Real Estate vs. Mutual Funds

[drlove]

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. (assume you can only pick one, not both). Discuss.

[papasmerf]

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. (assume you can only pick one, not both). Discuss.


Land will always appreciate and never fail you. But the growth is all about location.

[Esco!]

This is a historic moment on TERB.

Drumroll please........

For the first time I actually completely agree with the Smerf.

[lickrolaine]

Land will always appreciate and never fail you. But the growth is all about location.

except in the late 80's and early 90's in Ont.
and when interest hit 20 percent.But other then that all is good

[papasmerf]

except in the late 80's and early 90's in Ont.
and when interest hit 20 percent.But other then that all is good

If you want a short term high yeild you should consider not buying land or bonds. You need to be in it for the long haul.

[FOOTSNIFFER]

A business grows. When you own RE you're 'rent-seeking' and that's great, too but it's cyclical. There are often long periods of time when it goes nowhere; people forget that. Consider buying Exchange Traded Funds (ETFs)...they're like Mutual funds in that they diversify for you but are alot cheaper to hold. If you want a quick and dirty primer that's easy to read re: why stocks rock then get Stephen Foster's "Stop Working Now".

[Berlin]

Real Estate vs. Mutual Funds

In the long run, real estates should be the choice. Please also refer to Papa's first comment.

[Yuri]

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. Discuss.

Whatever is your choice, only advice I would suggest is that you avoid The Chartered Banks as your source for mutual funds. The Canadian Banking system is the biggest rip-off in the world.
If you chose Real Estate and use the Banks for Mortgage Funds, negotiate "Hard" for the best rate, remember they have no loyalty to you so why be loyal to any particular Canadian Bank, negotiate for your Best Rate on a Mortgage.
After spending 16 Yrs in the Banking system, I know how they operate.
Publically, they tell you that you are a valued Client, privately the Branch Banking System is designed to maximize as much Revenue from any given Account/ You are a number on the profit/loss ledger and that is all. If you do not provide a positive revenue stream, you are marginalized. That is a fact.

[xarir]

It depends on the timeframe. Generally though I'd say a good quality mutual fund will outperform real estate in the very long term.

A typical house in Toronto (GTA) in the early 1960s cost about $30,000. Today that same house might be say, $700,000 (if it's located downtown). That's a return of about 7.09% per year. A decent quality mutual fund on the other hand would have returned an average of at least 10% if not more over that same time period.

Now, 46 years is kinda long by normal standards so let's look at something a bit more realistic. Approximately 5 years ago I looked at a condo development in downtown Toronto where a suite would have cost about $280,000. I saw in the paper recently that the same / similar suite sold for $425,000. On the surface that looks good - $145K over 5 years. But it's a return of 8.70%. A decent quality mutual fund should have returned at least that if not more during the same time period.

Perception versus reality is an interesting thing. The ethos that surround real estate is valid because it's a physical asset and in general, real estate values do tend to increase over any time period. Mutual funds on the other hand fluctuate up & down on a daily basis. This fluctuation along with media stories of companies going wildly bankrupt or wildly wealthy in very short time periods lend credence to the perception that mutual funds are less solid than something like real estate. The thing to keep in mind is that a good quality mutual fund will generally average upwards over time and that it will do so at a greater rate than your average real estate investment.

[xarir]

One other thing that's often overlooked - taxes. Real estate can sometimes benefit from a capital gains exemption but investment properties generally don't fall under this category. Mutual funds on the other hand can offer certain tax advantages depending on the nature of the fund itself.

[Esco!]

Mutual funds on the other hand fluctuate up & down on a daily basis. This fluctuation along with media stories of companies going wildly bankrupt or wildly wealthy in very short time periods lend credence to the perception that mutual funds are less solid than something like real estate. The thing to keep in mind is that a good quality mutual fund will generally average upwards over time and that it will do so at a greater rate than your average real estate investment.
OMG........so which Mutual of Omaha location do you work at Xarir?? :rolleyes:

I'll keep my money in Real Estate, thank you very much.

But Xarir, if I need a Mutual Fund salesman, I'll be sure to PM you, cool???




BTW..........all I wanna add is that real estate is a fixed asset, something you
can literally hold in your hand.

This clown with his mutual assets is not something like that, if anything its a very liquid asset!!

[goodtime]

Consider buying Exchange Traded Funds (ETFs)...they're like Mutual funds in that they diversify for you but are alot cheaper to hold. If you want a quick and dirty primer that's easy to read re: why stocks rock then get Stephen Foster's "Stop Working Now".
http://www.chebucto.ns.ca/~rakerman/money/gm-The_ABCs_of_ETFs.html
www.iunits.com

As other mentioned, it depends how long you intend to invest. For real estate whether it's your primary residence or rental. Like those commericals, how much risks your willing to assume...

Disclaimer: I'm no Tom Vu with bikini girls on a Florida speedboat selling Power of sale real estate and no investment advisor. Past returns do not reflect future performance...etc. etc...

[Esco!]

I am just pissing myself laughing: XARIR and his magical 46 year Mutual Fund yielding 10% per year compounding with special tax advantages. Wow, what a whopper. Who sells this amazing fund; the pixies or the elves?

The crazy thing for me is people constantly buy into this rancid BS. I can't tell how many people think their Mutual Funds will "eventually deliver 10% rates "over the long haul" Lies, Lies and more Lies.

The Mutual Funds industry works from the same propaganda book as Goebbels and Karl Rove: if you tell a huge lie loud enough, repeat it often enough, beat down the people pointing out the truth effectively enough, in the end your huge lie will become accepted fact.

The truth is that the vast magority (I am talking over 85% here) of mutual funds with all their managers and analysts and computer programs cannot even beat the totally random rate of return of the total stock market index year in and year out. Yes, they can't even achieve a better rate of return than sheer random occurences over the coarse of the stock market's year.

The only people who make serious money in the Mutual Fund business are the people or banks who operate the mutual funds.

The story of Real Estate investing is too complicated to address here, there are lots of hidden issues in that field as well but please "most mutual funds will acheive an average of 10% returns over the long term" sir, hang your head in shame for endorsing the Big Lie.

Excellent post cowboy!!

