# Ridiculous



## Rickson9 (Apr 9, 2009)

So apparently RE agents and MLS are telling us that our 1bdrm 600 sq ft rental condo on Yonge Street in Toronto is worth $279K:

http://www.realtor.ca/propertyDetails.aspx?propertyId=8501560

...and the one across the street is worth $300K:
http://www.realtor.ca/propertyDetails.aspx?propertyId=8533699

Nobody in their right mind can believe that this RE market is 'normal'.

Crash back to earth anyone? I am desparately hoping for a huge crash in the RE market.


----------



## Spidey (May 11, 2009)

Then on top of that you have to pay $279 per month in maintenance fees. I've noticed the same kind of pricing in Ottawa when I was trying to find something for my mother instead of her high maintenance house. In fact, I've seen maintenance fees as high as $450 for a 2 bedroom condo. Seems to me that most people would be better off renting.


----------



## Rickson9 (Apr 9, 2009)

Spidey said:


> Then on top of that you have to pay $279 per month in maintenance fees.


Closer to $300/mo actually!


----------



## Cal (Jun 17, 2009)

Yep. The RE market has crashed in virtually every country on the planet, except Canada. I can't believe that there are still people here that think that RE can still go up.

What will go up is unemployment, taxes to pay for the gov't debt, and mortgage rates...doesn't sound like a good combination to drive RE up does it?

You should check out www.greaterfool.ca 

Garth Turner is pretty pessimistic on RE here in Canada.


----------



## DAvid (Apr 3, 2009)

Garth Turner has been predicting a Real Estate crash for years. Sooner or later he'll be right!


----------



## coin purse (Jul 3, 2009)

Rickson9 said:


> So apparently RE agents and MLS are telling us that our 1bdrm 600 sq ft rental condo on Yonge Street in Toronto is worth $279K:
> 
> http://www.realtor.ca/propertyDetails.aspx?propertyId=8501560
> 
> ...


So what do you think those condos should be selling for?


----------



## Rickson9 (Apr 9, 2009)

DAvid said:


> Garth Turner has been predicting a Real Estate crash for years. Sooner or later he'll be right!


No doubt!


----------



## Rickson9 (Apr 9, 2009)

coin purse said:


> So what do you think those condos should be selling for?


$1M so we can cash out!


----------



## OhGreatGuru (May 24, 2009)

Real estate is "worth" whatever the market is willing to pay for it. that being said, it does seem steep for a small apt. a long way north of downtown - but it is within walking distance of the Yonge/Sheppard subway station. (In Vancouver they would think it was a bargain)


----------



## NorthernAlex (Jul 26, 2009)

This is my 1st day here in the forum and 1st post at this forum. So, please be nice! ))

I am also an active member at a real estate forum and have some cash flowing rental units here in Ontario. The group, I am with to learn about RE, is meeting once a month in Toronto, too, to discuss the local Ontario market.

If I remember right is the highest numbers of potential new condos in Canada here in Toronto (roughly 14,000 in planning or already in building process until 2011), what I read in my documents a few months ago- even more than Vancouver. So, yes there will be a condo market correction coming, FMPOV.

Comparing these prices to Europe, where I am from..... it would be a bargain.

Last years were "Tiger Woods" years in RE in Canada, but still in controlled growth, because of CMHC financing and the banking systems.

@ OhGreatGuru: Couldn't you say the same about stocks or any other investment: _....is "worth" whatever the market is willing to pay for it."_ 

CU,

Northern Alex.


----------



## OhGreatGuru (May 24, 2009)

NorthernAlex said:


> ...
> 
> @ OhGreatGuru: Couldn't you say the same about stocks or any other investment: _....is "worth" whatever the market is willing to pay for it."_


Yes, but people often don't think of it that way. They will think "a 600 sq.ft. apt. simply isn't worth that much", assigning some imaginary intrinsic value regardless of market conditions. As a real estate investor you would be more accustomed to thinking of it in relation to the market value of other kinds of investments. Perhaps I misinterpeted the tenor of the initial post.


----------



## Rickson9 (Apr 9, 2009)

My friend who lives in Midland, Ontario owns 22 rental units and is looking to sell. I'm not big into indicators, but that's saying something...


----------



## coin purse (Jul 3, 2009)

Rickson9 said:


> My friend who lives in Midland, Ontario owns 22 rental units and is looking to sell. I'm not big into indicators, but that's saying something...


I wouldn't take one person selling their assets as any indicator of an overall trend. Who knows why their selling...it could have nothing to do with their long / short term thoughts on the market.


----------



## Rickson9 (Apr 9, 2009)

coin purse said:


> Who knows why their selling...it could have nothing to do with their long / short term thoughts on the market.


