Monday, October 15, 2007

Is YOUR home the investment you think it is?

The answer to that question is an age-old and apparently endless debate.

I figured we'd have a little fun around here this week. Each day I'm going to comment on some commonplace investments and offer my opinions only--SEEK PROFESSIONAL ADVICE ELSEWHERE BEFORE ACTING ON ANYTHING I SAY, I AM NOT A FINANCIAL ADVISOR--on whether they qualify as investments in the HHV household. If you have a particular product you'd like to see pumped or dumped, email us using the link at the top right.

On with the show...

Is your house an investment? By your house I mean the one you are living in. Here's my answer: probably not.

If you live in a home that you rent, it may qualify as an investment using my definition if it is wholly owned AND providing a net income to the owner. This is the only circumstance where I would say that a home is an investment. But in this case it's someone else's.

How do I get to make that assertion? Because many, not all, but many financial advisors require an investment to provide an almost-immediate financial return.

If you buy a blue-chip stock, you're likely purchasing stable long-term growth and a DIVIDEND--which is an almost immediate return on your investment. If you buy a small cap stock, you're likely speculating on a story and hoping for greater returns in the short term in exchange for waiving your right to demand an almost-immediate return on your investment (few if any small caps pay out dividends). Trading small caps, which I frequently do, is speculating, not investing, and is akin to little more than gambling, but with better odds than a Vegas craps table.

So the rental house you live in is not likely paying out a dividend unless the landlord collects more than she puts out in mortgage, tax and maintenance. The same can be said for owner occupied homes.

How can an owner occupied home possibly be an investment using my definition offered above? Some may argue that having a two-bed mortgage helping suite downstairs means their house qualifies as an investment property. I say Nay Nay. That mortgage helper means you pay less of your own income to your mortgage, but considering that the bank will only count half of what you take in in rent towards earned income for mortgage qualification, you can see how they feel about the "quality" of that "investment." We here at HHV tend to agree with that practice for the most part.

Most people, us included, believe owning is better than renting in the housing market. You're better off to own eventually than never to own at all. Real estate returns in Victoria are averaging about 6% per year for the last 30-odd years. Adjusted for inflation, and again we'll defer to the pros, who advise 4% assumptions, 2% real growth isn't exactly stellar. Stable, yes. Tax preferred, yes. But "outperforms the market", I say Nay Nay.

The only time you realize a gain from your house is when you sell it or borrow against the "equity." I don't think taking a loan out is a good investment, but many real estate flippers turned financial "educators," recommending you leverage your equity to buy and sell distressed properties in dirty neighbourhoods, will argue I am nothing but a nay-sayer who is risk adverse. I'd tell you I'm just not risk-tolerant enough to buy into the shill and suffer the Casey-like consequences. Yes, some people make a lot of money buying and selling distressed properties. But the average income earning citizen in Victoria, in these current market conditions, won't.

Now my previous post was about a friend of mine who is likely to experience a significant financial gain by selling his house and buying another one. He'd argue me blue in the face about how his two homes were the best investments he'd ever made. I wouldn't have much to say to him other than if you weren't leaving town, would you feel the same way buying across or up in this market that clearly has little upward room to grow?

Their income supports their current mortgage comfortably. They could stretch up another $100K or $500-$600/month. But that would be the difference between owning a nicer home and having a family. Yes, that's a personal decision. But it affects financial planning and once again takes money out, not puts money in, so his house isn't an investment if he stays in it, or moves to a more expensive one in town.

Let's recap: a home is an investment when the owner realizes a positive net gain in her income. That's income minus expenses, so the rental suite doesn't count unless it's paying all of your mortgage, taxes and maintenance too. Sure you get a tax-preferred capital gain if you live in it and it gains in value over a year's period. But considering that real YOY real estate returns are hovering around 2% over 30 years, your home is far more likely defined as a forced savings plan rather than an investment.

Tomorrow we'll move on to mutual funds. Post your suggestions for other product topics in comments or via email. And as I always, I invite, or actually in this case I beggingly-demand, that you pick my opinions apart in the comments. I'm hoping this stirs up a lively debate.

44 comments:

Anonymous said...

I totally agree. A home is NOT an investment. It is a large "consumable". To maintain its value you need to continue to spend money on it (otherwise it gets dated or deteriorates rapidly). An investment should provide income, not cost money.

Anonymous said...

