Will local rents ever make investment sense?
For several years now it seems like the standard real estate investment model of an owner being able to make a profit from rent has been turned on its head. Recent buyers going the landlord route are paying more in mortgage bills than they can bring in from current rent rates – they’re counting on capitol gains to fill in that hole and hopefully turn a profit in the future.
Hence today’s question for discussion: When will rental rates in Vancouver make sense from an investment perspective? As I see it there are only a few ways to get there: local incomes rise so that people will pay higher rents, prices drop so that new landlords see a profit margin at current rates, or a combination of the two.
What do you think is the most likely scenario?
December 29th, 2009 at 10:55 am
What blog script do you use on your site ?
September 14th, 2009 at 5:29 pm
It is a very stupid and retard Question.
To reflect the property value inline with its market reality,landlord should increase the rent.
There is a huge gap between rent and property value in Vancouver;therefore, Vancouver homeowners and property holders should stop subsidizing those unthankful renters and priced them out of this vibrant and beautiful city once for all.The current rate can't keep going on for long.
Soon Vancouver renters will be priced out of Van also. Had the gap been filled by Chinese immigrants and local Chinese,Van properties will resume its usual rocket-pace appreciation again.
September 9th, 2009 at 8:58 pm
Oh please. Rich Asians? Give me a break. The wealthy people I know are rich for a reason….they don't like to spend their money!
The ones buying right now are likely up to their eyeballs in debt. It's beyond me why anyone would be buying right now…like I said before-if all the planes in the world starting crashing to the ground, would you really decide that now was the time to take a flight to Paris?
But apparently many in people in Vancouver have decided that yes, this is the time.
Wait and see.
September 9th, 2009 at 6:02 pm
89
"If they are so busy buying (cuz you know, the Asians are coming, bc real estate in Vancouver never goes down, blah blah blah) why are they at the same time SELLING???!!!!"
To capitalize on the appreciation, and buy back low. They will rent in the mean time.
That will be the inevitable answer of some poster, but we know the truth…
September 9th, 2009 at 5:34 pm
Wealthy Families Face Bankruptcy on Real Estate Crash
“Real estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.
http://www.bloomberg.com/apps/news?pid=20603037&a…
September 9th, 2009 at 5:07 pm
realpaul: Check out the listings online in Shaughnessy. If you look through the photos of the interiors etc…I would estimate north of 30% of the houses for sale there are Asian owned.
If they are so busy buying (cuz you know, the Asians are coming, bc real estate in Vancouver never goes down, blah blah blah) why are they at the same time SELLING???!!!!
Those crazy Asians.
September 9th, 2009 at 5:02 pm
2 out of every 5 working age Californians jobless says new study. Thats 40% unemployment in real terms, after all it ain't the teens and the seniors that are paying mortgages.
Holy Depression Batman !!!!!! What about the 'green shoots recovery' thats been touted? Bwahahahahahahaha , its all ( what you read in the newspapers) bullshit.
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/…
September 9th, 2009 at 4:52 pm
#87, yup – long slow deflation = much more damaging (well, economically, if not politically) than a rapid crash followed by a sensible fundamental-based recovery.
September 9th, 2009 at 4:42 pm
Yalie:
64 you may be right about deflation and the corresponding low interest rates that accompany it, possibly for a number of years. But what makes you so sure that low interest rates will sustain RE prices? They’ve had low interest rates in Japan for 20 years, and current RE prices are half what they were 20 years ago.
Yeah and this is definitely something to be concerned about. A long period of deflation (or any economic stagnation, really) will probably drag housing prices for quite some time. Japan has trended down basically since their peak in 89 and it's conceivable our bubble could pop that same way.
September 9th, 2009 at 4:35 pm
Yeah, Schouw is the "high end" developer who just sold out an entire tower "Grace II" at bubblicious rates ($1,000+ sqft) and is running around pumping his new project "Artemesia". I'm sure he cleared double digit millions personally on that one – meanwhile, he has completely duped his previous investors and refuses to refund their deposits.
