Real Estate

Investoment Condo (Vancouver) advise

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  • Feb 18th, 2017 3:43 am
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[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond

Investoment Condo (Vancouver) advise

About me: 39 years old,
Family income $130,000 (a family of four)
Current home: a townhouse; market value: about $750,000; mortgage balance: $230,000

I am thinking to either buy a detached house or an investment condo. A detached house is no doubt a better choice but it is very expensive in Lower Mainland. After some calculation, I found it is pretty hard for me to afford a fairly decent detached house without being a landlord. As I have two kids, I really don't want tenant(s) in my house. So an investment condo may be my only choice. I don't have too much $$, just a few tens of thousands, but I do have a $250,000 HELOC.

I am thinking to use HELOC as down payment to buy an investment condo in Vancouver downtown. But after doing the math, I realized monthly cash flow would be around -$700, a huge negative cash flow. I just paid off my car loan, which was $900 a month, so a negative $700 cash flow won't have big financial impacts on me ($200 less than my car loan payment).

But is it worthwhile ?

Thank you!
37 replies
Deal Addict
Jun 20, 2011
2002 posts
843 upvotes
VANCOUVER
Bad idea if it's -$700 monthly... Does it really need to be downtown Vancouver?
Deal Addict
Jan 27, 2015
1037 posts
462 upvotes
Edmonton, AB
Not cash flow positive means no go for me.

Keep in mind that the rental income that you receive is taxed at your marginal rate. Good luck.
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
I am quite open. The reason for Vancouver downtown is I think it is

1) the best asset. It is not hard to build a highrise but it super difficult to replicate the resources Vancouver downtown has anywehere in lower mainland in a few decades

2) easy to rent, good chance of good tenants

3) capital growth potential

I will consider all options. Thanks.
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
Thanks. But it is next to impossible to have a positive cash flow given my HELOC + mortgage purchase.

But I have to invest. Cash is nothing if not being converted to capital. Governments all over the world are competing in printing money.
Deal Fanatic
User avatar
Dec 27, 2009
7286 posts
4522 upvotes
Victoria, BC
Why are you even thinking of doing this? You are doing okay as you are, and it sounds like you were lucky enough to buy when things were a bit more reasonable there. Why take the huge risk of an cash-flow negative "investment" property in the most overpriced market in the country (and one of the most overpriced in the world)? Do you think the market will never correct? Do yourself a huge favour and forget about it.
Deal Addict
Nov 26, 2005
3100 posts
262 upvotes
Vancouver
what would the figure be if you use conventional mortgage instead of heloc? i.e. refinance your house to 80% of value = 600k, less balance and expense you should get ~360k cash as down payment for the condo? then you get an extra 250k mortgage for the rental property?
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
Chickinvic wrote: Why are you even thinking of doing this? You are doing okay as you are, and it sounds like you were lucky enough to buy when things were a bit more reasonable there. Why take the huge risk of an cash-flow negative "investment" property in the most overpriced market in the country (and one of the most overpriced in the world)? Do you think the market will never correct? Do yourself a huge favour and forget about it.
I have two kids and I want to help them when they grow up. Real estate investment in sough after area is perhaps the best option. Stock investment is too risky. Real estate investment in sough after neighborhood, over the long term, is not as risky as stock investment. In the meantime, real estate investment is the only investment product that investors can borrow a large percent of money at low cost.
Deal Fanatic
User avatar
Dec 27, 2009
7286 posts
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Victoria, BC
westcoastresident wrote: I have two kids and I want to help them when they grow up. Real estate investment in sough after area is perhaps the best option. Stock investment is too risky. Real estate investment in sough after neighborhood, over the long term, is not as risky as stock investment. In the meantime, real estate investment is the only investment product that investors can borrow a large percent of money at low cost.
If you want to help your kids, then don't put your neck in a noose - buying a money loser in vancouver right now would be the stupidest thing you could do. Keep doing what you're doing. You don't want to be underwater on a condo.
Deal Addict
Jun 20, 2011
2002 posts
843 upvotes
VANCOUVER
westcoastresident wrote: I have two kids and I want to help them when they grow up. Real estate investment in sough after area is perhaps the best option. Stock investment is too risky. Real estate investment in sough after neighborhood, over the long term, is not as risky as stock investment. In the meantime, real estate investment is the only investment product that investors can borrow a large percent of money at low cost.
If you wanted to set your kids up for a place you could have bought into a presale awhile ago. You could still elect to do so. No idea what age your kids are, but waiting for completion and renting out the place would eventually give them a place to move out to or a stepping stone they could sell and do whatever. Look towards the Evergreen line, lots going up there. You could potentially get into some assignments into some of the more closer popular places.

