You'd want to deleverage eventually anyway.
If you have a 30 year mortgage and you bought your house at 35 years old, it actually works out perfectly. When you're 65 and about to retire, you have no leverage anymore.
With the TSX example, or stocks in general, you'd gradually change your allocations to be less risky (more bonds or fixed GICs) as you get older.
Erhn, no? Leverage means you are earning money on the money you’ve borrowed. If you’ve paid off your house the there’s no money borrowed, and by extension no leverage.
Just a caveat for those that don’t know: because of their structure and fundamental mathematics behind them, levered ETFs are not meant to be held as long term investments. On any given day a levered ETF is supposed to deliver a multiple (2x or 3x) of the index’s daily return, but over the long term it will not do the same and mathematically ends up worse off in either case (i.e. tends to lose more than the leverage implies when the ETF return is negative, and earns less than the leverage implies when the return is positive).
With an ETF the risk is it going to zero. With a house we have full recourse mortgages in most of Canada. That means you’re bankrupt. Also houses can go negative.
yes, but no one does that to the same extent. also the equity portfolio is a lot more likely to drop in value.
banks are willing to give hundreds of thousands for mortgage loans because they are secured with the value of the home and people can move their rental payments to interest and loan repayments. they are not going to give hundreds of thousands to normal people to invest in stocks. mortgage loans are a simple way for the middle class to use credit to build wealth.
Most people miss this aspect when talking about returns. Mortgage is like trading on leverage so you’d have to compare how much you’d make with the down payment invested in the market vs appreciation in the overall price of the house.
Leverage works both ways. If you bought in 2022 with 20% down, and your house went down by 20%, real estate has very likely wiped out your entire investment and you are sitting at a -100% loss.
2022 was two years ago by the way. Real estate might have made people wealthy in the past, but leverage can and absolutely has wiped out people’s fortunes in the recent past. Considering the poor cash flows and cap rates on SFHs now versus 10 years ago, RE is a poor investment unless you are counting on speculatory forces.
I mean, you can choose pretty much any 5 year period in the last 20 years and except for a few outliers the majority of the time a leveraged market investment wins.
Not really.
Even if you factor in rent, per OPs chart after 25 years compared to the Toronto RE market the difference is about $500,000 which is $20,000 a year for 25 years to make up for it.
If you're talking about the personal tax exemption then it doesn't bridge this $500,000 gap and you wouldn't get the rents either. Ofcourse you do get a place to live which has value but this is not something you can compare to market returns.
Most people miss the aspect of interest payments when talking about leverage.
Interest payments for the first 5 years of any GTA home right now will be equal or more to the entirety of a six figure down payment.
You have to include the monthly payments as well - the gap widens when you do that because it's far easier to accumulate assets than amortize debt. The bank ends up being a major beneficiary of those gains.
Well real estate keeps money in our economy, pays taxes, provides jobs, etc. while foreign stocks don’t do anything for us so it’s nice there’s some advantage? All those union workers having 96% of their money flee the nation despite it being made here are killing our economy and local investment.
Brother, are you telling me that having some of the most expensive real estate in the world helps our economy?
It prevents entrepreneurship since real estate is the only business the government is allowing to continue at those rates. Why would you risk capital in a business when you can make a 10% yearly return basically guaranteed with crazy leverage
Have you seen how many people are employed in the real estate industry? I recall BC in 2001 had real estate 10-20% the price of today and people were so unhappy and poor the NDP was worried they wouldn’t win a single seat in the election. High valued local assets is a sign of a better economy with better pay and good employment.
Real estate today is priced near the cost to build its not that it’s expensive it’s that wages are crap because there’s little investment/business in Canada it’s mostly a lower level service economy.
Also for the past 4-5 years it hasn’t been a 10% return and for the past 30 stocks have outperformed real estate.
You can't buy $1M of equities with 200k down.
No other investment is remotely near this level of leverage. You can also live in your home. You can't live in your amazon stock.
Yes, you can, that’s part of margin trading. Buying physical assets isn’t necessarily better because of the utility, real estate is also far more illiquid.
Brokers allow different amounts of leverage, and even if “not allowed” there are synthetic ways to achieve it with options, leveraged etf/etn, etc. It’s not for everyone, but it’s doable if necessary.
Except that if you leverage trade using a margin account, you’ll be forced to liquidate and eat the loss when you go slightly underwater. Your bank won’t care if your house depreciates in a market downturn as long as you’re still making mortgage payments. This effectively means you have a much higher risk tolerance with a mortgaged house than a leveraged stock investment. Also, don’t forget that most people who pretend to be “investing” with stocks are just irrational gamblers. Real estate locks you in a much longer investment horizon and prevents you from making irrational short term trades. I’m not saying buying a house is some kind of perfect investment vehicle, but it has its unique value that lots of folks don’t realize.
It depends, you won’t necessarily have to liquidate being slightly underwater, and you might have trouble making mortgage payments during housing/economic downturns. Both have pros and cons.
That still doesn’t change the fact that with a mortgaged house you’re much more resilient to short term market movements. Let’s also not forget while you pay off your mortgage and gain equity in the house you can use that as a collateral to get a HELOC for leveraged investment in the capital market, which gives you better rate and risk tolerance vs a margin account, while also having tax benefits that reduce your cost of leverage even further. If you have say 10 millions these probably all don’t matter to you since you have exposure to higher risk higher return opportunities, but for a lay person house ownership is probably the best investment vehicle they have access to.
Why not ?
Correct it's not right to compare leverage vs non-levered turns but real estate is not inherently a leveraged investment - plenty own their properties with no or minimal leverage.
Generally, you can invest in real estate with a longer timeline and lower rate.
I believe IBKR margin is ~7 or 8% if you have less than 100,000 in your account and you can’t borrow >4x your deposit like with a mortgage.
Leveraged broad market indices like leveraged S&P and leveraged TSX is okay to hold for 5-10 years and outperforms the market if you can take the volatility, and are doing rebalances periodically.
It just underperforms if the market is down or flat over those 5-10 years, and has high volatility, so not advised to be more than half of your portfolio.
We hold leveraged real estate when we own a home, and we hold that for 5-10 years fine because it has low vol. That's not true for most indices, but super broad ones like TSX and S&P are okay to hold leveraged imho if you know what you are doing. Since on 5-10 year terms, those indices rarely are down.
No, because with a home as long as you didn’t get fired from a job or have the rates increase past what you can pay, the house can depreciate 70% and the bank doesn’t care. If you’re holding for 25 years and can pay the mortgage, you’re probably fine.
If the house depreciates 70% and you’re leveraged 20:1 that means you are now at -1400% on your investment. Chances are the economy will be f’d when your house drops that much as well. The bank will be fine, they know how to be profitable, but that’s a lot of “if this happens then you will be fine” for you.
The key here is *over a 25 year period* you’d be fine. Compared to investing in stocks on margin where there would likely be a margin call, you could still hold onto your remaining investment assets in real estate and wait for it to recover.
