Vancouver may not be a truly world-class city, but when it comes to real estate investing, it has plenty examples of world-class stupidity.
Here is one such example in Richmond. At only $2,200,000 it’s one hell of an “INVESTOR OPPORTUNITY”.
INVESTOR OPPORTUNITY, SCHOOL INTERESTED! LIVE IN AS WELL: SOLID 2×6 construction CUSTOM BUILT 7 BDRM family home. This 50 x 248 property offers RADIANT HAET, LARGE ROOMSSPACIOUS sundeck and patio. EXPANSIVE BACKYARD. Whole house rented for almost $3000 per mo. Long time tenant. Lots of car parking. Close to Sky Train. Easy access to Oak & Knight Str. bridges and to Ladner, Delta and Surrey. All measurements approximate.
Even with record-low interest rates, the carrying costs on this place are more than double the “almost $3,000” rent. With a 20% down-payment and 2.59% 25-year mortgage, the monthly payments are $7,976/month. Add to that the monthly property taxes of $345 and the monthly carrying costs are $8,321. The annual negative cash flow is almost $68,000.
Even when you consider the $50,816 of principal pay-down, this investment still loses over $17k per year — and that’s only if nothing needs repairs and there are never any vacancies or missed rent payments.
That $17k annual loss on a down payment of $440,000, gives a return on this “OPPORTUNITY” of negative 3.9%. Again, that’s the best-case scenario. But at least it comes with “lots of car parking”.
Our next example is close to UBC.
2 level 3 bedroom UP +3 bedroom down very functional solid Vancouver special style home in the most prestige Point Grey area. Walk distance to bank, shop, bus station, golf course and everything. Well maintained original condition offers hardwood fl throughout on the main, big size of bedrooms, 2 car attached garage plus a huge sundeck at the back. You can either do some renovation to move in or rent it out for 4000/per month to hold. Excellent School Catchment: Queen Mary Elementary, Lord Byng Secondary.
You can either “do some renovation to move in” or rent it out for $4,000. You didn’t really expect to find a move-in ready place for only $2,380,000 did you?
With the same financing assumptions as the first example, the monthly mortgage on this home is $8,628. Add in the $620 property tax and the total carrying costs are $9,248/month.
The annual cash bleed is $62,976. When you add in the $54,974 principal reduction, it gives the buyer a return of negative 1.7% on the $476,000 down payment.
Any rational investor would expect to earn a positive return on his investment, especially one as risky as residential real estate. But this is Vancouver! People buying here have no interest in making a sound financial investment. They are either looking for a safe place to park their money, speculating on never-ending appreciation or afraid of being priced-out forever.