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Johnny Horton

Re: Top 15 Real Estate Myths

Mon Apr 28, 2008 2:31 pm

Greenhorn:
The top marginal tax rate in B.C. is 44%. If you made an income of $250,000, your average tax rate would be only 35%. My estimate is reasonable. There is no such thing as a 50% marginal tax rate in B.C.


Greenhorn, I've just been informed that the top rate is 43.7% and it kicks in at $123,184.

Freako:
Free lunches are rare, so yes, that would indeed carry risk.


Well why not go all the way and invest in a real high risk thing that gives you 24% return. In that case your opportunity cost would always be higher than your mortgage cost.

You can buy many income trusts that generate a wide range of investment yields. Take your pick. Encana has a 15% dividend right now!
[quote="Johnny Horton"][size=100]

You guys are gamblers, that's your problem. A 15% dividend implies high risk, thanks, but no thanks.
 
lotuslander
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 11:08 am

condohype wrote:
The Top 15 Myths & Realities story is getting hammered in the comments over on the Sun's website. Even I couldn't help myself and made the coverage a subject for analysis on my blog. Sometimes, there is no distinction between news and advertising. Where are all the bulls?


Any thoughts about how the Sun will respond to the outrage?

Can they afford to ignore it?
 
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rentah
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 12:05 pm

Sure they can ignore it.
Do you think any of their readers will really notice?
No.
Nobody really holds these sources accountable in any meaningful fashion.
The 'Vancouver RE Realist' group is a rag-tag army of whacko bears like us on blogs like this.
We aren't a lobby group with advertising budgets.

One will have to tolerate much more of that kind of slipperiness after the whole Vancouver RE debacle plays out.
High profile commentators will be out saying they'd warned etc etc.
You can already see this transformation occuring on a well-known local realtor's blog.
We'll know they're lying through their teeth, but few in the general public will know that, and they'll retain their positions as 'important commentators' and 'experts'.

Example: Most people still largely see Alan Greenspan as 'The Maestro'.
 
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freako
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 12:08 pm

Well why not go all the way and invest in a real high risk thing that gives you 24% return. In that case your opportunity cost would always be higher than your mortgage cost.


No, you misapply opportunity cost. In an efficent market , ALL returns are equal once we adjust for risk. The only reason we choose one over the other is PERSONAL PREFERENCE.

In other words, a risky 24% return is EQUAL to riskfree 4% return. There is no free lunch. Risk-return is a continuum.
 
jockey1
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 12:30 pm

ALL returns are equal once we adjust for risk.


Interestingly this is very true with housing "returns" across the country. If you look at the Sauder real estate database of house prices and compare the historic average annual gain across the country, Vancouver does in fact come out ahead of pretty much every other city in Canada. So the perception that "Vancouver is the best place to make money in real estate" is not that off base.

However if you standardize that annual house price return by unit of risk (ie., the volatility), house prices in pretty much every city returned the SAME rate. In effect, this says that all we are doing is accepting more risk for the higher returns from housing here.
 
Johnny Horton

Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 1:56 pm

Freako:

In other words, a risky 24% return is EQUAL to riskfree 4% return. There is no free lunch. Risk-return is a continuum.


Now we are getting somewhere. . So if you apply a risk free return of 4% as your alternative opportunity, your true opportunity cost ain't all that high. And after tax , it's even lower...4% times .35 = 2.6% is paltry. So it's just personal preference that you choose a return of 8%, 15%, or 24%..... just admit it, you smarties are just risk takers who like to GAMBLE because after everything is adjusted for risk, all you can really get is a 4% risk free expected return.

BEARS = GAMBLERS :mrgreen:
 
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betamax
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 2:31 pm

hiandre wrote:
There are those who "do" and those who teach...


There are two types of people in this world: those who think there are two types of people, and those who don't.
 
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jesse1
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 2:53 pm

In other words, a risky 24% return is EQUAL to riskfree 4% return. There is no free lunch. Risk-return is a continuum.

I don't totally agree. In aggregate this may be true but, to take the example of being a landlord, there are those that are better at it than others. On average one can say the class of assets return x% risk-adjusted but within this there will be stars and duds. From this perspective there is a free lunch if you are good at what you do. The problem with the landlord example is that, IMO, many do not account properly for expenses, time, and inherent risk to show a return above what it really is. The same can go for those investing in other markets to be fair.
 
Johnny Horton

Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 4:01 pm

Jessee, pretty S.A.V.V.Y. response. :lol:
 
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freako
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 6:47 pm

I don't totally agree. In aggregate this may be true but, to take the example of being a landlord, there are those that are better at it than others.


You missed the "in an efficient market" part. Obviously no market is perfectly efficient all of the time. Therefore it is possible to "beat" the market, but that requires a special skill. When we debate one asset class versus another, we cannot assume special skill because that is really a zero sum game. In other words, we don't judge equity returns based on Warren Buffetts performance, nor RE based on Oswald Jurock's (or whoever).
Last edited by freako on Tue Apr 29, 2008 6:51 pm, edited 1 time in total.
 
yogurt
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 6:51 pm

jockey1 wrote:
If you look at the Sauder real estate database of house prices and compare the historic average annual gain across the country, Vancouver does in fact come out ahead of pretty much every other city in Canada.

That's looking at price only. To compare investments, you must look at total return, which includes dividends, which for housing means net rental income. Vancouver has had the lowest rental yield in Canada for quite some time.

Also, the average annual gains have been severely skewed by the degree of the recent bubble in Vancouver. I think if you looked at, say, total returns to 2001 you would not see better returns in Vancouver than any other major city.
 
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freako
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 8:20 pm

So if you apply a risk free return of 4% as your alternative opportunity, your true opportunity cost ain't all that high.


Au contraire, you are again misapplying opportunity cost. Just as you can't use a super high risk 25% investment as opportunity cost reference, you can't go to the other extreme and use 4% risk free. To get an apples to apples comparison, you need to find something with similar risk to RE. Based on historical volatility, I'd eyeball that to be about 7-8%. Or you could use Sharpe ratios to calculate risk adjusted returns, but that gets kind of convoluted.
 
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rentah
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 9:03 pm

NEWSFLASH:
(genuine news!)
The Vancouver Sun 'Soundoff' comments on the "15 Myths & Realities" hogwash propaganda article has evaporated!
So, we are seeing them trying to disregard history while the body is still warm

PS: anybody capture a pdf of those comments?? I'd be interested in the 'boot'.
 
Johnny Horton

Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 9:08 pm

To get an apples to apples comparison, you need to find something with similar risk to RE....... Based on historical volatility, I'd eyeball that to be about 7-8%.



Hahahahaha, have you ever heard of Real Estate going "off the board"??? No? Me neither. Well then how can you compare the risk of any investment to the safe risk of real estate? So much for your "apples to apples" comparison.
 
Gringo
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Re: Top 15 Real Estate Myths

Tue Apr 29, 2008 9:28 pm

[quote="rentah"]NEWSFLASH:
(genuine news!)
The Vancouver Sun 'Soundoff' comments on the "15 Myths & Realities" hogwash propaganda article has evaporated!
So, we are seeing them trying to disregard history while the body is still warm[quote]

This is quite a remarkable -- it looks like the Vancouver Sun's interpretation of "freedom of the press" means the freedom to delete posts when they're clearly unfavourable to the Vancouver Sun. The last post of the day appeared sometime in the early afternoon. I submitted a fair comment on the article shortly after that, and it was never posted. Checked back tonight and they're all gone.

Who needs censorship when you've got media like this.

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