How much lost on a 2009 condo purchase?

Previously we highlighted b5baxters comment on the 19 months that have elapsed since Vancouver home prices have peaked (according to the REBGV home price index)

Of course there are a lot of variables in the housing market, so lets look just at condos, which Crabman has ever so helpfully run the numbers on:

I calculated the bottom line if someone bought a benchmark condo 4 years ago with a 10% DP and a 4% 30-yr mortgage. I took into account all carrying costs, rent savings and principal pay down. I also assumed rent, prop tax and condo fees increased 4%/year.

Oct 2009:
Benchmark price: $380,975
Mortgage balance: $342,878
Equity: $38,098 (10%)
Est. Rent: $1,100
Mortgage: $1,637
Condo Fees: $200
Prop tax: $89
Monthly loss: $826 (extra costs of owning vs. renting)

Oct 2013:
Benchmark price: $365,600
Mortgage balance: $317,253
Equity: $48,347 (13.2%)
Est. Rent: $1,287
Mortgage: $1,637
Condo Fees: $234
Prop tax: $104
Monthly loss: $688

Over those 4 years, equity only increased $10,249. But the extra monthly costs of ownership over that same period were $45,498, so the owner would have saved $35,249 by renting.

So it looks like the current ‘ownership premium’ for someone who bought a Vancouver condo in 2009 is just over $35k.  Anybody see any problems with those numbers?

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ILoveCharts
Guest
ILoveCharts

It’s great to see some examples and calculations.

Two comments:
1) I don’t trust the “benchmark” any more than I trust the real estate board.
Can someone find a real example (a condo that sold four years ago and sold again in the last few months?)

2)I really don’t like using the term “Monthly loss:” for that line because it isn’t a true loss – it’s an “Additional monthly commitment” that has an impact on your cashflow and flexibility. It’s not fair to call it all a “loss” since some of it is invested in your house.

Example:
Buy:
Mortgage principle payment: $500/month
Mortgage interest payment: $700/month
Strata fees, taxes, etc, : $400/month

Rent: $1000/month

Monthly loss: $100
Additional monthly commitment (monthly loss + extra money you are forced to come up with each month and are forced to invest into your house): $600.

patriotz
Member

@1: ” It’s not fair to call it all a “loss” since some of it is invested in your house. ”

An investment is a purchase of capital. The investment you made in your house is when you bought it.

The principal part of the mortgage payments are also an investment, but in fixed income. You are reducing your short position in fixed income, aka mortgage. That is not in investment in the house. By contrast, putting in a suite is an investment in a house you already own.

That aside, @2 is correct that the principal part of the mortgage payment is not a cost, i.e. expense.

But I think OP is correct on the total loss anyway. That’s how much more the 2009 buyer has paid compared to someone who has rented since 2009 and buys today.

George
Guest
George

Can someone please explain what yvr2zrh is talking about? It sounds like they are saying that tenants are responsible for their landlord’s taxes if the landlord is not a resident of a Canada and does not pay their taxes. What???

yvr2zhr said:

“As someone who has been the non-resident on several occasions – I can confirm with you that this tax is definitely withheld and as a tenant – You need to ensure you know if your landlord is a non-resident.

I am not certain but I expect that a tenant that fails to withhold the tax on the payment to non-resident is liable for the tax in the event the landlord does not pay the tax – – – so – – watch out for this.”

Woz
Guest
Woz

Something funny going on with the REBGV numbers. It seems like they revised the October 2009 Greater Vancouver apartment benchmark downwards.

The October 2009 REBGV stats package reports the Greater Vancouver apartment benchmark as $380,975, but the MLS HPI website reports the Greater Vancouver apartment benchmark as $356,700. Both sites show the October 2013 Greater Vancouver apartment benchmark as $365,600.

October 2009 REBGV Stats Package – http://jaybanks.ca/images/pdf/2009-10-REBGV-Stats-Package.pdf
MLS HPI Benchmark – http://homepriceindex.ca/hpi_tool_en.html

Furthermore, if you look at the October 2013 stats package the 5-year price change for Greater Vancouver apartments is listed as 4.5% ($365,600/1.045=$349,900), but the October 2008 stats package lists the benchmark price as $358,359.

Bull! Bull! Bull!
Guest
Bull! Bull! Bull!

http://www.foxnews.com/politics/2013/12/04/massive-china-themed-city-proposed-in-new-yorks-catskills/

If approved, every province in China would have an office there and foreign investors funding the development would receive green cards for their $500,000 checks under the EB-5 program designed to lure foreign investment, according to the Center for Immigration Studies, a conservative organization staunchly opposed to the project.

