“We spoke to a friend of ours yesterday. Even though she has purchased a house, she wants to keep (and rent out) the condo she’s living in, because she thinks prices will only go up.”

“We spoke to a friend of ours yesterday. Even though she has purchased a house, she wants to keep (and rent out) the condo she’s living in, because she thinks prices will only go up. She estimates her condo to be worth $530K, and rent she would receive to be $1800/mo. After taxes and condo fees, this appears to be a yield of 3%, without taking into account repairs/upkeep on the unit itself. She’s getting a one-year fixed rate of one point something percent to finance the thing. Sounds crazy to me!”
– from ‘s’ via e-mail to VREAA 13 Jun 2013

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

“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

A Bed in the Bathroom, Why Not? [Let Us Count The Reasons…]

“Here is another great Vancouver rental listed on Craigslist [link no longer active]. A bed in the bathroom..”

“Rental information:
Newly finished 1 bedroom with own ensuite. Furnished.
Access to dining room, living room and kitchen on main floor.
$500/month includes utilities, washer and dryer, and wireless internet.
Close to transit and shops.
No smoking. No pets.
Perfect for international students and short term renters.”

– from ‘Vancouver rentals: A Bed in the Bathroom, Why Not?’, vancitybuzz.com, 28 May 2013 [hat-tip space889]

Outrageous!
The underlying message, of course, is that we are Tokyo.
Again, consider this idea in relation to Canada’s vast expanse of land.
The bubble continues to grossly distort our thinking.
– vreaa

“We asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!”

“Called a guy today about a house he has for rent. Turns out he’s only renting the upper half (for more than what the market will pay, I think, considering I’ve seen it advertised for awhile). Since we really don’t want to rent half a house and live in fear about who lives in the basement (and share laundry), we asked why he doesn’t just rent the whole house. He said he can’t, it wouldn’t cover his mortgage – he’ll get more to rent it out as two suites. These new landlords are hilarious, thinking that rent will cover their mortgage!
By running the numbers, it looks to me like he put $400k down (he told us how much his mortgage payment is). I also think it’s a failed flip – I’ve been watching it awhile and when I googled the address two weeks ago, it was for sale and there was an open house that weekend, though another google search tells me the Vancouver sun featured it in their real estate section as being bought in December 2012. This guy must be panicking….
I think our time has come, bears! Anyway, it’s a nice house, maybe we’ll be able to buy it for $400k one day (lol).”
– pricedoutfornow at VCI 26th May 2013 12:50pm

“Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”

7541 Kerr Street, East Vancouver (Fraserview)
2518 sqft SFH on 45×110 lot

“We considered renting this SFH a few months ago. It stayed on the market for a few months, looks like the landlord never got any tenants (rent went from $2500 to $2200) and today when I walked by – – it’s for sale for $999,999! Gee… tough choice, rent for $2200 a month or… buy and have a mortgage of $4,310 per month (based on 3.09%, 25 year, 100k down). Why would anyone buy?
Thanks, I think we will remain renters until prices come back down to earth. Or never buy in Vancouver.”
– pricedoutfornow at VCI 5 Apr 2013 7:38pm
—

Think of this situation like this:
This landlord can’t find anybody who will pay $2,200 per month to actually use the house as a home, but they are hoping to find somebody who is prepared to pay over $4,310 per month to make use of the house as a financial instrument, by using it to bet on increasing prices.
The house’s fundamental value is that which one could calculate based on a yield of less than $2,200 per month. The speculative market has been valuing it at substantially higher than that. As the speculative mania unwinds prices will fall to reflect fundamental values.
– vreaa

“I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”

“I know someone in BC who just declared bankruptcy because her condo was assessed at $150k and she bought it north of $250k in 2005 or 2006 (presale). Tried to rent it out for the past few years but the rents kept drifting lower and lower, and the tenants stayed shorter and shorter terms (I think they moved on to better places, this is a city in BC where rents are down significantly since there was a boom-the boom is long over). She was losing more than $10,000 a year and just couldn’t get ahead. Time to hand the keys back to the bank and start over.
I hear stories like this all the time. A friend’s dad in the same city bought a house during the boom “everyone wants to live here!”. Now his mortgage is $2500/month (blue collar worker) and he tries to rent out the basement suite for $1000 a month (no takers-though it worked during the boom). The house is worth about 30% less than what he paid for it (maybe less, not a lot of sales these days).
All we have to do is look north a bit to see these stories.
Quiet suffering. These stories don’t seem to make the news but they do exist.”
– pricedoutfornow at VREAA 1 April 2013 7:55 pm

Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]

Poster ‘DNAspark99’, [on the forum bcsportsbikes, 22 Mar 2013 and onwards; hat-tip RE Lurker] has posted images of a ‘building’ that is under construction, with this commentary: “So, my landlord has taken it upon himself to build a ‘toolshed’. For a roto-tiller. At least, that’s the entirety of what he told us – there are, however, some inherent communication issues. (He’s Korean, and not yet well versed in English (though certainly much better than my Korean)). There’s one door so far, and a lawnmower will not even fit through it. (I don’t think he knows that yet though)
So, this is the ‘project’ thus far. For one, the ground it’s being built is mushy moist marshland – your feet sink with every step. Which is always ideal for a good foundation – or complete lack thereof.
It may not be immediately obvious, but I don’t think this man has a background in construction.
It appears he owns a hammer and saw, perhaps a measuring tape, perhaps not. Certainly nothing like a square, straightedge, or level.
I guestimate that he has seen no more than 3 episodes of various home improvement shows, and maybe at best he’s driven by a construction site atleast once in his life. After all, “How hard could it be?”

And now, in time-lapse video:

More:

A second time-lapse video [posted 2 Apr 2013], worth the watch for casual efficiency, for the horse, for the stuff falling off the roof, and for the paint-job:

“There are up to 40,000 illegal suites in the city of Surrey — nearly double the 20,000 previously reported.”

“The appraiser stands at the foot of the empty lot, asked to assess its value — as if the home to be is already built.
He comes armed with floor plans sent to the city for approval.
In his eight years on the job in Surrey, he’s now seen thousands just like this.
The plans show an outlying deck and a basement with rec rooms, kids rooms, sewing rooms — “all these rooms that make no sense,” he tells The Province.
He is then handed another set of floor plans, either by the builder or homeowner.
“The revised floor plan? They show secondary suites going in,” says the appraiser, who estimates there are up to 40,000 illegal suites in the city — nearly double the 20,000 previously reported.
“The day (homeowners) get their final occupancy, the day it’s done — they enclose the rear patio and now you’ve just added another 1,000 square metres to your house.”
Not only are thousands of Surrey’s homeowners collecting undeclared income, he says, they are also saving on taxes when the suites are popped into place after city approval.
The owner of an in-demand design firm in Surrey says he’s aware of the illegal suite issue, but insists his company creates plans in accordance with zoning requirements.
“We discuss with the homeowners/ home builders as to their requirements and then prepare house plans,” he said.
“Our design company plays no role during or in the construction of the homes.”

