Canada Housing/Debt: Trust me, I'm a landlord.

The Something Awful Forums > Discussion > Debate & Discussion > Canada Housing/Debt: Trust me, I'm a landlord.

LemonDrizzle: Mar 28, 2012; neoliberal shithead

melon cat posted:

So, let me get this straight...

That's, uh, a lot of stuff you've managed to read into a one sentence post there, buddy. All I said was that owning a house that you live in does in fact give you an imputed income. That imputed income may or may not offset the costs you incur by buying the place (it generally will in a healthy housing market, but not in crazy bubbleland). I did not say "go ye forth and snap up a bargain Vancouver condo now lest ye miss the boat."

# ? Oct 20, 2014 18:53

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# ? Jun 1, 2024 18:03

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

New Title: Canadian Housing Bubble: go ye forth and snap up a bargain Vancouver condo now lest ye miss the boat

edit: seriously, can someone please make it this?

# ? Oct 20, 2014 19:00

namaste friends: Sep 18, 2004; by Smythe

melon cat posted:

So, let me get this straight. You think that if I buy a house in an already-inflated market (like the GTA), and after factoring in:

Interest on an overpriced house

Property taxes

Heating

Maintenance, including re-roofing which costs $5000 on its own

Emergency repairs (which can be anywhere from a few thousands to tens of thousands of dollars)

Condo fees (if applicable)

CMHC fees (if applicable)

Legal fees and land transfer taxes upon selling

.. you'll still think that I'll eke out a profit once I sell (which I probably won't do for an incredibly long time because I need to live somewhere)? Let's do some math using at this math using RBC's Mortgage Payment Calculator. Let's assume I have a 3% fixed rate for 5 years (lol@rates staying at 3%), amortized over 25 years, on a $500,000 mortgage:

That's $183,102.32 in interest over the life of the mortgage. That's just interest. It doesn't even include CMHC fees if you're a high-ratio borrower. Or maintenance costs. Or any of the other expenses I listed above. And all of those non-mortgage costs all assume that I'd pay for them in cash, which most people won't (so they'll borrow).

If you think that you're going to come out ahead in buying a house as a primary residence in the today's inflated real estate market you're grossly misinformed, or you're living in the same dream world that many over-leveraged Canadians are. It doesn't matter what flowery theories about "imputed rent" you think exist because quite frankly it doesn't seem to factor in the actual complexity of home ownership in the 21st Century. Look at these numbers. They don't look good.

I didn't even know this. Thanks for punching it out.

# ? Oct 20, 2014 19:02

namaste friends: Sep 18, 2004; by Smythe

Lexicon posted:

New Title: Canadian Housing Bubble: go ye forth and snap up a bargain Vancouver condo now lest ye miss the boat

edit: seriously, can someone please make it this?

I think it's too many letters.

Maybe "CA HOUSING BUBBLE: go ye forth and snap up a bargain Vancouver condo now lest ye miss the boat

# ? Oct 20, 2014 19:03

melon cat: Jan 21, 2010; Nap Ghost

melon cat fucked around with this message at 04:29 on Mar 16, 2019

# ? Oct 20, 2014 19:11

Precambrian Video Games: Aug 19, 2002

Uh it should be "lest ye miss the houseboat".

# ? Oct 20, 2014 19:14

JawKnee: Mar 24, 2007; You'll take the ride to leave this town along that yellow line

Uncle Wong's Cabin is funnier

# ? Oct 20, 2014 19:19

Rime: Nov 2, 2011; by Games Forum

I still chuckle at our current title.

# ? Oct 20, 2014 19:55

ocrumsprug: Sep 23, 2010; by LITERALLY AN ADMIN

Pixelboy posted:

Its some development down in Washington. All over the am stations here.

Well, nevermind then. Everyone knows that American real estate is kinda crappy and not a good investment, unlike rock solid Canadian real estate. :v:

# ? Oct 20, 2014 20:04

Gorau: Apr 28, 2008

I was just doing this in my head. How far ahead or behind would you come out taking into account imputed rents?

Baseline case
$500,000 house on a 25 year mortgage.
Inflation stripped out of all aspects
No growth in housing value
Steady inflation adjusted rents

Assume a 2.5% real (inflation adjusted) interest rate.

$173,543 in total interest paid on a non accelerated bi weekly payment schedule. Over 25 years.
$3,615 in total property/education tax a year (Toronto) for a total of $90,375. This is stickier because this assumes that property tax will only rise by inflation. However even if this isn't the case the burden will be more or less even between renting and owning.
Heating is a wash, many places require you to pay it yourself, and if you don't it's going to be rolled into the rent anyway.
Assume maintenance is 1% of home value a year (5000/year) for a total of $125,000 over 25 years.

