The election has been settled and everything is back to how it was before. People received nothing but a paper full of promises. The central bank is still releasing 2 billion dollars of currency every week, interest rates are still in a state of negative real interest rates, there are fewer properties for sale in the second-hand housing market every day, and the housing crisis shows no signs of easing. I searched the Liberal Party's housing policy website liberal.ca/housing/, but I didn't see a single policy that could reduce housing prices or rents. While the party is celebrating its return to the starting point and before it has time to delete these pledges, help me find them.
Apart from Singapore and Germany, residents of no other country can count on the government to solve their housing problems. Although everyone knows this, they are still looking forward to it and even pinning their hopes on an arrogant and wasteful election. The bustling 36-day general election is over. It’s time to calm down and think about where to invest the cash in your hands, how much income you can have after retirement, and how to live your life in your later years if interest rates remain so low.
More and more people around me, including Chinese and other ethnic families, are finding that they have more cash in their hands, but investment channels are still so limited. The return on investment in risk-free financial assets is 0.5% to 1.5%, which is far lower than the inflation rate of 4.1%, and the real interest rate is negative. Real estate is proving its value and the certainty of return on investment. More and more people are not only starting to talk about real estate, but also seriously considering how to put their cash into real estate.
01 Why rush to turn cash into a house?
When the real estate market was at its lowest in 2018, 20% of second-hand home buyers in the GTA were investors. This year there are 25% of buyers are investors . Second-hand home prices have stubbornly continued to rise under the test of unfavorable factors such as Ontario's 2017 non-resident buyer's tax, the increase in stress test interest rates in 2018, the epidemic in 2020, and the increase in stress tests again in 2021, giving investors huge confidence.
The real interest rate is negative, allowing people to clearly see the fact that when you borrow, you earn. Savers lose out at current interest rates, and households with large savings but no ability to borrow have fallen into deep anxiety.
Except for CONDO, the rents of all other types of properties have increased significantly. At the same time, because the mortgage interest rate has dropped to about 1.6%, the monthly payment is only 370 dollars for every 100,000 dollars borrowed. As a result, landlords' holding costs have been significantly reduced. The net equity acquired by landlords every year has increased significantly. The wealth effect has made most landlords reluctant to sell in the current market, resulting in a sharp shrinkage in the number of listed sales, further exacerbating the contradiction between supply and demand. House prices have been soaring, allowing investors who have not yet entered the market to get in. "FOMO", FOMOFear Of Missing Out, the more anxious you are, the more you grab, the more you grab, the more anxious you become.
To put cash into the house, you need to have enough cash. The minimum down payment for an investment house is 20%, and the average house price in the GTA is already 1 million. Even if you buy an average-priced house, you have to pay at least 200,000 out of pocket. The average price of 1 million is just a point on the rising housing price curve. If you look closely at the Liberal Party's campaign promises, you will find that the Liberal Party has already figured out how to quickly increase housing prices to 1.25 million after the election. On the Liberal Party’s official website, one of the housing policy adjustment plans is to “reduce the monthly mortgage burden.” It is clearly stated: We will also increase the insured mortgage cut-off from $1 million to $1.25 million, and index this to inflation, to better reflect today’s home prices since thisthreshold was last changed years ago. That is, the original policy stipulates that for homebuyers with a down payment of less than 20%, the upper limit of housing prices is 1 million. The Liberal Party believes that the upper limit of 1 million was set many years ago. With the rapid inflation, this upper limit is no longer in line with people's growing housing needs. After being elected, the upper limit will be raised to 1.25 million. According to the current policy, homebuyers can buy a house worth 1 million with a minimum down payment of 75,000. The new policy plan allows a minimum down payment of 100,000 to buy a house worth 1.25 million. If the house price is 1 million, some people already find it difficult to put down a down payment on a house. Then when the average price reaches 1.25 million, it will be even more difficult. So, buy it and cherish it. The official website of this program: https://liberal.ca/housing/reduce-your-monthly-mortgage-costs-when-you-need-it-most/. Let me say it again, at present The Liberal Party's housing policy is to turn more marginal buyers into real buyers , without an increase in housing supply, the continuous increase in the number of buyers will be an effective boost to the rise in housing prices. Everyone must understand the government's intentions and must not wait foolishly. “With housing prices so high, is it still worth investing in?” If you have such a question, please find the answer on the official government website.
