The Wealth Trap

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During our normal nomadic existence (which we are super chomping at the bit to get back to any day now), we get to meet all sorts of interesting people: entrepreneurs, digital nomads, World-Schoolers, friends from the FIRE community. And because we had been travelling so long, we had gotten into the habit of thinking that was normal. But now that we’ve been back in Toronto for a year, we’ve become re-acquainted with a type of person that we thought we had left behind: Home Boners. Basically people who’ve bought way too much house, are leveraged up to their eyeballs in debt, and as a result are forced to obsessively talk about real estate because they have everything riding on this one asset. 

Toronto is FULL of these people and on previous visits back home we’d have to endure endless talk about granite countertops and finished basements and other things that make FIRECracker and I want to die of boredom. I’ve long since given up trying to convince these people face-to-face about the wonders of FIRE. They want to live their lives obsessing over their house, fine. We’ve got a plane to catch.

This year (or, rather, last year) I’ve been forced spend an extended amount of time in this city, and I’ve noticed that some very big issues with owning real estate during a pandemic that have really devastated people’s finances.

You’re At the Mercy of Your Tenant

We’ve lived in many AirBnb’s around the world and almost every place we go to, we’re invited to come back any time. The reason for this is that we’re pretty good tenants. If something breaks, we fix it for them, we keep the place clean and tidy, we don’t host big parties or keep people up until 3 AM. You know, the stuff known as basic human decency. And apparently, that’s kind of rare!

The horror stories I’ve heard from landlords of previous tenants smearing shit on the ceiling (literally), smashing TV’s or setting couches on fire makes me really question if we as a society are truly civilized yet.

Every landlord exists in two states: Patting themselves on their back for all the “free money” they’re getting because they happened to find a good tenant, or tearing their hair out because they accidentally let in a scumbag.

And I’m not convinced at how effective tenant screening is. Some of the worst offenders can be highly paid professionals like doctors or lawyers. How did these people get through med school without learning how to flush their toilet?!?

And once you’re in one of these situations, it becomes an all-consuming obsession as the owner worries about what the maniac might be doing to their property. A friend of ours met up with us in Asia and spent a lot of time on the phone freaking out about their tenant. We later found out someone had set up a meth lab at one of their units.

That does not seem like a good way to spend your retirement to me.

The Government Can Screw You Over

Unique to this pandemic has been two major changes in government policies that have really put the kibosh on would-be easy real estate money.

The first is the eviction freeze.

Back in April, many jursidictions around Canada and the US put a moratorium on eviction, sparking an international protest movement called Keep Your Rent. Over the summer as cases eased up a bit courts started processing cases again, but when the second wave of COVID-19 hit, eviction enforcements were halted once again. Courts can still hear eviction cases, but the police aren’t actually allowed to enforce the order.

Which on one hand is good in preventing further spread of the disease since people won’t be wandering the street homeless, but on the other is a nightmare for landlords. And while I have a great deal of sympathy for people who’s jobs went away and can’t afford rent, I have zero sympathy for tenants who have the money and just decide to stiff their landlord.

This is happening right now to a friend of mine. Her tenant still has a job but has stopped paying their rent for over a year now. When the courts opened back up, my friend tried to file the paperwork to have them evicted, but courts were so backed up it took forever for her case to be seen. And then when it was, a paperwork error forced her to start the whole process over again. And THEN the second eviction moratorium went into effect. She’s gotten no rent for over a year, can’t get rid of their deadbeat tenant, and there’s no end in sight! Yikes.

And the second change in policy was the ban on short-term AirBnb’s.

Toronto, like many major cities, has seen issues where investors snarf up dozens of properties and rent them out on a nightly basis to vacationers. AirBnb was always meant as a way to earn money renting out your spare room, not as an excuse to be convert residential condo units into ghost hotel rooms.

Now, the city has officially banned nightly AirBnb’s. You can still use it as a platform to rent a place in monthly increments (which qualifies as a long-term rental), but the days of being able to charge $150 a night are over.

This has dropped rents in the city sharply over the last year. Now that all these “ghost hotels” can no longer function as hotel rooms, all that housing stock has been forced onto the long-term monthly rental market, and the resulting competition has driven rents down. Year over year, Toronto rentals are down an average of 20%, and personally we’ve seen our rent drop by 30% thanks to FIRECRacker and her negotiating skills.

