Author Of ‘Real Estate Investing for Canadians for Dummies’ “jumped into the market 3 years ago with a 2 BR apartment in Mount Pleasant”; Reports Ownership Cheaper Than Renting; Leaves Out Math

“This columnist jumped into the property market three years ago with a two-bedroom apartment in Mount Pleasant. The mortgage payments at the time were on a par with where rent was heading, so the move made sense. Despite increases in strata fees and property taxes since, the move continues to make sense – perhaps more sense than ever.
Tallying mortgage interest, property taxes, strata fees and assessments, as well as home insurance paid in each of the past four years versus rent and home insurance paid in 2008 (the last full year in which rent was paid) shows that home ownership has steadily cut household expenses. Preliminary figures for 2012 indicate savings on housing costs of more than 20% versus 2008.
Poor affordability tends to give first-time buyers in Vancouver fewer options than those in other cities, but the pay-off – for those who can manage it – is significant.
So long as mortgage costs remain in check, the payoff seems set to continue, but low interest rates and increases in rental costs have so far put accounts in this buyer’s favour.
(The exit strategy and ultimate return on investment is a significant risk factor, of course, but we’ll leave that matter for another column.)”

– from ‘Rental market tight despite rise in Vancouver vacancies; apartment sales projected to hit record-breaking pace’, Peter Mitham, Business In Vancouver, 8 Jan 2013 (“Peter Mitham has written about British Columbia real estate since 1998 for Business in Vancouver and many regional, national and international publications. He is co-author of “Real Estate Investing for Canadians for Dummies”)
[hat-tip Sarbaz]

Priceless stuff. And that’s a major problem — no ‘price’ – no numbers, no math.
We’d love to see the details. The claim seems to be a stretch.
Just for a start, is this a comparable 2BR to the prior rental?

Also, interesting to note that an author of a RE investment text:
1. “jumped into” the property market, and
2. talks of the ‘return on investment’ – for his home!
– vreaa

57 responses to “Author Of ‘Real Estate Investing for Canadians for Dummies’ “jumped into the market 3 years ago with a 2 BR apartment in Mount Pleasant”; Reports Ownership Cheaper Than Renting; Leaves Out Math

  1. “So long as”

    If it weren’t for those words

  2. Bad grammar. Should have been “Real Estate Investing for Canadians *by* Dummies”

  3. or “Real Estate Investing for Canadian Dummies”

  4. Can we say.. 3 years… ago… good rising market…

  5. UBCghettodweller

    Down payment? Opportunity cost with said down payment funds? Projections based on changes in mortgage rates (which will happen and odds are highly highly in favour of the rates going up)? Potential upkeep costs X-years from now for all the stuff that degrades, wears down, or otherwise needs replacing in any given house?

    OK. I’m done. * deep breath *

  6. “On par with where rent was heading.”

    That’s the thing, isn’t it. Where is rent “heading”, and how long before it ACTUALLY gets there? (Not asking prices on CL, but what people in suites are paying?)

    Rents are tied to incomes, and incomes aren’t stunning us all with their meteoric rise.

    • CL is indeed almost the high point for rental prices and those who wish to pound the pavement to find suites and apartments ran by management companies can save hundreds and have a reliable management company rather than amateur landlords. I’ve done this myself in the past and recommended it to others. Just like every other category on CL there are dreamers and realists.

  7. We are renting a house right now, and my costs are significantly lower than when I owned. My landlord does all house maintenance, pays property tax and other home ownership costs including house insurance, though I still pay insurance on content. I’d say we save $300-$400 per month by renting. We do want to own again, but now that we are on the outside, we have a better perspective. We will watch on the sidelines until the dust settles.

  8. I suspect that the “math” also included every penny of alleged price appreciation since the unit was purchased. Because there’s just no way that principle + interest + tax + strata fees + insurance + maintenance < rent. No way. Not in any Canadian city, and for sure not in Vancouver. That turd just doesn't polish.

    But, throw in the unrealized gains from 2008 until now (and I stress unrealized), and you’ve probably got an impressive-looking profit figure. On paper. At the peak of a bubble, it’s easy to look like a financial genius.

    • Or, maybe all those costs really do sum up to less than rent…. because “this columnist” put up a sizeable down payment. Which he just might have neglected to factor into his invisible math. And forget about opportunity costs.

  9. Well let’s be honest, he realizes that his target audience isn’t really interested in numbers.

    • Real Estate Tsunami

      Exactly, his first and foremost goal is to sell his books.
      For more, check out The Economist, Jan 12, pg.71.
      Ghastly gurus: The best advice is keep your wallet closed!
      “A belief in instant riches lured millions into buying Internet stocks in the late 90s or overpriced houses in the middle of the past decade, when any personal-finance adviser worth his salt should have been advising clients to run in the opposite direction.

