Tarek 00:00:00 Real estate is always a good investment, especially here in Canada, because we have some of the highest real estate prices and they have appreciated meaningfully in the last, you know, whatever, 20 or 30 years. And so what I wanted to do was say, okay, is this true? Is real estate a better place to have your money than in capital markets? So we went and took a look at the data. And don’t hear us saying never buy real estate. Real estate is a great asset class. It’s great to have in your portfolio as a diversifier and as, as as something that’s just not going to be correlated to market returns. Hi Tower Talk listeners, as you can see, we’ve got a great episode planned for you and we’ll get back to it in just a minute. Now, if you’re not currently a tower client, but you have questions about your investment portfolio, or maybe you feel like you’re not receiving the best service at your current firm, please reach out for an information only, no pressure discussion.

Tarek 00:00:50 We would love to hear from you. The email address is in the episode description. Now, if you are a tower client and you have questions, we’d love to hear from you as well. I think you know how to get Ahold of me, but if not, that email address in the episode description will work as well. All right, let’s get to today’s show.

Mark 00:01:07 Dirk, what do you what have you learned about real estate?

Tarek 00:01:10 Okay, so real estate investing. you know, as a mark and I capital markets, we invest in equities and things like that. My conversations with clients, with prospects, with even just interested parties I run into on the street or in a coffee shop, always go to well, I like real estate investing. I like to buy an apartment building or a fourplex or a six plex or whatever it is I like that I can touch. I like that it’s tangible and real estate is always a good investment, especially here in Canada, because we have some of the highest real estate prices and they have appreciated meaningfully in the last, you know, whatever, 20, 30 years.

Tarek 00:01:44 And so what I wanted to do was say, okay, is this true? Is real estate a better place to have your money than in capital markets? So we went and took a look at the data. I’m looking at Canada as a whole, from February 1999 till March 2024. That’s when the information I found was available. We looked at Calgary, Montreal, Vancouver, Toronto, as well as Canada in aggregate and aggregate. Real estate from February 1999 to March 20th 24 to 340% return, and on a cumulative basis, that’s 6.1% compounded every year. Okay, so that’s good. That’s a great number. But the TSX total return over the same time period did 531%, which is 7.6% year over year. So that’s not nothing that is a meaningful I know that number doesn’t seem that much higher, but it is very, very meaningful, particularly over that time frame. So for example, average house price in Canada in February 1999 was 163,000. In March 2024 was 718,000. That’s what the return was.

Tarek 00:02:52 Had you taken that 163,000, put it in the TSX you would have earned you would have had $29,800 invested. And so it’s over 300,000 or, yeah, just over $300,000 more when it’s invested in TSX versus in Canadian real estate.

Mark 00:03:14 Okay. Let me repeat a couple of those numbers. Cumulative return on the Pts on the on the real estate was 300 and. 4,040%. And same window of time return on the market was 533%. Okay. And it took $150,000 to either 700,000 or $1 million. So we should be buying stocks okay. One of the reasons. Okay. You know, I’m an equity guy. I like stocks. So I’m gonna find reasons. Okay. What are the reasons a person should buy real estate.

Tarek 00:03:57 Yes. So. And don’t hear us saying never buy real estate. Real estate is a great asset class. It’s great to have in your portfolio as a diversifier and as, as as something that’s just not going to be correlated to market returns.

Mark 00:04:09 Good. Diversifier. Number two.

Tarek 00:04:13 leverage ability. So I think a lot of really pro real estate investors are probably losing their minds right now saying, hey, this is not a fair comparison because I can leverage four times my money on real estate. I only have to put 25% down and the bank will lend me 75. And that’s true.

Mark 00:04:29 yeah. Number three inflation hedge.

Tarek 00:04:31 It is an inflation hedge, generally speaking.

Mark 00:04:33 But so is but so is the market.

Tarek 00:04:35 So is the market. Yeah.

Mark 00:04:36 So we’ll take that one away. it’s tangible. People see it I can touch it.

Tarek 00:04:41 Yeah.

Mark 00:04:43 How about correlation to the market.

Tarek 00:04:45 It’s uncorrelated or a low correlated asset generally speaking. So that’s good. Provides diversification.

Mark 00:04:50 Okay good. I think those are four good reasons to want and should do on real estate. let’s talk about reasons you might not want to liquidity. You know.

Tarek 00:05:01 My my least favorite thing is liquidity, the lack of liquidity. And I don’t think people price that enough. You should get paid more to tie your money up in a in a property than than.

Tarek 00:05:09 I think most people will give give themselves.

Mark 00:05:12 So the stock market is t plus one. Do you want to sell your stock one day later you can have your cash.

Tarek 00:05:22 With it, if you find a realtor, you gotta write up the thing. Yeah.

Mark 00:05:27 You argue about commission rates and then you finally find a buyer and they knock you down 15 grand. Okay. So liquidity, what are some other challenges to owning real estate?

Tarek 00:05:40 the property management aspect. So you’ve got to deal with tenants, vacancy, maintenance, all these things that, you know, again, I’m not sure all real estate investors value their time correctly in terms of the return on their assets. So are you paying yourself a fair wage for the time you put into that? And is that accounted for in in your return calculation? Do you know what I mean? Whereas with the stock market you can just deal with great guys like me and Mark and you, you know, have have it taken care of. Yeah.

Mark 00:06:10 Okay.

Mark 00:06:10 So the answer actually that we would be making is a person probably should have some real estate in their portfolio, but they should recognize that fully concentrated only in real estate. There’s more to it than just having a nice home that you can touch.

Tarek 00:06:29 Absolutely. And I think that touches on a risk we didn’t speak about in, you know, in the investment world, we call it idiosyncratic risk or the risk that is specific to one name or one asset. Right. So if you’ve got 750 grand tied up into one property, your fortunes rise and fall with that property. We would never say put 750 grand into one stock. If that was a significant portion of your portfolio. Right.

Mark 00:06:53 We would not do that.

Tarek 00:06:54 Yeah. No, but that’s the nature of real estate is the numbers are so large. Generally speaking, it depends on who you are and your net worth and so on that you’re tying up a significant part of your net worth in one property and one regional location with very specific risks, and so it lacks diversification in that regard.

Mark 00:07:13 And I think we should wrap it up okay. Wrap it up Derek.

Tarek 00:07:16 All right. So real estate versus capital markets. We showed that you know what if you’re invested in the market you’re going to do great. Don’t hear us saying don’t buy real estate. It’s a good diversifier. We just wanted to provide some information. If you have any questions, if you’ve got a property you want to sell and invest in the market right now, reach out, give us a call. We’d be happy to take care of that for you.

Mark 00:07:36 Sell all your houses. Buy stock. Yeah. Buy stock. John, I did not say that. Exactly. Okay. And, anything else you want to do on a wrap up of the video?

Tarek 00:07:48 yeah. As always, if you have topic ideas or if you have questions about your own specific portfolio, reach out to Mark or myself. We’d be happy to chat. Yeah.