Rough total costs over the 25 year period is $388,918. Principle payments on the mortgwte itself don't count as it balances itself out at the end of the mortgage. You paid 500,000 in principle and received a 500,000 asset.

Imputed rents. A $500,000 place probably goes for about $1750 a month in rent. So that's $21,000 a year and $525,000 over the 25 years. Ball parking it it seems you end up a little ahead. If I've missed please point it out.

# ? Oct 20, 2014 20:17

Franks Happy Place: Mar 15, 2011; It is by weed alone I set my mind in motion. It is by the dank of Sapho that thoughts acquire speed, the lips acquire stains, stains become a warning. It is by weed alone I set my mind in motion.

You missed the $50,000 down payment being tied up in a home instead of invested in index funds. At 5% per year that comes out to ~$120,000 of profit in 25 years.

Frankly that's downplaying it somewhat, as your DP would likely need to be 25% instead of 10% to secure a 2.5% interest rate for the duration of that mortgage.

# ? Oct 20, 2014 20:22

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

You simply cannot do this calculation in the absence of inflation and end up with anything approaching a sensible result. You need to calculate it in NPV terms otherwise it's utterly meaningless.

I'm busy right now, but I'll do it later and post the spreadsheet.

# ? Oct 20, 2014 20:27

Nocturtle: Mar 17, 2007

Gorau posted:

I was just doing this in my head. How far ahead or behind would you come out taking into account imputed rents?

Baseline case
$500,000 house on a 25 year mortgage.
Inflation stripped out of all aspects
No growth in housing value
Steady inflation adjusted rents

Assume a 2.5% real (inflation adjusted) interest rate.

$173,543 in total interest paid on a non accelerated bi weekly payment schedule. Over 25 years.
$3,615 in total property/education tax a year (Toronto) for a total of $90,375. This is stickier because this assumes that property tax will only rise by inflation. However even if this isn't the case the burden will be more or less even between renting and owning.
Heating is a wash, many places require you to pay it yourself, and if you don't it's going to be rolled into the rent anyway.
Assume maintenance is 1% of home value a year (5000/year) for a total of $125,000 over 25 years.

Rough total costs over the 25 year period is $388,918. Principle payments on the mortgwte itself don't count as it balances itself out at the end of the mortgage. You paid 500,000 in principle and received a 500,000 asset.

Imputed rents. A $500,000 place probably goes for about $1750 a month in rent. So that's $21,000 a year and $525,000 over the 25 years. Ball parking it it seems you end up a little ahead. If I've missed please point it out.

Transaction costs should be included for the home ownership case, $10000-$20000 is in the right range for selling a house.

# ? Oct 20, 2014 20:27

MickeyFinn: May 8, 2007; Biggie Smalls and Junior Mafia some mark ass bitches

Lexicon posted:

You simply cannot do this calculation in the absence of inflation and end up with anything approaching a sensible result. You need to calculate it in NPV terms otherwise it's utterly meaningless.

I'm busy right now, but I'll do it later and post the spreadsheet.

While I'm interested to see this calculation, given the last 5-6 years of really low inflation, holding inflation constant doesn't seem like such a bad way to get a first estimate. Perhaps when you do your calculation, you can do it for 1% inflation and also some more historically normal value?

# ? Oct 20, 2014 20:34

Lexicon: Jul 29, 2003; I had a beer with Stephen Harper once and now I like him.

MickeyFinn posted:

While I'm interested to see this calculation, given the last 5-6 years of really low inflation, holding inflation constant doesn't seem like such a bad way to get a first estimate. Perhaps when you do your calculation, you can do it for 1% inflation and also some more historically normal value?

Definitely. It'll be a spreadsheet parameter, so you can play around with it to your heart's content

# ? Oct 20, 2014 20:39

Postess with the Mostest: Apr 4, 2007; Arabian nights
'neath Arabian moons
A fool off his guard
could fall and fall hard
out there on the dunes

Gorau posted:

I was just doing this in my head. How far ahead or behind would you come out taking into account imputed rents?

Use the price to rent ratio rule. 1-15 buy, 16-20 depends on situation, 20+ rent. The example you gave is 24 but Toronto is actually around 35, Vancouver closer to 60. It boggles me that people are buying in those markets.

You can play with a calculator that takes a few more variables too.

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

It's more accurate to compare them just look at the fixed mortgage term (5 years) than the whole amortization period.