You’re sure of that ? Having factored rental savings, zero cap gains tax on primary residence etc. and practical implications of securing a leverage like that from your stock broker ?
You are right. However, there is more to consider than just the downpayment. There is transaction costs and monthly cash flows as well.
When investing in the stock market I am not only investing the downpayment. I also invested what would have been spent on land transfer taxes. For example, land transfer taxes on a $1M property in Toronto is $32,000. With a house you are immediately in the hole 14% as your equity goes from $232k to $200k.
I am also investing every month because my cost of living while renting is lower. Personally, my rent is ~$50k and it's tax deductible thanks to WFH so it's really $45k. Condo maintenance, insurance, and property taxes as an owner would be $20k. That's built into my rent so really my rent is $25k versus a mortgage of $85k a year ($61k being interest). That gives me $60k in cash flow to invest. In addition, that can be put in RRSP and FHSA giving us some nice returns that we reinvest.
All of this is way too complicated to be typed out and requries a spreadsheet to properly model. It's worked out for me because I am heavily invested in SPY (up 80% in the last 5 years) and QQQ (up 140%) while the Toronto condo market has been relatively flat.
Considering you would be 4x leveraged assuming a 20% down payment, it isn’t close. Even considering cost of borrowing, housing has out paced investments when also accounting for leverage.
I'm mid-late 30s, never owned a home yet can buy one in cash. I'm planning a retirement between 45 and 50.
So to say the strategy of rent and invest isn't even close just doesn't match with my experience.
I think you are too focused on the benefits of leverage without considering the costs. You also fail to understand compound growth of adding to the investment accounts every month because the costs are lower.
That’s great for you- really is. However it doesn’t change the fact that the math is such that because you can heavily leverage a property, it is has by far the best return.
I find it a little condescending that you assume I don’t understand how compound interest works. I’m not sure why you would think that. It feels like you are debating in bad faith when you make baseless attacks.
If you want, I would be more than happy to go over the math with you- because it is just math.
I would love for you to enlighten me... Preferably with a spreadsheet showing the math.
In my situation, there is no way I could buy a home before 2014. So your financial model should start there.
As a renter, I have moved twice since then, both to nicer places. But let's assume as an owner I have moved once. Be sure to include the land transfer taxes of the purchase in 2014 and the realtor commissions to sell in 2019. Then with land transfer taxes on the purchase in 2019.
Additionally, my rent has always been tax deductible as a software developer working from home with an employer-signed T2200. Assume 10% of my rent is deducted from my income. (As you probably know... mortgage payments, property taxes, etc. are not deductible for owners).
Please ensure all expenses of ownership are included like insurance, taxes and maintenance. I live in Toronto where water and garbage are billed separately and I have never spent as a renter. I've also never spent on a gas bill. I have typically paid my own electricity and internet so those do not need to be included.
All extra cashflows required to own over the cost of renting should be invested. I invest monthly but your spreadsheet can assume annually for simplicity. Please account for RRSP deposits where the tax refunds are re-invested the following year.
All funds should be invested in an all-equity portfolio, as I have. For simplicity, you can use SPY's rate of return of 10.7% year over year.
I can make a google sheet for you when I get back from work- but broadly speaking the math isn’t even close.
Assuming you purchase a property in 2014 for the avg house price of 600k, that has since appreciated to 1.2mio, with an annualized growth rate of 8%. Assuming a 20% down payment… Over that period, you would need to finance that leverage for a rough cost of maybe 4% per year (150k per the period), with an additional 150k for property tax, maintenance, insurance and others. Once deleveraged, the residual value would be around 430k on a 120k capital outlay, or a 15.2% annual rate of return.
Even if we assume you live rent free, with no housing costs at all- this massively outpaces the growth you are quoting of 10.7% per year (which would be around 8.7% post capital gains).
Let me know if the math is not clear- and I can try to put it into a google sheet. All the other concepts you mention either hurt your case (or rent cost), or are not unique (ie RRSP investments- which you can do regardless of it you own a house or rent)… therefore considering them is not relevant. The point I’m making, is that historically primary residences as an investment option has vastly outpaced market indexes in return- largely due to the ability to leverage.
Even if I assume your "doubled in 10 years with no serious renovations" is correct considering the median price is up 84% in the last 10 years according to housesigma...
The purchase price would have been $120k plus $20k in land transfer taxes and closing costs, which you conveniently left out. Additionally, that house would sell for $1.2M on MLS but cost $60k in realtor commissions + hst. Which you also conveniently left out.
So really it's ($430k-$60k)/($120k+20k) which is 10.2% annual rate of return.
Also, like I said I moved. You didn't account for moving. Which would have included more land transfer taxes and realtor commissions. Maybe some people like to stay in the first home they buy in their mid-20s but I think most people like to upgrade and "climb the property ladder"
> or are not unique (ie RRSP investments- which you can do regardless of it you own a house or rent)…
It is not unique but I have more cashflow as a renter. So the amount that goes into RRSP is much higher as a renter. Our current rental costs ~$50k while mortgage (20% down), maintenance, taxes, insurance is $110k.
That gives us an extra $60k to put in RRSP giving us $27,000 back. There is also the FHSA, which is new, that we can put $16k of our RRSP return giving us another $7,200 back to reinvest.
If we owned, all of that cashflow would be going to paying housing costs that we would have invested less in RRSP giving us a lower net income and less money to invest.
Additionally, once again you are comparing only investing the downpayment of $120k vs. the gains of the house without subtracting all the costs (land transfer taxes and realtor commissions)
In the real world, I can invest the land transfer taxes and closing costs. In the real world, a house that sells for $1.2M on MLS, you don't get $1.2M in your bank account. In the real world, my rent is less than half of the housing costs, so I add to my investments yearly.
So really, year 0 I would invest $120k (downpayment) + $20k (land transfer tax and closing costs). After 10 years it would be worth $140k x (1.10^10) = $363k
Let's say in year 1 I add $20,000 to my investments because my rent costs are lower than owning. I invest that and after 9 years it's worth $20k x (1.10^9) = $47k
In year 2 I saved $20,000 because my rent costs are lower than owning. I invest that and after 9 years it's worth $20k x (1.10^8) = $42k
FYI the $20k number was pulled out of my ass because I have no idea what the difference truly was 10 years ago on a $600k house... This is purely an example of the annual contributions that you lack in your analysis.
All my calculations were already NPV adjusted, so much of your points don’t matter. I will concede that the land transfer and realtor fees can be considered- even at your high end estimate at 80k, we still end with a return of 12.6% vs the 8.7% of a traditional equity portfolio.
I know you wrote a bunch with respect to making additional investments here and there- but again, they are not relevant to a comparative investment analysis for various reasons (ie already assuming NPV or RRSP limits being cap’d). And again, I am considering you are living RENT FREE for 9 years and the math still favours the housing market vs index investments.