There are three urban areas in Canada where there are too many people and few housing. This is mainly because new immigrants like to live in big cities. The population continues to flow in, competition for jobs is fierce, and wages have been stagnant for a long time. The speed of new home delivery has lagged behind the arrival of new immigrants for many years, and the contradiction between supply and demand is acute. Therefore, There is a special situation in Canada: incomes do not rise as fast as housing prices. Compared with Americans, Canadians not only have to work hard, but also work hard to buy a house , because Americans' incomes have been growing faster than home prices, while Canadians' income growth has stalled while home prices have accelerated. Canadians who have been immersed in work have discovered when they wake up that there is a gap of two generations in wealth between themselves and those who have worked hard to buy a house.
Why is everyone so eager to put cash into property? Nonsense, if you don't let it go, you won't be able to put it in anymore.Who has waited for the house price? There are several other reasons, such as peer pressure, the motivation to buy a house in order to balance a lifetime of income, you can find it on my personal channel on YouTube "Canadian Real Estate Is Coming to New Savings Accounts" Watch the video, I won’t go into details here.
02 How to put cash into property
You can't buy a house with 200,000 dollars in cash. To buy an average-priced property, you need to borrow 800,000 dollars, which requires an annual income of at least 160,000 dollars. You see, the threshold for real estate investment is so high. Not only that, if the owner-occupied house has a loan, the borrowing capacity of the investment house will also decrease. That is, if the owner-occupied house still has a loan that has not been repaid, the annual income of 160,000 dollars will not be able to borrow 800,000 dollars.
There are two formulas for mortgage borrowing:
1. The loan capacity for owner-occupied housing is equal to 5 times the annual income. Even if the original owner-occupied house is not sold, when applying for a new owner-occupied house, you can apply for up to 5 times the annual income.
2. The investment house loan capacity is equal to 5 times the annual income, minus the balance of the mortgage, and you can apply for 10 investment house loans.
As can be seen from the above formula, household income and owner-occupied loan balance determine the borrowing capacity when purchasing an investment property. The income mentioned here refers to active income, that is, income from labor. Cash income cannot be proved to be true and reliable without filing a tax return; income from operating a company cannot be used to support mortgage loan applications if it is not paid to oneself, and company income can be used for commercial loan applications; overseas income, if tax returns are filed in Canada for more than two years, can be regarded as Canadian income in the third year; overseas income of Canadian non-tax residents cannot be used to support investment mortgage applications. Passive income, long-term disability insurance benefits, pensions, retirement benefits and other incomes need to be handled appropriately. Family financial net worth does not play a major role in loan applications. It can only provide icing on the cake, not help in times of need. There is no active income at all. It is difficult to apply for a mortgage loan with savings alone; the income of self-employed people needs to self-certify sustainability. mortgage, like car loan and student loan, is a type of personal debt for excessive consumption and plays a decisive role in the ability to borrow money for investment housing. On the contrary, the existing debt of an investment property has little impact on the application for the next loan, because the debt of the investment property is offset by investment income.
The rules of the game are like this. If you want to participate in the game, you must abide by the rules. You cannot shoot footballs with your hands and kick basketballs with your feet, otherwise you will be kicked out. Many people have a hard time understanding the rules of the game and don't understand why the bank designed the game this way. In fact, no matter how banks design the rules of the game, there will always be people who are unqualified. If everyone is qualified, then the game is not qualified. For example, the United States relaxed the rules of the game too much before the subprime mortgage crisis. Everyone who came to play lost, and even the bank that set up the game was almost finished. As with all games, the most important thing is to adjust yourself and become a winner under the established rules. It is meaningless to discuss who is favored by the rules of the game. Only by changing yourself and becoming the favored person can you like this game and become a winner. Some people should be hating the game, but they are hating the players and pointing fingers at real estate investors. It is very ridiculous.
