BENEATH YOUR MEANS

Beneath your means

February 5th, 2010

Real estate’s a fundamental part of net worth. You should have some.

I have not been propertyless since I was twenty. Probably never will. But I made the decision long ago, having been through real estate booms and busts, the bulk of my net worth would always be elsewhere.

It’s this one tenet of personal finance which has saved me. Instead of buying high, I bought modest. Rather than pile on debt, I scrambled out of it. I sold routinely to take profits and never put them back into real estate. And I don’t have granite countertops in the bunker (pictured above).

But that’s me. I’m unconventional. Liquidity turns me on.

I mention this because most people are so screwed. And real estate has done it. Ever-higher prices have been trumped only by ever-higher expectations. Cheap money for some time has made modest people feel wealthy. Children buy first homes nicer than their parents’ final ones. Consumption replaces wisdom, and HGTV becomes the news.

Debt seems immaterial since so young buyers know they’ll never actually pay it back. All that matters is the carrying cost. The mortgage that was there upon purchase will still be there when it’s sold. You just pray the market keeps rising, and rates behave. But those times are ending.

I thought of this in light of a new survey – one of the many done this time of year by banks. On one hand they pimp us with bushels of near-free money, on the other they guilt us for owning much and possessing little.

This report is clear and stark. Twenty per cent of people are counting on an inheritance or a lottery win to retire. Over 90% are afraid of retirement. Over 50% of those working fear they have e saved too little. And 60% of those under 35 basically have nothing.

I could go on. Seventy per cent of us have no pension. Six in ten have enough in an RRSP to last two years. Millions will be spending a decade or two living on CPP. Max $17,000 a year.

At the same time, close to 70% of Canadian families own real estate, making us one of the most house-hugging nations on earth. We’ve made the collective decision to plow most of our net worth into bricks and dirt, having swallowed the Kool-Aid that values will always rise.

But nothing rises endlessly. All booms end badly, and every bubble bursts. Given the historic debt now gripping each nation, all levels of government and virtually every household, such a path is a dangerous one. Like I said, real estate’s an important asset and most of us should have some. But it is not a substitute for real wealth – the kind you can use for gas, food and your ISP bill.

What’s my point?

Simple. It’s time to take profits. Put them elsewhere.

Live beneath your means. And above fear.

HoweStreet.com – The Source for Market Opinions

Posted via web from Toronto Real Estate News | Blog

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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