I know why he's selling. We've had long talks about it. However, like I said, I don't really believe in anybody being able to predict the future. Hell, if somebody offered me $1M tomorrow for my tiny condo I'd sell too!


----------



## canadianbanks (Jun 5, 2009)

Rickson9 said:


> Crash back to earth anyone? I am desparately hoping for a huge crash in the RE market.


Your wish will be granted very soon . Families with $100K gross income buying houses in Toronto for $600K with 0% down - this will end beyond bad! 

I remember reading that the Toronto's condo market is the most overbuilt in North America. Factor in that maybe 15-20% of the condos bought in the last few years were bought as investment properties. Factor in that we are at the top of the house price/buying cycle. Factor in ultra-low interest rates that are bound to go higher. Considering all these factors it is likely that very soon there will be a mad rush to get out of the door and sell before it's too late. This can be triggered by any number of factors, like another major stock market crash (likely), a small increase in interest rates (inevitable), EI running out for 10s of thousands laid off this year, etc.

The way I see it, there will be a decline of between 35%-50% from top to bottom. You may not like it, but you better be prepared for it.


----------



## Berubeland (Sep 6, 2009)

I know what you're saying Rickson

I bought my house about 10 years ago and according to what RE agents are saying it's worth about $300,000 which is absolutely ridiculous. I paid about $130,000 for it. I did some work on it but still. Point is it's very modest. It's a two bedroom bungalow for crying out loud.

I think we are in a bubble and i have been saying so for years now. I thought prices would readjust and they did for a while but now we're back up there again.

I think that one sign that you're in a real estate bubble is that no one can put a 25% down payment on a house and rent it out to pay the mortgage. 

Even the more commercial landlords are drinking the Kool Aid. They are buying 4 and 5 cap properties right now downtown and that is foolish. 

It does worry me quite a bit being in the business. I also am noticing in my travels that there seems to be a lot of commercial vacancy.


----------



## rbabi18 (Aug 11, 2009)

Garth Turner is usually right about things. Everyone really should check him out.


----------



## Rickson9 (Apr 9, 2009)

canadianbanks said:


> The way I see it, there will be a decline of between 35%-50% from top to bottom. You may not like it, but you better be prepared for it.


This would be awesome if it came true!


----------



## Stompie79 (Aug 21, 2009)

Interesting to see others thoughts on Garth Turner. I've just "discovered" some of his books and it's certainly a bit unnerving. Having only owned a home for 2.5yrs if he’s right it would mean my wife and I would be in negative equity for the foreseeable future unless we get out quickly.

Out of interest I found some numbers on average house prices in Ottawa from 1956 to 2008 and compared them to inflation between the same period (taken from Bank of Canada website). I keep hearing that the average Canadian family hasn’t done much better than inflation pay wise so I thought that would be a good indicator.
Basically it showed that inflation had caused the 2008 “average basket of goods” to be about 8 times the price it was in 1956. The 2008 home price was a whopping 21.7 times the price it was in 1956.
I’m unsure if shelter is included in the average basket of goods.

Now I only picked Ottawa because I found that cities numbers first and I have no knowledge of any special market conditions that might have caused such a large jump. I also have no idea if taking this back past 1956 would make the figures better or worse. I just did it for interest after reading a few of Garth Turners books.

Has anyone else looked at this for other cities or got any comments?


----------



## Rickson9 (Apr 9, 2009)

Supposedly a RE agent said that he could fetch $300K for the place. Assuming that he can, I think that's ridiculous.

There is no way an investor for that property can use the condo to make their money back. If a buyer put 25% down that would be $75K carrying a $225K mortgage.

RBC gives a prime + 0.3% mortgage on a 5 yr closed which comes out to 2.5%. With a 25 yr amort this will come out to $1,000 per month. 

Condo fees are $300 p mo., property taxes are $200 p mo., and he can slap on some insurance for $30.

So his total fixed expenses are $1530 p mo. Rent in the area is $1200 (lower if you want to be competative and ensure fewer vacancies). This buyer would be bleeding cash every month unless they put a lot bigger down payment and neuter their ROI.

If rates moved the wrong way, there would be trouble.

I don't see it. Not something I would do anyway.


----------



## sagsal (Apr 7, 2009)

I think there are a lot of factors as to why the Toronto RE market is so resilient:

1. There are a large number of public sector employers in the city and this provides obviously stable incomes - fairly recession proof jobs in addition to the Banks who have had limited layoffs

2. Lots of wealth in the city and there has been, and it continues, a significant transfer of wealth over the last few years

3. With a city fairly stable in employment, and basically the epicentre of the Canadian economy, you have lots of two income homes and a strong desire to be upwardly mobile and able to afford it.

