03Value investing is the right way

The fifth question is, is it better to buy a property with land or a property with less land for investment? In 2020, the rents and prices of CONDOs in downtown Toronto have been greatly challenged. At the same time, the prices of real estate in the surrounding areas have rebounded, so everyone has brought this old issue up for discussion again. Land was the most important in the era of agricultural civilization, because at that time human energy intake mainly relied on the photosynthesis of plants, so it was very dependent on land. Since entering industrial civilization, some people have left their IQ in the farmland. Investment is to balance lifetime income, and the assets purchased now need to appreciate in the future, so What to invest in depends on future appreciation potential . Assets with greater demand will appreciate more, regardless of how much dirt is stuck to the asset. In metropolitan areas, the demand for land is reflected in the demand for location and the demand for living space in the same location. Simply put, housing prices = location X area 。 There are 100 families who want to live in location A, but there is no room for them. What should we do? Just build in the sky. The land is limited and the sky is unlimited. So we see that most buildings are built in the best places, that is, where the demand is greatest. When buying a property for investment, the most important thing is the location, i.e. The more densely populated a place is, the more valuable it is for investment. If it is not crowded, don’t buy it.Of course, there are also buildings that are built on the wrong side. For example, this year, a CONDO was built near the Vaughan subway station. The bank went to evaluate the market price and rent. The results were very disappointing. Both the house price and the rent were not as good as the CONDO in Scarborough. Investors should not follow the builder's misjudgment and pay the builder. They should follow the iron law of building/CONDO investment: "Don't buy in a place that is not crowded" as the basis for investment. The places that used to be the most crowded are now the most disliked and everyone avoids them because they are easily infected with the new coronavirus if they are too crowded. If your investment is to sell to new immigrants or international students who will swoop into Toronto after the COVID-19 pandemic, you should still buy downtown. In addition, there is no comparison between a building with a living area of ​​500 square feet in location A and a land property with a living area of ​​1,000 square feet in location B because the needs are different. However, practice has proven that in the past 10 years, the value-added of these two types of houses has been the same. For specific analysis, please read my previous article "Question Ten Thousand Times | Invest in CONDO or HOUSE". Long-term stock investment cannot be separated from the basic value of the company, and long-term real estate investment cannot be separated from the residential value of the house. Which type of real estate to invest in and where to invest depends on the most basic living attributes of the house. After you buy the investment house, what kind of people will you rent it to, and who will you sell it to in 20 years? Investors need to honestly answer themselves these two questions. It does not matter whether the land is large or small.

Let’s learn from the value investment philosophy in stock investment: 1. Buying a company stock means buying ownership of a company, not buying a piece of paper for speculation; 2. The future of a company is difficult to predict accurately, so the price must have a margin of safety when buying; 3. Mr. Market is calling every day This is his job, and his asking price may deviate far from the actual value, so don’t mess around with Mr. Market; 4. Value investors only buy stocks within their own circle of competence. Investments beyond their circle of competence will fail. The less funds they have, the more they must focus on investing in companies within their circle of competence. When investing in real estate, we should also check the above four items: Is the property to be held for a long time worth renting or buying for new immigrants or young people who later come to this city? Is there a margin of safety when buying, that is, the room for decline is limited but the room for increase is large? Market transaction data can be viewed every month or even every six months. Anyone who analyzes the K-line for you is lying. You, because no mathematical or physical formula or algorithm can calculate the future; the last point is the most important, answer yourself honestly, "Your circle of competence is really that big, do you need to worry about buying a condo or a house for more than 10 years?" Buy the properties within your ability as soon as possible and build a mortgage asset package. This is what investors should prioritize. It is completely feasible to build a mortgage asset package of two CONDOs + two town houses + two detached houses in 10 years. This investment portfolio has strong risk resistance in Toronto. In the past 10 years, one of these three types of real estate has increased in any year.

