Buy Or Rent In Fort Nelson? – Reader Request For Opinion

t at VREAA 11 December 2010 at 3:48 am
“I am very bearish on Vancouver real estate…I am moving to Fort Nelson in the new year. I have been looking at Vancouver RE for so long that the prices in Fort Nelson appear reasonable to me. I have looked at the cost to rent vs. cost to own…$1100/month to rent, $800/month to own…and I am considering buying a place up there. Your thoughts?”
& t again on 13 December 2010 at 10:01 pm
“I am going to buy in Fort Nelson in the next month. I am a bear, and I am relocating for work. The cost to buy up there is roughly 300k for a nice family home. It would cost more to rent than it does to pay a mortgage. I do think that the prices are still high up there, but the local economy does support those prices because there are lots of high paying jobs. If any of you know anything about the RE up there please let me know. We meet with a local RE agent next week.”

vreaa thoughts:
t – Thanks for the note, and for caring enough to solicit our opinion.
We suspect there will be numerous readers who can give you food for thought regarding this decision; we’ll start with a few thoughts of our own:

You’d likely be taking the following into account:
Various nuts-and-bolts questions about the math (Is the cost of owning REALLY $800 per month? What about transfer costs, taxes, maintenance, etc? etc.).
Your age. Your income. Your degree of job security.
Whether you intend to live in Fort Nelson long term.
If you purchase, would you be buying the kind of residence that you’d like to live in long term?
What is your ‘ownership premium’? (How important is it for you to feel you ‘own’ your house?)
Would the prospect of future higher interest rates alter your decision? (BOC Governor Carney warned us yesterday that rates WILL rise)
Would the prospect of a future distressed economy in Fort Nelson alter your decision? (How secure are all those ‘high paying jobs’?)

We note that you went from “considering buying a place” to “I am going to buy” in just two days. Obviously you are planning your move, and we respect that you have a need to decide one way or the other. But, does the decision to buy merit the urgency that you currently appear to feel?
Perhaps you are confusing two separate decisions:
..(a) where are we going to live when we get to Fort Nelson?, and
..(b) should we rent or buy our accommodation?
These are indeed two separate decisions, but currently they may feel like one. Perhaps you should try to separate them.
Is the prospect of going up and renting for a while too burdensome?
What do you have to lose if you went up, rented for 6 months, and then made your decision?
The benefit, even if you did end up buying, would be that you may get a better idea of the property type and site that would work for you.

All of the above are important considerations, and readers will likely be able to add more.
For us at VREAA, however, the most crucial considerations are the following:
We are bearish on RE. (You, ‘t’, are bearish, too.)
We anticipate a pullback in RE prices in Vancouver in future, a pullback that will also effect all of BC (and, to a lesser extent, all of Canada). We think prices could drop 50%, perhaps more.
We could be wrong (we have been for some years now).
We weigh the probability of ongoing steady price increases as low to very low (5-10% chance of ongoing price strength). We think the chances of an outright crash are far higher than that.
So, if we were trying to make the decision you’re weighing, we’d be asking ourselves the following:
“If I were to purchase, how much would a substantial decrease in housing prices in Fort Nelson effect my overall future financial trajectory?”
The answer to this question would be closely related to income level and net-worth.
If you purchased, what percentage of your entire net-worth would be made up by the purchase price of the property? 20%? 50%? 100%? 500%? 1,000%? – [the 1,000% example is the case where you put 10% down and have no other savings.]
For some individuals, to purchase a property that then drops from 300K to 150K market value, and stays there (in real terms) for 10 years, would not be of much consequence. For them, it may not be worth the hassle of renting to avoid that risk.
For others, the 150K paper loss may be completely devastating; it may result in a financial blow that takes decades from which to recover (and essentially changes their entire life’s financial trajectory for the worse).
Some people can afford to lose 150K, others can’t.
(In Vancouver, the same rent vs buy decision are heightened by the fact that in many cases that statement becomes “Some people can afford to lose $1.5M, others can’t.”)