“Of the nearly 4,000 residences developed in Surrey in 2012, 1,500 were single family units, namely in Newton and South Surrey.
The city issued permits for 427 secondary suites at 67 coach houses in 2012.
Surrey’s manager of bylaw enforcement, Jas Rehal, says his staff and the city’s building department communicate their bylaws and policies to developers.
“Generally, they’re abiding,” he said.
“These suites in Surrey, they’re all over the city,’ said Rehal. “When brought to our attention, we go out there, state the fee … once a suite is identified, we start billing.”
Annual fees for a secondary suite range between $500 and $1,300, which includes infrastructure costs such as garbage pickup and water use.
It can cost a homeowner up to $10,000 to properly outfit a home with separate piping, wiring and a firewall to make a suite legal.”

– from ‘Surrey’s illegal suites look like an epidemic to some’, Mike raptis, The Province, 4 Mar 2013

Jesse (YVRHousing) calls these suites ‘townhouses rotated 90 degrees’, and we think that’s spot on.
They are products of high prices: owners build and manage them to allow themselves to over-reach on price in the hope of further price increases.
This is an inefficient, clumsy and ugly way for a city to increase density.
– vreaa

Update – Westside Old Favourite Sells For Same Price As In Feb 2011

Here’s an update on a Westside SFH we’ve featured here before:

4411 W 11th; 4,696 sqft SFH; 63×121 lot (7,623 sqft; 0.175 acres)
(Old Timer; Backs onto alleyway behind 10th Avenue stores.)
Listed 9 Oct 2010 $2,980,000
Price change 6 Dec 2010 $2,890,000
Sold 15 Feb 2011 $2,830,000

Listed August 2012 with $3,180,000 ask price
Remained on market for rest of 2012, unsold

Relisted 24 Jan 2013 with $2,998,00 ask price
Sold 24 Jan 2013 $2,850,000

Anybody care to calculate carrying and transaction costs over the last 2 years?
We can’t verify this, but we are told that nobody has lived there over this period.
Will this property now be utilized as a residence, knocked down for a new build, or is it being purchased to sell again later at a hoped-for higher price?
– vreaa

—
This house was first featured at VREAA 6 Dec 2010 when we noted that, at an “Ask Price of $2,890,000”, “10% downpayment ($289K); 4% rate; 25yr amortization” would result in “Monthly mortgage payments: $13,681.79”
In a later post, 5 Jan 2010, we cited it as the kind of house that would sell for less than $1M in the coming trough.
This house was also featured representing our fair city in ‘Unashamed House Porn: Seattle Vs Vancouver’, VREAA, 11 Aug 2011.

“Rentals are being phased out in our condo building because they are just too hard to manage and they bring down the value of the units.”

“Rentals are being phased out in our condo building because they are just too hard to manage and they bring down the value of the units.”
– comment by Kensington, 27 Jan 2013 4:00pm below ‘2012 a record year for Vancouver rental housing’, CBC News 27 Jan 2013

It’s still all about ‘value’ (read: price growth), and not about ‘income’.
The changes contemplated by this strata usually occur in red-hot price growth phases.
During weakness, when prices are descending, the potential for rental income becomes more important in the calculation of fundamental value, and in making a property attractive to buyers (thus offering more support to prices).
This strata appears to be late to the party.
– vreaa

“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

Spot The Speculators #97 – “We are moving to Burnaby in March, so we decided to keep our house in North Vancouver and put it up for rent.”

“We are moving to Burnaby on March, so we decided to keep our place and give it [for] rent, it has never been rented before, very well cared and Very nice designed two levels, 3_Bed, 2_Bath, 1 seperate entry Den, located in one of the nice and quite neighborhood.
You have the option to choose(Furnished: $2700 or unfurnished: $2500).” – craigslist ad, 21 Jan 2013 [hat-tip Guy Smiley on VCI]

The ‘speculator’ classification is based largely on the assumption that they have purchased in Burnaby.
– vreaa

“Our landlord subsidized our housing costs to the tune of $200,000 cumulative over 5 years.”

“I left Vancouver. Lived in the same amazing apartment for 5 years while dear Landlord subsidized our housing costs to the tune of $200,000 cumulative over 5 years. After 5 years of no rent increase, you would think that on leaving they would be ready to raise it !!!!
Wrong – – – –
Rent is down 8.5% on a nominal basis, 20% on inflation adjusted bases and if you are taking out strata/taxes, rent is down even more!!!
I would so love to go back to it – but now at that price point there is serious inventory and competition so the landlord is being aggressive to get the vacancy time as low as possible.
Did we throw money away on rent? No !! We lived it up, had a great place, and saved $200,000 compared to the cost of owning.”
– yvr2zrh at VCI January 19th, 2013 at 1:03 am

“People are listing properties for CRAZY prices hoping uninformed renters will pay their crazy mortgage.”

“$2000 / 3br – 2000ft² – Renters Don’t Pay These Prices (North Shore)
Renters don’t pay these crazy prices. There is more rental inventory coming on every day, and there will be even more at lower prices next month. People are listing properties for CRAZY prices hoping uninformed renters will pay their crazy mortgage.
All Craiglist prices are very negotiable and in the North Shore about $1 per square foot is fair. Unless the place is amazing (which every landlord thinks their property is) don’t pay much above this rate!!!”
– from craiglist, 5 Jan 2012 [hat-tip edinacloud]

43 years old; Owns 6 Rental houses; Goal is to buy 4 more and retire by 50.

“A hard-working entrepreneur who runs a restaurant and retail outlet, Jim hopes to retire while he is still relatively young and live off the income from his rental properties.
Jim and his partner Bethany live with their toddler in her home in small-town Alberta. He is 43, she is 38. Jim also has a 12-year-old child from a previous marriage.
Jim’s short-term goals include buying four more houses – the ones he has are in Alberta and British Columbia – paying off his mortgage debt and perhaps forming a holding company if it makes sense. Longer term, he wants to retire comfortably at age 50 and leave something for his children.
Jim is doing well, bringing in $10,000 a month before tax from his businesses. He estimates his share – he has partners – is worth $750,000. Bethany, who keeps her personal finances separate but contributes to joint food and housing costs, earns $75,000 a year before tax.
On paper, Jim is looking good. He has $3-million worth of investment real estate. Still, he is mindful of the other side of the balance sheet – the $1-million-plus of mortgage debt, which he hopes to have paid off by the time he is 55 or 60.”
—
“So can Jim retire at age 50?
Jim figures he will have his mortgage debt paid off by the time he is 55 or 60. His financial picture at age 50 is less clear. As well, Jim doesn’t have a firm handle on how much money he will need when he retires. In his application, he lists “spending money” of $2,500 a month or $30,000 a year after tax.”
—
“Jim is taking home $84,000 a year from his businesses now plus another $12,000 in net rental income, for a total of $96,000. If he sells his share of the businesses for $750,000 and invests the proceeds at 4 per cent a year, he will be making $30,000 a year before tax. When calculating how much Jim might need in retirement, the adviser uses a rule of thumb of 70 per cent of preretirement earnings, which in Jim’s case would be $67,200 before tax. Thus his revenue properties would have to generate at least $37,200 a year after operating expenses to make up the difference, substantially more than the $12,000 a year they are throwing off now.”
—
“Monthly net income: $8,000
Assets: Bank accounts $25,000; stocks $50,000; TFSA $25,000; RRSP $25,000; RESP $10,000; six rental houses $3-million. Total: $3,135,000
Monthly disbursements: Mortgage $900 (his share of $1,800); other housing costs $790; car lease $500; other vehicle costs $390; groceries $250 (his share of $500); child care $900; clothing $300; gifts, charitable, other $150; vacations, travel $200; dining out, entertainment $250; clubs, sports $150; grooming $50; doctors, dentists $250; drugstore $100; cellphone, Internet $200; RESP $200; TFSA $400. Total: $5,980
Liabilities: Mortgages $1,062,000; car loan $17,000. Total: $1,079,000”
– image and excerpted text from ‘An entrepreneur’s path to early retirement’, Dianne Maley, Globe and Mail, 14 Dec 2012 [Hat-tip Makaya at VCI]
—-