The sixth question is, can commercial real estate be bought at the bottom? Civil real estate is private space, and commercial real estate is public space. The once-in-a-century epidemic tells us that even if a catastrophe occurs, private space can maintain and increase its value, while public space cannot. This year, the vacancy rate of many hotels has remained above 90%. The Monopoly game that Americans played since childhood can no longer be played, that is, buying 6 green houses when the economy is in a downturn, and replacing the 6 green houses with a red hotel when the economy is booming. Anyone who plays this way will encounter a black swan this year. There is a phenomenon during the epidemic: restaurants that own their own properties can last for a long time, while restaurants that have been renting rooms went to see Marx before the first round of the epidemic was over. After the epidemic, small businesses will pay more attention to the issue of owning commercial properties. Therefore, those who plan to buy commercial properties should be business owners of self-occupied properties. Buying commercial properties for rental purposes needs to be very careful. After all, owning commercial properties is beyond the ability of most people.

The seventh question is, what should I do if I cannot rent out a second-hand CONDO? The IT guy mentioned in the previous article who bought 7 condos in 2 years encountered this problem this year. He himself believes that there are no houses that cannot be rented out, only prices that cannot be rented out. As a long-term investor, this extremely depressed business environment is exactly a good opportunity to test the intrinsic value of investment products, and it is also a moment to test investors' ability to handle crises. Holding assets that you think is valuable for a long time is not as simple as just talking. You really need to have confidence, insight, and solutions to problems.

04 The epidemic is temporary, but investment is lifelong

The eighth question is, the unemployment rate is still very high. Can housing prices be sustained? The people most affected by the epidemic are young people and low-skilled people. This group is originally renters and has little impact on housing prices. What supports housing prices are people who can work from home and remotely.

The ninth question is that the grace period for borrowers to delay mortgage payments has expired. If they cannot repay their mortgages, will there be large-scale house sales? As of October 31, 90% of those who had applied for deferral of repayment had resumed normal repayment. Winter has arrived, the epidemic has not yet been effectively controlled, and the government's temporary shelters are already full. Therefore, the possibility of homeowners not paying back their mortgages is extremely low. If you are homeless at this time, you may not even be able to save your life. I believe that the landlord will do everything he can to ensure repayment. Currently, Canada’s mortgage default rate is 0.26%, the lowest in the past 10 years.

Question ten: How long can this year’s low interest rates last? The Fed's money printing suppresses long-term bond yields, which directly suppresses long-term loan interest rates. Since the Fed first used this method in 2009, it has become addicted. It has been printing money since the pandemic began, and it has shown no sign of stopping. Judging from Japan’s experience in the past 20 years, the longer it lasts, the harder it is to stop. The establishment of an asset package with mortgage as the core coincides with the boom of low interest rates: the existing asset package can optimize interest rates, and students who have not established an asset package will find that the holding cost is extremely low. As long as the Federal Reserve keeps printing money, interest rates will remain low. Even if it claims to shrink its balance sheet and raise interest rates, don't believe it immediately, because I believed it in 2017, but I found out that I was fooled.

Conclusion: 2020 is unusual for everyone. Only by finding your own strengths and strengths from the global collective helplessness can you gain the experience of being reborn from the ashes. I believe that none of my readers have succumbed to the hotbed of government relief. The biggest principle of real estate investment is to build an asset package with mortgages as the core. All investment analysis and actions are to optimize this asset package.Don’t deceive yourself or others, don’t cheat, bravely take over the fire of capital civilization, illuminate the future, and guide the investment path of the next generation of Chinese immigrants. I started writing this official account in January 2018. Three years of hard work have paid off. This official account has allowed more Chinese people to see the secrets of capital and experience the power of capital. It is my social responsibility to tell readers how to face their own circles of competence honestly, to guide Chinese immigrants to realize their knowledge, and to regard continuous updating of knowledge as a moral responsibility. One of the sources of joy in my life is the flow experience when writing these words, and the sense of accomplishment when I see that the value my efforts have created for my clients is far greater than the income I create for myself. At the end of this extraordinary year 2020, please accept my sincere greetings and best wishes to the 16,000 subscribers. I wish you all a prosperous new year, good health, and all your dreams come true.