Even worse, there's a Rolls Phantom in the marketing materials for his projects ($375k+). Why doesn't he sell it and pay back the people that supported his projects?
Unbelievable.
September 9th, 2009 at 3:58 pm
# 81 realpaul
" BTW, I had a pleasent drive while shortcutting through Shaugnessy today ( both 1 and 2) and saw more listings than I have ever seen in one period. Whats up?"
=======
Remember Shaugnessy's old nickname when RE collapsed in the Great Depression.
Answer = POVERTY HEIGHTS !!!
Probably more bankruptcies per capita there than elsewhere.
The old money is probably dying out, that leaves a bunch of wannabees that are probably so highly leveraged , trying to sell, and can't sell…they only make so many rich people y'know.
September 9th, 2009 at 3:51 pm
That bad boy Roubini is at again. He's telling the truth and nobody likes it.
"“Unless in the medium term these issues of fiscal sustainability are addressed, and unless we mop up that excess liquidity from the financial system, eventually the financial markets and the foreign creditors of the United States might get more concerned about the sustainability of the U.S. fiscal deficit and about the U.S. being tempted to use the inflation tax as a way of resolving its private and public debt problems,” he said. "
And #79 CO, you just may be one of the 50% that the CTV report was referring to, Maybe you can misinterpret that too?
http://www.bloomberg.com/apps/news?pid=20601087&a…
September 9th, 2009 at 3:50 pm
#78
I really would not want to owe millions to angry ex-pro hockey players. Those guys really know how to hurt you.
September 9th, 2009 at 3:50 pm
79 Condo Owner :
" THE ASIANS ARE COMING! YOU CAN QUOTE ME!"
Are you serious ? I think I will set up a marketing firm to sell condos before anyone else thinks of it.
" Vreb does not disclose the race of buyers, due to Canada’s new priv protection laws & racist policies!"
Yeah right, that's CaucASIANS driving in the BMW's and Mercedes
Q: How do you get from China to India?
A: Drive over the Patullo Bridge
September 9th, 2009 at 3:43 pm
The Recovery Lie Revealed
Most people are willing to swallow – hook, line & sinker – the notion that there's some kind of an economic recovery underway. However, the latest figures out in the Federal Reserve's consumer debt report (a/k/a/ Consumer Credit G.19) shows that the amount of debt being created had started to collapse again in July.
Why we're all so screwed
http://urbansurvival.com/week.htm
#79 WTF are you talking about? Are you seeing Asians in the pantry? Look up the actual immigration stats and maybe consider where you live. I just spent the after noon in Kitsilano and wasn't run over by any …..Asians'.
BTW, I had a pleasent drive while shortcutting through Shaugnessy today ( both 1 and 2) and saw more listings than I have ever seen in one period. Whats up?
September 9th, 2009 at 3:39 pm
I see on Garth's latest blog the topic is GOLD.
Now watch the morons invest in gold and flood THAT market.
The bait has been set….people never learn.
===============
I see this morning that the BC gov't is cutting even further, reducing grants to school PACs. The inital pro rata was approx $40 per student, reduced to $20 , now it may be cut down to $10 per student. All these funds were from BC Gaming, not taxes, and one carrot to make gaming palatable was that the benefits would flow to the various non – profit orgnizations. Now either gaming revenue is down or its simply another clawback and broken promise.
September 9th, 2009 at 3:33 pm
Bums up2 I love you man! is that you Mark?
#70 Realpaul extreme BEAR folds to an intellectual bear/bull working and making sense of our current RE market.
Appears bums up2 has done done quite well in Van current RE market (since 2002)and is not letting us know.
News Flash West Side Vancouver Avg price detached home over $1.2Mill.
Vreb does not disclose the race of buyers, due to Canada's new priv protection laws & racist policies!
If we had stats of where the buyers $$$ were coming from, we could understand better our local ridiculous RE prices!
THE ASIANS ARE COMING! YOU CAN QUOTE ME!
