Personal Finance

Kevin O'Leary says real estate will be a "crappy investment" over the next 5-10 years

  • Last Updated:
  • Jun 10th, 2014 2:44 pm
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Sr. Member
Oct 29, 2007
698 posts
68 upvotes
Victoria
michty6 wrote: Haha yeh no debate here. I would say the vast majority of house sales in Canada are well below $1m though! I would still believe the vast majority are also bought by people looking to live in them too. For these people the investment potential is but a small aspect.

Of course there are many other people not like this, making less sensible decisions. Maybe I'm being naive but I would like to think they are a minority!

Very good point. I've always believed that the more Canadians that own the dwelling that they live in, is a better Canada for all of us. Forget about investments and returns and all of that.......
Sr. Member
Aug 7, 2014
563 posts
243 upvotes
I will listen to the advice of anyone who has been successful to make more money than me.
Member
Aug 16, 2007
228 posts
47 upvotes
intercollector wrote: Very good point. I've always believed that the more Canadians that own the dwelling that they live in, is a better Canada for all of us. Forget about investments and returns and all of that.......
arkroyal wrote: You might be interested in reading this... http://www.businessinsider.com/high-hom ... nt-2013-11
Excellent link arkroyal. It applies to Canada too... Guess which province has the highest unemployment? Hint: it's the province with the highest % home ownership.

http://www.statcan.gc.ca/daily-quotidie ... 1b-eng.htm

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Banned
Nov 27, 2006
2200 posts
445 upvotes
Toronto
when yields move, housing landscape will move.
Sr. Member
Dec 9, 2007
541 posts
16 upvotes
Vancouver
A house is an asset and a life style, if you make a profit on it - bonus!

The problem is that too many people talk about how amazing of an investment real estate is and it has been for the last 10-15 years but they also don't factor in the fully loaded cost (interest, maintenance, real estate agents, all the extra crap they stuff in that house just because they have it, taxes, etc.). Like all assets/ investments you need to diversify and most of us have way too high of a percentage of our wealth in our home or other real estate. It will be a fun ride when interest rates start to rise again, small jumps will start making life very hard for many people.
Deal Guru
Dec 11, 2008
13066 posts
3756 upvotes
whodaphucru wrote: A house is an asset and a life style, if you make a profit on it - bonus!

The problem is that too many people talk about how amazing of an investment real estate is and it has been for the last 10-15 years but they also don't factor in the fully loaded cost (interest, maintenance, real estate agents, all the extra crap they stuff in that house just because they have it, taxes, etc.). Like all assets/ investments you need to diversify and most of us have way too high of a percentage of our wealth in our home or other real estate. It will be a fun ride when interest rates start to rise again, small jumps will start making life very hard for many people.
I agree. If people want to buy a house, just buy one for lifestyle. But it bugs me when people justify buying a house as "it's an investment" "I'm building equity". A house is place to live whether you rent or buy.

And for those who are using it to live in, I would never assume it will make money. It's not my retirement plan. It's where I live for the time being and I am buying because of the intangible benefits of owning.
Deal Fanatic
Jan 11, 2004
5000 posts
611 upvotes
Victoria
brunes wrote: Not really considering he made all his money with 1 giant deal during the Dot-com boom. I am pretty sure his net worth has actually decreased since then since the deal is often quoted to be in the billions.
I think his software company had several partners so the whole deal was billions but his share was less than that. Regardless, I think O'Leary is not an expert in anything but saying bombastic statements.
Not a political sig
Deal Fanatic
Jul 4, 2004
9473 posts
2650 upvotes
I think Kevin is onto something. For most people, they probably won't realize a significant return when you factor in mortgage interest, ever increasing property taxes/assessments, home repairs, utility expenses, insurance. If you bought a home mortgage free then you've got a chance but for most people, most of their equity is eroded thanks to mortgage interest.