I was in the same place you were at 5 years ago. Wanted to get a place for each kid instead of investing in the stock market. I was just lucky to get into the market low and got a few great places. You do not want a -$700 loser. You need to re-evaluate the place, location and come up with a better plan. Stock markets are not a risky investment. Do some reading and look up on the threads comparing stocks to real estate. At the end of the day diversity is what you should be aiming for. Plus, do not feel pressured by anyone to buy a place. Everyone and their dog talks about real estate in Vancouver and that could cause unwanted pressure.
Newbie
Dec 24, 2013
50 posts
16 upvotes
Delta
The roulette table at the casino will be less risky than a condo in Vancouver right now. Put $200K on your LOC and put it on black. If you hit I would let it ride one more time. What could go wrong.
Deal Fanatic
Oct 7, 2007
8384 posts
4348 upvotes
If you look at the monthly sales volumes since the foreign buyer tax was introduced you will see that there has been a dramatic decrease in all types of housing volumes (units) sold each month since the tax was introduced. The number of detached houses sold in Jan 2017 was 42% of what was sold in January 2016 and the equivalent figure is 75% for condos. I really think the Vancouver real estate market is undergoing a correction and buying anything now could be a very dangerous move. Hang on to your money and wait and see what happens. The risk of making a mistake by buying something at a high price is just too great right now.
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
DDHLeigh wrote: If you wanted to set your kids up for a place you could have bought into a presale awhile ago. You could still elect to do so. No idea what age your kids are, but waiting for completion and renting out the place would eventually give them a place to move out to or a stepping stone they could sell and do whatever. Look towards the Evergreen line, lots going up there. You could potentially get into some assignments into some of the more closer popular places.

I was in the same place you were at 5 years ago. Wanted to get a place for each kid instead of investing in the stock market. I was just lucky to get into the market low and got a few great places. You do not want a -$700 loser. You need to re-evaluate the place, location and come up with a better plan. Stock markets are not a risky investment. Do some reading and look up on the threads comparing stocks to real estate. At the end of the day diversity is what you should be aiming for. Plus, do not feel pressured by anyone to buy a place. Everyone and their dog talks about real estate in Vancouver and that could cause unwanted pressure.
An apartment in the suburban is also on my radar. It come with pros and cons. For its good part, it is not that expensive, monthly negative cash flow would be less (but would be negative anyway, since the rent is also cheaper), relatively low financial risks (can still afford even losing my current job, etc.). For its bad part, limited capital growth, tons of supply (easy to replicate), relatively hard to find good tenants.
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
snowbird22 wrote: The roulette table at the casino will be less risky than a condo in Vancouver right now. Put $200K on your LOC and put it on black. If you hit I would let it ride one more time. What could go wrong.
I think the price will go up. It is a polarized world. I am close to 40 years old and have an $80,000 job. But I know many, I mean many, young people in their middle 20s have the same salary. It is not rare for some of them to earn way more. In the meantime, I also know a large percentage of youth only make $40,000 a year. If you weight in parent support, the wealth distribution is even worse.
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
Chickinvic wrote: If you want to help your kids, then don't put your neck in a noose - buying a money loser in vancouver right now would be the stupidest thing you could do. Keep doing what you're doing. You don't want to be underwater on a condo.
I do invest. The return is not stable, up and down. Over the past decade, on average, my own investment return was about 5% a year. Not very impressive, not too bad either.

