“I know a contractor currently putting $800k into a house near UBC that will be listed in the spring. Sale price should be over $4 million. Big chunk o’ change.”
- thinktom (a local realtor) at RE Talks 11 Jan 2012 9:05pm
Would very much like to see more figures on this kind of venture.
How big is the profit margin on such a buy-reno-sell spec?
How large a ‘can’ are these contractors carrying? Risky business given market developments.
- vreaa
Part of the reason sales tank is because the buy-reno-sell circuit refuses to buy in down markets.
I have a colleague, along with 3 partners, doing something similar. At the end of 2010 they bought a far westside property for just over $1 million. Spent $850,000 building a new home. And sold it near the end of the year for just over $4 million. He says it was thier most profitable venture to date netting about a $1.2 million profit. In December they bought another property for $1.3 mil (no realtor involved) and hope to obtain 2 more this spring and have 3 on the go st the same time.
Trouble with flipping is you only have to get caught holding that last one or two houses to lose more money than you made on the previous successes.
Interesting that this has come up today. Just down the street from where I’m renting now (in Kerrisdale) there was an open house for a big house built in 2010. I asked the realtor there why the occupants were selling. He said the owner was going to continue to do this all over Vancouver: buy a property and build something new on it, live in the new house for a year, then sell the house, buy another property, build another house, live in it for a year, then sell, buy, build, sell etc. etc. etc. — “for the next 10 years.” The list price for this house is $2,888,000. The realtor wanted to know what I thought of it after I looked at it. I said “Truth or dare.” He laughed but later encouraged me to be frank. I said, “Okay. It’s plastic, grandiose, and you could get something better for this price [anywhere else in North America]. And I wouldn’t want to buy from a developer who’s doing what this owner is doing.” He’d been all bonhomie before, but turned to stone when I said this.
lol! you need a camera and mic next time
List price is $2,888,000 – no Asian luring there! What a bargain! For a one year old house – jk, but seriously that price seems low to what new homes were asking last spring and summer in the westside. Should have asked the realtor what the market is like.
850k buys a lot of building material! I would expect to get a first class mansion for that kind of coin…
The owner of this house in question, the guy whom the realtor identified as a developer who’s planning to buy, build, occupy, sell, buy etc. for the next 10 years, is Caucasian.
The house is 2900 sf., on a 33 x 125 ft. lot, with a finished basement but no suite, 5 bathrooms, fancy appliances, laminate floors, blah blah, and is ugly, boring and trite.
I saw a hilarious ad for another new house in Point Grey the other day, also in the $3 million range, which closed ecstatically by noting the house’s nearness to “six bank branches”! There seem to be a lot of very new or fairly new houses on the market in these neighbourhoods right now.
He emphasized that at $850k, everything was top of the line.
300$ per sq ft is really just mid-quality these days – it’s certainly not high end. So that’s $3 million for just a mid-grade property on a small lot. Most expensive land in the world.
Why should construction costs be so much higher in Vancouver than anywhere else in North America?
That’s Canada – $200 per sq ft is considered rock bottom.
>300$ per sq ft is really just mid-quality these days
>$200 per sq ft is considered rock bottom.
Are you flipping kidding me? I had to make three phone calls to my insurance agent to get him to jury-rig the estimate for the replacement value of my rust belt hovel up to something higher than $80/sq ft. He finally did it and now it’s $114 or something, which, of course, means it will cost about 30% more to replace it than to sell it. But that’s a whole different issue. And we have some pretty severe cold weather requirements here, like 6 inch outer walls.
My backup plan of moving to Canada some day is never going to pan out, me thinks…
Seems like the money flow is now north to south based on what I’m seeing. Every sensible person I know here recognizes that costs and prices here are simply ridiculous – especially compared to the US which seems to offer much more living for your dollar these days.
Part of the reason construction costs are so high here is that trades and services are coming from outlying areas (ie: the valley). Most tradespeople can’t afford to live in the city. Similarly, excavators, dump trucks, etc (and all those demolished houses) commute back and forth from the valley. So right there, per hour construction cost can be up to 15 – 20% higher than elsewhere. Building in a city like Vancouver is also much more difficult than a flat sub-division in the valley (there’s a lot of tight corners to be worked around). And – speaking of tight corners – there’s the ‘lift’ that the City takes (in addition to permit costs). Lastly, there’s that old hoary adage of “what the market can bear”. Airedales is right – $300. per sq. ft. really is just mid-quality these days.
Correct.
