Author Topic: Invest in (Canadian) Real estate or stock market ? | October 2022  (Read 1396 times)

DesiOnFIRE

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Hello All!

I'm a new mustachian, a long time frugal person though. Recently attended Camp Mustache Toronto (well, Belleville actually :D ) in Sept/Oct 2022. Excellent event! (Based out of Greater Toronto Area).

I have been educating myself on the stock market (primarily indexing) for the past 3 years. Currently, most of our portfolio is in Canadian, US and International indexes.

We have a pool of money which we could invest right now. Probably around ~$75k (very grateful to be in this position). Our dilemma is whether to invest that in indexes (in non-registered accounts) or real estate. Since the markets are down right now and our jobs seem to be in decent shape (fingers crossed), I'm inclined to invest it in the stock market. Also, I understand it better than real estate, another big factor. The only real estate investment we have right now is our primary residence. Also, I'm also influenced by Kristy Shen & Bryce Leung's (Millennial Revolution) hands off approach of investing and real estate "realistically" will be hands on from time to time. :|

It seems like I'm answering my own question but I would love to seek guidance/advice from my fellow mustachians. What would you do if you were in my position?
(I do want to act relatively swiftly and hopefully capture the market downturn as much as possible).

Lews Therin

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #1 on: October 19, 2022, 07:58:33 AM »
Since house prices are still extremely highly priced, and the stock market is quite low, It'd be all in the market!

Freedomin5

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #2 on: October 19, 2022, 08:42:07 AM »
Since you already have a principal residence, I agree with everything Lews Therin said and also want to point out that interest/mortgage rates are also high, which is another reason to put it in the market instead of in real estate.

chasingsnow

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #3 on: October 19, 2022, 01:16:19 PM »
I would tend to agree market over real estate, though in one year real estate prices may come down substantially

DesiOnFIRE

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #4 on: October 19, 2022, 02:51:01 PM »
Thank you! This reaffirms my thought process. It is just a little nerve wracking to invest a relatively bigger pool in the stock market, all in one go. (I should learn from Kristy & Bryce again. They invested way more in one go than I intend to do.)
Would you folks break it down as a certain amount each week to potentially capture the lowest of lows or just get it done with?

Also, I would consider myself an uber aggressive investor. Less than 5% of current non-real estate portfolio is in bonds. 95% is distributed between Canadian, US & International indexes.
You are getting record GIC rates at the moment but since we are in the accumulation phase, I see no incentive to go that route for now.


Lews Therin

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #5 on: October 19, 2022, 02:57:00 PM »
All-in. Or else if it goes down, you might wait again, and again, and again, and never be willing to throw the whole amount in.

The market comes back extremely quickly when it starts going up.

Le Poisson

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #6 on: October 19, 2022, 03:21:55 PM »
A different twist. From a RE guy. Same answer, but arriving on a different tack.

You will be very challenged to find a rental property that works right now. Hitting the 1% rule in the current market is nearly impossible. Also your time spent on rentals is not nothing. A couple years ago I would have been telling you to chase rentals as our market was rocketing upwards, but now as we are watching prices level off and soften, and as we wait for rents to catch up with costs, I suggest you hold back. Put the money into investments.

Now, I am not saying that the stock market is ALWAYS the right answer. In a year you may see that there is a dive in RE valuation and you are able top jump on a bargain. If that happens, you can always pull equity from your primary residence against it. This is not a forever decision. We funded our forray into RE with a HELOC and have been coasting on that money ever since, letting our tenants pay down our mortgage and HELOC while we gain equity. Over the past 7 years that has been a great strategy for us. But we were able to hit the 1% rule on both of our rentals.

As for the all at once vs. dollar cost averaging (DCA) question, I've been in the same place as you twice, and twice I made the mistake of DCA investing. If you have a lumpsum, ignore your gut and throw it all in today. If you DCA, whether the fund goes up or down, you will miss disbursements and dividends, and if the fund goes up you will lose money too. Of course if it goes down you will come out ahead, but you can't predict that. So 2 ways to lose, one way to come out ahead if you DCA a lumpsum. Don't do it. Just hold your nose and dive in.

DesiOnFIRE

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #7 on: October 19, 2022, 03:55:18 PM »
Thank you so much Lews Therin & Le Poisson.

One more follow up question - Should I try to tax optimize this lump sum investment, potentially investing more in Canadian indexes as compared to US and International? Or make it simple and just buy based upon my target allocations?

Lews Therin

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #8 on: October 19, 2022, 07:00:15 PM »
If you want to optimize, swap-based etfs exist (no dividends)

I don't know your salary range, but at higher levels, the dividend savings for canadian investments aren't that great. But if you wanted to, you could try having the canadian portion of your whole portfolio in the open investments, rather than tfsa or rrsp, but O wouldn't chase the eligeable dividends, unless you have low income.

Metalcat

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #9 on: October 19, 2022, 08:31:52 PM »
I just bought 2 investment properties in Canada, both of which exceed the 1% rule, although I like one of them so much, I'm just going to keep it for personal use.

However, those were very rare, extremely lucky, well timed deals, both in markets far from my primary residence, and it would be extremely difficult to pull off again.

Very good real estate deals do exist, but they are the rare exception here, not the rule, and you really want to know your markets and the driving forces behind them.

I also bought in locations where I may want to relocate and the main purpose of buying property was to prevent being priced out in the future. So there was a major lifestyle motivator as well.

