“We purchased the West End condo in 2006 for $640K and sold it in 2012 for $699K.”

“The sale of our condo closed yesterday afternoon. ..
Did we make out like bandits by buying into the Vancouver real estate game? …
Not so much. The actual result, after crunching the numbers, is decidedly underwhelming.

Real Estate purchase info is publicly available, so I’m not giving away anything particularly personal when I share that we purchased the condo in 2006 for $610,000 plus 5% GST ($640,500 total) and sold it in 2012 for $699,000. A gain of $58,500 over 6 years, or just over 9%. And if you want to get really silly, you could call it a gain of 45% on our original 20% down-payment. Not bad, right?

Not so fast. Take away from that the selling costs we paid of realtor fees, repairs (new paint & floor), staging, legal fees, and we barely made away with $20,000 profit. And of course that doesn’t take into account all the costs of holding that investment: property taxes, condo fees (including a couple special assessments), and mortgage interest.
Putting all those numbers in, we spent about $1750/month “rent” (those holding costs) for 55 months to make that $20,000.

What would renting for the same period have cost?
We know the mirror-image unit across the hall was charging just about $3000/month rent. They’ve got a few more square feet, and an amazing view of English Bay, so say ours would have rented for $2500/month. It would have cost us an extra $41,250 (plus the $20,000 we wouldn’t have made) to live in the same suite.

More realistically, we’d have stayed in our previous rental. Accounting for the maximum 4% annual rental increase, we would have averaged $1855/month in rent. At $100/month difference ($5500 over the 55 months we lived there) it’s almost enough to call it a wash.

So, the real question becomes, could we have done something different with our down payment of $130,540 to make $25,000 in 55 months? Maybe. The markets were absolute shit during those few years, so getting 5% a year wasn’t likely, but I think in the right investments it was probably possible.

So there you have it. Renting vs. Buying, in our particular situation, had no clear winner.

I did love our condo and really enjoyed both the space and the location. It was a great place for us to live, so I’m happy the numbers didn’t show it was a financially terrible idea to have done so.
But, considering renting isn’t bankrupting us either, I’m really enjoying the freedom and flexibility of non-ownership, and am in no hurry to buy property again any time soon.”

– from ‘Homeowners no more. Thank goodness!’, by Jen Watkiss, at her blog ‘WorldWideWaterCooler’, 27 July 2012

39 responses to ““We purchased the West End condo in 2006 for $640K and sold it in 2012 for $699K.”

  1. mmm – but this ignores the fact that (presumably) they also paid down a mortgage for six years at (say) 3% – assume a 30-year term on 470K and they’ve also gained $90,000 through mortgage paydown, or $110,000 – so not as bad as they make out, but still not great.

  2. Carioca Canuck

    Of course it has a clear winner in this scenario…….”renting”…….and by far……..when you take on the financial risk of holding RE you can get hurt very, very, quickly for very big dollars, if you get emotional about it and/or the market turns and you aren’t paying attention. These people were not smart, they were lucky to escape.

    Put that $130K in the bank, and you’ve still got $130K when the RE market turns against you and your head is in the sand, or you have performed a rectal cranial inversion which is typical of soooo many RE bears.

  3. A gain of 25K on 130K over 55 months is an annualized return of 3.9%, not 5%.

  4. Consider that these are the numbers for one Vancouver owner during the latter half of a massive speculative mania in RE.
    Remarkably unimpressive, given that.
    Consider how even more modest they would be in a more typical 6 year market stretch, and how absolutely disastrous they would/will be during a 6 year housing deflation as a spec mania unwinds.

    • If they accounted for all repairs during that time, as well as the time spent in managing, attending strata meetings, etc… but of course free time is free.

  5. 6 years of investing into a bond MF could of yielded 7% over the 6 years.

    • Pretty much any diversified portfolio with a leaning towards slightly more aggressive/risky investments averaged better than that 5%/year that they suggested was unlikely… If some dufus 20-something like me can get those sort of returns with my meagre savings, somewhat older house-ownership ready people should be able to do equally as well if not better.

  6. Glad you loved living where you did. Hindsight is 20/20 on an investment of any type so, yes, ultimately you could review all your options and would have realized somewhere out there you would have made a better return for your dollar. That is the beauty of this board, everyone is an expert with other people’s money and the benefit of hindsight.

    The only thing that we can take with us at the end of all of this is our memories and it appears you made some good ones over the last few years where you lived.

    • +1. (How do you +1 here?)

    • Diggstown -> “That is the beauty of this board, everyone is an expert with other people’s money and the benefit of hindsight.”
      If you take another look at the post and the comments, I don’t see anybody here chastizing themselves for what they or others shoulda-coulda-woulda done.
      The cost of ownership versus the cost of renting is being assessed, and it is being done for a period where headline RE price appreciation was very, very strong… the latter 6 years of a 10 year speculative mania. For the ownership numbers to be even vaguely close to the renter numbers is surprising.
      This information is useful going forward, and the analysis is far more than an exercise in hindsight commentary.

