"I had a work colleague approach me today to ask about buying a condo in New West. She had no idea about the economics of ownership and real estate."

“I had a work colleague approach me today to ask about buying a condo in New West. First it was interesting that it was a new project, marketed by Bob R. himself, but what was more interesting was how my colleague had no idea about the economics of ownership and real estate. We took the 600 sq ft unit she was looking at and calculated that over a 5 year period (Assuming this was a 5 year plan) the cost of ownership would be approximately $1,800 per month for interest, strata, taxes and then assuming a real estate commission / transaction costs at the end of 5 years. We assumed there would be no PPT as this was a low cost purchase for a first time buyer.
She was surprised to see it would be that much but $1,800 does not sound too expensive does it? So we did two things. Look at what you could rent for $1,800 and look what it would cost to rent the unit she was looking at.
For $1,800, she could rent a newer 1,100 sq ft unit in New West. That’s pretty much double the size she was going into.
Or – for $1,100, she could rent the unit she was looking at, or $700 per month less than owning.
What I said to her was this:
You can rent this for $700 per month less per month than owning ($8,400 per year) – After 5 years, you could save close to $50,000. That is the equity built from renting compared to owning. Or, you could spent the $1,800 you were going to spend anyway, and live in a much more expensive place. Either way, you are getting way more.
The math was really interesting to her as she is really quite young and never seen such numbers presented. To her however, it seemed pretty clear. At the end of 5 years, $50,000 of savings or, do you bet that that condo you buy is going to up by $50,000 in the next 5 years? Seemed clear to her.
The next day I saw her at lunch, surfing for new properties.”
- from ZRH2YVR via e-mail, 6 May 2012