Inflation the Highest it's Been in 40 Years (Pro's & Cons)
Get options. Right? So that's a hedge against inflation. And that's what we're talking about. You got to do it. Even if you don't buy real estate. There's a lot of good reasons why real estate first of all, because you can leverage and all kinds of stuff, right? But just put it somewhere. Don't leave it in cash. Don't leave any bank account. It's not a good idea.
Transcript**
Kenneth Yim 0:00
Welcome to another edition of Broadview table talks. We haven't done one in a while. So I'm excited for this one. And today is a pretty interesting topic that everyone's I know you guys feel it. I know you guys hear it, and we're all living through it. It's inflation, inflation and what the effect is on the real estate market. So with that, let's get started. Michael, tell me, what do you know about inflation?
Michael Ng 0:39
So right now, we hear news articles all the time that says inflation is at record highs. And yeah, that's true. We haven't seen inflation rates as high since the early 90s. It's not necessarily a bad thing. It's just because of circumstances that we're in, you know, with a pandemic, with the war and Ukraine happening. There are a lot of things that are getting more expensive, it's understandable,
Kenneth Yim 0:57
supply chains, and all kinds of stuff. Right. So they always say that, I think we're starting to decouple the interest rate hikes from the whole inflation stuff. You know, as we're raising hikes as a raising rate, I personally argue that prices aren't going to come down anymore. I still don't think they are, you know, with supply chain slowdowns, and like, just, everything's just getting more expensive, you know, materials costs and wages and all kinds of stuff, right. So, what am I going to do? What do we even do with Real Estate prices?
Michael Ng 1:28
The big thing about inflation is that, yeah, it's an indicator of what our economy is doing. It's growing. We always try to aim for 2%. But right now we're at 5.75% for February. So the big thing right now is that, you know, like you mentioned, the decoupling of inflation from interest rates is happening, real estate is really not going to change, because at the end of the day, it's not merely a factor of inflation or growth of money supply. It's really the lack of supply that's pushing prices up.
Kenneth Yim 2:00
Yeah. Yeah. In fact, actually, I think that inflation is caused by the house prices, right? Because if you look at the basket of goods, the CPI basket of goods, how they define inflation, nearly 40% of that is coming from house prices, not from prices, but from the carrying cost of the prices. Right?
Michael Ng 2:16
Yeah. So that's where the arranger supply pool, it's a demand push a transitionary measure.
Kenneth Yim 2:21
That's right, buy more real estate, call it a and a podcast, don't call it
Michael Ng 2:27
the the best asset that you can have during high inflation is
Kenneth Yim 2:30
real estate. It's the biggest hedge against it, I guess. Right? Like, the thing is, what I'm saying is decoupled buy from real estate prices from inflation hikes is because realistically, just because they're gonna drop interest rates, I just, I just don't see the real estate prices coming down. I really don't like it's gonna
Bahder Boestamam 2:45
maybe just level off. But it's still gonna go up and like, it's not gonna drastically go up. Like, I was like, January, February is gonna just a steady rise, ya know,
Mark Botelho 2:55
but it's even, it's still the safest bet. Because you hold on to real estate. I mean, you go through the ebbs and flows, you're still gonna end up on the better end of it regardless. Right?
Kenneth Yim 3:05
So, you know, everyone asked me, how's the market as market? I don't know, if anybody's telling you, they're lying to them. No one knows what's gonna happen in the future, right. But what's happening, what I do see is that we were at a peak at some point for the since COVID. You know, things traditionally, the spring market is the best time to sell obviously, traditionally, there's most amount of buyers out there. And you know, depending on your place can compete. If it shows well, then it'll do really well, right? Average prices typically go higher in the spring, however, COVID kind of messed that up. And we've been on a tear away on a runaway for the past two years. And now we're starting to find see, because interest rates are going up and everybody's the buyer sentiment is kind of getting a little crazy, less people are buying. So it's kind of coming down a little bit, I find from precedent, what we've seen in the past couple of weeks, there's not as many offers that show up and overnight anymore. Right? We're starting to see things a little normalized. But if you look into the long run, you zoom out a little bit, yeah, it goes like this. But over time, it'll just kind of ebb and flow like this is what you're talking about right over the long run. So if you're buying real estate for the next 20 years, right, with a 25 year mortgage in place, you're not gonna lose. Because guess what, tenants still need a place to live and they're going to rent it, whether they're paying, I don't know, $4,000 or $3,500, or $2,000 versus $2,100. It's not the end of the world you can make up if you're still working. You can make up the cash flow by supplementing the real estate costs with your own income, right?