September 9th, 2009 at 2:26 pm
Re: Len Barrie
Lighting owner tries covering Bear Mountain tracks
http://www.theglobeandmail.com/sports/hockey/ligh…
BY DAVID SHOALTS PHOENIX
Tampa Bay Lightning co-owner Len Barrie is going to try to buy out the group of almost 20 current and former NHL players who invested in his financially troubled Bear Mountain Resort real-estate project.
In the wake of accusations by Bear Mountain's former auditor that Barrie misappropriated funds from the company, the executive committee of the resort's parent company, Bear Mountain Master Partnership, has decided to try to salvage the millions of dollars invested by going along with a buyout, which was ordered by the project's main lender, HSBC Bank Canada, according to a source close to the company.
The executive committee also discussed hiring a private investigation company to look into claims that Barrie owes Bear Mountain between $16-million and $20-million, some of which was used to buy his share of the Lightning last year. Barrie, who could not be reached for comment yesterday, has denied any wrongdoing.
Barrie has been trying to line up financing for the buyout but, according to the source, has not been successful yet. At this point, many investors are reluctantly willing to turn over their shares for little or no cash and a promise of a share in any future profit from the development near Victoria.
There is a plan to have the investors' shares placed in a trust account until Barrie can raise enough money to buy them. “But I don't think he can deliver,” a source said.
The investors had considered going after as much as 10 per cent of Barrie's 35-per-cent share of the Lightning in exchange for their shares. But NHL rules prevent franchises from being used as collateral in financial transactions.
==========
NHL players are not Donald Trump.
It's not uncommon for a person in one profession to scam their peers.
This one looks ugly…
September 9th, 2009 at 2:19 pm
Re Schouw's GRACE project
http://www.jamesschouw.ca/grace.php
If you read through all the info, you can see the Grace's mission statement about sharing about 50% of net proceeds from the Grace with charities….
I guess there ain't any left over.
September 9th, 2009 at 2:12 pm
# 74
Wasn't James Schouw that person that built very hi end condos. I think he was profiled in the Sun several months back.
Seems like another developer that guessed wrong, but those who have pre-purchased may be SOL….we have heard these stories before.
September 9th, 2009 at 12:02 pm
For those who think the interest rates are going to remain at historic lows, I have an interesting tidbit to relate. I have accounts at three different financial institutions, each account $100,000+, in the last week each bank has called trying to pressure me into locking into a 3 to 5 year rate at more than I'm getting in a 1-year cashable. The banks are obviously trying to hedge their bets and get their hands on some cheap money before the rates begin their precipitous rise. By the way, the banks were notoriously silent for the last few years my money has been socked away.
September 9th, 2009 at 11:45 am
Condo developer problems?
Anyone else invest with James Schouw in one of his latest projects and then not get their money back or have their building built? I know several people in this position right now.
http://www.jamesschouw.ca/
This guy has taken a bunch of people's money and spent it on god knows what and won't return phone calls. He just finished the Grace project in Vancouver and yet somehow he is out of money – it doesn't make sense…
September 9th, 2009 at 11:34 am
no it does not.
but this lady does
http://www.youtube.com/watch?v=jGC1mCS4OVo
September 9th, 2009 at 10:38 am
Maybe people are not reporting their income. Any cash job ideas?
September 9th, 2009 at 9:47 am
It's quite amazing…when Vancourites speak of housing/income ratios and see $1MM homes selling in areas where incomes are $50K or less, that's OK.
But when these same people see other markets, like Los Angeles say, and see $1MM homes selling in areas with higher income ratios, somehow that's wrong.
Is that what they mean by delusional?
September 9th, 2009 at 9:20 am
bums up2:
#64 dude, we've whipped the deflation/inflation definition argument to death ( amazing how many people don't have a grip on the basics) over the past week. Its not surprising then when CTV announces on the news show this morning that just over 50% of Canadians have below standard expectation literacy skills.
The words have actual meanings etymolgically, termininolgically and in the venacular of colloquial usage. The false perceptions and definitions that are floating out from the governments gaseous asshole propagandists are incorrect and misleading for a purpose ( theirs); lets hold hands ( like Kum By Ya ….dude) and fight the power with intelligence and truth instead of believing what we read in the broadsheets and repeating it without consideration.
