Honestly in your opinion is now a good time to buy?

[JamesOwnz]

Where do you see real estate going? It seems everyone is on one side or the other... I hear alot of "I would never buy, it is cheaper to rent and Vancouver housing will crash in 2 years just watch."

I'm not nearly as negative and I'm of the mindset it's probably best to invest in something then nothing at all and even if there is a crash what falls eventually will rise back up.

I've been looking into this starting this year and I figure if it doesn't happen now (or in the near future) will it be too late? I am right now in my mid-late 20s and am pretty much already shutout of even my home city of Burnaby (The Heights represent) for a house.

I've been looking at some places and think Maple Ridge could be a good location to buy a home, some brand new good sized houses for the same price gets you an older two bedroom condo dt.

I've also spoken with a friend who was able to get into the real estate market when he was my age and made a decent six figure profit by flipping his Yaletown studio apartment.. we've also discussed going in together on one of the newer condo developments in either Metrotown or Brentwood area though I believe that would be secondary.

Sorry the 3 am slightly buzzed ramble..

[Pinion]

I wouldn't suggest trying to buy for profit at this point in time, unless you can afford a single family home in the truly desirable areas. If you can afford to buy something that you want to live in it won't matter what the market does short term.

[WarrenC12]

If I had to bet, I'd say that prices will level out. I don't see any real slide without a major outside event happening, like a worldwide recession, war, etc.

I think interest rates will remain low for the next 3 years or so, but could start to edge up after that. Any moves will be really slow though.

[TourOdeon]

As long as you're buying resale, I think this is still a great time to buy. You can take advantage of such low rates being offered today that will not be offered ever again in our lifetime.

[JamesOwnz]

Anything being bought would be for the long term. Pretty sure I was a little too young to get in when it seemed everyone was buying a condo and then flipping it a year later for 100k+ profit (which is what my friend did) lol oh well.

But just looking at some condos last year Metroplace opened up and because i live two blocks away from the mall I looked at a couple houses.. seemed like a nice building but lacked a little character.. anyway you could get a 1 bedroom for for 300k.. i look now and any 1 bedroom is going for 330k and that is without parking yeesh.

The newer station square tower is even worse most 1 bedrooms are in the 400s and get you a not so amazing view of a parking lot lol. So for all the talk in there being no market for condos prices do seem to raise rather quickly.

Would love to buy from the developer at a much more reasonable price but 60-80k down is tough. =/

[twoNeurons]

I wouldn't buy for profit right now. At least wait until the new budget from the new government happens.

Also... wait until the new year to see if the Fed raises rates before the end of the year. If it does, Canada WILL follow suit ( even if not right away ).

As for going in with a friend... don't. Unless your friend is also your partner. It adds too much strain to a relationship. Also, do you NEED to buy being in your mid-twenties? It's a good time to NOT be tied down to a mortgage, imho. You won't get these years back.

Also, do the math: 400k for a new 1-bedroom for a condo in Metrotown...


Step 1.

Assume 20% down ( to avoid CMHC fees ):

20k GST
5K Legal Fees / stuff / New appliances / painting etc.
85k down ( 20% of 425,000 )
340k mortgage

One scenario:
Monthly mortgage: $1609 @ 3%
Condo Fees: $300 ?
LOC ( Lost Opportunity Cost ) on 85k Invested : $391 / month ( 5% gain per year = 108,484 )
Burnaby Prop. Tax: $193
Other monthly costs: $57 ( I chose the number mostly to make the total an even number... but there are monthly costs that owners have and renters don't. Things like replacing things that break, etc. )

Total: $2550 / month.*

* Your numbers may look different.

===

Step 2. You may proceed if you can actually afford to pay $2550 / month on housing. If that's doable, then proceed. If not, look for a cheaper property.


What would it cost to rent the same condo? Better yet... what would you PAY to rent the same condo? Let's say $1600.