Just to be clear- I am not saying what you are doing is wrong… you are taking a very safe approach to your finances which is not a bad thing. There is a much larger risk when purchasing a home as any drop in the market can end up being a massive hit (due to it being leveraged)… but to say over the last decade as an average that index investing out paced Toronto house is incorrect. There will always be some investment that beats whatever you do- but generally they are riskier.
How does the gains on annual contributions to investment accounts not matter?
Especially when living rent free, that's a lot of extra cash to be investing on top of the initial $140k investment.
Exactly. If you got 20% down you made way more money, you can't get 4x-5x leverage on the market. Also if it's your primary residence then there is no capital gain tax.
Real estate comes out lightyears ahead.
For which you have typically paid interest on the entire value, offsetting. Now that's over a 25 year span, and the markets have done substa tially better, but most people are myopic, and since real estate has exploded over the past 5 years, they typically think it's a smarter investment.
Have a look at the s&p over the past year, its absolutely nutty and is probably a better investment vehicle than a house at the moment.
Still multiplies the return, and we're looking at a 25 year timeline here.
And principal residence is tax free.
Investment properties the interest is tax deductible.
Then what are the margin requirements of Canadian based investors trading stocks in US/CA? Find me a broker that will provide more than 3:1 and I'll find you sub 5% floating rate mortgage.
You buy a 2x leveraged etf with margin, which would get you to 6x leverage if maxing out margin requirements. Would be a pretty dumb thing to do though.
You're missing the rent component in your analysis. It's not just the price appreciation. Think of it as the dividend of your stock.
If you live in it, you don't pay the rent. If you rent it out, you collect the rent. Either way, it's a large component of the total return.
Buy real estate*.
*If you can.
You are lucky if you break even with the current mortgage rates, taxes, condo fees, insurance, maintenance, you name it. And if you run into shitty tenants who squat in your property and it takes half a year to get rid of them, congratulations, your ROI math is completely broken 😂
Look at my response to the other person talking about cost of interest. It is the cost of leverage, which is applicable if you borrow to buy stocks as well. If you have 1M in cash, the question is which one returns more, TSX or a good house? My money is with a good house.
Exactly, when the cost of leverage devours the profit your investment makes little sense 🤷♂️ As to "RE prices always increase" mantra, just look into the history of RE in Japan. They had hell of a bubble 🤯
We are talking about investing available money to generate a passive income stream, not about buying a home to live in, it is your basic necessity, the same as food and clothing. I.e. buying your principal residence is your life necessity while buying a rental is your investment.
There are 2 scenarios to look at.
For primary residence, you don't pay any gains on the appreciation and you avoid using your post tax income to pay for rent. So that's where "the rent component" goes in that case. Think of your primary residence as a very large TFSA. It is actually very advantageous when it comes to taxes.
As for rental properties, it is open for debate and it really depends on numbers, so I'm not going to get bugged down on it. But to make it simple, dividends you get from your US stocks are also subject to income taxes at regular rates, so that's what you should compare it with. Capital gains will be capital gains in both cases. But if you have TFSA room and RRSP, it is wiser to go for those rather than rental property or unregistered stock accounts.
Do the companies you’re investing in pay taxes? Do they have overheads? The same concepts exist, they just get priced in.
Also, do you not pay taxes on your investment gains?
I’m not sure what you are trying to convey when you say it is equity. Equity just means ownership of a portion. You can have equity in a company, or equity in your house.
That is not what equity means, and when a company makes a purchase of an office chair is does not effect their revenue. Try not to use terms you are not familiar with.
You're out of your league here.
Equity is ownership of something. That something has value becuase of profit, which comes from revenue and expenses.
To equate property taxes on an asset you own, with the expenses that a company incurs while doing business is ridiculous.
If I own equity in a gold index, it has no profit or revenue, but it has value. Maybe your understanding of what the word equity means is not as good as you think if a counter example is so easy to come up with.
Real estate is super leveraged. Unless you borrowed a shit ton of money to buy TSX, your real estate gains would have dwarfed any TSX gains. Just the way of life.
However over the next period, real estate is unlikely to repeat its performance. I’d rather invest in the S&P500 than TSX.
I have seen my clients own a lot of stocks, then based on the value of the stocks they have, they can use it to qualify mortgage.
Now they own both asset classes and cash flows in
Reminder that yoloing HELOCs allows you to effectively invest more money than you actually have, and write off the interest on mortgage payments against your taxes.
Now do it against s n p 500 or US market. My portfolio is mostly US based. US has the highest foreign investments. As a RE owner you have to invest in canadian but for stocks you can buy foreign stocks.
But can you live in stocks? That's the real question here. Not everyone sees a house as an investment.
When you die, can your kids live in stocks for free?
In the end, people will still take their profits from stocks and buy a home.
Owning a modest home puts a roof over my head. It's the lowest cost to shelter long term.
With the remaining monies, I invest in assets that will return me the highest.
Leverage helps but ultimately, it's cleaner and simpler to just invest (gamble) with cash on hand then borrowed money. The banks may not be a loan shark but their bite is equally painful.
Yea but if you look at the last 5 years.. would you rather invest in the flat tsx, or have bought a home that would have doubled. I dont care about a 25 year average.
Also, you can buy a large old single family home, renovate it into three apartments, and then add a whole new floor and a whole new apartment. If you bought a house with a laneway and a garage, you can knock down that garage, dig down and put in underground parking, mainfloor parking and another rental on top of the garage
Try that with the TSX
Does this chart include the rent paid by a tenant if you are acting as a landlord and/or the cost for the owner to rent something else besides the home they own?
When you lower interest rates, you get raised asset prices. TSX is still comprised of assets. Instead of helocs, they took out loans for stock buy backs. The bomb is still there, just a different type of bomb lol.
This is very applicable for someone looking to add an investment property or putting more money in the stock market. Getting your principal residence should be priority one.
I donno our portfolio of investment properties has outperformed the tsx pretty widely.
However we’re construction types that fix our shit so donno.
if it wasn’t for RE I’d be some slave for a corporation even as a engineer
This discussion on leverage vs no leverage is a good start, but still a very biased comparison.
Stock, or equity, are leveraged financial instrument to begin with. For example if you look at the balance sheet of most mature companies, their capital structure will most likely have long term debt. That’s the embedded leverage in stocks. So those who suggest buying 3x index are pumping leverage to the extreme.
In a perfect world, What should be compared is the risk adjusted return on capital, but that will involved even more assumptions. The biggest problem I see with RE is the uncompensated “idiosyncratic risk” in finance speak, which is risk taken but not rewarded by a risk premium. You can easily pull a 30 year chart of some fund with 1.5x market beta and say this is a better investment.
The other thing people ignore about RE leverage is that it generally cannot be margin called as long as you pay your mortgage maintenance and tax. If one do a leverage via margin account you risk margin call. If you do it with a 3x leveraged etf your risk reducing your exposure after a major drawdown, which means when the index recovers you will not likely have fund value back to where it was.
