Stock Market! Real Estate! The Debate Rolls On…

By David Franklin

The Bank of Canada, and most central banks in the developed world, inflates currency by 2% a year. This is something you should keep in mind if you’re going to invertir en bolsa (invest in the stock market) or make other investments. Any long-term investment you make will be affected by this – and naturally they are not successful at keeping it that low, as we have always seen over a long term period. This is good news for residential real estate investors, especially those who use leverage to buy their investments. With only an increase of less than 3%, 2.82% compounded yearly, the value of a piece of real estate will double in 25 years. Incidentally, in the 15 years from September 1998 to August 2013, the Canadian cities tracked by Teranet have increased more than four times in value. Victoria 229%, Vancouver 249%, Calgary, since March 1999, 247%, Edmonton, since March 1999, 279%, Winnipeg 298%, Hamilton 216% Toronto 226%, Ottawa 228%, Montreal 261%, Quebec City 283% and Halifax 220%. See: http://www.housepriceindex.ca/

Let s run a scenario. Assume:

• A down payment of 20% of the purchase price,
• A mortgage for 80%
• Anamortization of 25 years
• No positive cash flow for 25 years from the investment (break-even)

The tenant would have paid off your mortgage.

The return on your down payment is 5 times the amount you invested.

Now add to this that property values should at least double in 25 years, the return on your investment is 10 times your down payment! If the amount invested was $100,000, the value at the end of 25 years, without taking into account any positive cash flow from the rent, would be $1,000,000. Not a bad pension amount.

Compare this to investing in the stock market. If you’ve recently decided to use sites like https://www.aktienkauf.at/online-broker/ to look for and invest in the stock market, and you find that they increase by, say, 7% a year and the small investor has his funds in mutual funds with a management fee (MER) of 2% (and this fee can be higher) the return is 5%. At the end of 25 years the investment has increased to $338,635. Compare this to the $1 million value of the property. The property value increase is over 3 times the mutual fund value.

Ask any financial advisor if they could only guarantee you 5 times your money at the end of 25 years, never mind 10 times, and he or she will tell you this is not doable.

The question for you is whether you want to invest the time to make this type of investment and ensure that when you retire you will have the retirement lifestyle that you want. If you do not have the knowledge to make this type of investment, you may wish to consider joining a group that will expand your knowledge and enable you to capitalize on these returns.