Real estate vs. the stock market

There’s been a lot of debate as to whether I should recommend real estate as an investment, given predictions of a 20% drop in housing prices. To prove that real estate can still be a smart investment decision I’ve examined potential returns of both…and the results may surprise you.



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house_money_seesaw_1008_322Despite continuing predictions of a real estate crash in Canada, I still maintain that real estate is a good investment. One of the greatest benefits to real estate investing is that it’s probably one of the more accessible ways to invest using borrowed money.

Now, before you launch into the dangers of debt I want to point out that debt, in itself, is not inherently bad. While consumer debt—loans to pay for a car, a vacation, most home renovations, or other consumables—is a blight on a person’s potential net worth, it’s not in the same category as asset-backed debt. Asset-backed debt—loans secured by a potentially appreciating asset, such as real property, an RRSP, or a stock portfolio—can be a great way to use leverage to increase a person’s net worth. The caveats for leveraged investing include:

  • You must earn more than you’re charged for borrowing to make the investment;
  • The decision to use leverage to invest must be part of an overall investment strategy (and not an ad hoc decision based on “a good tip”);
  • Any interest rate increase on the borrowed money cannot significantly impact a person’s ability to pay off the debt, or they may be forced to liquidate the asset at unfavourable rate/prices.

I’m not the only one who believes this to be the case. Financial educator, author and industry consultant, Talbot Stevens, believes real estate can be a wise investment under the right circumstances. In an interview with Stevens in late 2011, he stated: “Real estate investing is like a mini-business that doesn’t have a lot of complexity to it. For the average person, real estate can be a good strategy.” His comments were in relation to the smart use of leveraged investing to increase your overall net worth. By strategically using leverage to invest in appreciating assets a person could essentially buy more net worth.

At this point, however, it’s worth mentioning that while borrowing to buy an asset can magnify your gains, it can also dramatically accentuate your losses.

To understand how this works consider what happens if you put 10% down on a property worth $300,000. Your original investment is $30,000. If the house goes up in value by $60,000 and you sell, you’ll make a $30,000 profit (before interest, taxes and expenses). Even though the house went up in value by only 20%, your return on investment is 100%—that’s how leveraging works.

But what if the same $300,000 house drops in value by $60,000, and you sell. You won’t get any of your initial $30,000 deposit back and, worse, you’ll now owe $30,000 to the bank to pay off what you’re short on in the mortgage. While the investment only declined by 20%, you ended up in the red by 100%. Because of leverage you lost more than you initially invested.

All this is great to know, but the real question is what should a homebuyer or real estate investor do now, when there are predictions of a housing crash, at worst, or stagnant appreciation, at best.

One way investors can avoid these problems is to focus on cash-flow positive properties. That means the income you get from renting out the property covers all your expenses, including the mortgage, taxes, insurance, maintenance, repairs and a contingency fund. That way your property will be making money for you whether house prices go up or down—so hopefully, you’ll never be forced to sell in a down market.

The homebuyer, on the other hand, is in a different position. Rather than buy based on metrics, homebuyers—people who a house solely as a place to live and not as an investment—buy based on emotions. These buyers ignore an up-and-coming neighbourhood to get into an established (and expensive) area; these buyers want the stainless steel kitchen appliances and granite counter-top and, often, pay little attention to the age of the furnace and whether you can undercut the asking price because of all the work that needs to be done to the property. In my opinion these buyers need to wait it out.

To get a better idea of how the market impacts home prices and your net worth, I’ve put together a few simple scenarios.

1)       Buy now and there is no drop in housing prices;

2)       Buy now and face a 20% drop in housing prices;

3)       Buy now and face a 10% drop in housing prices (TD Report);

4)       Rent and invest the down payment in a balanced portfolio.

To clarify the assumptions made are as follows:

  • Housing price is $350,000–the approximate national average home price;
  • With 10% down ($35,000) the mortgage is $321,300 and the monthly payments are $1,637 based on a 10-year fixed at 3.69%;
  • Annualized appreciation of 2% for the next decade (after inflation, or 3.5% before inflation, as predicted by TD Report);
  • The time-value of money is not factored in. That’s because regardless of whether you hold real estate or a stock portfolio, your equity will be impacted equally by rising inflation.

Now on to the scenarios:

1) Buy now and there is no drop in housing prices

You buy a home at $350,000 with a 10% down payment. That means your initial investment is $35,000 to own an asset currently valued at $350,000. If prices were to remain stable and housing appreciation returns to historic levels—2% per year—then your net equity after 10 years would be as follows (not including maintenance and utility costs):

Balance on mortgage Equity after 2% appreciation:
Year 1 $313,294.00 Year 1 $43,706.00
Year 2 $304,989.00 Year 2 $59,151.00
Year 3 $296,376.00 Year 3 $75,046.80
Year 4 $287,442.00 Year 4 $83,980.80
Year 5 $278,174.00 Year 5 $108,254.28
Year 6 $268,562.00 Year 6 $125,594.85
Year 7 $258,592.00 Year 7 $143,447.98
Year 8 $248,251.00 Year 8 $161,829.78
Year 9 $237,524.00 Year 9 $170,031.40
Year 10 $226,398.00 Year 10 $200,250.05

The equity in your home would amount to just over $200,000 after 10 years (assuming no pre-payments and not accounting for maintenance and utility costs).