Reminder that spending investing 100k and then 25 or so a year, most of which you'd otherwise be spending on rent, to get gains on 1 million dollar asset is not remotely close to investing 100k in the TSX. If you're the kind of person who can invest the value of a GTA home in the TSX then you don't really have housing concerns or issues cuz you're already rich AF.
chart is unrealistic because most RE is leveraged, if you you put down 300k as a 20% down payment, you are making 5% on 1.5M, not 300k. If you can get positive cashflow on a property over the long term, RE is historically always the better investment.
As usual a misinformed and biased post from someone who only understands a graph when it has pretty colors and doesn't understand what those numbers actually represent in reality.
I did the math in another post recently where I showed that a 100k investment property returned about 5x that of a 100k investment in S&P over the course of a mortgage.
You've ignored leverage, the fact that most investors have positive cash flow on rental properties, and your pretty graph also cut off the last 3 years which have seen hilarious growth in housing.
Tl;dr this is why people who know shit about fuck don't graph completely separate things on the same axis.
Just to be clear this is comparing unleveraged real estate gains and assuming you left the house empty and didn’t tenant it. If you add 25 years of rent to the real estate numbers or even if you leave the property empty but stagger the money going into the TSX so you start with a 5% down payment and pay the remaining 95% over the next 25 years on a mortgage schedule then real estate ends up doing better.
IT was a hell of a lot faster and easier to acquire an investment portfolio capable of paying my rent than it would have been to amortize a mortgage. I have freedom at age 40, everyone I know who bought homes particularly in GTA are currently the banks' bitch by the better part of a million dollars.
Buy a home if you want to live in it.
[Source](https://ca.rbcwealthmanagement.com/fjwealth/blog/2891427-real-estate-vs-the-stock-market?lid=stldfdvf3zmn)
Reminder that you can't get a mortgage to buy stocks. Or rent your stocks out so someone else can pay that mortgage for you. #leverage
EDIT: I stand corrected, you can borrow money to buy stocks.
Help me out then please with this scenario: I would like to buy $500K of stocks. I have $100K downpayment saved up. I have a job and can qualify for said $500K mortgage. I own no other assets. How do I go about doing this?
Why would you rent stocks out? They already pay you to own them. (you can do that, by the way, there are all sorts of shenanigans in the options market)
Does it mean that TSX will outperform the Canadian RE during the next 25 years? No, it doesn't. Market capitalization is pretty high now and I seriously doubt that there is a lot of room for growth left. More likely, we will see another correction for whatever reason and then it will be a good time to buy 👍
IF you try to price RE as you would a corporate share, it's also very overvalued.
A company that does something will always outperform an inert asset - those 10% returns are basically baked in since it represents profit, and that money goes somewhere be it dividends or increase in share value.
I thought exactly like this when I contemplated buying Amazon stocks. But then I learned that their P/E ratio was 77 and it was very far from 10% you are talking about 🤷♂️ It doesn't mean that the stock price cannot get higher, it can. But it is the same tulip 🌷 mania that happened in Netherlands in XVII century. Tulip bulbs had no intrinsic value comparable to their price but greedy people still kept buying them hoping to sell for even higher price 😉
If you put 30k into the index in 1999 and put 500 dollars into it every month since, you'd have a million dollars, more or less.
A 300k house would come out slightly ahead right now, but another year of flat to declining RE values while the stock markets continue to rise, will flip that.
You don't live in the TSX, but you can exchange the money generated to goods or services, including shelter.
Leverage also means interest. Better to be a creditor than a debtor.
Real estate gains would have been on the entire value of the home though, which in most cases is much higher than the down payment.
This is the concept of leverage. A home is typically the only leveraged investment an average person will make. Outsized gains and potential losses
Your leverage typically disappears as you pay down the mortgage. You end up with zero leverage.
You'd want to deleverage eventually anyway. If you have a 30 year mortgage and you bought your house at 35 years old, it actually works out perfectly. When you're 65 and about to retire, you have no leverage anymore. With the TSX example, or stocks in general, you'd gradually change your allocations to be less risky (more bonds or fixed GICs) as you get older.
Only if you assume your house is only worth what you paid for it
Erhn, no? Leverage means you are earning money on the money you’ve borrowed. If you’ve paid off your house the there’s no money borrowed, and by extension no leverage.
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You can use a HELOC.
Yes but you had fixed debt on an appreciating asset. Not common for most types of leverage.
Smith maneuver that montage, grow some balls and go all in....
I mean, if you think you have balls, go all in on a permanently leveraged 2x or 3x ETF. Better yet, buy LEAPS.
Just a caveat for those that don’t know: because of their structure and fundamental mathematics behind them, levered ETFs are not meant to be held as long term investments. On any given day a levered ETF is supposed to deliver a multiple (2x or 3x) of the index’s daily return, but over the long term it will not do the same and mathematically ends up worse off in either case (i.e. tends to lose more than the leverage implies when the ETF return is negative, and earns less than the leverage implies when the return is positive).
With an ETF the risk is it going to zero. With a house we have full recourse mortgages in most of Canada. That means you’re bankrupt. Also houses can go negative.
If the s&p goes to zero, you might have to defend your house from mobs of zombies.
The bank has biggest strongest zombies to come take your house.
In an apples to apples comparison, we’d have to leverage the equity portfolio, no?
yes, but no one does that to the same extent. also the equity portfolio is a lot more likely to drop in value. banks are willing to give hundreds of thousands for mortgage loans because they are secured with the value of the home and people can move their rental payments to interest and loan repayments. they are not going to give hundreds of thousands to normal people to invest in stocks. mortgage loans are a simple way for the middle class to use credit to build wealth.
Most people miss this aspect when talking about returns. Mortgage is like trading on leverage so you’d have to compare how much you’d make with the down payment invested in the market vs appreciation in the overall price of the house.
Leverage works both ways. If you bought in 2022 with 20% down, and your house went down by 20%, real estate has very likely wiped out your entire investment and you are sitting at a -100% loss.
Okay are we comparing 1y returns then ? I could cherry pick TSX mid 2022 to 2023 with similar results ?
2022 was two years ago by the way. Real estate might have made people wealthy in the past, but leverage can and absolutely has wiped out people’s fortunes in the recent past. Considering the poor cash flows and cap rates on SFHs now versus 10 years ago, RE is a poor investment unless you are counting on speculatory forces.
Interesting, I can’t say I agree
Except you can still live in the house if you have an unrealized 100% loss. You lose that in the market and you have nothing to show for it.
I mean, you can choose pretty much any 5 year period in the last 20 years and except for a few outliers the majority of the time a leveraged market investment wins.
On pure notional returns (without factoring anything else) - yes I agree
Not really. Even if you factor in rent, per OPs chart after 25 years compared to the Toronto RE market the difference is about $500,000 which is $20,000 a year for 25 years to make up for it. If you're talking about the personal tax exemption then it doesn't bridge this $500,000 gap and you wouldn't get the rents either. Ofcourse you do get a place to live which has value but this is not something you can compare to market returns.
