“A friend of mine had to ditch his Vancouver Kitsilano rental condo because every month he was dishing out expense after expense but his rental income didn’t come close to covering the expenses.”

“One can have problem tenants even in great areas in Vancouver based on my experience. However, unless you are paying almost entirely in cash, you will have a losing investment. A friend of mine had to ditch his Vancouver Kitsilano rental condo because every month he was dishing out expense after expense but his rent didn’t come close to covering the expenses (with a 20% down payment). My family has OK luck with Vancouver rental property but that’s only because they paid cash but even then some of their tenants have been problematic. Victoria has worked OK, too, but that’s because we bought years ago – again the cash flow just isn’t there if you were to buy today. I will say I have had excellent results over the last six years in Saskatchewan – specifically Regina. And I’m still buying there. Even today, you can still buy a SFH for $300,000 or so in a good part of town and get $1800 month rent plus utilities and get your pick of good quality tenants. And that’s without an in-law suite – you just buy a place in a good part of town, rent it to tenants with good jobs and not worry too much. You can get other homes at even better cap rates in not so nice parts of town but they will be high maintenance and definitely not suitable for the out of town landlord. With a vacancy rate of 0.8%, it is actually easier to get good quality tenants with stable jobs in Regina than in Downtown Vancouver, believe it or not.”
westar99 at RE Talks, 15 Dec 2012 4:11pm

40 responses to ““A friend of mine had to ditch his Vancouver Kitsilano rental condo because every month he was dishing out expense after expense but his rental income didn’t come close to covering the expenses.”

  1. Surprise surprise…

    I strongly doubt that it is possible to buy a cash flow positive property in Vancouver using a high LTV mortgage unless you invest a lot of time running it like a hotel suite.

  2. vancouverbubbleman

    i rent a house that was bought a year ago for 2.5 million . we pay $2650 a month in rent. not a good investment without the bubble action of the past.

  3. $300k Sask house with $60k down (20%), $240k mortgage @ 3.08% 5yr works out to about $1146 ish monthly. Assuming about $6k pty taxes annually, being $500/mo, plus add $300/mo avg utilities, and $300/mo avg maintenance/savings for roof, furnace, etc.

    $1800
    -1146
    -500
    -300
    -300
    = loss of $446/mo

    No thanks.

    • Unclear if he meant utilities were included or not. If they’re paid by the tenant it takes you from losing real solid money to… still losing money.

      • taxes are probably lower than 6k/yr.
        And who says that you have to maintain and save for fixes/upgrades? Leave that for the next sucker who buys the house after you are done with it.

      • You aren’t including the opportunity cost of the $60k down. A reasonable investment should produce $200 a month.

      • @bubbly – don’t know about Sask, but in BC you get in really big trouble from the Residential Tenancy Branch if you’re not providing your tenants with a non-leaking roof, heat, water, etc.

      • also @bubbly – I hear taxes in the Prairies routinely get that high even for a modest house. Winnipeg being, apparently, the worst, but Sask isn’t far behind.

      • @bubbly, also, standard maintenance figure is 1% of value annually, which would be $3000 – $300 x 12 = $3600, so not far off, really. Maybe it’s $200, but it’s ballpark.

      • The mortgage payment includes principal repayment, so it overestimates the cost to count the whole payment. Interest on the mortgage is $616 a month, which is the direct financial cost of owning the house. The rest of the mortgage payment increases the owner’s net worth, even if it hurts the cash flow.

        That being said, the situation looks like it is break-even. The investment only makes sense if you are speculating on an increase in house value.

    • I no RE bull by any standards, but your math is a bit off.

      Renter = $1800 + $300 utilities = $2100 per month
      Buyer = $1146 + $300 max pty taxes ($6000 per year is crazy!) + $300 maintenance = $1746

      I would still rent as there are other unexpected costs of owning, but the utilities and property tax do make a big difference in this equation. Both would need insurance as well.

      • My math was off too, Lexlimo is correct about the opportunity cost.

        Add another $200ish to the Buyer column…almost a wash.

        So a buyer would need a consistent rise in price in order to justify the investment..doh!! This will not end well

      • Sorry to break it to you but the money doesn’t go to the “Buyer” when the renter pays the utilities.

