Sunday, August 5, 2012

Life is about Timing...Carl Lewis

Sitting in my local Waves Coffee house sipping my latte and surfing the net when an interesting conversation sprung up next to me. Of course being Vancouver it was about Real Estate.

30's lady sitting with male (?out of town friend/brother) talking about her RE investment. Seems like she bought an expensive condo 4 years ago,  and rented it out cash-flow negative while renting a cheaper condo herself. Rationale was that the expensive condo would eventually be paid off and she would be left with an income stream or could sell and use the money to buy a house or...

A very good strategy in fact, and the negative cash flow is actually another form of saving if it goes to paying down the debt. For the last four years it worked well. Now not so well.

She was complaining that the price, if she wanted to sell was the same as 4 years ago, so no capital gains. 

Also she was just hit with a significant assessment for repairs (why do we build such shoddy condos AND houses here?) which was going to be tough to come up with. 

On top of that the lease was coming to an end and the tenant has said ANY increase and he is walking and she cannot afford to leave it empty for a month or two and eat the whole cost. 

Finally the five year mortgage renewal is coming up next year and she hopes that the rates won't have gone up and that the bank won't make problems as her cash-flow is much more compromised.

She has started managing the rental herself to save some money but that brings the stress of hearing all the tenant whining and complaints.

She looked very stressed and I felt sorry for her. What looked like a good idea for a number of years has suddenly gone awry and we have only had a mild correction so far. In the past, the investor in this situation would just sell, pocket some nice capital gains and thank their lucky stars. That's not an option anymore.


  1. Cash flow negative is a good savings idea? I don't understand....seems to me that negative cash flow is just throwing money away. Isn't it?

    1. It is if the asset is depreciating. That's what is happening now.

      However while the bubble was expanding, cash flow negative paid down the mortgage and held an appreciating asset, double gain - now a loss.

  2. A self-inflicted predicament bondage!

  3. "Jim Rogers Is Mr. Big Short As He Sees More Global Economic Woes, A Robust Chinese Currency, And An Ugly Chinese Property Bubble Burst"