Your Money Can Be Trapped

Put all this together and real estate can turn into a money trap.

Our landlord friend with the deadbeat tenant has zero options right now. She can’t collect rent, she can’t evict the tenant and find a better one, and she can’t even sell it because who in their right mind would buy a rental unit with a squatter in it? And yet she has to keep paying the mortgage, or she loses it all!

And as for the ghost hotel operators, they bought their units (with leverage of course) assuming they’d be able to make a certain amount of money on the short-term AirBnb market. Now that nobody can do that anymore, not only is the rent that they can collect drastically reduced, but it makes their property worth far less. Add to the fact that these real estate investors tend to leverage each purchase up to the maximum, and these investors are going to be underwater on their mortgages, meaning they owe more than their units are worth.

So they can’t collect the rent they need, and they can’t sell because they need to cover the difference between the lower sale price and the mortgage balance which was based on the original purchase price. Their only option is to put in on the monthly market, collect any rent that they can, lose money every month, and hope that someone comes in and saves them.

FIRECracker and I make no secret of our disdain for Toronto real estate, but our dislike was based mostly on a) They’re too expensive and b) They keep us from traveling. But even we weren’t expecting things to turn this bad for real estate investors this quickly.

When it comes to real estate, when times are good it feels like free money. But when things turn bad, real estate quickly becomes an albatross that drags you down into the water, spewing money all the way with no way to cut it loose.

The funny thing is, at the beginning of the year we owned $60k of real estate ourselves. But in the form of a REIT called XRE. That little baby was sweet, paying us a regular monthly dividend of around 4%. But at the end of 2020, we realized we didn’t need the yield as much and sold it off. It took about 10 seconds. I didn’t even need to put my pants on.

There’s this famous movie called Heat about a bank robber played by Robert DeNiro and a cop played by Al Pacino, and at one point the two meet at a coffee shop. It’s an awesome scene, you can watch it here.

And at one point Robert DeNiro says a line that always stuck with me.

Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.

That line kind of sums up our investment strategy. Don’t get into anything that you can’t drop in 30 seconds flat. Because as we’ve found out, when things turn bad, your money gets trapped.

Any real estate investors out there? How have your rentals been doing during this pandemic?

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53 thoughts on “The Wealth Trap”

  1. Real estate makes up about 40% of my net worth after I bought a larger home last year. I love living in a bigger space with decks and views of the ocean.

    I have three sets of tenants now after renting out our old house last fall. The older two tenants have been very stable. The new tenants make $50,000/month gross + RSUs. They are a family with a newborn, so I’m expecting them to be stable.

    Who knows the future, but it’s important to screen like the CIA. Find a great fit and don’t compromise. It’ll save landlords in the long-term.

    Also… best not to have real estate account for greater than 50% of net worth either.


  2. I used to have an REIT position and got out of it after I read the Jim Collins post below about their relative uselessness. Not to say we aren’t deep in real estate: our primary residence makes up more than a third of our net worth (against an easy mortgage that drops to five figures in about seventeen months). That was honestly sheer dumb luck, being in a position to buy ten years ago at the bottom of the market in a very up-and-coming area.

    I figure we can afford to be conservative. We don’t feel we have to chase gains through any means necessary (real estate, bitcoin, etc); index fund headaches are nonexistent and growth is good enough. If VTSAX ever tanks below what we’ve put into it and doesn’t recover, oh well — we all probably should’ve invested in canned goods instead.

    1. Yea, we stepped away from REITs as well. We also stepped away from SCV. We are content with VTSAX (actually, VFIAX+VEXAX, but that’s another story). Once we started collecting SS (@ 66 and 66.8) we found that it covers almost half our monthly living expenses in retirement, so I felt we no longer needed to deal with any additional volatility. We keep our Asset Allocation at 65/35 and rebalance anytime it moves 5 points outside that desired range.

  3. Hi – I have had a rental property in the past and wouldn’t ever again – I completely agree with your view point.

    It all seems very glamorous at first, you can say ‘I own other property’, it’s a bit exciting until it isn’t. I know for some people it works but for me buying & selling costs, R&M, faults, certificates, tax returns, then your tenants don’t pay the rent and you have to try and sort it, plus when things go wrong (market dips, recessions, cladding (uk issue)) you can’t sell up, and then you split up with your partner and you get screwed over on the price.