The truth is that the vast majority of wealthy people have made their money in real estate.
Thats a fact!!

[justajohn]

The truth is that the vast majority of wealthy people have made their money in real estate.
Thats a fact!!

And if it wasn't in real estate...it was selling mutual funds

Anyone selling you an investment promising you over a 7% return is talking through their hat. But as Goodtime pointed out, how much risk are you willing to take. Are your investments done to preserve capital and see a steady return or are you willing to take risk. If you are willing to take risk, how much knowledge do you have about what ever it is you want to invest in.

[Esco!]

And if it wasn't in real estate...it was selling mutual funds

LMAO.........:D



Anyone selling you an investment promising you over a 7% return is talking through their hat
One of the best and shrewdest stock market speculator I've ever known once sat down when he retired and added up all his gains and losses over a 40 year period.
He concluded that even though he had some of the best inside information (some of it legal, some of it not), that over that 40 year period his net profit added up to about 10% annually.
And thats with the absolute best inside information!!

[drlove]

For what it's worth, my investments have done extremely well, most notably energy and recovery. I happen to think my advisor is doing a great job.

[Berlin]

that over that 40 year period his net profit added up to about 10% annually.


10% from stocks, that's rather good over the course of that time frame, and he's one of the the lucky bunch.

[21pro]

might I be the only one that talks real numbers? idunno, but that's what investments come down to...

my stock market portfolio has averaged about 39% per year since 2001, 10-year has always been an annual average of around 25%.... my 2005 returns were 24.3%...

a 10-year average return of 25% per year doubles itself every 2.9 years.

my real estate portfolio averages about 7% per year, but i've only been in real estate since 2000... i'm yet to get better at it and i don't see the returns that i've seen in '00,'01,'02,'03,and '04... in fact even in the hottest markets, RE prices in Ontario haven't done better than 6% in any city across ontario. RE investment experts are still expecting high returns but, builders are expecting prices to stagnate... but, then again what's high in RE... anything above 4% is considered high...

needless to say, i'm downsizing RE holdings now and am considering renting instead of ownership.

believe it or not, you can rent a $700,000 home in King or Caledon township on 2.9 acres for less than $2000/ month.

to buy that home with 25% down that would be an initial downpayment of $183,000 including all closing costs. the monthly mortgage payment if done over 25 years would be at 5.75% or about $3,817 including your property taxes (about $5,800 per year)

you can rent the same property for $2000... that's a monthly cash-flow savings of about $1,817.

now take that $1,817/month + the $183,000 and invest it in any of these top 10-year performing mutual funds on morningstar.com... just make sure it isn't overbalanced in energy stocks... or better, look to see that it's one that re-balances its focus every 5 years... typical bull markets last 5-8years... there are alot of mutual funds out there that perform 20% to 30% per year on average and are tax efficient...(look at the 10 year returns) and require $150,000 as an initial minumum investment. If you only make an average of 15% per year off of the mutual fund, that portfolio will swell large enough that you can purchase that same house for CASH in less than 8 years. something that otherwise with the exact same amount of cash flow needs would have taken 25 years to pay for on its own... but also, let's not forget that as the tenant, you are not responsible for any upkeep and maintenance for that property during that duration. landscaping and wear and tear on faucets, roofing, garage door opener, etc.. alone would add a few $1000 dollars of costs to the owner (ie, RE investor) as well in that same 8 years.

you see, much better than RE alone... but, really there are no limits to the amount of returns you can achieve.

some business owners laugh at my 25% annual average as they can get 300% annual returns through investing in their own business... so, therefore, to each, their own!

cheers!

[Berlin]

I am indeed very happy for you to have great returns on your stocks portfo, first of all. Good for you, I say.



my real estate portfolio averages about 7% per year, but i've only been in real estate since 2000... i'm yet to get better at it and i don't see the returns that i've seen in '00,'01,'02,'03,and '04... in fact even in the hottest markets,

RE prices in Ontario haven't done better than 6% in any city across ontario.


What exactly do you consider as a real estate investment ? none better than 6 % ... are you talking about rental income from properties ?

[Dead2Parrot]

Property! Let me say that again so there's no confusion: Screw mutual funds, buy property!

[Big Sleazy]

Normally I would say land but with property value assessment. Any gain is going to be harshly punished by our good friends at Queen's Park.

BS

[21pro]

Therefore 21PRO = Bill Gates, world's richest human

thank-you, but, nope. i started with $500 back in 1994.


One other question for 21PRO/Bill. If a 3 bedroom townhouse in Richmond Hill is renting for $1500.00 per month how exactly is a $700,000.00 Estate Home on 2.9 acres in King City renting for $1850.00 per month?

http://www.crworks.com/partner/properties/newfeaturen2.asp?targetprop=184689&id_Person=41717
this house was available last fall for $2000/mth... appraised at $749,000. not 2.9 acres, but 3/4 acres in luxurious Caledon East and next door property sold for over $1million.




21PRO, congratulations, by your own admission you are the greatest investment mind of the 20th century.

You must also be the worlds luckiest man as well as the smartest. Mind you, there is one other possibility.

hardly do you need to be lucky or smart... i just pick my own stocks and eliminate commissions as much as possible. 1) i don't trade.. average holding periods about 3-4 years... sometimes much longer... 2) i buy alot of stocks that allow for DRIPs or commission free purchases... 3) i never pay more than $10 for a stock, among about 25 other rules i follow.

PS.. Warren Buffett has been in the stock market for much of his life, over 50 years. There are many better investors in the shorter terms. and there is alot of evidence showing that private individual investors do alot better than the big-wigs...

[21pro]

What exactly do you consider as a real estate investment ? none better than 6 % ... are you talking about rental income from properties ?

no. i said properties appreciating at 6%.

my RE returns are a bit higher because of leverage and income generated from rentals and development.

[Esco!]

Thats all fine and dandy but I stand by what I said earlier, the vast majority of wealthy people have made it in Real Estate.

Thats not a stat I'm pullling out of my hat, thats a fact!!!!

[Berlin]

no. i said properties appreciating at 6%.