Jim and Bethany have accumulated a net-worth of over $2 Million ($2.75 Million if he were able to sell his share of his business), by the age of 43, on a household income of less than $200K before tax. This is remarkable. It is highly likely that a large portion (almost all?) of their gains are due to the increase in the paper value of the six rental houses that they own. This would also explain their desire to “buy four more houses” – this sector has treated them well and they expect it to continue to do so.
As others have pointed out in the G&M comment section, simply liquidating all of their assets and investing in conservative instruments would already possibly spin off enough income for them to be able to retire soon.
A disastrous outcome would be the use of their equity to buy even more RE at the very peak of a nation wide speculative mania in housing. Worse still if they are tempted to use leverage by increasing their mortgage debt. This is the way that many with impressive paper gains on RE holdings, at this point in the cycle, will give them back (and in some cases even be wiped out) in the coming market weakness.
As an aside, note the misallocation of resources that comes with the speculative mania: in this case we have a couple considering leaving the workforce in their 40’s.
– vreaa

“I rent at Park West in Yaletown and was just at the holiday party, met several of the people in this building. I was under the impression that Yaletown was filled with speculators, but it seems that many of the people who live here are renting.”

“I rent at Park West in Yaletown and was just at the holiday party, met several of the people in this building. I was surprised by how many of them are renting. I was under the impression that yaletown is filled with speculators, but it seems that many of the people who live here are renting.”
– yvrness at VCI 12 Dec 2012 9:15pm

“Meaning of course that most of the condos are owned by speculators and are being rented out while their fortune grows.”
– Eddie, ibid.

“I would say about 50% of downtown condos are rented. That actually confirms the amount of speculation – just not by the people living in them. The owners live in their parent’s Surrey basement suites in order to afford the negative cash flow.”
– Anonymous, ibid.

Kelowna Garden Shed Rented Out To ‘Homeless’ Couple Makes CBC News

“A B.C. woman has been fined $500 for renting out a garden shed to a homeless couple and their three dogs.
A power cord that ran from the woman’s house in Kelowna, B.C., supplied electricity to the small metal building, for which she was charging rent of $200 per month.
– from ‘Homeless couple, 3 dogs, lived in garden shed’, CBC, 7 Dec 2012 [hat-tip Nemesis]

Amateur Landlords Underwater And ‘Swinning Poor’

– from craigslist, Nov 2012 [hat-tip Terminalcitygirl]

Denser On The Inside – “A legal multi-family dwelling in the heart of First Shaughnessy, with 8 suites generating almost $150,000 per annum.”

1926 Cedar Cres, Shaughnessy, Vancouver West-side
7,305 sqft 1912 SFH, on 121×149 lot
Sold 27 Nov 2012 for $4.49M
Taxes $18K pa

Realtor blurb: “Once in a lifetime opportunity to own this classic craftsman style home that is a legal multi-family dwelling in the heart of First Shaughnessy. With 8 suites generating almost $150,000 per annum this is the perfect holding property. The lot is 121×149 and the house is 7,305 SF. There are two “owner suites” that have been completely updated, each with their own laundry and parking.”

‘Almost’ $150K rental income, minus $18K tax, minus maintenance, minus property management cost, minus unexpected lost rent/lower rent — what’s the actual cap-rate on this?
The deal for the buyer is probably premised on rising property prices.
– vreaa

“Usually I see 5 or 6 three bdrm rental units for rent in Vancouver or Burnaby at $1600 p.m. or less. But recently that figure has gone up to around 35 to 40.”

“I’ve been looking at 3 bdrm rental units the past year. Usually I see 5 or 6 units for rent in Vancouver or Burnaby area @ price 1600 or less. But recently that figure has gone up to around 35 to 40.
You can get decent place for 1350 to 1550 per month with around 1100 sqft.”
– house burden at greaterfool.ca 17 Nov 2012 3:49am

Counterintuitive to some, the rental market will also weaken as RE prices soften and drop.
– vreaa

Spot The Speculators #89 – “Rent our charming turn of century East Vancouver home. The basement has shared laundry and a suite where we, your prospective landlords, reside.”

Visualize the basement

“$2400 / 3br – 1400ft² – Lovely quiet home in great neighborhood Available December 1st (Mount Pleasant / Cedar Cottage)
Date: 2012-11-11, 1:44PM PST
Our charming turn of century East Vancouver home is for rent.
Newly (as in will be finished in a week!) renovated kitchen with white shaker cabinets, dove grey quartz countertops, breakfast peninsula, mini office / computer area, dishwasher.
Hardwood floors throughout most of the house, living / dining rooms with big picture windows.
Three bedrooms upstairs: master bedroom with two large closets (one walk-in with a window for natural light), two smaller bedrooms with one closet each and big windows looking out to back yard.
One bathroom with soaker tub and skylight.
Back deck for bbqing and entertaining, big nicely kept back yard.
Front porch ready for your rocking chair.
Basement has shared laundry (and a suite where we, your prospective landlords, reside).
One year lease.”
– craigslist ad, 11 Nov 2012 [hat-tip Chem guy at VCI]

You can imagine the ‘math’.
Upside: “In 25 years, our tenants will have paid off our mortgage!”
Downside: “We live in a smallish, dampish, darkish box, with people stomping on our heads.”
…
Another example of Vancouver homeowners as speculators: decisions to buy/hold property based almost solely on expected future price strength.
When these homes were first designed and built, was there ever any intention for people to be living in the basements?
– vreaa

“I want my tenants to have some hope in the future so they can be motivated enough to get out of bed every morning to go to work to pay my mortgages.”

“I absolutely love the situation we are in right now. It is so damn hard to qualify for a mortgage, forcing the perpetual renters to be forever priced out in a big city like 416 or Vancouver. At the same time, people with existing mortgages can enjoy this low interest rate for a long time. By the time rates normalize, the tenants would have paid off their properties.
I wish you luck being liquid. I would rather pay the bank 2.15% to use your money (for which you probably get 1.05%) and invest it in providing shelter for you so i can take your rent check every month and build equity for myself.
I always tell my tenants that i think real estate will definitely crash by at least 90% when i stop by to pick up my rent check. I even refer them to this blog. After all, i want them to have some hope in the future so they can be motivated enough to get out of bed every morning to go to work to pay my mortgages. It’s going to be a nasty CRASH, renters, a nasty CRASH.”
– Bryan at VREAA 15 Oct 2012 3:01pm

What’s the most remarkable thing about any market?
It’s that, regardless of conditions, for every trade there is both a seller and a buyer, each convinced that the other is doing the wrong thing.
– vreaa

“A colleague bought a SFH home in the spring in the hopes of flipping it for a quick profit. She now finds herself amongst the ranks of the accidental landlords. She is not happy.”

