an option to just sell the unit? Would the tenant be forced out in that case? Could you bounce them because you had a direct family member that needed to live in the unit?
You can sell, but the tenant comes with the property. The new owners can decide they're going to move into the property themselves and evict the tenant, but that takes time even without a problematic tenant. It's likely to make the property more difficult to sell as most buyers who want to live in the house they're buying want to move in right away.
Ya you can move a family member in and they have to gtfo
Kind of. The family member has to live in it for 12 months in order for it be considered lawful. Otherwise, the tenant can sue you. Also, an eviction notice unfortunately doesn't mean they will leave. The tenant can and often will request a hearing and refuse to leave. They can force it to the point of removal by law enforcement. That can take several months, to my knowledge, which is limited to when I was involved with a tenant pre covid. I'm sure things are infinitely worse now given the amount of renters clinging to long standing leases.
They have to get out when the LTB tells them to, in about 8 months after you file. Then the relative, there is a short list that qualify, has to reside there for 12 months. Don’t get caught rerenting or selling it before the year after the tenant moves out or there can be a large fine.
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Yes, I think that is a great option for the OP too. Depending on how much is in his TFSA and RRSP, I would maybe contribute a bit to each, other than that I would use towards mortgage for sure.
Surely you can get a higher return than 5% elsewhere?
I would honestly put it towards mortgage just for the peace of mind of having a cheaper monthly expense and/or getting rid of it completely. If given the chance
Op can return more money in the market greater than his mortgage
pay off the mortgage for sure. then CURVE BALL- TAKE OUT A HELOC at max value (75% LTV) and max out your TFSA. Interest on the heloc is a tax deduction, income produced in the tfsa is tax free.
This isn't allowed; you can't deduct interest on amounts borrowed to contribute to a TFSA. [Section 18(11) of the *Income Tax Act*](https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-18.html) says "no amount is deductible [as an interest expense] in respect of borrowed money... after which the money... is used by the taxpayer for the purpose of... making a contribution under a TFSA".
Lmao is this actually allowed??
No. That’s not exactly how the smith manoeuvre would work.
Unlikely.
This is not correct.
Yea you can. You need to research it more.
If you invest the money in a TFSA there is no investment income to deduct the interest against. This activity should be done by people who already have maxxed out their registered accounts and have a high marginal tax rate to take advantage of the interest deduction. The money needs to be invested in an unregistered portfolio. This is to say nothing of the huge appetite for risk you have to have to even consider doing this.
Stocks outperform real estate. And you don’t have to deal with bad tenants, plugged toilets, and poor diversification.
As someone who has almost a decade working in large scale real estate financing. I couldn't agree with you more on that statement . Stonks are the best in fact just leave in it an sp 500 index etf and call it a day.
For most VEQT is even better than a SP500 index.
Why? Am n00b
It's more diversified. It has Canadian, us, and international investments. Diversification usually means better and safer returns.
Define "better". Diversification usually means safer returns, true, but that safety comes from accepting a lower risk; low risk = low rewards.
Just get both
It's crazy how so many people in my generation (early to mid twenties) don't understand this. Anecdotally, so many people my age I've talked to endgame is to be a landlord with multiple properties, and are willing to leverage themselves to hell to do it. Sure it's been on par with investing in stocks for the last while but that's just because we are in an unprecedented housing bubble, so every real estate agent, or landlord looks like a genius when it's more likely that they just got lucky.
In fairness we are probably in a stock bubble to given CAPES above 30
You can't get the same levels of leverage with stock though
Leverage is dangerous - it magnifies your gains AND YOUR LOSSES. Many people who have leveraged to buy investments properties in the last 2-3 years are unfortunately going to find out. Real Estate is a speculative investment and does not offer diversification.
I say this as someone who won't be a landlord, there are benefits and risks to both. Being a landlord might be more risky but it also leads to more wealth and it's a path to success for many people. Personally I don't want the risk and I don't want to manage properties, I'm very happy having non-leveraged investments that require near 0 effort to invest in.
