“The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.”

Posted on 18 June 2013 | 34 Comments

“I spoke to an older gentleman who bought his home in the 70′s and is now selling. He told me an interesting story of his ex-wife which may represent a lot of Vancouverites. She is unemployed. In 2009 she had 250k left on her mortgage on her primary home. The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.
How does she pay the mortgage on both properties? By sharing a room with her daughter and renting out rooms individually. Is this a risky scenario or what?! How many people are in her situation?”
– Anon at VREAA 17 Jun 2013 4:52pm

This entry was posted in 05. Where do Buyers get the money?, 08. Overextended Buyers and tagged Anecdotes, Banks, British Columbia, Bubble, Canada, Debt, Housing, Landlords, Real Estate, Vancouver. Bookmark the permalink.

34 responses to ““The bank encouraged her to take the equity in her home to purchase another home. She bought a 2nd home at the peak.””

Burnabonian | 18 June 2013 at 6:59 am | Reply

Only in Vancouver does the definition of wealthy include owing millions to a bank, wringing $600 cheques out of strangers who mill about in your million-dollar property (to which you have little legal access) dirtying up the carpets and griming up the walls, while living in modest (terrible) conditions either among your tenants or in a whole different part of town from your “holdings”, not having a job, not having access to much actual money unless you go to the bank and borrow it, driving a busted old car, and sitting in Starbucks telling your (similarly-situated) peers about how you “cleared” $300k last year.*

*of course what you really mean is that your assessment went up but you’re not good enough with Excel on your Macbook to work out that even if you could realize all your theoretical paper gains tomorrow, the carrying costs and transaction costs and taxes and maintenance and refi costs and treating funky kits eateries as cafeterias since you can’t stand to spend time at home would have eaten up most of your “earnings”, and the only real reason you’re ahead is that you actually just live in squalor. But just for now, of course.
- advoc8 | 18 June 2013 at 8:29 am | Reply
  
  Yes, but the scenery and setting makes it all worthwhile, doesn’t it?
  
  (Sarcasm smileys would be so useful here)
  - UBCghettodweller | 18 June 2013 at 9:44 am |
    
    You forgot the nearly topical weather.
- Seeking Knowledge... | 18 June 2013 at 9:32 am | Reply
  
  And don’t forget the RE bragging rights to you so called friends.
Ralph Cramdown | 18 June 2013 at 8:23 am | Reply

To be fair, I wouldn’t call someone running two rooming houses “unemployed.” And the more units you have to rent, the less risk you have from vacancy. But it’s a hard way to make an easy living.
- Real Estate Tsunami | 18 June 2013 at 11:05 am | Reply
  
  “But it’s a hard way to make an easy living”.
  This could be a Yogi Berra quote.
YVR Housing Analyst (@YVRHousing) | 18 June 2013 at 8:24 am | Reply

If you call it “rooming houses” it sounds kinda retro.
- Nemesis | 18 June 2013 at 9:36 am | Reply
advoc8 | 18 June 2013 at 8:52 am | Reply

“Brian | 13 June 2013 at 8:08 am | Reply

THe Chinese have moved on to the US. San Francisco’s median price shot up from 800K to 1 mill since November to now. (Average price, which Canadian realtors love to use to dupe the public is about 1.6 mil.)”

Saw this post and it reminded me of the article I read yesterday:

“California Home Prices Up Most in 33 Years, Realtors Say

By Nadja Brandt – 2013-06-17T19:00:10Z

California home prices rose by the most in three decades as a shortage of houses on the market spurred competition among buyers, the California Association of Realtors said today.

The median price for an existing single-family home jumped to $417,350 in May, up 32 percent from a year earlier, the Los Angeles-based association said in a statement. It was the 15th consecutive annual increase and the largest since at least 1980, when the group started tracking the data.

Parts of California, including the San Francisco Bay area, have “extremely low housing inventory,” leading to the increase in prices, the Realtors association said. The median price in San Francisco surged 28 percent from a year earlier to $947,260, breaking a previous record set in May 2007.

