Rent or Buy? – “We pay $1,850 a month to rent a house in North Van, where a so-so home costs $700,000. Forties, two kids, $125,000 saved, no real estate, no debt. We’ve just got notice of a rent increase, to $2,500. Dilemma.”

This anecdote from Chuck headlined by Garth Turner at greaterfool.ca 14 July 2010

“We pay $1,850 a month to rent a house in North Van, where a so-so home costs $700,000. Forties, two kids, $125,000 saved, no real estate, no debt. We’ve just got notice of a rent increase, to $2,500. Dilemma. This increase of $650 will seriously affect our ability to save. To complicate things further, $2,500 is still on the low end of rents for houses on the North Shore so moving to another house would not save anything.  We would have to move to an apartment, basement suite or townhouse or a lower rent which is not preferred with our kids being 12 and 10 and needing some yard space.  We work on the North Shore so moving to another part of the city doesn’t make sense as it would only increase transportation costs. So we are thinking about buying. Using a factor of 5.48 (equivalent for a 4.39% fixed mortgage) we could carry almost $500,000 for the equivalent of the rent.  We understand that there would be taxes and maintenance that would increase this monthly cost. But warnings loom large when we think about purchasing. So we feel a bit at a crossroads – just live with the new rent and lose the savings while we wait for some correction in the real estate market, or go ahead and see if we can force something down with lowball offers now to get something for similar monthly costs?”

[We agree with Garth’s conclusions that this couple should continue to rent. – vreaa]

16 responses to “Rent or Buy? – “We pay $1,850 a month to rent a house in North Van, where a so-so home costs $700,000. Forties, two kids, $125,000 saved, no real estate, no debt. We’ve just got notice of a rent increase, to $2,500. Dilemma.”

  1. since when is the landlord allowed to raise the rent 35% on an existing tenant?

  2. I am with “rf” on this one. Go to the local Residential Tenancy Office to determine your rights in this matter.

  3. @ rf 15 July 2010 at 6:32 am

    This happens all the time. All the landlord has to do is apply for “additional” rent increase (above the standard annual rent increase of inflation rate + 2%) on the basis that current rent is way below mkt rate, major repairs or renos have been done or costs to maintain property have increased. Landlord then has to give tenant 3 months notice. Does this suck? You bet. Since when was anything in life fair though?

  4. I’d politely ask the landlord to cut me some slack, and if/when that fails I’d fight it at the RTO. You might win on the merits of the case… But even if the landlord has the winning case, he may botch it by not being prepared, not filing for permits for renos etc., etc.

  5. I love how some renters say how much better it is than owning, then whine about it and cry foul when the landlord decides he/she wants fair market value. The OP admits they are getting a good deal, so if bullwhip is correct, tough.

  6. Big E…. it ain’t much different than property owners whining about tax increases.

  7. rf, while that may be true, we aren’t reading about that on this thread. and who doesn’t whine about any tax increase?

  8. renters don’t whine about tax increases.

  9. i dont’ know why this renter is complaining. she’s been able to save a good sized downpayment by paying below market rent. now she is faced with a decision. i say now is the time to buy.

  10. So much of this anecdote doesnt make sense.

    First of all, I find it unlikely the landlord would/could increase the rent buy this much. If they are good tenants, I find it unlikely the landlord would let them live at below market rent for so long and increase the rent now. However if he/she is trying to get rid of them then it might make sense.

    Second, how does a 650 rent increase seriously affect their ability to save? They saved 125K. Even if they are saving $1000 a month now it would take over 10 years to save that kind of cash. While the extra savings are nice, they should still be able to put away a good amount of money every month. Not as much as before, but they can easily afford to continue on with their lives and save some cash at the same time.

  11. I wonder what these 2 people think?

  12. Odd. They’re getting a deal but, if they’re good tenants, the landlord should be offering them a discount compared to “market” rates. If they were to move the landlord is taking a huge chance of landing a deadbeat tenant at full market rates.

    Story sounds weird. Either the landlord is hard up for cash and this tenant will have problems later if the landlord is cash poor and repairs need to be done. If he is trying to shove a huge increase down their throats, it indicates a distinct slap in the face. If the story’s true, I’d make him go through arbitration. If it happens to be successful, just give notice and find a better landlord or get your name on the waiting list at a cooperative.

  13. Even if it is a legitimate increase and the landlord is following the rules, it’s a risky strategy for the landlord in this market. If you look on Craigslist for example, you can sometimes work out how long a potential rental has been listed for. In some cases those rentals are re-posted every so often if there are no takers. Some remain un-rented for weeks or months because the landlord’s asking price is just too high.

    If Chuck really wants to stay where he is, he could try taking some examples of this to the landlord and try calling their bluff. If they cannot reach a mutual agreement, Chuck will either have to walk away or suck it up.

    If Chuck walks then it may be an expensive proposition for that landlord if they can’t find a replacement tenant straight away. Many are losing money with their properties empty for months on end. They are basing their asking prices on market conditions from 1 or 2+ years ago and people cannot or will not pay those prices any longer.

  14. RTO cases do happen for geographic increase, but they’re a bit more dicey right now – there’s been some push-back from the Supreme Court. Also, there’s usually a relatively reasonable time where they bring the new rent in.

    But I found 2 North Van (not Squamish) houses with yards, of three or more beds, on Craigslist for 2K. Quickly, too.

    So if they can pay $2500, then how about $2000 and keep saving $500/month? If the few out there aren’t to their liking, then since they aren’t desperate, they can simply look each and every month until the perfect place comes along. Pretty darn simple.

  15. Given the numbers, the landlord can stand to lose 3 months of rent (per year) to find a tenant and still break even at the end of the year. If it really is market value, it’s a relatively safe bet for the landlord, with considerable benefit.

  16. The RTO will reject this rental increase. It’s very tough to get additional increases approved. The renters should stay put, keep paying the same amount each month and insist that the landlords follow the rules.

    The tenancy act requires both sides to do whatever they can to uphold the law. As a tenant that includes reminding the landlord of his obligations.

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