Aggregator
Guest
Aggregator

#4

That’s the old MLS-LINK HPI that was terminated in December 2011. Sorry try again.

Melba
Guest
Melba

….The language in fantasy land will be Mandarin. Even the UK leader says so!…

I remember it wasn’t that long ago that we were all being told that we should forget French and learn to speak Japanese. Funny how things work out. Oh well, Y3k is coming!

HAM Solo
Guest
HAM Solo

This is interesting analysis. What you are describing, of course is the average case. I’m sure a number of foreclosures, if we could talk to the people behind the statistics would be even worse. If someone loses their job during this period, the amount owing could snowball and they are wiped out

Son of Ponzi
Guest
Son of Ponzi

Good post on Garth’s blog regarding buying vs. renting.

took a look at the IMF’s infographic about Canada having the most overpriced RE in the world based on price to rent ratio. Took a quick look at houses for rent near where I grew up in Richmond, B.C.

$4,700 / month mortgage with 20% down
http://www.blairmiller.ca/m_fixed_listing.asp?listing_id=%7B9CE3A55B-7C97-44A3-89F8-94F40B3F95DF%7D&src=sitemap

OR,

$2,380 / month to rent it
http://vancouver.kijiji.ca/c-real-estate-house-rental-Beautiful-house-in-Richmond-with-dyke-view-W0QQAdIdZ531479768QQfeaturedAdZtrue

I think my brain imploded.

Son of Ponzi
Guest
Son of Ponzi

I think, not taking the changing demographics into account when choosing a second language to learn, could seriously hamper ones employment opportunities in the future.

Woz
Guest
Woz

@Aggregator #6

I see, they changed how the benchmark was calculated in January 2012.

That means Crabman’s analysis is comparing the old pre 2012 benchmark to the new post 2012 benchmark which isn’t a like for like comparison. The analysis should use $356,700 for the Oct. 2009 price instead of $380,975 which would mean condo owners are down $11k since 2009, not $35k (still not a very good deal).

Melba
Guest
Melba

….I think, not taking the changing demographics into account when choosing a second language to learn, could seriously hamper ones employment opportunities in the future….

Agreed, Chinese folks really should learn English. 🙂

crabman
Guest
crabman

You mean we can’t count on the RE industry to give us accurate, consistent, transparent information? Shocking! I also used the wrong number for the monthly costs, they were $37,242 (4 years) not $45,498 (5 years), so the ownership premium was actually $26,993.

Here are the numbers using the “other” Oct 2009 benchmark price.

Oct 2009:
Benchmark price: $356,700
Mortgage balance: $321,030
Equity: $35,670 (10%)
Est. Rent: $1,100
Mortgage: $1,533
Condo Fees: $200
Prop tax: $89
Additional Monthly Commitment: $722 (extra costs of owning vs. renting)

Oct 2013:
Benchmark price: $365,600
Mortgage balance: $279,038
Equity: $68,562 (18.75%)
Est. Rent: $1,287
Mortgage: $1,533
Condo Fees: $234
Prop tax: $104
Additional Monthly Commitment: $584

Using these numbers, the extra expenses over the 4 years were $32,352, and equity increased by $32,892. So these hypothetical buyers actually made $540.

crabman
Guest
crabman

Coincidentally, I bought an investment SFH in the Phoenix area in Oct 2009. I paid $87k and have been renting it for $800/month with no rent increases. A comparable home just sold for $115k.

If our hypothetical condo buyers would have bought four similar homes in Phoenix instead – which would have been slightly cheaper than the benchmark condo!! – they would have done a little bit better.

Oct 2009:
Market Value: $348,000
Mortgage balance: $313,200
Equity: $34,800 (10%)
Rent: $3,200
Mortgage: $1,495
HOA Fees: $192
Prop tax: $483
Monthly *positive* cash flow: $1,030

Oct 2013:
Market Value: $460,000
Mortgage balance: $289,793
Equity: $170,207 (37%)
Rent: $3,200
Mortgage: $1,495
HOA Fees: $192
Prop tax: $386
Monthly positive cash flow: $1,127

Their total return on this investment would have been:
Equity increase: $135,407
Positive cash flow: $52,583
Total return: $187,990

C.Junta
Guest
C.Junta
@patriotz #21 (yesterday) “Because our “tough on crime” Harper Government® is not willing to commit sufficient resources to enforce the legal obligation of Canadian residents to pay tax on global income.” I fail to understand why you and few other folks on this site believe that astronauts’ wives (or their huzbas) must be taxed on the income generated offshore. Technically speaking: – those astronauts are not BC tax residents, so they don’t have to pay anything in BC; – the wives have really zero income (since they do not work), so they don’t have to pay anything either; – suitcases of cash, offshore money transfers and bank cards are not “income”, they are “gifts” that are not taxable. Dura lex sed lex. Or, better say, inefficient lex sed lex. Am I missing something? If yes, do you care to explain… Read more »
Enigma
Guest
Enigma

@C.Junta: “those astronauts are not BC tax residents” … “Am I missing something? If yes, do you care to explain please?”