Mark Botelho 4:30
Yeah, no, I was gonna say and like you said, I mean, even though the ebbs and flows are gonna happen, they're gonna happen at a higher level and continue to go up. I mean, the easiest thing I would say to compare it to is, with money itself, someone comes to you and says they want to borrow $100 I'm gonna give you $120 back. You think it's great because it's like a 20% return. But the fact of the matter is with inflation, you don't know what's going to end up happening. By the time you get that money back. It's really going to be worth $120 may not be so real estate is Escape is bad. In the long run, and funnily
Kenneth Yim 5:02
enough, it's exactly what the government is doing with borrowing money, printing money, I should say. So they're basically borrowing 100 bucks from the Bank of Canada, or whoever, and then the printing more money, so they create more, and then they pay back 120. But the $120 Worth is may not buy as much anymore, right? Like we see the present rating go up. So, there, that's, that's what investors are doing as well, too. And that's why investors are winning the ones that are doing it, right. Because you're boring money, you're fixing the price. It's the same number two arguments purposes, right? You're buying a place with million bucks, you're paying that million dollars over the next 25 years, yes, you're paying interest, but over the 25 years, by your 24, by your 25, whatever, you still bought it for a million bucks, even though that could be worth three, nine at the time. So that's why you're going to win, I think,
Michael Ng 5:51
what do you ever actually lose in real estate, like you bought something and then to be honest, we lose people to panic. So the market goes down so much, they panic, and they unload at the lowest point or on the way down, that's when you you hold on to it, you're gonna you're gonna make it up. In the end, as long
Bahder Boestamam 6:09
as you're gonna make the monthly payments and all that you still have a job that says, then you're okay like this to say the prices go down, you're not gonna be like, Oh, my God, my house is not worth as much. But at the same time, you're not selling it right now, you know what I mean? You're holding out. So if you still can make the payments, what's the point of selling this week?
Kenneth Yim 6:28
I wouldn't even ever do this, there's certain ways that you can lose. And I think the biggest way that you would lose is through transaction costs. Because when you buy the place, you're you're paying land transfer taxes, lawyer fees, commission, all that stuff, right. And then when you sell you're paying commissions, right? So either way, if you do it quick enough, if you don't let the equity grow fast enough, then you're going to end up losing based on transaction costs. It's just the way it is. In the long run, you can lose in real estate, like I'll give you an example of a condo that I had over there. Before the pandemic, I was getting $21 a month in rent for one bedroom. Somebody left her pandemic and then I got 1750, I tried holding a job and play slowly, slowly, slowly end up getting some team 50 for rent. And now, it's back up to $2,100 Meaning 22. Really, right, so that tenant left, and we put it on the market, and I'll probably get 2200 for it, you know, so as long as you can hold out, if I panic sell during that time, I would have made a little bit of money moving and lost money. But over time, it would have made sense. So it will make sense I should say 35,000 Is your max, you can withdraw from your RSPs max it out, right do whatever you can save, max it out, shacked up with somebody by the place or somebody, even if it's not your spouse, maybe it's a partner, they buy it with a friend or whatever right now combined, you can withdraw up to $70,000 in your RRSPs. Now what Bob was saying is that because you're putting that money down to take to hedge against you basically the tax deferral, so you basically take that off your income for the year, so you will get a refund. And you're saying up to $6,000, we gotta do the math on it. But this is 6000 bucks for argument's purposes they didn't put on one year. That's $41,000 per person. Exactly. Right. So now we combine the two people, you got 82,000 As your down payment. All right, yeah. And you got to remember, if you're buying something in Toronto, as a first time homebuyer, you don't have to put 20% down a lot of people think you do, you could put up to 5% on the first 500,010% On the next from 500,000 to a million. So let's say you buy someone for seven or 50,000 Nobody next one goes down, right or whatever, right? The downpayment you got to put down is 75,000, right? Plus some CMHC costs and mortgage insurance and all that stuff. But that's your 81,000 Right? There are two people can't tell you you can't buy a property like you can.