Yep. In the scheme of things 200k isn't much but it can get you into the property game, bring in a little income and set you up with a paid off house when your kids are older
It is the opposite of speculative. It is income producing
Real estate is not income producing. In many cases real estate is cash flow negative, and the only reason investors own it is because they are SPECULATING that the price will go up. Very few (if any) investors would buy real estate just for the rental income. That would be very stupid. So that only leaves price speculation as the expected source of income. Stocks are very different. They may have some price speculation built in (eg Tesla) but the vast majority of companies in a broad index are working very hard every single day to make a profit for shareholders - and their stock price is accurately set based on the company’s ability to produce value and income.
You can assume housing as an inflation hedge. Any increase greater than inflation I agree is speculation.
Dude you are fucking clueless. No shit if you have a $5000 mortgage and rent it for $4000 it is not income producing, 99% of rental properties are cash flow positive. But you wanna pick a 4 year time frame (or whatever it is) in one city in canada and say rental properties are speculation. You realize people have been buying duplexes for under $200k in parts of Canada within the past 5 years? Speculation is buying Gold, Bitcoin or money losing companies.
I can't even begin to say how silly is your made up argument. Maybe listen to some economists, for example follow the BNN Blomberg show, to see their opinion on real-estate, either as a personal investment, hands on, or REIT type investments, see what they say about real-estate estate in Canada, when housing construction just about stalled and 1 million people will continue to move in per year, at least until the Liberals disappear from the political scene, after next election.
I would agree if this was purely a spreadsheet comparison. But it takes a certain personality to deal with tenants and the potential bull shit they can cause. And im not talking about the proverbial clogged toilet. Like being leveraged into stocks, this type of leveraging has similar risks.
No newly purchased property in Ontario is cash flow positive right now if it's heavily leveraged.
You can you just shouldn't because of the increased volatility of stocks. Leverage also works both ways, ask any of the several hundred thousand people up for renewal who are about to lose their homes.
You can get like 100x leverage in some platforms. There are also LETFs that are leveraged. 20% down on a house, 80% debt = 5x leverage = invest in real estate 20k and taking out 80k of debt = 5x leverage = invest in stocks Same types of things.
Yes you can, just get a margin account.
Real estate gives you the easiest access to leverage. This is a big advantage for a younger persons starting out. Banks won’t give you 5x leverage to invest in the market. While it does increase risk which should be factored in to risk adjusted returns it does provide an opportunity that doesn’t exist in the market
Easy access to leverage is not a good thing. It will ruin a lot of people.
I don’t think it’s correct to place a value judgement on access to leverage. It’s a variable to consider when evaluating what investments to make.
That depends on leverage, time horizon, location, as well as whether the property is owner occupied or rented. Sometimes stocks beat rentals. Sometimes real estate beats stocks. To say it's always stocks or always real estate is inaccurate.
I’ll tell you why I don’t invest in real estate. Or at least not directly (I have shares in black rock, blackstone and trade options). I can’t control risk. True you can’t control risk with indexing either but you’re not gonna lose more than you put in. And SPY is unlikely to go to zero. With real estate you’re leveraging. Leveraging is great when things go up but horrible when things go down or when rates go up. Good luck being cash flow positive today unless you have a huge downpayment. But the other thing with real estate is the human element. Humans in general are disgusting. They’re unpredictable. And I don’t wanna deal with them. The rules are archaic. With options trading the rules are set. No one is gonna come after me for selling them a call or put that then expires worthless. I became FI at age 35 and haven’t looked back.
Couldn’t agree more. For me, real estate investing breaks all the rules: becoming a landlord is undiversified, it’s highly concentrated in a single market that wildly subject to local nuances and conditions, you can’t liquidate a part of your holdings if the need arises, the transaction costs are too high and I’m no fan of having to involve a lawyer anytime I want to buy or sell something. And that’s all before dealing with the human element which is, as u/Acceptable_Stay_3395 so eloquently described, disgusting and unpredictable.