Needless to say you have to do your ‘own due diligence’ on this.
(Oh, and by the way, I don’t think any of us doubt what the Fort Nelson realtor will advise. You’d best be clear in your own mind about your intentions BEFORE you meet with the local RE agent next week.)

25 responses to “Buy Or Rent In Fort Nelson? – Reader Request For Opinion

  1. Thank You for all the info.

    We have enough saved to just about not have to have a CMHC approved mortgage. The company I will be working for will give us 30k for a down payment, which makes the non-CMHC mortgage possible.

    We do not have any other savings to rely on, and I realize that this will mean that all of our eggs are in the RE basket. We will be staying up for at least five years, during which time I think we can realistically pay off 300k. On thing to consider is that our ability to save up there will be substantially increased due to the lack of restaurants and coffee shops ($1000/month easy right there). Also, the closest retail stores are 4 hours away…so no shopping (another $600/month in savings).

    I am concerned with the thought of price drops. I am from Vancouver after all and I do think that the Lower Mainland is going to correct up to 50% in the next couple of years. The reason for me seeking your opinion is that I have been looking at Van prices for so long that 300k for a house seems so reasonable. A big push in the decision to purchase is also the 30k that my company will give us (forgiveable after 5 years of work). In order to take advantage of this we have to buy. I know that there are places in Canada that have not been as effected by the RE bubble. I hope that Fort Nelson is one of these places, but it should become clearer to me as I talk with the RE agent as I intend to find out what the previous selling price was for any places that we concider. If the price has doubled in ten years, I will be more careful about my decision. The problem that I think I am going to encounter is that I don’t think the RE agents will be very forthcoming with historical info. I don’t even really know if they have to disclose this information.

  2. IMO, it doesnt sound like it will make a huge amount of difference. It is very tough to say what will happen to the local economy up there, but I think it will be reasonable stable for the next 5 years. Sure the price could easily drop to 200K or maybe even rise a bit, but if you get a decent house and keep it in good shape I would be pretty surprised if you lose much more than 50K after 5 years. Take away the free 30K you get and it probably works out to about break even since renting would have been a bit more expensive. Personally I would rent just to avoid the hassle of owning. It doesnt sound like you will save a lot by buying, so why risk something like pipes bursting and flooding the basement or the roof roting?

    1 thing I would think about it maintanance costs. Since it gets down to -40 and snows to your waist every winter, this will probably have some effect on the longevity of the house and will probably add to some costs.

    And dont count on saving money up there due to lack of resturants and shops. I’ve been there and everyone finds other ways to blow their money. 30K snowmobiles and huge trucks are commonplace. Afterall, you need something to keep you entertained.

  3. Davers,

    Thanks,
    I will be too busy studying to worry about having fun…my husband is another story…but he loves projects…if we buy a fixer-upper he will be kept well occupied. Though he has mentioned snowmobiles already…but I am sure he can find the money for that out of his income. 🙂
    (Saving 300k in 5 years was based entirely on my income)

  4. Resource towns are notoriously cyclical. If house values drop by a third, that $30K from the company won’t seem like such a good deal. I’d study the fine print associated with that $30K offer. Is it still forgivable if you get laid off prior to the five year mark? Be a bit of bummer to have to repay the company $30K if you’d been laid off, and the house was now worth only $200K.

    I found a few historical numbers that might help when it comes to judging whether or not that Fort Nelson RE agent is being square with you.

    Northeast Real Estate Listings
    Year and Average Price
    2002 $130,282
    2003 $136,675
    2004 $139,104
    2005 $171,861
    Source: BC Northern Real Estate Board
    (http://www.northernrockies.ca/assets/Residents/PDFs/FortNelson-Housing-Profile-2006.pdf)

    Average value of home, Fort Nelson
    2001 BC Stats Census: $128,698 (from Northern Rockies 2001 census profile)
    (http://www.bcstats.gov.bc.ca/data/cen01/profiles/59059000.pdf)

    2006 BC Stats Census: $203,389 (from Fort Nelson 2006 census profile) (http://www.bcstats.gov.bc.ca/data/cen06/profiles/detailed/59059005.pdf)

  5. I’d advocate renting temporarily when moving to a new place solely to get a feel for the rhythms of it before putting down more permanent stakes.

