Local Speculators - "My partner came home last night and was envious that a coworker has recently purchased yet another house. I know several people who are playing this monopoly game, buying several houses as rentals. Some of them make $55k per year and yet have $650k in outstanding mortgages."

Forget foreign speculators, the real gamblers driving this market absolutely bananas have been the seemingly-innocuous, common-or-garden local buyers who, in addition to their personal residences, have purchased one or more ‘investment’ properties. We have described them as one of the Major Players, ‘Local Investors; Households That Own Two or More Properties’. They are a particularly important group of owners because we anticipate that many will sell their RE investments when the premise for holding them, namely rising prices, disappears. Thus they will sell into price drops, potentially adding to a price cascade. It has been impossible to calculate their exact number, but anecdotes like the following three suggest they make up a significant subgroup. -vreaa

anonymousAA at vancouvercondo.info 12 May 8:44 am – “Here’s something I’ve been considering lately, after my partner came home last night and was envious that a coworker has recently purchased yet another house. A “good deal” $750k instead of the list price of $800k or so. This is his oh, 6th house purchase? He’s been playing monopoly, buying more and more houses for the past 20 years or so, so I guess that’s how he finances these rentals (lots of equity-well, the older ones). Another co-worker has also done the same thing, 3 rentals in the last 18 months (though one hasn’t worked out and is sitting vacant at a cost of $2000/month!). I also personally know several people who are playing this monopoly game, buying several houses as rentals. Some people I know make $55k per year and yet have $650k in outstanding mortgages. This must be common, anyone else know people in this situation? And meanwhile my partner moans that we don’t even have one house, let alone six!
How can this end well, when rates go up? Sure, you have a few hundred bucks left over at the end of the month from the rental after paying your VRM, but what about when rates are 5.25%? You can only raise the rent so much.”

space889 at vancouvercondo.info 12 may 2010 9:25 am - “I know someone who joined [an RE investment group] in 2008 and within 18 months bought like 3 condos along with $700K+ mortgage, at least 1 condo was in Edmonton, too. Since I don’t know him that well, I didn’t really want to ask him how his investments are doing. He was very excited and trying to get a lot of people involved and start creating wealth together! The good thing about him is that he works for the government with 5 years+ seniority so he’s fairly safe from being laid-off and he gets a guaranteed pension that I think is protected from creditors. Still you have to admit these people’s bravery (regardless of whether you think it’s stupid or not) on taking on so much debt and not being worried about it. That’s guts, man….I wouldn’t be able to sleep well at night if I owed $700K+ and personally liable for it. Ah well, I guess sometimes to make the big money, ignorance of risks helps”.

Rent385 at vancouvercondo.info 12 May 2010 9:44 am – “I also know a few people that have accumulated multiple properties for rental purposes (over the last decade or so). Many of them are not selling right now. They are aware that the market will mellow and interest rates will rise, but somehow, they are going to be fine. One of them (who makes ~$100K) has purchased 3 bungalows, one with a suite, all in the tri-cities area. Even with his income, he must be carrying 600k+ in mortgages. I can’t see him renting the units for >$3500 (total for all three). Is he going to make money? I guess he’s hoping that over the long term RE prices will continue to go up (perhaps with some inflation to help out). If he can keep his mortgages under control (and if there is some inflation) then he’ll probably come out on top.”

Junius added this comment 10:08 am – “I believe this is much more widespread than people in Vancouver commonly acknowledge. When the bloom comes off the market it is these investors looking to exit that will bring prices down fast.” [We agree -ed.]

UPDATE: Additional relevant anecdote:

ibought3 at vancouvercondo.info 13 May 2010 11:49 am – “I know a number of friends that bought in the last two months. Two of them earn very average salaries probably around 40-60k, and they have purchased to become landlords. Several are just first time home buyers.”