  10. slightly off topic, but can anyone point me to a chart/graph that was posted here a few months back highlighting the impact that the various mortgage changes had on people’s ability to pay higher prices? I can’t seem to find it.

    thanks in advance.

  11. And the cost of realising said paper gains will probably wipe out most of them. Making his total lack of math in the article even more laughable.

  12. Methinks I hear a hint of rationalization in his column.

  13. I’ve posted on this subject once before, but for us, renting has cost us significantly more on a monthly basis than when we owned. However, this was primarily because our mortgage was low. And there were the wild card years: in addition to renos done for aesthetic reasons, over the time we owned we had to replace a furnace, hot water heater, dishwasher, washer/dryer and a roof (not just a re-shingle), which can put a serious dent in your finances, too. (About $20,000 all told.)

    All that said, though, our monthly nut is now about $1500 more than it was before.

    • Are you comparing your ownership cost from many years ago when the print rent ratios weren’t so completely out of control? You have to make a fair comparison which would be comparing your current costs to the costs of purchasing the place you are renting.

      I have trouble believing there is a home anywhere in the greater vancouver area that is truly cheaper to own than to rent once you consider maintenance, property tax, condo fees and opportunity cost of money that went towards the purchase.

      • I couldn’t agree with you MORE (talking about an observer, NOT Rob Nelson). We were at 4.9 per cent mortgage, and paying about $1,800 per month. That doesn’t include maintenance and upgrades of home (roof, lawncare, heating system, appliances, windows, insulation, renos), property taxes and other homeowner costs. We sold in early 2012, so those costs are fairly current. I can’t see how owning today is cheaper than renting. Not unless you are renting a big house for upwards of $2,300 per month. We’re paying about $1,800 for 3 bed, 2 bath, 1,800 square feet. The math you mentioned simply doesn’t make sense without further elaboration/explanation.

      • I was renting a 650 sq foot condo in the Shangri La. Fully Furnished. down to two sets of Egyptian cotton sheets and towels. Bedroom, Living room Kitchen. Stainless Granite Great shower All utilities, cable, internet, concierge (from the Hotel Shangri-La…Vancouvers only 5 Diamond Hotel), gym, sauna, hotub, (small) pool, parking spot & location location location. for 2200 per month when the ask was 2800 and I negotiated down.
        The condo fees, i learned from a neighbor who owned, were in the neighborhood of 550 per month for a unit my size. The building was listing for 1000 per square foot. So the math of 2200 minus 550 for fees another 125 for gas elec and hot water 60 for cable (internet available free to all condos) My Landlord was netting 1365 a month (minus depreciation of furnishings) for a condo that is supposedly worth 650,000 dollars.
        After living their for 6 months I briefly considered..last November of moving up to the 36th floor into a two bedroom of 1170 square feet …again fully furnished utilities included asking was 3200 but i negotiated down to 2750…already living in the building gave me great references. But i decided I had had enough of the crappy customer service, the smug yoga panted chix, the overly aggressive jackasses and moved to the US where i enjoy a much higher standard of living in a cultured urban setting for a hell of a lot less money. People start and run businesses here. They get excited about entrepreneurship. Vancouver is full of thieves. Thieves of spirit, ideas and souls. We see the occasional BC [plated car down here. Usually the one who cuts in front of you to get to that exit 6 seconds quicker. causing everyones lives to flash before their eyes. and takes extra care to not look your way to even pretend it was done accidentally.

    • 1500 a month more? What the heck are you paying in rents, Rob? Three grand monthly? This is one part of easy credit cycles that drives me nuts. The high prices that others have foolishly paid for homes eventually does get downloaded to renters who pick up the costs (unless said foolish buyer loses the home first through foreclosure or bankruptcy).

      How is anyone supposed to save money for retirement?

      Both homeowners and renters are getting punished by high housing costs. This is the price we have paid for a strong economy while other countries went recessionary but it may be a bit steeper in price than most people imagine.

      Between overpriced mortgages and high rental prices housing costs are gobbling up most of the economy. Not so surprisingly most of the flow of cash is going towards interest payments, various realtor, legal, bank fees, insurance costs, commissions and assorted services plus a few bucks for tax. Rents feed right into the same system which is not all that enriching for most people right now if the amounts collected are insufficient to cover the mortgage.

      So everyone is digging a little deeper in their pockets to make ends meet while the retail and consumption side of the economy is bracing for a sack of doorknobs as the past credit excess slowly unwinds. We already know what that will do for employment numbers. Lets not kid ourselves that this is going to be easy. It won’t.

