MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.
May 2012 month to date (previous week in brackets)
Net Unconditional Sales: 448 (286, 140)
New Listings: 1148 (761, 382)
Active Listings: 4649 (4444, 4451)
Sales to new listings ratio: 39% (37.5%, 36%)
May 2011
Net Unconditional Sales: 572
New Listings: 1524
Active Listings: 4857
Sales to new listings ratio: 37.5%
Sales to active listings ratio: 11.7% or 8.49 MOI
Not much to say here as usual. Sales are running higher than last year, but sales/listings is pretty close.
On another topic, one of the most interesting non-Canadian housing blogs is Tim Ellis's Seattlebubble.com. They have a lot more detailed stats on just about every aspect of the market, and significantly more historical data than we do. I'm interested in the comparison to Seattle, because they are similar in many ways to us, did not suffer from widespread subprime loans, have a strong economy, and a very long history of the "stairstep" in housing prices, where prices would increase sharply, then stay nominally flat, then increase sharply again.
So I've overlaid the last 50 years of average price data for Victoria on top of the graph for Seattle as a comparison. A couple things to keep in mind about this graph:
- The VREB only supplies average prices, while the data for Seattle is medians, so you cannot directly compare prices. The goal of this graph is only to examine price trends.
- Data for Victoria only goes back to 1960 and I have not been able to find a source for anything earlier. If anyone knows if this data is available, we could complete the picture.
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| Seattle vs Victoria SFH Prices (Source: VREB and SeattleBubble.com) |
There's a few things that strike me about this graph:
- Prices in Seattle were flat or declining from the start of the data until the mid 1970s. Tim's theory is that this is when Seattle made the transition from small town to real city. Population data shows that Seattle proper was reaching close to the same numbers it supports today, possibly indicating that land constraints started pushing on prices around that time (with subsequent growth mainly in outer areas). Victoria does not show this flat area, with quite strong price appreciation all the way back to 1960 (because we are even more land constrained?). Clearly there must be a flattening out if you keep going back, but the data is insufficient.
- Even long term stair steppers eventually stumble. Seattle had a 30 year history of increases and flat periods, and like here, the prevailing wisdom was that prices there would never experience a crash.
- The big crashes (and in fact bubbles in general) tend to be steep and symmetrical (Victoria in 1981, Seattle in 2007). Does the fact that we have sustained the peak prices for 4 years mean that the government has in fact engineered a soft landing by crashing interest rates?
Of course, the big missing piece of data here is interest rates. People tend to be more concerned about their monthly payment rather than the absolute price of the house. So let's have a look at that.
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| Victoria SFH Price and Monthly Morgage Payments (Sources: VREB and BoC) |
Now we see a more symmetrical decline. If you believe that historical data has any predictive value at all, you could extrapolate that if rates stay as low as they are, and the monthly payment curve continues on its symmetrical decline, you would expect average prices to decline to $450,000-$500,000 in 3 years.
The next step would be to factor in local income, and the effect of changing CMHC regulations, but I'll leave that discussion for another post.
The next step would be to factor in local income, and the effect of changing CMHC regulations, but I'll leave that discussion for another post.
127 comments:
Breaking news...
OSFI to issue new mortgage rules by end of June. Many observers thought this would not happen until the end of the year.
Globe & Mail article
OSFI unveiled the proposed new rules in March, and requested submissions from the industry. Rod Giles, a spokesman for the banking regulator, said it has received a significant number of submissions from trade associations, lenders, insurers and the brokers as well as private citizens.
OSFI is still reviewing them, but hopes to release final rules by the end of June, along with a summary of the submissions and the reasons for its decisions.
Why will this affect the Victoria RE market?
The proposed rules suggest that banks recheck areas such as employment status, current income and the current value of the home for renewals and refinancings.
OSFI has signalled it wants banks to limit home equity lines of credit to 65 per cent of a property’s value.
One proposed rule that the group applauds would eliminate so-called “cash back” mortgages, which essentially allow a consumer to borrow their down payment from the bank.
More Bear News
OECD urges Canada to raise rates
An influential international body is urging Canada’s central bank to raise interest rates in the fall, and continue doing so through 2013 to cool housing prices and contain inflation.
The Paris-based Organization for Economic Co-operation and Development’s prescription for monetary policy will stoke the already hot debate about whether the Bank of Canada’s interest rate stance is inflating a housing bubble.
Governor Mark Carney and other officials say the days of ultra-cheap money are coming to an end, although they so far have declined to be more specific. The OECD, a high-powered economic research group backed by contributions from its 34 rich country members, offers a scenario: An increase in the benchmark rate of a quarter of a percentage point in the autumn, and similar increases each quarter through to the end of next year, leaving the benchmark overnight target at 2.25 per cent.
That still would be low by historical standards, yet, according to the OECD, likely a big enough increase to cause prospective homeowners to think twice before buying at current inflated prices.
And not a moment too soon.
The graph seems to show that during a trough in real estate, the amount prospective purchasers are willing to commit to a monthly mortgage payment drops substantially. Eyeballing the graph it looks like people buying during the next price trough may only spend half of what those buying today are paying in mortgage payments.
It appears that the prospective purchaser of tomorrow may only pay 20 percent of their gross income on housing rather than the 40 percent today irregardless of what the interest rate would be.
What isn't shown is that not only are buyers during a trough are not wanting to commit to a high ratio of debt service, but they don't want to take on long term debt either. So while the mortgage may be amortized over 25 years, a prospective purchaser may want that mortgage retired in 15 years.
In summation, the prospective buyer that puts off buying a home today, may actually end up committing less of their gross income and pay off their mortgage sooner, than someone buying today.
So when should you buy?
When the proportion of your income that you want to spend on a home and the length of time you want to carry that debt is reasonable to you. And that the home that meets your needs for the next decade falls into that price range.
You may not be able to time the bottom of the market, but you certainly can time your purchase to your needs.
*slow clapping in the corner for LeoS taking the Monday market update post to new levels
Last week the cheapest home in the Victoria Core went to an eight year old 415 square foot condominium in Vic West for $175,000. Which is probably cheaper than renting the suite.
This is not my favorite complex, it just looks tacky and reminds me of student housing. The complex probably won a design award though - they all do. When the developer was building the complex, I thought his slogan should have been.
"Building tomorrows slums - today"
It seems others feel the same way as I do - hence the low price.
Of the three properties that sold for over a million last week. Only won was in Oak Bay. (Sorry Introvert). A smartly updated home on St. Patrick that sold for $65,000 more than it did 2.5 years ago.
Relative to BC Assessment, the best deal on a home was at 86% of the assessed value for a property on Amblewood Drive. A Broadmead beauty that gave you almost 3,000 square feet of living space (but not basement) that needed updating from the 1980's decor, all for $750,000.
And the worst deal for a pre-owned home, relative to the BC Assessments, was the property on St. Patrick. Paying 155% of the assessed value. Lots of sizzle left on this steak.
The closest sale that came to lot value was an 1,100 square foot rancher on Freeman Avenue for $415,000. But its unlikely the home will be demolished as it is easily rented for close to what the mortgage payment would be.
And if you want to pay only 15 times income for a property. Then there was a character home with a basement suite that sold this week for $429,000 just a one minute walk to McDonald's restaurant on Mason Street. Imagine you can have "take out" every night.
The highest price last week for a home was $504 per square foot for a condominium in the Zen building on Fort Street. Where you could buy a 490 square foot condominium for $247,000.
Hmmm, compare that with the cheapest home in Victoria for a similar sized condo in Vic West at $175,000.
But you still have to pay 600 large for the typical single family home in the core districts.
"490 square foot condominium for $247,000"
That price seems really, really high to me. Why would someone pay that much when it's pretty usual to find a 600sqft, new-ish downtown condo for $250,000-260,000?
If you look at how much you're paying per square foot, it seems overpriced for where this condominium complex is located.
But, on the other hand its one of the lowest prices for a new or newer downtown condominium.
When your buying a condominium, you're generally buying square footage. Granite counter tops and stainless steel appliances are just features that quickly age and only add marginally to a property. Most of the appliances in these condominiums have only a five year life span anyway.
