Take this listing for example:
Aggressively priced at 2010 assessed value of $233,800 to sell quickly! Terrific investment opportunity, with no rental restrictions, this 2 bedroom condo is the best deal in downtown Victoria. This fully remediated building has a new roof (special assessment has been paid), separate storage and bike storage, allows pets and offers secure underground parking for only $60/month. This unit features an open & modern floor plan, large walk-in closet, in-suite laundry, balcony w/ garden views, new paint in 2009, new energy efficient fridge and low flush toilet. All appliances are included. Tenants are currently on a fixed term lease expiring July 31, 2010 paying $1175 per month. This is an outstanding value!Emphasis mine. Whoever listed this property wants to attract someone who may be thinking about tying some money up in a rental property. Hey, with the lack of first time buyers shopping right now, an agent's gotta get creative to find a buyer right? Let's see what "terrific," "aggressively priced" and "outstanding value" means to this agent shall we?
Scenario 1: Buyer pays cash and retains current tenants at same rent ($1175 per month/$14,100 per year) and pays $110 and $220 per month in taxes and strata fees (actual) for annualized costs of $3960. So the "income" on the investment is $10,140. Expressed as a percentage, this is 4.3%. I've skipped some costs, and not calculated taxes, but you get the idea. The real take-home ROI is likely to be half of that - which a high interest savings account will easily match and provide infinitely more liquidity. Anyway, this is the best investment scenario I can think of, and this is what this agent likely meant by "terrific."
Scenario 2: Buyer isn't really an "investor" but begs, borrows and steals from their primary home equity to scrape out the 20% down required by CMHC for "investment" properties now that April 19 has rolled on past - they do this grumpily cursing that damn CMHC for making it harder for them to get rich too.
So how rich do they get? Check it out (click for larger resolution):
Let's say they too keep the same tenant and same rent, so their input numbers are the same ($14,100). Output is different though: Strata and taxes are the same ($3960) but then add mortgage payments totaling $12,540 for total output costs of $16,500. I guess outstanding value means a minimum loss per year of $2400. I say minimum because we haven't factored income taxes or opportunity cost on the almost $50,000 down payment into the costs either.
Forgive me for this very simplified analysis of "terrific investment opportunity" and "outstanding value" but I wanted to illustrate why residential real estate sales people should be required to make mandatory financial performance disclosures about their "investment products" if they want to act as "investment advisers." But if they want to call themselves speculation specialists, I'll shut my yap.
Oh, and if you're still not convinced by my analysis of what a crappy investment buying in this building today would be over the next year or so, perhaps you can ask any one of the 7 or 8 owners who are currently trying to eject themselves out of their ownership situations - one of whom who is listed for less with more rental income coming in, which I guess takes care of "aggressively priced" then eh?