When interest rates go up at least 1% more then what they are today, you'll soon see a lot of people who have over-bought try to get out of the market since they can no-longer afford the mortgage.
Sr. Member
Apr 21, 2010
998 posts
86 upvotes
I think I watched him talk about this and he was saying that young couples should rent for a while instead of going for a mortgage and getting shackled to it and to themselves as such. Even though he likes to pontificate about money, sometimes he says a very common sense type of thing. Nothing mind boggling.
Member
Mar 31, 2013
396 posts
84 upvotes
Toronto
I think the problem on this (and many other) forums is that people seem to be polarized into either a RE crash or that it will continue to skyrocket forever. There is a chance for something in the middle where RE may not move all that much, having a balanced portfolio would earn more. The decision for a primary residence is one thing since you have to live somewhere, but to purchase any additional real estate as an investment doesn't seem like the best idea to me.
Sr. Member
Dec 24, 2013
668 posts
80 upvotes
Toronto
intercollector wrote: Very good point. I've always believed that the more Canadians that own the dwelling that they live in, is a better Canada for all of us. Forget about investments and returns and all of that.......
How is it better? It has been shown that those who rent have better mobility (i.e. less attachment to a house) which increases their mobility when it comes to sourcing jobs in various parts of the city or out of town.
Heck Germany and Switzerland have some of the lowest rates of home ownership and they are doing quite well.

Fact is, most people don't actually own their home. They still owe quite a large portion of their mortgage and it is really CMHC (the taxpayer) who is backstopping the mortgage if anything goes wrong. So all these people who are going out and buying homes, are doing so on the backs of all taxpayers... quite ludicrous.
Sr. Member
Dec 24, 2013
668 posts
80 upvotes
Toronto
whodaphucru wrote: A house is an asset and a life style, if you make a profit on it - bonus!

The problem is that too many people talk about how amazing of an investment real estate is and it has been for the last 10-15 years but they also don't factor in the fully loaded cost (interest, maintenance, real estate agents, all the extra crap they stuff in that house just because they have it, taxes, etc.). Like all assets/ investments you need to diversify and most of us have way too high of a percentage of our wealth in our home or other real estate. It will be a fun ride when interest rates start to rise again, small jumps will start making life very hard for many people.
Also most people only look at the nominal price of a house year to year and totally disregard any real price increases (i.e. account for inflation).

Ex. a $300K house can cost $21000 in expenses in one year (assuming real inflation loss @ 3%, ~ $9K), tack in taxes (~1% = $3K), interest (3-5% of balance owed, say $6K), maintenance(~1% or $3K). Your house has to go up $21K in value just to break even and you've also earned nothing in a year, in real terms.
Deal Addict
Jan 11, 2004
1277 posts
161 upvotes
I'd never take any advice from O'Leary. This is because he has demonstrated that what motivates him is him making more money. You never know why he is saying what he is saying, is it for your benefit or for his? That is why his advice is unreliable at best.
Deal Fanatic
Dec 5, 2009
5768 posts
3612 upvotes
GonePostal wrote: I'd never take any advice from O'Leary. This is because he has demonstrated that what motivates him is him making more money. You never know why he is saying what he is saying, is it for your benefit or for his? That is why his advice is unreliable at best.
Right. He owns a mutual fund company and he is telling people to invest what they have in the stock market. There's a surprise.

You can be sure O'Leary owns his home and probably more than one RE properties.
Deal Addict
Jun 11, 2005
2823 posts
459 upvotes
KO is a bit of a goof and makes statements in a way so that he wants to capture an audience. I remember when he used to be on BNN with Amanda Lang - he said that Cdn banks are over-owned, etc. and he would never own them. Fast forward a number of years, Cdn banks have been the best performers on the TSX. To me, he is someone who got "lucky" by selling a business worth his share of a billion (to quote other posters).

I do however have some agreement with his view here.
Deal Addict
Jan 10, 2007
1863 posts
344 upvotes
Woodbridge
jblast wrote: Also most people only look at the nominal price of a house year to year and totally disregard any real price increases (i.e. account for inflation).

Ex. a $300K house can cost $21000 in expenses in one year (assuming real inflation loss @ 3%, ~ $9K), tack in taxes (~1% = $3K), interest (3-5% of balance owed, say $6K), maintenance(~1% or $3K). Your house has to go up $21K in value just to break even and you've also earned nothing in a year, in real terms.
stop making sense please
Deal Addict
Jan 10, 2007
1863 posts
344 upvotes
Woodbridge
KO is a character.

He plays into it well. And then started his own fund. profit!

though if you watch the video he makes perfect sense.

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