“I looked at a home in South Surrey last June (I own a place in Burnaby but plan on moving there for a variety of reasons – I’m looking at next spring / summer to make the switch but go to see a few places to get better feel for the neighbourhoods). The address is 3312 144A St and it is a lottery home from 7 years ago and listed at 1.95 million. I didn’t think much of it, really weird layout and other issues. Somehow it sold a month later for $1.85 million which was very surprising. Anyways….
6 weeks later and I assume it is time for possession and lo and behold I see it on craigslist [see above].
Trying to rent it out for $5K/month… At 5% down and a 4% mortgage they would need to come up with roughly $100K and pay $10K/month and they immediately think renting it for $5K/month is a good financial move. This is going to be fun to watch.”
- an observer at VCI 7 Sep 2012 10:29pm
—
“Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising—the very definition of a financial bubble.”
- ‘The global housing boom. In come the waves’, The Economist, 16 Jun 2005
I guess we’re having a crash, eh!
http://www.canadianbusiness.com/article/98306–canada-s-housing-crash-begins
Thanks for linking the economist article. Excellent points there, and very perceptive being written way back in 2005 before ANYONE was talking about housing bubbles.
Why do so many people think that uters are poor and all buy with 5% down? I’m pretty sure this home was not purchased with 5% down. If the price was under a half mil, that would’ve more believable.
Agree, Whats the return if they paid cash??
Debating the exact downpayment is immaterial.
Presume this was a 100% cash buy: The $60K per annum rental income (minus property taxes, insurance, maintenance, vacancy losses, possible rent reduction to attract tenant, labour value or property management fees, etc) results in a very low yield on the $1.85M investment, especially if one takes into account the risk.
Dave#1 and I had the same thought, it appears.
BTW, if any of the money is borrowed, the numbers are even worse.
3.24% yield before expenses. The casual investor may think “hey that covers my interest”
Agree, separate the financing and look at the business case.
While I agree that this looks like a poor choice if purchased as an investment property, let’s think about it.
Perhaps the buyer intends to live in it in a year or two and is just renting in the meantime to defray his costs. Maybe he believes it’ll keep going up, so wanted to buy now to lock in a price.
Maybe he put down a million and is renting it at a cash flow neutral price. This wouldn’t give him much of a return, it’s true, but a) real estate has traditionally been a good hedge against inflation b) have you seen what government bonds are paying? Have you seen what TIPS are paying?
I don’t think the purchase was a wise move (I’m here, aren’t I?) but I can see scenarios where it might have made sense for the investor, given his different but not crazy assumptions about the future.
Maybe he’s Argentinian? http://www.nytimes.com/2012/09/16/realestate/argentines-turn-cash-into-condos-in-miami.html?pagewanted=all
“Maybe he put down a million and is renting it at a cash flow neutral price.”
The point is that at $5k / month this thing is nowhere near cash flow neutral. It’s pure speculation.
Oh this is too good to not post:
http://www.realtylink.org/prop_search/detail.cfm?mls=V971457
This is the MLS link for the most expensive property currently listed in the Delbrook area of North Vancouver. I’ve been tracking this area for 4 years now and have seen the general trend of decent (but overpriced) places getting snapped up at around 800K, knocked down, and 4500sqft monsters built in their place and listed for $2M plus. Its almost like the spec builders have shifted from Van West to Delbrook. These houses are nice but builder designed boringness that will be albatrosses once a return to normal prices, but I digress.
The main reason for the post is the open house comment for next week:
“More than an open house this will be a FEAST. Profeesionally catered, by one the city’s finest, you are sure to appreciate the home and the food. Bring your appetite!”
So, you are trying to sell a $3M house in suburbia by targeting cheapskates looking for free food!!! I get freshly baked cookies to appeal to walk-bys but actually advertising a free catered event???
BTW, the spelling mistake “professionally” is actually in the copy! Professionally catered…not professionally listed.
Do not go there for the food. They are going to serve only Armstrong cheese….
Oh no, I’m going specifically for the Armstrong cheese. More desirable than Vancouver housing!
I neglected to add, the first 00:34 are sufficient to set the NorthVan ‘Catered’ OpenHouse MasterScene prologue… the remainder is superfluous, rude and not terribly well written… [SorryEd: was barbecuing - insufficient time to ScrubForward]
pffft! … http://tinyurl.com/9nqz6a9
Damn, can’t make it on a weekday. I really feel like bringing along a few Hobos from DTES to attend the free catering, i mean open house!
I agree with the Economist this time. It is global. Who knows banks would have to slap fees on your savings very soon. And to avoid the fees, savers will be pushed away and turned into speculators on stocks and properties. Fake demands are not sustainable.
I just heard O Leary say HK’s real estate is justified because it is the gateway to China. He thinks if you want to do business in China, you need real estate in HK, does that make any sense?
Nope. DunbarSouthlands is plenty close these days… Just don’t mention ‘those’ Islands.
They couldn’t have put only 5% down, due to the new CMHC insurance cap.