In that case, it's $950 more to buy / month. If you're smart, you'll take that money and put it away. NOTE: Saying a mortgage forces you to save is a poor excuse. That's why you could only proceed to Step 2 if $2550 was affordable to you.

Add $950 monthly ( $11,400 yearly ) to your investment portfolio.

AT the end of 5 years, your investments will be 174,625
Your mortgage will have $290,613 left on it.

So... you sell ( And if it's a 1-bedroom... you will sell sooner rather than later. A couple friend of mine bought a 1-bedroom 3 years ago now want to sell... as they want to have kids even though they had adamant plans for 0 kids before ). Stats say people move every 6-7 years. I'd imagine this happens even faster for 1-bedroom condo owners, regardless of family situation. Work, bad neighbours, sick of the building / job offer... etc.

SO How much do you have to earn to break even? Real estate commission & fees runs around 4–5%.

In THIS scenario... Your condo would have to appreciate to ~$490,000 to break even.:

490k selling price
- 24k commission + legal fees etc. ( 4.9% )
------

466k
- 291k mortgage
------
$175k profit ( NO capital gains tax )


Investments: ~175k

Assuming no changes in the TFSA:
Of $142k capital $91k sheltered in a TFSA, Gains on $51k taxable at about 15% if you do it right ( dividends )... so maybe about $2000 in tax.

If TFSA goes down to 5.5k:
Of $142k capital $73k sheltered in a TFSA, Gains on $69k taxables at about 15% if you do it right ( dividends )... so maybe about $2500 in tax.

In the end, to make losing the freedom of not being tied to a house worth it, your condo will have to appreciate to $500k within the next 5 years or so. THIS ONLY APPLIES IF YOU INVEST THE DIFFERENCE AND ONLY IF YOU CAN RENT A PLACE FOR $1600/month.

There are many OTHER benefits to owning, including peace of mind that you won't need to move out, but only YOU can decide if the less tangible benefits are worth it. NOTE, prices of real estate are inversely proportional to interest rates. If you think interest rates are going to go up, prices will usually fall. The less people can borrow, the more downward pressure it has on prices. SO, the argument that 'you should buy because money is cheap' doesn't hold water, because if money becomes more expensive, real estate goes down. The overall mortgage payment ends up being the same, but in that case saving up for a down payment has a greater reward ( avoiding interest ).

In simple words, if money is cheap, people have more borrowing power, so prices go up.

This is not a post to say : BUY NOW! or DON'T BUY NOW! Rather, it's just an exercise you should do putting in your OWN numbers and make an informed decision with your eyes open. You're in your mid-twenties... if you ignore the whole diatribe of "buy now or be priced out forever" crap, and make a decision based on numbers, you'll be much further ahead of friends who follow the herd.

[jsbertram]

Also is the 'break fee' to cancel the 25 year mortgage - higher if you cancel before the 5-year renewal date.

In 5 years you can expect interest rates to be higher, so the renewed mortgage will be higher too.

What if the condo appraised value goes down?
you need to pay the difference first, then the bank will renew the mortgage.

$400K condo
$380K 5% down mortgage (unless you have the 20% down to avoid CMHC insurance)

in 5 years, what if the condo is appraised at $365K in a crap recession?

First you have to come up with another $15K (the difference between the $380K mortgage and the $365K appraisal).

then the mortgage may be renewed - but likely at a higher interest rate.

and then you have to be re-approved as if it was still a 25-year mortgage at the higher interest rate. (the bank doesn't care that you made 60 payments already)

[jsbertram]

and also:

All the money you are collecting as rent is considered TAXABLE INCOME on your personal taxes, unless you have wrapped everything inside a legit corporation.

All the money you spend on the condo isn't tax-deductable. (again - unless you have wrapped everything inside a legit corporation.)

[MCsq/MooChaCha]

Originally Posted by twoNeurons

I wouldn't buy for profit right now. At least wait until the new budget from the new government happens.