Mark Botelho 8:48
In fact, a lot of people say not to put the 20% down to put the minimum payment down because the money that you didn't put into that you could actually invest somewhere else and get a greater return. Yeah, and just having
Bahder Boestamam 9:00
it takes longer to save 20% If you have the first five years I was appointed as exhausting, because even though they're CMHC fees, there's gonna be all consolidated in the loan
Kenneth Yim 9:09
anyways, right? And you get a better rate. Either you have over 35% down or you have a CMHC or Genworth or whatever, you have an insured mortgage that's going to get the best rates so you might even save on the mortgage insurer so I can't say there's an excuse to not buy real estate like for the general public. If it's your goal and you've won a bad enough you make those sacrifices don't need those. I'm kind of Towson get your Starbucks coffee.
Michael Ng 9:35
It's just interim. But it's for that reason. I love that my friends are like yo, it's just too small. There's so much truth this summer. Yeah, hoping it will get better by my guest,
Kenneth Yim 9:51
the more you hope it's just an excuse for taking inaction and not doing what they know like it could get more for them when he likes to bring up Texas, go do it, do it. That's what I'm saying go do and they won't, they'd rather go buy like Gucci belt, or whatever, you know what I mean? Like they're
Bahder Boestamam 10:08
already what they want to do with their lives. You want to just spend whatever you could make. That's basically what's happening, right? It's instant
Kenneth Yim 10:14
gratification at the end, easy to get those luxury goods now, because you want them right, and it makes you feel good. But if you have that delayed gratification, and you wait till later, you'll it'll pay off in dividends in the future.
Mark Botelho 10:26
But it's also like I said, in the other video was, you know, anybody can make excuses for whatever you're doing, whether it be real estate, buying real estate, working out, all that kind of stuff. Everybody can make excuses. And one of the things I say is, you know, don't wait to buy real estate, buy real estate and
Kenneth Yim 10:42
wait. Yeah, I don't mind not being fit anymore, because I know what sacrifice it takes to get there. So I tell them what beggar clothes the way to do it. But ultimately, you know, I got my properties in line. I'm good, you know, because I took that sacrifice early. And and did it. So you guys do the same.
Mark Botelho 11:01
I mean, same thing, like the story that I you know about is when we bought our first investment condo, Jacqueline Fenner, she was pregnant with our first son. And, you know, there was a bit of like, should we get rid of it? Should we get rid of them decided to hold on to it? No, it's the best thing we ever do.
Kenneth Yim 11:16
Get options. Right? So that's a hedge against inflation. And that's what we're talking about. You got to do it. Even if you don't buy real estate. There's a lot of good reasons why real estate first of all, because you can leverage and all kinds of stuff, right? But just put it somewhere. Don't leave it in cash. Don't leave any bank account. It's not a good idea. You're gonna get penalized for that savers are the ones that unfortunately, are getting penalized because of this whole way that the government printing money just diluting our currency basis is debasing our currency, you know, just printing more and more money, and it just makes it worthless, less more. And that alone guarantees that you can do well in real estate. So with that, signing out, see you next week. Talk to you and thanks for joining us. Broadview Table Talks.