Let's look at the window from 2000 to present. I really don't know where in Ontario and what you have invested regarding RE. Don't take my words for it, have some of your RE people check out the prices of , say , a detached 2 story , in the area N of Eglinton and Keele. Appreciation is a few times more than 6 %, per annum.

[21pro]

sure... that's what they say...

and i wasn't talking 2000 to present... i did very well then.. but 6% going forward will be difficult. and nowhere near what stocks averaged over the last 80 years...

but i dare ya to compare sales records of this year to last over a broad market... 6% is hard to find without sinking in renovation improvement costs...

[Berlin]

sure... that's what they say......

... read my post again . the last 2 sentences.


and i wasn't talking 2000 to present... i did very well then.


I used the 2000 to present window because of your quote below, the part in bold



my real estate portfolio averages about 7% per year, but i've only been in real estate since 2000... i'm yet to get better at it and i don't see the returns that i've seen in '00,'01,'02,'03,and '04...

in fact even in the hottest markets, RE prices in Ontario haven't done better than 6% in any city across ontario.

RE investment experts are still expecting high returns but, builders are expecting prices to stagnate... but, then again what's high in RE... anything above 4% is considered high...

I am not here to diss your numbers and claims in general . But you could have done better with your RE investment since 2000, especially if you have bought properties in 1999 or 2000. Not just 7 %.

[Misanthrope]

Thats all fine and dandy but I stand by what I said earlier, the vast majority of wealthy people have made it in Real Estate.

Thats not a stat I'm pullling out of my hat, thats a fact!!!!

Then you should have no trouble providing a citation. I doubt it.

[21pro]

The truth is that the vast majority of wealthy people have made their money in real estate.
Thats a fact!!
not true.

no stats to prove this. only Rich Dad/Poor Dad would make such a false claim.

it would be true that the vast majority of wealthy people hold their net worth in real estate, but have made it elsewhere.

Business ownership is by far the greatest creator of wealth.

[21pro]

I am not here to diss your numbers and claims in general . But you could have done better with your RE investment since 2000, especially if you have bought properties in 1999 or 2000. Not just 7 %.

i agree. i was an amateur, newbie, if you will, in 2000 when i bought my 1st property. in fact i made alot of mistakes in the short period investing in RE and still made money... however, RE doesn't compete with stocks on an ownership vs. ownership performance level. and just as you can pick bad stocks, you can pick bad RE deals also...

[xarir]

... but please "most mutual funds will acheive an average of 10% returns over the long term" sir, hang your head in shame for endorsing the Big Lie.

Perhaps you should read my post before posting your comments. I actually said "good quality mutual funds" and never made reference to any old mutual fund. I suggest you quote more carefully before letting your accusations fly.

For the record, I agree that the majority of funds will not outperform the index. Some funds however will. These good quality funds are the ones people should focus on, if they so choose to invest via funds.

The comments in this thread show that people should try to seek professional advice when making investment decisions. Listening to sensational claims that are not backed by fact is a sure-fire way of not maximizing your potential return, and in the worst-case of losing everything. I'm not saying to mindlessly follow whatever is recommended to you - you have to maintain your own sensibilities. But just as you wouldn't go to your non-medical buddy to have an operation done, you shouldn't go to your non-investment-professional buddy to seek investment advice.

[thats all]

21PRO, thanks for posting your comments/experiences. Great read. ;)

[Esco!]

Then you should have no trouble providing a citation. I doubt it.
Indeed I can, here's a San Francisco Chronicle article.

I quote:

Lereah makes his case for why the real estate market will remain the best way for the majority of Americans to build wealth.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/03/12/REGHHHM7N11.DTL&hw=lereah&sn=001&sc=1000

I agree that many people get rich from business enterprises but you neglect to calculate a person's capital gain on house appreciation and Real estate transfers (from parents to children when they die).

Add that into the equation and real estate is by far Numero Uno

[21pro]

Lereah's article is a poor one at best. incredibly biased and doesn't contain the real returns on RE as an investment... no talk about how expensive a house can be over the long term... in fact, he doesn't compare it to any other type of investment.

and he is meaning owning a house as principle residence as the only means of an investment... that perhaps is the most overpriced and worst performing sector in RE...


The only way to build wealth, for 80 percent of Americans, is real estate.

no basis for this stat. and it is wrong, wrong, wrong...

[Paladin]

If you look at the gains experienced by some mutual funds within the past 12 months, there is more potential for large gains by investing in mutual funds. For example, the precious metal mutual fuds offered by Canadian institutions have gained between 46 and 100% in the past 12 months. The one month gains have been between 11 and 21%. I have not seen any real estate investments in the GTA that have increased in value that much in a year.

[Esco!]

21pro, I'm not gonna argue with you, you go with your mutual funds and I'll stick to my real estate ;)

[21pro]

i'm just speaking on behalf of personal experience in both markets... maybe i'm just better at the stock market, idunno... but, i do like the fact that i don't have to unplug any toilets for my shares in franklin-covey or air france...

what kind of RE do you partake in Esco!?

[Fortunato]

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. (assume you can only pick one, not both). Discuss.

That's kind of a silly question... it's like asking what is better, government bonds or joint accounts (which may or may not include government bonds)?

Real estate is an asset class (just like equities, bonds, etc.) and has fairly distinct risk and return characteristics. Each asset class has it's place in a properly diversified portfolio, based on investor risk profile and preferences. Small real estate portfolios will suffer, however, because of the size of investment typically required, investors will likely be subject to a multitude of unique risks (things ranging from illiquidity, to the risk of having bike gangs moving in next door, etc.) that larger portfolios can reduce through diversification (i.e. holding a variety of properties with different characteristics).

Mutual funds, on the other hand, are a mechanism of investing collectively in one or many of those asset classes, and can include just about anything in the investment world as their underlying assets (including real estate). I personally don't much care for them (I find their fees way too high for the supposed "value" they deliver, especially in Canada), and would suggest that if you can afford to properly diversify your investments without them, you're better off. If you simply don't have the capital to do that, you can use mutual funds (including REITs), but be VIGILANT with your research - especially in the areas of cost - and keep an open mind to new products that can deliver much of the same things with lower fees (e.g. exchange traded funds).


Best regards,

F.