It is just a place to live. Of course it sucks money. I love decorating and renovating but it is not an investment. I would rather do that to a house I own and get it the way I want but it is not an investment.

Elspeth said...

That's funny.
This year we cleared $140,000 selling a small cottage.
Last year we cleared $100,000 selling a cabin.
The year before that we made $200,000 selling a small bungalow.
And we sold 4 more houses before that in the past 10 years.
We are a self made, average, self employed couple who work in the arts.
Our current house is worth twice what we payed for it 3 years ago and we also have a waterfront place that has doubled in value in 2 years.
Yes I would say our properties have always been a good investment.

We have bought most of these houses in an inflated market - but we have taken the risk....
Just trying to balance the nay-sayers around here.

Anonymous said...

Let us try to clarify what an investment is - just a little bit more.

An investment should not have an emotional atachment to it. The selling of the investment should not be the immediate cause of you having to alter your life style.

By selling your principle residence - you have to either move on to another home or become a renter.

This is why your principle residence does not qualify as an investment. Most people have an emotional attachment to their home and you have to live somewhere.

Furthermore, the costs of aquiring, holding and disposing of real estate are HIGH. A 6 percent return in your mutual funds is far better than a 6 percent return on real estate.

True, your principle residence is Capital Gains exempt. However, with a mutual fund, you don't have to cash it all in at one time - try selling part of your home each year.

elspeth said...

anonymous said - "An investment should not have an emotional atachment to it. The selling of the investment should not be the immediate cause of you having to alter your life style."

Who's definition is that?

The object of an investment is to make money.
Why throw all these arbitrary rules at it.
The object of an investment is to make money.
Go ahead, buy your mutual funds - we'll beat you at the INVESTMENT game, with realestate, every time.

And who says you have to sell your principal residence? Buy a second property, a third property.

And why not move every few years and take tax free money out of it? Most people move every 3 to 8 years anyway.

Capital gains is a more favourable tax than income tax. I love capital gains tax!

I agree that buying a house for minimum down, trying to pay it off over 25 years couldn't be called an investment, with all that interest paid out. That's why it makes a lot of sense to get in and out -( buy low, sell hi) - find underpriced homes. Improve them intelligently, sell and do it again.

This isn't a hypothetical theory - this is reality, people do it all the time :-)

Anonymous said...

elspeth.

Have you declared all of this selling and making money to the Canada Revenue Agency?

If not, then don't be surprised when they catch up to you and take a lot of your gains for taxes.

If you haven't, you may want to check into doing it.

They get really nasty if they think there is tax evasion going on.

Anonymous said...

Elspeth,

You are obviously a smart individual who is able to "de-emotionalize" your RE purchases. However, for you to have profited on your recent sales to the large extent that you have over a very short period of ownership, the buyers of your properties must have completely ignored market fundamentals and bought solely on the assumption that they can
"buy high, sell higher". This kind of behaviour only occurs during bubbles and manias of the sort we are currently dealing with and will only manifest as long as the gold rush mentality holds. Over the past two years I watched a rental
duplex on Quadra Street pass from one investor to another with about nine months of ownership each. The price went from $385,000 to $535,000 to $629,000, and the rents for each side went up by about 5% in that time. A good rental investment? Likely not. A good flip? Apparently - for the previous couple of owners, anyway.

VicREBear

cartolina said...
This comment has been removed by the author.
JMK said...

I do the numbers this way, YMMV, please feel free to make whatever assumptions about the rental market and expenses you want in here if you don't like my numbers.

Owned House: 5% real income -2% real expenses+2% real appreciation = 5% real return

Rental housing: 5% real income -2% real expenses+2% real appreciation - 1.5% capital gains = 3.5% real return

Stocks: 6% (10%-4% inflation) real income and appreciation - 3% capital gains = 3% real returns.

How you finance (leverage) any of these investments is another matter, but as a rule of thumb, I'd not leverage them so that I was paying more than the expected return. So at 6% interest rate I'd count on putting at least 15% down (25% would be much better).

elspeth said...

Thanks for the concern over my tax situation.
Every time we sell a property we set aside the income tax owing, after our CA does the calculation - and it gets paid on time, every year. It puts us in a high tax bracket - but I would rather invest in real estate and make decent lumps of money than work 9 to 5 at an office job.