    The 30k from the company is available only if you buy? If so, does that cover the transaction costs getting in and out of ownership when you do decide to leave? You should count both ends if you are being fair to your comparison. If not, I’d treat it more like a bass should treat a spinner.

    If you are really going to run yourself out of all funds, that again is a red flag. You have to plan for the unexpected because while what might hit you, you didn’t see coming, something will be coming. That’s just life.

    And shopping at a physical store? Who does that when there is UPS? 😉

    Being prudent and renting now does not lock you out of buying, but the opposite certainly is true. I always err toward keeping my options open and that seems to work better. But, good luck whatever your plans. Moving to a new town is a stressful adventure up there with divorce and death for the toll it takes on you. Remember to take care of yourself some while you are taking care of everything else.

  6. I will not be laid off. My job is tied to utilities. So, short of people no longer needing to purchase electricity, my job is safe.

    • Just to be negative one here: Just because people need electricity does not mean that they need you to deliver it.

      If I learned one thing it is: Never ever think you’re irreplaceable or your job is safe.

      I have met a few over the years who did and then had a very rough awakening one day.

  7. My advice would be to rent. The rational being this:

    If we are going into a RE pullback then up north will be hit as well. Furthermore, considering how much of the economic activity in BC seems to rely on housing (I posted a link to the economic statistics in BC a while back here and 1/8th of the provinces GDP is made up of just writing home loans(!)) the odds are good that if / when it tanks it will take other parts of the economy with it. Which means: Less demand for resources.

    Additionally, if the economy sours you want be as mobile as possible, if a new job would pop up in Alberta you don’t want to have a house you may not be able to sell have hanging over your head.

  8. Scott,

    Thanks for the numbers and links…
    The average price based on the MLS appears to be around 310k…that works out to about a 20% increase every year since 2005…yikes

    Sage,

    That is very sound advise…renting for a couple of months to get to know the town…it does seem very likely that this is what will happen unless we find a house we absolutely love.

  9. Those historical numbers for Fort Nelson definitely give me pause, especially with a five year time frame, and I think there’s risk involved because of those numbers.
    But without trying to time or predict the market, yours is a situation I would also be considering buying, although only if I were planning on living there a long time.

  10. we are in a similar position, although our move was from vancouver to chilliwack, which has, i believe, some of the cheapest average home prices in BC…which doesn’t mean they’re not overpriced!

    we chose to rent for a while instead of buying when we moved last summer, and we are very glad we did. we have spent the last few months getting familiar with the neighbourhoods, zoning, schools, and the RE market here in general. we now have a focus that we lacked before. further, we are also bearish on RE in BC, and have decided to wait a while longer before buying: our rent is cheap, stable, and we are saving more monthly than would have been possible in Vancouver.

    i would say if you are truly bearish on BC RE then don’t buy. five years is a very short time frame to have to possibly re-sell. it’s certainly not enough time for markets to recover if there is a correction.

    further, I’m not sure if you’re up North yet, but you may be surprised at how expensive everyday items are. groceries are much more expensive than in the lower mainland.

    best of luck!

  11. I’m currently working in London, UK, for a couple of weeks. I was talking with my colleagues, which are coming from everywhere (San Diego, Abu Dhabi, New Zealand, Seattle, Italy, London, etc.), When I told them about the real estate prices in Vancouver, they could not believe it. They seriously thought that I was exaggerating and looked at me in a weird way like “stop being foolish”. It’s was kind of embarrassing as they thought I was at best very tired, at worst lying… It seemed too hard to believe that you can’t get a house below $1 million in Vancouver West (that’s the only thing I said!)… I think it’s probably even more than $1 million for a detached SFH in Vancouver West, but I looked bad enough so I shut up!
    I’ve always been convinced that we are in a massive real estate bubble in Vancouver. Talking with them, I have no more doubts… Bad RE hangover is coming big time in Vancouver.

  12. I’ll also add to the chorus recommending to rent. Here are my reasons:

    -The FN RE market is high relative to a few years ago, at the end of a commodity price boom. If China goes down, will it take commoddities with it? If so, what happens if FN slumps and prices return to the levels of the last slump?