4. Lets not forget rates are still very low and as I understand Property taxes in Toronto are less than elsewhere.

Just a few thoughts


----------



## sprocket1200 (Aug 21, 2009)

funny that no one has mentioned that people are relying on their LOCs and CCs. debt levels are increasing, it won't last forever...


----------



## MoneyMaker (Jun 1, 2009)

sagsal said:


> I think there are a lot of factors as to why the Toronto RE market is so resilient:
> 
> 1. There are a large number of public sector employers in the city and this provides obviously stable incomes - fairly recession proof jobs in addition to the Banks who have had limited layoffs
> 
> ...


How about the averaging house costing more than the average household income?

If I recall, Toronto has amongst one of the highest unemployment rates in the country with manufacturing and auto sector decimated.


----------



## sagsal (Apr 7, 2009)

Ontario has one of the highest unemployment rates not toronto

Haven't too many car plants here...


----------



## MoneyMaker (Jun 1, 2009)

sagsal said:


> Ontario has one of the highest unemployment rates not toronto
> 
> Haven't too many car plants here...


OTTAWA — *The national unemployment rate was 8.7 per cent in August*. Statistics Canada also released seasonally adjusted, three-month moving average unemployment rates for major cities but cautions the figures may fluctuate widely because they are based on small statistical samples. (Previous month in brackets.)

Major Cities:
*- Toronto 10.1 (10.0)*
- Montreal 9.6 (9.6)
- Edmonton 7.3 (7.0)
- Vancouver 7.3 (7.0)
- Calgary 7.1 (6.9)
- Ottawa 5.2 (6.0)

Others:
- St. John's, N.L. 8.2 (8.1)
- Halifax 6.4 (6.0)
- Saint John, N.B. 5.2 (5.0)

- Quebec 5.1 (4.8)
- Saguenay, Que. 9.3 (9.8)
- Trois-Rivieres, Que. 8.6 (8.3)
- Sherbrooke, Que. 7.6 (8.5)
- Gatineau, Que. 5.8 (5.4)

- Winnipeg 5.8 (5.3)
- Regina 4.1 (3.2)
- Saskatoon 4.5 (4.7)
- Abbotsford, B.C. 9.0 (9.0)
- Victoria 5.7 (6.1)

Ontario:
- Kingston, Ont. 6.8 (7.2)
- Hamilton 8.7 (8.2)
- Thunder Bay, Ont. 8.7 (8.5)
- Oshawa, Ont. 9.9 (9.7)
- Kitchener, Ont. 9.9 (9.9)
- St. Catharines-Niagara, Ont. 9.9 (10.5)
- *Toronto 10.1 (10.0)*
- Sudbury, Ont. 10.6 (9.8)
- London, Ont. 11.1 (10.9)
- Windsor, Ont. 14.8 (15.2)


----------



## MoneyMaker (Jun 1, 2009)

Source: Sept 4/09 - http://www.lfpress.ca/newsstand/News/CanadaWorld/2009/09/04/10747971.html


----------



## mork (Apr 3, 2009)

rbabi18 said:


> Garth Turner is usually right about things. Everyone really should check him out.


I hope you are joking. I used to read Garth's syndicated column years ago for entertainment (not advice). As best as I can tell from reading his thoughts for years is that he has almost always been WRONG.

What he is good at is writing..


----------



## Berubeland (Sep 6, 2009)

Rickson9 said:


> Supposedly a RE agent said that he could fetch $300K for the place. Assuming that he can, I think that's ridiculous.
> 
> There is no way an investor for that property can use the condo to make their money back. If a buyer put 25% down that would be $75K carrying a $225K mortgage.
> 
> ...


This is what I have been seeing for years now as "Real Estate Investment" advisement mantra. Just a few months ago I saw Brad Lamb touting this same crapola on his show and it drives me crazy. It is 100% pure speculation that they are doing. The whole thing is a Ponzi scheme because even though we KNOW THAT REAL ESTATE MARKETS TANK that is left right out of the equation. 

I can't tell you how many condo owners I speak to are paying monthly to rent a nice condo to tenants.


----------



## MoneyMaker (Jun 1, 2009)

sprocket1200 said:


> funny that no one has mentioned that people are relying on their LOCs and CCs. debt levels are increasing, it won't last forever...


great stat on that.. "The average debt held by Canadian families rose faster than average family income — six times faster from 1990 to 2008. "


----------



## iherald (Apr 18, 2009)

mork said:


> I hope you are joking. I used to read Garth's syndicated column years ago for entertainment (not advice). As best as I can tell from reading his thoughts for years is that he has almost always been WRONG.
> 
> What he is good at is writing..



