Money Illusions & Real Estate Unicorns in Canada

Message from Tom & Nick

These are wild times in real estate land.

Actually they are wild times for the entire Canadian economy.

Heck, let's face it, it's a wild time for the entire global economy!

To try to make sense of it all, we have regular meetings with a big chunk of the Rock Star team to break down the global macroeconomic environment and how it impacts real estate right here in Ontario.

The picture up top is from this week's meeting, with special guests Dan Patton and Lorenzo Podda from Better Mortgage Select. They showed up to give us some financing updates.

Here's one thing we all know for sure...

Investors should know that single family homes are becoming a unicorn in Canada and especially right here in Southern Ontario.

It's absolutely shocking when you look at the data.

In a few short years, people will have a hard time believing you even own a single family rental in Ontario.

It will be like owning a property in Rome, London, Paris...seems strange to think this way, especially if you've lived here your whole life, but it's happening.

Last week, we shared some shocking housing permit data points in this email...

...and this week, Nick took a quick video where he shares construction data, new permits, and the latest population growth to show exactly how much of a unicorn single family homes are becoming.

If you're watching real estate in Ontario you absolutely must watch it...

You can also click right here to watch it, and make sure you subscribe to our rapidly growing YouTube channel too so you never miss out on new videos!

And there's one thing we want to make very clear with all of this.

Money, the way it works in the global financial system today, is a bit of an illusion.

Here's what we mean...

We took property prices from TRREB (Toronto Regional Real Estate board) and figured out the compound annual growth rate.

It's 6.89% from the year 2000 to the end of 2023.

Interesting, but no big surprise there, right?

Here's where things get interesting.

We then took Canada's M2 Money Supply data and figured out the compound annual growth rate for the same time period.

Guess what it is?

Ready for it?

Hold on...

It's 6.94%.

So let us ask you something...

Did property prices even go up?

Or is the price just reflecting how much the Canada dollars have been devalued?

People think they are getting "richer" when property prices are going up.

But are they really?

It's an illusion.

If they cash out from their home in Mississauga after 20 years of home ownership and look around at what else they can buy in Ontario with their new found "wealth" from their home...

...what they find is they really aren't as far ahead financially as they thought they were.

Why is that?

It's because prices right across the province have gone up in sync as the Canadian dollars have been devalued.

In fact, as the property gets paid off it becomes less and less of a financial driver for them.

So knowing this, why does real estate turn out to be a pretty decent investment for many people?

It's the leverage.

It's only the leverage!

When you put down 20% on a house, if the "price goes up" on average 7% per year then you're getting a 35% return on your money (7% return on 20% down).

And with 35% returns, you can outpace the 7% monetary debasement and "get ahead" financially.

But as a house gets paid off, you lose that leverage.

So homeowners who have no debt on their house or investors who have paid off the entire mortgage lose the leveraged returns.

It's why today's money is all an illusion.

And it makes "saving" or "getting ahead" pretty damn difficult.

Prices look like they're going up but it's really the dollar getting debased.

People invested in stocks, real estate, anything at all...may think they are getting ahead but if they don't take into account that 7% M2 debasement they may not be getting ahead at all.

And by the way...

Guess what Bitcoin's 4-year compound annual growth rate is from Jan 2020 to Jan 2024?

Ready for it?

44%.

Jeez. We'll leave you to do with that information what you will. But ignore it at your peril.

Leveraged income properties and Bitcoin are a match made in financial and wealth-building heaven.

That's it for this week.

Unicorns and money illusions...fun times for sure!!

Hope you're having a great week, everyone!

Tom & Nick

p.s. We're hosting a LIVE introductory talk on Ontario Real Estate investing with the latest numbers, rents, strategies and more. Both Nick and I will be there after the session on Zoom to answer any of your questions LIVE. You can register for that and save your spot by clicking right here.

p.p.s. Remember to check out Nick's latest video on YouTube on Ontario housing data and subscribe to our YouTube channel!

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