I think what you’re missing is that CRA’s definition of ‘Resident’ is not the same as a layperson’s definition. You can confirm this with CRA or someone more knowledgeable than I, but I think one of the biggest considerations is if your spouse is living in Canada, you may be deemed to be a resident for income tax purposes.

C.Junta
Guest
C.Junta
@enigma #16 “You can confirm this with CRA or someone more knowledgeable” I confirmed that with a CRA guy (I wrote about that discussion on this site a while ago). He said there was not much they (CRA) could do with those families. Now I would like to hear patriotz’ explanation. “if your spouse is living in Canada, you may be deemed to be a resident for income tax purpose” This is exactly the missing piece. My understanding this clause (if there is one) may come into effect when the astronaut finally decides to settle in BC. In this case, his “non-BC-resident” tax status may be revised by CRA (because during his absence he kept some “ties” and so on). But: – this is a somewhat gray area and investigated by CRA on a case-by-case basis; – this can be… Read more »
Son of Ponzi
Guest
Son of Ponzi

#17
that’s why they choose Canada.
And complementary health benefits and education.

Skook
Member
Skook

The Sunshine Coast November sales data has now been posted at VanPeak.

November sales were down -9.5% from November 2012. Compared to October’s sales, the drop is -29.6%.

The November SDH benchmark price ($338,800) is down -26.0% from the July 2010 peak ($457,777). That 2010 peak was +60.4% above the January 2005 HPI baseline benchmark ($285,482). Last month’s benchmark price is only +18.7% above that HPI reference point. Yep, looks like the SC is experiencing a nice “soft landing” as it goes through its market “correction”.

Here the link to the post: http://vancouverpeak.com/showthread.php?tid=530&pid=5822#pid5822

Newcomer
Member
Newcomer

@ C. Junta

It’s not rocket science:
http://bit.ly/IuW7i5

space889
Member
space889

@crabman – regarding your purchase in Phoenix, I’m just curious about the process and taxation? I heard many potential issues with buying in US ranging from hiring people to do everything which means you are open to fraud and abuse by realtors and property managers, as well issues with having to pay taxes in US, and potentially be considered by IRS as US resident and having to pay US tax on your worldwide income.

Just curious what your experience is like and what realtor, proprety management firm, and tax accountant and lawyer you used? Did you purchase the SFH in your name directly or used a corporation instead??

The US housing market is definitely extremely tempting!!!

space889
Member
space889
With regard to astronaut families, remember this trend started with the Hongers back in the early 90s, followed by the Taiwanese immigrants in the late 90s. It is not an exclusive mainlander thing. Anyways, in a lot of the cases, it is only the wife and kids that apply for Canadian residency/citizenship and have no income, which allwos them to qualified for so many social services while living in multi-million $$ houses and drive their ultra luxury cars. The husband never applied for Canadian residency and only comes here as a tourist visitor. So I don’t think Canada can tax you based only on the fact that your family is here while you have never ever applied for residency. Now, I do remember years ago that I read in some income tax form/publication that significant large and/or regular cash gifts… Read more »
Newcomer
Member
Newcomer

@Space898

It’s not rocket science:
http://bit.ly/IuW7i5

patriotz
Member

@19: ” My understanding this clause (if there is one) may come into effect when the astronaut finally decides to settle in BC.”

The astronaut settles in BC as soon as he lands in Canada and becomes a permanent resident. All permanent residents (as opposed to citizens) are automatically deemed resident for tax purposes. It’s possible for a citizen to become non-resident but this is not allowed if the person has dependent family remaining in Canada or other ties such as owning a personal residence.

C.Junta
Guest
C.Junta

@patriots #24

” All permanent residents (as opposed to citizens) are automatically deemed resident for tax purposes”

Sorry, this is not true. Being an immigrant myself, I know it damn well. I personally know a few folks who kept living abroad for a few years after landing in Canada. Not paying taxes in BC, not applying for SIN or MSP. When they finally settled in BC, they had no problems with CRA although they explicitly followed all rules. And after spending some time on immigration forums years ago, I have an impression there is not just a handful of people who do that. This is 100% legitimate.

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