Spot The Speculator #57 – Medical professional chooses to rent – “On the contrary, MY SECRETARY, who I employ, has already bought two condos in the last year; is more than $800K in debt, and insists on giving me real estate advice.”

“I am a medical professional and do quite well financially and can afford a large mortgage in Vancouver.
I RENT a house because it makes no sense whatsoever to spend a million dollars to buy an old dilapidated house. I will give it another year or so, otherwise off I go to some place that actually makes sense.
It might make sense to take on so much debt if the value is sure to go up by 15-20 percent over the next two years, but not in this town and not with these fundamentals.
On the contrary, MY SECRETARY, who I employ, has already bought two condos in the last year and is more than $ 800K in debt, and insists on giving me real estate advice. …
I moved to BC 2 years ago (after having lived in NYC, Dallas and Toronto in the last 15 years ) for compelling family reasons, and the Vancouver RE reminds me of the Pied Piper’s story.
I rent a house and use portion of it for my office. People do not realize it but it is far more cheaper and far more comfortable than owning property in Vancouver.
People get this false sense of security and “affluence” but do not realize the property value would have to go up at least 10 percent each year for them to break even versus renting. (This includes the cost of renting money from the bank, property taxes, agents fee (if selling) and cost of maintaining the property).”

Get real at VREAA 16 Oct 2011 12:36pm and 7:00pm

31 responses to “Spot The Speculator #57 – Medical professional chooses to rent – “On the contrary, MY SECRETARY, who I employ, has already bought two condos in the last year; is more than $800K in debt, and insists on giving me real estate advice.”

  1. Medical professionals are notoriously bad at investment decisions. Sounds like his secretary will be proportionately more affluent than her boss.

    • Sure, fading the dentists and doctors usually works.
      But let’s not use this anecdote to falsely extrapolate that to mean that risk taking secretaries following the RE herd into 800K mortgage debt are making wise investment decisions. (What percentage of her net-worth is in RE? 500%? 1000%? She’s gambling.)

      And, BTW, the majority of ‘medical professionals’ in this town are up to their eye-balls in RE.

    • LOL medical professionals can invest like anyone else. Even if they make some suspect decisions they are still affluent. Sorry if you have an ax to grind.

      Secretary is likely going to be poorer, but it will take some years to convince her.

    • I vote we stop feeding this troll.

  2. do ‘medical professionals’ have a lot of free time to post on bear RE blog?

  3. “People get this false sense of security and “affluence” but do not realize the property value would have to go up at least 10 percent each year for them to break even versus renting. (This includes the cost of renting money from the bank, property taxes, agents fee (if selling) and cost of maintaining the property).”

    Very true. The wife and I have prepared an excel spreadsheet that calculates how much a purchaser comes out ahead/behind a renter, and the results are astounding to those who believe in conventional truisms (which hold water in a fundamentals-aligned market). The way it works is simple: you enter values for several variables such as mortgage amount, amount financed, interest rate, savings rate, closing costs, market rate rent for the property, taxes, strata fees, number of years the property is held, percentage appreciation for the property, etc. and see the results. We would be happy to share, if there is any way to attach an excel or open office format file here?

    • If not, I can set up an email account and send the file to whoever requests by emailing us. I would welcome feedback and comments on the calculator. It was written to confirm what we already know and to educate relatives (without much success AFAIK)

      • If you send it to me, I can make it available on my Dropbox easily by posting a link here. duranc@gmail.com.

      • Thank you. I have to go do some lowly renter work now, but will send it a little later today.

      • Thanks, TPFKAA and Duran.

      • I’ve just sent it. It was set up in 20 minutes over a coffee one morning, so it’s not perfect. I added some explanatory notes. Some sample figures:

        INPUTS:
        Mortgage Term 30
        Purchase Price 500,000
        Mortgage 450,000
        Annual Interest Rate 3.5%

        Years 5
        Increase in Property Value 10.00%
        Monthly Rent 1,400
        Monthly Strata Fees/Maintenance 200
        Annual Property Taxes 1,800
        Transactional Costs (Buy) 20,000
        Transactional Fees (Sell) 20,000
        Savings Interest (Annual) 1.7%

        OUTPUT:
        Benefit of Buying -$62,465

        It was set up initially as a strata only calculator, but the strata input can just as easily double up as maintenance. And the savings rate can be whatever you think you can get from any other investments.

        Would be nice to hear if anyone comes out ahead in the 3-5 year term with anything less than 30% appreciation. Worth noting here that Landcor data show sales prices of condos and townhomes have been almost flat since 2008.

    • I would love to see some of the results that came from this spreadsheet using current numbers. If anyone could share the results that would be great.

    • Here is the link to the spreadsheet. http://dl.dropbox.com/u/434650/Buy%20or%20Rent%20Calculator.xlsx

      Haven’t checked it yet, but I will soon.

  4. Nnot funny any more

    $800K in debt, how /where does she get the money? Bank? Parents?

    Seems all the stories are following the same formula:
    “I” – high-income person (eg doc, engineer, professor etc tec), but not owning any RE
    “he/she” – low income person (eg server, secretary, lot boy etc etc), owning RE in Van, debt, debt, debt
    Etc
    Etc

  5. The end is nigh when you start getting this kind of anecdote, Vreea. As the rest of the residual non approved (in decent times) buyers get into the market.

