Sunday, May 06, 2007

Money Sense or Non-Sense

I enjoy reading articles about investing and like to get a wide range of opinions on the best way to invest. To be honest I am wholly sold on Real Estate as a solid investment and though, yes, I hold paper assets; the bulk of my investments are in real estate. I came across this article written by David West a writer for Canadian Business Online

"Now, lest you think that doubling your money on any investment is a good thing, let me share two pieces of advice. First, if you're looking to make money in real estate, don't buy a house. And second, if you're thinking of buying a house, don't expect to make money on it if you do. Here's why.

Let's assume that CIBC's forecast is correct, that housing prices dodge the demographic bullet and rise in price in the years to come, rather than fall. Even if that happens, and you make 100% on your house in the next 20 years, do-it-in-your-head math will tell you that's a return of only five percent per year. Compounded, that's only 3.53% per year. In fact, CIBC's forecast included a 2% inflation assumption, which knocks the return down to less than two percent per year. In comparison, even lowly Treasury bills pay 4.17% annually right now, and CIBC's current dividend yield is 3.09%. CIBC's stock price is also up 1.4% so far this year, and 20.4% in the past year.

So, if you're thinking of buying a house, don't do it with the idea of making money. There are lots of reasons for owning your own home, but don't make profits one of them. Moreover, if you already own a house, don't count on it contributing significantly to your net worth as you approach retirement."
Click Here for Full Article

Most people don't buy a house outright. He is forgetting about the power of leverage and the low rates at which the bank will lend you money to fund your investment. If you put down 20% down and made 2% on the total value of the property that is a good return. What do you think?