      Meanwhile, the principal portion that is what the homeowner eventually calls his equity is not even the majority percentage of all the money contributed over time. And that portion is unfortunately the part of the equation that is vanishing in the correction that has begun.

      I can appreciate that feeding our financial services sector while balancing the economy is a difficult act but it strikes me as utter insanity that the net effect at the end of the day is that little remains of income for savings, investment or retirement.

      Who will be in a position to start small business’s? Not too many.

      But it is especially those who need to save for a day when they are not working (everyone) that is ultimately paying the price of the foolishness bred by a housing bubble.

      Can everyone see what a tail chasing exercise this has been?

      • Thank you for recognizing that rents are high and that high ownership costs get passed down to renters. Thus, renters are also suffering under this bubble.

        It seems to me that many RE bulls are reluctant to make that point. They love to say how cheaper it is to rent than to own and portray renters as people who are laughing all the way to the bank.

        Interesting points you make about how housing costs (including rents) just end up getting cycled into bank profits and the financial services sector.

      • Sorry, I meant to say real estate **BEARS** are reluctant to recognize that rents are high. Not real estate bulls.

        I don’t have any stats. I just know that my family was able to afford to rent in Vancouver in the 80s and 90s and now they can only afford to rent in Surrey.

      • Prices in Vancouver are the highest in the *world* relative to rents. Renters are laughing all the way to the bank, period.

      • Agreed – pure insanity what people are willing to pay for rent in Vancouver. I know folks in their early 50’s still renting who have difficulty saving enough for their annual TFSA! Meanwhile, their rich offshore landlords have made a killing renting out their crappy duplex (illegal fourplex) for $7000 per month. One of the reasons Vancouver RE prices are so high is because renters are more than willing to sacrifice their financial future just to avoid real Canadian winters and/or having to function in English. High rent equals less savings and it’s important to remember that part of the reason why the US economy is in such a pickle is the lack of personal savings.

  14. This blog poster jumped into renterdom over three years ago with a beautiful single family home on a quiet street. Rent remains the same in 2013 with no nominal increases (real rate declining) and is on a par with where mortgage payments are heading, so the move made sense. Despite not being required to pay a single penny towards mortgage interest, strata fees and property taxes since signing the lease, the move continues to make sense – perhaps more sense than ever.
    Tallying rent versus opportunity cost on principal, mortgage interest, property taxes, strata fees and special assessments, as well as factoring the uncertainty of future market prices shows that renting has steadily improved household finances. Preliminary figures for 2012 have been run through our head and indicate savings on housing costs of a huge undefined %.
    Reasonable rental costs tend to be ignored by aspiring property ladder climbers in Vancouver, but the pay-off – for those who can manage the stigma – is significant.
    So long as incomes remain in check with inflation, the payoff seems set to continue, but the bursting bubble and flat rental costs have so far put accounts in this renter’s favour.

  15. Face it, people cannot do a proper rent-to-own calculation nor an ROI calculation accurately if their life depended on it.

  16. Who needs to do math when prices can only go up?

    • Prices “go up” except when they don’t; then it becomes “prices go up in the long run”.

      • True true. But thats how a lot of people think. Rose coloured glasses

      • So you are saying prices will eventually go up in the long term. It’s just an argument about the time frame then. Can’t prices go down over the long run? Incomes seem to be going down and taxes and user fees seem to be going up. How are kids tomorrow (in the long run) going to support even higher real estate prices than today? What jobs are they going to have? what about the high cost of going to school to get the credentials to get the jobs? Might we be at the beginning of a thirty year slide in prices?

      • Anon -> I think yvr is saying that that’d be the next step in the bull argument.
        Even later, it’d be “well, you have to have a roof over your head”.

        BTW, your question about falling prices for 30 years (real) is a good one. It’s not impossible.
        Froogle Scott has an upcoming episode that will look at long term trend lines. Stay tuned (likely will be posted early next week).

  17. Am I the only one who thinks it’s extremely weird that the author of the dummy book on real estate investing bought his first property 3 years ago?

  18. @Martin and @an observer: Like many, of not most, homeowners in Vancouver, we rented out our basement suite. It brought in $1200 a month, as of 2011, which did help considerably. We currently pay ~3000 a month, including utilities for a fairly nice place — the last thing we were goi g to do was sell and downgrade our lifestyle. We had a relatively small mortgage (>$200,000), so our debt servicing was minimal before we sold. What’s not to believe?

    We’d love to get back into the market, but will wait to do so on our own terms. If that doesn’t happen, que sera. We’re prepared to rent for the long term.

    But don’t come here with your confirmation bias and think that just because there are differences in your experience and mine that I’m part of some sort of realtor conspiracy or web of lies. It’s the truth; deal with it.