“The Bay area, in particular, has been experiencing strong price appreciation, thanks to the region’s robust economic growth, extremely low housing inventory and an increasing demand from international buyers,” Don Faught, president of the group, said in the statement. ”

http://www.bloomberg.com/news/2013-06-17/california-home-prices-up-most-in-33-years-realtors-say.html
- Nemesis | 18 June 2013 at 1:20 pm | Reply
  
  #CouldBeWorse
  
  [Forbes] – The Most Expensive Homes For Sale In America Right Now
  
  …”There are many reasons the de Guigne estate in Hillsborough, Calif., could be called a trophy property. For starters the 16,000-square-foot Mediterranean mansion was constructed a century ago and has remained within the same family since. Located at the end of a 4,500-foot driveway, the historic home has a grand ballroom, a flower arranging room and staff quarters that include two chauffeurs’ rooms. But the property’s most unique feature isn’t the home itself – it’s the land.
  
  The estate encompasses 47 prime acres 20 minutes south of San Francisco, halfway between the city and Silicon Valley. “This is the first time since this land was acquired 150 years ago by the de Guigne family that such a large amount of land in such a desirable location is coming to market,” says Gregg Lynn, a Sotheby’s International Realty agent co-listing the property with colleague Bernadette Lamothe. “In the town of Hillsborough all of its large estates have been subdivided over the last 50 years and this estate remains one of the only two [of this size] left.”
  
  The sizeable acreage is the main driver behind the listing’s lofty price tag: $100 million.”…
  
  http://tinyurl.com/lf2226g
Rob Nelson | 18 June 2013 at 9:14 am | Reply

She bought in 2007? Since when is 2007 the “peak”? Totally risky, but the equity gains from 2007 until now have been considerable. If she liquidates, she’ll probably do well. If her banker told her to do the same thing in 2011, she would have been royally screwed.
- Anon | 18 June 2013 at 9:48 am | Reply
  
  Sorry, typo. It should say 2009. Regardless when you call the peak, if she did not sell when the property appreciated, she is hooped now as already you are seeing prices drop. Additionally, all the expenses of selling a home deter many from selling because that alone would put you in the negative. Any way, this lady is going to cry an ocean. 😦
  - an observer | 18 June 2013 at 11:42 am |
    
    2009 wasn’t a peak either!
Joe at Kits | 18 June 2013 at 9:15 am | Reply

A lot of new immigrant families do just that : a dozen family members shares rooms upstairs and the basement is full of not so legal immigrants that are here for now and don’t care about conditions and won’t complain…oh boy, it sounds like Surrey !!!. I’ve seen it in US and in Canada. Nothing new, most new comers make just a little over minimum wage and gets involved in not so legal activities to make up for the difference….because it’s Canada Eh !!!! Got to live up to the hype a front of the family back home.
- UBCghettodweller | 18 June 2013 at 9:47 am | Reply
  
  That’s sort of uncanny, I know of two people who grew up in families that do exactly that in Surrey. They have all sort of wonderful stories of growing up in a house where the basement is divided in to two suites, neither legal, or even safe from a construction point of view, to people who ended up very obviously being in to hard drugs or criminals in other respects
- Brian | 18 June 2013 at 10:54 am | Reply
  
  To be honest a lot of immigrant families save up to buy a big house and they have multiple generations living there. I suppose it’s better than renting it out to strangers. For my wife and me, we don’t need that much house. Some of the monstrosities they are building nowadays areaway too big–more taxes, more maintenance, and less security.
  - YVR Housing Analyst (@YVRHousing) | 18 June 2013 at 2:28 pm |
    
    From my experience families buy bigger houses with the expectation extended family will stay with them, but not all will see it come to pass, as their middle-class first-world children prefer independence over communal living. This isn’t isolated to Canada or the US, either; the same phenomenon is going on in Asia too.
    