[Esco!]

what kind of RE do you partake in Esco!?
I have some investments in duplex apartments and small strip plazas.

[goodtime]

Thats all fine and dandy but I stand by what I said earlier, the vast majority of wealthy people have made it in Real Estate.

Thats not a stat I'm pullling out of my hat, thats a fact!!!!
Actually, neither.

At least American wealthiest, most accumlate their wealth thru hardwork.
Summary, http://www.harrisongroupinc.com/index.php?q=node/30
Another perspective, http://www.harrisongroupinc.com/index.php?q=node/32&PHPSESSID=4168473561a0582645d78af479f75aca
Detail profile, http://www.harrisongroupinc.com/index.php?q=node/44

[21pro]

another statistically flawed and biased article... thanks for that.

in fact the very 1st paragraph is a lie... the real truth, 6 of the 10 wealthiest Americans inherited their wealth.

[21pro]

I have some investments in duplex apartments and small strip plazas.

these are the exact kind of investments i am currently selling off... they don't make enough money to be worthwhile for me.

and you know what's funny? i am a realtor... go figure.

[Berlin]

FLMAO ...some interesting ,and some amazingly revealing posts in here indeed.

Fellas, all the best with your investment , on either end of the discussed spectrum.

[21pro]

However, you can typically leverage a real estate investment anywhere from 75% to 95% thus dramatically increasingly your return on equity.

Minor oversight that you've conveniently omitted.

you can do that with stocks too.

BTW - the only push/pull factor affecting or prolonging the real estate boom is interest rates... they will rise as energy prices rise and that's bad for RE investors, unless you choose to invest in Calgary or Edmonton...

[james t kirk]

1. You can't live in a mutual fund.

2. You can buy a house and still buy stocks too (with all that extra cash :rolleyes: )

Buy Uranium stocks...

[lickrolaine]

Wrong by a long shot. The vast majority of wealthy people made their money through extradinarily hard work, brilliant execution of fundamentally sound business strategies and buckets of good, dumb, stupid, luck. Even those who acquired fortunes through real estate investment did so by actively manipulating certain variables in order to arbitrage the risk/return paradigm. Passive real estate (such as the kind that appears to be promoted in this forum) is typically just a money pit. As with anything in life, the return is commensurate with the risk and the effort and never discount the influence of sheer good fortune.

this is very true,most people are confusing the family brick and mortar with an investment,it is nothing more then a place to live,and you try to minimize the amount you pay through various decisions.IE,size of mortgage,size of house,location,and then there is the possibility that renting is cheaper.But that is a whole other topic.The question here is what is a better vehicle for most money returned.A lot of real estate guroos have won,and lost,depends where they are in the cycle.Bill Player won,then he lost,remember greymac.Reichmans won,lost and maybe at a draw now.Cadilac Fairview won,lost and are gone now.The Donald has won and lost more than anyone,but manages to survive.Remember that net worth can be measured in different ways,depends on who does it.Warren Buffett has won,but because he is conservative he will always be second,Bill Gates wins,hard work and relentless business practises.As has been said before,your portfolio must consist of Luck,the more you have,the more you have,plus you need money,money makes money period.Falling into a pile of shit and coming out smelling like a rose is important,a very good trait.
Most people that win big lotteries end up with nothing,why,because sometimes that is just the way it is.Remember,life is short,and getting shorter all the time.Arnold Swarzenegger once said he would trade all his wealth just so his baby girl could have a healthy heart.Wealth has no value without health,so in fact a healthy person is one of the wealthiest people you can find.

[Esco!]

this is very true,most people are confusing the family brick and mortar with an investment,it is nothing more then a place to live,and you try to minimize the amount you pay through various decisions
Wrong, it is both!!
It's a place to live and its an investment

[FOOTSNIFFER]

not true.

no stats to prove this. only Rich Dad/Poor Dad would make such a false claim.

it would be true that the vast majority of wealthy people hold their net worth in real estate, but have made it elsewhere.

Business ownership is by far the greatest creator of wealth.

....RE prices track median income gains because real people have to actually inhabit property if it's to provide a return to its owners. So the real increase in RE prices can't much deviate from the combination of the pop. increase and the growth in real incomes in any locale. But RE prices often anticipate future growth during booms and then must underperform other asset classes to allow for people's real incomes to 'catch up' to the estwhile boom.

Business has fewer constraints on its growth. Dell was hardly a company twenty years ago but is now in the S&P 500; you can't do that with RE

[toronto04]

I'm an appraiser and I guarantee you RE prices have risen quite a bit more than 6-7% per year since 2000 in many parts of the GTA even without renos. Ontario also makes an excellent point regarding leverage not to mention tax benefits. But then no investment vehicle is risk free and guarantees returns excpet US Treasuries perhaps. I stick mostly to individual stocks like 21Pro and would never go with mutual funds. ETFs like spiders or triple Qs yes, mutual funds no. But then I'm willing to spend quite a bit of time doing "homework" and am fairly risk tolerant. If not, I would probably just buy some no load funds and forget about it.

[lickrolaine]

Wrong, it is both!!
It's a place to live and its an investment

most people end up with more, or at best the same, invested in their home then the sale value of their home,in the form of interest,maintenance,taxes and monthly bills.So if you call braking even a good investment,ok.The comfort of your own home is not a cheap luxury.It used to be,but not anymore.A newly wed couple has to pay what to live in Toronto or GTA.Coupled with all their combined debt,commuter costs,and they will be in debt a long time.That is why they need another source of investments.Not one that takes thousands and thousands of dollars to just maintain.Yes a house is good,but it takes a lifetime to create any equity,and that equity comes with a huge debt load.
oh yea,throw in one divorce and the hill becomes a mountain.

[21pro]

1st off, lickrolaine, your post makes sense that others should be mentioning themselves as they proclaim to be RE investors... read my earlier page 3 reply about how you can take the difference between expenses going into RE and split it between your rent and put the rest into stocks instead of buying a house... in 8 years you can buy your dream house for cash by only putting out the same downpayment, costs and cash flow requirements the mortgage on that house would require you to pay for 25 years... you'd be able to by it with cold hard cash and no mortgage in only 8 years...


