The cult

Marty and his GF belong to a cult. Like all such sects, it has an omnipotent and omnivorous divine wizard, initiation rites, group hugs and an interactive web site. Three thousand cult members talk obsessively to each other in code, take bus trips together and believe they posses special knowledge and a sprinkling of fairy dust setting them apart from other humans. They crowd into three-hour meetings once a month and jam all-day cult workshops several times a year. Of course, they constantly hunt for new blood. It’s duty. For they are the chosen.

If you look deep into the eye slits of his wizard hood, you’ll discern a man able to push his flock into purchasing more than 26,000 properties and borrowing $3 billion. And it goes on. Every month, another 220 bleeding, pulsating deals are thrown at the feet of Donald R. Campbell, spiritual leader and resident deity of the Calgary-based Real Estate Investment Network.

REIN is boot camp for speckers and flippers. It preaches financial independence through the religion of real estate, and real estate only. One asset class. No diversification. No deviance. No other god. Members are prodded to continually spend on seminars, workshops, field trips and more, from $37 for an email to $1,500 for advice on commercial property. And everywhere, the power of leverage is front and centre.

Like these words, from a $1,000 course on how to use your RRSP to finance a house (hell, buy me a beer and I’ll spill…)

“The lever and leverage is one of man’s greatest discoveries. In a nutshell leverage is getting more for less and using the full advantage of resources at hand to accomplish a goal. In the case of Real Estate Investing and in the game of Monopoly, it means buying as many properties as possible with the cash available at hand. In the real world, it can also be translated to mean how little of my own money can I use as a down payment and still be able to buy the property.”

That epistle must have sent a hot little surge down Marty’s pants. So he and the babe scrapped together $14,000 and leveraged up a $275,000 newly-built semi in the city of Burlington, wedged between desperate Hamilton and conceited Oakville. But apparently owing $270,000  on a property which would never be in positive cash flow was not good enough. They went to other cult members to learn how to acquire more debt.

“It is now worth approx $380-$395 depending on upgrades, etc, etc.,” they gushed. “The question is, can we lease out this property while pulling out the equity from it?? Only 5% has been put down on the property, but my understanding is that there is new value to the property or equity due to its appreciation. Bottom line, is it possible to pull out the appreciation from this home and reinvest it elsewhere?”

Yes!, cried the other little REINs. You can pull out up to 90% of the value of the property – even if that added value is 100% illusionary. Plus CMHC will allow you to get insurance!

And I’m certain they will. You can read more here. It’s a small example of how emergency interest rates, rampant speculation and state-backed insurance of high-ratio, high-risk, wholly irresponsible real estate gambling has helped make homes unaffordable. Worse, this is the kind of mentality that helped push the US middle class over the edge and into a financial freefall. In Don Campbell’s world, debt’s never repaid because equity keeps swelling. Markets always rise. Buyers always score. And Global TV is always there when you need fresh virginal juices.

REIN, of course, is extreme. But what these financial whackos embody is a mentality which has swept through Toronto’s downtown condo towers and Vancouver’s delusional neighbourhoods. With banks willing to lend anyone heaps of money since Ottawa wipes away the risk, prices have catapulted higher on the back of speculation. Now we are left with two things. Houses families can’t afford. And steaming piles of risk.

As I’ve been telling you for some time, growing inflationary pressures will beget higher interest rates. Now that oil has touched $100 and foodflation is in every newscast, central banks have to do something to dampen prices. At the same time, the end of the 35-year mortgage in a month will not only help rid weasels and parasites like Marty and his wench, but also nail the market. Meanwhile millions of wheezing Boomers are finishing this RRSP season woefully aware they’ve got way more house than they do money. Soon the selling will start. And places like Ontario and BC are making matters worse by squeezing homeowners with higher property taxes and runaway electricity bills.

Already listings are surging – up 100% in some markets in the last five weeks. Soon supply will exceed demand by a long shot, and seven months of declining year-over-year sales numbers in most of Canada could turn into a rout.

If you’ve been shopping for a home, stop. If you’ve mulled selling yours, list now. If you’re in a conditional deal, get out. If you’re renewing, lock in. If you’re house-horny, look at this.

Works every time.

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