  7. 4SlicesofCheese

    Imagine if you were to sell 6 months later. Goodbye equity gains.

  8. buy land next time

  9. 5% annual gain after tax for the last 6 years is pretty good — he could be lucky to get out this year though .

  10. I follow Jen’s blog (don’t know her personally, though). Her condo was initially listed at $779,000 in April, so it dropped a fair bit before it sold. She puts the blame for the high pricing on her “delusional” realtor, but I dunno. Isn’t there something in a homeowner that makes them want to believe, even a little bit, that they can get that price? Is there really any danger in pricing it too low? Won’t the market naturally determine the value?
    I like Jen’s honesty, but I feel she’s filtering her experience to seem… less cuckolded? I can’t quite think of the word, but I feel like she wants to distance herself from the real estate mania, when maybe she was a bit more in it than she wants to admit.
    I think we’re going to see more of this, though. I think real estate is going to become really uncool in this city, and people are going to start distancing themselves from it, and re-writing their memories to seem less bull-ish then they really were.

    • Yellow Helicopter

      So true.

    • Hi Rololo, you’re totally right. And I don’t put the blame entirely on our delusional realtor, I said we let ourselves get talked into listing too high (which I take to mean we blame ourselves for going along with his delusion).

      And I’ll fully admit I\’ve felt like a ”smug owner” on more than one occasion, but also that thinking of Van RE as more than shelter made me somewhat neurotic.

  11. Froogle Scott

    Here’s the math that I would suggest. I’ve been doing similar calculations on our place, and will send them to vreaa when I’m finally done.

    Info from Jen Watkiss’ blog:

    Down payment: $130,540
    Length of ownership: 55 months
    “We spent about $3k/month on mortgage, maintenance and taxes”
    Net proceeds from sale (account deposit): $241,365

    So they had a total cost of ownership (actual dollars spent) of $295,540 (DP + 3K x 55 months), and netted $241,365 on the sale after paying the mortgage balance and the realtor’s commission. The difference — $54,174 — is their accommodation cost for 55 months. $985/month.

    Jen estimates that the unit they owned “would have rented for $2500/month.”

    So if they had rented the same unit they would have had $500 a month available to invest ($3K/month – 2.5K/month). And the $130K down payment, available at the start of the period. Calculated at 5% per annum, compounded, that amount of investment principal would grow to 191K over the 55 months, for a return of 61K. If we assume the investment return defrays the rent, the accommodation cost to rent would be $76,500, or $1390/month.

    So owning looks to come out somewhat ahead in this particular situation. Jen does not specifically mention whether she included property transfer tax in her numbers. If she didn’t, then the difference between owning and renting is less. And if the theoretical investment return were 6% or 7%, that obviously would lessen the difference as well.

    Of course, ‘investment return’ requires that the renters actually have the financially discipline to “invest the difference” between owning and renting.

    • Sorry folks, I think I made an error on the rental scenario side, which El Ninja’s numbers imply. I calculated the investment return based on the initial investment principal of $130K (owner’s DP), but I included the subsequent investment principal amounts (that $500 a month difference between owning and renting) in the investment return, when it should have been added to the principal. The investment return for the period is approximately $35K rather than $61K, which means the renter’s accommodation cost would be $1860/month rather than $1390/month. So in this particular situation, with these particular numbers, owning looks to come out quite a bit farther ahead than renting.

      El Ninja > I stayed away from opportunity cost, because both owning and renting have hard dollar or explicit costs in this situation. Neither makes money. I’d be more comfortable talking about opportunity cost if one or other of the scenarios actually generated a profit. Is it still valid to talk about opportunity cost when both sides of a choice are negative amounts? I’m not sure myself and would be interested to hear what others think.

      Regarding adding the renter’s investment return as an opportunity cost to the owner’s explicit cost, I’m not sure that’s valid because we’ve already used the investment return to defray the renter’s cost of rent. Wouldn’t using that amount twice be double-dipping?

    • Hi Froogle Scott.

      Using our estimated monthly cost of about $3k isn’t a great way to calculate total cost of ownership, since we really guesstimated and averaged that out (we went through a few interest rate changes, strata-fee changes, a couple mortgages and some extra payments).

      To come up with our TCO numbers, we added up everything we paid into the condo over the time we owned it (all deposits, mortgage payments, strata fees, special assessments, taxes, including PTT), which came to $337,569.41. If you subtract our payout ($241,276.45) after the sale, our carrying cost for those 55 months (not counting principle) was $96,292.96.

      Since our personal record-keeping wasn’t as meticulous as it could’ve been at the beginning of the process, and online bank records only go back so far, we were a bit bearish on some of the numbers. Eg. we used our current strata fee for the entire 55 months, even though it was lower in the first couple years, since we couldn’t remember exactly what it was. We also based property taxes on our most recent bill. So we could be up an additional $2000 at most.