“A colleague bought a SFH home in the spring in the hopes of flipping it for a quick profit.
She pulled it off the market after the financing from a prospective buyer fell through. With the market having weakened significantly since then, she now finds herself amongst the ranks of the accidental landlords. She is not happy.”
– Manna from heaven at VCI 27 Sep 2012

“A few months back, when I told my landlady, as I often have in the past, that I think prices will fall, she said, “Why would they?”

“[The National piece] resulted in “bubble” and “crash” being said on TV. And that will be enough to change the tone of the conversation and make people think about whether we might be at the top.
A few months back, when I told my landlady, as I often have in the past, that I think prices will fall, she said, “Why would they?” That’s the attitude that has propped up prices: the failure to even consider price drops. Once that bedrock belief is brought into question, nature will be free to take its course.”
– N at VCI 21 Sep 2012 8:55am

Speculation in reverse.
We agree that, once Vancouverites see that prices can fall substantially, the (superficially) ‘virtuous’ cycle that is a speculative mania, will turn vicious.
– vreaa

“We keep trying to pay up in rent to get a bigger, nicer place. They are invariably listed for sale.”

“We keep trying to pay up in rent to get a bigger, nicer place. They are invariably listed for sale. I’m talking three in the last week that my unsuspecting wife finds on craigslist. Pretty soon this is going to piss her off. I’m scared.
All I can say is thank God we’re not forced to move yet. That was three out of three by the way.”
– Thomas Holloway (Zerodown) at VREAA 23 Aug 2012 11:37am

The mania has made renting less stable and more of an inconvenience than in more normal market environments.
– vreaa

“So the next place I rented was the main floor of a house, and guess who lived in the basement? The owner.”

“I used to live in a basement suite when I was in college. Fortunately it wasn’t damp or moldy, but it was too dark for my taste and I didn’t like someone living upstairs from me.
So the next place I rented was the main floor of a house, and guess who lived in the basement?
The owner.
If that’s what it takes to buy a house in Vancouver the trolls can have it.”
– Legacy at VCI 21 Aug 2012 9:58am

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

“I asked our new landlords if they planned on selling. They said they considered it, but decided they were likely to end up as “wealthy land owners” if they just hung on. My husband and I are both born and raised here, and we’re never seen stranger times.”

“We’ve been in a big 100 year old fourplex near Main Street, virtually rent-controlled, for nearly 14 years. Our landlords, who are far from amateurs (a family business that includes an entire apartment building), felt that the market had “plateaued” and listed the house about six weeks ago for $1.4 M. It wasn’t exactly what I wanted to hear but I supported his decision and still do; they’ve been excellent, honest, non-gouging landlords.

I’ll admit the open houses were extremely unpleasant given how long we’ve been here; our kids have spent their whole lives here. It sold in a couple of weeks to I believe first time buyers, who have evicted us to take over our suite. After a bad couple of weeks, someone responded to one of the signs we put up in the neighbourhood and we’ve put down a deposit on a lovely place (albeit for more rent, but much nicer than we currently have, and still reasonable by Vancouver standards).

You couldn’t pay me to be in the new owners shoes. They just put down (presumably) $1.4 M for the privilege of living in a suite that rents for $1525 and on top of that have to manage 3 other suites. It’s an old house so the bedrooms broil in summer and freeze in winter, and running the microwave trips the fuse. The wood in the sunroom is rotting. The laundry is down 3 flights of stairs and around the back of the house (no joke in the middle of winter). I’m guessing the value of Vancouver houses over $1 M will drop fairly soon, given F’s new cap. Yet amazingly I’m guessing they’re over the moon at their opportunity to “get into” the market.

Our new landlords are in the their early 30’s with not particularly high-paying jobs. I’m guessing Bank of Mom and Dad had everything to do with them owning a house. I asked if they’re planning on selling it, and they said they considered it back in the spring, but decided they were likely to end up as “wealthy land owners” if they just hung on. So unless they have a material change of heart, it looks like we have some stability again.

My husband and I are both born and raised here, and we’re never seen stranger times.”

– Exile on Main Street at VREAA 6 Jul 2012 7:06pm

“This weekend I was hit with a notice to end Tenancy. The owner has claimed they will be moving in. I know that they also own at least 4 other places in Vancouver and that they reside in China.”

“This weekend I was hit with a notice to end Tenancy. The owner has claimed they will be moving in. I know that they also own at least 4 other places in Vancouver and that they reside in China. How many of these other 4 investment properties have also been given notice? Will the owner also be “moving in”?
I knew this was going to happen as I believe fear has hit East Asia. If I do find out the landlord has sold and not moved in as promised I’m privy to some compensation. However, with a owner out of this country will I ever see the money?
Will renters in Vancouver be forced to move as a record number of speculators love their money out of the market?”
– via e-mail to vreaa, from ‘please withhold my name’, 3 Jul 2012

It is highly likely that plunging prices will be disruptive to many renters.
Amateur landlords will be bailing, and that will often involve renter eviction (legal or not).
At the same time, as we approximate prices supported by fundamentals, where good old-fashioned cash-flow makes owning properties good investments, we will increasingly achieve a situation that is good for renters seeking long-term stability.
– vreaa

“I met the landlord’s rep yesterday, and he said prices were going to be weak but Feb 2014 would be a great buying opportunity.”

“I rent a house in a very good area, and was told that it was worth 5 million a couple of months ago when I rented the property.
I was told prices in this area NEVER go down.
I met the landlord’s rep yesterday (he is elderly Chinese, landlord is a Chinese university student!), and he said prices were going to be weak but Feb 2014 would be a great buying opportunity.
I like how he has a very specific date; could be some Chinese astrology call.”
– from ‘T’, via e-mail, 27 Jun 2012

“We went to look at a townhouse to rent in East Van. I asked the landlord if she planned on selling. She eagerly asked “Why, do you want to buy it?” I guess it’s been for sale for awhile. I think this woman has multiple properties.”

“We went to look at a townhouse to rent in East Van. The woman told us the address, we googled it and found out it’s on MLS listed for sale. I hate living in places like that, you’re always wondering if you’ll be out the next month. Anyway, I went to check it out anyway (with no intention of really renting it), and asked her if she planned on selling. She eagerly asked “Why, do you want to buy it?” I guess it’s been for sale for awhile. I think this woman has multiple properties (somewhat recent immigrant, maybe within 10 years), I googled her number and came up with many different properties for rent. At the end of the meeting, I wished her good luck, she told me to call her if I changed my mind about buying the unit. I could smell her desperation.”
– pricedoutfornow at VCI 27 Jun 2012 3:08pm
—

For the last 10 years in Vancouver, buying as many properties as you possibly could has been a recipe for success. When prices fall, owning multiple properties will be a recipe for personal financial disaster.
Momentum investors hate owning assets in a market that is falling.
When they buy, many set mental ‘stops’; price levels at which they’d want to bail out of their positions, such that they can minimize their losses.
There are many multiple property owners that will bring their properties to market in a falling price environment. Some don’t even know they’ll be doing this yet, but when faced with the unanticipated reality of leverage working the wrong way, they will act.
– vreaa

All You Need Is Love – “This party tonight shows me how co-habitation, even with the asymmetric business arrangement inherent in tenant-landlord contracts, can produce wonderful relationships in an otherwise individualistic cityscape.”

“Was at a family friend’s birthday party tonight, she is heavily invested in 2 properties in Vancouver. She invited her tenants (4 of them) to the party. One brought a cake from the upscale bakery she works in, another who lives in her basement — she walks the dog and tends to the garden — made a few dishes as well.