    So parents are speculating not only on RE being a stable investment (“store of wealth”), but also on their family unit being able to use the housing to its full extent. When that doesn’t pan out it makes sense they will try to “fill the only place”.
  - Brian | 18 June 2013 at 11:04 pm |
    
    I just don’t understand housing as an investment. The S&p has beaten real estate in an average annual return basis historically 9.4 vs 6%, if you count reinvested dividends. It’s also more liquid. Not to mention lower carrying costs. And to generate income for a rental property, there’s always annoying tenants. Sure, buy a place to live in but to store wealth? As Warren Buffet once said, if I hadn’t bought my house in 1952, and rented instead and invested in the stock market, I’d been even wealthier than today.
  - Ralph Cramdown | 19 June 2013 at 7:43 am |
    
    The appeal of real estate? Leverage, inflation and a generation-long secular decline in interest rates.
Anon | 18 June 2013 at 9:40 am | Reply

To add, the neighbor of this gentleman rents out their bottom suite for $800/week to visitors. They run an illegal hotel. They live across a great park.
Nemesis | 18 June 2013 at 10:20 am | Reply

Speaking of RiskyScenarios… your TuesdayMornin’Zen & Quote ‘o TheDay, DearReaders…

“What people already know is that for the most part, bears are delightful creatures to watch and be around. They’re interesting and inspirational. But they can cause a bunch of problems if you don’t treat their needs with respect… Definitely, people need to learn the basics of bear behaviour so they can recognize the difference between a defensive attack, when the bear is feeling threatened and it just takes a bite or two and runs off, versus a predacious attack where the bear is persistent. In a typical defensive attack the bear is making a bunch of noise, snorting and growling, but in a typical predacious attack the bear is silent.” – Prof. Herrero, University of Calgary

[G&M] – When bears attack, don’t play dead*

http://tinyurl.com/k4lf2fj

*Run!
- Nemesis | 18 June 2013 at 10:27 am | Reply
- Real Estate Tsunami | 18 June 2013 at 11:21 am | Reply
  
  Can’t outrun a bear!
  Two guys are sleeping in a tent, when they are awoken by a bear trying to tear the tent down.
  One guy puts on his running shoes. The other guy says “what are you doing, you can’t outrun a bear”.
  “I only have to outrun you” replied the guy with the running shoes.
  Moral of the story: Stay out of the woods, when the Bears are hungry.
  (Woods = RE in Vancouver)
ex-kitsie | 18 June 2013 at 11:35 am | Reply

I grew up in Kitsilano and many of the ’50s immigrants (lots of Greeks and Albanians) did this. Dad would work up “in the bush” at a logging camp and mom and the kids lived in the house with every square inch rented out to strangers. Many of these would-be real estate tycoons owned and rented out two or more houses (the renovations are still visible on lots of Kits houses – known locally as Greekifying – just check for the boxed in front porch). The end result wasn’t pretty in many cases. The ’80s arrived with a vengeance and lots of the immigrants lost not only their investment houses but their main dwellings as well. The ability to pick up well paid labouring jobs collapsed, the market for rooming house type accommodation fell apart and interest rate creep finished off the ability of this type of home-owner to service the mortgage. This scenario could well play out again if the government is serious about cracking down on the bogus language schools (ESL students seem to be a business plan for many) and the real estate driven economy experiences a turn around.
tedeastside | 18 June 2013 at 1:53 pm | Reply

vancouver is such a sad city….that all people live for is real estate
how do you live in such a lifeless, gutless city
- Joe at Kits | 18 June 2013 at 3:04 pm | Reply
  
  I loved Van back in ’90….then it turned into crap. I moved out : first out of West End and then out City of Vancouver….I never looked back may great places to live in 5-10km range. I still work here, but since driving is a pain in the aa….I use stinky Skytrain and crappy buses if I have to – yes,transit sucks .This city lost financial and resident focus years ago,…so we have investment empty units sitting all around , families with kids moving out, schools closing ( wonder why ?) , chicken in the backyard debates and bike lines for everyone….too bad it rains 6 months a year. Let’s not forget Olympic size debt in the city. Nice to visit, but that is about it, The place is dead to me.
  - Burnabonian | 18 June 2013 at 4:17 pm |
    
    “I loved Van back in ’90….then it turned into crap.”
    