2) Buy now and face a 20% drop in housing prices

But what if you were to buy the same $350,000 home, with 10% down and prices dropped 20%? Your initial investment would be $35,000 and the value of the asset at time of purchase would be $350,000. After the price drop your home would only be worth $280,000. If you were to sell within that first year, you would lose your initial investment of $35,000 and would owe an additional $35,000.

Keep in mind, however, that you only realize a loss if you sell. If, however, you kept the property for 10 years you would end up with the following (not including maintenance and utility costs):

House value after price drop of 20% in first year 2% appreciation over next 10 years Home value
Year 1 $280,000.00 $5,600.00 $285,600.00
Year 2 $285,600.00 $5,712.00 $291,312.00
Year 3 $291,312.00 $5,826.24 $297,138.24
Year 4 $297,138.24 $5,942.76 $303,081.00
Year 5 $303,081.00 $6,061.62 $309,142.62
Year 6 $309,142.62 $6,182.85 $315,325.48
Year 7 $315,325.48 $6,306.51 $321,631.99
Year 8 $321,631.99 $6,432.64 $328,064.63
Year 9 $328,064.63 $6,561.29 $334,625.92
Year 10 $334,625.92 $6,692.52 $341,318.44

The balance on the mortgage would remain the same, assuming no prepayments, with a balance of $226,398 owing at the end of year 10. However, the initial drop in the value of the house would significantly impede the asset’s appreciation over the 10 years, leaving you in a $9,000 deficit from when you first bought your home. (After 10 years, and 2% appreciation each year after the initial 20% loss in value, the home would be worth just over $341,000, or $9,000 less than when you first bought the home.) Over the 10 years, however, you would have built up about $115,000 in equity (the reduced home value after 10 years minus the outstanding mortgage balance).

3) Buy now and face a 10% drop in housing prices (based on TD Report)

Same scenario as above, however, the price drop is only 10%.

House value after price drop of 20% in first year 2% appreciation over next 10 years Home value after 10 years
Year 1 $315,000.00 $6,300.00 $321,300.00
Year 2 $321,300.00 $6,426.00 $327,726.00
Year 3 $327,726.00 $6,554.52 $334,280.52
Year 4 $327,726.00 $6,554.52 $334,280.52
Year 5 $334,280.52 $6,685.61 $340,966.13
Year 6 $340,966.13 $6,819.32 $347,785.45
Year 7 $347,785.45 $6,955.71 $354,741.16
Year 8 $354,741.16 $7,094.82 $361,835.99
Year 9 $361,835.99 $7,236.72 $369,072.71
Year 10 $369,072.71 $7,381.45 $376,454.16

At the end of 10 years your asset would be worth just under $376,455 and the equity in the home would be just over $150,050. No question: the price drop significantly impacted the appreciation of the asset, but after 10 years of forced savings (i.e.: paying off a mortgage) you would just over $150,000 in equity in the home.

4): Rent and invest the down payment in a balanced portfolio

A few commentators on prior blog posts suggested that a better investment strategy would be to take the down payment a person may use to purchase a home and invest it in the markets. The problem is that past performance is never indicative of future performance, still, I needed to use a benchmark and, due to several economists and analysts predicting soft returns in the stock market over the next decade, I opted to use the 10-year annualized returns from 2001 to 2011. (For more information on these returns please read The Canadian Couch Potato’s 10-Year Report Card)

Based on the 10-year annualized returns of the following balanced portfolios, this is what your $35,000 investment would look like in 10 years (not including taxes, dividend disbursements, additional contributions, or trading costs):