    It’s a sign actually.

  6. “do not realize the property value would have to go up at least 10 percent each year for them to break even versus renting.”

    Or on the scary side, deep down people do realize this and buyers believe it will happen.

  7. I’m in the same boat. My brother and sister in law are hard selling us to buy into the market. They own 2 homes with 1.3 million in debt ($6000 monthly mortgage payment) while we have no home, no debt and have a large chunk of liquid assets that pay the rent and we live for free. Each phone call and family gathering they literally show us listings that they have found us and ask us to call to make an offer. I replied that they should be realtors. It’s been hard sticking to our plan with all the peer, family pressure but we hang in there and hope those in a similar position as us do the same. When the remaining people who are not in the market refuse to buy in maybe then the market will start to correct.

  8. This article cast me old brains back to the beginning crash in the U.S. . . . One thing stands out in my memory: many assumptions about how the system would react to mass delinquency were wrong. It’s hard to see from this side of things what the long-term impact will be for people like $10 Carwash Boy and Secretarial Condo Girl. If it’s just one of them or a handful, they alone pay the price. But it won’t be. They will suddenly seem to be a plurality (renters do not count) and the system will react to smooth the way for them.

    They acted as the system intended them to based on the risks and rewards available. They seized the opportunities being dangled before their materialistic noses by large institutions that are assumed to be looking after every penny they dole out like Scrooge McDuck would, but are in reality shoveling credit out as fast as they can. Condo Girl and Carwash Boy are simply following where the monetary inducements in the system are leading them. But when it all falls apart, the system cannot be guilty, therefore Condo Girl and Carwash Boy will not be guilty.

    For example, I don’t think recourse is going to hold up. Not initially. It didn’t in states of the U.S. that had it, until very recently. There seems to be a general understanding that bankruptcy is difficult or painful. Very soon it won’t be.

    The tougher recourse and bankruptcy rules in Canada are held up as a stabilizing influence on the market(s), and that’s true, until it isn’t. Then these tougher rules will add more pain and chaos and then those systems will breakdown before the onslaught. For those who didn’t play the game, it will be annoying as heck to watch. Just felt like warning you all.

    (Also had too much coffee today, in case you couldn’t tell.)

    • The rescue of these fools and the banking system is what pisses me off. What is the point of working and saving money and being responsible this is how societies break down. When people get away with being irresponsible no one has any incentive to be responsible then its a very quick race to the bottom. Outright corruption will become the norm since everyone else is doing it it will become the only way to do things.

  9. “The tougher recourse and bankruptcy rules in Canada are held up as a stabilizing influence on the market(s), and that’s true, until it isn’t.” – AG Sage

    Yeah, we’re stable here, until we aren’t.
    On this note, look at the recent news from Carney/Flaherty – The Central Bank of Canada will no longer target 2% inflation. They’re going to (try to) let inflation run.
    In other words, inflation targets are necessary until they aren’t.
    Hypocrisy.

    • Basement Suite PhD

      “On this note, look at the recent news from Carney/Flaherty – The Central Bank of Canada will no longer target 2% inflation. They’re going to (try to) let inflation run.”

      I was rather POed to read that to say the least, but checked and I don’t think it’s their official stance:
      http://www.bloomberg.com/news/2011-10-18/canada-to-reject-world-s-only-price-level-target-survey-says.html

      Specifically:
      “Bank of Canada Governor Mark Carney and Prime Minister Stephen Harper will probably keep the central bank’s mandate of targeting inflation at 2 percent, rejecting alternatives, including the world’s first price-level objective, according to economists surveyed by Bloomberg News.”

      I think they are rejecting trying an alternative target for now, leaving the 2% “target” intact. Not that they’re doing a great job, it’s really just free money until the cows come home. Just following daddy US Fed.

      • Basement Suite PhD

        Oh this is what you probably meant:
        http://www.bloomberg.com/news/2011-10-17/canada-may-allow-more-flexible-inflation-targeting-globe-says.html

        “Longer than usual” to bring inflation back to 2%. Convenient.

      • Yeah, that’s it.
        What’s the point of declaring a target if you simply change it as needs be?

      • Basement Suite PhD

        Exactly. Easy policy change with the fancy sounding name “flexible target” for the BoC to justify keeping the rates near 0% indefinitely and letting inflation run rampant, long as they can keep the bubble inflated.

      • This is what the Bank of England did, and was used to in effect expropriate savings to reduce debt loads. It’s unfair, perhaps, but think about the effects: if inflation is say 5% in the “medium term” what do you think happens to medium term interest rates, and pretend the medium term is 3-5 years.

        Think about who’s saving and who’s out of work. Dude, where’s my Conservative government?

      • Basement Suite PhD

        To reduce personal debt, interest rates need to go up. I think interest rates near 0% indefinitely just entice people to spend everything they have plus a million or two. Why save if the return is actually negative after inflation (which is boosted by the near 0% rates)? Much better to borrow a million bucks and buy into the nearest asset bubble created by those same low rates. The Bank of Canada needs to start raising rates ASAP whether or not it means a temporary hit to the economy.

  10. don’t take investment advice from wealthy barbers; or anyone else who’s doing better than you…that’s the ticket

  11. Yes, much better to listen to wanna-be-Trump trolls posting from their east van character fortresses.

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