    • So lets say I owe 200K on a $2M place. My monthly payment of ~1000 plus 500 strata plus 500 tax is 2000, much less than renting for 3K right? What if I sell, pay 100K in fees, then take my 1.7M and invest for 3% (way easy to do better but say I want zero risk, unlike the risk associated with all my net worth tied up in a house). Also as I’ve been über conservative and perhaps naive, I pay full tax on the return, not 50% div tax, this gives me 30,000/year to offset my annual rent of 36,000K.

      Still cheaper to own?

      • Now what if the RE value is $1M and you have, post-sale, $750K to invest in a low risk 2% return and you have serious concerns about asset / commodity price inflation? What if you have the option to rent your basement as well?

    • Rob -> Thanks for your comments and your clarification.
      Please don’t feel pummelled by the discussion. It is true that it is well nigh impossible to find any property in Vancouver where ownership is cheaper than renting, and that’s been the case for years. So it is understandable that people will take you to task on your headline claim.
      But do you see the reason for the objection to your observation that “renting has cost us significantly more on a monthly basis than when we owned”?
      As you point out, your mortgage was low, so your monthly mortgage payment was low… and it’s not enough to consider that payment as your cost of ownership. You have to factor in cost of the entire market price of the house when you consider cost of ownership (whether as opportunity cost of your equity or borrowing cost of mortgage or a combination of the two). Consider an extreme example.. someone who owns their house outright can’t claim “Owning costs me nothing, therefore owning is cheaper than renting”. (And such an observation from such an owner does nothing to shed light on the current own vs rent math in a particular RE market).

      Another factor that may be relevant to the comparison: When you owned, you rented out your basement. Now you rent a home for $3K p.m. How much space did you have for your own personal use when you owned (not including that used by the tenant), and how much now?

    • But you do know that the tax man takes it out of your hide in the end, right Rob? That is if you have declared the income from the rental suite which in your case would have exceeded half your monthly payments. It could be dear and you need to take that into account in the equation rather than just looking at your cash outlays after reducing what rental income you recieve…..there is no free lunch.

  19. Ooh, cheers to me, the assessment for the place I sold at the end of 2007 for 1,650,000 is out…1,511,000 and we know nothing is selling for assessed. The Guy I sold to sold it in 2007 sold it again in 2011 for 1,651,000 BTW.

  20. I get the impression that if more buyers start using BC assessments as benchmark prices rather then local listings, then there’s going to be more problems for Van. This eliminates any premium or price hikes from sellers.

    • Right about that Watchdog. The problem buyers are now facing is that there is no real yardstick to measure value. For the past many years prices have been based more on hype than fundamentals. Even assessments are far out of line in historical perspective but it is the best tool people have to work with.

      They still think they are getting a bargain at a discount from assessment (fools).

      At the end of the day though the market (buyers) will decide what “real value” is and it will relate much more closely to what the rental markets are doing than to how pretty the city might be in the minds of some people.

      • In any market, the best way to measure value is the spread between bid and ask if it’s available. The equivalent for real estate is the sale price/list price ratio. I track Rob Chipman’s daily sale and list prices just to see how they measure up to month end averages. I’m not sure on the quality of his numbers but it’s interesting to monitor on a weekly basis. Chart

      • The only problem I see with that (and it is a big problem) is that the difference in spread between bid and ask coming off a bubble top is just a moving target. It does not give a clear indication of real value in terms of fundamentals so it remains highly subjective.

      • Yeah, the current bids are still way above fundamental value.
        It’s because we’re only just coming off the top, but it’s also partly the result of a relatively illiquid market.
        In more liquid markets price discovery is more efficient (even though bubbles form there too, of course).
        Also, the ability for participants to short a market improves price discovery and we all know that there is no way to directly short RE (if there was, there would have been more selling pressure as the market turned). People hate the shorts (esp when they make money), but this is one way in which they are useful.. helping discover the ‘value’ of an asset.

      • What is fundamental value when rates and regs have been consistently lowered for decades? It’s very difficult to determine real price values using today’s CPI numbers. Looking at spreads in percentage terms indicates the premium or discount that buyers are willing to pay. Whether the price is above or below assessment, or what someone believes is ‘the right price’ is irrelevant because many factors are unaccounted for that only buyers and sellers can determine.

        Let’s say a new area becomes attractive and demand rises. If every seller started listing prices, let’s say, by 15% above assessments or original prices paid, that is a new premium added because a buyer has no other choice within that area. Now if demand falls, list prices should begin to come down off the premium, not the assessment or original price paid.

        However, as I noted, if buyers start using assessments as benchmark prices, those premiums will be erased and buyers would work-down discounts off the assessment price. That’s a very dynamic change.

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