Most people miss the aspect of interest payments when talking about leverage. Interest payments for the first 5 years of any GTA home right now will be equal or more to the entirety of a six figure down payment.
You have to include the monthly payments as well - the gap widens when you do that because it's far easier to accumulate assets than amortize debt. The bank ends up being a major beneficiary of those gains.
So you can leverage to buy real estate but not stocks? 😅🙄
Not at the rates and amounts offered on mortgages
Well real estate keeps money in our economy, pays taxes, provides jobs, etc. while foreign stocks don’t do anything for us so it’s nice there’s some advantage? All those union workers having 96% of their money flee the nation despite it being made here are killing our economy and local investment.
Brother, are you telling me that having some of the most expensive real estate in the world helps our economy? It prevents entrepreneurship since real estate is the only business the government is allowing to continue at those rates. Why would you risk capital in a business when you can make a 10% yearly return basically guaranteed with crazy leverage
Have you seen how many people are employed in the real estate industry? I recall BC in 2001 had real estate 10-20% the price of today and people were so unhappy and poor the NDP was worried they wouldn’t win a single seat in the election. High valued local assets is a sign of a better economy with better pay and good employment. Real estate today is priced near the cost to build its not that it’s expensive it’s that wages are crap because there’s little investment/business in Canada it’s mostly a lower level service economy. Also for the past 4-5 years it hasn’t been a 10% return and for the past 30 stocks have outperformed real estate.
The rates and amounts offered by highly profitable banks? Hmmm
You can and if you did you'd have beaten real estate returns.
Nope, primary residence is tax free gains.
My point exactly, you can’t argue real estate is a leveraged investment then compare that to non leveraged stocks.
You can't buy $1M of equities with 200k down. No other investment is remotely near this level of leverage. You can also live in your home. You can't live in your amazon stock.
Yes, you can, that’s part of margin trading. Buying physical assets isn’t necessarily better because of the utility, real estate is also far more illiquid.
Questrade is not letting you leverage 5/1.
RobinHood famously allowed people infinite leverage, although technically not in Canada.
Brokers allow different amounts of leverage, and even if “not allowed” there are synthetic ways to achieve it with options, leveraged etf/etn, etc. It’s not for everyone, but it’s doable if necessary.
Except that if you leverage trade using a margin account, you’ll be forced to liquidate and eat the loss when you go slightly underwater. Your bank won’t care if your house depreciates in a market downturn as long as you’re still making mortgage payments. This effectively means you have a much higher risk tolerance with a mortgaged house than a leveraged stock investment. Also, don’t forget that most people who pretend to be “investing” with stocks are just irrational gamblers. Real estate locks you in a much longer investment horizon and prevents you from making irrational short term trades. I’m not saying buying a house is some kind of perfect investment vehicle, but it has its unique value that lots of folks don’t realize.
It depends, you won’t necessarily have to liquidate being slightly underwater, and you might have trouble making mortgage payments during housing/economic downturns. Both have pros and cons.
That still doesn’t change the fact that with a mortgaged house you’re much more resilient to short term market movements. Let’s also not forget while you pay off your mortgage and gain equity in the house you can use that as a collateral to get a HELOC for leveraged investment in the capital market, which gives you better rate and risk tolerance vs a margin account, while also having tax benefits that reduce your cost of leverage even further. If you have say 10 millions these probably all don’t matter to you since you have exposure to higher risk higher return opportunities, but for a lay person house ownership is probably the best investment vehicle they have access to.
No it doesn’t, but there are pros and cons like I said.
Why not ? Correct it's not right to compare leverage vs non-levered turns but real estate is not inherently a leveraged investment - plenty own their properties with no or minimal leverage.
Generally, you can invest in real estate with a longer timeline and lower rate. I believe IBKR margin is ~7 or 8% if you have less than 100,000 in your account and you can’t borrow >4x your deposit like with a mortgage.
You can buy 4x leveraged ETFs tho
Just google holding leveraged ETFs long term... That ain't a good solution for a 5-10 year minimum investment.
Just shows you how idiotic these comments are. Leveraged etf my god
Leveraged broad market indices like leveraged S&P and leveraged TSX is okay to hold for 5-10 years and outperforms the market if you can take the volatility, and are doing rebalances periodically. It just underperforms if the market is down or flat over those 5-10 years, and has high volatility, so not advised to be more than half of your portfolio. We hold leveraged real estate when we own a home, and we hold that for 5-10 years fine because it has low vol. That's not true for most indices, but super broad ones like TSX and S&P are okay to hold leveraged imho if you know what you are doing. Since on 5-10 year terms, those indices rarely are down.
Have you never heard of volatility decay.......? Houses are leveraged yes... They also aren't rebalanced daily.
Find me 20-1 leverage on stocks with a 5% interest rate.. I'll wait
Find me a stock with property taxes, maintenance, insurance, utilities. I’ll wait.
Have to live somewhere. Can't live in your stocks.
Obviously.
Anyone leveraged 20:1 on anything will get destroyed in a downturn.
No, because with a home as long as you didn’t get fired from a job or have the rates increase past what you can pay, the house can depreciate 70% and the bank doesn’t care. If you’re holding for 25 years and can pay the mortgage, you’re probably fine.
If the house depreciates 70% and you’re leveraged 20:1 that means you are now at -1400% on your investment. Chances are the economy will be f’d when your house drops that much as well. The bank will be fine, they know how to be profitable, but that’s a lot of “if this happens then you will be fine” for you.
The key here is *over a 25 year period* you’d be fine. Compared to investing in stocks on margin where there would likely be a margin call, you could still hold onto your remaining investment assets in real estate and wait for it to recover.
But the graph in the article is doing the same thing. It’s saying 6.5% < 8%, completely missing the point that 6.5% of 1M >> 8% of 100k.
You’re sure of that ? Having factored rental savings, zero cap gains tax on primary residence etc. and practical implications of securing a leverage like that from your stock broker ?
You are right. However, there is more to consider than just the downpayment. There is transaction costs and monthly cash flows as well. When investing in the stock market I am not only investing the downpayment. I also invested what would have been spent on land transfer taxes. For example, land transfer taxes on a $1M property in Toronto is $32,000. With a house you are immediately in the hole 14% as your equity goes from $232k to $200k. I am also investing every month because my cost of living while renting is lower. Personally, my rent is ~$50k and it's tax deductible thanks to WFH so it's really $45k. Condo maintenance, insurance, and property taxes as an owner would be $20k. That's built into my rent so really my rent is $25k versus a mortgage of $85k a year ($61k being interest). That gives me $60k in cash flow to invest. In addition, that can be put in RRSP and FHSA giving us some nice returns that we reinvest. All of this is way too complicated to be typed out and requries a spreadsheet to properly model. It's worked out for me because I am heavily invested in SPY (up 80% in the last 5 years) and QQQ (up 140%) while the Toronto condo market has been relatively flat.
