Macho in Markham


I’ve never met Tyler, but he probably wears shades on his head, drives an Audi A4, black, with tinted windows, doesn’t own a tie, uses gel and thinks Axe ads are tasteful.


“Are you basement dwelling losers STILL fantasizing about a crash? LOL! I bought my townhouse in markham in 09 for 530k and an identical one a few doors down just sold for over 700! Yeah, RE sure is a bad investment! That’s why I made 200k in 3 years, probably more money than any reader of this blog made in his whole life. Even in case of a 25% crash, I still come out ahead compare to renting. If I listened to Garth I would have thrown away about 70k in rent to rent the same place. 200k vs negative 70k, which is better, hmmm that’s a tough one. Almost every house sold in markham this year sold for over asking (condos excluded). There are still bidding wars going on here, with no sign of it slowing down. Maybe houses sit on the market in whatever hick town you live in, but here in markham (as well as any good part of gta) houses sell in only days, usually for over asking with multiple offers. It won’t stop either because markham gets an influx of thousands of new families every year, who all dream of home ownership and are willing to sacrifice for it. Even in the unlikely event my townhouses drops in value, it will recover fast, and I guarantee you with 100 percent certainty in 10 years it will be worth much more than it is now. Losers.”

Shall we take the Tyler challenge? Relax, it doesn’t involve touching him.

And let’s forget for a moment about the market in Markham, where there are 310,000 residents and 1,600 houses for sale. (That’s twice as many, per capita, as the GTA in total.) Or that in any real estate correction it will be 905 which takes the heavy casualties, while 416 stays in the fortified bunker with the hot nurses. Instead, let’s pretend for a moment that Tyler is not a dink, and this is a serious issue.

So he bought three years ago for $530,000 which, with closing costs, would be an outlay of $540,600. Let’s assume this is a cash deal – no extra costs for CHMC (which would set him back another $14,000) and no mortgage payment. Fine.  Now he sells in 2012 for a gigantic $700,000 – a windfall gain of 32%, or 10% a year. (Markham homes have increased an average of about 5% annually since ’09.)

After selling costs (5% commission) he’s left with $665,500, or a giant profit of $124,900. Not the two hundred grand he brags about, but fat enough. Eat some Audi dust, you mouldy basement-renting freaks!

Well, not so fast. Let’s say Tyler took the $540,600 he spent on the townhouse and invested it in a balanced, diversified, non-cowboy portfolio yielding an average of 7%. In three years he’d have $662,258, for a profit (before tax) of $121,658. So the house wins – by $3,242.

But wait, this is an unrealized profit. Unlike the investment returns, which are immediate, Tyler has to actually sell the house to get the money, and hope he does so at the right moment. “Even in case of a 25% crash, I still come out ahead compare to renting,” he brags. Which is why Tyler, like most Audi owners, is misguided as well as irritating.

Let’s be kind and factor in a market correction of just 15%. After all, following a 32% surge in prices since 2009, how bad could that be?

A selling price fifteen per cent less than $700,000, minus commission yields a net of $565,250. That reduces Tyler’s overall profit to $24,650, which seems to be less than the $121,658 garnered from investing the money in liquid assets. In fact, it’s $97,000 less.

Now, how about the rent factor? Well, a townhouse in Markham rents for about $1,700, which is $1,100 more a month than the cost of paying the property tax, insurance and maintenance on the same unit that an owner would face. So, three years of rent would equal an extra $39,000. Deduct that from the returns provided by the financial portfolio, and renting still wins by about $58,000.

Of course, income from a financial portfolio is taxable (but at a reduced rate on dividends and capital gains), while real estate gains are not. But the above did not factor in mortgage interest or high-ratio mortgage insurance which I’m guessing Tyler’s been paying. In any case, the numbers are compelling. In an exceptional real estate market, owning is marginally better. In a market with even a modest correction, the renter-investor dominates. In any market, being a dickhead is unhelpful.

Finally, to all those who think getting a 7% return on a non-cowboy portfolio of liquid financial assets has been impossible over the last few years, I invite you to return tomorrow.

Bring a loser.


avatarGarth Turner - The Greater Fool posted Sunday, October 14th, 2012.

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