I'm an appraiser and I guarantee you RE prices have risen quite a bit more than 6-7% per year since 2000 in many parts of the GTA even without renos..

yes, that's since 2000... i bought and later sold 2 houses in maple that appreciated about 17% per year between 2001 and 2003 after sales and all costs accounted for... but, we are forward looking. prices are soft in alot of areas since the hike in interest rates, expected closing time is longer now, and the days of multiple offers are starting to dry up...

and besides, this is the question we are trying to answer...

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. (assume you can only pick one, not both). Discuss.

if anyone is searching for highest returns with lowest possible risk I don't think they should even consider touching real estate unless they know the market so well that they can guarantee themselves at least 25% per year ROI with all costs included...(no one in this thread was able to provide that)... it is simply not worth touching real estate unless you fully understand the risks involved. i give this advise even as a licensed realtor...

that same 25% is easily achieved through a carefully selected basket of stocks that you only have to mind looking into about 1 hour per month and expect each stock to appreciate in anywhere from 1 to 6 years... and, also it can be done easily without leveraging debt. ... or you can leverage debt and get annual returns of 300 to 900% if you can sleep at night with that kind of risk... personally, i can't.

[toronto04]

21Pro,

Like I said, I stick to individual stocks myself. I agree that things are slowing down in the RE market. But let's not make it sound like getting 25% returns invesing in equities is easy as in 1 hr per month of research. I am not disagreeing with you in the virtues of investing in equities but I must be retarded since I can't achieve that kind of returns even with much more than 1 hr per month of research.

[goodtime]

Remember,life is short,and getting shorter all the time.Arnold Swarzenegger once said he would trade all his wealth just so his baby girl could have a healthy heart.Wealth has no value without health,so in fact a healthy person is one of the wealthiest people you can find.
So true.

[goodtime]

another statistically flawed and biased article... thanks for that.

in fact the very 1st paragraph is a lie... the real truth, 6 of the 10 wealthiest Americans inherited their wealth.
Guessing you won't be buying this study?

http://www.harrisongroupinc.com/wealthmethodology



CNBC show HNW, high net-worth had on the family heir of Carnation, like others who inherited wealth don't know how to retain it.
http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P147046.asp
http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/24/353786/index.htm
The old saying of 4th generation will wasted it away is so true. Know few still can't live that down. :(

[Esco!]

Guessing you won't be buying this study?

http://www.harrisongroupinc.com/wealthmethodology



CNBC show HNW, high net-worth had on the family heir of Carnation, like others who inherited wealth don't know how to retain it.
http://moneycentral.msn.com/content/Retirementandwills/Planyourestate/P147046.asp
http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/24/353786/index.htm
The old saying of 4th generation will wasted it away is so true. Know few still can't live that down.
Well if the Harrison Group says so then it must be true :rolleyes:

I've never even heard of this group

[goodtime]

See Tor Star Apr 8, 2006 article titled Buying real estate on a long-term plan,
for interest-only mortages free up capital.

[wonkyknee]

most people will agree that if you can afford to own the house you live in, it is better than renting. When you rent, even if it is cheaper then you have to do something with the difference(invest)...this is hardly arguable.


the second thing that is hardly arguable...in fact it is black and white:

stock markets out perform real estate...bottom line.

Where the confusion is here: mutual funds or real estate?

1. mutual fund could be real estate, could be gold, could be canadian stocks, could be technology etc etc. Mutual fund is just a vehicle for holding investments of any kind.

2. individual real estate purchases usually come hand in hand with leverage(mortgage), so to be fair the only true comparison is a leveraged investement in an index....the most suitable for this example would be the Toronto index TSE/S&P.....the comparison between a leveraged investment in these two over almost any 10-15 year period would be ,hands down, STOCK INDEX.


HOWEVER:

Real Estate investments tend to enjoy certain psychological advantages where they are:

*set up with rental income(hopefully)
*they are not evaluated daily
*you can physcially see your investment and show it off to friends etc
*you feel you have more control over the outcome
*you tend to not look at 100% of the costs involved

100% of the costs includes:
taxes
hydro
loss rent due to vacancies
legal
accounting
renovations(including cash deals that don't show up on the books)

Lastly your own time!!!


Many people who have held real estate for long periods of time only look at purchase price and selling price....never the expenses....and they rarely even calculate the compounded annual return.

"...bought our house in 1970 for $20 000 and sold it this year for $300 000 !!!!!!!".....wow......8% not including a single expense and that was leverage by a mortgage for the first some odd years probably....average is probably 6%!!! Pick one of the few funds that was around since then: Templeton Growth Fund...most FA's don't sell this fund cause they think it has been sucking for the last 10 years:...its averaged 13%...no leverage no expense.

[Fortunato]

While I agree with a lot of what you said, some corrections are in order....


stock markets out perform real estate...bottom line.

No, they don't. Real estate does have issues, but nearly any long term study you can quote will find that real estate investing (diversified portfolios, unleveraged) has (1) slightly higher returns, in the 11 - 13% range, whereas the equities have been in the 10 - 12% range, and (2) DRASTICALLY lower standard deviation of returns. That means to say, the DATA suggests higher expected returns, with lower risk...

If you think that more current statistics vary, I have yet to see that as well. Data for diversified real estate returns is hard to come by (most use REIT indices as a proxy, which is not perfect), and the Journal of Financial Planning (http://www.fpanet.org/journal/articles/2004_Issues/jfp0704-art8.cfm) quotes REITs outperformed the SP500 between 1972 and 1997 (14% vs. 13.3% respectively), while a more recent comparison of 1978 through 2005 (http://www.tamasset.com/pdf/AC2705.pdf) has REITs outperforming the SP500 as well (15.7% vs. 14.2%).

If you can find anything to the contrary, I'd be happy to see it... but all the data I've seen suggests that equity returns do NOT outperform real estate.


2. individual real estate purchases usually come hand in hand with leverage(mortgage), so to be fair the only true comparison is a leveraged investement in an index....the most suitable for this example would be the Toronto index TSE/S&P.....the comparison between a leveraged investment in these two over almost any 10-15 year period would be ,hands down, STOCK INDEX.