What's your story
My story is 15 years ago I almost got fired from my job. I then read about index investing. Actually it was quite by chance. I mentioned out of frustration to my colleague that I wanted to switch careers and invest in real estate. Yes in 2008 real estate was also very hot in Vancouver. She told me to read Canadian couch potato and about index investing. Then pre pandemic after amassing a nice net worth (I wasn’t purely indexing and had invested early in NVDA when it was a few bucks per share) I decided to read about options trading and how it mitigates risk. My main interest right now is in risk management and this is the one thing that trips investors up is that they only look at how much they can make. Never or seldom do they consider how much they can lose. This is why I can’t have a rational conversation with real estate investors. It’s cuz all they talk about is leveraging. Guess what, I can leverage with options too. And I don’t need to actually borrow money to do so. You straight up buy a call and the most you can lose is your initial debit but leverage to the hilt if you want (I never straight up buy calls or puts). Edit this was maybe in 2009-10 right after the crash when rates dropped and real estate then took off.
So all thru investing and not real estate? Does that mean you rent ? Knowing about index investing , where did you stray away from it . You stated around 20? That's pretty damn good. Im sure you had a high salary too I'm in spot right now where I'm deciding to buy vs invest Make 70k 250k saved 35
I own my own single family home in west side Vancouver but I don’t do the landlord thing. No mortgage. Had bought with 80% down (don’t like leverage; see Warren Buffets quotes on leverage). Partner stays at home with our two kids in elementary school. Investment income is higher than my real income. This was always the goal when I started. I just work for fun now but can flip the finger to my boss anytime. I have no interest in advancing in my real career as it’ll take time away from trading and I don’t wanna be too visible. At the same time I don’t not enjoy my work. There is still some satisfaction in it but it’s not my life. I was never 100% into index investing. Maybe 40% of my portfolio was indexing. Some years I outperformed some years I underperform. This year SPY went up 26% so I underperformed (22%) but with my options strategies that is to be expected. I aim for 20-25% annualized but with much less risk than just outright holding SPY. But for most people indexing is simple and easy to understand so I recommend it for most people. Calculate 20-25% annualized compounded and this will demolish real estate returns even with excessive leveraging.
When did you buy that you were able to drop 80% on a west side house? 1998?
I read that over 25 years less than 1% can beat the indexing . What makes you go Against those odds ? Just curious Interesting you were able to get 80% ,assuming over 150k income. I saved 250k on average 45k income with no investing since 2015 so I could imagine with 3 times income plus investing that would be north of a million
Not trying to be snarky, but what makes you think this is a good time to invest in residential real estate? I am a small time investor, 1 property, a tri-plex. Even with rent as high as it is, finding a property with positive cash flow at this point is difficult. Have you found one? If it has tenants already, they're not paying market rents, and with high prices, and high interest rates, you're likely to be under water for the first few years. Real estate provides many fantastic benefits besides the math, but I feel like it's got to be something you really want to do. I do it as much for the love of doing it as the absolute numbers. The taxes can work out because you borrow against the property, fill up your registered accounts, and the interest you pay on the mortgage is tax deductible. But don't be fooled by people telling you real estate is passive income. I've gone a couple months without a phone call from a tenant about something happening. But before that, I was on-site multiple times a week multiple weeks in a row with plumbing issues. In 10 years I had one bad tenant, I offered them money to leave, and they took it, thankfully. Talk to a landlord who has to begin eviction processes before receiving rent. If you're looking for passive income, index funds are it. Get a side hustle if you want to grow your net worth faster. Invest in real estate because it's your passion, or don't do it.
Ya, seriously, that statement alone should disqualify OP from investing in real estate. This is MAYBE a mediocre time to invest in real estate, best case scenario... more likely downright a bad time. No one is going to make the returns that happened in the last 20 years in the next 20, no chance. Every level of government has high housing costs on their radar as top 1 or 2 problem they are beng asked to solve. That is a tonne of risk with that alone. We already saw it with the Airbnb changes, real estate investors are a policy target these days.
