Your Home Is Not Investment

I generally like Richard Croft, who writes in the Financial Post. Yesterday he had an interesting artcile that echos my own feelings. I’m sure its not the be all and end all, but it doesn’t take long to read, and it makes some good points Croft says that your home isn’t an investment, and explains why


Filed under Investment Approach, National Post

36 responses to “Your Home Is Not Investment

  1. Domus


    is that really you posting? Homes are not investment? What about our long discussions about stock market vs RE for the past 18 months? Is this your epiphany on the way to Damascus?

    My memory may fail me, but I seem to remember you were the one advocating the “buy RE and get rich” punchline….

  2. coco

    What happened to this thread? Went to post a comment on my Mac and it automatically went to the news article. I’m now posting this on Firefox to see if it works.

    I have always been a big believer to never put all your investments in one basket, including real estate.

  3. robchipman


    That wouldn’t be the first time you’ve misread me. I’ve always said that you should not treat your principal residence as an investment. Croft has presented some clear and simple reasons. I prefer actually owning investment real estate to REITs, but what do I know? 🙂

    That said, I am a believer in the old saw “Don’t wait to buy real estate. Buy real estate and wait”; done properly its an awesome approach.

  4. $fromA$ia

    Awesome approach? Really Rob? How about in times of extreme. You don’t things are different now?

  5. $fromA$ia

    After I bought the home I’d like the option to sell without a loss rather than the oposite (sell with a loss.)

  6. Anonymous

    The article in itself makes a certain sense, that one should not consider their principal residence as part of their investment portfolio. However, the author never said that one should ignore the reality on the grounf when purchasing your principal residence. If you max out on the purchase of your principal investment and it takes 15 years to get any equity into it, it is fairly certain that the value of your investment portfolio will be close to zero.

    The opportunity cost for the first time buyer if they overpay is huge. If by some means one could acquire their first principal reidence for 500,000 and that property drops a conservative 25% to 375,000 within two years, the opportunity cost is aprroximately 125,000 right now. Value investing in fixed income over the 25 years of the mortgage leads to an inflation adjusted opportunity cost of 325,000.

    The case mentioned by the author, of buying in 2000, is perfectly reasonable as property values were relatively ‘normal’ at that time so purchasing a home didn’t carry todays oportunity cost.

    The author is being duplicitous by leaving out todays situation and focusing on those who bought in 2000.

  7. Domus

    OK, thanks for the clarification. I will take it as:

    1) the house you live in is not an investment;
    2) any additional unit you purchase counts as investment.

    Which bring me back to the same question I have been asking before: is it a good time to invest in RE?

  8. tqn

    “Which bring me back to the same question I have been asking before: is it a good time to invest in RE?”
    this question has been asked over and over many times in the past many years; and one of the favorite answer has been “wait for the 50%-75%crash, or else it will wipe out your equity”.
    Well, perhalf people should define the present and the future a bit more clear rather than “is” or “now” or “in a few year”.

  9. confident

    yes, Rob, aren’t things different right now?

  10. -A-

    There is a reason why the information you get from this blog is free, because that is what it is worth.

  11. -A-

    BTW Rob, is the bonehead in the picture symbolic? It’s not your friend Newsflash, Vanreal, Hotballz or????

  12. $fromA$ia

    Perhaps it’s a warning that if you buy with zero down you might as well bury yourself.

  13. Domus


    I never claimed to be right in the past. In fact, I have said this market has surprised me more than one and could do so again.
    The fact that the crazy appreciation has happened in the face of stable incomes is an oddity to me: oddities, sooner or later, come crashing down. This is all I am saying. It took 6 years of crazy appreciations for the US market to reach a tilting point. But it is finally crashing.
    One thing is to say: people are making money and they have made money for years; different is to say, this can go on much longer.

    I would have expected a correction last year. It might come a bit later, but it will come (just like in the UK,USA,Spain,Ireland and before that Japan).

  14. WoW

    Rob – tell that to the buyers of the McMansions in Florida last year – wonder how they feel. In a ‘normal’ market i agree – this market is not normal.

    I’m not ‘normal’ either, but that’s a topic for another blog!:)

    as always thank u for the numbers.

  15. blueskies

    Which bring me back to the same question I have been asking before: is it a good time to invest in RE?

    NO! every indicator is pointing to NO!
    step away from the market…..

    do a one-man buyers’ strike….

    nobody right now is saying it is time to get in the market, listen to your instincts.

  16. ObserverX

    It’s a great time to buy if you’re a buyer and a great time to sell if you’re a seller so long as I’m your Realtor! ‘Nuff said.