GCP*-w/hedge – 4.03% GCP*-w/ out hedge – 3.19% Scotiabank Cdn Balanced – 2.74% CIBC Balanced 2.7% RBC Balanced – 3.7%
Year 1 $36,411.00 $36,117.00 $35,959.00 $35,945.00 $36,295.00
Year 2 $37,878.00 $37,269.00 $36,944.00 $36,916.00 $37,638.00
Year 3 $39,404.00 $38,457.00 $37,957.00 $37,912.00 $39,031.00
Year 4 $40,992.00 $39,684.00 $38,997.00 $38,936.00 $40,475.00
Year 5 $42,644.00 $40,950.00 $40,065.00 $39,987.00 $41,972.00
Year 6 $44,363.00 $42,257.00 $41,163.00 $41,067.00 $43,525.00
Year 7 $46,151.00 $43,605.00 $42,291.00 $42,176.00 $45,136.00
Year 8 $48,011.00 $44,995.00 $43,449.00 $43,314.00 $46,806.00
Year 9 $49,945.00 $46,431.00 $44,640.00 $44,484.00 $48,537.00
Year 10 $51,958.00 $47,912.00 $45,863.00 $45,685.00 $50,333.00
*GCP = Global Couch Potato
TD Balanced Growth – 3.4% Mawer Cdn Balanced – 5.93% Beutel Goodman Balanced D – 5.63% Leith Wheeler Balanced – 5.41% McLean Budden Balanced Growth D – 4.26%
Year 1 $36,190.00 $37,076.00 $36,971.00 $36,894.00 $36,491.00
Year 2 $37,420.00 $39,274.00 $39,052.00 $38,889.00 $38,046.00
Year 3 $38,693.00 $41,603.00 $41,251.00 $40,993.00 $39,666.00
Year 4 $40,008.00 $44,070.00 $43,573.00 $43,211.00 $41,356.00
Year 5 $41,369.00 $46,683.00 $46,026.00 $45,549.00 $43,118.00
Year 6 $42,775.00 $49,452.00 $48,617.00 $48,013.00 $44,955.00
Year 7 $44,229.00 $52,384.00 $51,355.00 $50,611.00 $46,870.00
Year 8 $45,733.00 $55,491.00 $54,246.00 $53,349.00 $48,866.00
Year 9 $47,288.00 $58,781.00 $57,300.00 $56,235.00 $50,948.00
Year 10 $48,896.00 $62,267.00 $60,526.00 $59,277.00 $53,118.00

Based on these returns, the maximum appreciation your portfolio could manage is just over $62,000 (not including taxes, dividend disbursements, additional contributions, or trading costs).

But the ability to invest this money assumes that the $1,637 mortgage payment you would’ve been making had you purchased a home is a sufficient enough sum to rent an apartment. For those living in Toronto or Vancouver—or in Regina, Thunder Bay and Calgary, where vacancy rates are an astonishingly low 1% to 1.3%—the possibility of finding a two-bedroom apartment for $1,600 in the downtown core may seem ridiculous. Also, the above calculations, and the rent you start paying the year you make your investments, do not take into consideration the impact of rental increases.

Still, in many Canadian cities you can find a two-bedroom rental closer to the national rental average of $954. If, then, you used the extra $683 per month to increase your initial portfolio investment of $35,000 you would see much higher portfolio appreciation. To get a better idea of how renting and investing compares with the appreciation from a real estate purchase I’ve calculated the 10-year value of your portfolio, including the additional monthly contributions minus rental increases. I’ve only used the two Global Couch Potato returns, as they were closer to the median between the lowest and highest annualized rate of returns for balanced equity portfolios over the last 10 years:

GCP-w/hedge – 4.03% w/ 2.7% rental increase GCP-w/ out hedge – 3.19% w/ 2.7% rental increase
Year 1 $36,411.00 $44,466.00 $36,117.00 $44,453.00
Year 2 $37,878.00 $53,994.00 $37,269.00 $53,573.00
Year 3 $39,404.00 $63,587.00 $38,457.00 $62,667.00
Year 4 $40,992.00 $73,224.00 $39,684.00 $71,709.00
Year 5 $42,644.00 $82,894.00 $40,950.00 $80,686.00
Year 6 $44,363.00 $92,598.00 $42,257.00 $89,595.00
Year 7 $46,151.00 $102,325.00 $43,605.00 $98,422.00
Year 8 $48,011.00 $112,064.00 $44,995.00 $107,152.00
Year 9 $49,945.00 $121,803.00 $46,431.00 $115,770.00
Year 10 $51,958.00 $131,530.00 $47,912.00 $124,260.00

(NOTE: The above calculations are based on 2.7% national average rental rate increase)

The long and short of it is this: real estate, as an investment, really only makes sense when the market is appreciating. Any loss in home value can really put a dent in your overall equity. If, then, you believe that the housing market will drop 20% in value, it would probably be best for you to continue renting and to invest your money in the markets. Of course, to maximize your savings you would need to find a rental that is less than what you would’ve paid in mortgage payments, and then invest the savings into your portfolio. Do this and you could see a potential nest egg between $124,000 and $132,000 at the end of 10 years.

If, however, you don’t believe the housing market will take a 20% dive and like me, you believe there will only be a 10% correction in housing prices, if that, then investing in real estate isn’t such a crazy idea.  Even if the real estate market did drop by 10%, you would have approximately $150,000 in equity in your home—about $20,000 more than if you had invested in the markets. If the housing market doesn’t correct, you would have almost $70,000 more than if you’d invested in a balanced portfolio for the same time period.

