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westcoastfella
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Re: Current Buy vs Rent Scenarios

Tue Jan 31, 2017 8:58 pm

HomelessinSD wrote:
A coherent response from TDMA would be too much to expect. I have ran some figures that I can share. Assuming the same interest rates, $1 million downpayment, $4 million home and over a 5 year period:
 

Homeless, your example seems to be extreme - either you're getting an exceptional deal, or your landlord doesn't know better (or care about getting market rent).  Or market rents in the westside are not worth the hassle of renting them out.

I have a couple of perhaps more common examples:

- house next door to mine, recently appraised at ~1.3M, currently rented out as 2 different suites for a combined total of $3200/month (1700 up, 1500 down)

- friend recently leased a 1000 sf condo in Coal Harbour, fully furnished, for 50,000 for 12 months (~$4166/month).  I don't know what the appraised value is, but lets say its 1.5M?  2M?

From what I know of the market, these seem like more common examples.  I don't have time to run the numbers, but if you do I'd be interested in the same evaluation.
 
HomelessinSD
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 11:48 am

WCF: I think I am getting a great deal. But there are lots of single family homes for rent on the west side between $3000 and $4000. The 40' to 50' lots on quiet streets have land value of about $3.5 million... or they did a year ago. Appears to be lack of demand for the tear downs right now.
 
HomelessinSD
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 12:10 pm

Can't run full numbers right now, but using your neighbors house as an example as an investment property. Having people live in my basement isn't desirable for my family, but I would be interested as an investment: same mortgage rate, 5 year fixed at 2.94%, mortgage payment of $4,584 with 25% down on purchase price of $1.3 million. Assume average of $2,300 goes toward principle each month over a 5 year period.

$3,200 revenue less property management fee. Say $3,000 clear. Running a negative cash flow of $1,600 / month, but adding $2,300 toward equity. Different of $600 / month or $3,600 / year.

Haven't added in property taxes,  maintenance, vacancies. Combined will exceed $3,600 / year

ETB indicated that returns could be expected in the 8% to 9% range. For a $325k investment, that would be about $28k / year.

I think a case could be made for this investment property: If you were expecting a modest yearly appreciation of 3%, rents to generally increase over time, interest rates to stay low, and could afford putting $25k / year into the property that wouldn't be covered by collected rent.
 
tdma800
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 12:15 pm

If you get a new place instead of a dump you will have a 10 year warranty
 
westcoastfella
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 6:07 pm

HomelessinSD wrote:
WCF: I think I am getting a great deal. But there are lots of single family homes for rent on the west side between $3000 and $4000. The 40' to 50' lots on quiet streets have land value of about $3.5 million... or they did a year ago. Appears to be lack of demand for the tear downs right now.

Like with most things in Vancouver, I don't think what happens on the west side is representative of the rest of the LM.  Your situation makes so little sense from an investment point of view, that I would hesitate to even refer to it as an "investment".  Similar to the mindset behind buying a negative yield bond, I can only assume that there is some other angle on the owner wanting to park 3M into an asset that returns so little.  The owner is banking on appreciation of the asset, to the point that the income doesn't matter?  The holding of the asset gives the owner some other value, whereby the rent they get from you is secondary?  A forex play?  Could be anything - but I doubt having a pure rental investment is it.

But hey, it seems to have definitely worked out for you, and other people that are renting houses on the west side for pennies on the dollar.

As for investment properties... I still think the best way to do that is via REIT's.  Let professionals find the deals, none of the hassle of direct ownership, and these days 6-9% yields are everywhere.
 
tdma800
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 6:20 pm

most of those are commercial properties such as apartments, not houses lol
 
VanLord
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Re: Current Buy vs Rent Scenarios

Wed Feb 01, 2017 7:56 pm

westcoastfella wrote:
HomelessinSD wrote:
A coherent response from TDMA would be too much to expect. I have ran some figures that I can share. Assuming the same interest rates, $1 million downpayment, $4 million home and over a 5 year period:
 

Homeless, your example seems to be extreme - either you're getting an exceptional deal, or your landlord doesn't know better (or care about getting market rent).  Or market rents in the westside are not worth the hassle of renting them out.

