Stuff happens

It’s not often this blog talks about my day job. For good reason. It’s not a commercial – so you don’t see any Google Adwords here or banners for mortgage floggers, banks, thirsty underwear manufacturers or robo advisors.  Over the last decade Canadians have trusted me with a lot of wealth and everybody accepted as a client seems to have the same two goals: (a) don’t lose my money and (b) make it grow reasonably.

Investing prudently, hacking taxes, planning for life’s goals and bumps and giving wise advice is the responsibility I’ve embraced. As I watch people succeed, it’s a rush. Then, of course, I go home and write this pathetic blog. But the message here is the same as in my business – be balanced, be liquid and be diversified. I walk the talk.

Oddly that brings to Grand Forks, BC, where Greg is still wearing moist shorts. He has a lesson to share.

Greetings from a frequent blog reader but general non-contributor.  However, I thought you might find this interesting.

I live in Grand Forks BC, location of severe flooding this spring.  High water surpassed even the 1948 event and huge portions of the town and outlying areas got hit hard.  The whole of downtown proper was submerged and many homes in flood plain locations were totally inundated.  Even a few on higher ground suffered immense damage as embankments eroded.  Word is that many buildings in town may not be salvageable due to backed up sewage.

So, many people have been hit hard financially – lost ‘everything’ in some cases.  Sadly, it seems to be the old story of having essentially all of your net worth in a single asset.  Those involved, I assume, thought it would never happen to them, yet when the value of that single asset collapsed, so went their lives along with it.  I feel for these folks.

About 2,800 families were evacuated in the GF area, and it’s too early to know what the damage will be to homes. A similar story in New Brunswick, where 10,000 people were affected and the TransCanada Highway shut down for days, also for flooding. The early estimate of the cost of homeowners there is $24 million. People with all their net worth in real estate, with mortgages and maybe sketchy insurance, have been whacked.

But this isn’t just about water. Let’s add fire.

The Beast was a forest inferno in Alberta that consumed much of Fort McMurray in May of 2016. Over 80,000 people were forced to flee and when The Beast finally moved out of town (it would take another full year to tame), 2,400 buildings were left incinerated or largely destroyed.

The initial response from officials – politicians and realtors – was that the place would be revived by a torrent of insurance money flowing in to fund rebuilding. They also said because so much of the housing stock had gone up in flames that prices would jump, given the extremely limited supply.

Well, says Brittany, it didn’t work out that way.

“Sure lots of people have been building new homes – hundreds of them – but they’ve also been leaving and selling them. That new construction has just made all the old houses worth less, and now we are all heading lower. It’s a mess.” Brittany says the house she and John have was worth $850,000 two years ago and now, “maybe six hundred, and going down every month.”

Active listings in Fort Mac last month were about 24% lower than a year ago as the market seizes up. The average sale price dropped again – by 8% – and is now $580,753. This, despite the fact oil has spurted above $70 US, thanks to Trump’s stance on Iran and the new mid-east turmoil caused by moving the US embassy to Jerusalem. Since bottoming, oil has risen 160% and local real estate has lost 30%. And now the mark of The Beast lingers.

Are widening floods and angry fires a result of climate change? Beats me. But weather is unpredictable and since real estate’s an immovable asset, properties are always vulnerable to extremes, whatever the cause. Having all of your financial eggs in a single basket – one house on one street in a single city – is a risky proposition, especially when big leverage was used to get it. Insurance is supposed to mitigate that risk, but have you read your policy lately? Have you ever tried to collect? Seems insurers are in the business of Hoovering premiums, then seeking ways not to pay.

Balance means buying real estate when you can afford it, and without gutting your finances. If you can increase cash flow – saving and investing more – by renting for a few years, then do it. No shame there. With rates rising and debt everywhere, the odds are financial assets will perform better than houses for a long stretch. Real estate does not equal security or stability, and owning some is not a financial strategy. It’s only part of one.

Make sure you always own stuff that will not drown, burn or blow away. And that was not a commercial. Seriously.