Because you are buying just the very basic in living accommodation. These small condominiums should have a lackluster re-sale market after the developer has sold out and loses control over the pricing. As the only thing that makes these micro condominiums sell is their low price. You're not buying one of these condominiums for a "good" lifestyle, you're buying them because they are relatively cheap.
I think most of these condominiums will end up as rental units with a high tenant turn over rate.
Does anyone know where I could find average BC family income for 2010 or 2011? I can't find anything past 2009...
4639 Lochside.... Listed for $549k, then $537k... Sold today for $460k.. Heck of a lowball.
Slow in the comments section this week. Still digesting the informative post by LeoS or a bit hungover from the long weekend maybe? Ha!
There's talk of layoffs at City Hall now. I sure hope those IT jobs we keep hearing about will fill the void.
Well, I don't buy the comparison with Seattle. King County, which geographically may compare well with greater Victoria, has a current population of near 2 million (2010 census: 1.93 million).
In 1970, when according to the post it transcended 'small town status' its population was 1.16 million. Sorry, but that's not greater Victoria. The county that is the world headquarters of Microsoft, Starbucks, and recently Boeing (though they moved to Chicago) is not similar economically or demographically to Victoria. I love Seattle - lived there for 6 of the best years of my life - but it doesn't feel like Victoria. It feels like a big city.
You're better off comparing Vic. with Vancouver, and we all know where that leads.
I never hear people compare Greater Victoria to the Fraser Valley.
Or the City of Victoria to that of White Rock or even New Westminster. Langford to Langley or Sooke to Chilliwack.
It's just human nature to round up.
In 1970, when according to the post it transcended 'small town status' its population was 1.16 million. Sorry, but that's not greater Victoria. The county that is the world headquarters of Microsoft, Starbucks, and recently Boeing (though they moved to Chicago) is not similar economically or demographically to Victoria.
Right, so don't you think that a large, dense, world class city should have higher detached house prices than a medium size town on an island? Smaller towns tend to have lower house prices than big ones, not the other way around.
Seattle is interesting because they have a similar nice location on the west coast, a good economy as you say, and did not collapse because of subprime/NINJA loans. They also have a long history of increasing real estate prices and the common knowledge in that city was that real estate doesn't crash there, it only stays flat and then goes up.
Of course no town is exactly like Victoria. Perhaps you prefer Halifax? Canadian, coastal, same size, capital city, somewhat isolated, strong government and IT sectors, navy, etc. Average price under $300,000.
Of course no town is exactly like Victoria. Perhaps you prefer Halifax? Canadian, coastal, same size, capital city, somewhat isolated, strong government and IT sectors, navy, etc. Average price under $300,000.
Victoria is emblazoned in the consciousness of those Canadians living west of Quebec as one of the best places in Canada to retire (for those who can afford it, that is).
It's true that Victoria and Halifax are quite similar in many respects; however, one important difference that I would point to is winter temperature. Victoria is significantly warmer.
and no hurricanes.
But we have the specter of "the Big One" looming above us.
Temperature is a significant point. The warmer the city the higher the prices. I don't know why so many Economists have missed this point and wasted their and our time on social, economic, geographical and political factors. When they simply could plot price against temperature.
Not sure of what to pay for a home in say Fort MacMurray, Vancouver, Windsor, or Toronto? Just pull out your thermometer and look at the temperature.
After all, global warming was actually invented by the real estate industry to sell houses. So don't ask your real estate agent about the price - just ask him to bend over and look at his thermometer.
Is that Fahrenheit or Celsius?
The more mortgage brokers per capita - the higher the prices also.
That's why the next economic stimulus package will have all brokers deported to Labrador. Of course they will be issued with a hot water bottle and a thermometer.
It's true that Victoria and Halifax are quite similar in many respects; however, one important difference that I would point to is winter temperature. Victoria is significantly warmer.
Absolutely. And the point was not that Seattle or Halifax or any other city is identical to Victoria. Certainly they all have pros and cons, and Victoria has a lot of pros.
Another interesting city is San Francisco. While we're clearly far smaller than them, we have again a lot of the same land constraints and also a similar city feel in terms of architecture, etc. The median multiple price/income in San Francisco is almost identical to ours, so on the surface we might not be too far off, but the whole picture is more complicated than that. Might be in a future post if I can get around to the analysis.
The warmer the city the higher the prices. I don't know why so many Economists have missed this point and wasted their and our time on social, economic, geographical and political factors. When they simply could plot price against temperature.
Easy there, Jack Lemon. I didn't explicitly say that higher temperatures mean higher prices, but I appreciate your jumping to that conclusion.
The fact of the matter is (winter) temperatures and prices are not correlated (in Canada) because, if they were, Victoria would always have had higher prices than the rest of Canada, which is not the case.
I'm going to have to make it more difficult for you Introvert.
Another interesting city is San Francisco. While we're clearly far smaller than them, we have again a lot of the same land constraints and also a similar city feel in terms of architecture, etc. The median multiple price/income in San Francisco is almost identical to ours, so on the surface we might not be too far off, but the whole picture is more complicated than that.
It's usually interesting and occassionally fruitful to compare cities to one another, but at the end of the day there is only one Victoria. And there is only one Vancouver, Calgary, Toronto, and Halifax.
We compare in an attempt to gain some insight or to make an educated guess, but what great insights have we stumbled upon? And which guesses have proved correct?
Someone really wanted 1120 Woodstock Ave....25k over asking.
OSFI to issue new mortgage rules by end of June. Many observers thought this would not happen until the end of the year.
I think they are only voting on it in June. They would likely not come into effect for a while after that.
We compare in an attempt to gain some insight or to make an educated guess, but what great insights have we stumbled upon? And which guesses have proved correct?
Well I compare because I'm looking for a reason why it might actually be different here. Is there perhaps some fundamental reason why our prices are sustainable at these levels? Because if I can convince myself that there is, I might as well buy now.
For example, I think a very strong anti-bubble argument is that our price history is not behaving like a bubble at all. Our prices went up steeply and then stayed flat, while asset bubbles go up steeply and then go down more or less symmetrically.
That's why I'm interested in looking at the affordability as well. Is it behaving more like a classic bubble? Yes, but we are also still missing some pieces of the puzzle like incomes and CMHC changes. Incomes don't change the picture much, but CMHC regs might.
Maybe I'm off my pills again but most historical price charts show Halifax actually being more expensive than Victoria AND Vancouver for a period of in the early 90s. Must have been when the west coast thawed.
Good thing Victorians can retire to (insert bust US retirement destination here).
Maybe I'm off my pills again but most historical price charts show Halifax actually being more expensive than Victoria AND Vancouver for a period of in the early 90s. Must have been when the west coast thawed.
Good thing Victorians can retire to (insert bust US retirement destination here).
CMHC Mortgage Consumer Survey
"34: the average age of a first-time homebuyer"
Anyone else surprised that the age is that high?
I was 34 when I bought my first condo. I was considered slow for my peer group. I'm now considered really slow since I sold the condo when I was 39 and am now renting again.
I bought my first place when I was 30. My peer group, who bought, were also in there 30's. Sounds right to me. 20's is the time to spend your money on restaurants, skiing, and to live with a group of friends so you can also save money. Buying a home in your 20's sounds soooo boring....
(edited for sp)
Buying a home in your 20's sounds soooo boring....
Bought my house in my 20s. And my friends and family will confirm: I'm extremely boring!
chuckle...boring but smart? It's a trade off.
"OSFI to issue new mortgage rules by end of June. Many observers thought this would not happen until the end of the year."
Leo S said: I think they are only voting on it in June. They would likely not come into effect for a while after that.
A parliamentary vote is not necessary for the OSFI to issue new regulations. Once OSFI issues the new regs they will go into effect.
This is why Flaherty passed the hot potato to OSFI. So changes could be made without the politicians taking the heat.
If all three of these draft regulations are in the final document we could see the market cool considerably this summer.
The proposed rules suggest that banks recheck areas such as employment status, current income and the current value of the home for renewals and refinancings.
