A Change of Fortune

The last five years have been fabulous! Isn’t that true? Anyone who has owned a home during this time has recognized an increase in value, which in many cases has been double our original purchase price. Additionally many people have taken advantage of increased equity, and relatively low financing rates to pick up an investment property, or quick flip a pre-construction condo or townhome. I know that I’ve been a part of some of these activities, and it’s been very profitable. Hasn’t it?

Wait just a minute though. Maybe it hasn’t been all that profitable. Yes the there were a few years when you just could not lose. There were too many people wanting to get in on the action. They had been renting all their lives and now realized that they could afford to purchase their first property. Or maybe it was because family sizes are getting smaller and hence there are more people wanting to purchase smaller properties. Or maybe it’s all those foreign dollars coming here to purchase a property in Vancouver because of the Olympics. What about the investment component? How many people just decided that it was time to try out their first investment, a pre-construction flip, or a rental?

It seems, we all learn, that what goes up must also come down. Okay maybe it’s not a down market. That’s what is happening south of the border, not here. They are the ones that overspent and were offered ridiculous mortgages - to people that could never afford them. But then again, what if it happens here as well? Would it not be better to be prepared for such an event, than to react after it has happened? And if that doesn’t happen here would we not sleep better knowing that we had a plan anyways?

If during these years we have taken out equity for consumer spending, or purchased additional properties that are now on the market but not selling, then maybe we have to admit that for the first time in recent memory the good years are over. Now is the time to put together a budget and watch our spending. Now is the time to take a reduction in the selling price of the property that we are trying to sell so that we can get rid of those extra monthly mortgage payments, even if it means settling for a loss. The upside? Have you ever heard the phrase “In a down market cash is king”? Well it is true. Cash will keep you afloat if you cannot get more credit. Cash will allow you to expand your business when others are contracting. And cash will allow you to find bargain investments when everyone else is being forced to sell.

In the coming weeks I will expand on some of the topics that I’ve touched on here starting with a budget. We all know that keeping a budget is an ideal way to manage our finances; the difficulty is that for most of us we just don’t know where to start.

Thanks for reading,

Matthew Birch, CMA
Birch Accounting & Tax Services
778-786-1440
matthew@birchent.org
www.birchaccounting.com