September 9th, 2009 at 9:11 am
Vancouver Shitty Council won't move on thousands of homeless sleeping in the streets but when rats are threatened with a bit of rain, oh yah, they're all over it.
http://www.vancouversun.com/life/infested+hotel+r…
September 9th, 2009 at 8:54 am
realpaul:
Do you have a link or anything in writing regarding this story?
September 9th, 2009 at 12:04 am
bums up2: I'm not sure what you mean by burbs. New West or Langley or what? I feel sorry for people who commute for hours every day in Vancouver traffic. That's no way to live.
But if you're near a Skytrain, that's a better situation. I know $1100 can get a decent apartment in West Coquitlam, but not in COV.
You obviously know all the bear arguments, so no point going over that again. Er well there is that one about bear capitulation.
"low interest rates expand the entire “pie” of buyers."
So did subprime
Whatever you choose, good luck. This is not an easy city to live in sometimes. My own capitulation may be to get the heck out of here.
September 9th, 2009 at 12:00 am
It's interesting…Vancouver has some of the highest rental ratios I've ever seen.
Some stats:
South Granville:
Average Age: 35
Residents per Block: 262
Percentage of Renters: 82%
Median Household Income: $65,400
Typical Household: Single Person
——————————–
West End:
Average Age: 42
Residents per Block: 432
Percentage of Renters: 76%
Median Household Income: $39,500
Typical Household: Single Person
——————————–
Yaletown:
Average Age: 36
Residents per Block: 408
Percentage of Renters: 48%
Median Household Income: $81,800
Typical Household: Couples with no Kids
——————————–
Commercial Drive:
Average Age: 36
Residents per Block: 128
Percentage of Renters: 67%
Median Household Income: $52,200
Typical Household: Family
September 8th, 2009 at 11:59 pm
64 you may be right about deflation and the corresponding low interest rates that accompany it, possibly for a number of years. But what makes you so sure that low interest rates will sustain RE prices? They've had low interest rates in Japan for 20 years, and current RE prices are half what they were 20 years ago.
September 8th, 2009 at 10:46 pm
realpaul:
I said it, but this guy says it better
“For the last 10 years, the money supply in the United States has expanded at roughly twice the rate of GDP growth. And the Fed doubled its balance sheet in just the last 18 months. This last bit of information is stunning. It took the central bank nearly 100 years to build a balance sheet of $1 trillion. Then, under the leadership of Ben Bernanke, it added another $1 trillion in just a few months.
10 times that was destroyed in the "credit crunch" and there are trillions more losses waiting but not-yet-marked-to-market.
This is deflation in a nutshell (which is why I'm not afraid of ineterest rates rising over the next few years).
September 8th, 2009 at 10:20 pm
No Longer Looking:
Rather than compare to your current city rent, why not compare to the rent you would get in the unit you are considering buying?
It sounds like you are simply saving on housing costs by moving out in the boonies.
A fair point, and one I'm still considering before jumping in. I need to run the numbers, check historical pricing trends, etc., just to see how expensive it is in those terms (as opposed to just looking cheap).
That, and of course being in the burbs can suck, as realpaul points out.
But after 10 years in the thick of it I could use a bit of peace and quiet too so maybe I'm ready for suburban "bliss".
Asking rents in the area / building I'm looking at are about equal to mortgage + strata, less than mortgage + strata + taxes. Seems reasonable to me. Again, who knows if people are getting those rents, or whether or not they will still be a year from now.
Bottom line: $1100 doesn't get shit in the city. I can buy a very nice almost brand new 1000sqft 2 BR/2BR + den for that. I've lived in the shittiest places you can imagine in this city and I am done. Of course I wish I didn't have to buy at such a risky time; I'm just making the best I can in this situation and minimizing my exposure/risk as much as possible.
And crossing my god damn fingers, to be honest.