OSFI has signalled it wants banks to limit home equity lines of credit to 65 per cent of a property’s value.
One proposed rule that the group applauds would eliminate so-called “cash back” mortgages, which essentially allow a consumer to borrow their down payment from the bank.
This is all pretty much in sync with this this info from HRSD Canada:
In 2006, 43.5% of young adults aged 20 to 29 years lived with their parent(s). This is a significant increase from 25 years earlier.
Also interesting to note that the average age of a mother for childbirth in Canada is 29.3 (30.0 in B.C.) and steadily increased up from 26.7 in 1975. More education, more debt, starting families and buying a home later. Makes sense the numbers show that.
When a broker takes a mortgage to a bank, the bank's loans officer relies on the information the broker has provided. That most often includes income verification and an appraisal report.
The banker rarely has the time nor the inclination to verify any more than that which they have been provided.
Now, OSFI, is suggesting rules that the banks have to do their due diligence at renewal time.
I think, this is a good thing.
A banker today, may take a harder look at what the broker brings to the table, knowing that a year or so from now, the banker may be held accountable and responsible for past loose lending practices.
And I'm sure some real estate professionals are going to hate this, as it will quickly become obvious which brokers have been creative in verifying income and which appraisers have been too flexible in their valuations.
More on OSFI and the new guidelines for Canadian banks.
New Mortgage Restrictions Approach
An OSFI spokesperson told us on Wednesday, “We are still aiming for a late June (or) early July release.”
At that point, its mortgage underwriting “guidelines” will be final, it says.
The spokesperson added, “The cover letter issued at the same time as the guidance will lay out timelines for implementation of the various elements, and will include a summary of the comments we received.”
OSFI says the guidelines will come into force sometime after they are released, but it didn’t have a timetable yet. We get the sense it won’t be too far down the road.
There are a lot of luxury cars and big ass trucks around this town that are compliments of CMHC backed high ratio home equity loans.
These home equity loans also backed a lot of speculation in the condominium market too. At one time you could pull out 95% of your equity, that was reduced to 90% and now the proposal is for 65%. I think of all the mortgage product lines introduced over the last dozen years or so, this has been the most abused. These HELOC's were like throwing a life preserver to a man drowning in debt. Except the life preserver was filled with more debt.
As for the cash back scheme, it only works when the percentage down is low like 5%. At 5%, its an acceptable risk for the bank to separately loan the 5% down payment. If that were raised to 10%, then the cash back would almost entirely disappear.
CMHC will only lend 95%, but gives the wink and the nod to the cash back practice. Sounds swarmy to me. A practice that any regulator would clamp down on.
Canada House Prices: DBRS Says Canadians Can Handle 40 Per Cent Collapse In Value
Credit rating agency DBRS said Thursday that average Canadian households can withstand a catastrophic drop in home prices, but warned that a rise in unemployment would be a greater concern.
The agency said a 40 per cent drop in prices or rising interest rates would put pressure on Canadian households, but not have a large impact on mortgage defaults.
"However, a combination of higher interest rates, lower property values and a drastic increase in unemployment would be of great concern as mortgage defaults are closely related to employment and individual family situations," DBRS said in a report.
Flipped a house in my 20s (leading up to the HK repratriation), quit my job as a mortgage lender with a CU and travelled the world for 2 years.
Wow - St Anne has already reduced its price from $760K to $725K.
What a bath for 6 months of ownership.
Poor people.
That certainly makes sense. Just because your house falls by 40 percent that doesn't mean you'll go into foreclosure.
But say you owe $300,000 and your condominium has dropped to $200,000. Well, you're not going to be very happy. You realize that you may have to live in your condo for another decade or more before you can pay down the debt and sell the home. You resent the condo fees and don't want to spend any money on the complex or your suite. The complex is looking really shoddy now and smells like cat pee in the hallways. Sometimes you don't pay the utilities and strata fees on time - because you just don't care anymore. Your strata council has assessed a Special Assesment of $50,000 per suite for a new roof and painting the parkade.
You think the smart thing is to pay off the mortgage but everytime you put another $10,000 down, the condominum falls in value again. And $10,000 makes a difference of only a couple bucks in your mortgage payment anyway.
Eventually, your spouse walks out on you and starts dating the real estate agent that sold you the place. Your spouse gives you their half of the debt in the divorce settlement. And your ex spouse and the real estate agent go on a year long cruise around the world. You haven't talked to the kids since your phone was disconnected. You've turned down the last two promotions because that would mean transferring to another province and you are not allowed to rent out your condo - and sure as hell you can't sell this Albatross around your neck.
You bought the condo when you were 34, but with the kid's educations, a new truck and vacations that went onto your home equity line you still have 20 years on the mortgage left.
Next month, you turn 65 and your wheel chair won't fit in the hallways.
But you still have the mild winters although your arthritis hurts a lot more when it rains.
Note: this is a dramatization - your actual experience may differ.
assisted suicide might be legal soon so it's all good!
Or ... you're a renter who's signing away a large cheque every month to a landlord who's likely in a vastly superior financial position than you.
If you are a renter signing away a large cheque and you lose your job, get divorced, get old etc., it is very easy to move to cheaper place that requires a smaller cheque...not so easy to stop signing away a large (mostly interest which is the "rent" on money) cheque to the bank when your place has dropped in value by 100k.
It depends on when your landlord bought the property and how many times they had to dip into the equity.
Since you get to write off the interest expense in a revenue property, most accountants suggest that you maximize the mortgage on the revenue property. However, that's not always feasible, unless you enjoy losing money every month.
Of course you could rent out the basement and live on the main floor - but since you have to share your property isn't that like being a renter in your own home. And you better be nice to that tenant, because they could be gone with a months notice. Leaving you behind in your mortgage payment (rent) to the bank.
Then if your tenant develops some bad habits and you need to evict them - you might have to pay them several months rent just to get them to leave. And time is ticking on that damage deposit they is held in trust, you can't delay paying them. All they have to do is leave the place clean and you have to return the deposit plus interest. That leaves you paying for materials and labor for painting, remodeling upgrading and advertising the suite for rent.
Being a landlord is not for everyone. Actually, its only good for some people. Most people fail as a landlord miserably.
Then there are income taxes, and capital gains tax.
Anything less than four or even six suites is a hobby not an investment.
When you buy a revenue property is very important.
Most people will overpay on their first revenue property. Overestimating rent increases, underestimating expenses, not allowing for the cost of repairs over the next few years and not paying themselves for self managing the building. They'll make the mistake of buying an old character conversion home where the heat is included in the rent. And one tenant goes on holidays leaves the window open and heat on and you get a $1,000 hydro bill. Otherwise, you'll have to spend money and have the suites re-wired and separately metered- Good luck on that one.
The best times to buy a revenue property is when the economy is expanding and you can increase rents. You can't do much on reducing expenses, they will always be increasing.
The worst time is to buy after an economic expansion. Rents will stagnate and possibly even decline. And your vacancy and bad debts will increase significantly, leaving you without pocket change at the end of the month. The municipalities are more need of cash to pay for all the jobs they added during the expansion. So expect higher property taxes and utility charges. Then there are fridges, stoves, hot water tanks. You'll be buying new appliances every five years or so, because they are not built to last any longer than five years anymore. Then there are financing charges like interest rates, legal fees, and appraisals at renewal time.
Ironically, you have been making oodles of money on real estate over the last decade and now you want to buy something that will give you an income stream and security and this last purchase will probably bust you.
It depends on when your landlord bought the property and how many times they had to dip into the equity.
There hasn't been a price crash yet, and no owner that I know has ever resorted to a HELOC. (Maybe my owner friends and family are members of the "elite"?)
Of course you could rent out the basement and live on the main floor - but since you have to share your property isn't that like being a renter in your own home.
Sort of, except unlike for most renters, the money is entering your wallet each month, not leaving it.
And you better be nice to that tenant, because they could be gone with a months notice. Leaving you behind in your mortgage payment (rent) to the bank.
It would be almost impossible not to be able to pay one's mortgage payment because of a vacant basement suite: a mortgage lender would never lend to borrower whose income ratios were this bad.