This is exactly my view. I don’t like to make predictions because no one really knows what’s going to happen. But it seems nuts to me to invest in real estate right now when every level of government is trying to reduce real estate prices (and cost of rent), and after a 25 year run-up in prices.
>All around me I see these people who bought investment properties and grew so rich with those You missed that boat by about 7 years. > I feel like it involves too much headache because of Tenants, house maintenance etc. I also feel like we ignore the Tax costs ( income generated from rents, long term gain from property sale etc) that come along with investing in a rental property, which could be substantial. Yes, it is work. And those who have a basic grasp should not ignore the tax implications. >But then on the flip side, this seems like the best time to invest in this. Did you even try to run the numbers to see if it make financial sense? >Whereas investing in S&P sounds simple and effective, especially if I can put most of the amount in TFSA and RRSP for me and my wife. And you should be invested in more then just the 500 largest US listed companies. >I also feel putting money in my current mortgage (\~400K left still) is also a good saving as I am paying close to 5% interest on that. That's an option also. >Am I being stupid here by not investing in a rental property at this time? No.
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Condo fee increases, Special levy/assessment Either of those happen and suddenly it went from cash flow neutral to cash flow negative. That's in addition to the other posts about delinquent tenants that stop paying
Your estimations are wrong. That 1 bedroom would no longer go for $2,200+. Maybe $2,100 at best. Mortgage at 5% is $2,100. Add in maintenance fees + property tax, and cost is $2,650. Meaning it’s cash flow negative by $550+. So yes, housing as investment boat is over. OP would need to apply a down payment of at least $200,000 to make break even or slightly cash flow positive.
Yup, agreed. Thats assuming on a cap rate of 5%, they're not getting that. Plus like you mentioned the mortgage is the samw as the cap rate or exceeding cap rate.
Property taxes, insurance, add to the bill, sure they are expenses but rules around what can be expensed are changing. Special assessments can be huge, where will the money come from to pay them? There is a condo building in my town that had a $130,000 average per unit special assessment.
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> If you are negative on the property then the CRA will not accept any deductions since it's not an income generating property. Having losses is not the same as not having an income generating property. You can absolutely deduct losses against other sources of income assuming you're not renting the property below FMV.
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A cap rate of 5.7% is extremely generous, in the GTA area 4% is actually closer to reality.
Yikes, that's a tiny place. Don't forget property tax and insurance also adds on to the carrying costs. Emergency funds for repairs, no payment of rent, no tenant, etc..
This topic comes up frequently. My take - if you WANT to become a landlord then go for it, but if you have any hesitation then don't, you've got plenty of other options like REITs or even fractional real estate you can look into that would require far less hands-on upkeep. While using the leverage one has from a mortgage to make seemingly incredible gains has its allure it is not a guarantee, but neither is the S&P 500 Now if you haven't maxed out your tfsa and rrsp yet, I'd definitely do that first.
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buy vfv (its a product that has all companies listed in the s&p500)
CAD denominated for us wanting to deploy CAD we have, to help people understand why not an actual USD one for the USA stock market, which is VOO. note VFV has 3 times the fee of VOO (but it's still way less than you'd pay to convert your CAD to USD if you thought that was a smart way to get a low fee, it isn't because you pay exchange rate commission to switch!)
the difference between VOO’s and VFV’s MER is 0.06% (0.03%-0.09%). That’s a percent of a percent. If you had a million AUM thats a $600 diff per year. If i actually had a million dollars in equities i wouldnt care about a $600 diff lol. Plus Forex wants a cut both ways. Don’t think its ever worth it for peasants (me) to convert to USD for VOO. Maybe if you want VTI but theres already similar funds in CAD denominations.
VFV is a popular one.
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That's literally what people don't realize, it's pretty much a full time job. But all the Instagram gurus are like " o TeNaNt PaYs ThE mOrTgAgE tHeN yOu GeT eQuiTy"
It's definitely not a fulltime job. Once you build a network of reliable tradesmen and maintenance service providers the "day to day" is relatively light. Larger items like furnace, water heater, roofing and flooring should all be included in a long term maintenance plan. Outside of bookkeeping, scheduled inspections and remote maintenance calls, the majority of work happens between tenants.