    I like to think of that period as ‘when I didn’t know better’… I look back and think how foolish I was (if only I had know then what I know now) it’s all a learning curve and for me investing passively is the way to go. Not as showy as I don’t discuss figures with anyone but simplified, effective, cheap to run and easy to get out of.

    However, I have to confess I own my own property – yes a bad choice from an investment point of view but I love my home, I get to decorate it how I want and get to plant a beautiful garden which makes me happy 🙂

    1. “a bad choice from an investment point of view but I love my home” That doesn’t sound like a bad choice to me, just a different choice. We have three children and a dog, and all four of them have been an expense for years. We’re never going to recuperate what we put into them. From a financial point of view, a terrible investment, but like your house, these people and animal make us happy (most of the time).

      Perhaps we should apply a “makes me happy” score to our spreadsheets, so we don’t feel so bad about spending money on things that bring us great joy.

      1. Thanks Bob – great idea – guess it’s all about living efficiently and just spending on the things that really matter in life

    2. I think primary residence (and vacation homes for whoever’s into that) property should be viewed more as a purchase than an investment. My car isn’t an investment, it’s a tool I use to get from A to B and I’m willing to spend a little extra for extra comforts and capabilities. When I sell it, it will have given me years of utility and I definitely won’t get any monetary return from it.

      I’m currently building a house and think of it the same way. I plan to live in it long term, and it’s likely I won’t get a significant return when I eventually sell it when build, maintenance and utility costs are all factored in. But it will give me shelter, comfort and happiness while I live there, and I’m happy to pay for that. It is a tool, not an investment.

  4. The funny thing is, at the beginning of the year we owned $60k of real estate ourselves. But in the form of a REIT called XRE. That little baby was sweet, paying us a regular monthly dividend of around 4%. But at the end of 2020, we realized we didn’t need the yield as much and sold it off. It took about 10 seconds. I didn’t even need to put my pants on.


    Now, I have a visual image of a dude sitting naked placing a trade to sell XRE. 😱 It’s going to be permanently etched into back of my mind. I will require many, many hours of therapy to address this issue now. If possible, please make a donation from part of the sale of XRE via e-transfer. Thanks in advance.

  5. We are up to 7 rental properties and we own our own home. Been a landlord since 2005. Never been stiffed rent and never had unpaid vacancy. During pandemic, only one tenant paid late 3 days letting us know in advance. We attribute our success to good screening and being really decent landlords and buying good investment properties. We require two previous landlords references. Employment references, and we look at social media accounts of them and their friends. We treat our tenants with dignity and respect, and we buy real estate after we do our homework first.
    A tip for your friend is she can give notice to her tenant to leave if she or her family intends to move into the place. Must live in it for a year before selling or moving again. Not sure if she is in a position to move but I would rather leave my house vacant for a year then deal with nonpayment for that long. Also selling to a buyer who intends to live in the property will mean the tenant needs to vacate.
    We bought 5 years ago in a city that has huge increases in property values the past few years. So although our rentals support us with very little time or effort, because of more than doubling in price…..we constantly think about selling.

    1. Everything great here. I have rentals in Peterborough and Waterloo. I pay a property management company to do everything including the tenant screaning. My properties are aimed to a mature demographic. Never had a problem in more than 10 years. If anything 2020 was a great year as the value of the properties went up significantly as people leave Toronto. Please don’t be so hard on landlords, the only reason you are able to rent is because there are landlords. I agree though that if you don’t truly understand it, you can lose big.

  6. That’s exactly how I feel. Our dream house we’ve been in for decades and added on to and modernized many times only represents a small single digit % of our net worth. We could walk away in 30 seconds and it wouldn’t matter. Our net worth changes by more than our house value in a single day when the market is on a tear. We can do that because here in Arkansas a $200K house is opulent. In Vancouver we’d rent, no way I’m putting seven figures in a house. I think you, as usual, are being smart.

  7. Temporary downturn in the rental market aside, I don’t see any problems with buying a home now. 🙂

    Heck, here in our neighborhood, new SFH constructions are going up like crabgrass in the summer. All multi-million dollar homes. Homes are selling in a day — or less. Kinda reminds me of the real estate heydays of 1999 and 2007 on steroids.