  17. robchipman


    “done properly its an awesome approach”. Can I add “done foolishily, whether by taking action or not taking action, its a bad approach”? In other words, yes, its an awesome approach, even now. Tell me: if you had bought a house 6 months ago, stopped paying rent, rehabbed it and rented the basement, would you be further ahead now? What has changed in your analytical model between now and then? Isn’t the constant a question of risk tolerance? (Just asking! :-))


    The answer, generally, is no, but not for the reasons that you propose. There are certainly many situations where buying now makes sense, but they depend on a combination of individual circumstances and the particular property’s metrics. (Sell investment prop now, at an inflated price, and buy another, better prop at an inflated price, or wait until you can sell today’s prop at a deflated price and buy another, better prop at a deflated price? Factor in the variables and the advantages don’t accrue in a general fashion. Each situation can be a winner or a loser).

    I think some of your comments prove the point: you’re surprised by, and don’t understand, why this market has gone on as long as it has. The obvious conclusion is that the real estate market is not a simple thing, and I think it follows that it will be no more simple when its direction turns. Hard and fast rules and black and white analytical models are good starting points, but they don’t fully answer our questions.


    “The author is being duplicitous by leaving out todays situation and focusing on those who bought in 2000”

    I’m a little surprised that you came to that conclusion. Do you really think he’s recommending buying real estate, and if so, under what circumstances? My read was simply that he felt you shouldn’t count your home as an investment unless you own to generate revenue/gain and the property has a tangible value that can be exchanged for cash. Homes meet condition #2, but usually not #1.

    I also took away from Croft that the idea that losses in your RRSP, for example, are balanced by recent appreciation in your principal residence, iscommon, by fallacious. You’re right that Croft points out that homeowners made a lot of money between 2000 and the rpesent, but doesn’t he later point out that they probably won’t realize that gain?

    And that, I think, answers the question that he started with “Should I diversify into RE to improve my long term, overall investment performance when I already own my home?” Consider the obvious answer of yes, and consider that the investor did it prior to 2000. Now he’s got a real gain that he can use without radically changing his day to day lifestyle (and I’m looking at this from a long term perspective, not a market timing perspective).


    With comments like that are you sure you want to get into a battle of wits with anyone? It seems that several people, bears and bulls alike, were able to find some intelligent things to discuss.


    “Rob – tell that to the buyers of the McMansions in Florida last year ” What? Tell them that they shouldn’t consider a principal residence an investment? We agree that principal residences, market up, market down, have tangible values that can be exchanged for cash. Did the guys in Florida buy them expecting a gain or revenue stream? If so they were investments, and apparently bad ones. Did they buy them to hold long term for lifestyle considerations rather than gain or revenue stream? That doesn’t make the property a better investment, but if the mortgage payments are still affordable then they still have their lifestyle goals accomplished – why call the home an investment? I think the statement is equally valid here as in Florida.


    Here’s a pop quiz:

    You bought two years ago. 3 bedroom house, no suite, acceptable street, inferior yard. You got a great buy at the time and have out preformed the area. You’re in, say, PoCo. You want to keep the house value the same, get a better street and yard, get a suite, and lower your monthly costs. Is it a good time to buy, for example, in Maple Ridge?

  18. Domus

    Rob said:

    “Sell investment prop now, at an inflated price, and buy another, better prop at an inflated price, or wait until you can sell today’s prop at a deflated price and buy another, better prop at a deflated price?”

    Why not sell now at inflated price and buy later at deflated price?

    Yes, the market is difficult to time. I have been wrong in the past: however, I believe the basic facts are still true. Vancouver is in for a big, big correction. When will it happen? I don’t frankly know….the market is difficult to time. Will it happen? You bet. The longer prices keep going up, the harder the correction. You don’t need a model to know that…..

  19. Tony Danza

    It’s never a good time to buy in Maple Ridge!

  20. robchipman


    I was driving through there yesterday, telling Aaron how much I used to like selling stuff there. Its got everything you need: pizza places, video stores, strip malls…

    Seriously, its got a lot going for it if you need accomodation. My first house was there, and I liked living there, aside from the fact that I spent a lot of time on the road and in North Van (finish hockey with your buddies at 11:30 in North Van and then ask “Do I want another beer or should I hit the road for Maple Ridge?”)

    What a lot of people don’t know is that there are some absolutely gorgeous properties hidden away on the north edge, often backing onto the Alouette River. In that regard its a little like North Van, but at a lower price. There really are some gems there if you’re ready to leave Kits.