Another tip I would give to all of you is, that even in an inflated market, there are always underpriced properties that are a good investment. Never buy a property that has been on the market on and off for the last 10 years....it comes with a bad reputation.

Another tip - buy and sell without a realtor whenever possible - its easy and hassle free - we have met many wonderful people when we have bought and sold properties.

Also, be careful not to talk yourselves out of EVER buying property. There are always good deals :-)

Anonymous said...

See, I would rather make my money while I'm sitting on my butt on the couch watching shows about flipping houses.

I'm not into being a landlord, a developer, a flipper, a renovator or a contractor so don't want to put my money into real estate when I can make a good return without doing a bit of hard work or getting my hands dirty.

Good for those who have done it and made money in real estate but it is not for everyone.

olives said...

Elspeth said:
"The object of an investment is to make money.
Go ahead, buy your mutual funds - we'll beat you at the INVESTMENT game, with realestate, every time."

EVERY time????? What a bizarre statement - In case you don't know, people do lose money on real estate "investments" also.

I don't get the impression that anyone here has talked themselves out of buying real estate EVER - just in the past couple years when either it has become unaffordable and/or they are awaiting a correction.

renter said...

i agree with olives -- it's more about buying when the risk of it all coming crashing down isn't so high. i certainly haven't given up the idea of buying someday, i'm just waiting for the insanity to level off a little. the fun part of this blog will be, i think, when a correction comes and some of us start scooping up discounted properties. it'll be like show and tell! (or at least that's what i dream of...)

Village said...

Housing (Only refering to your primary dwelling) is both an asset and a liability. It's an inflation hedge against rent/shelter increases. While at the same time being a liability if it can't cash flow to cover expenses. It's a highly leveraged asset that is great during the boom times, but don't get caught on the wrong side of it during a downturn.

I have owned but don't currently. Various family members have been on both sides of this asset.

Approach with caution.

Anonymous said...

That is exactly what people said four years ago...

Anonymous said...

Tick, tick, tick.

vg said...

"And we sold 4 more houses before that in the past 10 years."

I'd say you bought the bulk of your houses in an under inflated market then maxed your leverage on your way up. I highly doubt you could pull that off in this enviroment if you started in the past year or so.

You did very well no doubt,but nothing that tells the nay sayers here they are wrong by any means.

Anonymous said...

waterfront doubling in 2 years ?
I smell bullshit.

Anonymous said...

This would be an interesting conversation to have again in about 5 years. Or go back to 1982 and have it then. Your choice, the pain will be the same.

Aleks said...

"I say Nay Nay."

Did you see Pinette when he was here? Absolutely hillarious the whole time, and worth every penny.

On topic, I think buying a home is an investment the way education is an investment. In a non-bubble market buying doesn't cost much more than renting, therefor it makes sense to buy because you will eventually own outright. And in the meantime your housing costs have not been increasing with inflation the way rent does (although you are vulnerable to interest rate changes).

Obviously, that assumes that you don't take out a HELOC or continually upsize your home and never pay down the mortgage. But renters can get themselves in debt trouble too.

In a bubble market like we have now, the numbers add up differently. In most cases, it's flat out impossible for FTBs to buy an actual house or even a townhouse, and the dinky little condos they can afford are not something they'll want to live in long enough to pay off the mortgage. It's one of the market's contrarian indicators that the times when everyone is talking about real estate being a good investment is when it's actually a poor investment.

talus said...

I keep a little reminder on my desk. It goes like this...

Sell on hope, buy on despair and take the other side of emotional disconnects (in the context of controlled risk). If you can't find the sheep in the herd, chances are that you're it.

Or more simply...

Zig when others Zag

3x home owner turned renter and loving it!!

hhv said...

Wow, great discussion.

Elspeth,
"The object of an investment is to make money. Why throw all these arbitrary rules at it. The object of an investment is to make money.
Go ahead, buy your mutual funds - we'll beat you at the INVESTMENT game, with real estate, every time."


This statement has far too many variables to be even remotely accurate.

"Capital gains is a more favourable tax than income tax. I love capital gains tax!"

I agree. All my equity investments are taxed on the capital gains too... so the only preferred status of real estate from a tax sense is on your principle residence. Not your "second and third properties" which get the same tax treatment as the shares I bought in Telus at $15 and sold at $60, in 3 years.

"Another tip I would give to all of you is, that even in an inflated market, there are always underpriced properties that are a good investment."