My job is to help clients understand this game, find their weaknesses and strengths, use their strengths and avoid weaknesses, and help these families turn cash into real estate amid constant policy adjustments and rising housing prices. I love this game because the families I help are growing in wealth day by day. Families that have mastered the loan rules can obtain low-interest loans from banks with no psychological cost or legal risks. Families that are well versed in debt management can even accelerate the repayment of their own housing debt while accumulating real estate wealth, and enter a quasi-retirement state before the age of 55: multiple investment properties, and no loans for their own housing.
What income can be used to support a mortgage loan, how to manage debt, I am on YouTube "Canadian Real Estate Is Coming to New Savings Accounts" There is a more detailed introduction in the video.
03 He who builds a garden reaps the fruits
Real estate investing in Canada is very different from that in the United States and China. The preferential tax policy for real estate investment in the United States favors larger capital. Robert Kiyosaki and Trump took advantage of Section 1031 of the tax law for real estate investment. When selling property A and buying property B at the same time, no capital gains tax is levied on the sale of property A. This facilitates large capital to continuously accumulate the number of properties in its hands and obtain tax deferral benefits, provided the capital is strong enough. China emphasizes that houses are for living in, not renting, and restricts small investors with policies such as loan restrictions, purchase restrictions, and sales restrictions. Canada's tax preferential policies benefit small investors. Preferential items can be found on the rent declaration form T776. Rental properties held by residents can receive tax exemptions like small businesses. Loan interest payments for investment properties, property taxes, and CONDO management fees can all be deducted from the net rent before tax. The reason is simple,The law gives residents the right to buy property, banks support investment mortgage applications, and government taxes reward landlords who provide housing for the rental market. In such a general environment, real estate investors build their own real estate investment portfolios and are building a real estate investment garden for themselves.
Some people complain that funds have flowed into real estate, hindering the development of the real economy. That's not what I see. First of all, Canada has very abundant funds, and companies that need to expand their business can go to banks to apply for loans. Secondly, Canadian real estate is a stock market, with second-hand housing transactions accounting for 65%. The payment paid by the buyer is the payment received by the seller. The funds in the entire society have not decreased, but the purchasing power of the buyer has decreased after buying the house, but the purchasing power of the seller has definitely increased. Finally, the real economy already has overcapacity, and producing more refrigerators can only be a waste. On the contrary, real estate consumption or real estate investment can drive other consumption, boost insufficient consumption, and thus stimulate economic vitality. Because after I bought a house, I was short of money, so I came to the conclusion that the inflow of funds into real estate would hinder economic development. I was squatting in my own well and looking at the sky. The pattern was too small.
There are very few properties for rent with three or more bedrooms, and institutional investors are unable to provide enough of them. There are many townhouses available for rent in the United States, but not in Canada. Those who provide townhouses and independent houses for rent are almost all individual investors. Canadian real estate investors are a very important supply force in the rental market. Therefore, we have seen that for a long time, the country’s tax policy has encouraged ordinary people to invest in real estate. Real estate investors provide tenants with higher-quality properties, and landlords not only build a wealth garden for themselves, but also provide tenants with an ideal city.
For a long time, people have understood "investment" in a narrow sense as a money-making game like buying stocks. But unfortunately, financial asset investments have failed to live up to expectations. Behind stocks are enterprises, and the lifespan of modern enterprises is shorter than human lifespan. Even if investors want to invest in the long term, there is often a dilemma of "people are alive but the enterprise is gone." Entrust professionals to look after it, and run away when the company is in trouble, so the asset management industry was born. Ironically, Buffett and Munger, the bosses of the asset management industry, agree that investing in passive index funds is more reliable than investing in financial advisors. The mayor of Landlord.com told me that there is an asset management team in Toronto who wants to discuss the following financial investments and real estate investments with me. I said, no need. If there is any team that can guarantee the return rate and certainty of financial asset investment, which is the same as real estate investment in Toronto, I will sell the investment house immediately and leave the money to them. I have no interest in winning the debate; my interest is in winning, not winning the debate. In a recent interview, an American economist, Laurence Scott Rykov, pointed out the problems that exist between the common practices of the asset management industry and the goals of investors: The investment advice of financial advisors does not match the life cycle of investors, resulting in investment failure. He said, "There are secrets at all stages of the life cycle. For example, you can save money on housing by living with your parents, don't borrow money for college, withdraw money from your retirement account to speed up the payment of your home mortgage, and gradually invest more in stocks as you grow older." I agree with his view, but these suggestions are almost contrary to the current popular investment advice, and the level of understanding and acceptance is extremely low. The essence of investment is to balance your lifetime income, not to obtain extra wealth, nor to supplement your current income deficiency. Too many people's investment goals are unclear, so that they "clearly follow a path, but thousands of people refuse to follow it." Those who build a garden reap the fruits. The failure to build a wealth garden in your own home is largely due to cognitive errors and failure to recognize the essence of investment. Li Lu disclosed in the book "Civilization, Modernization, Value Investment and China" that less than 10% of stock market investors are long-term value investors, and the rest are speculators, looking for excitement and happiness in a zero-sum game. Some people just stubbornly want to be leeks in other people's gardens, and refuse to spend time building their own gardens. Without their own gardens, where would the fruits come from?