Garth Turner wrong? That's silly, he said these things and it was shown to be correct....


In a Canoe "Money" chat room back on Sept. 27, 2000, Turner assured participants that the stock market was undergoing a mini-correction, that the Dow would hit 30,000 by 2006, and that "Nortel [then trading at $96.60] is a wonderful company and, given the recent decline, I think it is a strong 'buy.'" That day, the TSE closed at 10,250.​
Or in 1999 when he wrote

Inflation is rising and some are even suggesting that the governments are manipulating the figures to keep the figures lower than they actually are.​
Actually I think he is still saying that one. 

But my three favourties (all from his 1999 book New Rules for the New Age)

“The Canadian Peso: A steady slide over the last 15 years. There is little reason to believe this trend will stop, increasing the argument for putting more of your wealth into something more stable, like the U.S. dollar.”​
and

“Stocks will be higher in a decade than they are today. Between 1990 and 2000 the Dow went up 500%. Do you really think that between 2000 and 2010 it will go down?”​
and finally

“By 2005 Ford will dominate in a way that it has not since the Depression-era 1930.”​
This is not to say that Garth is wrong about real estate. It is to show that when you make predictions you are likely to be wrong pretty often. So to take any person's predictions as the gospel isn't too wise. That said, watch out for 2012!


----------



## MoneyMaker (Jun 1, 2009)

I don't put too much faith in anyone's predictions, but Garth Turner's logic towards real estate valuations are pretty compelling.. good food for thought


----------



## iherald (Apr 18, 2009)

MoneyMaker said:


> I don't put too much faith in anyone's predictions, but Garth Turner's logic towards real estate valuations are pretty compelling.. good food for thought


I agree totally with you that anyone's opinions if there appears to be evidence behind it are good food for thought. Like most things in life, I find the more people who make good points will only strengthen my opinion.

Will my opinion be correct, who knows, but I can always justify it and in most cases give examples of why I disagree with the other side. There's nothing worse, in my opinion, than just taking at face value whatever some 'expert' says.


----------



## Berubeland (Sep 6, 2009)

Garth Turner's ideas towards selling your own personal house to live in a rented apartment are retarded. 

You need to live somewhere. 

I say buy a modest house pay it off and live there. It doesn't matter if house prices go up or down you need one to keep you out of the cold. So your principal residence is pretty much revenue neutral. Also when you sell your property and put the money in the bank it ceases following the real estate market and you get crappy interest on it. So if I cashed in my house for example and put the money in the bank could i buy back my same house next year for the money plus the interest... I think not. To do so would require timing the real estate market.... oops that might be complicated i think

He also does not take into account a lot of negative things about renting. 

Lack of maintenance
Cockroaches
Landlord sells the property
Rent increases
Neighbours
General lack of control

His arguments could apply to a second or other property because this is additional to where you sleep at night. 

Statistically renters are much poorer than owners much much more. I think renter's average savings were $2000.


----------



## FinancialJungle (Apr 22, 2009)

Berubeland said:


> Garth Turner's ideas towards selling your own personal house to live in a rented apartment are retarded.
> 
> You need to live somewhere.


It's inevitable that the "you need to live somewhere" argument always pops up in any rent-vs-own discussion. But, I have a hard time following the logic. Is it saying renters don't have a roof over their head? If you rent a place, aren't you _living somewhere_?



> He also does not take into account a lot of negative things about renting.
> 
> Lack of maintenance
> Cockroaches
> ...


It really depends. I live in a newer high-rise (~6years), and the strata is reponsible for the building maintenance. There are no biases for or against tenants or owners. Everyone is treated equally. If there's a problem with maintenance, cockroaches, or neighbours, it's a problem for everyone, owners included.

As for landlord selling the property, that's something outside of the tenant's control, but there're cons for being an owner too. If you're laid off, and find a new job further away, it's pretty easy as a tenant to pack and move to a new home. As an owner, you'd have to list your place, and realtor fees, lawyer fees, and taxes. I think the whole notion of being forced to move because landlord is selling is a wash.

Finally, rent increases (at least in BC) are governed by the Residential Tenancy Act. The rule states that landlords can imposed a maximum yearly increases of inflation + 2%, or about 4%, but most landlords, including mine, don't even take full advantage of that. My cumulative rent increases over the past 2 years is 3.5%, or ~1.75% a year.



> Statistically renters are much poorer than owners much much more. I think renter's average savings were $2000.


Ignore statistics. Just focus on your situation.