    -Get to know the neighbourhoods before committing– an area that looks good right now under a layer of snow might have people who store ugly junk all over the place when it’s melted…

    -Also, the $30K from your husband’s employer may not be quite as attractive as it seems. First off, once they forgive that loan, it becomes taxable income, so $10+K will go to the CRA, leaving you with $20K. When you buy, the province will assess you ~$5K in property purchase and transfer taxes, leaving you with $15K. If your house maintains its value and you sell in 5 years, realtor fees are worth about $13K+HST=$14.5K. This leaves you with $500 in your pocket from that initial $30K gift, just from taxes and realtor fees.

    So at the end of 5 years, the $30K gift will net out to zero if you sell, so it provides no benefit. Unless you decide that you love FN so much that you want to stay there forever, never selling, or if you manage to get a good sale price without a realtor…

  13. M-
    its my employer, not my husband’s that is offering the bonus. We are fist time home buyers…so , no land transfer tax.

  14. Also, over a 25 year mortgage, TD told me the interest paid on a 225k home will come to 68k. Lower if we pay it off faster. Rent over 5 years comes to 66k. so at least we will break even on interest…lol

    • How much would you make money wise though if you would invest your downpayment instead of locking it all up in the house?

  15. I would like to thanks you all for your insightfull comments. If I was staying in Vancouver I wouldn’t even concider buying. I am keen on the idea of owning a home, and I think that moving to FN will provide a great opportunity. I am still sceptical however. The house prices up there look great for Vancouver, but high for FN. However, they are affordable to my husband and I (approx. 2.5-3 X income). Essentially they are the equivalent of a starter condo down here in price. But I won’t have to deal with a strata. You all presented fantastic info and things that I had not thought of myself. I appreciate your input. Thanks for taking the time 🙂

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  17. Michael,

    I am really not sure. I absolutely suck at investing…from 2008-2010 I made a whopping $400 in interest on a 26k investment….could’ve done better in a house. Everytime in my life I have tried to invest money I either lost or broke even.

    • Well….

      In this case: Do your homework about that as well while you’re trying to figure out what / if to buy. There are some decent investment advisors out there, just chose wisely.

      The thing to always keep in mind: It’s not just the purchase price, it’s the interest, repair cost, (Condo fees etc.), taxes that need to be added on to the monthly payments.

      • Along those lines, I have several friends locally who’ve learned this after buying.

        1) Bought a house, inspector said the roof might only last a couple of years. It started leaking after a few months. They patched the leak, but a new leak popped up, so they ended up replacing the entire roof.

        2) Bought a house, inspector said the roof only had a few years left. It started leaking after 2 weeks. They’re now spending $13K to replace it.

        3) Friends bought an expensive house. Usual caveats couched in soft words from the inspector. Since buying 3 years ago, they’ve replaced a rotten garage, replaced the siding & rainscreened the house (found out it was leaky and mouldy when they tried to replace the windows with more efficient ones), replaced the drain tiles…

        4) My parents have lived in the same house for a long time. The last re-roofing lasted a whopping 17 years, and cost $14K to replace this year. In the last three years they also replaced the stove (10 years old & ugly), the fridge (10 years old, it died), the furnace (40 years old, failed, replaced with new high-efficiency unit), the hot water tank (energy credit, replaced with high-efficiency unit), the drain tiles (originals from 1920’s!). Also in recent years, they’ve replaced a rotting garage wall, had part of the basement floor jackhammered apart to replace an old cast iron sewage pipe, and a whole host of minor and major renovations.

        5) I’m in a 1-year-old rental apartment. Our landlord has had to call plumbers in twice this year.

        So if buying, as a rule of thumb, start saving at least $1K per year for eventual roof replacement, and budget $1K per year for other repairs and appliance replacements. Or less, if you’re a good handyman…

      • Another quick follow-up to my last post on maintenance costs…

        I lived in an (older) rental house in East Van for a year. During that year, the landlord had to pay a $2500-3000 for maintaining the place:
        -Plumbers called out twice during the year
        -Pest control called out once (squirrels in the attic!)
        -Furnace repairman called out once
        -Hot water tank replacement
        -Garage repairs (break-in).