Also... wait until the new year to see if the Fed raises rates before the end of the year. If it does, Canada WILL follow suit ( even if not right away ).

As for going in with a friend... don't. Unless your friend is also your partner. It adds too much strain to a relationship. Also, do you NEED to buy being in your mid-twenties? It's a good time to NOT be tied down to a mortgage, imho. You won't get these years back.

Also, do the math: 400k for a new 1-bedroom for a condo in Metrotown...


Step 1.

Assume 20% down ( to avoid CMHC fees ):

20k GST
5K Legal Fees / stuff / New appliances / painting etc.
85k down ( 20% of 425,000 )
340k mortgage

One scenario:
Monthly mortgage: $1609 @ 3%
Condo Fees: $300 ?
LOC ( Lost Opportunity Cost ) on 85k Invested : $391 / month ( 5% gain per year = 108,484 )
Burnaby Prop. Tax: $193
Other monthly costs: $57 ( I chose the number mostly to make the total an even number... but there are monthly costs that owners have and renters don't. Things like replacing things that break, etc. )

Total: $2550 / month.*

* Your numbers may look different.

===

Step 2. You may proceed if you can actually afford to pay $2550 / month on housing. If that's doable, then proceed. If not, look for a cheaper property.


What would it cost to rent the same condo? Better yet... what would you PAY to rent the same condo? Let's say $1600.

In that case, it's $950 more to buy / month. If you're smart, you'll take that money and put it away. NOTE: Saying a mortgage forces you to save is a poor excuse. That's why you could only proceed to Step 2 if $2550 was affordable to you.

Add $950 monthly ( $11,400 yearly ) to your investment portfolio.

AT the end of 5 years, your investments will be 174,625
Your mortgage will have $290,613 left on it.

So... you sell ( And if it's a 1-bedroom... you will sell sooner rather than later. A couple friend of mine bought a 1-bedroom 3 years ago now want to sell... as they want to have kids even though they had adamant plans for 0 kids before ). Stats say people move every 6-7 years. I'd imagine this happens even faster for 1-bedroom condo owners, regardless of family situation. Work, bad neighbours, sick of the building / job offer... etc.

SO How much do you have to earn to break even? Real estate commission & fees runs around 4–5%.

In THIS scenario... Your condo would have to appreciate to ~$490,000 to break even.:

490k selling price
- 24k commission + legal fees etc. ( 4.9% )
------

466k
- 291k mortgage
------
$175k profit ( NO capital gains tax )


Investments: ~175k

Assuming no changes in the TFSA:
Of $142k capital $91k sheltered in a TFSA, Gains on $51k taxable at about 15% if you do it right ( dividends )... so maybe about $2000 in tax.

If TFSA goes down to 5.5k:
Of $142k capital $73k sheltered in a TFSA, Gains on $69k taxables at about 15% if you do it right ( dividends )... so maybe about $2500 in tax.

In the end, to make losing the freedom of not being tied to a house worth it, your condo will have to appreciate to $500k within the next 5 years or so. THIS ONLY APPLIES IF YOU INVEST THE DIFFERENCE AND ONLY IF YOU CAN RENT A PLACE FOR $1600/month.

There are many OTHER benefits to owning, including peace of mind that you won't need to move out, but only YOU can decide if the less tangible benefits are worth it. NOTE, prices of real estate are inversely proportional to interest rates. If you think interest rates are going to go up, prices will usually fall. The less people can borrow, the more downward pressure it has on prices. SO, the argument that 'you should buy because money is cheap' doesn't hold water, because if money becomes more expensive, real estate goes down. The overall mortgage payment ends up being the same, but in that case saving up for a down payment has a greater reward ( avoiding interest ).

In simple words, if money is cheap, people have more borrowing power, so prices go up.

