Real Estate Investment Trusts have variable rates though. No guarantees on returns. Which ones are you in? Hybrid? Beats mutual funds.
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question regarding mortgage?
- Thread starter rashidme
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Real Estate Investment Trusts have variable rates though. No guarantees on returns. Which ones are you in? Hybrid? Beats mutual funds.
johnp
Well-known member
you have to risk adjust your returns to be able compare one investment to the other. For example if you're paying 2%/yr interest on a mortgage:
[1] the 2% is after tax money. So if you're in e.g. the highest tax bracket in Ontario (almost 50% incremental rate) that means that you would have to find an interest_earning investment that yielded over 4% before tax before it made sense to NOT pay down the mortgage and invest instead.
[2] the mortgage is a certain cost so your investment opportunity, to match this, would have to also offer a certain return of at least 4%/yr. No way you could get a certain return of 4% - which certainty btw is only available from Canadian federal govt bonds.
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And this is why some smart people are paying down their mortgages. Paying down a 2% mortgage in the above example, is the same as getting 4% risk-free which you can't otherwise get in the market.
Put another way if you invest in e.g.stocks or like that and do NOT pay down the mortgage you have borrowed money to invest (the mortgage is your loan). You are now leveraged and that gives you exaggerated gain or pain.
[1] the 2% is after tax money. So if you're in e.g. the highest tax bracket in Ontario (almost 50% incremental rate) that means that you would have to find an interest_earning investment that yielded over 4% before tax before it made sense to NOT pay down the mortgage and invest instead.
[2] the mortgage is a certain cost so your investment opportunity, to match this, would have to also offer a certain return of at least 4%/yr. No way you could get a certain return of 4% - which certainty btw is only available from Canadian federal govt bonds.
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And this is why some smart people are paying down their mortgages. Paying down a 2% mortgage in the above example, is the same as getting 4% risk-free which you can't otherwise get in the market.
Put another way if you invest in e.g.stocks or like that and do NOT pay down the mortgage you have borrowed money to invest (the mortgage is your loan). You are now leveraged and that gives you exaggerated gain or pain.
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But but but... then how would people like this get to play with my money and make their living this way??? You can't lose here... can't you read!
PS: How do you have time for all this with all that gold you are moving here and there...?
While I will agree that paying down a mortgage is the safest way to invest your money, it is also the least profitable. Houses are a liability, not an asset. I earn 8% interest on my investment and it is guaranteed and the risk is minimal. Just because you are not familiar with it doesn't mean it does not exist.
I do lots of stuff. I shut down my bullion business and now I just get paid to sell other peoples metal.
Not looking for an arguement but about 90% of bankers will list houses on the asset side of the page, assuming you have some equity and if it was a liability you couldn't use it for collateral to secure the lines of credit to invest.
You don't often get personal secured lines of credit based on other debt you have incurred.
Then your doing this whole internet thing all wrong!!! :lmao:
Never trust a banker. Ever. The only reason a banker has money is because they work for the bank. Banks are the biggest crooks around.
Houses cost money to keep and maintain. They are hands down a liability.
eljay
Well-known member
This. Paying your mortgage is an absolutely RISKLESS return of INTEREST RATE/(1 - TAX RATE). Better than any savings account or government bonds right now. Corporate bonds have done well with falling rates the last few years giving about 7 or 8% return, but as soon as rates rise, you'll be looking at about 5% loss for every 1% rise in rates. Probably not going to happen this year but next year maybe. For now, rates won't go much lower so you'll only get yield from bonds, about 2% after tax. Don't expect bond appreciation from here on (on average).
You won't get a higher riskless return than paying off your mortgage in this environment. Any real estate investment has it's risks. It probably doesn't seem like it lately since there haven't been many catastrophic failures in recent history, but it's not impossible for an investor in a project to lose everything as a result of unforeseen market risk (or fraud!)
I completely agree. But a person who lives to just pay off their mortgage and never puts their money into anything else will never have money. They will have a house. That's it. There are lots of other ways to invest that are very low risk and would make you income without having to work. Lot's of us do very well and never have a loss.
eljay
Well-known member
I totally agree. Just saying paying off the mortgage is the best riskless return. I don't advocate only doing that, but for those that sock it all into GICs and money market funds, they should be paying off their mortgage first. Then they'll have equity to draw on to take advantage of better opportunities. The other low return riskless investments don't pay anywhere near what the mortgage is costing.
Someone loses...
Diversification is your friend. Regardless of what you do, never have all your eggs in one basket.
Diversification is what people do when they don't know what the hell they are doing, imo. You can diversify all your stuff into a bunch of garbage investments and make zilch. Do your due diligence and don't listen to just one person especially if they call themselves a financial advisor.
If real estate is your one and only egg in your basket, you might want to consult with some folks to the south of us about what happened in the 2007 - 2008 timeframe.
The strategy that Red695 claims is risk-free, is contingent on the condo under construction being sold for more than its construction cost and on the developer being able to sell all the units. While that has generally been true so far in the Toronto market, there is a fair argument that housing in Toronto, if not in much of Canada, is in a bubble. If the bubble pops, and the units in the condo can't be sold for the anticipated profit, someone loses. "Guaranteed" payouts are only valid if the issuer is not in bankruptcy.
Remember, millions of Americans operated on the assumption that housing prices would never decline, over-leveraged themselves with the expectation that the house that they paid too much for would be worth even more so that they could borrow even money against it ... until the housing bubble popped and left them holding the bag, which in turn, left much of the US mortgage business holding the bag.
The strategy that Red695 claims is risk-free, is contingent on the condo under construction being sold for more than its construction cost and on the developer being able to sell all the units. While that has generally been true so far in the Toronto market, there is a fair argument that housing in Toronto, if not in much of Canada, is in a bubble. If the bubble pops, and the units in the condo can't be sold for the anticipated profit, someone loses. "Guaranteed" payouts are only valid if the issuer is not in bankruptcy.
Remember, millions of Americans operated on the assumption that housing prices would never decline, over-leveraged themselves with the expectation that the house that they paid too much for would be worth even more so that they could borrow even money against it ... until the housing bubble popped and left them holding the bag, which in turn, left much of the US mortgage business holding the bag.
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Well actually, that is not true. You get 8% annually on your investment for the length of the contract term, which is generally 2 to 3 yrs regardless of sales. All permits and bank financing are required to be in place previous to my company becoming involved. In order to earn an additional 12% at the end of the contract term the build has to meet the projected revenue. My company has a 100% success rate since opening ten years ago. Never talk out of your a*s. I will call you on it.
Millions of Americans had a 100% success rate with buying houses and borrowing against the equity created by increasing real estate value for the 10 years leading up to 2008, too.
There has to be a catch. HAS to be. I might not have pinned it exactly ... but it HAS to be there. No such thing as a free lunch.
The last 10 years in Canada have seen ever-increasing condo prices and number of units being built. Nothing goes on forever.
There has to be a catch. HAS to be. I might not have pinned it exactly ... but it HAS to be there. No such thing as a free lunch.
The last 10 years in Canada have seen ever-increasing condo prices and number of units being built. Nothing goes on forever.
The company's bankruptcy, however unlikely, always raises the risk to non-zero.
What the hell are you talking about? There is no free lunch. Invest and make 8% guaranteed annually and if the build makes numbers its 12%. No catch. Yes it is more risky than paying off a mortgage. Stop being nuts and if you are interested get involved before you invest. Sitting here going on about sh*t you obviously no nothing about is pointless.
Maybe just stick to paying off your mortgage like Lightcycle recommends is best for you as it's clear you are both terrified of contemplating anything beyond that.
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