Why the Real Estate Market Downturn Hasn't Got Me Down

With all of the doom and gloom in the news I don't read the paper as much as I used to, but when I finally picked up a few articles I had flagged to read, I was delighted to find this one in the Vancouver Sun:

Real estate downturn no big deal for homeowners

Sales dropped 35 per cent last year to the lowest level since 2000, and the price of a typical home in Metro Vancouver fell by 15 per cent from its peak.

But before you pull out your calculator to figure out how much equity you've lost, reflect on the reasons you bought your home. Did you buy it to flip it and make a big profit in a hot market?

Or did you buy it because it had a fenced yard for the kids, a deck for summer entertaining, large windows that let the sunshine in, beautiful hardwood floors, a gourmet kitchen, the right number of bedrooms for your growing family, a playroom in the basement and a fireplace in the living room?

Finally, someone is making some sense in the media!

When our friends and family ask us how we're doing with our investments, concerned that we've lost everything in the downturn, we shrug it off.

We don't try and figure out what our property is worth everyday (like some people do with their stocks). The thing that's important to us is that we have renters in each unit that are paying their rent and covering our costs. If the property drops in value this year, it means we aren't growing our equity that can potentially be used to buy other properties, but otherwise it's not a big deal. We're certainly not going to panic.

As long as the reasons we bought the property still exist, we're happy.

That is, as long as the area the property is in hasn't changed fundamentally from when we bought there and we're still achieving our goals on the property (which is usually just as simple as having neutral or positive cashflow from the property), then we are happy. We will keep holding that property and wait until the day arrives where the market is doing better, and we want to cash out (by either selling or refinancing to pull equity out).

I cheered when the article went on to say this:

In Richmond, prices are down 4.8 per cent over a year, but up nearly 58 per cent over five; in Port Coquitlam the one-year decline is 4.8 per cent and the five-year gain is 64 per cent; in Maple Ridge the year-over-year drop is 9.7 per cent, the five-year advance is 31 per cent; in Burnaby prices are down 14 per cent for the year, but up 47.5 per cent over five; and in New West the one-year drop is 10.4 per cent, while the five-year gain is 59 per cent.

It is clear that real estate has held up far better than stocks, which have seen price declines of 40 per cent from the peak on average. To be sure, real estate sales are down, listings are up and prices are falling. But the market will recover - yes, it will - so owning your own home continues to be a sensible financial goal.

I sometimes sound like I'm anti-stock investing - and I know I am about to again. But, I just don't get why real estate investing scares so many people more than stock investing does. Do you ever really know what is happening inside of a company? Not really. But, with your property, if you are doing a good job of being an investor, you always have a good idea of what is happening. And, you have the control to improve things that aren't quite going as well as you'd like them to.

I'm not anti-stocks, but I haven't done that well with the investments I've made. I know I just never took the time to properly research and select the stocks I purchased. I spend a lot more time researching my real estate. So, for me, it's good to see it stated that real estate values have held up so much better than stock prices in the last 12 months.

Real estate investing is not an easy way to get rich quick, but it is a wonderful way to create massive wealth over time. I think that some people forgot that in the craziness of the last few years, and started to believe that real estate will always go up. When, in fact, it won't.

So make sure you buy properties that are in solid areas that WILL recover from downturns, and buy investments that will bring in enough revenue to cover the costs, and then hold on to them! Don't panic when the rest of the world is... remember why you bought the property in the first place, just like the Vancouver Sun article says!

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