Lastly, the markets were bonkers high last year when I bought. So was the housing market, but as I said, I found exceptional deals that only worked out because sales fell apart on financing and I snagged absurd prices from freaked out sellers who should have waited, but didn't.

Right now??? With house prices and interest rates as they are and so, so many people dumping their problem properties into the market? N'ah, I would be index funds all the way. No question.

Freedomin5

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #10 on: October 19, 2022, 09:13:56 PM »
Thank you so much Lews Therin & Le Poisson.

One more follow up question - Should I try to tax optimize this lump sum investment, potentially investing more in Canadian indexes as compared to US and International? Or make it simple and just buy based upon my target allocations?

I'm in the keep it simple camp.

This is a learning point for me as well -- are there significant tax savings to investing in Canadian indexes (such as VCN) versus US/International indexes available on the TSX (such as VUN or VXC)? And what would those savings be on $75K?

Lews Therin

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #11 on: October 20, 2022, 07:04:59 AM »
Depending on your tax bracket, you're looking at something 75k x 2%x10%, so 150$.

(There's a 10% taxation difference in some brackets between eligeable and non eligeable dividends.)

DesiOnFIRE

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #12 on: October 21, 2022, 08:36:28 AM »
THANK YOU everyone for your insight. Looks like I will pull the plug and invest this amount all in one-go.

You guys gave me the nudge to jump over the cliff.

JAYSLOL

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #13 on: October 21, 2022, 03:03:47 PM »
THANK YOU everyone for your insight. Looks like I will pull the plug and invest this amount all in one-go.

You guys gave me the nudge to jump over the cliff.

Cool, congrats!  Remember, when dumping a lump sum in the market, the worst thing that can happen is the market goes down a little temporarily.  The worst thing that can happen if don’t invest that lump sum is it goes way up before you pull the trigger and you hold out and end up never investing because now it’s “too high”

clarkfan1979

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #14 on: October 22, 2022, 03:38:47 AM »
Hello All!

I'm a new mustachian, a long time frugal person though. Recently attended Camp Mustache Toronto (well, Belleville actually :D ) in Sept/Oct 2022. Excellent event! (Based out of Greater Toronto Area).

I have been educating myself on the stock market (primarily indexing) for the past 3 years. Currently, most of our portfolio is in Canadian, US and International indexes.

We have a pool of money which we could invest right now. Probably around ~$75k (very grateful to be in this position). Our dilemma is whether to invest that in indexes (in non-registered accounts) or real estate. Since the markets are down right now and our jobs seem to be in decent shape (fingers crossed), I'm inclined to invest it in the stock market. Also, I understand it better than real estate, another big factor. The only real estate investment we have right now is our primary residence. Also, I'm also influenced by Kristy Shen & Bryce Leung's (Millennial Revolution) hands off approach of investing and real estate "realistically" will be hands on from time to time. :|

It seems like I'm answering my own question but I would love to seek guidance/advice from my fellow mustachians. What would you do if you were in my position?
(I do want to act relatively swiftly and hopefully capture the market downturn as much as possible).

I like real estate and have 3 rentals (4 doors). Every housing market is different. For me, the stock market is very attractive, but not attractive enough to sell any of my rentals. In 2022, I raised the rent $1200/month and that money is going into the stock market.

Metalcat

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Re: Invest in (Canadian) Real estate or stock market ? | October 2022
« Reply #15 on: October 22, 2022, 06:29:07 AM »
Hello All!

I'm a new mustachian, a long time frugal person though. Recently attended Camp Mustache Toronto (well, Belleville actually :D ) in Sept/Oct 2022. Excellent event! (Based out of Greater Toronto Area).

I have been educating myself on the stock market (primarily indexing) for the past 3 years. Currently, most of our portfolio is in Canadian, US and International indexes.

We have a pool of money which we could invest right now. Probably around ~$75k (very grateful to be in this position). Our dilemma is whether to invest that in indexes (in non-registered accounts) or real estate. Since the markets are down right now and our jobs seem to be in decent shape (fingers crossed), I'm inclined to invest it in the stock market. Also, I understand it better than real estate, another big factor. The only real estate investment we have right now is our primary residence. Also, I'm also influenced by Kristy Shen & Bryce Leung's (Millennial Revolution) hands off approach of investing and real estate "realistically" will be hands on from time to time. :|

It seems like I'm answering my own question but I would love to seek guidance/advice from my fellow mustachians. What would you do if you were in my position?
(I do want to act relatively swiftly and hopefully capture the market downturn as much as possible).

I like real estate and have 3 rentals (4 doors). Every housing market is different. For me, the stock market is very attractive, but not attractive enough to sell any of my rentals. In 2022, I raised the rent $1200/month and that money is going into the stock market.

Yeah. The Canadian real estate market is a very different beast than the US market. We can't lock in mortgages for 30 years, most jurisdictions have very strong tenant protection laws (or they are getting them), and the public sentiment against landlords is VERY high right now. Plus our house price to rental rate is generally atrocious.

There's an apartment in my building right now listed for $2000/mo for rent, and nearly 500K for sale, which is common here. Me finding my duplex at 1.5% was just a freakish fluke of timing, and I had to buy 11 hours away, in what was the poorest region of the country at that point.

It's rapidly gentrifying though, which is the main reason why I bought. I may want to relocate there in a few years and I was worried about being priced out. So buying in with a cashflowing rental property was a hedge *against* rising property values, not primarily a speculation *for* them.

Still, a month after I bought, the province brought in extremely pro-tenant rent control laws, which makes the whole venture higher risk now.

 

Wow, a phone plan for fifteen bucks!