While, we can’t actually predict how the housing market or stock markets will perform over the next 10 years, we can make educated guesses. I simply wanted to show that despite loud headlines of potential bubbles bursting in the real estate market, housing is a good investment. I am not advocating that you should put all your eggs in one basket. If you own rental properties you should also diversify and invest in stocks and bonds (as well a REITs, mortgage investment products, as well as other investment products). I also believe that too many homebuyers read these reports and assume that any investment in a house is a good investment. That’s not always the case. In the end, a decision to invest in any product, whether real estate or in the markets, needs to be an educated decision based on a long-term financial strategy. It cannot be an emotional decision based on fear and speculation.

35 comments on “Real estate vs. the stock market

  1. Although in Vancouver you can't rent a 2 bedroom apartment for $1600 you also can't buy much for $350k. You need to remember that in your comparison. I agree with your point though that it's hard to consider buying a property in Vancouver a sensible investment from a financial perspective but you have to consider the stability you gain as a homeowner (no landlord to throw me out) especially if you have a young family


  2. Thanks for running the numbers! In the real world, I think renting and investing the difference would be an even better deal. Your house numbers don't include taxes, maintenance, or repairs, all of which would be included in rent, and the commissions involved in selling a house are much higher than those for selling stocks or bonds. Plus, your stocks would be paying you dividends. On the other hand, the house's appreciation (as a primary residence) is a tax free capital gain… to avoid taxes on your stocks/bonds/whatever, you'd probably want them inside a TFSA or RRSP.


  3. Thank you for writing this column.

    I have a few criticisms however:

    1) Your biggest mistake is that you are missing many significant costs to home ownership.
    1a) Buying this $375K house will cost approximately $20,000 due to realtor fees & taxes
    1b) you fail to address that the there are maintenance costs to owning a house. Roofs need to be replaced, there are property taxes, home insurance, things break and wear out. A low ball estimate to this alone is approximately $10,000 per year (likely much more).

    These are significant costs that are always glossed over when describing real estate as an investment.

    2) The returns you used seem to be cherry picked a little bit. Keep in mind that you chose a period that included one the largest market crash in the last 70 years. A more representative number to have used from the couch potato website would be a 6.66% return rather than the exceptionally low ones you ended up using. See:

    There is much more that is missing here but I don't think it would be worth the effort to just have it in the comment section. Feel free to have your editor contact me if she would like me to write a thorough column on this — maybe we could do a fun point – by – point debate on it.


    • You're right: I didn't factor in cost of home ownership — such as property taxes and maintenance fees. I also did not factor in trading costs, taxes and management fees for the investment portfolio. I do concede that these fees will eat into anyone's returns — whether it's a portfolio or a real estate investment…and must be considered when creating and sticking to an investment plan.

      Also, there are no realtor fees when you buy. These are paid by the seller. You may need to pay land transfer tax (and if you live in Toronto you will be hit with two land transfer taxes – a municipal and a provincial land transfer tax) but not every province or municipality collects this tax — the reason why I did not include.

      For a detailed article on maintenance costs please see the Ultimate Home Maintenance Guide ( I wrote the piece two summers ago after extensive research. While maintenance costs do add up the $10,000 per year you estimate is actually at the top end of the scale. Homeowners should budget between $4,000 and $10,000 dependent on many factors.

      As for cherry picking. I did not. I simply selected the annualized 10-year returns that were in line with current predictions of future returns. John DeGoey, a well respected and highly knowledgeable financial planner, recently wrote that he was amending his future return estimates from 6% to 4% — partly because of the threat of inflation and partly because we are looking at a decade of overall soft returns. Of course, it's always possible to achieve better results (either by following the Uber-Tuber or through active management) but it's also possible to buy a run-down home and add a little value with some sweat equity. Both are options but I wanted to pick the investing route taken by the vast majority of investors.

      Thanks for posting and commenting (and for your offline email).


      • In Vancouver, I paid about 150k extra for my 1.15 million dollar home (property transfer tax, realtor fees-yes there are realtor fees when you buy, lawyer fees, HST, etc). For my portfolio, I have very minimal fees (10 dollars for every trade or 0.17% for the index funds I hold) as I do my own investing. Also, carrying costs are expensive, 4k for taxes (a bargain considering in San Francisco I was paying 15k a year in taxes for a slightly more expensive property), maintenance fees and costs, etc. I have no carrying costs for my stock portfolio, just my time to research and manage my stocks.
        And yes I echo Dennis below, every transaction eats a lot into your profit. I just paid about 10% plus moving expenses just to buy my current place. We plan on staying for long term and are not planning on selling for the sale of selling. Too expensive.


        • Looking back I can see just how expensive your decision NOT to purchase was. hahah


  4. You also have to factor in mobility. I don't know many younger people that will stay in the same house for 10 years. I have friends that have bought and sold 2 or 3 houses in the past 10 years. If you factor in the costs associated with buying and selling I don't think they are much ahead. If you are staying in the place for 10+ years, then buying is a no-brainer.


