Good Real estate lasts published "Saturday, May 10, 2008"

I have recently received tons of email, and not all of it favourable.

Some people wish to bet me money _ some a case of beer_ that real estate is going to go down, just wait and see.

Likely they are all the people who never bought anything. If you go to www.realestatetalks.com you can see some than 14 years about the ups and downs of Vancouver real estate.

It is always the same guys and gals that argue collapse _ and (yep) often these same people that argue that eventually, we will always be higher (because of monetary expansion creating it). So take easy.

If you had listened to the experts who were dispensing the best advice available 20 years ago, and locked yourself and your wealth into a plan which guaranteed to remit the then prevailing "safe amount" of an income stream of $500 per month (a lot back then _ pocket change today) for the rest of your life, imagine the desperate poverty that you would retire to today. Stone soup would be a luxury.

Yes, we need more money now, but who knows what this money will be worth tomorrow?
Yes , we need more income, but who can possiblyknow the state of the world three months from now... much less 20 years from now? Nobody knows for sure the "what and where" of interest rates and inflation rates and the value of money. It's just not possible.

What we do know is that the safety that was inherent in the projected big income of 20 years ago is a pitiful joke today. Yep, forecasting is never easy _ particularly when it's about the future.

Crystal balls crack, vaunted talkshow soothsayers wither and drop off the television scene, and the books that were treasure maps wind up in the remainder bin at the bookstore.

In the last three decades, stock market have surged up and crashed down. Certain mutual funds that looked like they were blue chips sprang leaks and sank while others soared like rockets only to burn out and fall back down.

Through all of this, the average folk watched their savings get chewed away by insidious inflation. However, in all the turmoil of this sound and fury, one asset has whearthered the changes.

Three decades ago, had you bought good quality real estate, you would not be concerned about your future today. That real estate would have kept up with inflation, remained secure in value, and steadily appreciated. Sure, there would have been some temporary dips. There has to be because real estate is cyclical in nature. But one things is certain _ over the years, the base values have been steadily increasing.

Back to that purchase 30 years ago. Today, it would be paid off and clear title _ which means either a mortgage-free home (no more monthly "rent" payments to the bank) and / or a steady rental income courtesy of your tenants.

Put onto perspective, if you place a good portion of your assets into real estate today, you won't have to worry about tomorrow. It doesn't mtter how wild or turbulent the economy or the marketplace. It's like riding a horse with one spur _ if half has to go along with it.

No matter how deep or tempestuous the water , you're going to be floating on top of it.
Let's review something all of us already know. The Chinese have used real estate holdings for wealth creation for 2,000 years. All huge fortunes were either started or extended with real estate.

Home ownership (the most common form of real estate holding) has been the single largest factor in the accumulation of wealth for the average North American, first because of straight appreciation due to inflation, secondly, due to the leverage involved and thirdly, real estate has a use and therefore always a value. This basic principle of appreciation holds true for pretty well any healthy major urban center.

Let's take Vancouver, BC, for an example. In 1960, the average Vancouver home sold for $13,105. Thirty eight years later in 1998 the average sale price was some $310,000.
Almost a 2,300 per cent return. But in March 2008, the average sale price was $895,000. Play with the return on down payment of $655 and you get tens of thousands per cent returns. If this kind of appreciation is going to continue, you have to be on the conveyor belt. If you are not, you are going to be left so far behind that it will be financially disastrous. And here we're only talking only fron the perspective of a place to live. This isn't even adddressing the investment aspect of those monies outside the family home.

When you ombine appreciation with leverage, you unlock the great secret of achieving the optimum result with real estate investment. And as you can see from the foregoing numbers, the "lever" can lift you up or the "appreciation", if you're on the wrong side, can crush you down.

When your gain is meausred on the capital invested, not the actual actual price of the property, some really astourding results come into focus.

GOOD: Understand goals

But the game is not as simple as it used to be. The goal posts move. The only constant is that everything is always changing. The secret of surviving and prospering is the ability to adapt to the changes. The 1980's in Vancouver were very forgiving for the amateur. Benign with a capital B.

That "B" could also represent "bucks" and "brainless." Back then, if you had a few dollars, you could buy any piece of real estate, anywhere, and you would make money.
Even if you could barely hear thunder and see lightning, it was almost impossible to make a big enough mistake. If you paid too much, it only meant that you had bought a little soon. The clock and the calendar made you into a finacial wizard. Thanks to inflation, prices soon caught up to you and bailed you out.

Still, there were lots of people in Vancouver int he early 1980's who managed to lose all their money in real estate. Those were the people who put their money into the wrong syndications, limited partnerships or real estate investment trusts. But we'll talk more about that later. In the late 80's, fortunes were made. But after the 1980,s, the real estate world became less forgiving. For some investors, the times were downright terrifying. All of a sudden, there was the sudden change. Markets fluctuated area by area both as to volume of sales and prices. Different real estate categories rose or fell without any apparent linkage to each other.

You could see in one market area the average single-family detached home rise in value by 40 per cent, while in the exact same market area downtown condos slumped in value by 12 to 20 per cent (Vancouver 1990 to 1995).

The people who tried to play by the old rules found themselves playing someone else's game. And most of the time, they were handed their heads. Was it possible to avoid the dangers and yet at the same time prosper with the good stuff?

Yes, it was, but you had to pu a side location, location, location, and instead you had to read the trends, position yourself as to the timing and then implement some new techniques. To be successful real estate investors, we must understand ourselves. That means we have to understand our investment objectives in relation to the risks we are willing and able to tolerate.

But having done that, we then must understand that aspect of ourselves that is part of the "new customer." (Next week: the new consumer and the new way make money in real estate in 2008) press Day seminar on Canadian real estate on May 24 in Vancouver. Calgarians interested in participating will get $100 off the attendance fee.

To be successful at real estate, we must learn to understand ourselves.