This from jmb at ‘nobody important’, a local blog:
“Let’s consider this house below, currently for sale. I know this house very well, for I lived in the house two doors to the left of it for 14 years before moving to the larger house where I live now. The grey house you see to the right is owned by someone in my Thursday walking group.
The house itself is over 60 years old and very ordinary. A tiny 800 square feet stucco bungalow with two bedrooms and an unfinished basement. Not a family home, maybe for a couple, as lived there when we were neighbours. The lot is not bad, 53 by 130 foot. It’s been rented so probably not in great condition. It’s a nice location but a fair way from the bus and the shops. The school is very close but then you can’t have children in this house for it’s too small. In fact it is probably a knock down. Why they even suggest it. Build your dream house.
So the asking price is $1,700,000. Yes, ladies and gentlemen, one million seven hundred thousand dollars, for basically a standard block of land, about 9 km from downtown. Now how is that for a downside to this city? One of the most expensive cities in North America for real estate. In fact prices have almost doubled in the last five years.
4035 W 37TH AV, Dunbar, Vancouver West,
Excellent location, steps to Pacific Spirit Park, close to UBC. Build your dream house on large 53 x 130 south facing lot. Needs 48 hours to show as tenanted. All sizes and ages are approx only, buyer to verify if important to buyer.
Finished Floor Area: 800.0 sq ft. Property Type: House, Lot Frontage: 53 ft. Basement: Unfinished, Lot Depth: 130 ft. Bedrooms: 2, Age: 66, Bathrooms: (Full:2, Half:0)
Update: Today I found out from my friend who lives in the grey house next door that the above house has just sold for $1.8 million dollars, $100,000 over the asking price. It will continue to be rented for two years when it will be demolished to make way for a new one.”
This will now be a markedly cash-flow-negative property. One presumes that the new owner is very confident that house and land prices will be going up over the next two years. We also presume that the new owner plans to demolish and build in 2 years.
The property’s numbers look roughly like this: Purchase price $1.8 million, Rent (estimated) $1,800-$2,200 per month. Cost of $1.8 million mortgage, at 7.3%, 25 year amortization, 5% down: monthly payment >$13,000. Thus the property will be costing about net $11,000 per month to carry, or $254,000 for the 2 year period. To be more accurate, one would also have to add property taxes and maintenance costs to that.
This purchase is a bet on property price direction.