      • I hear that pty tax there is quite often that high. Unheard of for BC but very common in the prairies. Utilities money isn’t a gain for the landlord. Plus opportunity cost of downpayment. Plus risk. Plus low liquidity. So… meh overall.

      • Andrew I agree, see comment below

  4. Gee I guess that means rents will have to rise, right?

  5. Tomorrow afternoon a major Lower Mainland developer will be showing 5 floors of competed suites to their pre-sale deposit/buyer clients. This particular developer is one of the largest in the business for these parts and they are sweating bullets due to the RE market contrast from when the pre sale’rs bought and right this moment. Word has it that the ‘value’ has been dropping between 20k and 50k per unit and the demand has all but dried up and blew away. Every trade had been ordered to compete an array of assigned tasks to ensure that these suites would be absolutely bulletproof for when these showings commence as there has been a rash of backouts on deposits from other nearly completed projects around town. These buyers are showing up looking for any reason to renege on the deal due to any small deficiency or loophole that the prospective tenant can find. Some have even shown up to the viewings with lawyers. Again this is an anecdote believe what you will , but Ive been on the site for 4 days and have never seen panic to shine a suite like what Ive seen to ensure that these buyers cannot back out. The major players are very worried.

    • Real Estate Tsunami

      Nothing new here.
      The developers of River Green in Richmond beside the Oval are sweating, too.
      Far toooo much inventory.
      The mostly Chinese pre-sale speculators are bailing out.

    • Why I changed my carrier away from building trades tied to a boom.
      Now working for the government no ties to the RE boom.
      I saw it ending it always does.

  6. @MarcAur

    I was just generally comparing the costs between renting vs. buying the same property.

    As an investment you are right, it’s even worse for the buyer!

  7. The Waldorf is the tip of the iceberg: new condos at BC Place, Rogers Arena kill False Creek entertainment district

    http://www.vancitybuzz.com/2013/01/the-waldorf-is-the-tip-of-the-iceberg-new-condos-at-bc-place-and-rogers-arena-will-kill-false-creek-entertainment-district/

    It looks like a by-product of half and full million dollar condos that flank and encroach on the area. A disturbing example of our speculative mania swaying planners and politicians with competing interests. Unfortunately, once you zone as mixed use, the speculators (err, homeowners) have their way. It will change, but probably not before it’s too late.

  8. My better half laughs whenever we hear the term “cash flow positive” because I’ve conditioned myself to 🙄 every time it’s uttered within earshot.

    • I feel the same way. I bought on the rule of thumb (as prescribed by Ozzie Jurock no less) that monthly rent should be 1% of the purchase price. We made lots of money from a capital gains prospective but for the few hundred bucks a month “cash flow ‘ hardly worth the hassle. Remember this is a property that cost $260,000 rented for $2500 per month. Everyone earning less than 1% is losing money if they count their time

      • LS in Arbutus

        That rule of thumb that monthly rent should be 1% of the purchase price, for a property that you are buying for CASH FLOW sounds about right.

      • Cranston Snord

        Whole crap LS in Arbutus. That means that if we consider current purchase price of the place I’m renting, my landlords are subsiding me by about ~75% on that metric!

        I should bake them some cookies.

        The real estate market really is insane.

  9. Anyone else notice that this “investor” doesn’t seem take opportunity cost into account at all. His only vantage point is pay enough down to get positive cash-flow. Stated another way, real-estate seems to still the game in town for this person, with the caveat that it costs more to get cashflow. Or re-stated again, a speculator to the core.

    • 4SlicesofCheese

      Funny, at our recent company meeting, our CEO mentioned opportunity costs.
      He asked does anyone know what this meant, there was silence and he actually said really? Noone knows what this means?
      The person who finally answered was a fellow bear that I discuss RE with.

      This is a room of about 150 people that include engineers and other types of professionals.

      • Engineers don’t tend to be the most well-rounded people, in my experience. There’s the odd good one, but most of them could be automated with AI (for that type their entire job is essentially checking a series of standards books).

      • Hell, most engineers have trouble designing for multiple objectives (i.e. optimize function and budget). They always pull out the standard-strict Cadillac and avoid designing for context. They’ll build you the best theoretical system possible which is totally unsuitable for its actual task.

      • UBCghettodweller

        I’ve had conversations with Principle Investigators of labs who have no concept of opportunity costs or false economy. They then wonder where all the grant money goes and why they don’t have top rung publications flowing out of the lab.

