Maple Ridge – Renter Comes Out Ahead Of Buyer/Seller Over 5 Years

“We are all renters. That’s what I said to the nice bank lady when she gawked at my account balance. I explained, five years ago my buddy teamed with an investor to make the down payment and bought a house in Maple Ridge @ $335,000. The payment was $2000/m and he had a mortgage helper for $500/m. Since, he has reno’d the deck for $10000 and payed five years of tax totaling $10000. He also bought a water heater and paint for $1000. At the time, he bugged me to buy, but I rented and banked the difference between our two payments. I paid $700/m. and banked $800/m
Five years later, he wants out and intends to rent again. He can get $400,000 for the property. Principal owed is 310,000. The gross profit is $90,000
Deduct, 3% agent fee going in and out.
Deduct the interest portion of mortgage payments he covered
Deduct operating expense and property tax
Deduct 50% of the mortgage helper as taxable income
Pay back the downie investor principal plus 5%.
Gross profit on the house experiment $90,000
less expenses
balance =
$29,000 for five years rent isn’t too shabby, I told him, however expenses ate up any additional savings. And if he does not buy another place in a year, deduct tax on the capital gains for this year. An accountant might dispute my calculations but I think it’s pretty close. I did not include credit card interest, though my friend has been cash poor throughout the experiment.
In the same five year time period, I banked $48,000 rather than pay mortgage interest, with no fear of capital gains tax and no operating expenses, which I also banked. I may not be a millionaire, but I am happy with my lifestyle and enjoy west coast amenities without worry.
I wanted to share this experience, because I have been reading the VREAA blog and comments rent-free for some time and felt the need to pony up. Thanks.”

sage at VREAA 24 Jan 2012 5:01pm

12 responses to “Maple Ridge – Renter Comes Out Ahead Of Buyer/Seller Over 5 Years

  1. Such simple arithmetic eludes some of our smartest citizens. Realtor calculus dictates that rent is always a wasted cost.

  2. If its your principal residence, isn’t it 100% non taxable?

  3. this is seriously flawed math …

    more rental rationalization.

    • Why don’t you do the math?

    • My apologies, didn’t realize they would post this. The bracketed figures didn’t show up in the comment. Basically, for pride of ownership a friend in MRidge paid 1750/m X 60months = 105,000
      Plus another 14 grand because it’s fun to fix up when you have a house.
      Total 119,000 out of pocket.
      He owes 310,000 and figures he can get 400,000 and change just off of Dewdney Trunk. He’s going to stick the money in his pocket and guesses he did well.
      I paid seven hundred a month renting a nice corner on a five acre farm and banked $48 grand. My rent expense was 42 grand. I’m up $6000, because I have to live somewhere. He’s down $29,000, but he had to live somewhere. What I don’t tell him? I converted a fair portion of savings into silver around the same time just for fun.

      These figures were calculated on a cardboard cup from a famous foreign coffee shop and should not be used for investment purposes.

  4. Something to consider here is that if we bundle 100 of your friend and look at the outcome not all will do even as well as that scenario. A handful will be hit with various hardships and the losses will be higher.

    Aggregate all situations and this was not a good investment given the risks involved.

    Now imagine that with a capital loss.

    • Exactly.. if this is the scenario through the latter days of a RE bull market/mania, imagine what the math looks like in a downturn. Gruesome.

      • The sheenwill mottle.

        Sometimes positive cash flow isn’t the primary consideration; it appears that this will be learned through experience, not the classroom. Oh well!

    • I figure if the interest portion of a loan is more than rent, then rent and bank the difference. Sometimes a house will appreciate more than the yearly costs, but that might be slim in some suburbs. If you calculate how much the true cost of owning a house is, with all the interest, fees, taxes, expenses, operating costs, and the fun west coast lifestyle, will you be ahead? Plan it well.

      I almost bought a wee bachelor in downtown Van for 89000 back in 91. Today the same micro box on Cardero is listed for 202,000. My cost with fees over a 20 year mortgage would have been 225,000. Alas, I couldn’t handle the crowds. I own land in the Okanagan instead and may get a patch near 100 Mile.

  5. “And if he does not buy another place in a year, deduct tax on the capital gains for this year. ”

    Wait– if you sell your primary residence and then rent you have to pay capital gains on the sale? Is this correct? Or am I misunderstanding the above sentence?

    • No, if it is your principal residence you do not pay capital gains tax. But if a portion was non-personal (ie the basement), you may have to pay capital gains tax on that portion.

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