Vancouver Housing Market
One of the hottest topics in the news is the Vancouver Housing Market
The Vancouver housing market is the most expensive market in Canada, and among the top 5 housing markets in the world. Many people want to get into the Vancouver housing market. It seems to be that despite forecasts of a correction in the entire Canadian Market as a whole, in practice the exact opposite seems to be happening. In a study released at the end of January, 2015, the results showed the Vancouver housing market was the second most un-affordable housing market in the world, only surpassed by Hong Kong.
Of late, I have been approached by many couples – who have owned property in other countries – wanting to get into the Vancouver Housing Market, in hopes of making a lot of money on the capital appreciation of their property.
I had a meeting with a couple who found me on the internet the other day. They have a solid down payment, good credit and relatively stable income. The income level, however is enough to support a purchase of a condo or maybe a townhouse a little further east of where they want to be.
They wan to live in the place for a few years and then they hope to turn a profit and “upgrade”, like so many fellow Vancouverites have done in the past.
There is a reason for the saying “the past does not necessarily predict the future” is still around…..and in this case in particular, it certainly may apply.
Condos and townhouses in certain areas have been steady in value in some cases for the last seven years. In fact, there are certain areas that have not made it back to their purchase price in 2007 when they were brand new. And new developments are sprouting all around, which doesn’t help their cause either. Why would someone want to buy a now 7 or 8 year old condo or town home when they can purchase a brand new one for approximately the same or a little less?
The question that I get posed a lot as well is, “well, if we don’t make money in a few years, then we can at least rent it out right? We should be able to make a monthly cash flow”.
On the surface this might seem logical, but if we look a little closer and deeper into the situation, we may realize that rental income in the Vancouver housing market may not be on par with the carrying cost of the mortgage required to obtain the place for many.
A home in North Vancouver, on the top of Lonsdale for example, sells for about 3 Million Dollars. The rent that the property can fetch from a year round tenant both upstairs and downstairs is about 3,400 + 1,900 per month, so a combined 5,300. How much of a mortgage would you need to break even on the property (without even taking property taxes into consideration). You would need to have 60% down…..just to break even!
Ok now this is an extreme example you might say. So let’s look at something a little bit more “affordable”. Let’s look at a condo in New Westminster for instance. A one bedroom plus den, let’s assume it is an older building and the cost will be about $220,000. You are still going to need about 20% down to be able to break even or positively cash flow a little.
The conclusion, or moral of the story if you will, is that renting the place out may not necessarily mean you get consistent money in your pocket.
Savvy investors abide by the basic rule of thumb that profits are made when you buy a property, not when you sell. In other words, if you have to bank on the appreciation of your investment, then it is likely not a good deal.
The government has about three or four years ago now, started to tilt the rules to discourage what has been going on in the last several years. That being, people using their homes at ATMs. They have scaled back significantly on refinancing guidelines (as of this writing you must have 20% equity in your home minimum in order to refinance).
There are still great investment opportunities to be had, but definitely there needs to be a lot more homework done to find these deals, they are not popping up around every corner like the “old days”.
At the end of the day, my advice has always been, and it still rings true today….if you need to buy a house, to live in, for yourself and for your family, there is no better time to get into the market than now. If you are looking to speculate, now more so than ever, you’re rolling the dice. Make sure you do your homework first, so that you are not caught with any surprises.