----------



## Berubeland (Sep 6, 2009)

Ignore statistics. Just focus on your situation.

Alright I will

I'm not selling my paid off house which is worth about $300K (i bought at $150K) so that I can put the money in the bank for 3% interest or about $750 per month so that I can go live in a basement apartment somewhere with my two dogs and my husband and my 2 year old. (which is what I could afford if my calculations are correct) 

I think that is RETARDED. 

What I am saying is the USE of the asset in the case of a primary residence is much more important than fluctuations in the Real Estate market.My house has doubled but even if it were worth half what I paid it it would keep me just as dry.


----------



## FinancialJungle (Apr 22, 2009)

Berubeland said:


> Ignore statistics. Just focus on your situation.
> 
> Alright I will


That's *your* situation. That's why there's no point in using statistics to generalize what everyone should do. I can give you some numbers in Vancouver where it's financially responsible for some homeowners to sell and rent.


----------



## steve41 (Apr 18, 2009)

> I can give you some numbers in Vancouver where it's financially responsible for some homeowners to sell and rent.


Uh. I don't think so. According to my daughter in Vancouver... Bidding Wars...* 'they're baaack!'*


----------



## FinancialJungle (Apr 22, 2009)

steve41 said:


> Uh. I don't think so. According to my daughter in Vancouver... Bidding Wars...* 'they're baaack!'*


I'm not seeing above average bidding war activities here. Don't you know bidding wars aren't permanent?

The housing boom is primary driven by record low interest rates. I read that more people are opting for lower variable rate mortgages (as opposed to fixed) to keep up with the escalating prices. But variable rates can be fickle. Just check out how quickly they can swing in just a year: 

http://www.ingdirect.ca/en/accounts-rates/historicalenmtgvar.jsp 

The typical homes in Vancouver cost more (excluding principal payments) to own than to rent. To me, the risks of buying a home now at these bubbly prices are akin to buying stocks on margin. 

1) Interest rates can go up, thus causing prices to plummet.
2) You might get laid off, thus cutting off your payment stream.

The worst-case-scenario is you're laid off while owing an upside-down mortgage - owe more on the house than what it's worth. 

That's why buying an overpriced home in a fragile economy isn't always the brightest move.


----------



## Berubeland (Sep 6, 2009)

You won't get me to disagree with that Financial Jungle BUT that is not what Garth Turner advocates. He says prices are going to fall sell your existing house and rent. That I do not agree with.

If you have managed to scrape up enough cash to buy already and are living there why on earth would you sell? People are doing exactly that selling their houses and renting for no other reason that Garth Turner said to. That I'm afraid is not a great idea.

I live in Toronto so not exactly the sanest real estate market. I bought small and in a pretty crappy neighborhood on a large lot. Thats what I could afford. If I won the lottery I would probably put a one room addition on to put my office in instead of being in the basement apartment. I wouldn't enjoy a bigger house it's just more cleaning and I don't like cleaning.


----------



## MoneyMaker (Jun 1, 2009)

Berubeland said:


> If I won the lottery I would probably put a one room addition on to put my office in instead of being in the basement apartment. I wouldn't enjoy a bigger house it's just more cleaning and I don't like cleaning.


i'm pretty sure you could afford a maid if you won the lottery.


----------



## Potato (Apr 3, 2009)

Berubeland said:


> You won't get me to disagree with that Financial Jungle BUT that is not what Garth Turner advocates. He says prices are going to fall sell your existing house and rent. That I do not agree with.
> 
> If you have managed to scrape up enough cash to buy already and are living there why on earth would you sell?


I agree that doing it just on Garth's say-so isn't smart, but if you think housing prices are going to crash, why wouldn't you sell now and realize your tax-free gain? 




Berubeland said:


> I'm not selling my paid off house which is worth about $300K (i bought at $150K) so that I can put the money in the bank for 3% interest or about $750 per month so that I can go live in a basement apartment somewhere with my two dogs and my husband and my 2 year old. (which is what I could afford if my calculations are correct)


To be fair, that's not the comparison Garth is making: look around your neighbourhood and other neighbourhoods for houses for rent that you would live in, that are as similar to yours as possible. Not basement apartments, but apples-to-apples comparisons. Maybe your area is different, but a lot of areas in Toronto and Vancouver have just gotten silly, so it makes a lot of sense to not buy (or if you already own, to sell) and rent, and wait for prices to correct.

