Can't think of a title

I had posted a detailed, negative cash flow, real estate investing example for a half hour or so yesterday, but I became unhappy with it and took it back down. 


It will suffice to say that I am extremely bearish on the Canadian housing market, and have been for the last several years (ask anyone who talks to me on a regular basis...).  I expect a decline in nationwide average prices to pre-2005 levels.  There are a variety of reasons to expect such a downturn, and a great amount of information on the matter can be had at various other sources (see the blog roll on the right of my site for some of the best ones).  I am also increasingly beginning to think that the tide has already turned, given both the shift in the mainstream media's treatment of the issue over the last couple of weeks, and the high number of acquaintances I have that have bought houses in the last 6 months (the majority of which I would never lend money to), but we shall see.

This is a good time to bring up Bob Farrell's 10 Rules of Investing (I get a kick out of the fact that the article I link to below is from the summer of 2008).

As I learned on my Hawaiian vacation last week, all it takes is an hour or two in the airport to witness every flaw in human behavior and learn how one can profit from the ignorance of the herd.

Additionally, I strongly believe that there are only two ways to make money.

Hard work and good fortune.

Only one of these methods is sustainable and it is extremely important not to confuse the two.

What do you think is a better way to grow wealth?

Borrowing a massive quantity of money to acquire a historically and fundamentally overvalued, incredibly illiquid asset, with the hope that your sheer ability to stare boldly at your stainless steel appliances and granite counter-tops will result in a repeat of the price increase of 2006/2007 (which only occurred due to an unprecedented change in lending standards)?

Or, consistently living below your means and investing your savings in a liquid, diversified portfolio of financial assets yielding a rate of return commensurate with the risk taken?

I thought so; though it's amazing how many people shy away from equities but do not even think twice about financing 95% of a real estate purchase over 35 years.

My wife and I happily rent a 1700 square foot, 4 year old townhouse, with an attached double garage, in a great neighborhood, with a crew that clears the snow/mows the lawn several times a week.  Our monthly housing cost is less than 17% of our net monthly income, and we have the ability to move at any time for any reason with just 30 days notice.  We tend to move often to spread the money around different landlords, and to add a degree of excitement to their lives.

While I often get the impression that some people view us as second-class citizens for renting, all it takes is a look at our bank account balance (and maybe a trip to Hawaii a couple of times a year with some of our investment income) to get the warm and fuzzies back. 

I highly suggest reading the following.