The only "leverage figures" I have seen in this discussion are from the fellow who thinks one can "easily" get 300 - 900% with it... or 25% without.


Real Estate investments tend to enjoy certain psychological advantages where they are:

*set up with rental income(hopefully)
*they are not evaluated daily
*you can physcially see your investment and show it off to friends etc
*you feel you have more control over the outcome
*you tend to not look at 100% of the costs involved

100% of the costs includes:
taxes
hydro
loss rent due to vacancies
legal
accounting
renovations(including cash deals that don't show up on the books)

Lastly your own time!!!


Many people who have held real estate for long periods of time only look at purchase price and selling price....never the expenses....and they rarely even calculate the compounded annual return.

I happen to agree with most of this. That's why all of this anecdotal "proof" (ranging from the Tom Vu sorts one side, vs. the self proclaimed Ivan Boeskys on the other) should be dismissed, and one should look for real data.

Or, more importantly, look for PROFESSIONAL advice.


"...bought our house in 1970 for $20 000 and sold it this year for $300 000 !!!!!!!".....wow......8% not including a single expense and that was leverage by a mortgage for the first some odd years probably....

So? You weren't including the "leverage" in your return calculation. You used the return on the asset (which is proper), not the return on the equity (which would have meant the $20k was actually closer to $5,000)....


Now, don't get me wrong... I'm not "slighting" equities... in order to GET a diversified portfolio of real estate, you need to have a very large amount of capital (even with leverage), making it prohibitive to your average investor. Also, the correlation of real estate to equities (-.26 to the SP500, according to Bodie, Kane and Marcus) would suggest prudent investors have BOTH. But your "bottom line" is inconsistent with any data or study that I've seen.

Best regards,

F.

[Esco!]

100% of the costs includes:
renovations(including cash deals that don't show up on the books)

But you forget to mention that if I do renovations on my duplex apartments I can, under current rent control legislation, increase my rent a certain percentage.
This means extra revenue over the long run.

[lickrolaine]

But you forget to mention that if I do renovations on my duplex apartments I can, under current rent control legislation, increase my rent a certain percentage.
This means extra revenue over the long run.


as long as you depreciate the value through capital costs and make the proper adjustments when you sell.This only works if you have a mortgage that is more then your income.Not sure how all this works,but it can get complicated.

[21pro]

and raising the rents can lead to increased vacancies...

[Dave in Phoenix]

I am just pissing myself laughing: XARIR and his magical 46 year Mutual Fund yielding 10% per year compounding with special tax advantages. Wow, what a whopper. Who sells this amazing fund; the pixies or the elves?


Hmmm.

In my real business life I come from a CPA firm background (taxes specialty for decades) and for 20 years A CFP, Registered Investment Advisor in the U.S., been a Real Estate Broker, and am interested in facts not hype). My business website is www.davecfp.com.

A couple points:

Over the long-term you could toss your dart at a dart board in the U.S. market (Candian quite similar but my expertise is the U.S.) and get a 10% return, or just invest in a low cost index fund like Vanguard.

Smaller caps historically have outperformed the large caps of the S&P500.

Real Estate can also be a good investment but it is not liquid and you have selling and buying expenses you can't ignore. Rental Real Estate can be a time consuming hassle and risk of not having it rented. Your home is not really an investment since you have to live somewhere. Unless you downside you don't realize the increasing value unless you refinance to pull funds out and have higher mortgage.

It is not a mutual fund vs real estate issue. Both have a place in diversified investment portfolios and I especially like some private REITS from sponsors with long histories of never an investor loss including the crash of the 80s in the U.S. On the other hand I am quoted in Barrons long ago about my attacks on the deceptions of many real estate syndications of the 80s.

In mutual funds for 20 years I have reserached and recommended funds based in part on Risk/Reward analysis. Look at stable management with long record of "excess return" (in Modern portfolio theory - "Alpha") for the risk taken (Beta).

I have "benchmarks" in a wide range of categories that in my view have the best opportunity.

Our goal which has been consistently achieved is to double the S&P500 index return in client portfolios.

Also downside risk is far more important than big good market returns. If you lose 20% you then need a 25% gain just to break even. This is why for retirement planning you can't just assume a say 4% safe withdrawl rate because if you are hit my large market losses your "safe" 4% annual withdrawl assumption could leave you wiped out a lot sooner than expected even with a 10% "average" market return if the timing of the losses and gains is not in your favor.

I am just sharing ideas and experinces not any sales pitch since I can not work with Canadians only U.S. Citizens.

A lot in this thread is half truths and an either RE or mutual fund mentality, when both have a place in various forms in a diversified investment portfolio, depending on individual investment objectives, risk tolerance, liquidity needs and personal bias.

The response should not be construed in any direct or indirect manner as a solicitation for advisory business or securities business and is posted in Canada for Canadians as informational only, where I have no licenses to practice. This is therefore not sales literature or correspondence under NASD regulations and therefore does not require usual disclosures required for sales literature or correspondence.

[Dave in Phoenix]

I can easily agree with ESCO that an individual working within the securites industry getting inside info and buying and selling from his own account can make serious money.

And probably go to jail. Isn't inside information illegal to trade on in Canada like it is in the U.S. ??

If your talking about brokerage firm reserach to hype the firms they are working for or need to blow out of their own inventory and is the sales pitch on the "squawk box" they here first thing in the morning on today's hot sales idea.... that is not inside info but brokerage hype. I assume in Canada just like in the U.S.

[Dave in Phoenix]

However, you can typically leverage a real estate investment anywhere from 75% to 95% thus dramatically increasingly your return on equity.


Tell this to real estate investors in the U.S. in the 1980s who had huge losses.

Leverage only works if
1) Your RE keeps going up in value.

2) If you have positive leverage i.e. the cap rate from the property is in excess of the debt service.

Today you can benefit from positive leverage especially the multi-million dollar big boys who get the lowest fixed interest rates of today, far less than what an individual can get for an interest rare.

[Esco!]

Isn't inside information illegal to trade on in Canada like it is in the U.S. ??

Yes it is and just like in your country it happens everyday, day in day out.

[Dave in Phoenix]

Yes it is and just like in your country it happens everyday, day in day out.