But the places I'm looking at are already ~20% off peak asking prices and/or pre-sale prices. Maybe there's more downside after this dead-cat bounce, fine. It's not going to break me and I know in 10 years I'll be better off than I would have been renting another decade.
Because the rub of it is this: low interest rates expand the entire "pie" of buyers. It doesn't steal demand from the future if the rates stay low: it moves the goal posts into the next generation and leaves them there. (How's that for mixed metaphors?)
Falling prices do the same. Every 1% drop in price expands the pool of people who can afford that house. A problem with many bears is that they think everyone who is willing to pay more than they are is simply a "greater fool". But that is the market. If something drops 10% and someone buys it while you're waiting for it to fall 15% it means you were wrong. And it seems to me that a lot of people waiting for the crash don't quite know what they're waiting for in terms of exact % falling: "Revert to the mean" might be a long long wait unless interest rates do hit 8%. Otherwise, every house you are waiting to fall to something that seems reasonable is just going to be snapped up by someone else while you wait for that magic number.
A year ago a co-worker asked me how much I thought prices would fall and whether she should sell a piece of property that she had bought at a significant discount to market prices at the time. I sent her one of the many graphs that show how out of whack prices are, relative to rents, historical data, the VHB "you are here" graph and told her, in my exact words, that there would be "blood in the streets".
She sold.
Hell, even this nick I chose is making fun of SATV (he posted as "thums up2" for a bit) and I never thought I'd find myself on the other side of this argument.
But at this point, after waiting since 2001-2002 I'm happy to take 20% and run.
Wish me luck.
September 8th, 2009 at 9:34 pm
I said it, but this guy says it better
"For the last 10 years, the money supply in the United States has expanded at roughly twice the rate of GDP growth. And the Fed doubled its balance sheet in just the last 18 months. This last bit of information is stunning. It took the central bank nearly 100 years to build a balance sheet of $1 trillion. Then, under the leadership of Ben Bernanke, it added another $1 trillion in just a few months.
What does that mean, exactly? It means they bought a lot of debt from US agencies and the financial sector. It means also that they “monetized” this debt…transforming it into cash by paying for it with money especially created for that purpose. It also means that the whole financial sector has a bigger financial base against which to lend. The Fed lends against its balance sheet to member banks. These banks then lend to other banks who lend to business and consumers. So the amount of potential credit – as well as the amount of actual cash – has gone up.
There is an iron law in economics. Quality and quantity vary inversely…which is another way of saying that when you add more of something…each unit is worth less than the unit that preceded it (assuming everything else remained unchanged.) Certainly, this is true of money. The more money in a financial system, the less each unit of it is worth. Add enough new money – as Zimbabwe proved recently – and each unit becomes worthless. "
http://dailyreckoning.com/this-recovery-is-an-imp…
September 8th, 2009 at 9:31 pm
Cash for Clunkers suckers suffering from buyers remorse
http://dailyreckoning.com/evicted-from-your-brand…
September 8th, 2009 at 9:28 pm
Hows this for the facts on the over borrowed stupid and weak personality set.
http://theburningplatform.com/economy/living-in-b…
September 8th, 2009 at 9:22 pm
bums up2:
#52 you'll only save for an RRSP as long as interest rates don't alligator your cash flow after that well…………………….it's anybodys guess isn't it? Theres plenty a cowboy out thar in the burbs who don't have pot to piss in at todays rates. I think the rodeo will get right nasty when rates go up.
Thinking that the government can't afford to raise rates due to political considerations is slightly short sighted and naive. If you think for a second that the government gives a shit about you you're barking up the wrong tree. There are a lot of ways a government can burn a majority of the people and still swing into power. Remember that the more frightened and unsettled people are the easier they are to manipulate. In the end the only thing that matters to the government is their skin , not your vote.
So, if you do buy in the burbs, make sure you have an exit strategy.
September 8th, 2009 at 9:13 pm
NO -LYMPICS:
#48 , it was on the 6 oclock news-global, probably be on again at 11. Go ahead, laugh yourself to sleep.