        I happily paid my relatively inexpensive rent cheques.

      • oh how nice your landlord must be…
        in roughly chronological order:

        Crackhead tenant in other suite steals our things the week we moved in, and soon gets evicted, Accuses us of ruining her life, and threatens our child with abduction. Strange men had been visiting her all hours of the day, and the sickly smell of crack smoke coming through the vents caused me to tape bags over all the heater vents. Lucky it was summer. This is an upscale Burnaby neighbourhood with 1m houses all around. She and associates came back to ransack carporch and break in to our car twice more before, like the mice, she disappeared. I sealed up carporch to make into complete garage, landlord donated materials that were already here and paid for the rest. no compensation for stolen property. I lectured landlord on not giving us any notice of his obvious concerns about this tenant, who had moved in two months prior to us.

        I notice door is broken from attempted break in, not soon after we move in. I fix with wood glue and clamps and screws.

        my father in law spends 30+ hours per month (its more like 40+ hrs per week in summer, no exaggeration) landscaping and tending the garden. Landlord pays $50 per month + a couple hundred on materials, which is fair enough by him, no complaints about this behaviour as I guess he could just go back to getting a guy to hit it with a petrol strimmer once a month to whack the weeds down as he used to before us. I am sure it adds something to equity, though; the neighbours are so pleased that they don’t live next to weedy wasteland any more.

        Our shower leaked through the floor for three months before the landlord finally came to repair, himself. Leaked again after two weeks, landlord (more accurately his brother, but they are interchangeable) came a month later. It still drips. There is a huge fungus/mold patch in the laundry room wall where the water went, and a hole in the ceiling where he fixed it. The beam holding the ceiling is rotted and green with fungus.

        Every few months people knock on the door and tell us that the gutters are overflowing with leaves and totally blocked. Landlord doesn’t care.

        Other shower leaks through the tap so barely any flow makes it up to the shower head… landlord promised to come back. asked him four times before giving up. Three years later, still leaks the same way. Father in law just showers in the meager flow.

        Tap handles dropped off in other shower. I just bough replacements from home depot. Shower dripped for a year before drip turned into pour. (had long since given up on landlord coming). Had to shut off mains at midnight, open it up and put washer in backwards to stem flow overnight. Next day, mains off, trip to Rona with stem and washer, come back and replace. How lucky is the landlord that I own a 7/8ths socket?? a plumber outcall at midnight is what my wife would have done.

        We have mice. I bought traps and battled them for a year, killed around 35. mice disappeared. came back this winter. I bought more traps. landlord no intention of getting pest control. Still spend hours each week trying to catch one. landlord paid for traps.

        Deck stairs rotted and last two steps collapsed. We step down gingerly. One year already.

        Oven part of gas stove failed. Repairman said 420 in parts to repair. Landlord told us he did not want to pay for a gas range, we tell him we prefer gas. He planned to buy cheapest electric replacement he could find ($340). waited several days, then, last week he tells me he was too busy, so maybe next week? I said wife wants to bake for christmas. He says ok, will you come and help me carry one from other rental property. I donate 4 hours of my time. We carry stove here, carry old one out. New stove doesn’t fit. We have to move all food out of kitchen, tape up cupboards, cover everything with sheets so he can cut the countertop.

        after all this, and several other repairs I can’t remember, I blow my fuse finally and ask him to reduce the rent by $25 a month (off $1800, or $2400 including other suite). He initially thinks I have asked him for a one-off payment of $25 and agrees readily. Once the confusion is resolved he gets angry and thinks I am blackmailing him. we have an argument for about an hour before he agrees to try it; in return I will maintain the house to whatever extent I can.