Actually true insider trading I think is rare. You go to jail i.e. Martha Sturart who simply acted innocently not knowing it was inside info from her broker.

I think the sales hype situation is much more common.

Every investor client in the U.S. has to complete under NASD regs an informational statement which specifically asks if you are a 10% or more shareholder or officer director in any public company. This relates to insider trading rules. If a broker-dealer was caught allowing insider trading or a customer did these are very serious violations in the U.S.

I realize you may thinks everyone is a crook, but true insider information is taken very seriously in the U.S.

As an NASD Registered Principle who operaties an OSJ (office of supervisory jurisdiction) I assure you I would take any indications of insider trading extremely seriously. A rep that allowed that would be immediately terminated and NASD actions would probably prevent him from ever being security licensed again in addition to criminal investigations that could result in jail time for SEC insider criminal violations.

I don't think its as common as you think at least in the U.S.

[mmouse]

The returns on real estate depend heavily on the investors knowledge - the kind of social networking and local knowledge you cannot read on the internet or publications, unlike mutual funds. Person A who just stepped off the boat in Toronto has a much better chance of a better return from mutual funds, unlike person B who has lived here all their life and has a good network of friends actively involved in RE investing.

For example, I am sure strip malls could produce a fine return, probably much better than many mutual funds. However personally I have how to go about buying a strip mall and I couldn't afford a whole one anyway. On the other hand I can read the Globe & Mail every day, choose a fund, call the bank and buy it - easy.

[goodtime]

Actually true insider trading I think is rare. You go to jail i.e. Martha Sturart who simply acted innocently not knowing it was inside info from her broker.

I think the sales hype situation is much more common.
True, they use dancers instead. :D

Insider trade happens, whether U.S. or Canada, Nortel & ATI comes to mind. Hopefully it's rare instead of the norm.

Good points Dave. I done both. Both are good investments depend on ones' tolerance for risk, market cycle, & your time commitement.

[Dave in Phoenix]

Absolutely no one I have ever met has proved to me that they have averaged 25% return on equities over 10 years or even 6 years, not one not ever has been able to back up the boast with actual hard verifiable evidence.

On the other hand I can introduce you to a huge number of people who's 6-Year return on their Mutual Fund portfolio is 3% or 5% which is just fine but ain't going to make anyone rich.

I agree on both points.

And no investment professional should dream of trying to project any particular return since they are just too variable and 20%+ is totally off the wall. But the 10% over last 50 years is a correct historical statement but results vary greatly in different time periods. But past performance can never assure future results.

The last 3-6 year data returns can dramatically change depending on when your ending date is. In the U.S. market we had huge losses from 2000 until October 2002. Fortunately our approach resulted in far less loss than the market averages. So what time periods in or out of that cycle make a huge difference. In Canada you of course have had a huge run up laterly in the energy sector so over short time periods you have have large gains.

But what if you have a downturn like a few years ago in the U.S. ?

Suppose you invested $100,000 in the S&P500 Index* on March 24th 2000 just before the most recent bear market decline. As of October 9th 2002, the bottom of the market decline the S&P500 Index had gone down about 49%. The value of your S&P500 investment would be only about $51,000. To fully recover from your 49% loss, you'd need to gain 96.08% versus the 49% you were down. Let's look at the numbers.

$51,000 x .9608 = $49,000 + $51,000 = $100,000 beak even.
The “average” return of a 49% loss followed by a 96% gain is 23.5%.
But your actual return is 0%

While the S&P500 “only” lost 49% the Nasdaq 100 lost 83%!

[21pro]

Dave, I agree with alot of what you are saying and perhaps i can't articulate some things as well as you... and for others, that's ok to have your own opinion... i have averaged 25% per year for the last 10 years (without ever using leverage)... i am not an investment professional and i think that gives me certain advantages when making decisions...(i don't think i'd make such risky investments if i had the conscience of looking after other people's money... i'd rather just disclose what i do, and if someone wanted to copy my portfolio, then great!)...lol

i've learned that:
1.the main key is to practice patience...
2.it is much harder for a 30,60 or 90 dollar stock to move 20% or more so i focus on stocks priced between 2 and 5 dollars...(i sometimes look at beta, or volatility to make sure it's a stock that can move)
3.i only consider stocks that have been publicly traded with a history of 10 years or greater
4.i look for stocks that have traded at much higher levels in the past and have the potential to trade at those levels again.
5.i swing for the fences on troubled stocks... meaning, i'll hold a portfolio of 25 stocks in different sectors that all have a chance at either going bust or doing a ten-bagger or better... only 2% of these stocks ever really go into receivership, so the chances of me loosing my money 100% are close to nil... and it's never happened- i've lost 100% of a badly picked stock before, but i've also had a 40% overall return that year from my other stocks...
6.i follow a list of CEO's and other managers that are really good at turnarounds... look for them and you'll see where you should put your money... one example is Jos Wintermans and James Shannon... they have helped me with a few companies in the past.. a vitamin company, Sodisco Howden, SkyJack... so when they move, i follow them... they are with Cygnal technologies right now, which i haven't purchased yet as it hasn't hit its bottom yet... but, when it does i'll buy and probably set a selling target at about 5 bucks- the key is i'll wait 10 years for it to occur.
7.i use stock screeners once a month to make a list of 100 stocks across the tsx and NYSE to watch... but, i only make about 3-6 trades per year- this raises my return as my commissions are very low.
8.each stock has its own story to tell. sometimes p/e ratios are important, sometimes debt ratios are more important, i predict what future changes may be and how they will impact the company i am considering... consider after 9.11 i purchased airline stocks... but i waited until 2002 to do so... my logic was that 'given demographics and a global economy, in 5 or 6 years more people will be flying then ever'... sure you can say "hindsight... he's making this shit up!" but, there is more to it, i wanted to pick an airline that wouldn't go bankrupt from as it was and still is a very risky field to invest in... i had another trend in mind and that was the falling of the U.S. dollar... i though i'd look at foreign stocks on the NYSE and see if any were airlines...(buying a foreign company trading on a domestic stock exchange would give you a positive return should your domestic dollar fall as compared to the foreign dollar)...so i looked and like a north star on a clear cold night KLM airlines jumped right out at me. i did my research and found it fit my criteria perfectly... i bought KLM for about 11bucks...it was a deal as it's book value showed it worth $41/share and had positive cash flow of $960million, but it wasn't a perfect picture... KLM had a heavy debtload and debt/equity ratio of 2 to 1 and big losses were expected for 2002 as passenger traffic was falling drastically... so i wasn't ready to buy, but on further investigation, i found out the Dutch government was going to inject $24.7million into the company... some good news. and 9/11 as horrible as it was, would actually be good for the airline industry going forward as it will force airlines to streamline operations more efficiently and new security measures will make flying moreso safe than in the past. so i bought. since then air france merged with klm giving me an unexpected portfolio boost... hey, someone else out their noticed the value! i still own 1000 shares of air france at around $22-$23/share, my $$$ up 166% since i bought KLM in 2002. (i just gave this example as to how i go about picking stocks- it might sound crazy to you, but this method has worked for me... it takes little time and i can do it all on my own) :)
etc...