This is not a post to say : BUY NOW! or DON'T BUY NOW! Rather, it's just an exercise you should do putting in your OWN numbers and make an informed decision with your eyes open. You're in your mid-twenties... if you ignore the whole diatribe of "buy now or be priced out forever" crap, and make a decision based on numbers, you'll be much further ahead of friends who follow the herd.

thank you for taking the time to explain. I understand it better now

[jsbertram]

A friend just reminded me on a favourite saying from his father.

If your Partner is snuggling under the sheets and swapping body fluids with you, that might be OK.

Otherwise get yourselves in a legal partnership corporation.

[Cypherus]

Originally Posted by jsbertram

A friend just reminded me on a favourite saying from his father.

If your Partner is snuggling under the sheets and swapping body fluids with you, that might be OK.

Otherwise get yourselves in a legal partnership corporation.

A partnership is legally a separate business entity than a corporation; they both can't be the same entity. Most real estate companies flipping real property for resale are set up as corporations, with the returns on investment treated as business income instead of capital gains, because the activity is an adventure or concern in the nature of trade. This allows the corporation to obtain the small business deduction on the income for tax purposes. The after tax income can be distributed as dividends to the shareholders.

[Cypherus]

Originally Posted by twoNeurons

I wouldn't buy for profit right now. At least wait until the new budget from the new government happens.

Also... wait until the new year to see if the Fed raises rates before the end of the year. If it does, Canada WILL follow suit ( even if not right away ).

As for going in with a friend... don't. Unless your friend is also your partner. It adds too much strain to a relationship. Also, do you NEED to buy being in your mid-twenties? It's a good time to NOT be tied down to a mortgage, imho. You won't get these years back.

Also, do the math: 400k for a new 1-bedroom for a condo in Metrotown...


Step 1.

Assume 20% down ( to avoid CMHC fees ):

20k GST
5K Legal Fees / stuff / New appliances / painting etc.
85k down ( 20% of 425,000 )
340k mortgage

One scenario:
Monthly mortgage: $1609 @ 3%
Condo Fees: $300 ?
LOC ( Lost Opportunity Cost ) on 85k Invested : $391 / month ( 5% gain per year = 108,484 )
Burnaby Prop. Tax: $193
Other monthly costs: $57 ( I chose the number mostly to make the total an even number... but there are monthly costs that owners have and renters don't. Things like replacing things that break, etc. )

Total: $2550 / month.*

* Your numbers may look different.

===

Step 2. You may proceed if you can actually afford to pay $2550 / month on housing. If that's doable, then proceed. If not, look for a cheaper property.


What would it cost to rent the same condo? Better yet... what would you PAY to rent the same condo? Let's say $1600.

In that case, it's $950 more to buy / month. If you're smart, you'll take that money and put it away. NOTE: Saying a mortgage forces you to save is a poor excuse. That's why you could only proceed to Step 2 if $2550 was affordable to you.

Add $950 monthly ( $11,400 yearly ) to your investment portfolio.

AT the end of 5 years, your investments will be 174,625
Your mortgage will have $290,613 left on it.

So... you sell ( And if it's a 1-bedroom... you will sell sooner rather than later. A couple friend of mine bought a 1-bedroom 3 years ago now want to sell... as they want to have kids even though they had adamant plans for 0 kids before ). Stats say people move every 6-7 years. I'd imagine this happens even faster for 1-bedroom condo owners, regardless of family situation. Work, bad neighbours, sick of the building / job offer... etc.

SO How much do you have to earn to break even? Real estate commission & fees runs around 4–5%.

In THIS scenario... Your condo would have to appreciate to ~$490,000 to break even.:

490k selling price
- 24k commission + legal fees etc. ( 4.9% )
------

466k
- 291k mortgage
------
$175k profit ( NO capital gains tax )


Investments: ~175k

Assuming no changes in the TFSA:
Of $142k capital $91k sheltered in a TFSA, Gains on $51k taxable at about 15% if you do it right ( dividends )... so maybe about $2000 in tax.