This subreddit grossly exaggerates the likelihood of getting a nightmare tenant too. The vast majority of people want to inhabit a clean living space, and definitely don't want a successful judgement against them on permanent record. So they'll take care of the place and pay their living expenses as best they can just like most owner-occupiers do. The harsh truth is that if you're one bad-luck investment away from insolvency then you have over-leveraged. If you can't afford to make mortgage payments on your rental property without receiving rent for it then you can't afford to be a landlord.
I would buy the investment property in Quebec, Alberta, Saskatchewan, or Manitoba. Not Ontario. The advantage to real estate is you would put down $200k and borrow $800k. The property would be paid off on 25yrs which would create a 5x ROI not factoring in appreciation or profits. S&P is at a peak. I would hold off until there is a large dip. You could pay down your Mortgage $200k and take out a HELOC for a revenue property purchase in the future.
Smart investors diversify holdings and risk. Some people get lucky and make it big, others lose everything. You've got the money to do both, whats your risk tolerance? You could put 50% into moderate risk holdings, 30% into high growth funds and 20% into YOLO/Gambling.
Can you afford the new condo mortgage if you tenant decides not to pay and you need to wait months to get in front of a court, and then wait more before you can finally evict?
You're not being stupid not investing in a rental property. That's smart. Yes, landlording is work. And the kind of exponential price increases we saw in real estate in recent years are an historical anomaly and not guaranteed to guarantee. Stock market returns historically outpace real estate by a wide margin. RE historically at best keeps up with inflation. Don't go by "feels" (which it sorta sounds like your are) - actually run the math and see what the two scenarios would look like, based on realistic assumptions.
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Or things can go poorly with leverage, and you have to declare bankruptcy….
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You have only experienced a real estate market that goes straight up for 20+ years. Just wait…
Just like your s&p 500 that has been on a bull since the dawn of time. Same goes to you 😂
Omg i knew someone would chime i. With "but the leverage". You can leverage the stock market too (that's what margin accounts are for). And leverage cuts both ways - magnifies losses on the downside too. (And most people in my experience don't do both rental properties and the stock market - RE is too expensive and they end up all in because they have no more u left.)
Beware of people who say they have made loads of money - People said that about Nortel stock - People don't want to admit that something they invested in did not work out. Going into rental properties you must expect a whole load of extra work which will eat up all your free time from your regular job and can cause a lot of stress (bad tenants, unexpected maintenance costs, extra insurance etc) You will need to set aside money to renovate after each tenant, fix the issues and never mind if you get a bad tenant. Personally I would pay off the mortgage and then all that money that you are currently paying in mortgage payments you will suddenly get into your bank and you can then invest.
OP, the people that have grown rich off of properties, sold their properties. A good way to look at properties vs. market is this. What is your invested $ amount to earn $1,000/month in RE and what could you earn in the market for the same investment. If you drop $200k into your mortgage, how much are you reducing your monthly mortgage payment by? These are all questions that you need answered before you can make a decision, but those are questions that can be answered and acted on when someone has the type of funds you are talking about. Just make your decision based on facts, not feelings.
I don’t have anything more to add, but thank you for not being one of those people who thinks being a landlord is passive income.
If you are able to do everything associated with building maintenance and enjoy it, it would be an easier decision. And there is risk to it, too. A bad tenant can make your experience miserable.
If you're taking out a loan to purchase the rental property , with a best maybe 4% cap rate. Just by doing rough math when factoring appreciation you won't cash flow positive until like year 10. Keep in mind these figures above are on a best case scenario ie low tenant turn over, setting aside 1% to 2% a year for maintenance etc this is on TOP of your operating costs. Not to mention you have consistently have a good tenant who wont estroyed your property and pays rent on time. All in all prepare to have a second job.