  5. A couple of comments. In general I don't mind the analysis and there are plenty of caveats that come along with any analysis of this sort. The main problem with the article is not so much the underlying analysis but rather the "TDLR" or missed key statement. To be honest, I've opened this article a couple of times, was a little daunted to read it and closed it. It wouldn't be beyond me to just scroll to the bottom and read a conclusion. Something like this could really use a summary chart of results that bullet points some of the assumptions and the conclusions.


  6. The stock market examples are flawed as obviously the risk of a downpayment in a house is far greater than the risk of investing in a balanced fund. To properly compare stocks vs. housing downpayment, you would need to leverage the stock investment (which can be done, by way of options or a margin account), and compare accordingly.


  7. Great information shared with us. Very interesting history, actually I have invested money in Stock and Forex market, these day I am searching new way of making money. I think my searching end because I have found way “real estate” thanks for given great idea.


  8. Moneysense selling out to the Real Estate cartel. Another one bites the dust!


  9. The elephant in the room is Canada's extremely inflated real estate market.
    Canada's housing values have appreciated excessively for far too long, far exceeding inflation and unsupported by income averages or rent comparisons. The Economist has named Canada as the world's most over priced housing market, no small feat.
    As with several other countires in the recent past (USA, Ireland, Spain, etc,) a correction back down to inflation based values will come. Certain markets in Vancouver and Toronto are already showing cracks in pricing, but even Ottawa (Probably the most rock solid real estate market in Canada due to stable employers like the federal government and two large universities) has shown a sales decrease of 9% in February , year over year.
    To invest in Canadian real estate at this time would be akin to buying Nortel at it's top.
    We all know what happened there.


  10. The only debts my wife and I had in our life was a 2 mortgages. The first house we put 33% down, the second house we put 60%down by selling the first house.We don't believe in borrowing money to invest basically not using leverage. We bought a house to live in and raise our children. A house is an asset but it's not an investment. You don't buy a house to retire off of or become rich. This idea or philosophy of trying to convince people to buy property or real estate with large debts is the biggest mistake people made over the last 20 years.They will see over the next 10 years what will happen and realize it was a big costly mistake when they retire.

    We have no debts of any kind. No car loans,student loans,lines of credit,mortgages,credit card debts,personal debts etc. People today forgot how to save their money and invest it. Low interest rates are a way to trick people into debt and take more risk than they normally would. People are financial illiterate and don't want to save and plan for their financial future.They believe they don't need to save and that rising house prices are a sure form of saving. I will give some examples. The best way to be debt free and have a large financial nest egg is to buy a house you want to live and need and not putting all your money into a house that you don't need and can't afford.The real estate and mortgage industry always tells buyers that the primary residence is income tax free but with TFSA's that benefit is not as true as it once was.Also, they don't tell the total full costs,taxes,fees,insurance etc. of long term home ownership.

    Let say you don't buy the bigger house or condo and the mortgage balance is $250,000 less than it would be than you need for your family say $500,000 vs. $750,000.The monthly mortgage payment at 3.00% amortized for 25 years is $1,200.00.The extra property taxes would be about $200.00 per month. CMHC insurance would be $115.00 per month. House insurance would be about $60.00 more per month. Maintenance,repairs,real estate commission,lawyer fees,H.S.T would be my best estimate about $575.00 per month.The extra electricity,heating costs for a larger home would at least $150 month. The land transfer tax would be $10,000 extra today so that is a one time cost.

    This is all assuming no increase in mortgage rates,property taxes and all other costs which is impossible over the next 25 years.It all will be a higher total taxes,interest and costs over the next 25 years.This is if you bought a larger or more expensive house imagine if you bought a condo with the average Toronto monthly condo fees of $450.00 per month and rising at least 4.00% per year this will make the monthly costs huge. After 25 years a $450.00 per month condo fee that increases 4.00% per year would be $1,200,ouch!

    The total extra monthly costs and taxes would be $2,300.00. People fail to realize is they need after tax dollars to pay these taxes,interests,costs every month. The $2,300 per month means that the homeowner(s) would need to earn $3,300 per month income and after income taxes they would be left with $2,300 per month net. The $2,300 per month can be invested in TFSA's,RRSP's for each person in the couple. This is the best way to accumulate wealth and be debt free.

    The $2,300 per month*12=$27,600 per year so for each it is $13,800.00 per year. Each person can put $5,500 in a TFSA, $8,300 in a RRSP. If they are in the 30% tax bracket the $8,300 RRSP contribution would get a $2,500 annual tax refund. This means that they could take the $5,000 per year tax refund and pay down the mortgage faster being debt free sooner. This means that at say 4.00% average mortgage rate amortized over 25 years the $5,000 annual payment towards the mortgage would save a total of $47,000 in interest. Another option is to pay your mortgage regularly and use the $5,000 annual tax refund to save towards the $27,600 TFSA's,RRSP's so $22,600 would need to be saved by income earned instead of the $27,600 originally.

