If I wanted to buy now, I would closely look at: Inventory, Listed vs. Sold, BOC Prime, CPI, population growth and of course my personal financial situation.

If I would invest for rental purposes I'd would further look for: low GRM, high CapRate, high DSCR, low Interest Rates, positive after tax cash-flow and high CCR.

Yeah and let's not forget positive effects of the Olympics … just kidding!

I would probably not buy now, because prices are to high for a decent return on investment. But nevertheless that doesn't apply to people who entered the market a couple of years ago. Receiving over $1,000 dollars per month rent for a condo that you have bought 5 years ago for a mere $120,000 will make things look much more positive than one would expect!

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If we happen to own a property – either outright or with a mortgage close to being paid off – and we can at least break even renting it, chances are we'll hold on to it whether prices go up or down. It may not be the best financial decision, but it's still the one we make.

I know a few people who've held on to condos they bought years ago and have since moved out of. They're quite happy to collect the small sum that comes to them in rent each month.

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I am talking about rental market not the real estate market in general. The rental market is great. Vacancy is low. A "blow-up" of the "bubble" will just flood the rental market with demand and raise rental prices. People always complain about the high Gross Rent Multiplier (GRM) in Vancouver, but they do not realize that in the last couple of years rent has actually increased quite a bit (for me average 5% annually in the last 3 years) and my net operating income increased even more. Perhaps appreciation outperformed the increase in rent by far, but for me as an investor it is the increase in rent that I am looking for. Appreciation is just a bonus.

"if rental income covers mortgage with profit >>> definitely will not have to sell"

That is absolutely correct. As I mentioned: Positive Cash-flow after tax, Cash-on-cash return in 2007 of 7% and expected lower interest rates will boost my total return on investment this year to almost 9% and allows me to further exploit leverage effects. That is investing, not speculating!

Why is Drachen talking about speculating? Please correct me if I am mistaken, but isn't a real estate investment for rental purpose a conservative form of investing.

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We've got a record number of condos under construction, we don't have as much immigration as we had ten years ago, and new residents are coming with less money than they used to. BC Hydro says there are 18,000 empty units just downtown. I work with people who have 'invested' in condos – this means they pay several hundred dollars a month over what they earn in rent from these units. Do you think they'll hold on to them if they lose their jobs?

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Ok, let's assume that 75% or more of landlords in the city expect a return for their investment which is equal or better than they can do with a high security mutual fund. I think this is a safe assumption because with the hassles and extra work of being a landlord as opposed to parking your money most people would prefer the latter if returns are the same.

So, to your examples:

1) Rent = Mortgage payment +

This landlord has two problems. One There must be a significant amount of money tied up in the property for it to be positive cash flow. If one compares the return on that money you'll always find (in the current market) that if the property is not appreciating in value the owner would be better off putting that money in mutual funds (anyone out there have a real world example?).

So, hypothetically (this is a pretty normal 'investment' property in Vancouver AFAIK):

Property is a house with 4 units for rent.

Value to sell: $1,000,000

Rents for: $4,000 (48,000 per year)

So, even if the property is owned OUTRIGHT, the return per year before property tax, maintenance and times when a suite is open the return is 4.8% per year. Someone with a good mutual fund help me out here, it's what 6-6.5% for "safe" returns?

Keep in mind that all of this is with the property value flat, if it's going down the math gets rapidly worse. If the property value dropped by 50% it would take over 20 years of rent to offset that loss in value.

You tell me, is the property worth hanging on to or would you sell once prices start to drop?

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this high priced market is creating a lot of renters. and these renters need a place to stay. why would current owners sell their place if they can find renters to rent too?

if rental income covers mortgage with profit >>> definitely will not have to sell

if rent covers mortgage >>> will not have to sell

if rental is below mortgage >>> not the end of the world, may sell or not sell.

if rental income is way below mortgage >>> will have to sell.

would be great if someone understands what im trying to say and explain in simple terms.

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What numbers do you look at when deciding whether to buy or sell a property?

What mathematical formulae do you use to decide whether the numbers work for you or not?

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If you own Real Estate in Vancouver that you don't live in you are a speculator. An investor would only buy when the rent/price ratios were reasonable and would sell if those ratios went too far off base. If there's no profit margin you are speculating that prices will go up.

"I am sure I am not the only market participator who thinks like that and keeps his eye on the fundamentals"

If you currently own real estate in the lower mainland you either do not understand what the fundamentals are or you most certainly are not keeping a close eye on them.

Please explain what you see as the "fundamentals" of the market.

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I have a variable mortgage at TD. They have followed the BOC each and every time in the last three years with interest rate adjustments. They have just lowered there prime rate again (one day after BOC). And as I recall, all major Canadian banks have followed suite in the last couple of months.

For me as an investor (not speculator), a 50 base point cut is a good reason NOT to sell. Fortunately, positive After-Tax-Cashflow doesn't push me into having to sell. Therefore the most important figure for me is not the fluctuating market value of my property but perhaps the Cash-on-cash return as well as the total return on my rental investment (including principle reduction, which is directly affected by interest rate adjustments).

I am sure I am not the only market participator who thinks like that and keeps his eye on the fundamentals, while others get carried away by emotion!

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