How expectations and emotions can skew smart investment decisions
The Canadian housing market has been through a rough patch, and I often hear the same question: “Is it better to hold on and wait for conditions to improve, or should you just sell now and move on?”
In my view, the biggest challenge sellers face isn’t necessarily the market, but expectations. We’ve come off an incredible 25-year bull market in real estate and people have grown used to the idea that housing prices only ever go up.
But history tells us that long bull markets are often followed by long bear markets. Back in the 1990s, Canada saw a decade-long downturn in housing, and today we may be facing something similar.
The issue is that people tend to anchor on what their home was worth three months ago, rather than what it’s worth today.
In the stock market, the value of an asset is clear because it trades every second. If Bank of America drops from $50 to $5, everyone instantly accepts it’s now worth $5. Real estate doesn’t work like that; it’s far less liquid, and that makes price adjustments harder for people to accept.
Rent instead of sell?
For some, renting seems like a solution, but it’s not always as easy as it looks.
Owning a property costs about 2.5% to 3% of its value each year in maintenance and other expenses, so if you hold for three years, you’ll need to sell for at least 10% more just to break even on these costs. Add in the lost opportunity of having your money invested elsewhere and the cost of servicing a mortgage and the math gets even tougher.
Then there’s Ontario’s Landlord and Tenant Act, which heavily favours tenants.
Many people assume they can just rent out their home and then evict the tenants when they want to sell, but It doesn’t work that way. You may be stuck selling with tenants in place or paying a hefty sum to persuade them to leave.
I’ve seen rentals work out very well for many clients, but when they don’t, the problems can far outweigh the benefits.
The emotional side of real estate
One of the unique things about real estate is the emotional attachment. Unlike stocks or bonds, a house is tangible. You can see it, walk through it, live in it. That’s comforting, but it also clouds judgment.
I’ve met many people who refuse to sell because their home was worth more a year ago, so they chase the market down, dropping their asking price bit by bit while values continue to fall.
I have compared it to buying an ATV on Facebook Marketplace where the seller wanted $3,900 but I offered $2,800. He refused and later sold it for $3,200. Suddenly we knew exactly what it was worth.
Real estate works the same way. It’s only worth what someone is willing to pay today, not what it fetched last year.
Sometimes people need cash quickly and selling feels like the only option. Ideally, refinancing or tapping into home equity is a better first step.
But if you’ve already stretched your mortgage as far as it will go, you may have no choice but to sell, even if it means accepting a loss. The key is not to keep throwing good money after bad.
At the end of the day, real estate is just another investment. It doesn’t know your personal circumstances or care how much you paid for it. The challenge is separating your emotions from the financial reality. If you can do that, you’ll make better decisions, whether that means holding, renting, or selling.
Where real estate fits in a portfolio
Despite today’s challenges, I still believe real estate should be part of a balanced investment portfolio.
It’s a strong long-term hedge against inflation and it can be leveraged effectively, but it’s not a one-size-fits-all solution. Being a landlord is a job, and not everyone is prepared for the financial and emotional demands that come with it.
For many investors, REITs offer a simpler way to get real estate exposure as they provide liquidity, diversification, and professional management, though at the cost of management fees.
In most portfolios I build, I’ll allocate around 10% to REITs across Canadian, US, and international. They don’t give you the same satisfaction as owning a building yourself, but they’re an efficient and practical tool.
Michael Connon is a Senior Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at (905) 771 - 5200 or visit https://tmfg.ca/ to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian. Investment Regulatory Organization.