    One can argue that what we went through in Feb.-May 2020 wasn’t a real economic crash at all because it was solely caused by exogenous factors. That being the case, we are way overdue for one of those cyclical crashes. No?

    What do you think?

  8. I guess I’m one of the people that is up to their eyeballs in Toronto real estate debt!

    I am in my first year of moving towards FIRE so I’m wondering what your thoughts are on property and refinancing.

    When gf and I met and we both owned condos. We moved into one and rented the other.

    This dropped our spending costs and we saved up and bought a (relatively-reasonably -Toronto priced-house) and kept both condos.

    We just wanted to see if this was possible and it was, so we went for it.

    We both managed to get new tenants and even with the pandemic prices we make a tiny profit from our condos. It has almost (touch wood!!!) been hassle-free.

    But, in a few years, we can refinance, which is where I think gets interesting. So doing the rough maths – I think we should be able to pull out about $200K from these condos. Still need to do the deep dive on this as it’s a few years away. So I’m wondering if there is some kind of a catch.

    Again, on the basic math that’s still a doubling of our money in 5x years…. when that happens all our cash is out and hopefully we will continue to find solid folk to live there…. and then we can do it again in another 5 years…

    It seems almost too good to be true. So am I missing something here? Is there something that I’m overlooking?

    I’m extremely new to this but we are super frugal people and our house hasn’t stopped us from saving and loading up our big ETF pot which we hope will set us free!

    I’m a huge fan of all your content and going on this journey has been amazing so far.

    1. In my case that I have more than 50% of equity in my rental and it is positive cash flow I was thinking about the following:
      1.- Setup an interest only HELOC such that 100% of the interest is paid by the rental cash flow (NOI). That is, to free up the money locked in the rental without costing me a dime.
      2.- Invest all of this money in a margin account (taxable) into dividend paying ETFs to make the HELOC interest 100% tax deductible.
      3.- Re-invest the dividends into the ETFs to further compound the growth.
      4.- Note at the same I will be lowering my taxes as effectively this strategy is converting rental income into dividend income with is taxed at a lower rate.
      5.- You benefit from the rental appreciation, the EFT compounding growth and all along reducing your taxes.
      Were you thinking of something similar or different?

  9. Oh man !! You’re scratching me right where I itch on this one….soooooooo thankful I dodged the real-estate bullet ! Also, couldn’t help but notice the beginnings of the flood of homeboners in this forum starting to post how incredibly wonderful their land lording experience has been.

    Actually, landlords remind me of people who go to a car dealership to buy a new car (and trade in old car). They typically go on how they got the new car for wayyy under the invoice, and typically brag how they got more than Kelly Blue Book on their trade in, all when in fact that got totally screwed and are too humiliated to admit it….
    ….same thing for their rentals..many many landlords are typically churning shitty tenants in and out, constantly praying for a half way decent one, all the while boasting how wonderful real-estate investing is !

    I’m currently renting a room in a house (all inclusive), and I know that my net worth is significantly higher then the landlords.

    1. ..also, regarding your friend with the delinquent tenant, I know here in California it’s not uncommon for landlords to offer undesirable tenants some $$ (five thou$and or so) in order to convince them to vacate…
      …Isn’t that a delightful proposition ? …not only are they stuck with the mortgage, they’re also stuck paying the rent for their own lousy tenant !! These types of landlords are typically referred to as “real-estate investors”.

    2. Bill, I’m sure you would agree there are bad tenants and good tenants, just as there are good landlords and bad landlords. Some landlords actually know what they are doing. Which makes sense because if they were all as you described, eventually rentals would cease to exist.
      Clearly you have a close relationship with your landlord and you are happy with your living arrangements. Good to maintain good tenant landlord relationship.

      1. Not in California where the laws are in place to protect the tenant and screw the landlord! I owned my own home in California, but would never be a landlord there because of the laws. I now live in another state where I own 2 homes plus my residence and have not had a problem with collecting rents in 2020!

  10. We don’t have any debt, but I feel that our properties are millstones around our neck. If we sold them we would be cash millionaires, but as things are we have costs every month just so two of us can keep up the 5 toilets in our house!