    The total TFSA's would be worth $445,959.00, RRSP's $672,992.67 in 25 years so a total nest egg of $1,118,951.67.If the couple stopped saving after 25 years the time the mortgage was paid off .The nest egg 10 years later so 35 years total time invested it would be worth $1,624,743.71. I used the long term provincial strip bonds yields of 3.80% currently and no increases in interest rates or bond yields over 35 years. This is an impossibility and I am being conservative in my calculations,investment choices.The $1,624,743.71 nest egg would produce annual interest income of $61,740.26 at 3.80%,$77,968.70% at 4.80%,$94,235.14 at 5.80%. The capital would be left intact with no depletion of capital or principal. The $10,000 extra land transfer tax invested for 40 years at 3.80% would be worth $44,452.29 in a TFSA , at 4.80% it would be worth $65,230.59 in 40 years in a TFSA.


  11. Remember, the smaller,less expensive house would save a homeowner at least $900.00 a month in today's dollars but in 25 years it would be easily $1,670 per month or $20,000 a year,ouch! These are property taxes,insurance,maintenance,repairs,H.S.T and electricity,heating expenses. You can't get rid of them like the monthly mortgage payment in 25 years.Actually it's worse they increase every year.

    The homeowner buying the less expensive house can more likely stay in the house and afford to keep it in retirement.This will avoid having to get a reverse mortgage and avoid piling on debts of any kind like lines of credit,car loans,credit card debt in retirement and old age precisely the time when seniors are at most vulnerable.Credit cards at 18% to 30%,lines of credit at 3.50% to 6.00%,car loans at 5.00% or higher and any other type of debt.

    It can mean the difference between a life of financial stability,peace and choices or financial stress,resentment,regret,dependence.We have 31 years of experience and avoid debt as much as possible and even worse don't double your risk by using leverage basically borrowing money to invest in stocks,mutual funds,ETF's,hedge funds,junk or high yield corporate bonds and especially real estate. It's not worth it. If you have to use debt pay it off as soon as possible and don't over extend yourself for 1,2 or more properties or houses.This is a continuation of my comment 16 minutes earlier because it would not accept the length of my comment.


  12. Buying a house as an investment using borrowed money is like buying stocks on margin, inherently risky. Real estate has gone up in the past ten years but can go down too, and if you need an infusion of cash all of a sudden (job loss, divorce, death in the family, putting kids through college, etc) and your investment had tanked at that particular time, you're screwed. Carrying costs are also high, and renting the property out is a big headache with some tenants (squatters who don't pay, demanding tenants, etc). Real estate would be fine if there is an upward trajectory all the time but that is just not the case. For stocks, I have little carrying costs. Dividend yields are similar or better than real estate considering the high cost right now in Vancouver. And best of all you don't have to deal with annoying tenants and answering to their every demands.

    Bottom line is if you buy real estate or stocks, make sure you have cash to do it. Don't buy on margin, unless your appetite and tolerance for risk is high.


  13. I was once a renter and the problem with it is that rents never go down, they will always go up. At least when you own a home, if you are in a position where you can afford it, your mortgage payment is determined by the price you bought it at at the time you bought it. Your landlord raises the rent according to the rental market where all the landlords want to be able to cover THEIR rising mortgages. What I have seen in the Vancouver area is that the people who continued renting after I bought a house saw their monthly rent go way past what my expenses are. My mortgage payment, at first, was higher than the rent I was paying. Now I am glad to pay the mortgage instead because it has stayed relatively constant. People should start to invest in the markets after they own a home but I agree that you need to buy what you can reasonably afford.


    • That's fine until you renew. Brace yourself if you bought high at a low rate and suddenly rates go back up to what they were in 2007-2008 better yet you are doomed worse yet if rates go back up to 1990's rates…regardless though ownership of a home is still the best option.


      • This is a classic debate: to rent or to own. Owning is not necessarily the best option, especially if it doubles as a primary residence. As an investment it will pay off only if your speculation on the value of the land proves good (i.e. if land value goes up); if you are able to liquidate your asset at a value greater than its cost, factoring in interest payments on the mortgage, taxes, repairs, etc.; and, if the house was your primary residence, you are able to buy another house at less cost (which means 'downsizing'). A renter may likely have increasing rents, but will not have the same expenses as an owner, such as interest payments on the mortgage or the same taxes and repair bills. If the renter takes the left over money then s/he can invest in another way to build comparable equity.


  14. I think it's all about balance. Holding investments in both the financial markets and the real estate markets buffers you from the blows of declines in one or the other.

    I own my home. I have a pension at work, I buy RRSP's every year and contribute to my TFSA. When I inherited some $ from my Dad's estate, I maxed out those contributions that year and I had some $ left over. My husband and I had made long term plans to sell our existing home and move to a smaller recreation property in our area when we retired.

    We decided to invest the remaining funds in a second property in the retirement area we were interested in. The property had an older but serviceable residence on it. We did a few quick upgrades and rented it out. We now know we have the retirement property we want and while we are still working and living close to our jobs, the property is generating revenue that pays the taxes and mortgage. The tenant pays the utilities.