        On the flip side, he doesn’t bother us much with inspections or busybody nosiness… that’s a good feature. He is a nice guy, but I can’t stand his save-every-cent-I-can attitude. I believe he is either ignorant (unlikely) or just anticipates land value only, tear down and rebuild, so won’t invest anything in maintenance if he can avoid it. He tells me that I am the first tenant that complained about having to fix stuff ourselves. He says that his other tenants are very happy to just hand him receipts for “whatever needs to be fixed that they fix”. Of course, I am happy to save himself and myself some money too, if I can take care of the repair myself, but I told him it’s only fair he share the savings. I suppose we could pressure him to fix stuff, but he could just raise the rent by maximum allowed every year as our previous landlord did, but then we will be forced to leave. He has increased it once by the maximum in three years, so keeping pace with inflation.

        the previous landlord increased rent because he had miscalculated property taxes. Massive assessment forced his payments into greater than rental income, and he tried to ask us to pay voluntarily a 15% increase so the rent would cover the taxes. He raised three years in a row by max allowable until we had had enough. Then he sold for a $400K profit, minus costs.

        I wish I had your landlord.

      • Ouch, Anonymous, that sounds like an unpleasant rental experience that you’ve had.

        The attitude that I take to rentals is that I’m paying the landlord to live in a clean, safe, properly-maintained building. I expect my monthly rent cheque to provide exactly that– a building in roughly the condition that I first viewed it. If it’s a dump on Day 1, I don’t expect it to get any better, provided the dumpy stuff’s readily evident. I assume the monthly rent is a fair value for the place.

        Gurgling toilet? Annoyance, but I won’t call the landlord about it.

        Toilet water pipe leaking water onto floor? It’ll cause mold and rot the floor eventually. Mold affects my heath, so worth mentioning. Rot affects the suite, so worth mentioning. Always, always, always communicate with the landlord in writing. You keep a copy of the communication that way, the landlord doesn’t have to scribble down notes, and has a chance to think before responding.

        In my communications, I briefly outline the problem, mention the repair that I’d recommend, and the possible result if it isn’t repaired.

        Dear Landlord,
        It appears that squirrels are living in the attic. I would appreciate it if you could have them removed; they are known to chew on electrical wires, which can cause a fire.
        Thanks,
        Tenant.

        or

        Dear Landlord,
        The stairs at the back of the house have rotted and collapsed. There is an extremely high likelihood that a member of my family, or a guest, or anybody visiting the property for any reason could be severely injured as a result of these broken steps. You should be aware that if you are made aware of a danger on your property and you do not resolve it, you are likely breaching the terms of your insurance, and will not have any insurance coverage if somebody injures themselves. I strongly recommend repairing these stairs on an urgent basis.
        Thanks,
        Tenant.

        After two weeks…

        Dear Landlord,
        The back stairs have not been repaired. They present an extreme danger to my and my family’s safety. If you do not repair the stairs within the next 48 hours, I will contract a company to repair the stairs on your behalf. I will withhold the cost of such repairs from my rent cheques, as allowed for by the Residential Tenancy Act.
        Thanks,
        Tenant.

        So far, I’ve never had to follow up on any concern– my landlords have been good to me; I write them a letter (or an email!), and they do the right thing. The landlord at my east van house didn’t get along with the previous tenants– talking to the neighbours, they couldn’t believe I got any action out of the landlord, given that the previous tenants had complained repeatedly that the landlord wouldn’t do anything.

        Mind you, I expect the landlord to take care of maintenance if I’m getting a normal rental rate. If I’m getting a “special” deal with the *specific agreement* that I’ll handle the maintenance, along with a sufficiently *long term* lease, then I wouldn’t have a problem with doing the maintenance… But if that were the case, I may as well buy a place!

  18. The Poster Formerly Known as Anonymous

    Sadly, my conundrum is that I do not know for sure whether it’s a special deal or not. It’s no dump, but no palace either. The wife wants to move; that’s her way of dealing with the landlord issue. It’s just very stressful to move. Hence I was hesitant to take a stand and potentially jeapordize our rental costs; I’d like them to stay somewhere in the range we signed up for. From his personality, I can sense he would raise rent to recoup any “unexpected” costs, like the maintenance he is legally obligated to perform.

    Will yours not raise rent after incurring all these costs?

    Oh I misquoted a fact earlier. The total house rental is 2600 inc. the other suite.

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