One example is a house I was looking to rent recently: it sold this summer for $580k. I don't know why just months after buying it the owner decided to turn around and rent it out, but he is, and the asking rent is $2400/mo. 2.4x12/580 = 5%. If you lived in the nearly identical house across the street, and thought that there was even a moderate possibility of a housing crash, why wouldn't you sell and move in there (or try to sell to an "investor" who would rent your house back to you)? You can probably get 5% on your money, and have none of the risk -- even with your 3% figure as the opportunity cost, there's easily another 2% in property taxes and maintenance that you have to pay as an owner.

But maybe your area isn't as over-priced. Maybe the supply of rentals is poor so you can't do an apples-to-apples comparison. Maybe your dogs are violently destructive (or look that way in a landlord's eyes) so you can't get a rental... That doesn't mean it isn't an exercise worth going through for others.



> What I am saying is the USE of the asset in the case of a primary residence is much more important than fluctuations in the Real Estate market.My house has doubled but even if it were worth half what I paid it it would keep me just as dry.


Well, since you have a paid-off house and intend to stay there, the fluctuations in the RE market are just paper gains and losses to you anyway, so you can probably ignore them without much risk of impacting your life. But that's not really Garth's target audience. It's the people who bought recently, the young couples who bought a tiny condo with 5% down, but who want to be outta there before junior #2 arrives in 5 years -- if the market turns down on them they could be in negative equity, which totally defeats the point of buying young and "getting on the property ladder". It's also the boomers who plan on selling their overly-large houses after the kids leave, and are counting on some of that recent appreciation to help fund their retirements: if they want to avoid losing it all in a downturn, they're better selling now and renting, and possibly buying their more modest retirement home after the correction.

And even for someone in your situation, it's hard to ignore the upside: if your $300k house (which is quite cheap by Toronto standards) were looking at declining to $210k (a 30% drop) in the next few years, you might be looking at $30k in costs to sell and move, and then you'd have to pay rent for a few years -- but that might be cost-neutral -- then after the crash hits you can buy back in, and are $60k richer for it (tax free). Or you could move out of your admittedly crappy neighbourhood into a nicer one, once the prices in the nicer one come down to $270k. The use is the same -- a home to live in, but by working the fluctuations you can get some additional uses too. The question is how certain are you that a correction will take place, and how big will it be? Obviously Garth is quite certain, and believes that the magnitude will be at least 15%, in which case it's hardly retarded advice.


----------



## FinancialJungle (Apr 22, 2009)

Potato - the 3% return in your example is very realistic.

I grew up in a city called Coquitlam which is 40 minutes from Downtown Vancouver. There's a newer high-rise called The Parc. A typical 2-bedroom unit rents for $1500 per month, but a similar unit sells for $449,900.

If you take the rents and subtract property tax, condo fees and insurance, the CAP rate works out to just below 3%. The lowest 5-year rate is 3.99%, so factoring opportunity costs on the downpayment, one would have to subsidize a 1% premium to own rather than to rent. And, face the risk of substantially higher mortgage rates on renewal.

It's a little backward if you ask me. I mean, consumers are generally rewarded for buying in bulk. When you buy a house, you're buying in bulk; you're buying the utility of the house for eternity. I still remember a time when owning is cheaper than renting. Of couse that privilege was only reserved for the ones deciplined enough to save a decent downpayment.


----------



## Berubeland (Sep 6, 2009)

The reason I used a $750 basement apartment as an example is because that is what I could afford to rent without touching my capital because in a high interest savings account I would make 3% which is $750 per month.

If I were to move and pay rent for an equivalent rental in my area I would be paying at least $1350 per month or double what I am making with my money. Every month I would erode my capital. 

I could even afford a mortgage payment on a house in a cheaper area. My mortgage payment here was only $750.

Also there is another problem with your scenario.... timing. I have no argument that prices are overpriced and should go down in the future however no one knows when. So that couple with 5% down who decide to pay realty fees, mortgage breaking costs, will end up paying money to follow Garth's advice and might be fine after five years anyways. With CMHC fees they are already underwater from the very beginning. What a stupid idea it was to get into that situation but incurring thousands in fees is hardly superior. In a sense they have to ride it out. They are in a situation that they may be ok if they go forward but they are definitely screwed if they follow Garth's advice. On my house value $300,000 they would pay $30,000 and realty fees and another $15,000 to break the mortgage. They put only $15,000 down plus they paid CMHC fees which were added to the mortgage. 

Plus if they made such stupid financial decisions in the first place they are not likely to not touch that money while they ride it out.


----------



## CanadianCapitalist (Mar 31, 2009)

FinancialJungle said:


> Potato - the 3% return in your example is very realistic.
> 
> I grew up in a city called Coquitlam which is 40 minutes from Downtown Vancouver. There's a newer high-rise called The Parc. A typical 2-bedroom unit rents for $1500 per month, but a similar unit sells for $449,900.
> 
> ...