I've had no less than 2 realtors working on this one for us since we started this blog 8 months ago. Either they are really crappy at their profession or these types of "underpriced properties" don't exist.

My assumption is you are pricing future value (at least one-year later) into the "under priced" to make them attractive. There is no guarantee of future value.

We've got access to cheaper skilled labour and a pool of cash to do things like develop SFH into duplexes. The problem is any property we've seen has already been priced as though the work has been done. If you're willing to point us in the direction of an MLS listing I'd be happy to crunch the numbers for the readers of this blog to prove you right?

Elspeth said...

"The object of an investment is to make money. Why throw all these arbitrary rules at it. The object of an investment is to make money.
Go ahead, buy your mutual funds - we'll beat you at the INVESTMENT game, with real estate, every time."

This statement has far too many variables to be even remotely accurate.


***Yes, thats probably true. There are alot of variables. I probably shouldn't have said that!
I have dabbled in the stock market for a long time...with limited success.....I guess I am just better at realestate. Maybe you are better at the stock market. Fair enough.



"Another tip I would give to all of you is, that even in an inflated market, there are always underpriced properties that are a good investment."

I've had no less than 2 realtors working on this one for us since we started this blog 8 months ago. Either they are really crappy at their profession or these types of "underpriced properties" don't exist.

***I have worked with many Realtors and am almost always dissapointed with them. I have found most of the houses that I have bought myself, whether a Realtor was looking for me or not. I can simply put in way more time then they can, and obviously have a vested interest in finding ME something.
Often they have been 'for sale by owner' listings.
Because houses are all different, with different site influences, condition, age etc, etc. there really isn't a 'right price' ....there is a range, high and low.
Another thing I've noticed is that certain Realtors will have a pricing 'style'. Sometimes I will notice that a given Realtor will consistently underprice certain types of houses, so I will watch their listings more carefully. Sellers individual circumstances vary too.....some people NEED to sell quickly for whatever reason, and are willing to look at lower offers in order to move on with their plans. Especially if the house has been sitting on the market awhile. I also always sell houses privately.


My assumption is you are pricing future value (at least one-year later) into the "under priced" to make them attractive. There is no guarantee of future value.

***Yes, I try and buy at last years prices, and sell at next years prices....and upgrade the property as well. There are no guarantees, just like stocks.



We've got access to cheaper skilled labour and a pool of cash to do things like develop SFH into duplexes. The problem is any property we've seen has already been priced as though the work has been done. If you're willing to point us in the direction of an MLS listing I'd be happy to crunch the numbers for the readers of this blog to prove you right?


****I don't live in Victoria anymore.....so would have a tough time doing that. I do know my own market pretty well, and thats where I am currently invested. I am interested in buying a place in Victoria again though.....but if I found a deal I'd have to buy it, rather than post it here! Sorry!

P.S. To the poster who 'smelled Bulls**t' about my saying that some waterfront that I bought had doubled in three years......I obviously can't prove anything in a public forum such as this....but what I said was true. I actually sold a different waterfront property two years ago that had been purchased privately for 400k and sold just over a year later, again privately, for 625k. On that one we didn't do anything to it.... Recreational waterfront is crazy in the interior of BC!!

Anyway, I'm not trying to argue with anyone...just chat a bit about realestate and share my experiences.....


Elspeth

Anonymous said...

elspeth.

Sounds to me like you have done very well in a rising market and good for you. There are a lot of people who have done well on the way up.

To me it is those who do well in a falling or very depressed market that are the true real estate geniuses.

Anonymous said...

"P.S. To the poster who 'smelled Bulls**t' about my saying that some waterfront that I bought had doubled in three years......"



you said two years and now it's changed to three ? one year is a major difference in this boom.


"we also have a waterfront place that has doubled in value in 2 years."

Anonymous said...

"To me it is those who do well in a falling or very depressed market that are the true real estate geniuses"


I agree,everyones a winner right now,most have never lost a nickel in over 10 years and most will not be happy losers.

Anonymous said...

Many of you on this blog just come off as bitter....maybe because you missed out on the biggest realestate boom in many decades?

Anonymous said...

I agree - I thought that this was an interesting conversation(we could have all learned a lot). But instead the skeptics chose to insult which quickly shut the communication down. Would have prefered to keep this a clean and progressive conversation.

