Better than Calgary real estate （转贴）

三言两语 · 发表于 2006-6-26 23:32

Better than Calgary real estate

http://www.fundlibrary.com/features/columns/page.asp?id=12146

By Kevin Cork | Wednesday, June 14, 2006

Is real estate really the best way to build long term assets? “Real Estate the Best Investment!”

“Calgary property provides phenomenal returns!”

“Alberta real estate will go up forever!”

These are the kind of newspaper headlines I am sure I would have found if I hadn’t been too lazy to look. Every day, in both national and local media, we see articles trumpeting the resurgence of real estate and the vast increase in owner’s wealth that has happened over the last couple of years. Because this has happened over the last few years, many people, specifically 20-30 year olds, have this belief that it always been the case.

So, as a financial planner, I need to ask myself: “Is real estate the best way to build long term assets?”

Here is the change in housing prices in Calgary over the last twenty-five years. This was taken from the Calgary Real Estate Board figures and averages all types of residences.

In Calgary, twenty-five years ago the average residence cost just over $106,000, as of December 2005, the average residence was $250,943. So we have seen the average price more than double in value in twenty-five years. Further, according to the Globe and Mail on June 1, 2006, house prices in Calgary have increased another 30% since year-end, bringing the approximate total to $325,000. Sounds pretty good doesn’t it.

So was there anything else that earned that much over that time. How much less would you have accepted if you didn’t have to spend any more time, energy or money on it as an investment?

According to Dec05 Globe Hysales, here is how two sample investments would have fared over the last twenty-five years (to the end of 2005)

I “invested” the same $106,000 in two of the long-standing global equity funds on 12/31/1981 and achieved these results as of 12/31/05. As with the property figures above, sales fees, taxes etc are not factored into the results.

Mackenzie Cundill Value A Ending Market Value: $1,974,487

Trimark Fund SC Ending Market Value: $2,507,558

The passive, boring and commonplace mutual funds would have generated roughly eight times the return. This would look like this:

So if you had taken the $106,000 you were going to put into an investment property twenty-five years ago and plopped into the Trimark Fund instead, you would now be able to take the money out and buy eight houses.

These two funds have risen less than 1% in these first five months of 2006 so these numbers are basically unchanged. Global funds have not been a big hit recently. The Trimark fund in particular has been unpopular with investors because of the relatively low recent returns.

Now to be wholly fair, the “A” version of the Cundill fund is not available for new investors and the “C” version currently for sale is more expensive, with an MER of 2.51% vs. 2.14%. (That extra 0.37% fee would have reduced the Cundill fund value to “only” an estimated $1.8 Million) On the real estate side, certain individual properties have done much much better of course-though some have done worse as well.

I have not included any possible rental income that may be generated in a rental property. But I have also not included any of the associated costs of owning a property such as property taxes, repairs, upgrades, un-rented months of carrying a mortgage etc.

Further, investing in a mutual fund is simple. There are no midnight trips to the place to deal with a flooded basement, arguments with tenants, time spent cleaning or painting, chasing bounced rent cheques, etc.

I am not trying to convince anyone that a real estate is a bad investment. Of course it isn’t. I personally own a house and have some other property development investments. AND I was advising people caution when buying investment properties almost two years ago and am still waiting to be right about that caution…

Investing in a single property in a single city in a single country is similar to investing in a single sector fund. It will unlikely drop to zero value of course but one could claim that this is a diversified investment. Quite the opposite. Proponents of real estate investing usually claim the concentration of the investment is one of its strengths. And, during the upside of the cycle, as we have seen, it is. Just as it is for resource stocks, tech stocks or emerging market stocks. It is during the downside of the cycle that diversification pays off. As financial planners we often talk about several layers of diversification. An individual property investment is often the opposite. It is a single, potentially ill-liquid investment using a focused strategy in an intensified area of a tiny, highly cyclical economy.

If you are truly concerned with building your long term net worth and have limited resources to invest, does it make sense to plow all of those assets into a single basket: a highly leveraged rental property? Especially when that basket has gone so far up in its current cycle?

I prefer clients buy currently unpopular assets that are low in value and sell currently popular assets that are high, even if there is potential for them to go higher.

醉酒当歌 · 发表于 2006-7-3 14:34

The fact is that Nothing can go up forever!

原帖由 三言两语 于 2006-6-26 23:32 发表9 T, \ B+ ~$ Z+ E+ z2 }! b
Alberta real estate will go up forever! ...

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