I live in Ottawa, which has much saner home prices than many other major cities. I agree that as an investment property, a $450K apartment that rents for $1,500 per month doesn't make too much financial sense -- hardly better than other fixed-income alternatives.

Still, I can see an owner might thinking differently. Let's say I'm employed and can afford to buy the apartment outright. I can rent but the rental payment comes out of my after-tax income. A $1,500 rent might actually cost me $2,300 pre-tax, assuming a 35% tax rate. It makes sense for me to own because owning the apartment is "earning" me close to 6%. Netting out condo fees, property taxes and insurance etc. might provide an after-tax "yield" of close to 4.5%. Not too bad, IMO.

Of course, I agree completely that it makes sense to rent until one is able to afford their own residence. It is simply speculation to rush into buying a barely-affordable residence thinking that properties will soon be priced out.


----------



## CanadianCapitalist (Mar 31, 2009)

Potato said:


> And even for someone in your situation, it's hard to ignore the upside: if your $300k house (which is quite cheap by Toronto standards) were looking at declining to $210k (a 30% drop) in the next few years, you might be looking at $30k in costs to sell and move, and then you'd have to pay rent for a few years -- but that might be cost-neutral -- then after the crash hits you can buy back in, and are $60k richer for it (tax free). Or you could move out of your admittedly crappy neighbourhood into a nicer one, once the prices in the nicer one come down to $270k. The use is the same -- a home to live in, but by working the fluctuations you can get some additional uses too. The question is how certain are you that a correction will take place, and how big will it be? Obviously Garth is quite certain, and believes that the magnitude will be at least 15%, in which case it's hardly retarded advice.


I agree that a family who is planning on moving in a few years anyway and can barely afford their home today might be better off selling and renting. Likewise for a senior couple planning on downsizing in the near future.

For most others, I don't see the upside. Selling and renting isn't very convenient. You might have young kids at home and moving would be a nightmare. You might like the neighbourhood and prefer to stay in it. Or the kids might be in school and moving would be a huge bother. Not to mention, selling, renting and buying again isn't going to cheap. There are commissions, moving expenses, lawyer fees, land transfer taxes etc. Net out the expenses and the savings may not be worth the inconvenience. Home ownership doesn't really boil down to dollars and cents.


----------



## FinancialJungle (Apr 22, 2009)

CanadianCapitalist said:


> A $1,500 rent might actually cost me $2,300 pre-tax, assuming a 35% tax rate. It makes sense for me to own because owning the apartment is "earning" me close to 6%. Netting out condo fees, property taxes and insurance etc. might provide an after-tax "yield" of close to 4.5%. Not too bad, IMO.


You mean a "pre-tax" yield of 4.5%. 

I think everyone's situation should be analyzed on a one-off basis. For me, I'm not sure if I'm still in the 35% bracket after maxing out RRSP every year. Even then, marginal-tax-rate is the tax rate for the last dollar earned, not the last $27,000. Realistically, there are very few cases where one can "earn" a notional pre-tax 4.5% yield.

Some might call me reckless, but I see no reason to own even though I can buy a condo outright. My portfolio yields >4.5%, which is practically tax-free due to the dividend tax credits. 

The dividends are greater than my rents, so every month I have extra left over. I'm not living in an inferior neighbourhood/unit. I'm not depriving myself. This is where I'd be buying, but I see value in renting, and I choose diversify my wealth in a conservative portfolio rather than tying it up in a Vancouver condo. Condos and townhomes aren't money in the bank. I know people who almost went broke owning a leaky townhome.


----------



## Berubeland (Sep 6, 2009)

I am a property manager by trade so the day I buy I would have to do better than 4.5% on real estate otherwise it's time to keep moving and find a better deal. My personal expectation is that on the day I buy it I make more than that. Then there's the appreciation from sweat equity (renovations) which would make me even more, then additional appreciation from gentrification, then the hedge against inflation. 

The best deal I found for someone was mispriced by the agent as attached even thought it was detached then the layout allowed us to add a bachelor apartment. The couple selling was divorcing. The home inspection knocked another $5000 off the price. Altogether the initial price was $145,000. She made $2000 per month income off the place for two years and sold it for $235,000 two years later. That was in Mississauga. When she sold it in a week I thought she definitely left $20000 on the table. But that's just me. So I'm not quite sure what rate of appreciation that is but it's more than 4.5%
Anyone can do this, you just need to look for deals


----------



## steve_jay33 (Aug 29, 2009)

Berubeland said:


> I am a property manager by trade so the day I buy I would have to do better than 4.5% on real estate otherwise it's time to keep moving and find a better deal. My personal expectation is that on the day I buy it I make more than that. Then there's the appreciation from sweat equity (renovations) which would make me even more, then additional appreciation from gentrification, then the hedge against inflation.
> 
> The best deal I found for someone was mispriced by the agent as attached even thought it was detached then the layout allowed us to add a bachelor apartment. The couple selling was divorcing. The home inspection knocked another $5000 off the price. Altogether the initial price was $145,000. She made $2000 per month income off the place for two years and sold it for $235,000 two years later. That was in Mississauga. When she sold it in a week I thought she definitely left $20000 on the table. But that's just me. So I'm not quite sure what rate of appreciation that is but it's more than 4.5%
> Anyone can do this, you just need to look for deals


Yes but that example was when home prices were doing nothing but going up. Not so sure that is example is true today. If your "flipping" house you better be able to do your own renovations.


----------



## Berubeland (Sep 6, 2009)

steve_jay33 said:


> Yes but that example was when home prices were doing nothing but going up. Not so sure that is example is true today. If your "flipping" house you better be able to do your own renovations.


Easier to say those deals don't exist than to spend the time looking. I know that today one street over from me, there is a boarded up house owned by a contractor, one street the other direction there is a vacant house with no shingles on it. I bet you could get a steal on them. Near Danforth and Danforth there is a two bedroom bungalow that has had a couple raccoons living there for a while. In the thousands of MLS listings there are mistakes there are people desperate to sell there are death and divorces. These are all buying opportunities.

Your right because I am a property manager I get rock bottom prices on contractors. Next time you want your house painted call 20 people like I did to find the guy who would paint a 3 bedroom townhouse for $1000 including the paint. Same with the guy who refinishes the floors. Same with the plumber. Same with the locksmith. You can do this too. Just call tons of people until you get the price you want. 

I'm not flipping houses. Right now I am intrigued with huge empty industrial buildings that could be split up into smaller easily rented and sold industrial condos. I don't have any takers for that project though. As everyone tells me industrial in Canada is not doing well right now. Funny thing I notice is that those small industrial condos have a very low vacancy rate.

http://www.icx.ca/propertyDetails.aspx?propertyId=8737159

Smell the desperation. The guy who owns this wants a deal bad. Just out of curiosity I drove around it and it looks like it's been vacant for 2 years. I wonder how much money this guy has spent on TMI in the last few years? 

So please don't tell me there are no deals out there because there are. Of course if you don't believe they exist you won't look for them either. I urge you to look for the deals.


----------



## Berubeland (Sep 6, 2009)

*Here's a deal*

Here's a deal at

http://www.realtor.ca/propertyDetails.aspx?propertyId=8715153 
Its a grow op needs work obviously but $245,000

Closest similar house to it is semi but $459,000.

http://www.realtor.ca/propertyDetails.aspx?propertyId=8697509

Closest detached house seems younger and higher end at $749,000

http://www.realtor.ca/propertyDetails.aspx?propertyId=8613588 

Do you think you could get this problem fixed for $200,000. I'll bet I could. But that's just me


----------



## Berubeland (Sep 6, 2009)

Here's a cash flow positive rental. 

http://www.realtor.ca/propertyDetails.aspx?propertyId=8737444

This three bedroom condo is $89,000

http://www.realtor.ca/propertyDetails.aspx?propertyId=8618334

This one in the same building is $124,000

I have actually been in this buildings and the layouts are strange but it is very close to the subway. I recommended these to an investor i have worked with in the past and she turned it down. The first one is already tenanted just leave them there until they move out and renovate.

There are deals out there.


----------



## FrugalTrader (Oct 13, 2008)

I just looked at the maintenance fees as saw: $621.61/month, is that even possible?



Berubeland said:


> Here's a cash flow positive rental.
> 
> http://www.realtor.ca/propertyDetails.aspx?propertyId=8737444
> 
> ...


----------



## Berubeland (Sep 6, 2009)

FrugalTrader said:


> I just looked at the maintenance fees as saw: $621.61/month, is that even possible?


It's not even unusual unfortunately.

Read the entire rant at why condo's suck as investments on this forum.

In this particular building they had building envelope problems. They had a number of special levies on the owners. The price reflects that. It's kinda like buying after the dividend cut


----------



## steve_jay33 (Aug 29, 2009)

Thank you Berubeland for posting your finds. It is really valuable for a novice like me in real estate to learn from an experience real estate investor. 

I would love to hear from other members who have made $$ in real estate for their input. 

Got any additional advice on finding contractors at low prices that do a GOOD job?

Got any additional advice on finding good real estate deals and running the numbers to see if the deal will be profitable?


----------