Anonymous said...

Remember, you have not made a penny in real estate, until you sell. You wait too long and the market tumbles to historic norms then real estate aint too hot.

Buy low, sell high. Get too greedy and miss the market and loose big time. Already seeing the change in lower new condominiums sales to listings ratios.

JMK said...

Remember, you have not made a penny in real estate, until you sell.

You are forgetting rent. That is where the majority of your return is. Nobody would ever buy real estate if they didn't get a rental benefit.

Anonymous said...

People keep saying that we bulls are bitter.

Why do people keep saying that we are bitter?

I believe we are realistic and for those bulls who want to believe that this time is different, real estate always goes up and Victoria has been discovered by the world they may choose to see us as bitter.

My husband and I are doing great by NOT having got caught up in the most recent real estate 'boom'. Nope, no bitter here.

S2

vg said...

Whose bitter ? we see an overvalued market just like an overvalued stock or overvalued anything for that matter.

When a bull appears it seems he is out to be a braggart and rub it in that we are not invested in the current bubble.

All his examples were when the market was undervalued and good for him but the point of the discussion is wether that can be done in todays market and it clearly can't cause we are at 60% affordability which is as close to 1981 numbers as we have been in this generation except this time they are handing out lines of credit and credit cards like candy. The banks and lenders didn't do that in 1981,this is the big difference the bulls don't get.

I'm enjoying making money in the markets with all the extra cash I don't have to dump into a new roof or furnace on my 1955 built 2 bed 1 bath 900 sq ft box in a crappy neighborhood.

JMK said...

cause we are at 60% affordability which is as close to 1981 numbers as we have been in this generation

I think you are confusing Vancouver with Victoria. Affordability of a "standard two storey" (hardly a FTB's home btw) in Victoria is ~45% according to RBC. For comparison it was worse (~50%) in 1990, 1992, 1993, and 1994.

So while affordability is certainly a problem, it is not catastrophically so, unless you call the slump from 95 to 2001 a catastrophe.

vg said...

jmk

you are out to lunch as usual and not going to rehash this again. Vancouver is 70% and Victoria is 60%,it's been well publicized for the last 6 months in many articles, but spin it any way you want,prices doubled past 5 years just like in 1981 when wages didn't double just like in 2007, end of subject dude.

JMK said...

you are out to lunch as usual and not going to rehash this again. Vancouver is 70% and Victoria is 60%,it's been well publicized for the last 6 months in many articles,

The RBC report on page 5 has a pretty clear graph showing Victoria's affordability is at 45%. Its the one labelled "Victoria".

If you have an alternate study than the RBC one, I'd love to see a citation, and we could discuss merits of the respective studies. However, I'm not aware of anyone else who puts out affordability numbers.

So in the absence of verifiable facts I'd be more judicious in claiming folks are "out to lunch" or "spinning".

vg said...

"On the affordability index for cities, a detached bungalow costs 71 per cent of household income in Vancouver, "

and thats out of the RBC report... do the math on an average Victoria house at $572,000 on 25% down payment with a 5 year 7.4 % mortgage add the taxes and put over a 25 years. Then take the average Victoria income of $70,000 and you get approximately 60 % affordability. RBC missed the boat on that one and so did you cause we have beat this subject to death ages ago.

Anonymous said...

Booooooooooring!

hhv said...

"Many of you on this blog just come off as bitter....maybe because you missed out on the biggest real estate boom in many decades?"

Everyone is entitled to their own opinion of course. But people who are quick to judge and haven't been around this site for long may have missed out on the fact that many of the posters on here are in fact homeowners.

Some of them just sold their homes and choose to rent. Some of them choose to rent while having more than enough down and income to buy in this market. Instead of buying what they perceive to be an overpriced house, they choose to wait out the cycle and get a perceived bargain.

I'm pretty sure the only "bitter" that comes out of most of the regular posters on this site is directed towards trolls who turn up anonymously, make obvious misstatements about how well this market has treated them, and then crap on the people who choose to rent.

We still actively search this market for either something we fall in love with and are willing to buy or a product price that we know we can live in for the next 10 years because that's likely how long it may take to wait for the next upwards trend to take place.

JMK said...

VG,

Thats fine, if you want to use your own affordability criteria instead of RBCs, you are welcome to it.

What was the affordability, by your measure, in 1994 compared to today?

