Vancouver’s Remarkable Price:Rent Fundamentals – “About to sign a lease, at a 420 price:rent ratio, on 1 year new house built by Asian owner, 1800+ sf, pulled off MLS recently due to no buyer.”

“About to sign lease on 1 year new house built by Asian owner, 1800+ sf, pulled off MLS recently due to no buyer. Now about to be rented to yours truly at ~35 years Price-to-Rent ratio after talking down rent by $100/m. [Thus 420 monthlyrent:price ratio. -ed.]Landlord still has a couple houses near completion. Who knows what happens to the tenant if the landlord goes bankrupt?”
“I’m moving from a 1Br+den 670 sq ft condo at 283 months (23.6 years) rent, to (the aforementioned) 3Br newer house at 415 months (34.6 years) rent. Definitely makes more financial sense to rent than buy. Viewed a 3Br 1000sq ft newer condo few days ago at 305 months (25.4 years) rent, but passed (interesting to note that property manager is a realtor, guess managing client’s property might be what’s keeping them busy these days!)
VMD at VCI 17 Aug 2012 10:00pm and 18 Aug 2012 11:22am

An example of a ‘speculative hold’. The owner believes prices will rise in future and is holding the property not for rental yield, but for assumed future price increases.
We are of the opinion that a good percentage of this kind of inventory will be put on the market at significantly lower prices, as it becomes clear that a downward trajectory for prices is establishing itself.
And, yes, this will be disruptive to tenants. The rental market is less stable through a speculative mania in housing, and the unwinding thereof.
– vreaa

Other current sky-high Price:Rent ratio anecdotes from the same VCI thread:

“I am living in Richmond with an (assessed value) : (rent) ratio of about 285.
Strata fees and property taxes not included, why buy now?”

– Anonymous 18 Aug 2012 10:04am

“I’m renting a house in SE Burnaby. Price to rent is somewhere between 350-370 on the conservative side. My best friend is the landlord and I’ve urged him to consider selling. But he will have nothing to do with it. Already has over $1.5mil RE exposure with little other savings. Oh yeah, still looking to buy another investment property because “RE does so much better than the stock market”. Just can’t save people from themselves.”
– How much?? 18 Aug 2012 10:27am

Here is a unit that has been listed on CL for months (available now) for $2650 per month. The same units are listed for sale at $839K to $879K. So even if they get their asking rent the PR is 316 plus.”
– Anonymous 18 Aug 2012 12:36pm

“Beat you all. 4br house on Ontario. 2012 sale $1.35M. Monthly rent $2850, 2 yr lease. Price/rent 474. I love living here but wouldn’t buy at half the price.”
“Our landlord purchased the property earlier this year as an “investment”. I really can’t understand their business model. The house is an original, nicely-maintained bungalow. New paint, new dishwasher etc.
It’s not a quick flip (we have a 2-year lease) and it’s not a tear down and rebuild, which might make sense. The landlord is shelling out $3k or whatever per month to hold the property. They seem to be invested for the long term.
Of course the potential downside for us is a forced move if the house is sold. We figured that by the end of our lease the house will likely be underwater so that the landlord would not be in a position to sell. We will see how that goes.
I should add the landlord couple are very nice people and I don’t wish them any financial hardship.”

– No Money Down 18 Aug 2012 12:37pm and 19 Aug 2012 10:10am

“I have a whole house (unlike many, home owners, I have no tenants in the basement to worry about) on a nice street off The Drive, assessed at a little over 410 months’ rent.”
– N 18 Aug 2012 1:56pm

“I’m in a 3 bedroom house (we have the place to ourselves), 5 year lease for $1600/mo. House is worth $750,000 based on comps for a ratio of 468.”
– Vulture Fun 18 Aug 2012 11:34pm

“I pay $850 a month for a condo in Surrey. Same unit 2 floors up sold for $253,000 in late 2011. So a ratio of 297:1. You guys are insane with your 400′s ratios.”
– ScubaSteve 19 Aug 2012 12:39am

“I am the winner. I pay 4,400 for a 3,800 ft 6 bedroom (or is it 7?) house in west side.
Assessed close to $3.0 million. For now this is a 660 multiplier.
At the higher price points, it gets more and more un-economic to own and rent these houses out.”

– Van Coffee 19 Aug 2012 8:48am

“I’m at 489 but if I take off the huge strata fees that my landlord pays I go to 696. Strata and ppty tax eat up exactly 50% of my rent cheque. Not a lot left to pay the mortgage and occasional special assessment.
BTW…for all you haters who think we renters are basement dwellers who are broke, I’m writing this poolside in Osoyooss. Thanks landlord!”