    I do have to say after 6 years as Airbnb hosts, the vast majority of guests range from good to wonderful; of course it is the tiny number of bad ones that we remember!

  11. Real Estates, Gold, Stocks Market, Antiques and countless others are choices which are no difference than the cookie cutters 9 to 5 jobs in any companies.

    Answer these 4 questions with sincerity:

    Do you enjoy the option that you have picked?
    Do you have enough time for your family?
    Do you have an appetite at your family dinner?
    Do you sleep sound at night?

    If you answer “YES” to all 4 of these questions that is the optimal choice tailored made for you; for many years to come.

    I was fortunate to pick the 9 to 5 job that I enjoyed for 20 years. As I get older, I realized the 9 to 5 schedule is not
    flexible enough for the additional responsibilities with my family here in the US and oversea (No to question #2).

    I educated myself in Real Estates, Stocks market and blog (just for fun and contribution) and have made the transition to the new “choice”.

    I am still learning, but most importantly, the answers to all 4 questions are “Yes” again.

    I am expecting to be on this path for many years to come!

  12. I was just thinking about this topic today, and how in many ways our government has stifled entrepreneurial endeavours to prevent COVID’s spread. Even though I understand some of the reasoning, I never would have expected this level of restriction.

    I am a landlord who has made more money in real estate than ever slaving at a 9-5. I think current conditions really emphasizes that stringent procedures need to be followed for businesses, as well as an ability to pivot. For those hustlers out there, never has there been a time with more potential for upside and failure, as an entrepreneur.

  13. I would never, ever be a landlord – WAY too much risk and lack of diversification, but I bought into Fundrise. They do direct investment primarily in mid range apartment complexes, exactly where everyone ends up when they have to downsize during a recession. Also, you can’t get your money out in 30 seconds, it’s quarterly, and the management can shut down redemptions if they feel panic selling will harm the long term success of the funds – like if everyone panics and wants their money during a market crash and they are forced to sell buildings at a loss.

    In other words, it’s somewhat idiot proof. They did shut down redemptions in March of 2020, but their properties were doing so well they opened it up around June. I only have about 10% of my portfolio in Fundrise, the rest is in VTSAX, bonds and cash, but it’s a solid diversification out of the stock market which is intended to pay the bills in a prolonged recession.

    I tried dividend stocks as you suggested to create a Yield Shield, but then I found that those companies can and often do cut dividends during a prolonged recession. In other words, I’m still coupled to the stock market. Plus I was only making 5.6% return where I’m now getting 11% at Fundrise. One could argue that Fundrise is a new, private company and therefore is more risky than an dividend mutual fund, but since the fundamental assets are real estate I feel that the risk/return ratio is well worth it.

  14. Until recently I had over 100 rental units. Sold 30 last fall. The 30 units were conventional rental units, townhouses, that we owned since 1999. Our experience has been that we had tremendous pricing power this year because there was almost nothing for rent and people weren’t moving. The high end condo rental market is one thing. Purpose build older building are a different thing. At that property we lost NOTHING to bad debt. And we spent much less money than normal on maintenance and repair (it costs a ton of money to turn over a unit) because no one was moving. So we were having our best year ever. Most owners of older buildings will tell you the same thing.

    I’ve been in the real estate business for 35 years. For an individual investor I do not recommend the residential rental business, especially in jurisdictions like Ontario which have very tenant friendly legislation. It’s a blood sport, and unless you treat the rental business as a job that you take very seriously you will get eaten alive. If you need to own real estate own shares in a REIT.

  15. Never had any tennant issues except once many many years ago when I accepted a friend of a friend as a tennant. But it’s not a matter of luck. There’s rules that need to be followed. Yes, screen diligently. It’s amazing how many people don’t even bother to phone references, nevermind give the appropriate weight to screening the references themselves. But also it’s not just an “investment”, it’s a part time job & requires being a decent landlord. It’s a type of customer relationship at the end of the day & being diligent & proactive in upholding your end of it will mean far fewer problems. If you’ve ever been a tennant, you know what I mean. Most of us would have great difficulty screwing someone who has been fair, nevermind someone who has gone above and beyond.