The point is that RBC's calculations indicate affordabilty was significantly worse in 1994 than today, whereas you claim that it was better. So clearly someone is missing the boat.

vg said...

"What was the affordability, by your measure, in 1994 compared to today? "


Why do you need to know this ? have some more hand picked numbers ready to load up to convince yourself you didn't overpay for your condo by 40% ? you got hosed and now you need some more self serving number juggling to make your self feel better with price reductions of 5-10% all over Victoria,your already down how much ?

I know it is worse now than 94 cause I live in reality jmk.

olives said...

I recently sold a house and now choose to rent. Not bitter here, just fascinated with what's going on in the financial world.

happy4 said...

Back to the original question...

JMK said...
I do the numbers this way, YMMV, please feel free to make whatever assumptions about the rental market and expenses you want in here if you don't like my numbers.

Owned House: 5% real income -2% real expenses+2% real appreciation = 5% real return


Just curious, did you factor in property transfer tax, annual property taxes, and RE agent fees in the 2% expenses? What about interest, was the interest paid on the mortgage included? And is there any assumption of upgrade/reno costs in that figure?

If not, I'm wondering if you could come up with some updated figures, I'd like to see the full fincancial impact of flipping one's "investment", or of living in it. I would expect the figures to be different if the home was being rented for x number of years (but presumably not during any renos?). I'd hope that thre rental income would be claimed for tax purposes, so 30% or so less than the actual income.

Sorry if this is too hypothetical. I have my own little spreadsheet that I've pumped all these figures into and I believe it's entirely possible for the renter to come out ahead over the long term.

I found a figure a few years ago, I wish I could remember where, that said the magic number for renting vs buying is 6%. The terms of this were that if 123 Maple Street cost $400,000, and if the monthly rent for that home would cost less than 6% of $400,000 ($2400), then renting would be more advantageous over 25 years if you invested the difference. That 6% works for any home vs buy property (don't bother with the calculators on lenders' websites, they are trying to sell you a product after all!). This is why so many people paying $1200/month for rent started buying homes when they could qualify for a $200k mortgage (with low interest). And why with rent roughly $1500 for an average home, anything more than $250K is unaffordable to average folks (with interest at a more typical 8%, monthly payments are up close to $2k).

My spreadsheet takes into account reinvesting homeowner fees such as property taxes, $200/month in repairs and maintenance,mortgage and CHMC insurance, money dumped into the house for the downpayment. It also takes into account the money repaid to RSP that was taken out of the home purchasers (ie $222/month for 15 years for max $40k withdrawn from plan - not only would I lose the pleasure of my $40k increasing in value for those 15 years, that extra $222/month would reduce any further contributions I could make during that time, ie taking away some opportunity for diversifying my assets.

Living in GH where the homes I would choose to live in cost >$600,000, any rent less than $3600 would be to me advantage. More typical is around $2K, and that can't increase by more than 3.7%/year, so I think I'm safe to rent for a few years.

JMK said...

Why do you need to know this ? have some more hand picked numbers ready to load up to convince yourself you didn't overpay for your condo by 40% ?

No VG, I need to know it because you claimed that the current affordability now is the worst it has been since 1981. The RBC numbers that I cited indicate that is not the case, so you must have some that indicate it is.

JMK said...

Hello happy4.

Just curious, did you factor in property transfer tax, annual property taxes, and RE agent fees in the 2% expenses? What about interest, was the interest paid on the mortgage included?

Property taxes certainly were as were maintenance. On a $500k place 2% is 10k a year.

Agent fees and property transfer tax were not. If you would like to include those you'd need to decide how long you will own the house. i.e. over 10 years they will come out to something like 0.5% a year. Of course for equities you will need to include the management fees or trade fees. For a TD e-series these run 0.3% to 0.5% which as I understand it is phenomenally low.

You do not pay income tax on the rental benefit if you live in the house. That is why I put owner-occupied as a separate entry from a landlord investment.

It does not include interest. Again, how you finance the investment, in either case, is a separate but important issue. Obviously you should not pay more in interest than you can hope to make in returns. For the above numbers that means you should not leverage your house purchase by more than 85%, or your equity investment by more than 50%.

What is missing from this is the loss of rent to the investor.

Double check your spreadsheet against this calculator. I checked their numbers and it looks right to me, though you need to put taxes+maintenance under "property taxes" to get an accurate picture.