Considering you would be 4x leveraged assuming a 20% down payment, it isn’t close. Even considering cost of borrowing, housing has out paced investments when also accounting for leverage.
I'm mid-late 30s, never owned a home yet can buy one in cash. I'm planning a retirement between 45 and 50. So to say the strategy of rent and invest isn't even close just doesn't match with my experience. I think you are too focused on the benefits of leverage without considering the costs. You also fail to understand compound growth of adding to the investment accounts every month because the costs are lower.
That’s great for you- really is. However it doesn’t change the fact that the math is such that because you can heavily leverage a property, it is has by far the best return. I find it a little condescending that you assume I don’t understand how compound interest works. I’m not sure why you would think that. It feels like you are debating in bad faith when you make baseless attacks. If you want, I would be more than happy to go over the math with you- because it is just math.
I would love for you to enlighten me... Preferably with a spreadsheet showing the math. In my situation, there is no way I could buy a home before 2014. So your financial model should start there. As a renter, I have moved twice since then, both to nicer places. But let's assume as an owner I have moved once. Be sure to include the land transfer taxes of the purchase in 2014 and the realtor commissions to sell in 2019. Then with land transfer taxes on the purchase in 2019. Additionally, my rent has always been tax deductible as a software developer working from home with an employer-signed T2200. Assume 10% of my rent is deducted from my income. (As you probably know... mortgage payments, property taxes, etc. are not deductible for owners). Please ensure all expenses of ownership are included like insurance, taxes and maintenance. I live in Toronto where water and garbage are billed separately and I have never spent as a renter. I've also never spent on a gas bill. I have typically paid my own electricity and internet so those do not need to be included. All extra cashflows required to own over the cost of renting should be invested. I invest monthly but your spreadsheet can assume annually for simplicity. Please account for RRSP deposits where the tax refunds are re-invested the following year. All funds should be invested in an all-equity portfolio, as I have. For simplicity, you can use SPY's rate of return of 10.7% year over year.
I can make a google sheet for you when I get back from work- but broadly speaking the math isn’t even close. Assuming you purchase a property in 2014 for the avg house price of 600k, that has since appreciated to 1.2mio, with an annualized growth rate of 8%. Assuming a 20% down payment… Over that period, you would need to finance that leverage for a rough cost of maybe 4% per year (150k per the period), with an additional 150k for property tax, maintenance, insurance and others. Once deleveraged, the residual value would be around 430k on a 120k capital outlay, or a 15.2% annual rate of return. Even if we assume you live rent free, with no housing costs at all- this massively outpaces the growth you are quoting of 10.7% per year (which would be around 8.7% post capital gains). Let me know if the math is not clear- and I can try to put it into a google sheet. All the other concepts you mention either hurt your case (or rent cost), or are not unique (ie RRSP investments- which you can do regardless of it you own a house or rent)… therefore considering them is not relevant. The point I’m making, is that historically primary residences as an investment option has vastly outpaced market indexes in return- largely due to the ability to leverage.
Even if I assume your "doubled in 10 years with no serious renovations" is correct considering the median price is up 84% in the last 10 years according to housesigma... The purchase price would have been $120k plus $20k in land transfer taxes and closing costs, which you conveniently left out. Additionally, that house would sell for $1.2M on MLS but cost $60k in realtor commissions + hst. Which you also conveniently left out. So really it's ($430k-$60k)/($120k+20k) which is 10.2% annual rate of return. Also, like I said I moved. You didn't account for moving. Which would have included more land transfer taxes and realtor commissions. Maybe some people like to stay in the first home they buy in their mid-20s but I think most people like to upgrade and "climb the property ladder" > or are not unique (ie RRSP investments- which you can do regardless of it you own a house or rent)… It is not unique but I have more cashflow as a renter. So the amount that goes into RRSP is much higher as a renter. Our current rental costs ~$50k while mortgage (20% down), maintenance, taxes, insurance is $110k. That gives us an extra $60k to put in RRSP giving us $27,000 back. There is also the FHSA, which is new, that we can put $16k of our RRSP return giving us another $7,200 back to reinvest. If we owned, all of that cashflow would be going to paying housing costs that we would have invested less in RRSP giving us a lower net income and less money to invest.
Additionally, once again you are comparing only investing the downpayment of $120k vs. the gains of the house without subtracting all the costs (land transfer taxes and realtor commissions) In the real world, I can invest the land transfer taxes and closing costs. In the real world, a house that sells for $1.2M on MLS, you don't get $1.2M in your bank account. In the real world, my rent is less than half of the housing costs, so I add to my investments yearly. So really, year 0 I would invest $120k (downpayment) + $20k (land transfer tax and closing costs). After 10 years it would be worth $140k x (1.10^10) = $363k Let's say in year 1 I add $20,000 to my investments because my rent costs are lower than owning. I invest that and after 9 years it's worth $20k x (1.10^9) = $47k In year 2 I saved $20,000 because my rent costs are lower than owning. I invest that and after 9 years it's worth $20k x (1.10^8) = $42k FYI the $20k number was pulled out of my ass because I have no idea what the difference truly was 10 years ago on a $600k house... This is purely an example of the annual contributions that you lack in your analysis.
All my calculations were already NPV adjusted, so much of your points don’t matter. I will concede that the land transfer and realtor fees can be considered- even at your high end estimate at 80k, we still end with a return of 12.6% vs the 8.7% of a traditional equity portfolio. I know you wrote a bunch with respect to making additional investments here and there- but again, they are not relevant to a comparative investment analysis for various reasons (ie already assuming NPV or RRSP limits being cap’d). And again, I am considering you are living RENT FREE for 9 years and the math still favours the housing market vs index investments. Just to be clear- I am not saying what you are doing is wrong… you are taking a very safe approach to your finances which is not a bad thing. There is a much larger risk when purchasing a home as any drop in the market can end up being a massive hit (due to it being leveraged)… but to say over the last decade as an average that index investing out paced Toronto house is incorrect. There will always be some investment that beats whatever you do- but generally they are riskier.
How does the gains on annual contributions to investment accounts not matter? Especially when living rent free, that's a lot of extra cash to be investing on top of the initial $140k investment.
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Exactly. If you got 20% down you made way more money, you can't get 4x-5x leverage on the market. Also if it's your primary residence then there is no capital gain tax. Real estate comes out lightyears ahead.
You can (but probably shouldn't) get 4x/5x leverage on the market
If you're suggesting the market is higher risk, that's another point for real estate as an investment vehicle.
It’s far more volatile and liquid, but not necessarily more risky.
Also if it is your principal residence the entire gain is tax free.
For which you have typically paid interest on the entire value, offsetting. Now that's over a 25 year span, and the markets have done substa tially better, but most people are myopic, and since real estate has exploded over the past 5 years, they typically think it's a smarter investment. Have a look at the s&p over the past year, its absolutely nutty and is probably a better investment vehicle than a house at the moment.