And time is ticking on that damage deposit they is held in trust, you can't delay paying them. All they have to do is leave the place clean and you have to return the deposit plus interest.
Almost no one who owns a home and rents out the basement would have any trouble paying back the security deposit. This is absurd. You're painting the outlier cases as the norm. And by the way, the interest owed on rental security deposits has been exactly zero for at least the last three years. (God only knows how landlords will cope when the deposit interest rate rises to one or--heaven forbid--two percent!)
That leaves you paying for materials and labor for painting, remodeling upgrading and advertising the suite for rent.
Painting, remodeling and upgrading aren't necessary each time a tenant vacates. Usually just a few paint touch-ups will suffice. Advertising? It's called UsedVictoria and Craigslist. Ever heard of them? They're free.
Most people fail as a landlord miserably.
Really? I doubt it. Most landlords, I would think, go into it with eyes pretty wide open and make out reasonably well. You do hear of horror stories, for sure; but you also hear of huge-win stories, like the quietest PhD student ever who rents for five years without a single issue, for example.
Anything less than four or even six suites is a hobby not an investment.
Again, a very uninformed statement.
---------------
Overall, Just Jack, I don't think your impressions of most things are very accurate. You've let resentment cloud your perception.
Mr Chan is being humorous I believe. Although I mostly find his posts depressing.
The one about the spouse walking out on you and starting to date the real estate agent--that one was humorous. The next two: not so much.
I don't find his serious entries as depressing as I find them untrue.
I find that JJ's often-hyperbolic statements are rarely scrutinized by anybody but me. His more outlandish comments usually get a "free pass."
This blog comprises 90% bears, so is it any wonder that no one (other than me) feels it's worth calling JJ on his exaggerations when almost everyone basically agrees with the gist of what he is saying?
OK, OK. I promise this will be my last post before I go do some gardening in the beautiful evening sunshine.
Then there are fridges, stoves, hot water tanks. You'll be buying new appliances every five years or so, because they are not built to last any longer than five years anymore.
Introducing West Coast Appliance, featuring the largest selection of new and used appliances in Victoria.
The washer in the suite that I rent out finally bit the dust last summer. Did I take out a HELOC in order to replace it? No, silly! I went to West Coast Appliance, where I bought a refurbished washer for $200 plus tax. Gosh, it's hard to believe that I had over $200 lying around--being a poor, starving, stressed-out homeowner and all! But in fact I did!
And I'll be able to write off part of that cost as a business expense on my next tax return. Fancy that!
My garden awaits!
@JustWatching A parliamentary vote is not necessary for the OSFI to issue new regulations. Once OSFI issues the new regs they will go into effect.
Good point, will be interesting to see how fast they implement it.
The proposed rules suggest that banks recheck areas such as employment status, current income and the current value of the home for renewals and refinancings.
I think this rule is nuts. It has the potential to force people out of their homes at renewal even if they are paying their mortgage. Not good at all, I suspect it will be dropped.
@Introvert Credit rating agency DBRS said Thursday that average Canadian households can withstand a catastrophic drop in home prices
This statement is meaningless. Whats the "average Canadian"? The guy with the median income? So every homeowner with less than median income could default and this statement would still be true.
@JustJack Note: this is a dramatization - your actual experience may differ.
That was a good one :) Let's all meet up at the pub and cry into our pints. Both owning and renting sounds terribly depressing.
@Introvert I find that JJ's often-hyperbolic statements are rarely scrutinized by anybody but me. His more outlandish comments usually get a "free pass."
The rest of us have a sense of humour. I know the feeling though.
I was thinking of the issue of what North American city might compare with Victoria.
I may be talking out of my a$$, but I came up with Marin County/San Rafael - a north Bay suburb of San Francisco. They have San Fran, we have Vancouver (both roughly p/i of 9 and change, I believe). Ok, the Marin county folks drive the Bay bridge ($6) and we have to take the ferry ($70). We both have gripes about the weather. But otherwise, population, geography, etc. seem fairly similar.
I don't know anything about Marin County real estate. Anyone care to check how it compares to Victoria?
@Introvert
Could you give us a few details about your rental?
A few things I'm curious about:
-how long have you been a landlord?
-ballpark location of your suite?
-how many bed/bath? size?
-has your rental suite ever been vacant(not by choice)?
-generally what have you found necessary to budget for maintenance, like the dishwasher you mentioned, or some of the other things JJ listed?
Appreciate any insight, thanks.
Introvert, Just Jack displays many of the attributes of a lot contributors to this site.
He is smart, insightful and humorous. You`re not. Get over it.
@Introvert
fwiw I don't read JJ's posts, but am a bear who appreciates thoughtful commentary and insight.
Dave3
PS Sorry jack! Nothing personal :)
It's hard to compare Victoria to other cities especially in the US. Look at a population map, we are all pressed up against the border. Why? because the further north you get the less inhabitable it gets. Victoria is a micro climate with the mildest weather in Canada. I don't say the best because some people love hot hot summers with mosquitos and beautiful snowy winters and -40 with wind-chill. If you want the mild climate there just isn't a lot of options in this country. In the States, climate wise, there are a lot more geographic options...
The rest of us have a sense of humour.
So I ought to be interpreting all of JJ's posts as humorous, when clearly some are meant to be quite funny and others not? Well ... grab a ticket, JJ, because it looks like another "free pass" has just been issued!
Whatever. Moving along...
-------------------
Could you give us a few details about your rental?
...
Appreciate any insight, thanks.
backinVictoria,
I don't mind sharing some details, but I'd just like to understand why it is that you're interested in them. Please explain.
-------------------
It's hard to compare Victoria to other cities especially in the US...
dasmo, I agree completely with your explanation here. How many mild, coastal, mid-size cities are there in the U.S.? Countless. In Canada? One.
So I ought to be interpreting all of JJ's posts as humorous, when clearly some are meant to be quite funny and others not?
Some are meant to be funny, and some are clearly exaggerated to make a point (and to get a rise out of you I suspect).
How many mild, coastal, mid-size cities are there in the U.S.? Countless. In Canada? One.
Half the cities on Vancouver island fit your criteria, not to mention sunshine coast, the maritimes, etc.
Oh but those don't have the exact same temperature as Victoria. And not the exact same size either! Yup, narrow the criteria enough and everyone is unique.
Unlike in the US of course, where there are literally too many cities to count that are just like Victoria. They're all over the place. We drove down to California last fall and it was like we never left.
I really enjoy Just Jack's contribution to this blog. He is a humorist and much of what he writes is exaggerated and over the top. To try and refute his posts point by point just shows that you are not in on the joke. I am astounded by how prolific he is and the quality of his writing. There is probably enough great material from his posts on this blog for a very entertaining book. I might skim over a long predictable post telling us our Keynesian system is on the verge of collapsing or we should be all in precious metals like they are but not the posts from JJ. I think his posts are part of the reason this blog is still alive.
@introvert,
I'm just interested to hear more about your experiences being a landlord. It's something I want to do down the road.
What can I say?
About the landlord thing, I've been one for over 6 years now. So far I've spent a couple hundred dollars tops on maintenance and have collected over $72,000 off of forenters. It's pretty easy. They show up at my door at the beginging of every month with a wad of cash and I hand over a receipt. Very simple procedure, takes about 5 minutes. BTW I do pay income tax on this money so not to worry about that. So far I've had 3 sets of tenants in 6 years. Each time it has taken 1 weekend to rent it out and probably a grand total of a few hours of work each time tops. So yeah being a landlord is a rough deal for sure.
Or, you can unwittingly rent to alcoholic partiers, who leave you with holes in walls and months of unpaid rent. Or, you can rent to a sweet professional woman who decides to adopt a non-neutered cat costing you thousands in new flooring to rid the smell. Or, you can finally get a good tenant and feel like you can never let loose yourself. Every step upstairs sounds either like a hammer or coffin door. If you are that financially desperate and feel you must rent out part of your home, at least pour a thick layer of acoustic cement first.
funny - my landlords can't stop telling me how poor they are and how they are always spending money on this house - and we take care of a lot of things for them to save them cash.