One thing that always got me about Vancouver is how cold it is; not just the summer weather but the neighbourhoods, at least compared to other Canadian cities in which I’ve lived. This party tonight shows me how co-habitation, even with the asymmetric business arrangement inherent in tenant-landlord contracts, can produce wonderful relationships in an otherwise individualistic cityscape. Maybe this basement suite thingy isn’t such a curse after all.

Epilogue
I was reading on twitter about some guy complaining how one of his neighbour’s lawns remained uncut and whether he should call the City for “someone” to do something about it. I was thinking to myself, why not just f*cking mow it and invite them for tea next time they’re in town.”

– jesse at VREAA 10 Jun 2012 12:02am
—

Imagine all the people, living for today. You may think I’m a dreamer, but I’m not the only one. I hope someday you’ll join us, and the world can live as one.
Seriously. Why not?
Perspective, people.
(At the same time, we have to deal with this.)
– vreaa

“THREE SINGLE HOUSE READY MOVE IN (VANCOUVER WEST)” – “Still lots of speculation going on out there.”

“vancouver, BC craigslist > vancouver > housing > apts/housing for rent
$4500 / 5br – 3600ft² – THREE SINGLE HOUSE READY MOVE IN (VANCOUVER WEST)
Date: 2012-06-01, 3:21PM PDT
Reply to: xxxxxx@gmail.com [Errors when replying to ads?]
1.1936 W 35 AVE 5BR 4BA 3600SQFT GOOD SHAPE,MOUNTAIN VIEW. $4500
2.836 W 31 AVE. 7BR 6BA 4000 SQF,VERY WELL MAINTAINED,4000SQFT, $4800
3.3847 W 24 AVE BRAND NEW HOUSE.5BR 5BA 2780SQFT $48OO(NO PET FOR THIS ONE)
ONE YEAR OR LONGER LEASE.
SERIOUS TENANT PLEASE.
STABLE INCOME AND GOOD REFERENCE REQUIRED.
PLEASE SEND TEXT MESSAGE TO GARY 604 xxx xxxx
PostingID: 3051764634″
– craigslist ad 1 June 2012. [Spotted by Patsan at VCI 1 Jun 2012 4:35pm]

“This Gary guy has at least 12 West Side and Richmond properties advertised for rent. They are all vacant and available now and if you goggle the address all were recently purchased. Most of the properties on the West Side sold for close to 3 million and the Richmond ones are in the 1.5 million range. The guy must be a rental agent or ring leader behind investors who have recently dropped at least 20 to 30 million on houses to rent. The ads all state minimum 1 year lease so they are not looking for quick flips. None of the ads have photos or much details. The guy doesn’t have any houses advertised that appear to have been previously rented so he must be a newby to the game.
When you look at the yields they will get if they do get their asking rents they are below 2% after property taxes. Still lots of speculation going on out there. Actually considering the poor sales on the West Side and Richmond of late maybe speculators are the only ones buying.”
– Anonymous at VCI 2 Jun 2012 7:25am
—

A point of interest for those watching Vancouver RE is whether momentum-style speculators who have bought Vancouver SFHs will attempt to sell if price trajectories start to suggest we’re joining other failing housing markets around the world. We are of the opinion that many will.
– vreaa

Renter Lease Condition ‘Experiment’ – “I have a friend in our office who is looking to rent. He commented how “fishy, desperate, and deceitful” most of the landlords he had spoken to seem to be. He didn’t trust any of them. I told him to try my experiment…”

“I have a friend in our office who is looking to rent for his family as he just moved here from BC, and he was commenting the other day how “fishy, desperate, and deceitful” most of the landlords of the numerous vacant properties he had spoken to seem to be. He didn’t trust any of them to be frank and he felt that he was getting set up as the renter “in situ” to increase the listing value and prospect of selling the property he was looking at moving into. As he asked my advise a few weeks ago about his concerns, I told him to try my experiment:
Tell your prospective landlord that you “will” sign a long term lease (12+ months) on one proviso that will be written into the contract.
If the property is listed, or the ownership changes hands for any reason, the lease becomes null and void and you can exit the property without penalty and after 30 days notice upon becoming aware of either the listing, or the transfer of ownership, and that they are legally obligated to advise you of same when it occurs.
No one agreed to it, a couple of them had the blood rush out of their faces after repeatedly telling him they were not going to list the place during his interviews (so why would this condition matter then…..right ?) and one confessed the place was getting listed as soon as she put someone in it. He has decided to rent a purpose built luxury condo rental from a national property managment company instead……someone that I used to rent from.”
– Carioca Canuck at VREAA 27 May 2012 9:54pm

“We have been looking to rent. Most landlords seemed pretty eager, were willing to offer at least $100 off and almost hounded us when we didn’t call back. The same units are still on craigslist, indicating an oversupply of rental units (or a price mismatch).”

“A little off-topic but I wondered what you guys would make of the rental market. We have been looking to rent for a few weeks now and have seen mostly tower and new condo units (1BR and 2BR) for $1100 to $1450. Most landlords seemed pretty eager, were willing to offer at least $100 off and almost hounded us when we didn’t call back.I can still see the same units on craigslist that were offered 3 weeks ago, indicating an oversupply of rental units (or a price mismatch). Is there an actual excess of housing in BC or do I just happen to look at an unattractive market slice? Do you guys think rents are going to go up (more and more people who assume the crash will happen are waiting to buy, therefore increasing demand for rentals) or down (since desperate investors need to rent out their units even at a loss)?”
– suspectum at VCI 22 May 2012 11:32am

Professional Landlord to Amateur Landlord: “You may find that all your potential ‘dudes and dudettes in the basement forking over $1K per month’ are rare…and getting rarer.”

“Currently we are having difficulty renting in one of our downtown Vancouver apt blocks.
Not to mention the surrey apt is not at full capacity either.
You may find that all your potential ‘dudes and dudettes in the basement forking over a g ‘ are rare…and getting rarer.
Good luck finding renters dawg.
We are pro’s at this and we are experiencing the aforementioned lack of renters right now.
Do you really want to have a battle for renters with a national company that has very deep pockets?
We can rent the apts very cheap indeed if we have to.
Give it some thought eh?”
– a post by commenter ‘bill’ on greater fool.ca, 19 May 2012, who appears to be a professional property manager.

“Just had a switchover of tenants, nothing major to fix, but just the painting, cleaning, and dealing with general wear-and-tear chewed up all my spare time for a month and left me exhausted.”

“We’re landlords, and the tenants live beneath us in a ground-floor suite. Just had a switchover of tenants, nothing major to fix, but just painting, cleaning, and dealing with general wear-and-tear chewed up all my spare time for a month, and left me exhausted. The kind of thing realtors don’t mention when they throw around that “mortgage helper” catchphrase.
I can understand people not wanting to bother with running a rental suite. It’s certainly not the ideal situation. We’ll probably get sick of it eventually, and hopefully the numbers will work for us by then so we can look at other options.”
– Froogle Scott at VREAA 13 May 2012 6:50pm

Read of earlier events in Froogle’s epic story here:
‘The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise’.

“My girlfriend and I have been looking to rent in the tricities, looking at roughly 20 properties so far. The prospective landlords seemed pretty desperate; most seem to have bought as “investors”. A lot of them called us back when we didn’t contact them.”

