The rental backup plan
Yesterday Vancouver Banker left a comment about a local developer having trouble selling a condo conversion and opting to rent it out as a temporary backup option. Hot on the heels of that tidbit Pani Pani sent in this link to a story on the Seattle Bubble blog about a project where the ‘vast majority of buyers’ bailed on their presales and that developers decision to convert to rental units.
Some buyers found they could no longer get a loan, particularly for second homes or investment units, while others just got cold feet, Hoy said. “Because the vast majority have bailed out on us, we have no choice now but to turn it into a rental.”
Will we see more of this in a declining market? I guess each developer has to do the math based on their margins to determine if its worth selling at market price in a dropping market or renting out at a loss while you wait for buyer demand to return.
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August 14th, 2008 at 1:04 pm
August 14th, 2008 at 1:11 pm
thank you.
August 14th, 2008 at 1:15 pm
Plus I didn’t even have to put anything down! Try borrowing $700,000 to put in the stock market! No bank would lend $700k to a Starbucks Barista for stocks but I had no problem getting the mortgage. I got about 39 and a half years left on it. People forget about inflation– in 30 years I’ll be paying back with DEFLATED dollars so, like, it’ll be like paying back $1 with only ten cents!
I’m laughing all the way to the bank! And my banker seems pretty happy too so I guess this is was a win-win deal for everyone!
August 14th, 2008 at 1:21 pm
August 14th, 2008 at 1:32 pm
August 14th, 2008 at 1:35 pm
bums up2….
I am still laughing….that was brilliant !!!
August 14th, 2008 at 1:38 pm
This is why Vancouver has so many new condo buildings that have converted to developer-owned rentals and hardly any individual condo units for sale. Look in the newspaper, developers don’t even market new condos at all and haven’t been for about 5 years or so– once the boom started they caught on in a hurry and almost stopped selling condos altogether! Look at craigslist and check life rates, they’re like 25% or more because condo assignments are so rare and valuable people will pay anything to get their hands on one.
This is why the rich just get richer and the working man can’t catch a break.
August 14th, 2008 at 1:42 pm
Think of each stock as a tiny little renter. The great thing about all these tiny little stocks is that if one of them paints the walls black and steals the toilet or misses a payment, I have dozens of others that regularly pay the rent. If the rent I get is too low or I find another prospective tenant that is better, I can sell in 30 minutes for about a $50 fee, peanuts in elapsed time and money compared to “real” property. Then I go back to spending time with friends and family instead of interviewing agents, collecting rent cheques, and replacing stolen toilets. Make money — you are right, just remember to fill out your timesheet and expense report properly. LOL
August 14th, 2008 at 1:42 pm
My stocks don’t call me in the middle of a long weekend to come fix the drippy kitchen faucet, clear the gutters, or change a bulb.
If I don’t like my current list of stocks, I can sell and buy different ones without hiring a moving van, moving my phone/cable, or filling out a change of address card with Canada Post.
My stocks can be sold with one phone call to my financial advisor for well under $100.
If I need to raise cash, I can sell part of the stocks but keep the rest.
If I want to be conservative, I can buy financial instruments that don’t lose principal.
Even as a small-fry, I can invest in stocks pretty much anywhere in the world.
I don’t pay an acquisition tax on my stocks, nor a holding tax on my principal, and if I hold them in my RSP I don’t pay tax on any gains.
August 14th, 2008 at 1:45 pm
August 14th, 2008 at 2:09 pm
August 14th, 2008 at 2:17 pm
August 14th, 2008 at 2:32 pm
How many foreclosed meth labs do you think WM has on its books?
August 14th, 2008 at 3:02 pm
That even big time developers sometimes don’t have a good read on where the market is going?
Why that’s just absurd!
August 14th, 2008 at 3:06 pm
I don’t know.. PFE has been up to something in my portfolio and the carpets are totally ruined. Fortunately they pay a good rent and always on time.. Plenty left over to install some cheap laminate and sell for a profit.
August 14th, 2008 at 3:16 pm
Buy or die.
Rob A finally got it right! Developers are onto the landlord’s “money tree” as John coined it. No longer will condos sit empty up for sale, now they will sit empty up for rent. The universe is again in balance as the magic money tree continues to provide its obscene harvest to its rightful owner: The homeowner.
Seriously though, are these developers now going to spin that renting is a good idea? Not after 8 years of “renting = pissing your money away tactic, surely they wouldn’t flip flop to make a dollar. Not the developers, realtors or the real estate marketers, they’re the only honest ones left.