Different experiences.
I work as the accountant for a property management company, and I can tell you first hand that a lot of expense goes into maintaining of rental properties. I cannot imagine only $200 over 6 years. I feel sorry for the people who ever buy your house in the future, and your tenants if that is the case. Things need to be kept up or the bills in the future will be huge. If you want good tenants, keep your suites nicely updated and in good repair. This costs money - period.
There are benefits to renting part of your home. For instance if you and your tenant are both pot smokers, you can often get a free buzz compliments of your vents.
Article of the day:
'House of cards' will implode
Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that's precisely what we're about to witness in the region.
…Renters are immune to exploding zeppelins. Renters are free to invest the money they saved by not buying. Renters do not surrender thousands per annum on property taxes, repairs, renovations, city utility bills and burdensome monthly maintenance fees. And renters can move without enduring the cost and hardship of selling.
Your realtor will tell you "Renting is throwing your money away." You can tell him he's a liar.
A few things I'm curious about:
-how long have you been a landlord?
-ballpark location of your suite?
-how many bed/bath? size?
-has your rental suite ever been vacant(not by choice)?
-generally what have you found necessary to budget for maintenance, like the dishwasher you mentioned, or some of the other things JJ listed?
backinVictoria,
I echo the same sentiments as commuter12 regarding being a landlord.
I've been a landlord for around three years, renting out my two-bedroom, one-bathroom basement suite in Gordon Head. My maintenance costs are negligible. I place a lot of importance on finding the “right” tenants; I’m perfectly willing (and able) to let my rental sit vacant for a month or two until suitable tenants come along. Since the beginning, I’ve been a member of the Rental Owners & Managers Society of BC (ROMS), which is a very helpful organization to belong to.
ROMS provides a lawyer-written rental agreement (the standard agreement found on the BC Government website is extremely vague and not very protective of landlord interests). ROMS also provides legal advice, helpful forms and documents, seminars on all aspects of being a landlord, and performs background and credit checks on prospective tenants for a nominal fee. I highly recommend joining ROMS. My annual membership costs around $115, and it's tax-deductible. ROMS is worth its weight in gold.
So far, my overall experience as a landlord has been very positive. When it works well--as it so far has for me--it’s about making $1,200 a month for doing basically nothing.
It may be that the reason why you're not having difficulty in renting the suite, is that you're not charging market rent.
I'm not saying this is your case, but rarely is there not a reason for having such a low turn over rate. I hear it many times from many landlords that they are willing to rent the suite for under market rent, to keep a tenant or attract a better tenant. That is just poor management.
Also, you're only into the 6th year of renting. At this point, all you may need is a weekend paint job and carpet cleaning between tenants. But your appliances are getting older and your flooring, building mechanics and roof will need replacing. If you continue to defer maintenance that will cause your vacancy rate to increase and your income to decline.
Some landlords will replace the appliances with re-furbished ones that you can get for half or a third the price of new ones. That's fine - but you will most likely have to replace these more often and there is the question of warranties.
There are two kinds of landlords. Ones that are active with their properties, visiting the site weekly to pick up the garbage, cut the lawns and keep in good contact with the tenants.
Then there are the absentee landlords, or the ones that see their property once every year or so and only care to see the rent each month.
If your an active landlord, you can minimize potential problems. If your not visiting the property on a regular basis, then it is just a matter of time.
Also, the issue of your tenant paying in wads of cash?
Don't Ask - Don't Tell
How about if your thinking of buying a rental property?
Then you should be asking about the maintenance and age of the appliances, warranties, mechanics, etc. And you should development a depreciation schedule for the next five years of what repairs and replacements and their costs may be needed.
funny - my landlords can't stop telling me how poor they are and how they are always spending money on this house - and we take care of a lot of things for them to save them cash.
Different experiences.
Different experiences is right. Things don't necessarily work out well for everybody.
-------------
I work as the accountant for a property management company, and I can tell you first hand that a lot of expense goes into maintaining of rental properties. I cannot imagine only $200 over 6 years.
...
If you want good tenants, keep your suites nicely updated and in good repair. This costs money - period.
To be fair, mine is $200 over three years.
Keeping a suite in good repair is directly proportional to a) how roughly one's tenants treat the suite, and b) the original condition of the suite.
The suite in my house was very well-maintained prior to my purchasing the house. And I'm extremely careful about whom I choose to rent to.
Both these factors make a huge difference, and they hopefully dispel the prevailing notion that rental maintenance is going to cost an arm and a leg no matter what.
So far, my overall experience as a landlord has been very positive. When it works well--as it so far has for me--it’s about making $1,200 a month for doing basically nothing.
Not saying it's not a good idea, but you certainly aren't doing nothing. You've paid more to buy a place with a suite (what's the premium these days, maybe $25,000-$50,000?) or paid to have it put in. You spend the time to find renters, spend the money on extra maintenance/utilities/ROMS/etc, and sacrifice having the place to yourself.
I've got no position on renting out suites. Good for you and commuter if it works out. Personally I have about zero interest in renting out a suite to non-family. If I wanted to live in a house with strangers and worry about noise I'd stay in our apartment. The only suite I'd consider renting out is a detached garden suite, and even then it's a big privacy/freedom sacrifice to make.
Renting income is great, but it certainly isn't free.
Personally, I think all basement suites should be inspected by the city to ascertain if they meet minimum health and safety regulations.
Those that meet these regulations would be issued with an annual permit. Upon a change in ownership of the property, the suite would be subject to a re-inspection by the city. Any deficiencies would have to be repaired before a permit can be issued.
And I think the landlord should provide a copy of the landlord tenancy act to every new tenant advising both the landlord and the tenant of their rights.
JJ - I agree that all rental suites should be inspected. Some of the places I have seen here are really sub-standard and I am sure would not meet code.
Introvert - I have heard that ROMS is a terrific investment as well. Good on you for doing it right.
The difference in median prices for a Gordon Head home with a finished basement and a Gordon Head home with a basement suite is $17,500. Or basically the depreciated value of kitchen cabinets and appliances.
Some of you are looking at houses in Oak Bay. I see quite a few listed. Is there anything under 800K that is in decent shape or are do they all need work?
Any suggestions about what might be reasonable to buy would be appreciated.
st Anne is for sale again - $725K and it has been extensively redone. There is another flip on Dunlevy for around the same price. There is a lot under $800K.
Some poor flippers on Windsor have been dropping their price for a long time now and are down to $864K, down by about $150K from what I remember.
But, I would not buy any of them at that price - they will come down.
A teardown with a new roof and thermal windows? 2957 Scott St sells for $348,250 after starting at $399k.
Previous comparables are 2851 Scott for $353k and $375k shortly after, and 2636 Scott for $323k and then $340k shortly after.
Odd things going on with the teardowns on that street.
Tough one to call, when your only criteria are a price of $800,000 and Oak Bay.
It sounds like your willing to pass on some very nice areas of Victoria, because the Oak Bay address is very important to you. That means your limiting yourself to renovated character style homes. And there is a very wide range of what constitutes renovated and quality.
And then there is the various tastes of home owners'
For me, the best designs would have perfect proportions and that would be a Georgian style. Donald Trump prefers a Louis Quinze style home with a large comb over. While Warren Buffet appreciates the American bungalow as a model of efficiency without waste and taste. And don't get me started on Lizzie, she's such a poser. Like she's the only one that has been Queen for 60 years and has to have a palace.
You may want to re-define what you want in a home by its physical characteristics, like house and lot size, age, style, condition and location. And don't get caught up in price, you can always lie and tell your friends you paid more.
So, pick your criteria and hunt around for a deal and buy yourself an $800,000 home for under $700,000.
Are any of those previous tear-downs - torn down yet?
Or are they being renovated? And if they are being renovated were they really tear-downs to begin with?
hmmmm,
A friend of ours is renovating his house. The home was a itsy bitsy teeny weenie 900 square footer. The home has been gutted, new perimeter drains, windows, roof, stucco to be done.