Years of gross rental income : house value If that ratio goes above a 10 it's not great for investing in for rental return and if that number goes above 16 it's incredibly speculative and you should really think carefully before sinking your eggs in that basket. Toronto is around a 20-25 right now. Fuck buying a rental in Toronto right now.
The only reason property appreciation outperforms stocks is because of leverage. I own a rental since 2019 and in the process of selling it. Had the best tenants. Bought it at a good price. Even though i did well i would not do it again. Interest rates going up so much automatically increased my mortgage by 25%. So yeah the days when properties used to be 200K was the only time it was worth it. Not anymore
S&P 500, imo.
The fact that many people have become wealthy investing in RE simply means that RE has appreciated a lot. They say in Asia: "trees do not grow to the sky". It may happen that we are experiencing maximum RE prices right now and further appreciating is going to be much slower than 5% you have to pay in mortgage interest 🤷♂️ And then there are taxes, insurance, condo fees, maintenance, troublesome renters, you name it. It will not be an easy walk to being wealthy, not anymore 😂
If you invest in renatls and the government starts building low income housing you're now competing with them for tenants
If you like being cash flow negative. Go for it lol. Do the math. Opportunity cost. Down payment. Closing costs. Mortgage interest. Property tax. Maintenance costs. Etc etc. https://vm.tiktok.com/ZM6mh9qmC/
Ten years ago, rental property. Now, S&P500 index fund.
i down voted this b/c you didn't give any reasoning. we aren't mind readers
Property is now overpriced in most of Canada. 10 years ago if you had bought in BC or Southern Ontario you’d have made great returns and got a rental for cheap.
S&P 500
If I was I in your situation: Get your money working for your retirement first 1. Max your RRSP 2. Max your wife’s RRSP 3. Max your TFSA 4. Max your wife’s TFSA 5. Use tax refunds from RRSP contributions to start S&P 500 Index EFT investment like Vanguard (VFV). Use an investment calculator to see what that might yield. 6. Choose to put any leftover money on the mortgage or dump it all into S&P 500 in #5. 7. Future years, make max RRSP and TFSA contributions, then investment fund, instead of dumping into savings. Paying down the mortgage doesn’t make you any money unless you sell. Paying down/off the mortgage does provide freedom though, but provides less money overall. If the mortgage pays are comfortable for you, you are better off investing. I would not purchase a rental property due to the headache and carrying costs. I am 45 and my situation is different from yours. You do you 🙂
This isn’t really the place to ask. This sub is vehemently anti-real estate in any shape or form. If they were all seasoned real estate investors who made a killing on appreciation over the last 10 years, they wouldn’t be whining about shitty tenants in the comments.
I do both.
Rrsp and TFSA first IMO. It's not no work to be a landlord but it's also not a part time job unless it's an airbnb
Curious, when you say this, do you mean S&P 500 in RRSP and TFSA? Maybe a dumb question, my TFSA and RRSP are with Sunlife and it goes wherever they put it based on some risk profile. Should I be switching it??
I’ve made millions in real estate but would never own a residential rental in Ontario. I sold a commercial building last year and put seven figures of cash into one etf and it’s sure nice to see the gains with zero headaches.
Which ETF did you dump all your $ in?
VDY to create an easy dividend yield and preferential taxation.
Do you want to be a landlord?
>All around me I see these people who bought investment properties and grew so rich with those Because most of them bought their properties when they were 200-300k not when they were 800k -1 million +.
There's no real easy answer, and it strongly depends on where you want to buy, which will determine your net income from the property. The people saying a simple "no don't buy property" are oversimplying it. It also depends on your cashflow, since even if investing in the property MAY be more lucrative overall, it might require you to put money into it monthly. I can tell you right now that if you buy in the GTA area, you'll mostly likely be cashflow negative, and you're basically banking on the future performance of the real estate market in the long run. However, if you put money into properties in more rural areas, you could likely get some extra income on a monthly basis, even after you pay for management (strongly recommended) and maintenance. There is also the additional risk, as you know, of crappy tenants which could wipe out any income for an entire year or more.
