Stocks vs real estate investing

[DGuller]

Land is a finite resource, and with immigration and other kinds of population growth, people are going to need places to live.

Most resources are.  Just because a resource is finite doesn't mean it's guaranteed to go up in price.

[crazy canuck]

Land is a finite resource, and with immigration and other kinds of population growth, people are going to need places to live.

Most resources are.  Just because a resource is finite doesn't mean it's guaranteed to go up in price.

Yep, they havent been making more land - as the saying goes - for some time now.  But prices still fluctuate.

[Barrister]

By the way (and not to pick on Camerus) its posts and talk like this that make me think there's a bubble.

There's an old story, possibly apocryphal, about a trader who got out of the market before the 1929 Crash because he overheard shoe shine boys exchanging stock market tips. (some googling suggests it was attributed to Joseph Kennedy)  But I've heard in real life more than a few people talk about, or actually get involved, in buying residential RE as an investment.

If simply beginning a discussion about the merits of real estate investing vs stocks "makes you think there's a bubble", then that says more about your preconceived notions than anything else.

As for the alleged real estate bubble, it's been going on for my entire adult life.  Land is a finite resource, and with immigration and other kinds of population growth, people are going to need places to live. Yes, the real estate market can go stagnant for periods, but it's not as though the stock market is immune to that particular phenomenon either.

As for framing the question as stocks vs real estate, it's just because I have been investing in stocks and, with my investment capital going forward, I can continue to buy solely stocks or put some towards real estate, hence the either or dichotomy. 

Your "entire adult life" isn't all that long though - at least when compared to the market in housing itself.

You can see, either from the chart I posted, or from any other resource, that while the market goes up over the long term, there is no guarantee it will do so over the short to medium term.  Plus, you need to combine it with the fact we're already at all-time historic highs in RE pricing.  The market could quite easily stagnate, or decline, for the next 15-20 years - there are historic precedents for it.

The prime principle in investing is to diversify.  That's what's great about stocks - you can hold a tiny bit of a whole bunch of different companies.  As a result you can invest in oil, in tech, in services, in lumber, and in housing - all at the same time.

Look, if you have such enormous funds that you can invest in a rental property and not have it more than, say, 25% of your assets, go for it.  But given the enormously high prices of RE already I don't think that would be the case.  If I'm wrong I'm happy for you though.

[Camerus]

Most resources are.  Just because a resource is finite doesn't mean it's guaranteed to go up in price.

True enough.  But

(A) If I wanted guaranteed investments, I'd buy bonds
(B) real estate (at least of the kind I would envision investing in) is not as speculative as many other resources / commodities
(C) I do wonder whether globalization and mass immigration has put additional pressures driving real estate in Canada in ways that have been influencing its value over the past decade and will continue to do so going forward.

However, as the question suggests, I'm definitely not sold on real estate at this point, but am definitely considering it more than I once was.

[Barrister]

True enough.  But

(A) If I wanted guaranteed investments, I'd buy bonds
(B) real estate (at least of the kind I would envision investing in) is not as speculative as many other resources / commodities
(C) I do wonder whether globalization and mass immigration has put additional pressures driving real estate in Canada in ways that have been influencing its value over the past decade and will continue to do so going forward.

However, as the question suggests, I'm definitely not sold on real estate at this point, but am definitely considering it more than I once was.

A) You don't want guaranteed investments - but what you DO want are diversified investments.
B) depends on the prices.  If you've run the numbers and, after accounting for your mortgage and expenses (including upkeep and maintenance) you'll be making a healthy profit/ROI then no it's not speculative - it's a business.  But again, that's not how most people seem to see it.  They figure their renters will just cover their mortgage and they won't make a profit - they can sell for a profit later on.  That's not only speculative, it's leveraged speculation: the fact you're borrowing most of the purchase price can greatly magnify both your gains and your losses.
C) There's something else perhaps driving RE prices over the last decade - record low interest rates.  And that is something that can change fairly quickly over time.

[Camerus]

Re:  (B), if I were to invest in real estate, it would be in a market where the CAP would allow me to generate a modest positive cash flow right away, as my main goal would be monthly cash flow and long term holding of the property.  To find a market with a good CAP, I'd also be open to US real estate investing, but again that would take a lot more research / consideration of whether it would be worth my time and energy, and also be pretty dependent upon the exchange rate at that time.  As I said, I am not interested in real estate speculation, or making a quick buck.

As for low interest rates, there are many reasons why that makes real estate an even more attractive investment, and ways to hedge the risk of future interest rate hikes. 

Anyway, at the end of the day, learning to successfully navigate the real estate investing world would take up a lot of my time, and so at this point, I'm still trying to determine whether it would be worth the effort to even start learning, or whether I'd be better off continuing my stock investing strategy.  It's clear what side you fall under Beeb, and thanks for the feedback.

[MadImmortalMan]

What are your numbers? What cash flow are you generating per euro down? What could you earn with that same money without the risks, costs and taxes of real estate? What value do you personally put on having a physical property vs only "paper"?

[Admiral Yi]

Per loonie down. 

[MadImmortalMan]

Oh yeah whoops.   

[grumbler]

Per loonie down. 

I remember that movie.