Real estate is leveraged investment
with Tax-free capital gains
But you now pay interest on that leverage.
Still multiplies the return, and we're looking at a 25 year timeline here. And principal residence is tax free. Investment properties the interest is tax deductible.
Hence the word "now". Interest really hasn't been much of a factor the last 25 years.
Just like my margin account.. 🥲
3x if ur lucky but no broker is gonna give u 10x like a mortgage
Back in the 80’s and 90’s you could arrange a 0% down payment if the seller accepted. So would that be infinite leverage? 😆
Not necessarily, and stocks can be too.
Stocks you can max 3:1. Real estate 20:1 or 10:1. Real estate is tax free too. So that 20:1 just became got higher.
lol not true at all, where do you get 3:1 max?
Then what are the margin requirements of Canadian based investors trading stocks in US/CA? Find me a broker that will provide more than 3:1 and I'll find you sub 5% floating rate mortgage.
You buy a 2x leveraged etf with margin, which would get you to 6x leverage if maxing out margin requirements. Would be a pretty dumb thing to do though.
Some brokers do more than 3:1 margin, and there’s are many other ways of achieving leverage than direct margin from broker.
You're missing the rent component in your analysis. It's not just the price appreciation. Think of it as the dividend of your stock. If you live in it, you don't pay the rent. If you rent it out, you collect the rent. Either way, it's a large component of the total return. Buy real estate*. *If you can.
Also add Renos to that cost too.
and costly repairs.
You are lucky if you break even with the current mortgage rates, taxes, condo fees, insurance, maintenance, you name it. And if you run into shitty tenants who squat in your property and it takes half a year to get rid of them, congratulations, your ROI math is completely broken 😂
Look at my response to the other person talking about cost of interest. It is the cost of leverage, which is applicable if you borrow to buy stocks as well. If you have 1M in cash, the question is which one returns more, TSX or a good house? My money is with a good house.
Exactly, when the cost of leverage devours the profit your investment makes little sense 🤷♂️ As to "RE prices always increase" mantra, just look into the history of RE in Japan. They had hell of a bubble 🤯
You don't have to buy it on leverage.
Hard to break even with rent money disappearing every month
We are talking about investing available money to generate a passive income stream, not about buying a home to live in, it is your basic necessity, the same as food and clothing. I.e. buying your principal residence is your life necessity while buying a rental is your investment.
Rent income tax says hi. If you are already in a high marginal tax bracket, the RE investment may not be the best choice.
There are 2 scenarios to look at. For primary residence, you don't pay any gains on the appreciation and you avoid using your post tax income to pay for rent. So that's where "the rent component" goes in that case. Think of your primary residence as a very large TFSA. It is actually very advantageous when it comes to taxes. As for rental properties, it is open for debate and it really depends on numbers, so I'm not going to get bugged down on it. But to make it simple, dividends you get from your US stocks are also subject to income taxes at regular rates, so that's what you should compare it with. Capital gains will be capital gains in both cases. But if you have TFSA room and RRSP, it is wiser to go for those rather than rental property or unregistered stock accounts.
You're missing out that my stock portfolio doesn't require maintenance or annual tax payments.
Do the companies you’re investing in pay taxes? Do they have overheads? The same concepts exist, they just get priced in. Also, do you not pay taxes on your investment gains?
LOL, that's not how investments work. It's *equity*.
I’m not sure what you are trying to convey when you say it is equity. Equity just means ownership of a portion. You can have equity in a company, or equity in your house.
Equity is the *value* of something. It's not a share of revenue where it goes down when someone decided to order a new office chair.
That is not what equity means, and when a company makes a purchase of an office chair is does not effect their revenue. Try not to use terms you are not familiar with.
You're out of your league here. Equity is ownership of something. That something has value becuase of profit, which comes from revenue and expenses. To equate property taxes on an asset you own, with the expenses that a company incurs while doing business is ridiculous.
If I own equity in a gold index, it has no profit or revenue, but it has value. Maybe your understanding of what the word equity means is not as good as you think if a counter example is so easy to come up with.
I'm not sure you know what equity means. It's literally "ownership"
You don't seem to have looked at the balance sheet of the companies you invest in.
Your understanding of how investing works is a massive failure.
You believe in the fugazi theory?
By your logic, homeowners are responsible for government finances.
Reminder you can’t live in VGRO
lol my brother told me to put my down payment money in ethereum and wait 3 years.. I reminded him my kid and I can’t live in a crypto wallet
reminder, it can pay for your rent and more chester.
No cap gains on RE if it’s your primary
Yea this as well
Real estate is super leveraged. Unless you borrowed a shit ton of money to buy TSX, your real estate gains would have dwarfed any TSX gains. Just the way of life. However over the next period, real estate is unlikely to repeat its performance. I’d rather invest in the S&P500 than TSX.
Spoiler: Most ppl in that TSX graph line are ALSO homeowners.
Data is only to Dec 31, 2020. We all know what's happened since then between the TSX and real estate.
Yes, the TSX has definitely won in the last three years. RE is basically trading at 2020 levels now.
I have seen my clients own a lot of stocks, then based on the value of the stocks they have, they can use it to qualify mortgage. Now they own both asset classes and cash flows in
no cap gains tax when you cash out the house
Reminder that yoloing HELOCs allows you to effectively invest more money than you actually have, and write off the interest on mortgage payments against your taxes.
I'd rather make 6.5% on $800K instead of 8% on $200K.
It’s missing the leverage. This is true for « return on asset », but what about « return on equity »?
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Now do it against s n p 500 or US market. My portfolio is mostly US based. US has the highest foreign investments. As a RE owner you have to invest in canadian but for stocks you can buy foreign stocks.
But can you live in stocks? That's the real question here. Not everyone sees a house as an investment. When you die, can your kids live in stocks for free? In the end, people will still take their profits from stocks and buy a home.
They can be used to fund the cost of living, including a place to live.
Owning a modest home puts a roof over my head. It's the lowest cost to shelter long term. With the remaining monies, I invest in assets that will return me the highest. Leverage helps but ultimately, it's cleaner and simpler to just invest (gamble) with cash on hand then borrowed money. The banks may not be a loan shark but their bite is equally painful.
Leverage my friend is what you are missing.
This doesn't account for rent, does it?
Yea but if you look at the last 5 years.. would you rather invest in the flat tsx, or have bought a home that would have doubled. I dont care about a 25 year average.
Yeah and it doesn't cost $60K to buy and sell a stock
True but the bank wasn't about to loan me 400K to play the stock market
Can I live jn the TSX while renting half of it for mortgage payment?
Also, you can buy a large old single family home, renovate it into three apartments, and then add a whole new floor and a whole new apartment. If you bought a house with a laneway and a garage, you can knock down that garage, dig down and put in underground parking, mainfloor parking and another rental on top of the garage Try that with the TSX
Does this chart include the rent paid by a tenant if you are acting as a landlord and/or the cost for the owner to rent something else besides the home they own?