    Three years later the plan is still working well. We have had the same tenant since day one. He is reliable and responsible (we did screen tenants very diligently and we have kept the rent affordable to keep the fellow we have).

    It isn't all gravy. The hot water heater failed while we we away on vacation. The tenant did shut off the water and clean up the mess. He called us for help and we arranged for a contractor to go fix the thing on a Sunday. Too bad, because this is the type of repair my husband can handle, but since we weren't there, we had to suck it up and pay to have the work done, in order to keep a happy tenant.

    Real estate values have declined in our area. Both my primary residence and my rental are assessed at lower values tan they were last year. But because I don't owe anywhere near the assessed value, and I am not looking to sell, I will ride it out and real estate will eventually have some recovery. Last year my RRSP's averaged 4.25%. Not too bad, but I still think the investment in the second property was worth it.


  15. Real estate may go down


  16. So stunning! Very long but you had done deeply analysis about real estate market and the stock market. From my point of view if stock market goes high, then definitely real estate market goes up.


  17. I agree that real estate can be a good investment when it experiences price appreciation; and furthermore, that it might not be a good investment when experiencing price declines.

    So, the critical question becomes – over the course of the next ten years or so, is it reasonable to expect that real estate, in general, in Canada, will appreciate in value (in real terms) ?

    I would argue that there are good reasons to believe that Canadian real estate values will not appreciate over the next 10 years, and may even decline.

    When real estate values appreciate over many years, there are usually strong underlying macroeconomic/macro-social forces at play that are responsible. I would suggest that the key factors are as follows:

    1) Population growth
    2) Strong economic growth
    3) Low, but persistently rising mortgage/consumer debt levels
    4) Persistently-falling mortgage rates.

    In the post WW2 era, specifically, the 50s and 60s, real estate values appreciated in a fairly robust manner, driven largely by
    a) post WW2 economic boom (4-5% real annual economic growth)
    b) strong population growth (baby boom generation) and
    c) low, but persistently-rising consumer debt levels (Coming out of the Great Depression, most people were fearful of debt, even asset-backed debt, like mortgages.)
    Granted, interest rates rose progressively through the 50s and 60s, but a rate that was slow enough, so that the real estate price depreciating effect was overridden by the other factors.

    Since the beginning of the 80s, however, there has been an important macroeconomic change – interest/mortgage rates have been persistently declining over the past 30 years or so. Consider that in the early 1980s, mortgage rates were around 20%. Mortgage rates have obviously declined dramatically since then. Therefore, persistently-falling mortgage rates, combined with moderate economic growth (3-4% per year), and continually-rising consumer debt levels fueled two important real estate booms in our modern era – the real estate boom of the 1980s and the most recent one that began about 10 years ago.

    But, now as we consider the macro-financial picture looking forward over the next 10-20 years, i would argue that the gas tank (to fuel real estate price appreciation) is empty.

    a) interest/mortgage rates are at an all-time low in both Canada, and the US. Therefore, the next big move in rates is much more likely to be up, rather than down (as we have been repeatedly warned by the very same people who set interest rate policy – read between the lines)
    b) Consumer Debt , in contrast, is at all-time high, and, in Canada, even exceeds the levels seen in the US before their real estate market crashed in 2006-2007 (and has yet to recover)
    c) Most economic forecasts put expected growth in the 2% range (half the post WW2 average)
    d) We are sitting on a demographic time bomb. For those of you that want to explore this topic further, i invite you to check out the following link :….
    Basically, the main argument presented at this website, is that real estate prices are likely to fall, probably for years on end, because of the graying of the baby boom generation. As they retire, seniors often downsize, and, for example, will sell their houses, for smaller units, or move into old age facilities, or decide to just rent. But, who are they going to sell to? The younger generation, of course. And that is where we have a potential problem, because the baby boom generation outnumbers their younger cohorts. Therefore, we are likely to have more sellers than buyers, and that implies falling prices.


    • It looks like you are describing Japan the last 20-25 years or so.Now Japan is desperate and said today that it 's target is to double it's monetary base 1.40 trillion U.S dollars in 2 years. This basically means bank of Japan creating double the amount of money and buying Japan's new bond issues.It's printing money like the federal reserve,Bernake in the U.S. but much more in percentage terms compared to Japan's smaller population.

      It will not work and Canadian real estate could be in a 10-15 year low to no growth, may be price declines in the future.The media is saying that Europe is the new Japan with rising older population,slow to no economic growth,rising debt levels and possibly low to no inflation even maybe spouts of deflation.It's just part of the economic cycle of maturing developed economies.


  18. You have posted useful difference between real estate and stock market. I really agree with some points in the blog.


  19. Real estate Investments indeed returned assured profits.


  20. Pingback: Real Estate vs. Stock Market

  21. Your maths in this column are incorrect.

    For example, you have said…

    “To understand how this works consider what happens if you put 10% down on a property worth $300,000. Your original investment is $30,000. If the house goes up in value by $60,000 and you sell, you’ll make a $30,000 profit (before interest, taxes and expenses). Even though the house went up in value by only 20%, your return on investment is 100%—that’s how leveraging works.”