“My girlfriend and I have been looking to rent in the tricities for a few weeks, looking at roughly 20 properties so far. The prospective landlords seemed pretty desperate. A lot of them called us back when we didn’t contact them after a showing, we were able to negotiate 10% discounts (on average) and short-term contracts. Most apartments were in the $1000 to $1200 range and seem to be hard to rent out. Most landlords seem to have bought as “investors”, one guy even using student loans. There definitely seems to be an oversupply of rentals (at the current price of $1100 for a 550 – 800 square foot, fairly new building with granite countertops etc landlords re-advertise for weeks on criagslist, indicating a difficult market for them). I see this as the first step of “reality kicking into gear”. Once these people can no longer pay their mortgages and fees (most places sell for about $300K, making a 25 year 0 down mortgage roughly $2000 a month plus $250 condo fees plus $250 tax, adding up to $2500, double what rent would generate) the foreclosures will begin. Of the $2500 a month, $800 are interest, making the “carrying cost” of taxes, int. and fees a total of $1300… they literally lose $200 every month if prices are stable. If they drop, they are even worse…”
– suspectum at VCI 1 may 2012 1:01pm [hat-tip jesse]

“Be Careful Where You Rent”

“I am currently looking for a house to rent for my family. We refuse to buy in this market. I always google the address of the place before I even call if I am interested. A lot of times it comes up as recently sold (this happens A LOT). It is a little scary when this comes up, because the house being bought more times than not is for speculative reasons.
This one was a whole different story. The house was a grow op… twice!
Be careful where you rent!”
– from ‘anonymous’ via e-mail 1 May 2012

—

The address is the same in the two documents.
– vreaa

Spot The Speculator #77 – “She’s kept the Cambie property and hopes to turn it into rental income in future.”

“Phoenix Lam returned home in 2005 after years of basement suites and roommates.
“I realized I wasn’t ever going to save enough for a down payment,” the 28-year-old said of spending more than half her monthly income on rent and expenses.
Instead, she paid minimal rent while at home. Four years later she had saved enough for a mortgage on a 566-square-foot apartment in Cambie Village.
“I wouldn’t be owning if I didn’t do that.”
While Lam now lives elsewhere, she’s kept the Cambie property and hopes to turn it into rental income in future.”
– ‘Hopeful homeowners staying in the nest’, Stephanie Ip, 24hrs.ca, 22 Mar 2012

Read Before You Rent… – “In my 25 years of renting apartments in Canada, I’ve never before had this trick pulled on me.”

[text in window]

“read before you rent ->

In my 25 years of renting apartments in Canada, I’ve never had this trick pulled on me.

We found this lovely place last March.
When we signed the lease, the landlady had pre-ticked the box that said we would vacate after our one-year term.
We said “oh no, we’re looking for a place to live long term. We’d like to go month-to-month after that.”
She said she would negotiate a new lease with us next year and that this is how she does things.

We very soon found out why…

Later that spring, I asked her if I could put in a garden and she said I could put pots on the conrete and slabs where I have put pots.
After I invested $500, and the garden was in full bloom, she said I had to redue to 2 pots – one each slab.
We refused and stood up for ourselves, as the garden gave us and all of our neighbours great pleasure and no problem.
She backed down at the time, but now refuses to negotiate a new lease with us.

We paid our rent on time every single month. PLUS we asked permission for our garden first, and she said yes!

We arent going to bother going to the rental tenancy board.
Shorly after moving in, we watched her do this to a young professional couple who were 8 months pregnant at the time, and the adjudicator at their hearing said “you shouldn’t have signed the lease with the vacate box ticket – I can’t help you.”
And watch, this woman won’t sign a lease with you any other way.
She wants absolute control and she escalates all situations to anger and tells you to move if you don’t like it.
So, beware.
Lovely home. Horrible landlady.

AND DON’T SIGN HER LEASE IF YOU WANT TO STAY LONGER THAN A YEAR.

She’s a master at using this trick to legally force tenants out.
Good Luck!”

—-
[The above care of ‘Aldus Huxtable’, via e-mail, who adds “Spotted whilst out on a walk, one for the archives? An evolved by-product of amateur landlords? Perhaps we will see a lot of speculators resort to odd maneuvers to make the increasing mortgage payments if rates were to increase. Who knows what this landlord’s motives were, but, in a city where renting is propping up the market….”. (Thanks, Aldus. -ed.)]

Renter Rant – “I make good money, have done everything right from a financial planning perspective, analysed the market in detail and it hasn’t made any sense to buy in for YEARS. Found out this morning I have to move again. Moving SUCKS!!!!”

“Enough is fcuking enough. Found out this morning I have to move again. My stupid mistake for not setting a 2nd lease. They are selling and cashing out – can’t blame them. They are friends of my brothers and gave us an indication they were holding long-term. SO STUPID OF ME!!! A 2 year old, prego wife, new job – timing could not be worse!
But seriously, I make good money (top 5% of Canadians), have done everything right from a financial planning perspective (pay yourself first, hired experience investors, diversified portfolio blah, blah, blah), analysed the market in detail and it hasn’t made any sense to buy in for YEARS. I couldn’t make myself buy in even back in 2007. But still it keeps going up, and lucky people keep getting to feel smug, and look down their nose at renters, and put themselves in CRAZY levels of debt. What the heck are you supposed to do get some stability (don’t answer that – I know get a lease – STUPID ME!). The very basic house I am in (getting booted from), in the neighborhood I grew up in will list and sell quickly for $850K!!!! Blows my mind.
All of this brought to you by our f’d up government who think grants to get more people into the market actually addresses the affordability problem. WTF!
We let real estate investors and contractors and planners run CMHC so they can drive more business for themselves. Really a government program to make housing more affordable and accessible insures INVESTMENT properties. WTF!!!
Total insanity. Heads gotta role at some point here. What’s involved in starting a revolution?????
Yes I’m tired of moving, but my biggest concern is what we are doing to Vancouver for the long-term. Assuming it ever goes down (starting to have doubts at times these days) the correction will be HUGE, and will slaughter so many of today’s smug faces. They will get their financial assess handed to them, and likely never recover. With how many of them there seems to be, what is that going to do to the city I grew up in and love, but have a hard time enjoying living in these days.
Moving SUCKS!!!!”
– RentersRant at VCI 29 Feb 2012 at 9:30pm

‘RentersRant’s biggest concern at this moment is clearly not about “what we are doing to Vancouver for the long term”, nor should it be. He has more immediate personal concerns about the profound inconvenience of being forced to move. We sympathize, moving ‘sucks’ at the best of times; when it is a forced move it is that much more unpleasant.
We also sympathize with his longer-term concerns for the city, and how his financial prudence has been punished by monetary policy & the speculative mania while all around the imprudent have been temporarily rewarded.
The spec mania applies destabilizing forces to the rental stock in the city. Any landlord capable of back of the napkin math, and who also has a modicum of insight into where we are in the RE cycle, should be selling. This is not good, it’s just another deleterious effect of the bubble.
– vreaa

Spot The (Wannabe) Speculators #73 – “A home is their best non-taxable investment, and besides, they have to live somewhere.”