If TFSA goes down to 5.5k:
Of $142k capital $73k sheltered in a TFSA, Gains on $69k taxables at about 15% if you do it right ( dividends )... so maybe about $2500 in tax.

In the end, to make losing the freedom of not being tied to a house worth it, your condo will have to appreciate to $500k within the next 5 years or so. THIS ONLY APPLIES IF YOU INVEST THE DIFFERENCE AND ONLY IF YOU CAN RENT A PLACE FOR $1600/month.

There are many OTHER benefits to owning, including peace of mind that you won't need to move out, but only YOU can decide if the less tangible benefits are worth it. NOTE, prices of real estate are inversely proportional to interest rates. If you think interest rates are going to go up, prices will usually fall. The less people can borrow, the more downward pressure it has on prices. SO, the argument that 'you should buy because money is cheap' doesn't hold water, because if money becomes more expensive, real estate goes down. The overall mortgage payment ends up being the same, but in that case saving up for a down payment has a greater reward ( avoiding interest ).

In simple words, if money is cheap, people have more borrowing power, so prices go up.

This is not a post to say : BUY NOW! or DON'T BUY NOW! Rather, it's just an exercise you should do putting in your OWN numbers and make an informed decision with your eyes open. You're in your mid-twenties... if you ignore the whole diatribe of "buy now or be priced out forever" crap, and make a decision based on numbers, you'll be much further ahead of friends who follow the herd.

Nice analysis. There are many online "Rent versus Buy" calculators that achieve the same analysis by inserting the data. You can do a sensitivity analysis simply by changing the inputs. The calculators always rely on soft estimates, such as the rate of return on your investments (likely low if GICs are invested) and the rate the home appreciates in value each year. Also ignored are GST rebates on any homes up to $450,000 (the full rebate which is 1.8% of the GST refunded back is clawed back after $350,000, but these affect the purchase price of the home). It would always seem like "renting" is the way to go if you want to store up cash in the bank, but the calculators never measure the value of your "opportunity gain" of having to put more of your savings into the home by way of higher monthly payment, in return for possible future capital gains.

http://www.canadamortgage.com/calculators/rentvsown.cgi

[twoNeurons]

As a "general" adage:

Historically what has separated owners from renters is the down payment.

In other words, if you put a sizeable down payment down ( say 20% ), your mortgage should be equal to or slightly cheaper than your rent for an equivalent property. Owners were able to save up a down payment.

Of course, the cheap money we've had for the last decade has skewed this equation somewhat, along with a few other factors ( Bank of Mom and Dad, laneway homes, condos as starter homes, etc ).

Personally, I don't think we'll see a US style crash in the real estate market. If anything, we may see a long drawn out flat period where inflation essentially does the same thing over a longer more painful period, but who knows when/if that would happen/start. Plenty of external financial analysts are watching the Canadian real estate market with trepidation.

Also, remember if an asset drops 20%, it needs to go up 25% to return to its previous value... so ANY drops are more painful. ( 20% drop from 100k = 80k, but a 20% increase from 80k = 96k. )

===
One MORE thing... Investing all your money in a HISA (High interest Savings Account) or a GIC will NEVER perform well. There's really no substitute to a properly balanced portfolio... but these require paying someone to manage your money or spending the time to learn it yourself. Like most things in life, hard work yields better results.

[Pinion]

Originally Posted by jsbertram

A friend just reminded me on a favourite saying from his father.

If your Partner is snuggling under the sheets and swapping body fluids with you, that might be OK.

Otherwise get yourselves in a legal partnership corporation.

Even going in with a sexual partner/spouse is risky these days. I'd say it's much more of a commitment than marriage, as someone who bought a condo with a girlfriend he's now married to.

My marriage is great but I can't say the same for my choice in condos. I chose location over a nice building, but traffic has become infinitely worse in the last 9 or so years to the point where I can only look for employment on the north shore. There are so many unpredictable factors.