August 14th, 2008 at 3:27 pm
The reason that builders are putting units for rent is that they are long term realestate bulls. They are taking a short term loss to maintain their long term payoff.
Softlanding, pause in the market, whatever. That is what this story is telling us.
Jeez, u ppl can’t even come up with a consistent model for the world, lmao.
August 14th, 2008 at 3:32 pm
A full page ad in the Sun:
August 14th, 2008 at 3:55 pm
About two years ago, it was suddenly announced that the original bldg owner was selling it off to Westbank ( I guess) who put planned to put a strata in place and sell off the units.
Really not much to see here, other than Westbank decided that the rental yields were better than the selling margins?
Now if TV Towers or one of those other crapboxes downtown were to go all rentals than that would be interesting. But doesn’t the pre-sales contracts prevent that sort of thing happening?
August 14th, 2008 at 4:18 pm
August 14th, 2008 at 5:12 pm
I worked in that building before Westbank bought it and the rents weren’t close to what the asking price was even after they recently did that big 10% off thing trying to drum up more sales. Even at that time rent was fairly high, I don’t see how they’ll be able to draw much more. The heavy traffic on the bus loop under the north windows was always a bit of a down point.
I wonder what their deal was with Rennie Marketing - they had someone in that sales office playing solitaire on the computer every day for more than a year. Does the marketer only get paid on sales?
August 14th, 2008 at 5:24 pm
August 14th, 2008 at 5:59 pm
INFINITY TOWER?? Any news?
August 14th, 2008 at 6:50 pm
A co-worker narrated a weepy story and was asking for help.
End of 2007 he bought two apartments in the same strata (one for himself and one for rent) and now he is facing a somewhat 40K assessment for two units combined for some costly repairs. He tried to get a loan or another mortgage from the bank, but as he has 0 down his request was declined. He is desperate as he can’t cough up that sum and knows little what he should do next. Anybody could give a hint?
August 14th, 2008 at 7:04 pm
August 14th, 2008 at 7:05 pm
“The result was Vancouver home prices actually fell 0.7 per cent in July from a year earlier, though it is still the most expensive market in the country with an average price of $575,730.”
http://tinyurl.com/5kth4b
August 14th, 2008 at 8:23 pm
Unemployment and interest rates fail to explain the foreclosure trend, so it appears that personal financial responsibility is more important than the state of the economy for explaining home foreclosure rates.
http://tinyurl.com/6ot8wj
You might be interested in looking at this.
Please comment.
August 14th, 2008 at 9:23 pm
(This one is more current - April 2008)
“The sharp weakening of the housing sector
in several advanced economies over the past
couple of years, and especially the financial turbulence
triggered by increasing defaults in the
subprime mortgage market in the United States,
have raised concerns that, as a result of innovations
in mortgage markets, the housing sector
could be a source of macroeconomic instability.”
http://tinyurl.com/5akhnb
August 15th, 2008 at 12:47 am
I noticed one condo for sale that has dropped the price $11,000 in month:
http://vancouver.en.craigslist.....0Hornby%22
August 15th, 2008 at 6:46 am
Ah, the anticipation.
August 15th, 2008 at 8:56 am
So you guys are saying that renting out a condo is bad economics.
With the current yields, yes. Even with 50% down, you will have negative cash flow!
Then why are developers renting out units?
Because they aren’t selling.
The reason that builders are putting units for rent is that they are long term realestate bulls. They are taking a short term loss to maintain their long term payoff.
No. They can’t sell them, and they can’t afford to leave them empty. Some income is better than none.
Softlanding, pause in the market, whatever. That is what this story is telling us.
No. It tells us that these developers were betting that the market would go up long enough for them to cash out. They were wrong.
Jeez, u ppl can’t even come up with a consistent model for the world, lmao.
Keep laughing Rob, but remember - he who laughs last laughs best!
August 15th, 2008 at 9:32 am
anyway…
“had someone in that sales office playing solitaire on the computer every day for more than a year.”
That’s so 1995, wouldn’t the bored sales agent spend the day keeping their Facebook up to date?
August 15th, 2008 at 11:09 am
“No. It tells us that these developers were betting that the market would go up long enough for them to cash out.”
You are saying the same thing as I am you moron. You aren’t disagreeing with you you are agreeing me. The fact that builders aren’t cashing out shows that experts with a vested intrest think the market is good in the long/medium term. Hence it is a bullish story. Maybe they are wrong, maybe they aren’t, but you agree with me when I say all the people seeing this story as a sign of the apocolypse are morons.
Glad we are on the same page, lol.