401k and other retirement plans: have you raided yours yet?

[Barrister]

I've heard of tons of people saying they want to own rental properties.  It's the financial trend du jour.

Which makes me think it's now a bad idea, in particular in Canada where we have declining real estate prices.

That's actually what makes buying and renting properties smart now. Buy the houses while they're cheap, rent them out, and keep the house for 15-20 years. The real estate prices are going to bounce back from where they are now. Will they go as high as they were before? Oh, I hope not. However, if you're smart about how you set your rents and take care of your properties, the houses will appreciate and you'll get a monthly income. It's not free money - there's work involved - but it's a smart way to earn extra money.

But you're betting on the fact that house prices have bottomed out, and will increase.

The housing boom of the last 20 years was historically unusual.  There's no guarantee that housing prices will increase over the next 15-20 years.  Some suggest that the demographic shift of all the boomers retiring (and selling their homes to downsize) is going to put downward pressure on house values for years to come.

[Grey Fox]

If the price go down too much the boomers won't sell.

[Barrister]

If the price go down too much the boomers won't sell.

They'll have no choice.  Many do not have enough saved for retirement, and have little of value besides their home.

[Malthus]

Depends on the market. If there is a shortage of rental units available, it is a lot easier to demand sizable conditions like big deposits and guarantors. If many retirees are getting in the business, one's bargaining power to require such demands as conditions is perforce more limited.

I'm just going by the horror stories I've heard from people trying out this method of making money here in Canada.

That's why where you own the property is as important as what property you own. It's a business, and as such has risks. There are ways to minimize the risks - and Gups has given some - and ways to improve the situation based on how you handle the initial outlay of cash.

Sure. I'm just pointing out that it's a reasonably risky business. Many who go into it are not prepared for those risks, and when it becomes known as the can't-fail business du jour for the average investor with absolutely no experience in rental property management, you can bet that many are going to get badly burned - quite aside from the potential problems of oversupply on the rental market, fluctuations in real-estate prices, etc.

[Malthus]

I'm just going by the horror stories I've heard from people trying out this method of making money here in Canada.

Yeah, a guy I used to work with had rental properties.  He always had to take days off to go to court to get people evicted, and it was a long, painful process.

Yup. Depending on jurisdiction, tenants can be awfully difficult to get rid of, with many legal avenues to delay the slinging-stuff-into-the-street procedure.

[Neil]

This is all your fault, Malthus.  The law ruins everything.

[Barrister]

Depends on the market. If there is a shortage of rental units available, it is a lot easier to demand sizable conditions like big deposits and guarantors. If many retirees are getting in the business, one's bargaining power to require such demands as conditions is perforce more limited.

I'm just going by the horror stories I've heard from people trying out this method of making money here in Canada.

That's why where you own the property is as important as what property you own. It's a business, and as such has risks. There are ways to minimize the risks - and Gups has given some - and ways to improve the situation based on how you handle the initial outlay of cash.

Sure. I'm just pointing out that it's a reasonably risky business. Many who go into it are not prepared for those risks, and when it becomes known as the can't-fail business du jour for the average investor with absolutely no experience in rental property management, you can bet that many are going to get badly burned - quite aside from the potential problems of oversupply on the rental market, fluctuations in real-estate prices, etc.

I think Meri has it right when she says rental properties are a business, but I'm not sure if she realizes the implications of that.

Many of the people who I hear talk about wanting to own rental properties seem to view it as an investment - that they can buy the property and it will automatically spit out revenue.  It won't.  It will take a fair bit of work.

Oh, and here's a fun article I found on The Atlantic for my fellow canucks:

http://www.theatlantic.com/business/archive/2013/01/the-biggest-housing-bubble-in-the-world-is-in-canada/272499/

[Malthus]

Oh, and here's a fun article I found on The Atlantic for my fellow canucks:

http://www.theatlantic.com/business/archive/2013/01/the-biggest-housing-bubble-in-the-world-is-in-canada/272499/

Ottawa has been a-tinkering. We'll see if they manage to pull off a soft landing.

However, I will point out that warning about an overinflated housing market in Canada has been going on for at least as long as I've cared about the issue - say, a decade or so. When I was buying a house (more than seven years ago) I was widely warned not to, because I ought to wait for the bubble to burst and pick one up cheap. I'd still be waiting.

[merithyn]

I think Meri has it right when she says rental properties are a business, but I'm not sure if she realizes the implications of that.

Many of the people who I hear talk about wanting to own rental properties seem to view it as an investment - that they can buy the property and it will automatically spit out revenue.  It won't.  It will take a fair bit of work.

Oh, and here's a fun article I found on The Atlantic for my fellow canucks:

http://www.theatlantic.com/business/archive/2013/01/the-biggest-housing-bubble-in-the-world-is-in-canada/272499/

WTF?

Where in this thread have I seemed as if I don't know what the fuck I'm talking about? Was it the part where I said that it's a business, that it has risks, that it's takes hard work, or that you have to do your due diligence before you buy and/or rent?

[Barrister]

Oh, and here's a fun article I found on The Atlantic for my fellow canucks:

http://www.theatlantic.com/business/archive/2013/01/the-biggest-housing-bubble-in-the-world-is-in-canada/272499/

Ottawa has been a-tinkering. We'll see if they manage to pull off a soft landing.

However, I will point out that warning about an overinflated housing market in Canada has been going on for at least as long as I've cared about the issue - say, a decade or so. When I was buying a house (more than seven years ago) I was widely warned not to, because I ought to wait for the bubble to burst and pick one up cheap. I'd still be waiting.

I agree in that it's almost impossible to time the market.  If you need to own a home, then go buy a home and don't worry about it.

But if you're looking to make an investment, all signs point to Canadian real estate being a really bad investment right now.

[Valmy]

From what I've seen, renting properties is a risky way for the average person to make money.

Yeah well until we find that non-risky way we are stuck with it.

[crazy canuck]

Depends on the market. If there is a shortage of rental units available, it is a lot easier to demand sizable conditions like big deposits and guarantors. If many retirees are getting in the business, one's bargaining power to require such demands as conditions is perforce more limited.

I'm just going by the horror stories I've heard from people trying out this method of making money here in Canada.

That's why where you own the property is as important as what property you own. It's a business, and as such has risks. There are ways to minimize the risks - and Gups has given some - and ways to improve the situation based on how you handle the initial outlay of cash.

I am not sure how one protects themselves against the overly generous provisions of residential tenancy legislation which prevents effective monitoring of the property to ensure it is treated properly or evicting non payers in a timely efficient way.

An alternative we have been looking at for when the boys move out is offering our basement suite for short stay vacationers.   But then again simply downsizing still probably makes more sense given the damned property taxes on the place.

[Barrister]

From what I've seen, renting properties is a risky way for the average person to make money.

Yeah well until we find that non-risky way we are stuck with it.

Well of course over the long-term the stock market has proven to be a consistent winner.

[Gups]

Yup. Depending on jurisdiction, tenants can be awfully difficult to get rid of, with many legal avenues to delay the slinging-stuff-into-the-street procedure.

Most property in the UK is rented on a shordhold tenancy. It's really pretty easy to get rid of a tenant that doesn't pay rent. So obviously very jurisdiction dependent.

[Phillip V]

From what I've seen, renting properties is a risky way for the average person to make money.

Yeah well until we find that non-risky way we are stuck with it.

Well of course over the long-term the stock market has proven to be a consistent winner.

And only requires the click of a mouse.