  21. blueskies

    Here’s a pop quiz:

    You bought two years ago. 3 bedroom house, no suite, acceptable street, inferior yard. You got a great buy at the time and have out preformed the area. You’re in, say, PoCo. You want to keep the house value the same, get a better street and yard, get a suite, and lower your monthly costs. Is it a good time to buy, for example, in Maple Ridge?

    sell PoCo holding, pricing below existing comps, invest net returns in diversified conservative (max 5% REIT) portfolio.

    avoid purchasing any RE in any areas that are commuter centric or a bedroom community.
    increasing energy costs will decimate any RE holdings in the outlying burbs.

    commiserate with fellow bears on how to avoid being road kill in existing RE market….

    now is not a good time to buy……

    Do I pass the pop quiz?

  22. robchipman

    Spectralshift wrote:

    I will agree, sort of, however I see no value to the statement – as much is said in the 2nd page as “Maybe there is no right or wrong answer”.

    Given that at any point in time, one could sell their home and move to/rent at a different location, it seems to me that your home should be considered part of your portfolio. The name you give it does not matter – the impact on risk is still present.

    As he says, the reason why it is important to include your home is because of portfolio correlation – it’s the same reason why you don’t buy stock in the company your work for (outside of any incentive plan). Your salary includes a significant “investment” in the company. Should anything happen to the company, you are likely to lose both your job and your investments.

    The same goes for your home. Granted, many will want to stay put for 5-10-50 years… however that’s like saying you want to stay invested in the market for 10-50 years, so you shouldn’t worry about what you are invested in and don’t need to be diversified. The reality is that you may want to move, you may want to step up, or down… You may want to sell to start a business, or put your kids through college. You may lose your job, may get transferred… Maybe real estate will return to the mean for a very long time, maybe rents will drop, etc. Maybe interest rates will rise and stay high for the next 20 years.

    If you are heavily invested in one area (relatively speaking -ie: small geographical real estate area is worse than a broad REIT), you are at risk. If you do go through an extended downtime and want to move, say from a cold climate to a warm climate, with a decreased home value and investment value, you may face a situation where you are indeed short of cash.

    A real life example that prompted me to post – someone at work was asked to move to Vancouver from the States and is in the situation where his home and 2nd property both have dropped notably while Vancouver had risen. Had his investments been properly diversified, he would not have had the same impact on his situation. He’s hurting and I suspect will not end up making the move, limiting his career options/job/etc. Between currency, real estate and such, he’s down a significant (I’d estimate ~60% from 3 years ago – but being leveraged, he could be approaching 100% loss – I’m just speculating) amount in net worth… Investing here in Vancouver would force him to spend the majority of his money just to settle in – again, somewhere where values may not be stable.

    This is not to say that real estate investing is good or bad – I agree that each buying situation is different. However, if you do not include your home in your risk calculations/diversification, you literally choosing (on average) to ignore over 50% of your net worth. It may only come up in the tail ends of situations, but it may not be as rare as we think. Of course, I can’t say one way or another if REITs help reduce risk or raise return…

    My last thought is that real estate is fundamentally different than most investments and probably needs special weighting rules. What I dream of is someone actually running the analysis and saying what those rules should be… Instead I keep reading articles that end up with “maybe… maybe not”. There is no technical evaluation at all. Just finding standard deviation values for ETF/Markets proves to be just about impossible, yet this should be a fundamental part of building a portfolio. I have to wonder if advisors are genuinely interested in answering these kinds of questions. That’s another rant, however…

    (Rob, one question – In theory, if I wanted, say, a history of 1 bedroom apartments prices/location, is it possible to get from MLS? More importantly, how far back?)

    Nov 1, 9:44 AM —

  23. robchipman


    You fail. Sorry! 🙂

    Sell for less than you can get, and invest the whole thing in something that returns 5%? And then rent? Awesome move! Will you be my financial advisor? (Its all in fun, don’t get too mad).

    Buyer works close to MR. Buyer plays in MR. Buyer has two dogs. Commute is already minimal and doesn’t increase. Job change in the offing will actually result in less commute. Buyer (like many, much to the amazement of Vancouver centric greenies) already lives close to work.

    Housing costs drop with the move, and an absolute gain (tax free) is realized.

    Market up or down the buyer’s costs drop considerably (price is the same, but there is extra income from the suite). Lifestyle improves. Buyer has more disposable income for investment (go ahead, buy a conservative REIT) or extra Kraft dinner, or travel. Buyer gets a better quality property.

    All of the advantages are particular to the buyer and due to the buyer’s unique situation, and you were unaware of them, I understand, but on the other hand, we’re all unique, right? One size does not fit all.

