April 2026 - Money Machine - When Real Estate Loses Value

Real estate should always go up in value, right? I mean, that’s what we’ve always believed and come to expect. And there are good reasons for that. The first reason is that, in general, inflation continues to bump up the cost of living. Governments use their resources to combat that, generally by increasing interest rates, so that inflation doesn’t get out of control. But they recognize a little inflation is good, and they target a 2% - 3% range. Well, if real estate didn’t at least keep up with the cost of living, it would be cheaper and cheaper, relatively speaking, to buy a home. That just isn’t what happens. A second reason is scarcity. There is a fixed amount of land on planet Earth. Of course, some places don’t see much demand, like the frozen north perhaps, but in most urban areas, where people are looking to own real estate, scarcity means people are going to have to pay more to compete with others who are also looking to buy. And that brings us to our third factor. Increased demand. Whether by birth or immigration, our population is growing. We see it in our cities and towns across our province and across our country. And this increased demand, without an increase in supply, forces prices upward beyond just the natural pressure of inflation. Now, I realize there are those unusual circumstances, such as an industry closing down in a one-industry town or the mine closing in a mining town, where people are forced to move, and demand dries up. Those things can happen, and the resulting shift in population causes real estate prices to fall in the stricken areas and rise sharply in the areas people are moving to. But all things being equal, real estate should enjoy a continuous rise in price. And of course, thanks to the power of leverage, those investing in real estate with borrowed funds see a multiplied effect on the return on their investments. But what about times when real estate does not go up in value? Times, in fact, when prices fall. We’ve seen it happen in the early 80’s. Again, in the early 90’s. And again, right now in our post covid era. In fact, in the year 2025, here in Niagara, we saw average prices fall just over 10%. In just one year. Does that give us something to worry about? Should we panic? For the speculator, perhaps. For the renovator, maybe. For the developer or builder sitting on lots of inventory. Yes. But not for the true investor. Let me explain. In 2008, the bottom fell out of the market in the U.S. It began with the demise of Leman Brothers, you recall. The era of refinanced junk bonds. And real estate took a real hit. In many areas, prices fell as much as 50%. A lot of people lost their homes, but in most cases, these were people who were buying beyond their means, hoping to capitalize on a rapidly appreciating market. Playing musical chairs when the music suddenly stopped. Warren Buffet, master investor and holder of billions of dollars in various equities, much of it business and real estate, was asked how much he had lost due to the downturn. His reply was ‘I didn’t lose a penny.’ When asked why, he said, ‘Because I didn’t sell.’ And that’s the key investors need to understand. I have several investment properties. I practice what I preach. So, on paper, when the market dropped by 29% from the COVID high of March 2022, I lost a lot of money. But I really didn’t. Because I didn’t sell. And if you follow my advice in the Money Machine Seminars, neither did you. And regardless of the market values of my properties at any moment in time, my cash flow didn’t suffer. I still received my rent. Paid my bills. Enjoyed the surplus. I didn’t lose a penny. And since selling my properties does not enter into my game plan, downturns don’t negatively affect me. Oh, I suppose if I wanted to refinance property, my ability to leverage would be reduced, but because of an aggressive approach to debt reduction I espouse in the Money Machine, even decreased values would have little impact. I have lots of equity. And the other thing to keep in mind is that the market will come back. It always has after a recession. And it always will. All the lost ground will be made up and then some. As an example, I bought a house in 1990 for $160,000. Shortly thereafter, it had dropped in value to $142,000. I still own it, of course, and today it’s worth north of $750,000. In fact, it looks great on a net worth statement, but it has little impact on my day-to-day operation. I’m an investor after all.