    However, this is actually incorrect.

    If you put 10% down on a property worth $300,000, your original investment is $30,000, and the mortgage loan is $270,000. If the house goes up in value by $60,000 and you sell, you’ll make a profit of $60,000 – NOT $30,000.
    This is because original house value is $300,000 ($270,000 mortgage + $30,000 initial investment)
    House value goes up by $60,000, so house value is now $360,000 ($270,000 mortgage + $30,000 initial investment + $60,000 PROFIT)
    Therefore, the house value goes up by 20%, but your return on investment is 200% – NOT 100%.


  22. Other than missing fees others mentioned below, I’m afraid your comparison of buying vs. rent is totally inaccurate, you used $350 k as a base for buying option (national average) and $1600 rent budget for 2-bedroom apartment, 350 k is the average price for 1 bedroom unit in downtown Toronto, 2 bedroom apartment will cost you well above $450 k, if you want to use 350 k as your buying price you need to compare renting for 1 bedroom apartment. I am renting 1+1 unit in downtown Toronto for 1650 including all utilities and parking. Same unit is priced $350 k, so you see I am doing very good and investing my money where I should. Buying vs, rent greatly depends on where you want to live. Another important factor you missed is interest rate. Most average people cannot pay off mortgage in 10 years, Banks are pushing people to buy justifying with historically low rates right now, the chance these rates will stay this low after 10 years is absolute zero.


  23. great analysis


  24. According to the Washington Post, Canada has the biggest housing bubble in the world.

    According to the following people, Canada has a housing bubble:

    The Economist
    Paul Krugman
    Robert Schiller
    Peter Schiff
    Nouriel Roubini
    Financial Post
    Globe and Mail
    National Post
    Motley Fool
    Zero Hedge
    Huffington Post
    Deustche Bank says Canada’s housing is most overvalued in the world
    IMF says Canada’s housing is most overvalued in the world

    Do you think they are all wrong?

    No bubble in history has ever not corrected.

    Canada’s bubble was created by the government. Read:
    Housing, the most manipulated market in the world

    When you are buying a house, you are making a bet, not an investment. You are betting that the government can and will continue to manipulate housing to fuel the bubble.

    The housing market corrected 20% or more after 1989. When the current housing bubble corrects, is it realistic to expect 10% correction?


  25. Interesting article and fair comparisons. Keep in mind that as a real estate investor vs stock investor, you are still simply “investing” $35,000. If I take $35K and invest in real estate vs the market, then you can easily make double digit returns in real estate. I personally have invested in rent to own investments and some syndicated mortgages where the returns are always double digit. I asked my financial adviser if he could match my returns … and unfortunately he could not. That’s why real estate beats the market 10/10! Keep up the good work, love the article!


  26. What about property taxes and maintenance???? For 10 years it is at least 100 K.


  27. One factor in favor of rental housing is that it will not be forfeited (in theory) during a raid on accounts during a bank bail in.
    If this happens, I doubt they would come after housing. Of course you are in Canada and it may be safer there.
    Here in America, we are on thin ice and will more than likely end up suffering some type of hair cut / confiscation of assets.


  28. Really quickly, you cannot compare apples to oranges…A true comparison would require your $350K investment in a home ($315 borrowed, 35K down) to a $350K investment loan ($350K has to be in the market/stocks/funds). The money in the market is what matters, it is called Time Value of Money. Your comparison has $350K asset growing from day one, vs. a $35K asset growing from day one that is not an accurate comparison to determine the performance/value of an investment vehicle. INSTEAD you take a $350K leverage investment (technically 35K less as you have cash for the house) @ 2.5%, over 25 year amortization, monthly cost $1600 as you mentioned (not everyone/ or many would qualify for this…I understand that). And let them both grow at their average rate of return. Historically the TSX averages about 8% year since 1930’s which would leave you with 1.7M in 25 years. The housing market on the other hand has averaged 4% per year (or less) since 1989. As the average house sale price in To. in 1989 is $273K and in 2014 $567K, the approx. annual rate of return/growth rate on that calc. is less than 4%, if you took that same $273K in 1989 and invested it in the market/TSX for that same time period the average rate of return during that period in the market is approx. 6% , you would have just under 1.2M. Keep in mind when comparing investment options, the time frames in which you compare make a huge difference (apples to apples pls.). (As illustrated by the TSX averages in one time frame 8% vs. another 6%) Also there can be cost of owing a home, taxes, and taxes on investment growth etc. However a house does provides a place to live or acquire additional income…i.e. rent. Both are great options. Do your homework and most importantly SAVE YOUR MONEY! …So much for a short response… : )


  29. I gotta bookmark this web site it seems invaluable invaluable


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