      • Froogle Scott

        Hey Jen,

        Thanks very much for sharing more accurate numbers. So your average monthly costs were about $3765 [(TCO minus DP)/55], rather than $3000, which does change things. Using your revised TCO figure, your monthly accommodation cost was $1750 [(TCO minus payout)/55], not $985, as I’d calculated above. So in your particular case, owning versus renting, with rent defrayed by investment returns, does look to be more or less a wash. Although that figure of $1860/month for defrayed rent does not take into account tax payable on unsheltered investment returns, as olga62 points out below. So the rent figure should be a bit higher, which means you probably did still come out a bit farther ahead.

        By ‘ahead’ I mean that your accommodation cost was probably slightly less than the cost to rent the same place using defrayed rent, not that you made money. You just have to compare your TCO ($337K) to your payout ($241K) to see quite clearly that you had a cost for shelter. (I’m not singling you out — our situation is similar.) When you look at the overall picture like this — which most people don’t — it becomes quite apparent that for most homeowners there’s no gain or profit associated with buying and selling a condo or a house, even in an up market. Most people subtract the purchase price from the sale price and assume the difference is all profit, while completely ignoring the TCO, which includes the cost to carry the property for however many years they live in it. And the cost to carry the property is often greater than the purchase price, mortgage interest being the biggest culprit.

        Time will tell, but it was probably a good move to sell when you did. You probably would have gotten more a year ago, but weigh that against perhaps getting much less a year or two from now.

        I’ll let you know when my figures are up.

  12. Good calcs, Froogle Scott.

    But should we need not consider the opportunity cost, in addition to the hard-dollar cost, of owning? What do you think of these numbers?

    – Rental cost = $2,500 x 55 months = $137,500
    – Return on $130,540 down payment at 5% over 55 months = $32,713
    – Net outlay as renters = $137,500 – $32,713 = $104,787, or $1,905 per month

    – “Hard dollar” cost of owning = $54,174
    – Opportunity cost (foregone return on downpayment invested elsewhere) = $32,713
    – Actual cost to owners = $54,174 + $32,713 = $86,347, or $1,570 per month

  13. It puts me in mind of this listing:

    I could have sworn that same house was in the Globe & Mail’s featured real estate deals a month or so ago, having “sold” for a lot more money. Are people walking away from deals now?

    • Maybe the financing fell through. I’ve heard there is a lot of that happening at the moment.

    • Angleterre ->
      I can’t find the article itself, but a google search for “176 TALISMAN” & “Globe” implies you’re correct:
      “30 Jun 2012 – Globe Real Estate CAMBIE 176 TALISMAN AVE. ASKING $1598000 PRICE SELLING $1650000 PRICE TAXES $5430 (2011) DAYS ON THE …”
      With the current asking price at $1.75M, this could be a quick flip attempt OR a failed deal relisted at a higher price.

      • Thanks. I donlt know why I thought it was more, rather than less. Sounds like someone is going to get burned trying a quick flip then. How sad is it that a nice, large livable character home is being marketed as a teardown, in order for someone to build an ugly stucco box that will match the neighbours!

  14. Guys, do not forget that the return on invested $130,540 down payment is a taxable gain, when the return on the sale of the primary residence is not.

    • Froogle Scott

      True, although you could shelter at least some of that amount using RRSPs, which would both shelter the investment return, and reduce taxable income by the principal amount. And you could now also use TFSAs. Although TFSAs hadn’t yet been introduced when this couple bought in 2006, so if they had remained renters that would not have been an option at the time. This approach assumes the defraying of the rent with investment income is indirect. You wouldn’t be able to move investment returns directly out of your RRSP to offset a portion of your rent, but they would figure into your overall personal finances.

      That said, you’re right, a more thoroughgoing own-vs-rent comparison would have to take into account tax on investment income.

      • Good point with the taxable gains vs. tax exempt. Especially considering all our tax shelters (RRSP, TFSA) are already maxed out.

      • Froogle Scott

        Tax on unsheltered investment income definitely needs to be taken into account when doing an own-vs-rent comparison. However, depending on the type of investment income, the tax rate can be significantly lower than the rate for regular income.

        For tax year 2011, in BC, these were the combined federal and provincial rates for a taxable income between $41,544 and $72,293:

        • Regular income, including interest on GICs and bonds, and foreign dividends: 29.70%
        • Capital gains: 14.85% (regular income tax rate, but payable on only 50% of capital gain)
        • Eligible Canadian dividends: 4.17%
        • Non-eligible Canadian dividends: 16.21%

        (Rates from TaxTips dot ca)

        So, depending on how renters organize their investments, they may be able to significantly reduce the tax hit on returns.

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