      • So what is the opportunity cost on $400K then? What do you think real world returns are? Do you think by the time you save 400K that you just dump it all into the stock market knowing very well that every 5 years you will see a loss of 10% to 30% of your money. A lot of folks here talk about opportunity cost but don’t truly know what they are talking about.

        A cash flow positive property is just that. Furthermore, someone else buys you the house over 20 years time. Most people will never build that kind of equity elsewhere – plain and simple.

      • Depends what the objectives are Airedales and disagree with your argument. Just getting to some level of “cash flow positive” by plunking down $400k is a fools errand. Point here is that a large of amount of money is being sunk to forego any income, just to pay down a mortgage enough so the rent covers it. For market investments, true they go up and down. I’ve made money and lost money in investments, but overall way ahead personally than my experience owning homes – and I have and bought/sold a few over the years and continue to own (though the price/risk situation is way different here in Seattle than in Vancouver where I’m from).

      • 4SlicesofCheese

        Wow, ok fine you go buy a house tomorrow and I will stuff my mattress with cash for 5 years and then go and buy a comparable house and in 20 years we will see who is ahead.

      • Way ahead of you on that one but you’d have to be foolish to make a bet like that if you stay in Vancouver.

      • 4SlicesofCheese

        So what you are saying is Vancouver RE will be higher in 5 years than it is now?
        Wow.

      • Airedales -> I think it’s fair to say that you’re expressing a position that is commonly held in Vancouver: In recent memory RE has returned very, very well, and all other methods of attempting to keep or grow your money seem very risky and dangerous.

        The truth is that there is risk in all asset classes, and that fluctuates over time. The paradox is that risk/reward ratios are best when an ‘instrument’ becomes undervalued, and thus when it is out of favour. This is the basis for contrarian investing. (There is logic in the method, contrarians aren’t simply grumpy curmudgeons who like being otherwise.)
        A time when almost everybody is certain RE is the the only safe asset is the very time when risk in RE is at its highest.

      • You’ve missed my point entirely and I mean no disrespect. My last comment meant to suggest that you will not be able to buy a comparable house in Vancouver with 5 years of savings because I have the huge advantage of not living in Vancouver. I can buy a “cash flow positive” property for $400K – a comparable house in Vancouver is $1.5M! The opportunities that I (and the rest of my colleagues and friends) have just aren’t available to those stuck in Vancouver. I estimate that roughly 50% of all the folks in my office have or have had two or more properties, one or more of which has been paid off by their renters. It’s simply one of the fastest and easiest ways to build equity – outside BC.

        The original point of my comment is that opportunity cost for the average investor today is nearly zero. For instance, I can tell you that I know lots of people who have, over the past couple of years paid off 2 to 3% financing (and lower in my case) because it was the best risk-adjusted investment available. I also know lots of people who have recently bought vaction homes, houses for their kids, new cars, etc with cash for the very reason that avoiding a 3% interest cost is a better investment than what is generally available from the market.

        Perhaps, it all comes down to risk perception but it’s important to recognize that if a recession hits within the next two years, there will be little in the way of monetary tricks to soften the landing. This could mean a Japan style crash followed by a massive re-inflation that will likely wipe out most of the equity of the middle class. If you don’t own hard assets in this scenario, your kids could face a life of destitution. This is the true opportunity cost – not the forgone 2 to 4% return you make on your savings until the next market crash which will come much sooner than 10 or 20 years. There are other equally negative outcomes that could transpire as the current system runs it’s course putting your family at the mercy of the greed of others (landlords). This is the true opportunity cost in a zero interest rate world that is designed to punish savers like me and the majority of this blog’s commenters.

      • Airedales -> Okay, yeah, I did miss your point entirely. When you said “A cash flow positive property is just that. Furthermore, someone else buys you the house over 20 years time. Most people will never build that kind of equity elsewhere – plain and simple”… I was mistaken because I thought you were referring to Vancouver.
        So, yes, if you can buy a house that rents for something like 1% per month of its purchase price, given today’s interest rates, you could argue for that deal (provided taxes, jurisdiction, geographic risk, etc doesn’t disadvantage the deal too much). Even more so given that “most people” are spectacularly unsuccessful at trying to build equity in stocks, etc.

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