I've discussed the distinctions between real estate investment and stocks and bonds in the past. One of the main differences lies in the ability to make a down payment on a home purchase and finance the rest through a mortgage. Try coming to Avril or me and asking to buy a stock, with only 20% down, and the promise to pay the rest over time! That’s the power of leverage in real estate.
Another noteworthy contrast is that unlike stocks, real estate doesn't provide a daily live quote that reveals the exact value of the property at any given moment.
Recently, in the GTA, I have started seeing “assignment sales”: like below.
In the scenario depicted above, the homeowner who initially intended to take possession of the property upon its completion in early October has opted to sell it before that. Several reasons might explain their decision to sell "at a loss," including:
- With the higher interest rates, they don’t have the ability to finance the rest of the purchase
- They had originally intended to flip it at close, but realize they won’t be able to sell at their desired price
- Personal circumstances have changed, and they don’t need the house anymore
It is interesting to see this trend in pre-construction real estate in the GTA. As a mainly stock and bond and fund investor, I find the “selling at a loss” headline funny, however.
When we sell a stock, the market (or the buyer), doesn’t care what price the seller paid for it. Using the same figures: a stock that we bought at $24.59, and wish to sell at $23.99, we don’t announce that we are “selling at a loss”. Also, the market might not have any buyers at $23.99.
The price we would like to sell it at, regardless of our purchase price, doesn’t matter. The price a buyer is willing to pay today dictates the value.
The psychology of the market is an important consideration, in both real estate and equities. I don’t know if the selling price on this assignment sale is a good price or not,. That said, I would be confident that if a purchaser bought this home to live in for more than 10 years, they would enjoy an increased value over time. Which is not too dissimilar to investing in the market. The longer one’s time horizon, the greater the likelihood of achieving strong returns.
It’s the Canadian National Tennis Championship this week. The tournament is unique in that both the women and men play: but in different cities, and they alternate each year. This year, the Women are playing in Montreal, and the Men, here in Toronto.
It's a no-brainer that my go-to Carlos Alcaraz will win the men’s. On the women’s side, I was cheering for Caroline Wozniacki, mother of two, coming out of retirement, so I’m going with Coco Guaff (anyone named Coco gets bonus consideration!)
Have a great weekend.