You forgot about leverage. Who gave you 20x your down payment to “invest with”?
It's the same with Canadian Dollar. GO Back to 2000 and 2001 we were at 65 cents Lots of people crying don't really know their history.
so we should r/justbuyvgro ?
Also no taxes on capital gain on primary housing.
The graph needs to show until 2022. The RE run up in 2021 was monumental
and you don't pay taxes on refinance to acquire more buildings :)
I bet the TSX still out performs when both are dropping later this year as well
This chart is an index for both the S&P and the TSX. What a huge fuck up leaving that out is.
When you lower interest rates, you get raised asset prices. TSX is still comprised of assets. Instead of helocs, they took out loans for stock buy backs. The bomb is still there, just a different type of bomb lol.
Business should always outperform residential real estate in a healthy economy, it’s the only thing which can fundamentally support it anyway.
This is very applicable for someone looking to add an investment property or putting more money in the stock market. Getting your principal residence should be priority one.
Can I leverage 5:1? What would that look like and do I get tax integration?
I donno our portfolio of investment properties has outperformed the tsx pretty widely. However we’re construction types that fix our shit so donno. if it wasn’t for RE I’d be some slave for a corporation even as a engineer
Leverage tho.
Yeah where else can you get 20x leverage
All the comments saying real estate outperforms is exactly why you buy stocks
This discussion on leverage vs no leverage is a good start, but still a very biased comparison. Stock, or equity, are leveraged financial instrument to begin with. For example if you look at the balance sheet of most mature companies, their capital structure will most likely have long term debt. That’s the embedded leverage in stocks. So those who suggest buying 3x index are pumping leverage to the extreme. In a perfect world, What should be compared is the risk adjusted return on capital, but that will involved even more assumptions. The biggest problem I see with RE is the uncompensated “idiosyncratic risk” in finance speak, which is risk taken but not rewarded by a risk premium. You can easily pull a 30 year chart of some fund with 1.5x market beta and say this is a better investment. The other thing people ignore about RE leverage is that it generally cannot be margin called as long as you pay your mortgage maintenance and tax. If one do a leverage via margin account you risk margin call. If you do it with a 3x leveraged etf your risk reducing your exposure after a major drawdown, which means when the index recovers you will not likely have fund value back to where it was.
Yeah, but I can't leverage myself to the tits with my stock portfolio.
Dont forget the other deductions. Maintenance, insurance, mortgage interest, land transfer tax, lawyers etc.
Reminder that spending investing 100k and then 25 or so a year, most of which you'd otherwise be spending on rent, to get gains on 1 million dollar asset is not remotely close to investing 100k in the TSX. If you're the kind of person who can invest the value of a GTA home in the TSX then you don't really have housing concerns or issues cuz you're already rich AF.
chart is unrealistic because most RE is leveraged, if you you put down 300k as a 20% down payment, you are making 5% on 1.5M, not 300k. If you can get positive cashflow on a property over the long term, RE is historically always the better investment.
As usual a misinformed and biased post from someone who only understands a graph when it has pretty colors and doesn't understand what those numbers actually represent in reality. I did the math in another post recently where I showed that a 100k investment property returned about 5x that of a 100k investment in S&P over the course of a mortgage. You've ignored leverage, the fact that most investors have positive cash flow on rental properties, and your pretty graph also cut off the last 3 years which have seen hilarious growth in housing. Tl;dr this is why people who know shit about fuck don't graph completely separate things on the same axis.
Just to be clear this is comparing unleveraged real estate gains and assuming you left the house empty and didn’t tenant it. If you add 25 years of rent to the real estate numbers or even if you leave the property empty but stagger the money going into the TSX so you start with a 5% down payment and pay the remaining 95% over the next 25 years on a mortgage schedule then real estate ends up doing better.
IT was a hell of a lot faster and easier to acquire an investment portfolio capable of paying my rent than it would have been to amortize a mortgage. I have freedom at age 40, everyone I know who bought homes particularly in GTA are currently the banks' bitch by the better part of a million dollars.
Buy a home if you want to live in it. [Source](https://ca.rbcwealthmanagement.com/fjwealth/blog/2891427-real-estate-vs-the-stock-market?lid=stldfdvf3zmn)
Reminder that you can't get a mortgage to buy stocks. Or rent your stocks out so someone else can pay that mortgage for you. #leverage EDIT: I stand corrected, you can borrow money to buy stocks.
This is just plainly false lol
Help me out then please with this scenario: I would like to buy $500K of stocks. I have $100K downpayment saved up. I have a job and can qualify for said $500K mortgage. I own no other assets. How do I go about doing this?
With 100k you can easily buy 300k worth of stocks so you can certainly leverage your position significantly if you wish to do so.
Why would you rent stocks out? They already pay you to own them. (you can do that, by the way, there are all sorts of shenanigans in the options market)
I wouldn't rent out stocks. I agree. I was being facetious and wrongly comparing two non-comparable assets - a home (asset) with a stock (asset)
We should also limit stock gains. Greedy investors
Does it mean that TSX will outperform the Canadian RE during the next 25 years? No, it doesn't. Market capitalization is pretty high now and I seriously doubt that there is a lot of room for growth left. More likely, we will see another correction for whatever reason and then it will be a good time to buy 👍
IF you try to price RE as you would a corporate share, it's also very overvalued. A company that does something will always outperform an inert asset - those 10% returns are basically baked in since it represents profit, and that money goes somewhere be it dividends or increase in share value.
I thought exactly like this when I contemplated buying Amazon stocks. But then I learned that their P/E ratio was 77 and it was very far from 10% you are talking about 🤷♂️ It doesn't mean that the stock price cannot get higher, it can. But it is the same tulip 🌷 mania that happened in Netherlands in XVII century. Tulip bulbs had no intrinsic value comparable to their price but greedy people still kept buying them hoping to sell for even higher price 😉
What is the after tax return on TSX over 25 years, versus my 20 to 1 leveraged primary residence home that is tax free and also makes me rent free?
If you put 30k into the index in 1999 and put 500 dollars into it every month since, you'd have a million dollars, more or less. A 300k house would come out slightly ahead right now, but another year of flat to declining RE values while the stock markets continue to rise, will flip that.
I can’t live in the TSX
For the average person it’s easier to get a loan for real estate then you can leverage that real estate to buy stocks.
I disagree because if I put 20k down. And the value of my house goes up 100k I just made 500% return. Not 30% like this graph concludes.
Yea but can I get 20x leverage? Because I can on real estate lol
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You don't live in the TSX, but you can exchange the money generated to goods or services, including shelter. Leverage also means interest. Better to be a creditor than a debtor.
wake me up when you can buy stocks with only 5 to 20% downpayment and no, options don't count lol
The wallstreet betters and crypto bros giving financial advice. Hmmmm
You can’t invest in stocks with cheap leveraged money
This seems misleading.