– McLovin 19 Aug 2012 11:01am

“For the record – we are in a $1.5M Condo. Strata and taxes are over 1,000 per month and the rent is 3,500 gross (2,500 net of landlord costs). This give you 600.
Property value is no more than the day we moved in.
This represents a $200,000 plus savings and building of equity by renting (we built equity by renting – – – sounds strange).”

– ZRH2YVR 19 Aug 2012 4:52pm

25 responses to “Vancouver’s Remarkable Price:Rent Fundamentals – “About to sign a lease, at a 420 price:rent ratio, on 1 year new house built by Asian owner, 1800+ sf, pulled off MLS recently due to no buyer.”

  1. Holy hell y’all pay a lot in rent.
    But our house is at 476 (2 suites), which oddly reassures me that we’re not paying way too little. The house is an old one without updates.

  2. I’d like to see more condo price-rent numbers.

    • As you know, condo price:rent numbers are not as high as those for SFHs, because, supposedly, SFH prices reflect future optimal use of the land on which they sit, not (just) the ‘value’ of the current structure.
      The calculations become complicated. To realize future optimal use of the land requires capital investment and, more often than not, changes in densification rules.
      It is our contention that, in our spec bubble, ‘land’ has been subject to as much speculative energy as any other property attribute, and that SFHs are overvalued to much the same degree as condos, perhaps even moreso.
      SFHs may always have price:rent ratios higher than condos, but both are currently way too high.

    • Further regarding densification: as our spec mania unwinds, we expect there to be a period of relative oversupply of housing as some are forced to sell (and move away or combine households), speculators put empty condos on the market, new condos sit empty, etc.
      Demand for densification will drop during that period, and SFHs will simply be valued as SFHs. This will likely go on for years.

      • Could be, could be. Nonetheless I’d still like to see more condo price-rent ratios. On an earnings basis they are more deterministic.

      • Sure. Condo price-rent ratios are important.
        Anybody?

      • Downtown Vancouver. Rent: $1,800. Comparable units currently for sale in the same building: $500K

      • Here’s one from Spectrum:
        #807 111 West Georgia Street, Vancouver 626sqft
        Rent: $1,500 per month
        Bedrooms: 1
        Bathrooms: 1
        Parking Stalls: 1 Parking Stall

        Compare to comps in the buildint
        V948771 # 1109 111 W GEORGIA ST 656sqft
        Price: $385,000
        Bedrooms: 1
        Bathrooms: 1
        Parking Stalls: ?
        Maintenance: $287/mo

        One on the 6th floor is $373K, so if we split the difference the 8th floor is asking for about $380K, say.

        That’s price-monthy-rent of 253. Price-annual-rent of 21. That would roughly be a cap rate of 3.8% (all in) for a 5 year old building.

        Now say the market is beaten to a pulp and caps go up to 7%. In real terms that unit would be $206K or a drop of about 46%. Say rents grow at 3% per year and the market takes 5 years to correct. That would mean in 5 years rents go up to $1740/month, which in nominal terms would put the beaten-down price at $238K nominal, or -37% from current list price.

        Some have claimed that condo prices have stagnated in the past few years. I see their point about the prices, but there is still the question of the prices.

  3. One rental in white rock looked very familiar back in June when I looked at the pictures. MLS was F1201898 and it listed for $3.6 million for a very long time before being sold or much more likely pulled. Huge newish water front home in White Rock.

    I emailed the poster in craigslist but actually got a property manager who explained the situation – it was a chinese investor who would pull the listing if they found a renter and preferably someone would sign a multi year lease since they had no plans right now to live here. Rent was $6500/month – you can still find the old link on some luxury home rental sites

    So that’s around 550!

  4. i love reading how people are gang-banging the price/rent ratio. The mind porn is impressive. more! more!

  5. yaletown 2br 900 sqft with rent of 2000, the owners pulled the listing after not finding buyers at 460K. so i guess thats not really the market price anymore 🙂
    if it were, 230. Dont know what the strata and property taxes add up to but its fair to assume it will push it over 260.

  6. granite countertop

    “I should add the landlord couple are very nice people and I don’t wish them any financial hardship.”

    What a strained relationship, eh? I make a point of not discussing real estate with my current landlord. You’re a renter because you think RE is way overvalued. They’re a landlord because they think it will go up. You think they’re destroying their financial future. But their poor decisions help you have a place to live. And a lot of them are genuinely good people that you feel bad for.