September 8th, 2009 at 8:51 pm
Oh ya nutslaps! Think twice before getting into the money pit.
http://miniurl.org/ClK
September 8th, 2009 at 7:57 pm
bums up2:
But how much less (more) is it than what you would have to pay to rent your own place? So you're paying less to live in the burbs versus in the city. I would sure as hell hope so. In addition, what about your commute? Is it longer or shorter now? What's your monthly gas bill now as compared to when you lived in the city?
It's funny that I pay about a $250 premium to be living in the city as opposed to the suburbs, but I almost make up for it in lower transportation costs, not to mention the difference in quality of life that I enjoy.
September 8th, 2009 at 7:46 pm
Was browsing old "Real Estate Talks" blog…this from April 23, 2006…
"Just picked up two condos yesterday at the Woodward's sale in the W43 building:
35TH FLOOR
1 Bedroom, plus Den – 743 Sq ft.
1 parking space (10 yr lease across st.)
=$382,000 ($514/sq ft)
32ND FLOOR
1 bedroom – 654 Sq ft.
1 parking space (10 yr lease across st.)
=$342,000 ($522/sq ft)
For those of you saying they were overpriced, I would recommend doing further research. To get in on a bottom floor at H&H, you will start at $650/sq ft. These two suites are 35th and 32nd floor, which offer AMAZING views of English Bay, the Granville and Burrard st. bridges, BC Place, GM place. You can see all the way to Richmond from that high. There are only a small handful of condos downtown that offer this high of a view where you can basically see on top and over everything. Plus, at ~$500/sq ft, the price is pretty darn good to get into downtown."
.ryank
Newbie
Posts: 3
Joined: Sun Apr 23, 2006 8:51 am
HHHHMMMMM. He was going to make a killing by paying $500/sq ft. Errrrrrrr…Check out this current listing…2 beds, 2 baths at W-43 – *ASKING* $533/sq ft
http://www.6717000.com/mls/V784245-503-128-w-cord…
Dead money for over 3 years. If he's lucky.
September 8th, 2009 at 7:35 pm
bums up2: Rather than compare to your current city rent, why not compare to the rent you would get in the unit you are considering buying?
It sounds like you are simply saving on housing costs by moving out in the boonies.
September 8th, 2009 at 7:12 pm
I listened to Obama's speach at lunch, am now motivated to excel. I then come home to global news telling me BC economy is now very diverse and will come out of recession in a couple of months. Can this day get any better!
September 8th, 2009 at 7:09 pm
crabman:
I also said VRM which is 2.5% not 5.5%
I'm not arguing that it's a good time to buy investment properties for rental. My point is simply that the days of the differential between rent and carrying costs being more than $1000 a month (or several thousands, for Westside houses) are past. Maybe my examples net negative $100-200 with 5% down but again I must restate: with 20-25% down they are cash flow positive.
And anyone who is buying for investment purposes probably has a good down payment since historically it is always needed to be cash flow positive.
Remember: the bear argument of the past 5 years has been even with 25% down nothing is cash flow positive
And that is simply no longer the case.
Realpaul, I agree, I do not know how long interest will stay this low and the prospect of returning to 8% is not a fun one in my plans, and will hurt. But my prediction is a decade, or more, since I believe we are facing Japan-style deflation and the long-term low interest rates that come with.
I am aware I may be wrong about this, which is why I'm buying out in the burbs: I can afford the rise in interest rates but more importantly have enough extra cash each month to save into my RRSP too. I'm going to use cheap money from the bank to put a roof over my head while saving just as much as renters do because my mortgage payment is $240 less than my current in-the-city rent.
With strata, it's a wash.
So– if you're paying $1100 a month in rent do you want to pay 100% of that to your landlord? Or, 55% of it to the bank and 45% of it to yourself, in the first year? Buying may be renting money from the bank but these days it's some damn fine cheap rent.
LOL I sound like an informercial. Maybe I'm Tom Vu in disguise!!
September 8th, 2009 at 7:03 pm
Of course, maybe people feel they no longer have a choice but to support it. Might as well try to minimize the disaster, maybe?