Not Another Vancouver Real Estate Post!
Pretty soon when you look up “Vancouver Bear”, you just might find my face on the Oxford dictionary.
Nah, I shouldn’t flatter myself. There are plenty more unpopular Vancouverites in the city claiming the podium; one being Mohican from Langley Financial Planning. Mohican found this hilarious gem on MLS.
MLS®: V643849 $529,000
House on a quiet street. 1/2 block East of Nanaimo. 3 bedrooms up & 3 bedrooms down. New paint on main. Low basement ceiling. Tenanted at @ $1,050/month. Hold and build later. Needs notice to show.
$1,050 a month is quite pathetic when you consider that’s only $12,600 a year, or a 2.38% rent yield, which is barely above inflation.
We’re not done yet. The rent yield is before expenses, which include property tax, water and sewer tax, home insurance and maintenance. All taxes combined should amount to more than $3,000 per year. We ought to set Tax Freedom day on Mar 31st, when all rents collected up to this point are funneled to the government.
Needless to say, the “earning” yield is much lower than 2.38% after expenses, but we’ll be generous and dock only a quarter off to make 1.78%
The recommendation from the seller is to either “hold or build later”, but neither options are sensible. Who would want to hold for a 1.78% yielding property with a scant growth prospect? (In BC, landlords are restricted up to ~4.2% rent increases each year.) Might I add the 5-year mortgage rate is up - again - to 5.79%? Borrowing 5.79% to buy a slow-growth property yielding 1.78% is ludicrous. Some people belittle renters because “rents are money out the window”, but so is paying mortgage interests, taxes and insurance.
The second option of building later will cost dearly. I know a couple of friends who paid a vicinity of $250,000 to build a home in Vancouver due to labour shortage and higher material costs. Add the construction cost to this purchase price, and you’re a proud owner of an $800,000 Vancouver special. Now you really must push the throttle to earn your 5.79% interests back, or $3,860/month. Remember, the interests aren’t the only expense. Tag along another $250 of taxes, insurance and maintenance to round up the figure to $4,110/month.
Wouldn’t it be funny if I get a spanking from the seller? The things I do for my readers.
I’ve been following the real estate market in BC for 3 years and I still don’t understand it.
According to your post, and I totally agree with you, it makes no sense whatsoever to buy this property.
The problem is that this is definitely not the only one like that and it will probably sell within 6 months. What are people thinking when they buy such property?