I asked him why he didn't just bulldoze the home. His answer was that he couldn't afford to build a new home.
He's spending $200,000 on a home that was worth $350,000 and when its finished he will have a home worth $475,000. Or he could have built a larger new home for $300,000 and had a home worth a little over $700,000.
He works in high tech. This scares me.
Or are they being renovated? And if they are being renovated were they really tear-downs to begin with?
Not sure... They were both flipped (if you can call it that, given the tiny difference in price) in a very short timeframe under odd circumstances. Transaction costs would have swallowed most of the price difference.
The others were pretty obviously teardowns.. This one is a bit odd with the new roof. Maybe it is a teardown but someone thought they could fix it before running out of money. Given their starting price of $399k they obviously had delusions of its worth.
How about some uninteresting statistics about the market and suites.
In the last 12 months, the core districts of Victoria had 1257 sales of homes without suites and 481 sales of homes with suites. That means homes with suites comprise 28 per cent of the detached home market for the core. Of those currently listed 28.5% have suites.
Oak Bay had 13.5% with less than 1% of the homes listed having a suite.
Victoria had 27% of homes sales with suites and 29.6% listed.
Saanich came in at 32% of home sales with suites. 33.7% of the homes listed have a suite.
So, it looks like both supply and demand for homes with suites is the weakest for Oak Bay.
Wouldn't it be ironic that by not allowing suites in a neighborhood, the overall value of a neighborhood increases!
That by putting a suite in your Oak Bay home - you may increase the value of your home but at the cost of devaluing the neighborhood?
Just food for thought - not meant for anyone to go outside and chop the head off their cabbages or Jackfruit in anger.
+1 on the ROMS membership. HIGHLY recommended. You need to understand your obligations and take them seriously. I do. I always include a copy of the RTA in my rental application package.
I think the most important bit of information from ROMS is the issues surrounding the human rights tribunal. As for the maintenance yes renting out piece of crap 1970s apartments will incur high costs. If you're renting out a brand new legal suite not so much.
That's leads to a question. Will you pay more for a legal suite over one that is not legal?
NOTE: for those that don't know there are two issues surrounding suites.
-Is the suite legal
-Is it conforming to the zoning bylaws.
A legal suite is one that has a permit for the improvements from the city.
Conforming refers to the zoning of the land.
A suite can be legal and conforming.
or legal and non-conforming
or not legal and not conforming.
or it can be in Esquimalt and it can be grand-fathered as conforming, etc, etc,
Here is ONE example.
If the suite is legal and conforming that means if the home burns down you can build a house with a suite again.
Legal and non-conforming means that the suite is allowed but if the home burns down then the suite can't be built again.
And just to make it even more confusing. Your land may be blanket zoned for a two-family dwelling but it still has to meet minimum site and configuration requirements. So, your land may be zoned two family but the suite is still non-conforming because the lot is too small.
So - how do you know what your buying. You call up the city planning or bylaw department and ask them if the suite is legal and conforming. This doesn't trigger the bylaw officer to go visit the property. The city usually will not shut down an unauthorized suite unless there is a complaint made in writing by a neighbor or tenant or maybe you just pissed someone off at city hall. As far as I know all basement suites in Oak Bay and Saanich are unauthorized. In Langford a permit for the suite had to be made at the time of construction - most of the time. These regulations are always changing and are different for each city. So call to confirm. Of course if someone on this blog has more recent information or can clarify points in a positive manner rather than just dissing what I have wrote, it is always appreciated.
Nevertheless, when buying a home, you should always call the city to ask about permits and if a final occupancy has ever been issued for the home.
Don't rely on others - do it yourself.
There are some big time losses happening in the upper price range. As I have said many times before, properties that have the majority of their value situated in the land component will suffer in this demand-driven market contraction (note - did not say bubble)
Like today's sale on Tryon Road for $2,650,000. Five years ago, in May 2007, when the market was hot and the town was a buzz about H.A.M. (Hot American/Albertan Market) this same waterfront property fetched $3,275,000 on the market.
But, there are lots of really nice homes for sale in this upper echelon price range. But the Facebook flop means I'll have to save up again.
@introvert
Thanks for the ROMS info. It looks like a useful resource that I didn’t know about.
You mentioned they provide background and credit checks. Have you used this part of the service? If yes, what sort of info did you receive about potential tenants? Cost?
Do you allow pets?
I noticed they also provide rental unit insurance. Is this something you get from them, or do you get that somewhere else? Do you need a separate insurance policy if you have a suite in your house, or can you get it covered under your house insurance?
Thanks
Being a landlord is not that difficult. I have been one for more than five years. I maintain my properties well, but it is not expensive if you start out with a place in good condition and maintain it. I can deduct certain maintenance tax from rental income. My mortgage interest, insurance and property tax fees are also deductible. It is well worth it for me as I make about $10,000 net a year from my property for very little hassle and this is after paying my $350 000 mortgage and expenses each month. Being a landlord is not for everyone but I am happy to be converting my home right now into a rental. I will only net $500/month but that is fine. The incomes from these two properties pays my next mortgage completely as the next property has a suite. Not sure how else I could be able to work part-time and be a home owner in this high market except through such strategies.
In regards to paying more for a legal suite: it depends. In order to remain a legal suite most suites require an owner occupier in the main residence. If you plan to rent out the both suites, this is not an advantage. It puts you at risk of being reported for not occupying the suite. Although, if you are renting out an illegal suite you are in the same boat and you must be comfortable with this.
As for Oak Bay, I do not believe you decrease home values in Oak Bay as this is big factor for many purchasers. What I have noticed is that very few Oak Bay listings report having a suite as this is illegal in Oak Bay and their by-law officers inspect. In fact, when I bought a home in Oak Bay the inspector turned up after I moved in to check for a suite (didn't have one). What I have noticed is that if a house in Oak Bay is listed with 3 bathrooms there is often a suite as well that is advertised as "potential" rather than exiting. Other municipalities are not so active in enforcement - such as Saanich.
Just Jack
I do not agree that when you buy a rental property is that relevant. What matters is the bottom line and you need a spreadsheet to calculate this properly. What is most relevant to the bottom line is current market rents, your cost to purchase (mortgage), and the condition of the property.
Victoria, for example, has a very low vacancy rate. Rental increases are limited by the RTB anyway so this factor is not significant to my calculations. Market rent is. I know market rents for Victoria fairly well because I am familiar with the market. I don't expect them to drop significantly because we are in a university/government town. I own a rental in a different market and rents are low in winter and super high in summer as it is a vacation spot - very different from here.
As far as heat-included places. Don't do that. Period. It encourages waste. Divide the bills if necessary on a floor space percentage basis. Install a secondary meter to estimate useage if you don't want to worry about ballparking of floorspace.
Also, your figures for appliance lifespan appear incorrect JJ.
I have not had to replace any of my appliances in my rentals which were already 8 years old when I bought. Here is the chart with average lifespans which indicate 15plus years for fridges and stoves:
Microwave oven 10
Water heater, gas 11-13
Water heater, electric 13-14
Water heater, tankless (on demand) 20+
Smoke detector 10
Refrigerator, side by side 14
Refrigerator, top mount 14
Refrigerator, bottom mount 17
Refrigerator, single door 19
Washing machine, top load 14
Washing machine, front load 11
Dryer 13
Range, electric 17
Range, gas 19
Dishwasher 10
Cooktops 13-20
Air Conditioner (room size) 10
@ totorovictoria
I agree that you need to make sure that the numbers work when you buy a rental property. The problem between the two sides on this blog seems to be agreeing what numbers to use in the first place.
Totorovictoria said: What is most relevant to the bottom line is current market rents, your cost to purchase (mortgage), and the condition of the property.
Like this...One side mentions additional costs like property tax, insurance, strata fees (yadda yadda yadda), and the other side seems to dismiss them as insignificant costs, or doesn’t mention them at all.
Then there is maintenance cost debate.
I’ve subtracted 8 years off your numbers and rearranged them in order of when they will need replacing.