none of this is a secret... i've come up with most of these ideas from reading investment newsletters and books by david dreman, etc... as evident by how much time i waste on terb, you can see i have alot of time to spare for reading...

i think investing for these slightly better returns is alot like many other things in life such as dieting or penis enlargement for that matter- if you just rely on pills you might get a bit bigger or harder..., but, if you employ an exercise regime for your unit and stay disciplined for 10+ years then going from looking like a cigarette in front of a beachball to some girth and length that resembles the size of 2 coke cans stacked on top of eachother is 100% possible... DISCIPLINE is all it takes.

oh, and i have to admit... i absolutely suck at picking stocks on the short term... i tried those online stock picking contests and i do brutal... probably because i pick troubled stocks where it is hard to know exactly when the turnaround will occur... and my worst ever year was 2000 when everyone else was making money, i lost over 17%...

[goodtime]

Reasonable approach,:rolleyes: sounds a bit like Buffett's. You must admit, stocks requires some luck, timing and opportunity than RE.

I love KLM. But it could've gone the other way. Good call with Dutch gov bail-out, like B.A., the result would devastate their economy. The Air France/KLM deal almost didn't happen with the EU & NYSE anit-trust law, they had top lawyers. A.F. part of Wings with Northwest, while KLM, Skyteam with Delta, overlapping routes & competition.

[Dave in Phoenix]

21pro

Very good - when will your book come out in print :)

Actually what you do is very similar to two mutual funds we recommend basically similar procedure but with large staff to do research, meet heads of potential companies, look at business plan, evaluate results of past business plans of a company etc. Things the individual investor can't do.

Sometimes they can even consult with companies and make suggestions or help in proxy fights if they become a major (5% or more) shareholder via their fund.

I also include these more aggressive options as you suggest as part of a diversifed portolio but again as you suggested I could never recommend just these kind of investments. Although our two benchmarks that do this also held up very well in the 2000-2002 U.S. market decline.

I often say when looking at the most speculative usually smaller companies, spinoffs or restructure situations, as long as you spread your risk to the extent comfortable you can ONLY lose 100% on losers. But as your experience shows the unlimited upside of a few good winners can more than make up for a few losses even of 100% because winners can gain more than 100% and often do.

One of our benchmarks for example as of 4/18/06 per Morningstar is up 18.61% year-to-date and a 3-year trailing ave annual return of 37.77%/year.

Another which does the same with many foreign smaller companies is up 28.03% year-to-date and a 3 year average annual return of 58.05%/year.

Neither of the above examples have any high industry sector concentrations but look for mostly small/mid caps regardless of industry/sector with those big gain potentials as you so well shared your method to try and find.

But as you so correctly pointed out and again from my standpoint I could never recommend just these two funds for a clients portfolio and personally while more aggressive than what I'd be with clients I am more widely diversified since these funds could have large losses if you luck or business conditions go against you.

I think you proved how these kinds of returns are possible but require more work and a bit of luck that most individual investors are not able to do or would have the risk tolerance to do.

But like you their are fund managers that investors can utilize that have long term records of these sort of returns. Yet I would never tell a client to expect anything like these returns long-term.

[Guy7]

In your opinion, what is a better investment - buying property, i.e. land, a house, or channeling your money into mutual funds?? I.e. contributing to an RRSP. (assume you can only pick one, not both). Discuss.

both have benifits, i tried and i am presently happy with Mutual Funds, then my luxurious Pent-House Condo, these days renters are a real pain in your ass.
so no hassele mutual funds are growing on its own, but i bought them through Edward Jones, & have bought a mix of 11 mutual shares, not just putting all the eggs in one basket.

[21pro]

passionate about their interest, objective and SHREWD.
...this probably is their formula for success.

generally- hard work, passion, obsession can all be traits that could lead to wealth beyond anyone's needs... this can happen in almost any field...

from a recent self directed investor conference, i've had the pleasures of meeting:
-a doctor in Calgary makes over $890,000/yr
-a real estate salesperson that grosses commissions of over $540,000/year.
-a commercial slum landlord that has positive cash flow of $43,000/month.
-an Ebayer that sells garage sale items and has amassed a wealth of $3.1 million in 7 years....

one thing in common with all of these people were that they work in fields where 99% of the workforce make less than $80,000/year!

what killed me was that the doctor drove a 1991 Honda CRX... not customized... just a stock rust bucket of a car. his explaination was, 'i don't need anything bigger than this, it's cheap and reliable'..- he's owned the car since he bought it used in 1993... again he reasoned, 'bought it when it lossed most of it's depreciation, but still looked new... i guess it grew on me' is what i remember him saying....

[Ares]

Hey i found a guy in york region who offers all funds on a no commission basis (front or back) and yes I can get Industrial Alliance and Templeton and stuff. He works off the trailers, though only deals with larger accounts, I have averaged 22% for the last 30 months though, as was mentioned, he tells me not to expect that every year, lol. He feels 9-12% on average is doable

[goodtime]

And he can freely move you $$$ at will...:rolleyes: CFP that gives you expected return? hm...

[Ares]

been with him for almost 3 years, so good so far