  16. You’ve got an interesting outlook on real estate! Sounds as if the Toronto market has been through the ringer. Yikes. I see your perspectives in real estate through several different lenses. First, it’s a drag on traveling. My wife and I travel about 250 days per year as well, and trying to maintain a place remotely proves difficult. We’ve balanced that by making everything as low maintenance as possible.They can suck you dry financially, but you can’t let a home stop your travels. One needs to be a priority, it’s difficult to make both a priority. We bought in the Colorado Rockies and it feels like vacation every single day, so that helps! We’ve put it on Airbnb before so we could travel and make some money from an asset that’s already in the portfolio as well.

    Second, to use real estate as a source of income. 50% of our net worth is in rentals (approximately $1 million USD positive equity). We ended 2020 with $375 in late rent and property values in Texas are going bonkers. So, the mother of all bad scenarios hits and we are able to sign longer leases (due to people not wanting to move in 2021), charge more monthly rent and have our property values go up. We have sold off a few and continued to invest in the market, but we’ve had the opposite experience as your Toronto friends.

    Hope to meet y’all when the world decides to open up again!

  17. I rent my paid off home out and live there at the same time. Most of the time I am at my Girlfriend’s in Rochester,MN.

    This is the 7th year doing this and helped me reach FI. I use a month to month contract and can boot their ass out within a month!! I have never had to boot a tenant out but have come close. Since the market is hot now and I live for the most part with my girlfriend, I may decide to sell this spring to capitalize on even higher housing prices. I love the movie Heat and that saying has always stuck in my head!!

  18. I own about 70 doors in Montreal, Qc. It’s been good although not as easy to rent. Still not so hard, though, just takes a little longer and that’s ok, the world turns at a slower pace… The values rose big time with the low interest rate. So it’s all good, values are up, rent payments are absolutely not a problem and tenants are mostly understanding about the delays for repairs. But then again, I sold all my condos, houses and smaller buildings from 2017 to 2019. Bigger buildings are more stable. I understand how a condo owner that relied on short term rental can have a hard time!

  19. We screen Tenants more than most, we have the rent priced 10% below market value so we get tons of potential tenants to select from. Some of our screening techniques are insane but has worked so far. We look at the tenants cars for cleanliness, they have to be accountable to a community that will judge them if they act like an idiot, good credit, have a degree and good upper class jobs, rented to over 9 tenants so far and not a single issue. That being said, I’m down to my last rental property (sold 4 out of 5 of my properties) and once my current tenant leaves I’m never renting to anyone again, too much of a risk. I now make more money having the proceeds from
    My rentals in the market with less risk and less work.

  20. This is a good reminder that, if you are going to buy an illiquid asset, you better get well above market returns for your trouble. I do use private (passively held) real estate as a portfolio diversifier, but I don’t put so much in that it causes me stress.

    Thanks for this great piece, MilRev, reminding about these dangers.

  21. I ran into my landlord in the lobby of my apartment building here in Taipei, Taiwan. The lobby has a very high ceiling, like 3 stories high. There was a vehicle in there–it might be called a crane or something–with an accordion on the truck bed and a platform on the accordion. There was a hole in the ceiling and workers up there. I asked my landlord what was happening and he said that someone had flushed a bunch of KITTY LITTER down the toilet and clogged the pipes up in the apartment building. KITTY LITTER!

    Welcome to the world of landlording, I guess.

    Dan V
    Taipei, Taiwan

  22. This article reads like a troll and clickbait piece to rile up the homeowners. happy to oblige with a comment. the irony isn’t lost that all sides think they’re the smart one. you laugh at homeowners in a pandemic for being screwed while they laugh at global nomads who can’t fly a plane for 3 years. confirmation bias is a helluva drug when each side thinks they’re better off for their choices.

  23. Sold my investment home in 2020 in Oakville after almost five years with the intention of moving the investments to the stock market. Made $500k in profits and yet the home value increased another $100k more In three months. Luckily, I invested in Tesla before the S&P inclusion. I’m now possibly FI but I refuse to invest in EFTs due to average returns.

    1. I’m now possibly FI but I refuse to invest in EFTs due to average returns.

      Sounds really promising what a great choice stay the course less traveled!