Microwave oven 2
Smoke detector 2
Dishwasher 2
Air Conditioner (room size) 2
Washing machine, front load 3
Water heater, gas 3-5
Dryer 5
Water heater, electric 5-6
Cooktops 5-12
Refrigerator, side by side 6
Refrigerator, top mount 6
Washing machine, top load 6
Refrigerator, bottom mount 9
Range, electric 9
Range, gas 11
Refrigerator, single door 11
Water heater, tankless (on demand) 11-15ish
Depending on when you bought your rental unit, your appliances could already be in the need replacing zone.
Obviously I’m not telling you anything you don’t already know given that you provided the list, I’m just curious what your plan/budget is for the replacement of these appliances, along with the other maintenance issues that will occur as time goes on.
Thanks
My life spans were supplied through a discussion with West Coast Appliances on Gorge Road.
As for life spans. The fridge in our rental has lasted 18 years and has been repaired twice. The American company that made the fridge is no longer in business. The one that is to replace it, is made in China, and costs around $650, and has an anticipated life span of 6 years. And would not be economically viable to repair as the cost to replace the compressor will be more than buying a new fridge.
We live in a disposable society.
Incidentally the fridge that cost $1,200 has the same life span - but more features.
Good for you for squeezing out that many years. Will you be able to do the same with today's appliances? According to the people that sell them - No.
As totorvictoria has said so succinctly. Its the bottom line that is important.
The bottom line being the net operating income before debt servicing.
Then, as I understand, totorvictoria this is where we differ.
If you are looking for a revenue property, you have to consider if there is an upside to the current rents. That is really determined by how well the local economy is doing. If the economy is projected to stay the same or decline, then rents will follow. If your lucky to find a property where the rents are below market, then your a step ahead of turning that property into a money maker.
Then there are your expenses. Not much you can do to reduce monthly costs, insurance, taxes, etc. These for the most part are always increasing and with Blue bridges, sewer systems and a city infrastructure that suffers from deferred maintenance, those expenses should increase steadily. Also, has the current owner replaced or updated anything over the last five years.
If the current owner has deferred maintenance to inflate their bottom line, how much would you likely have to spend on replacement and upgrades over the next five years.
So, I would say that the worst time to buy a revenue property is when rents are projected to be flat or declining. When there is a net loss in population and your vacancy and bad debt rate will increase, and when your expenses are likely to be increasing significantly over the immediate future.
In summary, yes the bottom line is important - but make sure that the bottom line accurately portrays the property and that it hasn't been manipulated to make the property appear better than it is.
And look to the immediate future. CMHC forecasts, provincial forecasts, city forecasts. Are the Insurance companies projecting increases in there rates for the next few years, or city taxes.
After you have normalized the income statement, then decide how much of a return do you want on the net income before debt servicing? Is all this work worth 2, 4, 6, per cent return to you. And given a reasonable expectation of future income and expenses is it reasonable to expect that rate of return to increase or decrease in the immediate future? If the property is AAA then I would accept a lower rate of return for the property, maybe 4 or 5 per cent. If the property is full of problems, I would want to get a return in the double digits for my effort.
I'm still looking...
A couple of notes:
1 - today we passed the previous high inventory of SFH for everything on MLS called Victoria. There are now 1239 listings, with the 2009 maxing at 1225 (01/04/2009), 2010 at 1182(01/07/2010) and 2011 at 1223(25/07/2011). Listings right now are running 11% higher than last year where there was a 10% increase in listings between 25/05 and 25/07. If we add 10% listings from now, we'll top out this year at around 1350 total.
2 - I'm noticing a lot of 'for rent' signs on suites in houses and apartment building in my hoood. Previously the house/mansion signs would disappear after a week, but now they're up for a couple of months. Are people disappearing, or has everyone moved into a brand new 250K condo suite?
3 - in the rural areas where we are looking for a house, very little seems to be moving. High end in town should have pretty solid sales numbers, but the rural mid to high looks weak to me.
4 - Economy in this province may be in trouble real soon. Mining returns are dropping quickly due to the slowdown in China, and things don't look much better in the short term for other resources.
JJ
Re the appliances. These are pretty insignificant costs for me. I have enough savings to cover any emergency up to the insurance coverage kicking in. I have a spreadsheet with a vacancy allowance and repair/maintenance allowance. It accounts for property tax and insurance as well.
One of my suites has no dishwasher. I put a new stove and fridge in the lower suite when I suited it. New air con up. No air con down. If I have to replace fridge or the dishwasher up - fine.
A bigger risk is vacancy. This can add up to a lot of money quickly. As far as rents go - know your market before you buy.
I have a place here and the Okanagan. I know these markets and their historical vacancy rates and the factors affecting them. I maintain my places well and expect no vacancies and have had none as I am at market rent or slightly below.
I thought about buying in Windsor or Thunder Bay for better ROI than here at lower cost but it is just too much hassle and I don't want to travel there regularly. I also don't know these markets well.
And I see where else we differ.
I don't go out looking for rental properties precisely. I live in them and turn them into rentals after I find the next one. I look for rental potential.
I agree that if you are looking for pure rentals under market rent is good; however, the RTB limits the annual increase to rents to inflation plus 2% with three months' notice.
As far as rents rising and falling because of the economy - this is not a significant concern for me in my planning as have some room to work with and don't expect a significant drop in rents here.
Average rents are generally tied to average mortgages on fairly recently purchased properties. When interest rates rise property values will fall, but the payments will likely be similar because of the rate increase. My best guess anyway.
Well Totorvictoria, it sounds like your a typical passive home investor. One that takes advantage of markets that they enjoy to live in themselves. Where they can add some income to their lives, without any major problems with rentals.
I can see why you chose Victoria. Yet almost any BC city during the last dozen years would have performed much the same. Hindsight shows that you had very good timing, buying your properties during a period of economic expansion.
With most investments, you should have a plan on when it would be a good time to sell - call it an exit plan. Have you put any thought into what would cause you to sell your rental properties?
For example, one investor that I deal with has for the last 20 years bought properties and sold them once they had increased by X percent. Taken his profits and moved on to bigger and bigger rentals and now owns some good size apartment blocks in Duncan. He knew that he had to move away from homes with basement suites because of their volatility and the burden of managing so many homes with suites. The percentage of increase was purely arbitrary but he knew that there comes a time to take your profit and move on to another investment.
Intuitively he knew that if he did not hold to this plan, he would likely just keep the properties till the next recession stripped him of his profits and any opportunities. His investment strategy was that it was better to sell a year too soon, than a day too late.
In contrast, another person I know has a simpler plan - that as long at the properties are making money she'll keep them.
I don't think I'm in the same league as your investor with the equity increase limit.
I two rentals, soon to be three. I have a plan to buy one more next year but not sell any until the next down to up price cycle which have historically been every seven or so years - which will likely coincide with me reducing my income ie. retirement in ten years.
My plan is to buy the fourth property with a self-directed RRSP mortgage. With each repayment onto the mortgage I will reinvest the funds into non-real estate investments - giving me a little more diversification.
Given a ten year mortgage rate at 3.89, I feel pretty okay with riding out the real estate cycles. My main criteria is that all properties have to be cash flow positive in the interim.
I don't think any BC city would has performed much the same as Victoria over the past ten years. Victori's ROI is lower than many other cities in BC for rental properties. Prices to rents are not as favourable - because prices as so high relatively.
One of my buyers just bought a rental property and I told them I figured $1,600 & $1,100 and I got this email yesterday...
"We have signed two leases now
Upper starts 15 Jun & rents for 1850/month
lower starts Jun 1st & rents for 1150
both pay their own utilities
xxxxx and I are happy, thanks again for your help"
“price cycle which have historically been every seven or so years”
There has been a 7 year up down pattern for better than 50 years now. Yet every 55 years give or take, there is a long down phase, which resets a life long sequence. Thats where we are at now with the baby boomers retiring. An example is japan being two decades ahead of us (age-wise) and yet are only starting to bottom now. Another is america history. 1720’s ended the south sea mississippi bubble, up to 1770’s Boston tea party, down to 1800 with debt reforms, up to 1850’s, down to 1870’s, up til 1929, down to fifties. The rest is well known. Another easy way to see it is from this posted here. It is easy to see diminishing entries for a long while now and more exits. It is difficult to imagine there can be a long down phase upon us, as we can not recall one in our lifetime.