“Jean and Gary plan to marry in April, pay off Gary’s student debt and save up for a month-long backpacking trip to South America. Easily done.
Their longer-term aspirations will take more effort. Mind you, at 28, their dreams look possible – a home, a family, a “robust” investment portfolio. Jean will graduate this summer and hopes to get a job, perhaps with a municipal government, paying in the $60,000 range. In the meantime, she gets about $2,100 a month working as a research assistant. Gary earns about $60,000 working for a regional transportation authority.
Already, they’re thinking about their financial future.
“We think we are generally pretty wise with our money but are keen to learn about financial planning and investing,” Gary writes in an e-mail. Once Jean starts work, they intend to begin saving to buy a house in Vancouver in about five years.
“We are unsure if we can afford to buy a place and wonder if we should continue to rent for the longer term,” Gary adds. Their rent in Vancouver is $1,600 a month. They figure a house that will meet their needs will cost at least $800,000 in that market. Alternatively, to get a foot in the real estate market, they are mulling buying a rental property in Gary’s hometown in small-town Ontario.
…
Once Jean starts working at a salary of $60,000 a year, the couple’s cash flow will improve substantially, Nancy Woods (investment adviser and associate portfolio manager with RBC Dominion Securities Inc.) says. …
Once the student loan is paid off in 2014, the couple will have a surplus of about $13,065 a year or about $1,090 a month if they keep their expenses in check. That’s on top of their registered retirement savings plan and tax-free savings account contributions. This money can go toward saving for a down payment.
With time and compounding at 5 per cent a year, they could conceivably save more than $160,000 by 2017, the planners calculate. They could withdraw $35,000 from their RRSPs under the federal Home Buyers Plan, $74,410 from their TFSAs and $52,000 from non-registered savings, for a total of $161,410.
Even so, they may want to rethink that $800,000 price tag on a home. If they put $160,000 down on an $800,000 house, they’d be left with a $640,000 mortgage. Amortized over 25 years with an interest rate of 5 per cent, the loan would cost $3,700 a month in principal and interest. If, instead, they bought a $600,000 house with the same down payment, their monthly mortgage payments would be $2,560. …
For their first home, Jean and Gary may have to start with something very small and out of their current area, the planner says. “A home is their best non-taxable investment, and besides, they have to live somewhere.”
…
– from ‘Building a foundation for long-term dreams’, Globe and Mail, 24 Feb 2012

Hey, with a household income of $120K, if they save diligently, they could afford to buy a basement suite in South East Vancouver, in 2017, for $600K. But, wait!… at the assumed annual property price appreciation of 7% to 10%, in 2017 that basement suite will cost them anything between $840K and $966K… The price will appreciate much faster than they can save! So, wouldn’t it be better for them to go all-out right now, get together as big a downpayment as possible (cue boomer-parents bearing HELOC derived gifts), borrow as much as they possibly can, and get into the market ASAP? Otherwise, they’ll be priced out, right? No chance of ever owning anything!
Okay, ‘/sarcasm off’; but you get the picture.
This is precisely the kind of perverse thinking that has gotten buyers of almost every stripe to overextend themselves, as early as possible, into as much RE as possible, in order to catch the Vancouver RE train. All premised on future price rises.
The couple in this story will possibly be okay. Our hunch is that a fair number like them won’t over-extend into anything just yet, largely because what they can get now at the top end of their budget is barely what they’d define as a ‘home’. Then the crash will bail them out.
Sometimes it pays to be so late to the party that it’s over when you get there.
– vreaa

“The house and lane house were empty and converted into 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties.”

“I’ve been helping a friend who is relocating from elsewhere back to Vancouver find a rental property. I went to view a house around 14th & Cypress which had a lane house. Both the house and lane house were empty and converted into most likely 7 or 8 suites between the two. The owner couldn’t meet me on time as he was showing one of his other six properties “like this”.
May I note, the renos looked shoddy, window surrounds without a straight line, plus, really, would you like to pay $1600/mo for a 1+loft on a property where 8-18 people will be living, coming and going on a boxed in lot? I viewed this place within the last three weeks.”
– Aldus Huxtable at VREAA 9 Feb 2012 3:07pm

Densification, unplanned.
– vreaa

The Costs Of Ownership – “Here are the economics of my renting since arriving and how this would have compared to buying.” – Renter Ahead $200K Over 5 Years

ZRH2YVR is a regular poster who recently revealed that they will be leaving Vancouver for a job to Switzerland. Their story was headlined 28 Jan 2012.

On that thread, ZRH2YVR added this useful analysis [VREAA 29 Jan 2012]:
“Here are the economics of my renting since arriving and how this would have compared to buying. You know real estate always go up so this renting thing must have been a real bust.
Property info – 1400 sq ft unobstructed 270% view of English Bay south down granville street and up and around to the mountains east approx to My. Seymour. New building 2007.
Rent paid from move in to June 2012: $196,000
This is a true consumption cost and was well within our means.
Value of property in 2007 on move-in – approx 1.4M.
Value today – estimated – 1.4-1.5M . Let’s say 1.5M just to be conservative.
Cost of ownership – Assume 100% leverage and ignore investment opportunity cost.
Interest rate – Let’s sat 5% even though in 2007, it may have been more.
Strata and property taxes amount to approx $1050-1100 per month.
So – Cost of ownership over this period is $395,000. But wait – the property went up in value right? !!! Well
Purchase cost would have been approx $1,430,000 with all up front costs.
Selling at 1.5M and subtracting costs would net say- $1,450,000 – so there is a gain of $20,000. Fantastic . . . Offset this against the cost of ownership of $395,000 – that gives you net $375,000 (ignore taxes). Compare this to cost of renting of $196,000 – we are up approx $200,000 – Believe me we notice this!!!
So – – For all you property virgins out there – the numbers above may be outside your normal range but divide this by 3 for a $500K property and you will be in about the same place – – up by $60,000 over 5 years. I would never buy in the current market.
Now the funny thing is that in order for us to have broken even, the purchase price would have been close to $600K initially -and that is over 50% fall from where we are. Good luck to all of you. A house is a place to live first – invest second and anyone who is investing right now is completely out of their mind. You would have much more fun going to Vegas for a month – and would probably be better off.”
—

Notice how often different methods of calculating the fundamental values of different properties come up with a “over 50%-off” conclusion.
Add bad sentiment on the downside and you can see one source of our 50%-66%-off estimate.
– vreaa

Spot The Speculator #70 – “A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”

“A close relative of mine just bought a house near Commercial Drive. She can’t imagine prices dropping in the slightest– a flattening is the worst that she considers to be possible.”
– M—, at VREAA 31 Dec 2011 at 10:27am

Most don’t count buyers such as this lady as speculators.
That’s the main point of this series.
– vreaa

Spot The Speculator #69 – Three properties, all with maxed out HELOCs – “A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”