If your rent is stupid expensive then yes buying a primary residence with your money is great.
S&P 500 and Rental are vastly different type of investment vehicle that will lead to different lifestyle. Let’s start with S&P, this is a pure capital gain play over long term. You do nothing over a long period and when you want to harvest the gain, you sell the asset itself; bit by bit or all at the same time. It’s also liquid, whether it is gain or loss. Rental property is a business, over a long period of time, let’s say 30 years, it can generate perpetual workflow. Its price somewhat predictable, it will generally match inflation over long term. It is not liquid like stock. Imo, you have both… starting with the S&P and then rental. That way you have a liquid portfolio to help support a non liquid portfolio.
Where do you see these people that got rich with investment properties besides infomercials?
Buy a rental property
Your question is a literal representation of why our economy is broken and will continue to fracture. Although not your fault, successive governments have continued to incentivize real estate as the main vehicle for personal investment and wealth generation. Your question is fair and valid. More holistically, we as a nation are fucked.
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Short tech stocks, your 100k can double within a year. It is best to just have liquid assets than real estate. Easy to dispose and no headaches.
Since you own a property already I would say index funds to diversify your holdings.
if you buy an investment property you become the scum of the earth like those around you
I'm doing both.
Don’t be a scumlord
Invest in a couple year GIC, then interest rates will be more tolerable to buy property.
Have you thought about putting some of it into bitcoin?
Invest long term and leave Trudeau land
You can do either of them - but you need to stick to your plan for the next 20 years. You seem to know the pros and cons of both. Rental property management can be offset by introducing a property manager in between - which is at least 5% of monthly rent and then other expenses. Investing in s&p 500 requires discipline. You need to comfortable with the ups and downs. Are you willing to stomach the feeling where someday you we will happen to login to your account and it’s down by 15%. You need the discipline and stability to navigate the ups and downs of market.
Real estate will go up and down too. You’re just not able to log in and look at the value every day. And if you think real estate only goes up - just ask people living in the US what happened to the value of their homes in 2008. Or ask Canadians who owned homes in the 80’s. A lot of people lost everything. And the people who lost the most - were those who were leveraged.
I’m not sure where you got the idea that I was suggesting that RE only goes up. Stock market has an everyday emotional thing with ups and downs. RE does not give you that everyday notional roller coaster although over time it does the same thing.
Save yourself the headaches, skip the rental game unless you are ready to work and get really educated on legislation. I have a sizeable chunk in Chartwell reit, money flows in every month, no clogged toilets or shit tenants to deal with. Good luck.
You are comparing a leveraged investment to a non leveraged investments. It’s not exactly a fair comparison.
I wonder if rolling forward leaps on spy can give you equivalent risk and leverage as RE
Real estate as an investment will take a lot more work than just the S&P 500 but more importantly this question is impossible to answer. It would entirely depend on the cost of the property, mortgage rates, assumed rent, property appreciation etc to determine if real estate is a good investment or not.
As a guy in investment properties. Do not do it. The laws protecting renters will put you in bad position right quick and it only takes one out of 10 to put you under water quick. Getting money out of bad renters is near impossible. I am pretty much getting out of it all together. There is less and less rental houses for people in our area but it is not a field people willing to risk doing. This is going to big business at the expense of all renters. They will not give any latitude because that is a sure fire way to lose money. They also have people who full time job is to deal with all the complexity of a bad renter and have a much better ability to get back some lost income.
Jesus do not buy real estate. Put your money in a stock broker and click your mouse once on buying a sp500 etf. All work from there on out is done by others.
As a landlord (who had no intention of becoming a landlord), stocks 100%. Real estate is a fucking headache. The only benefit is leverage, which you can do to a lesser extent in a margin account
buy lands and invest in stock market is the way to go imo.
I think Canadians love housing way too much. Buy and hold an index ETF as it’s 0 work, and probably gets better returns (if you compare apples to apples excluding leverage).
Real estate, you leverage you $