Down in the 1800s meant you didn't have food on the table, vastly different from today.
It is difficult to imagine there can be a long down phase upon us, as we can not recall one in our lifetime.
Good point VP. No one has ever experienced an extended down/flat market here. Friend of the family's sold his shop in Germany a few years back. Said that it was worth the same as it was when he bought it 30 years prior.
It's entirely possible that real prices in 30 years will still be the same as they are now.
The thing with that age graph that the boomer doomers are missing is that the numbers aged between 20 and 40 are much larger than the boomers. it's just not a spike but rather a block...
I agree Marko, this is our great depression and yet ipads are making record sales...you can't even burn those for heat!
it's just not a spike but rather a block
Blocks have no effect on the market. It doesn't matter how many people live in Canada, the distribution matters. An uneven distribution makes it much harder to plan. First you have to build a bunch of schools, then you have to close them. Then you have to build a bunch of 40s boxes and then bulldoze them to make room for mcmansions. Then you have to figure out what to do with the mansions after the owners downsize.
Maybe it won't be 7 years this time. I don't know. I could worry about earthqakes and leave town...
As I won't even be fifty when I plan to stop work I can continue to do so for some time longer if needed.
I think the world 55 years ago and now are very different places. In Japan, price to income ratio on houses is much more difficult to afford than here. Same with western Europe (and some eastern european countries). Lots of people do long-term leases there because there is no hope of buying.
I like real estate, if it all crashes so be it. I have ten years to pay down and benefit from rental income and live in the nicest one. I'm fine with this risk and it is the best one I feel I can take. At least I understand it, not like the stock market.
I'm the one making the informed choices and I'm the one who loses or wins from my decisions. I'm comfortable with that risk.
People will always need somewhere to live and I'm not sure all the baby boomers are downsizing. My parents have no plans to move until they are infirm. The pattern for my grandparents was the same.
I don't believe Victoria will bottom out forever - it will fall and then rise again. All about what you are comfortable with.
"Same with western Europe (and some eastern european countries). Lots of people do long-term leases there because there is no hope of buying."
You are ignoring the fact that the ownership rate in these countries is much lower than here because a much larger % of dwellings are multi-unit rentals and cannot be purchased by their occupants. Thus the housing that is individually titled is high end only.
For example, in Germany the ownership rate is < 50% but price/rent is much lower than in Canada and about the lowest in Europe. Buying is much cheaper for renting, for those dwellings which can be individually purchased.
Anyone know a ballpark estimate for putting a secondary suite into an unfinished basement if you had most of the work done for you?
The cost to hire a qualified builder put a legal secondary suite in an unfinished basement is about $60 per square foot. Add another $10,000 if the basement does not already contain a full bathroom. This will pay for a basic suite with nothing fancy, but everything done to code with permits.
"The cost to hire a qualified builder put a legal secondary suite in an unfinished basement is about $60 per square foot. Add another $10,000 if the basement does not already contain a full bathroom. This will pay for a basic suite with nothing fancy, but everything done to code with permits."
How many houses in Victoria have the ceiling height to meet code? Not many.
Last I heard there are only 175 legal suites with permits in the City of Victoria and probably half of those are in newer homes. They have around 370 on file as non-conforming from complaints arising from neighbours; however, they aren't doing anything about them. Total number of non-conforming suites is probably in the 1000s.
Thanks Leon.
I wouldn't be concerned about it being legal. It would be for a parent. Quiet, always the same tennant, I doubt any neighbours would complain.
How much difference do you think it would make just for the work (minus permits, etc)?
For the record, I need to clarify my earlier statement. I meant to compare the spike to the block so I Should have said There is greater numbers aged 20 to 45 than 45 to 70. My point is that there isn't a population cliff on it's back side. It's not like the boomers all die and then there will be this huge glut of housing on the market...
Ceiling height is not often a big concern because 'code' does not mean basement suites need an eight foot ceiling. For example in Saanich anything over five feet six inches in deemed 'living space' but the limiting factor for code is doorway height must meet the minimum; but ceilings can be legal at seven feet, or maybe a bit less. My last suite was legal at seven feet. Code means a lot more than ceiling height; for example minimum window size in bedrooms for fire escape; hard-wired smoke detectors, inspected and conforming wiring and plumbing. Most houses since the 1950's that have basements are over 7 feet and I think that's good enough for Victoria and Saanich, provided doorways can all meet the minimum, but sometimes bearing beams prevent adequate doorway height and that means you'd have to recess the bean and get it engineered and use joist hangers and new bearing posts that go to a new foundation footing, and that increases the costs significantly.
Leo - the overall price won't change just by not getting permits. But you'd be an idiot if you don't get permits because any faulty work that causes a fire or other destructive problem will nullify your insurance if you make an insurance claim. AND, when you eventually sell you have to declare that during your ownership of the property no work was done without a permit. Bottom line - I always get permits; believe me, the inspectors are actually your best friends during a reno; don't believe anyone who says different - they are professional and helpful if you get them on-board at the beginning.
It's not like the boomers all die and then there will be this huge glut of housing on the market...
The boomers are a long way from dying. However they are close to being net sellers (age 65).
So, big group of people entering net selling stage, and not a big group of people buying to replace them.
This doesn't mean it's going to cause a crash. But the boomer demographics are estimated to have added 20% to housing prices over the past 40 years. So you can imagine that subtracting 0.5%/year as they approach net selling (~now) and subtracting another 0.5%/year or so (much more complex than that of course) as they get older.
Not catastrophic effects, just another thing that's different now than in the past 40 years.
But you'd be an idiot if you don't get permits because any faulty work that causes a fire or other destructive problem will nullify your insurance if you make an insurance claim.
I suppose it's a risk that the vast majority of owners of houses with suites have decided to take.
"Bottom line - I always get permits; believe me, the inspectors are actually your best friends during a reno; don't believe anyone who says different - they are professional and helpful if you get them on-board at the beginning."
I've gone through the process of building a new home in Victoria and renovating with permits in the last 2 years and absolutely horrible experiences with the city and inspectors.
Langford and Colwood will approve your home spec home in 5 days, City of Victoria will LITERRALLY take 2 or more months while you are making mortgage payments trying to make ends meat (It just floats from one department to another, back to another). That is just the start....I am not going to comment on inspectors but some of them are lacking common sense or trying to protect their jobs.
You will buy a Uberhaus faucet at Rona and they will make you pull it out because it only has "UPC" engraved on the back and not "UPC-c." Million stupid things like that. Then you'll spend 2 days emailing and phoning Uberhaus so they can email you the certification.
PS. The City of Victoria Planning and Building Department has introduced so many stupid policies in the last 2 years it is beyond comprehension.
Last year when my client was selling or buying a home I would call the City of Victoria and get the permit history and information for that property over the phone.
Now they require you to go down there and pay $35 to pull permits. I have no problems with paying, it sucks, it is what it is.....but having to go down there trying to find parking in the middle of the day is total non-sense. Basically charging and making it much more difficult to obtain information equals REALTORS® not pulling permit history on properties.
If there was any common sense they would make permits accessible online to REALTORS® much like most strata management companies have.
Monday, May 28, 2012 8:00am
MTD May
2012 2011
Net Unconditional Sales: 551 572
New Listings: 1,437 1,524
Active Listings: 4,728 4,857
Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year
tough call on the permits. I did a bathroom Reno with no permits. In the end the designer sucked the builders sucked. fired two of their workers, did most of the design myself, and finished paining it out ourselves. We had a baby in the middle so ended up paying out the contract (minus the painting and a couple of other deductions) I wanted to withhold more but with no permits all it would take was a phone call an my world would be a pain. (the builders were pretty aggressive in the end and there was some heated exchanges)...Next time I will work with permits if using contractors.
dasmo - totally agree - permits and the inspectors are about the best defense you have. Working with SOME contractors can be a very dicey experience.
like all good escorts, they move on too soon.
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