The Biggest Risk In Real Estate

It’s a fact that you’ve done well (or extremely well) if you have owned real estate over the long term just about anywhere across North America - this was true even before COVID sent prices soaring even higher. A US median house cost $3,000 in 1940, $120,000 in 2000 and about 3X that today. The story is very similar in Canada.

Obviously everything costs more today than it did then… or last year for that matter.  Owners of real estate benefit disproportionately from this dynamic for two major reasons – leverage & tax benefits. There is nothing else on this planet as easily understood and needed as place to live and as long as you can prove that you can pay you can buy your own home with very little of your own money upfront. As the years go by and you live your life, the property increases in value all that appreciation steadily increases your personal net worth… you don’t need to share it with the bank who paid for most of the house upfront. It gets even better because in the US the government lets you write off the interest on your mortgage and in Canada you can sell your own home and pay no taxes on any profits. Without question, owning your own home has been the surest way to get ahead in the last 50+ years. What about the next 50 years??

There’s plenty to be aware of including interest rates, the state of the economy and the kind of governments we elect into power…. But hasn’t that always been the case?

Today’s crisis will forever be tomorrows history lesson and the one thing that I’ve come to appreciate as I study market cycles and the major economic events of centuries past is that the people that focus on the variables that they can control are the ones who come out looking like the lucky ones.

It's true that many people are priced out of the market, well paying jobs are becoming increasingly harder to come by and interest rates have nowhere to go but up.  It’s also true that you can still buy & renovate properties for far less than they cost to build new, jobs/people are far more flexible & mobile than ever before and interest rates can be locked in to control costs over the long term.

See it’s all a matter of perspective and my perspective remains that the biggest risk in real estate investing is not being invested in real estate. Granted the days of the “easy money” that our parents or grand parents made on their home may be behind us but you’ll never know if you’re not in the market.

If you remain focused on properties that you can buy below the cost to build & cash flow over the long term you will find a way to be in the market and build  wealth. After all, regardless of what our world looks like in the next 50 years people will always need a place to call home and I for one intend to be of service and will happily provide some of it.

Marcin Drozdz

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