“A close acquaintance of mine lives in the Vancouver suburb of Surrey (an area that respected blogger Garth Turner recently predicted would see a 30% correction if the national market tanks 15%).
A staunch housing bear himself, my close acquaintance rents the house he is currently living in. The home was recently assessed at a value of $450,000 and the landlord is the quintessential poster child of the over-extended, amateur Vancouver landlord.
Owning her own home in Coquitlam (another Vancouver suburb) plus two rental homes in Surrey, she constantly struggles to make ends meet.
Recently a spat of repairs were required on the house my acquaintance lives in.
First, the garage door sustained damage. When arrangements were made for an assessment from a repairman, the landlord asked my friend to pay the $80 charge (which would be deducted from the next month’s rent) because she no longer had a credit card.
Next, the dishwasher failed.  A plumber was called and he replaced the garburator (a repair that had been put off since summer) as well as the dishwasher.  And while the landlord arranged a cash payment for these (delivering the money to my friend to give to the plumber on the day the work was to be done), the plumber later confided the landlord had been in tears on the phone as they discussed the best place to secure the ‘lowest’ price on a new dishwasher.
I’m sure you won’t be surprised to learn that all repairs seemed to be “under the table” with no apparent HST tax paid.
There are other repairs that are required at the house but are “on hold” because the landlord admits to cash flow problems.
The landlord has told my friend that the house was a gift she received from her parents over 13 years ago.
So does that mean the property is mortgage free?
In the 3 years my friend has been at this house, he has accommodated 3 requests to have the property assessed for HELOC applications. In the most recent visit (always by the same assessor), the assessor let slip that he had also been doing the same on her two other properties. She has maxed out the available equity on this house (about six years ago this money was used to purchase the second rental home), the second rental home and her own house.
Now, with TD Bank expecting a market correction of 12%, where will this landlord wind up?
This landlord (not unlike many others in the Lower Mainland) have been using their homes as personal ATM machines.  And the money they have taken out against their properties is spent.
This particular landlord struggles to maintain basic repairs on the homes and is in a personal financial situation where she no longer has access to credit cards.
What will a 12% drop in property values mean to this landlord?
On the one Surrey home (assessed value $450,000), a 12% correction is a loss in $54,000 in mortgaged asset value. A 15% drop translates to a loss of $67,500. If we were to realize Garth Turner’s prediction of a 30% drop – the loss on this house would be $135,000.
Without continued price appreciation, not only is the HELOC ATM most assuredly closed to her for future withdrawals but any major repair or incident will be devastating to family finances.
If the other two homes are of equal value, she is facing a total drop of $162,000/$202,500/$405,000 in asset value (based on drops of 12%/15%/30%), none of which is equity. Are the banks going to blindly renew mortgages on these three properties when she could be underwater by almost half a million dollars on all three combined?
At what point does the straw break the proverbial camel’s back?
How many more are in similar circumstances?
Without a dramatic turnaround in the economy, how can these people avoid any other fate besides default, bankruptcy and foreclosure?
Anecdotal evidence suggests there is a strong likelihood that a higher percentage of Greater Vancouver homeowners are in this situation vis-a-vis the greater mortgage market than there were subprime mortgage holders in the US mortgage market.
A 12% or 15% correction does not sound like much, but given the dynamics of the Vancouver market it could be devastating.”
– anecdote and analysis from villagewhisperer at ‘Whispers from the Village at the Edge of the Rainforest’, 29 Dec 2011. [Thanks, whisperer. Hat-tip to ‘Bailing in BC’]

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.”

“I know a couple in Lausanne, Switzerland, whose combined income is certainly over $500k. They rent. Many Swiss cities are renter cities.” – Jeff Murdock at VREAA 9 Dec 2011 8:19am
—–

“The Swiss have a very well balanced real estate system. They live in a country with limited land and thus, the ownership and use of land is somewhat regulated and it is an asset to be consumed and not “invested in” or traded. This creates a very very stable market. You’ll see that the value of Swiss real estate has barely gone up in the past 20 years which is not so bad in a country where there has been almost no inflation. However, here are some items that keep their real estate in check.
1.) 80% of people rent. It is an asset to be consumed and it’s value is derived from the rent.
2.) Rent is a factor of property value/interest rates and is controlled and regulated.
3.) 100% of the maintenance risk lies with the tenants. Costs are allocated throughout the year in addition to the base regulated rent. In the event of a major item – it is split up between the tenants.
4.) If you actually own, you can deduct your interest – however- even if you have no mortgage (and thus no deduction) you also have an income inclusion which represents hypothetical rental income to yourself. You have to impute rent at say 4% of the property value each year. This is added to your income and you pay income tax on it.
5.) Foreign ownership restrictions are everywhere. And Foreigners have restrictions on the real estate that they dispose and they only allowed to sell for a gain in restricted circumstances.
—
A few other Swiss things to note. The pensions are very very rich and well funded. Up to 30% of your income each year goes into the pension system. Thus – pension funds are massive and retired people are very very wealthy. Where does the pension money go? To own the real estate buildings that people rent – since this is guaranteed and almost riskless cash flow (cash flow is risk reduced because rents are hardwired to property value and the maintenance and repair costs flow to tenants).
—
Another item is that since all the properties are owned by pension funds and insurance companies, you will never be asked to move – – in fact – most Swiss never move. It is too expensive (when you leave – you must return the property in the original condition you received it – no such thing as normal wear and tear. Plus – your movers are not cheap either – over 100/hour plus equipment rental costs).
—
All this means that Real Estate fulfills its function of providing housing stock as a consumable. Cities are priced in a rational way and so is real estate. Owning v. renting is not really much different in terms of risk. Vancouver could learn a lot from this. I am a strong advocate of implementing some type of limited foreign ownership restriction. Where you are dealing with a limited resource – you need to have the resource used for the benefit of the operation of the city – and not some type of traded commodity.”
– ZRH2YVR at VREAA 10 Dec 2011 8:11pm
—–

“I thought it was funny that they make $500,000 a year and still have to rent – mega lol”
– tmda commenting at RETalks 10 Dec 2011 7:53am on Jeff Murdock’s comment above
—–

Thanks to ZRH2YVR for the description of the very sensible Swiss system.
In Vancouver we do things very differently, of course. Ownership culture is entrenched. The speculative mania has caused each and every property to be viewed at least partly as a financial instrument.
– vreaa

“I open the door an the end of the hallway. Surprise! It’s a fully occupied suite. The owner made no mention of this. How about that for a surprise after you’ve signed the lease? The owner’s sister lives in the basement!”

“Ready for a chilling Halloween rental tale? What if you moved into a house without knowing there were other people living there?
It almost happened to me today. I check out this rather promising listing at 1107 Yorston Court:
$2300 / 3br – Beautiful North Burnaby Home
Date: 2011-10-16, 2:23PM PDT; craigslist.ca; PostingID: 2653098354
It’s old, but has a large lawn and a huge deck. I’m poking around in the basement, and I open the door an the end of the hallway. Surprise! It’s a fully occupied suite. As you can see, the listing makes no mention of a downstairs suite or shared accommodation. Neither did the owner as he was showing me the place. How about that for a surprise after you’ve signed the lease? The owner’s sister lives in the basement! What if I hadn’t opened the door?”
– Vulture Fun at vancouvercondo.info 29 Oct 2011 6:50pm

Poorly Constructed Rental Ad – “Heat come from floor” [with tentacles?]

1718,SE MARINE DR
$925 / 2br – Two adults need for on Nov st,2011 (5years old house,Marine and Argyle)
craigslist PostingID: 2646569812
Date: 2011-10-12, 2:47PM PDT

“It’s 5years old house and also appliences are 5years old too.Included utilitie,close to bus stop,Superstore,around
8minutes to go Canada Line buy Bus,BCIT SCHOOL.
Two bedrooms suits is for two adult people only because of the neighbour.
It’s ground level,hardwood floor and heat come from the floor and own alarm system,
cable(a lot of charnel),included
Sorry no extra person or smoke or pet please.
Please contact to Princess 604-312-4668.”

Sic, Sic, Sic. -ed.
[hat-tip BPOM and gordholio at VCI]