04 The Way of Heaven and the Way of Destiny
When it comes to real estate investment, there have long been two questions: whether it should be done and whether it can be done. The question of whether it should be done has been discussed above, and now we will talk about the question of whether it can be done.
To put cash into a house, a necessary and sufficient condition is whether the bank is willing to lend money. To buy a 1 million house, you put 200,000 of your own money into it, and at the same time invite the bank to invest 800,000. After handing over the property, you invite tenants to repay the house together. This is a kind of tenant’s zero savings, which is the landlord’s savings in lump sum. The bottleneck in obtaining such investment opportunities is loans. From long-term loan business practice, I deeply understand the cultural attribute issues revealed in the TV series "The Way of Heaven". China's traditional culture is Confucian culture, which is the same as the Puritan ethics in the West. Our cultural gene is to actively engage in the world and strive to gain fame and wealth. In the same culture, different people have different cultural attributes. A strong culture creates strong people, and a weak culture creates weak people.
A strong culture means that in a given general environment, abide by the established rules of the game, create your own small environment in fair competition, comply with the natural and social laws where you are, and win by competition. Strong culture is not easy to understand or learn. Only a few people who strive for the top possess this kind of strong culture, so it is also a niche culture. Take real estate investment as an example. The current loan interest rate is only 1.6%, but banks use an interest rate of 5.25% to calculate debt solvency when approving loans. When calculating the amount of investment mortgages, you must consider how much loan you have left on your home. These harsh conditions are just a touchstone to test your ability in the eyes of people with a strong culture. If you pass the test, you can gain real estate wealth. If you fail to pass the test temporarily, you must know the direction of your efforts.
Weak culture refers to those who complain about the general environment all day long, worry about when the Federal Reserve will raise interest rates, worry about U.S.-China relations, Canada-China relations, whether others have borrowed too much, whether the fiscal deficit is too high, and when the housing bubble will burst. They only care about their own small environment and their own competitiveness. When the general environment becomes uncertain, they will not take action. When they have to act, they must take shortcuts due to lack of preparation. Weak culture is easy to learn, understand, use, imitate, and spread. It belongs to popular culture and mass culture. The ultimate value of a weak culture is to obtain it in an exceptional way, have no time to take into account the system, regulations and public order and good customs. Weak people created by a weak culture have a victim mentality, are unwilling to let go of immediate interests, strive to find shortcuts, and scorn a strong culture. In real estate investment, the characteristics of disadvantaged cultural groups are: they do not file tax returns in Canada on overseas income, they do not file tax returns on cash income, they file less taxes on self-employment income, they spend too much to buy a big house and carry a large loan for their own home, they give priority to putting deposits into the tax shield instead of lowering their mortgage, they are jealous of other people's loans to buy investment properties, they are crammed when it comes to applying for investment property loans, and they often fall into the trap of taking advantage of others.