  24. So this whole country NZ (OK it’s small) is filled with amateur real estate investors because they don’t know how to buy ETFs. ETFs never show up in “how-to-invest” news stories. It’s terrible. There is a company that sells ETFs and you can get them now, but no one knows about it. There’s also other bananas things like any non-NZ investment is taxed on increase in unrealized market value every year. So the government can get you that way too.

    This is, of course, “great” for real estate values. Which have been in the news as being unaffordable.

    For now we enjoy owning our townhouse condo in Waterloo. We’ve rented it out when we go on sabbatical (eg now); it was somehow much harder to find tenants this time than last time. It’s like 40% of our assets. The rent cheques continue to clear, so that’s good. I don’t think I’d enjoy doing it as a career.

  25. I purchased an Airbnb in the Muskoka area in August of last year, I haven’ been able to get into it to make improvements as it has been booked almost solid (until recently).

    If you are taking the money and burning it on fun things instead of holding a cash cushion for unpredictable costs then that is probably a poor choice…

    Also just purchased a house to turn into a duplex, the top floor is already occupied covering all the costs so hopeful that this will work out too!

    I still have the majority of my money in TFSA/RRSP ETF’s

    Im surprised at how many people here have money in real estate.

  26. Oh man, I’ve been wanting to get into the real estate game for the longest time. I always hear the positive and I never hear the negatives. I’m sure COVID-19 has made landlord’s lives significantly worse. Even worse is that the eviction exception will probably get postponed.

    This is convincing me to stick with what I know and to specialize in stocks instead.

  27. I’m not much of a real estate investor, as I only own two REITs myself. But the returns have been excellent — One is up 600% and the other is up 700%. They’ve been paying out a steady growing stream of income for many years now too.

    I have no worries about tenants, and a asset with a steady growing income AND plenty of capital gains. That’s good enough for me.

  28. This is an eye opener for me, as I plan to have rental property. But I am not dumping my idea yet, but will spend more time studying it. Thanks for this

  29. I had a rental property ( small house ) for a while. My experience was neutral. My renters always paid their rent on time – so that was good. However, the renters had a dog and did not keep the place very clean, so I had to spend a lot of time cleaning up the place when they left. I know a lot of people to do own rental property and they seem to like it. So I think it depends – if you are professional and know what you are doing, it can probably be a good thing.

  30. COVID-19 has definitely created a perfect storm of hell for many real estate investors. I’m very grateful we haven’t fallen into this trap!

    Mrs. Wallet and I haven’t purchased any additional properties, but two of the factors we wanted our primary residence to fulfill when we started looking were rental space and an opportunity to build sweat equity.

    As a result, we rent out our top-floor garage apartment to a good friend. He lost his job and wasn’t able to pay for several months near the beginning of the pandemic, but we worked with and supported him and luckily he’s been able to catch up. Due to historically low interest rates, we refinanced again and took advantage of the sweat equity we’d built up as well as the low rates. Now we’re actually paying less than we did to rent a much smaller space before purchasing our house, and we were also able to get rid of PMI! We’re also working on converting part of the bottom floor of our garage into a cultivation space for gourmet and medicinal mushrooms, which will add some additional passive income and further improve our cash flow.

    Overall, our venture into real estate has worked out well for us so far. We’ve also felt really lucky to have plenty of space and a private yard now that we spend all our time at home! Looking forward to COVID being under better control and hopefully retiring soon so that we can join you in the nomadic life!

  31. I think every investment has its advantages and disadvantages. We are family and homebodies. We travel a little bit but mostly with or to visit relatives. We enjoy traveling but are always really glad to return home.

    We also love biking. Now we plan our vacations around bike trails. About 2 years ago we bought a rundown house right on a bike trail which we are slowly fixing up as time and money allows. We love it! Very convenient with a big yard for our garden. It’s also a lot safer than our old neighborhood which we lived in for over 35 years.

    We do have some rentals with good tenants who are essential workers like us but we have decided to sell them whenever a tenant decides to move. We got into the rental business because we wanted to make our neighborhood better by improving the old, rundown housing. We are very handy at fixing stuff. I took extensive training through my old city and apartment association on being on a landlord. You can’t be sloppy. You need to follow rules and systems just like if you were working at a property management company. However now it appears that the government is either looking to take over the rental business or wants their rich friends to buy up the rental housing. So the laws have been changing to be less friendly to small mom and pop landlords.