The problem with stock investment is I cannot borrow too much to invest. Real estate is different: I can borrow a lot to invest. Leverage comes with risks, for sure.
Newbie
Dec 1, 2012
3 posts
1 upvote
VANCOUVER
choclover wrote: The number of detached houses sold in Jan 2017 was 42% of what was sold in January 2016 and the equivalent figure is 75% for condos.
This is just false.

http://www.yattermatters.com/2017/02/no ... t-is-down/

Detached units sold is down 68%. Attached down 32%. Condos down 24%. Prices down 16%, up 2%, up 12%, respectively.

Yes, there is a slowdown and the market might be undergoing a correction but don't cite patently false statistics.

Whoever compared buying a condo in the heart of Vancouver as the same as betting $200k on black is just as absurd. Really? A location in the city with one of the highest of living standards in the world is the same as betting $200k with a 47.4% chance of winning? Sure, you might lose if a correction happens and there are some statistics to indicate that it might, but that is no way comparable since real estate has a tendency to hold value well given that you hold it for long enough. Especially if it's a condo in a prime location such as downtown Vancouver.
Member
Nov 24, 2016
485 posts
568 upvotes
inv1ctus wrote: This is just false.

http://www.yattermatters.com/2017/02/no ... t-is-down/

Detached units sold is down 68%. Attached down 32%. Condos down 24%. Prices down 16%, up 2%, up 12%, respectively.

Yes, there is a slowdown and the market might be undergoing a correction but don't cite patently false statistics.

Whoever compared buying a condo in the heart of Vancouver as the same as betting $200k on black is just as absurd. Really? A location in the city with one of the highest of living standards in the world is the same as betting $200k with a 47.4% chance of winning? Sure, you might lose if a correction happens and there are some statistics to indicate that it might, but that is no way comparable since real estate has a tendency to hold value well given that you hold it for long enough. Especially if it's a condo in a prime location such as downtown Vancouver.
People outside of Vancouver always get a sticker shock when Vancouver is in the discussion and they don't think about what they say. I agree with you. I think OP is right to think about Downtown. Even now, with the downturn, condo prices downtown haven't budged! I own a condo downtown and I'm pretty young. My entire net worth is locked in this thing and I worked hard to come up with the down payment for that place. Because of that I check the stats quite closely. From what I've seen, there are two distinct markets in Vancouver right now (since the foreign tax was introduced): the attached and the detached market. Attached properties, specially those in downtown, have in some cases even gone up since last year's highs!!!

And it's logical. People can't afford homes here, but they can afford condos. So the locals are still buying up what's available. Another factor that will keep downtown Vancouver prices up is the lack of supply that will always be present. The city's idiotic 200 meter cap on high rises will always keep the supply low. Imagine New York if it had a 200 meter ceiling!!!!!! Even worse is that, in many cases, much shorter towers are denied because of those idiotic "view cones."

But getting back on topic, I think OP is doing his kids a huge favour by doing this. My parents are first generation immigrants so I would never have such expectations from them. They're still stuck with their own mortgage and it won't be paid off (so they most likely have to sell the house when they retire). I got lucky and dropped out of university to work for a few years. Managed to sneak into the market at the end of 2015. In the long-term, Vancouver real estate is never a gamble. Corrections will come and go (2008, 2011 etc...), but in the long-term prices will always increase here.

I would still wait for the condo supply to increase a little bit. Maybe buy in the summer?
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
ccyk wrote: what would the figure be if you use conventional mortgage instead of heloc? i.e. refinance your house to 80% of value = 600k, less balance and expense you should get ~360k cash as down payment for the condo? then you get an extra 250k mortgage for the rental property?
Thanks. I will talk to a mortgage advisor next week to assess all options.
Newbie
Dec 24, 2013
50 posts
16 upvotes
Delta
The mortgage broker will tell you its a great time to buy.

Warren Buffet's quote "never ask a barber if you need a haircut"
[OP]
Member
Jan 24, 2010
375 posts
74 upvotes
Richmond
snowbird22 wrote: The mortgage broker will tell you its a great time to buy.

Warren Buffet's quote "never ask a barber if you need a haircut"
I expect a mortgage broker to tell me how much I can borrow, in which way, and the cost.

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