Groups with a strong culture follow the broad road, while groups with a weak culture follow the narrow path. This is in line with what Lao Tzu said: "The great road is very barbaric, but the people are good at it." Canada is a market economy country based on the rule of law, which advocates free competition and despises and excludes those who violate the rules of the game. People who are impoverished or unable to put cash into real estate because they do not follow the established rules always have a victim mentality and often feel that they are offended. They are the same as the vulnerable cultural groups described by the protagonist Ding Yuanying in "The Way of Heaven" - " When talking about cysts and shyness, he angrily points out that everything is wrong ”。
Although the work I did was insignificant, I overestimated my ability and believed that I had a mission to lead Chinese immigrants to a strong culture. At the same time, I don’t think I have the ability or obligation to help disadvantaged cultural groups seize exceptions. When seeking help from disadvantaged cultural groups, my usual response is as follows:
“Cash income can be used to support mortgage applications in the third year if taxes have been filed for more than 2 consecutive years. "
“Overseas income can be used to support mortgage applications if tax returns have been filed in Canada for more than 2 consecutive years in the third year. "
“The income from your business is good and you can use it to apply for a business loan. If you want to apply for a mortgage loan, you need to allocate more income from the company to yourself. The mortgage loan amount should be 5 times the average personal income for two consecutive years. "
“High-net-worth projects can only be the icing on the cake, but cannot provide help in times of need. You need to have a certain amount of active income in Canada, and high-net-worth will be helpful. "
“If you don’t want to find a job and struggle in Canada, you should educate your children well, give them some cash in the future, and use their income to apply for loans. "
“If you want to invest in real estate, the annual savings balance should be given priority to repaying the mortgage instead of investing in financial assets in the RRSP.”
"The so-called document packaging is fraud and is illegal. I have never done it before. You have found the wrong person. "
"According to Canadian tax laws, Canadian tax residents need to file tax returns for their global income in Canada. If they have applied for non-tax resident status, their overseas income does not support investment mortgage applications. If they are tax residents and have overseas income but have not reported taxes in Canada, the bank will think that there is no income in the world, and the sudden overseas income cannot support investment mortgage applications. Since you have bought an off-plan property, you should know that one day you will have to apply for a loan. How to arrange tax returns should be considered when signing the off-plan property purchase contract."
There are many people on the market who specialize in finding shortcuts to provide services to disadvantaged cultural groups. I'm not. I don't want to live a life I don't like. Obtaining things outside the rules is a value that I cannot accept. I will not make any unreasonable thoughts about obtaining things outside the rules, nor will I help anyone do so. Many people don’t believe that those who bought 5 or 6 houses have no tricks or secret operations when they are struggling to buy one house. But I can responsibly say that apart from taking the right path, taking the high road, improving one’s competitiveness among the crowd, and working hard to reduce consumer debt, there is really no other trick. In the last episode of "The Way of Heaven", Ding Yuanying said when talking about robbing the rich and giving to the poor "Robbing the rich will keep them from getting rich; helping the poor will keep them from leaving. The Savior's culture can only be described by the Savior. The Savior is not a human being, but the Tao. Salvation is not about breaking the precepts and gobbling it up, but about enlightenment." Living beings in a weak culture, the savior they look forward to is exactly the trap that threatens their lives, so they always feel that "the universe is wrong" and they are right. God is the Tao, and the Tao is natural and Tathagata. If you can do things in line with the laws of society and nature, you are following the way of heaven and following the will of heaven. It seems like you have divine help. People who have 6 houses are not gods, but the natural result of following the way of heaven and nothing else.
Conclusion: Putting cash into real estate may seem difficult, but it is actually easy. The difference between difficulty and ease lies in awareness. There is a line in the Internationale: "There has never been a savior, nor a fairy emperor! To create human happiness, it all depends on ourselves!" It seems that the whole world is the same, and the only one who can redeem ourselves is ourselves. Rui Xiaodan in "The Way of Heaven" has a line: " As long as I don’t realize and realize it, you can’t give it to me, and even if you give it to me, I can’t take it. Only what I feel and understand myself can I possibly do, and what I can do is mine."Canada is a country that respects the right of individual choice. If you make good use of the rights given to you, you can realize your dream of wealth without having to worry about making exceptions. People who provide services for making exceptions want to play saviors at first, but later find that adding insult to injury is also a way to make money. Sartre's existentialism is not atheism in the religious sense, but tells the world not to rely on the mercy and charity of saviors. He believes: "People must take responsibility for their own existence and all their actions. Cowards and heroes are not born: they are chosen. Man is free because there is no God. "My professional ideal is: I cannot live in a way that I hate, but I must hold up a light for the passers-by.