Just a couple comments on HomelessinSD scenario.  The current owner has owned this house for at least 4 years and I'm guessing longer, when did they buy the house?  My bet is they are cashflow positive with a relatively low mortgage because they bought this house when it was still fairly cheap.  They have a good and stable tenant who has lived there for several years, so raising the rent by a max of 2% plus inflation (around 4%) per year (allowed by RTA) isn't really going to mean a whole heck of a lot when they are sitting on $3 Million or more in equity.  A few hundred extra a month to risk having a great tenant leave isn't really worth the headache of having to go find a new tenant and then spend money refreshing the house and possibly paying agency fees to find a new tenant.  Plus risking the hassle if the new tenant isn't as good as Homeless surely is.
From the other perspective, Homeless could have bought this or similar house 4 yrs ago for under 2m (I presume), and could have been sitting on a very nice tax-free gain.  Now I get that Homeless is invested elsewhere in the market so he might still have been better off renting this place, while enjoying the income and appreciation of the other properties.  However, he may now be on the hook for capital gains that in the past would have been easier to exempt himself from, but with the new rules, this could be harder, especially if he was claiming the income from the other property.  
Again just a comment, I don't know the whole situation, and making several assumptions.  The other comments would lead me to believe his situation is quite good and he is happy with the current scenario, so looks like a win-win for him and his landlord.
 
 
HomelessinSD
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 9:11 am

Vanlord,
 
Most of your assumptions are dead on: We are renting from a long time holder – 30+ years who used to live in the house and moved about 5 blocks away about 10 years ago into a bigger house with their elderly parents. They have no intention of cashing in for the foreseeable future. Last time we spoke, I asked very directly why they wouldn’t sell now. They said they don’t need the money and that we “could stay as long as we want”.
 
I guess they like tenants who have called them a total of one time in 4 years about an issue with the house (small roof leak). If something is broken, I fix it and just let them know it was done. Don’t even ask for them to pay for the parts.
 
Regarding buying 4 years ago: Simply put, didn’t have the same financial resources 4 years ago that we do today. Back then, would have been a difficult and stressful stretch to buy a $2m home. Now we could buy something twice that value with relatively comfortably and may do that if we find the right opportunity.
 
Regarding taxes… while we take advantage of strategies to reduce tax burden, we must be some of the rare people who consider paying taxes a good problem to have.
 
WCF: Thanks for the suggestion on REIT’s. I’m going to do some additional research.
 
tdma800
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 9:23 am

There are plenty of apartment buildings in Vancouver that cost "only" 5 million. There are plenty of houses that cost 'only" 5 million. If you are lucky enough to be able to afford 5 million, then why is it that its easy to find a house cost 5 million: thats simply because most of those homeowners are legally avoiding taxes on them, but a 5 million apartment building would likely result in more than a million dollars going down the drain in taxes so only an idiot would sell it.
 
tdma800
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 9:27 am

The first thing I thought about the 4 million house is that that feels really sad for whoever gets it(their kids?) in 15 to 25 years from now- Unless the kids are wealthy on their own they face a very real possibility of having to sell that house just to pay the tax bill.  The owners could have instead sold it tax free before moving to another one.
 
VanLord
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 10:52 am

tdma800 wrote:
The first thing I thought about the 4 million house is that that feels really sad for whoever gets it(their kids?) in 15 to 25 years from now- Unless the kids are wealthy on their own they face a very real possibility of having to sell that house just to pay the tax bill.  The owners could have instead sold it tax free before moving to another one.

Those kids will be really sad, sitting on a prime piece of property in Vancouver that will be worth millions of dollars, and a tax bill to deal with...We should all be so lucky. 
 
tdma800
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 10:57 am

The owners could have sold the 4 million house, taken the tax free income, and bought an annuity or something like that to provide for the rest of their lives
 
reallyreal2
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 11:25 am

VanLord wrote:
tdma800 wrote:
The first thing I thought about the 4 million house is that that feels really sad for whoever gets it(their kids?) in 15 to 25 years from now- Unless the kids are wealthy on their own they face a very real possibility of having to sell that house just to pay the tax bill.  The owners could have instead sold it tax free before moving to another one.

Those kids will be really sad, sitting on a prime piece of property in Vancouver that will be worth millions of dollars, and a tax bill to deal with...We should all be so lucky. 

GEEZ - tdma800 must be friends with Mike Stewart on facebook or something.  All either care about is circumventing taxes.
 
tdma800
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 11:42 am

It is legal to sell  the house you live in and not pay tax on it. There is no other investment in Canada that allows tax free gains of this magnitude.
 
yzfr1
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Re: Current Buy vs Rent Scenarios

Thu Feb 02, 2017 10:26 pm

Yeah and its being abused. When I was looking at homes to buy lots of new ones had the developer living in it by himself in the master bedroom even though the house was clearly new... lots of these guys build and live in for 1 year to avoid capital gains. Also I know quite a few people in the past who live, renovate while living and flip from home to home avoiding capital gains over and over.

But that's a free market... but the government and real-estate agents are like parasites making their nice percentage points. 

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