Combine that with the severe lack of skilled labour, higher raw material costs, and the fact that most Vancouver houses have basements, the costs are higher than elsewhere.
Are construction costs over inflated much like our entire RE sector? Yes.
Due to the topographical challenges, the existing city fee schedules, and most of above mentioned details the costs will never compare to many other North American cities.
Thanks – similar situation in Calgary with tight construction labour market and increasing costs to developers that now have to pass on additional costs imposed by the city to reduce the amount of property tax subsidization from existing homeowners. Not to mention the significant inflation in all material costs with the rise in commodity prices. The only offsetting factor has been lower and lower borrowing costs which continues to push up the risk of an extreme RE crash once China hits it’s debt wall.
I found this conversation amusing:
eyesthebye wrote: Even in late 2008 early 2009 sellers were loathed to accept anything less than their BC Assessment for their home
thinktom wrote: This is EXACTLY what I’m nervous about. Those damn assessments… or should I say… proof from our wonderful Provincial Gov’t that… ‘this number is the bare minimum of what my home is worth’.
gse36 wrote: This “bare minimum” provides protection against housing crashes. Remember in 2008 the Prov Gov’t froze assessments to 2007 levels.
So according to gse36, the 2008 housing dip in Vancouver wouldn’t have happened had they not frozen assessment levels at 2007 prices. And since they are now aggressively hiking assessments, Vancouver is protected from another housing crash.
I live in Ottawa, not Van. But can you guys tell me if this and similar sentiments are common in Van? Have people really resorted to such weak arguments to rationalize continued RE inflation? I hear numerous tiresome ditto-heads talk about how “safe” Ottawa RE is. I believe they are deluded. But Van seems to have taken it to a whole new level.
I hadn’t heard the ‘assessments as a base price’ argument before; thanks for letting us know about that.
That specific argument is an example of a broader position: there are many in the bull camp here who are sure that prices can’t possibly drop more than about 10%-15%, because, well, (their argument goes), buyers will obviously crowd in and snap up the screaming ‘deals’.
We personally believe they are deluded, and that demand will actually drop as prices fall.
Do we have any stories of prospective buyers waiting to jump in at 10%-off?
There must be some.
That seems to indicate the belief that there is a happy middle ground. The “soft landing” position. Problem is, even if there is a large contingent of potential homebuyers declaring they will pounce after a 10% drop, would they still be willing to do so when the time came? Markets are 100% psychology driven. A person might say one thing now, but when the time comes, the entire collective mentality may have shifted dramatically. Suddenly 10% becomes 20% and 30%, and the lower it goes, fear forces more and more buyers, and lenders, to the sidelines. The soft landing advocates repeatedly make the same mistake of basing their projections entirely on the fundamentals, and assuming that today’s collective psychology will remain in place tomorrow. When in history has that ever happened? When it comes to greed and fear, we’re all bi-polar.
I apologize for the earlier comment, as I thought the $2,888,000 was on a 50′ lot not a 33′. In that case, that is ridiculous to ask that kind of money. I remember it was a few years ago when a 33′ lot with an older home reached 1 million on the west side. I have gone into some open houses on the west side catered to Asian investors. I was quite shocked at the lower quality of materials used. One house screamed home depot – cheap tile, granite, fixtures etc. And they wanted over 4 million!!
Calguy, no need to apologize, I wasn’t clear at first, and you’re right, $2.8 million is starting to look average or even cheap for the West Side. You would have retched at the cheapness and ugliness of the materials used in this 2.8 million dollar house. I honestly don’t know what people are thinking, building and buying houses like this. Are people really that desperate to live here? Is it “momentum investing”? (Sometimes even money laundering??)
One thing I’m starting to predict is that fewer and fewer people will find blowing that much money on such a bad bargain a smart thing to do.
Yeah, it’s momentum investing.
It sounds circular, but the ONLY reason people are paying these prices is because others have paid these prices. And they anticipate increasing prices going forward.
Imagine people parachuted into Vancouver from other cities on the planet, and being asked to say what they’d pay for the house/s you mention. Some would volunteer prices less than one tenth of the ask.
We’re sure many readers have played that game with out of town visitors… I have, it’s good for laughs.
I would not discount money laundering either. These valutions are getting so enormous, so ridiculous, they exclude the vast majority of income earners in this country. Who is left driving this insanity? Some investors with more money than brains perhaps. But probably some organized crime desperate to launder their money as well.
I agree.
Equity, income, all else included how many Canadians can afford a $4 million+ property? I imagine the amount is tiny.
It takes some real wealth to play in those tax brackets.