    I fell in love with it in 1994…as a teenager. I came here as soon as I could.
    
    Since the late 2000’s, when I started coming to terms with the fact that this is not a reasonable place for a middle-class Canadian small-c conservative to live, have a family, put down roots, save for retirement, etc., I imagined that Vancouver was static and I had just been growing more aware as I aged.
    
    But the truth is that Vancouver probably *was* almost as great as I remember all those years ago, and it probably *has* gotten worse every single year that I’ve been here.
    
    The pressing question is what comes next: does it become the Detroit of Canada for a few years and then rediscover it’s roots? Or is it ruined forever?
    
    Most of us have toughed out the worst of it, and are stoically hunkered down during the city’s darkest hour: jobs tend to suck and don’t pay for even basic living costs, housing is stomach-turning and can’t be afforded anyway, the lifestyle of a drug-free middle class person is actually kind of mediocre, kids are taught to step over needles and dodge wild-eyed tweakers on their way to the bus stop, and if you’re not flippin’ condos or “connected” to a guy who has a grow-op in Langley, you’re nobody.
    
    Is it worth staying, because it can’t get more gross or unsustainable than this?
    
    Or is this place so far down the rabbit hole of vice acceptance and short-term-visitors-passing-as-population (and unCanadian customs and values dominating public life) that it will never return?
  - Farmer | 19 June 2013 at 4:47 am |
    
    So true. Vancouver is the laughing stock of the planet and the blame lies with those idiots on city council who could not move a consensus vote for the good of the city if their god-damned lives depended on it. I will NEVER move back to that piece of shit city (my home) unless I am buried there by my family against my will.
    
    The whole place can rot now as far as I am concerned and city council can shove it up their sorry arses. Maybe the Ex will finally come around to agreeing to a sale and both of us can take our cash and flip the bird to the whole corrupted mess that elected officials represent.
    
    Let them fill their cups. One day we will see them in chains.
  - Nemesis | 19 June 2013 at 10:39 am |
    
    From “LetsGo!” to “WhereIt’sAt!”… an HistoricalRetrospective…
    
    [NoteToEd: I like to think that somewhere, way out there in the CosmicVastness – &WayWay beyond Voyager1’s FlightPath – those analogue TV signals from the VancouverOfYore are disrupting the musical preferences of an entire ExtraTerrestrialCivilization’s teenagers. Hmmm…. by my calculations, they’ve traveled approx. 13.8Parsecs. Is there an AstroPhysicist in the house?]
  - Nemesis | 27 June 2013 at 10:52 pm |
    
    http://wapo.st/1crJr3q
- Toby | 19 June 2013 at 2:23 pm | Reply
  
  In few years Vancouver will be like London, England today : full of foreigners and foreign interests without any care for local values and traditions. Most Londoners ( born in UK) moved out of town in last 10 years….Vancouver is starting to look the same if you compare population in the early ’90 and now.
dumpster diver | 18 June 2013 at 3:26 pm | Reply

http://thetyee.ca/News/2013/05/30/Christy-Clark-Assets/

“Last year she declared investments; this April she revealed none in her public statement.”

there yeah go, Liberals. Christy has no assets. You vote her in, she’s your guiding light. Better hurry up and ‘be like her’ and dump or hide your assets too.
- Nemesis | 18 June 2013 at 4:43 pm | Reply
  
  OffBalanceSheet ‘Intangibles’?
  
  You’ll know the answer to that question within 12 months of QueenChristy’s return to the ‘private’ sector.
  
  See also “Flexians”:
  
  http://tinyurl.com/lytzhgq
kabloona | 19 June 2013 at 2:36 am | Reply

Man loses lawsuit and $750k after trying to back out of Coal Harbour condo deal:

http://bc.ctvnews.ca/video?clipId=949906

Ouch!