    Your friend can get rid of her rental if she is willing to take a loss. I get calls, texts, and letters all the time from people looking to buy our rentals. Some investors are willing to take on the challenge of a deadbeat tenant but it will cost you.

    We do have a significant portion of our assets in ETFs. I studied, continue to study and read a lot of books and now online blogs to learn about various investment strategies. We basically just set a ratio and just adjust if it changes by a super significant amount. And of course I read your book and loved it!

    I think if you have no assets the best asset to invest in is yourself. There is a lot of free or low cost training which will allow you to slowly get better jobs so you have money to invest. We are in the 3rd quarter of life and still continue to study and learn.

  32. Owning individual income properties is running a business. It is illiquid, requires time to care for, and if things go very wrong you can lose more than you invested, for example in a lawsuit.

    When you buy stock you can sell it at a moments notice, managers run the business, and you can’t lose more than you invested.

    With careful investing, one isn’t better than the other, they are different.

  33. Hang on, grabbing a towel to wipe down the cold sweat that kicks in any time I think about owning rental property. Heck, all I have to do is remember owning my OWN house for the panic to kick in.

    Thanks for the continued reminder that I’m NOT missing out on anything – it’s easy to listen to someone like Paula Pant (Afford Anything), who is brilliant and wonderful, and start thinking, “Well, maaaaybe I should reconsider…”

    I know some folks can make it work, but I always hope people learn from the mistakes of those like me [who once bought a house she couldn’t afford while also failing to realize she hates EVERYTHING TO DO WITH HOME MAINTENANCE].

    I’m optimistic that things are shifting away from, “You have to own property to be considered a fully functioning and respectable adult” because I think that mindset alone gets people into sticky situations. Thanks again for this post!

  34. That is still one of my favorite movies. For me it was the “having enough time” comment from his dream that resonated with me… which is what brought me to your blog/book and FIRE.

    Cheers and Thank you,

  35. Great insights as always.
    Is there a scenario where your current structure of retirement (yield shield, etc) doesn’t work well? Seems like so far given your experiences even YTD has been stressed tested in every imaginable (and unimaginable situation! A pandemic of 1918, Great Depression of 1930s, social unrest from 1960s – 3 different US events in one calendar year – 2020 and beyond..) Aside from 👽 👾 landing and market going to zero because of some catastrophic existential threat, what keeps you up at night if anything?

    Health care costs for those in the US. Leading cause of personal bankruptcy. One scenario which isn’t linear.

    Thanks for all that you do. Loved your book!

  36. I own four rental properties, all performing the same during Covid-19, no missed rent payments, no tenants impacted by job loss, three properties in San Francisco Bay Area, one in Nevada. Nevada SFH had a tenant change, with rent increase from $1450/mo to $1800/mo. I kept the rents at the three other properties the same for convenience, I wanted to keep them stable during the pandemic. The tenants appreciate it and I don’t have to re-lease. Monthly rents at $3800, $2150, $1800.

    I have had to deal with more repairs, apparently the virus attacks appliances, or maybe it’s because people are home all day. I hire out for all repairs.

  37. One of the biggest myths in finance is that rental income is “passive.” Being a landlord can be a good job, but it is still a job.

    Also, “Home Boner” may be my new favorite term of all time. Lol!

  38. I’m sending this to one of my sons. His GF’s parents are trying to talk him into buying an investment property (even though he has no money.)
    Melbourne’s property values sound to be on a par with Toronto’s.
    I love my house and I love the security of having my own place, but RE investing isn’t for the ignorant and cash-strapped.

  39. I own a home as a primary residence and inherited a home from my grandfather which is now a rental property. My primary residence is cool and easily affordable. I like having it. My rental has an emotional attachment because I spent a lot of time in it as a kid. Great memories and I inherited it mortgage free. Lesson – don’t ever rent to a sibling. EVER! What a freakin’ disaster. I have a good tenant now and hopefully will recover the losses I incurred due to renting to my sibling. I will never buy a rental with my own money for all of the reasons you listed and several more. Give me the stock market any day. I’m so grateful I discovered mutual funds/index funds. Changed my financial life. Being FI is the best and it was SO EASY and profitable. Just contribute each month, enjoy life, and watch the numbers grow. Compound interest is incredible.

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