  7. Price to rent @ 548 based on original ‘PreSale’ valuations… @ 297 based on current [sinking] BC Assessment… Newbuild on occupancy, 1300SqFt 2BR2BA WaterFront View SubPenthouse… A Plethora ‘o Amenities and an UndergroundGarage populated by Lambos, AstonMartins, Bentleys, Porsches [most, like their non-resident owners, under dust covers – and featuring ElBerTah tags]… a SecretLair/FortressReDoubt somewhere in the HillBillyRiviera…

  8. I rent in the Portico complex. We pay $2525 a month on 2 bedroom + den. A comparable unit (mirrored and one floor up) sold for 840K this summer – BC assessment says $797K. Strata fees are $440 a month and property tax is probably $400+. Gives us 315 months rent.

  9. I rented a SFH in New West at a rent:price ratio of 417. I know the ratio exactly because they sold it while we were living there.

    What tickles my brain about this metric is that it does not take into account carrying and transactional costs to the landlord. If those were netted against the rent that we paid, our ratio would have asymptotically approached infinity. Their insurance, property taxes, renovations, repairs, opportunity costs, and transactional costs would have been in the same ballpark as the rent that we paid: this is to say that we probably lived there for free.

    There aren’t too many freebies in life, and free housing has to be among the sweetest.

    I think that we should celebrate the hundreds of thousands of accidental landlords who will be providing us shelter over the next 5 years! I raise a pint to you, my flipper friends. You gambled that you would be able to take hundreds of thousands of dollars from unsuspecting working stiffs, and you ended up essentially paying a hardworking BC family to live in your house instead. I salute you!

    • Comparing price-rent metrics will normally assume some baseline expenses. As it stands, yes, older properties will have higher expenses and lower rents and that would require a lower price-rent ratio to keep earnings reasonable. Newer units would have a higher price-rent for the same reason, but then one would assume its price-rent degrades over time as repairs start becoming reality and the unit loses its desirability as it ages.

      The question is perhaps one of what the maximum price-rent would be on a newly-minted excellent condition condo with a choice of prime tenants. Some people are claiming the mortgage rate: say about 4% is a reasonable expectation of cap rate on this property (where it’s only really strata/management fees, CCA, and taxes impacting NOI). Not that I know any better but that seems a bit tight to me, given the overhead involved.

      The thing that brings home the necessity for lower price-rent, in my view, will be when a market turns illiquid. Illiquid assets will demand a premium and I’m not seeing much of that right now, but there’s a chance it will be priced in over the coming years. Something to watch.

      • When the market turns illiquid, I see the ratio initially increasing.

        Perhaps it’s wishful thinking, but I imagine tens of thousands of “accidental landlords” flooding the market with their previously-untenanted properties as a stop-loss measure.

        At this point the supply and demand argument will finally hold true in Vancouver: more properties up for rent will yield lower average rents.

        When housing prices are ultimately cut in half, of course, rents will not also halve. But there will be a multi-year time delay: First, the market will be flooded with rental over the next year or two as the SpecuVestors try to wait for prices to recover. Then, by the time the SpecuVestors accept that the market is not going to “recover”, it will be five years from now and BC will be a very different place.

      • Burnabonian, There isn’t much evidence supporting significant movement in rents with over and undersupply. We do know that there will be relative weakness with more supply and lower population growth but the effects are not likely to be marked. This is from research done in markets like San Diego over the past 10 years.

        My view is that rents will likely trend lower over the next few years in real terms, likely on the lower end of growth seen in the past. That would put real rents about flat and potentially flat in nominal terms. I don’t think it would be a long-lasting effect and rents are likely going to increase with wages in the long run.

        We don’t have much data on “dark” units — units held from owned/rented stock, but it’s on the order of a couple %. It’s a fair point that a small move in that supply can significantly change short-term dynamics. Something to keep in mind!

        Vancouver has seen a significant bull market over the last decade. There are few parallels in its history to which we can directly compare but I’m not anticipating a collapse of the rental market (at least in terms of rents).

  10. 300 is the number for a North Vancouver teardown house that is rentable as $2500 whole house or $1500 + $1000 suites. $750/$2.5 = 300. Not counting tax/insurance. There’s not much maintenance/depreciation because they are teardowns at these prices.

  11. The only problem with renting these places is you know these owners have no intention of being a long term buy & hold investor. So don’t expect to stay for more than 1 to 2 years max. The best (aka worst) PR ratio I saw personally was I almost signed a lease for $2750 and another similar unit (different floor, same building) was asking for $1.5M

    • Sign a lease and you have nothing to worry about. The lease endures everything — even if they sell it, you just make your cheques out to the new owner.

  12. A lease is usually only good for a year or two. No one will give you a 5 year lease. Once the lease is up, even if you go month-to-month, if the owner sells and the new owner wishes to occupy, you still have to move.

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