  24. $fromA$ia

    Thanks Rob,

    Actually I’d rather be renting then have bought a lousy oldtimer next to a highway with balloon frame construction. Owning costs you $500 per month in operating expenses. I rent for $980 while my money gives me $1200 and all my extra earnings go into my pocket less living expenses that is.

    I am looking for the right opportunity, though theres slim pickings.

    I don’t give a sh!t about the priced out issue.

    Care to engage?

  25. blueskies

    Lifestyle improves.

    I beg to differ, the buyer does not have a “home” he now owns an apartment building with all the attendant hassles. Top item is loss of privacy, the biggest tangible for having a SFH in the first place.

    my thinking is “grab the money and run”
    get out of the market before it turns.

  26. $fromA$ia

    BlueSkies am I a greedy pig? Or am I not greedy enough and need to risk it all and buy in again?

  27. $fromA$ia

    Risk it all i mean risk a 20% correction.

  28. blueskies

    it takes discipline to walk away from the table when there is still money on it.

    greed vs. fear

    trying to capture every last dollar will sink you.

    getting into the game late will lead to you being roadkill …. 1 of the immutable laws of the universe.

  29. $fromA$ia

    Whats your take on the market Blueskies?

  30. blueskies

    look at California today and add 12-16 months

    credit markets have a loooong way to go to return to “business as usual”

    watch energy prices and climate change induced economic turbulence….

  31. blueskies

    this one is important……!

  32. robchipman


    -The buyer has a potential tenant in mind. Long term friend that has been involved in the same sport. Potential tenant is onside with the process.

    -The attendant hassles can be outsourced to a property manager. I’ll take care of those issues, and will contract to do so on a long term basis. We’ve been doing that since 1969, so our undertaking is pretty solid. I’ve vetted the tenant and they are credit worthy.

    -The buyer ends up with the same floorspace, a better yard and a better street, at lower cost.

    -The buyer crystalizes a gain, now, in the event that the market turns. If the market doesn’t turn they have the similar leverage at less cost. Whether the market turns or not they have more funds each month. Rather than invest in a REIT they can pay down their own mortgage at an accelerated rate.

    -The buyer, in addition to lowered costs/increased cash flow, also has improved on-site security (more people on site more of the time), plus advantages that come from shared interests.

    -The buyer has a chance to improve the next property (its the worst house on a good street), as they’ve done in the past, and thereby realize further gains.

    -The sacrifice is privacy (that’s mitigated), and the risks of being a landlord (that’s mitigated). The benefits are crystalizing this market’s gain, reducing housing costs, reducing commute, increasing security, improving lifestyle, owning the home outright sooner, and building in some sweat equity.

    I’m arguing that the right buyer can find a great opportunity in this market, due to their particular circumstances, by minimizing risks and exploiting the upsides.

    You’re arguing that, based on your values, other buyers can’t find great opportunities in this market, and are better taking the risk of selling now and banking on a price downturn.

    You’ve got the tougher of the two challenges.


    I notice you’re not answering the questions! 🙂 Not wanting to do something is a subjective matter. If you had bought a house with cash flow last year in Vancouver, re-habbed it and flipped it, you’d have made some money. (…”if you had bought a house 6 months ago, stopped paying rent, rehabbed it and rented the basement, would you be further ahead now? “)

    If your argument is that the capital gain minus the monthly neg cash flow during re-hab would be less than some alternate investments that you’ve made in the meantime, fair enough. I’ve never argued that real estate is a better investment than the alternatives. In that sense my use of “further ahead” may be ill advised.

    However we both know what the market has done since last year. You could have gained on the market, and realized the gain, which is my point. If you want to argue that there is no way to make a smart investment in this market, you’ve got a very tough challenge. (You pretty admit that you believe the possibility of doing so exists, even if the challenge is tough, when you say “I am looking for the right opportunity, though theres slim pickings.”)

  33. The unthinkable"Renter"

    Rob…I’ve gained without buying 😛

  34. The unthinkable"Renter"

    Rent is not a bad thing you keep avoiding the facts as well. Running costs of a home are $500 to start. Then theres neg- cashflow to start!!! So weres the gain after I sell and give the agents their cut?

  35. The unthinkable"Renter"

    Ya, I do all that hard work upgrading and cutting lawn and cleaning my house while you walk in and take $17K! Real slick.

  36. Outofvan

    some great points and some not so great points…..everyone seems to think that the lower mainland is the only market in BC worth investing in. You buy in Van now you and your paying a high price regardless of potential increases or decreases down the road. Broaden your horizons and look at emerging markets like Kamloops. With real estate projects like Tobiano and Sun Peaks….there are plenty of investment opps. Sell your van investment and look to the interior where your dollar reaches a lot further…….plus a hell of a lot less rain.

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