The Gambler

BY JAY BRIJPAUL

Recently, I was listening to Leroy Van Dike’s song, the Auctioneer and I realized that I needed to brush up on my auctioneering skills. On housing, the liberal government plans on getting rid of blind bidding. Currently, we cannot disclose what price another buyer wants to pay. As such, buyers often overbid for a home due to the uncertainty. With open bidding, transparency is there but I don’t know how a live auction on house bidding will address the main housing issue – shortage.

Condo sales exploded last month. Buyers are flocking to new condo developments with the hope of getting a piece of the action. Over the last decade, those who gambled in real estate became rich. Mary-Beth, a speculator made down payments on three to-be-built townhouses in Windsor about nine months ago. Her initial deposit on each was $10,000. Her original purchase price then, was $425,000. The builders are now selling the exact property for $670,000 each. Her combined down payment of $30,000 made her a profit of $729,000 in nine months. I always felt that speculating is gambling, and I usually advise my clients not to gamble. However, it appears as though I am wrong. With this kind of profit, Mary-Beth won the bet.  I will listen to Kenny Rogers song, “The Gambler” from now on – “If you’re gonna play the game, boy you gotta play it right.”

Assignment sales, where buyers can sell their purchase of sale contracts, are becoming increasingly popular. This is more commonly known as ‘house flipping’. Mary-Beth can sell her purchase contract to another buyer and keep the profit. Greed is good in real estate. Easy money has turned many speculators into mega millionaires overnight. It is the new gold rush of the twenty first century in GTA. A bunch of factory workers pooled their money and bought a few new constructions. Within three years, they quit their factory jobs and became investors. The rules of real estate are thrown out the window, lock, stock, and barrel. Flipping is big business.

Speculators are depleting the stocks, creating scarcity. Innocent end users are paying the price, caught in bidding frenzies. Many first-time buyers are pushed to the sideline. To get on the train, they are using their down payment money to buy newly built homes. This is now trendy. With a pool of hungry piranhas, builders are releasing properties in small batches, and in doing so they are able to keep prices high. Speculators, for an extra fee paid to the builder, can sell their contracts to other buyers for a colossal profit.

There is another side to speculating. What happen if the housing market changes direction? I have seen a few downturns throughout my thirty plus year real estate stint. The first was around 1991. Two years prior, there were long lines of speculators buying up homes. They reinvested their profit to increase their portfolio. The tide changed and, in a flash, the greedy ones lost everything. I guess, greed is not always good. Canada has not have a recession in a long time, but we know that inflation is stripping our income. Debt levels are climbing, and we will eventually reach a breaking point.

Housing was a hot button in the last election. I am certain that the government will implement laws to curb speculation. This will then have a domino effect and the condo market will retract. If you are in the market looking to buy a newly built condo, be careful. If the market changes, you must be equipped to weather the storm. This is a great way to build some wealth, especially for first time buyers. Instead of having your savings in a GIC at low interest rate, consider buying a pre-construction condo. If the market continues to climb, you will be building equity and in the event the market drops, you are still ahead of the game. You can move into your new suite as a homeowner and not a tenant.

Long term, real estate outperforms many other types of investments. Unlike the stock market, you do not need all the technical analytical tools to make the right decision. The best real estate investments are small homes in mature neighborhoods. Over time, the land value will appreciate, and new homes will sprout. Once this happens, the prices will skyrocket.

The recent pandemic brought about scarcity in almost everything. Suppliers now realize that they can make more profit with less products. The supply taps are dribbling. We have seen an influx of foreign students who, once graduated, can apply to become landed immigrants. Along with that, immigration is at an all-time high. Money is pouring in, and the house rush will continue.

Investing in real estate is a sure bet but if you are a gambler then, “you got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”