Foundation portfolio building
My preferred way of building a rock solid real estate portfolio
This is Part 2 of building a secured retirement with real estate. You can read Part 1 here: Flavor of the day vs. foundation
How do you use the "foundation" building approach to build a real estate portfolio?
It starts by picking the right market.
A right market doesn't mean it's a hot market.
A right market means a market one can consistently expand and grow.
A right market means the potential risks make sense in the long run.
A right market means the reward is worth the risk one is taking.
Among many reasons why I've chosen Alberta (and more specifically, few cities in Alberta) to be my market to build the foundation of my portfolio, government spending is one of the many factors.
Why do I care about government spending?
Any economy that the government has an outsized involvement would affect future economic growth.
Government spending is necessary.
Without government spending, we won't have access to many of the infrastructure needed for an economy to build on.
However, when you combine the high levels of government spending with demographic changes such as baby boomers retiring, we can see challenges appear on the horizon.
As more and more baby boomers retire, it means they will require more and more services from the government.
Health care, social assistance, public transportation, etc.
According to CIHI - Canadian Institute for Health Information, the average spending on someone age 80 and older is 6 times higher than people ages of 1 - 64!
Since baby boomer generation is significantly bigger than the previous "interwar generation", it doesn't take a rocket scientist to connect the dots that government spending will increase significantly in the coming years.
Now, if a Province is already heavily in debt, with the increase of government spending on the baby boomer generation, it means there are 2 options left:
1) Cut other government services to reduce costs
2) Increase taxes
I may do a deeper dive on #1 in the future. For now, I'll simply tell you #2 is going to be the easier option between the 2.
Since older people will earn less in income, take a guess who will be carrying the tax burden?
Answer: The younger people!
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At some point, we will see more and more people moving to Provinces like Alberta that has a stronger fiscal responsibility.
The people that will be making the move?
Younger families.
For now, the main driver for people moving to Alberta within Canada is high living expenses in their home Province.
Soon, it will be about escaping the higher taxes imposed by other Provinces that are fiscally irresponsible.
These population movement will result in strong demand for housing in the coming years.
This is the kind of things I like to study.
This is the type of market I pick as the foundation for my real estate portfolio.
This is how one can invest for 20-30 years without chasing after the next "flavor of the day".
Pick a market that will be strong for 20-30 years and build your foundation on it.
This is how true wealth is built.
Any thoughts on how to build a real estate portfolio using the "foundation" building approach?
Reply to this email and let me know what you think.
Eric Chang
Calgary, AB
September 3, 2024
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