# ? Oct 20, 2014 20:41

Gorau: Apr 28, 2008

Franks Happy Place posted:

You missed the $50,000 down payment being tied up in a home instead of invested in index funds. At 5% per year that comes out to ~$120,000 of profit in 25 years.

Frankly that's downplaying it somewhat, as your DP would likely need to be 25% instead of 10% to secure a 2.5% interest rate for the duration of that mortgage.

I netted out inflation because it made the calculation much easier. Figure on 2% inflation. That means the the actual loan rate I was calculating was 4.5%. But I also removed inflation from any housing price or rent price growth. Basically i tried to do it all in real dollars in a quick and dirty fashion. I to would like to see the spreadsheet.

# ? Oct 20, 2014 20:44

namaste friends: Sep 18, 2004; by Smythe

shut up about accounting you nerds

time to get back to the real business like racism

http://blogs.vancouversun.com/2014/10/17/hong-kong-press-scorns-canadas-backdoor-wealthy-immigrant-scheme/

quote:

Two journalists who serve Hong Kong readers are incredulous that Canada allows a backdoor route for wealthy people, mostly from mainland China, to immigrate to Canada.

Both Ian Young and Jake Van der Kamp, one of Hong Kong�s leading commentators, have exposed the grave flaws in the way the province of Quebec is pitches wealthy mainland Chinese to immigrate to Montreal with promises of Canadian citizenship.

But when they come to Canada the majority stay in Metro Vancouver, where they wanted to be all along. It�s costing British Columbians billions of dollars. And, as the Hong Kong journalists say, the B.C. government doesn�t do a thing.

Van der Kamp, who was raised in Vancouver but spent most of his life in East Asia, says, �The C$800,000 (HK$5.54 million) non-interest-bearing loans that mainland applicants must pay for the privilege are then turned over to the Quebec government because Quebec is where they said they would go, while British Columbia gets nothing.�

BONUS ROUND: PETTY REGIONALISM

# ? Oct 20, 2014 20:47

Baronjutter: Dec 31, 2007; "Tiny Trains"

BC needs to offer the same program but for only 500k! We need to compete for these citizenship bribes!

# ? Oct 20, 2014 22:17

etalian: Mar 20, 2006

If BC is paradise on earth why would they need to bribes from rich Chinese people to relocate over there?

# ? Oct 21, 2014 00:54

Baronjutter: Dec 31, 2007; "Tiny Trains"

We need to compete for their immigration fees, not their actual residence. They all want to live here but are paying quebec to do it.

# ? Oct 21, 2014 02:08

on the left: Nov 2, 2013; I Am A Gigantic Piece Of Shit

Literally poo from a diseased human butt

Baronjutter posted:

BC needs to offer the same program but for only 500k! We need to compete for these citizenship bribes!

It's terrible that there is a citizenship bribe. They should be able to immigrate without a bribe.

# ? Oct 21, 2014 02:11

ocrumsprug: Sep 23, 2010; by LITERALLY AN ADMIN

Their only quality that they are wanted for is how much money they are bring to the region to invest with. If they don't want to leave the deposit, they can always be a doctor or wait in line with everyone else.

# ? Oct 21, 2014 02:23

PT6A: Jan 5, 2006; Public school teachers are callous dictators who won't lift a finger to stop children from peeing in my plane

Baronjutter posted:

We need to compete for their immigration fees, not their actual residence. They all want to live here but are paying quebec to do it.

Just another way Quebec has found to suck money out of the rest of Canada. In a sick way, I admire their ingenuity.

# ? Oct 21, 2014 06:20

namaste friends: Sep 18, 2004; by Smythe

Just like the rest of rural Canada

# ? Oct 21, 2014 08:00

less than three: Aug 9, 2007; Fallen Rib

If I had to choose between my money getting funneled to QC or AB, I'd pick QC because at least they spend it on daycare, universities and other social programs to prepare the next generation. Alberta would use it to maintain their flat tax, using anything left over to give SunCor some extra subsidies. Or they'd put it into the school system. Oh wait, their schools are crumbling with 40 kids per classroom because chasing the all-mighty petrodollar when you aren't collecting oil royalties is loving stupid.

# ? Oct 21, 2014 08:15

Buskas: Aug 31, 2004; ?

Franks Happy Place posted:

You missed the $50,000 down payment being tied up in a home instead of invested in index funds. At 5% per year that comes out to ~$120,000 of profit in 25 years.

Frankly that's downplaying it somewhat, as your DP would likely need to be 25% instead of 10% to secure a 2.5% interest rate for the duration of that mortgage.

Have to remember capital gains tax on that investment, though (what portion can't be put into a TFSA, anyway).

I agree with those saying that in an inflated market you can't assume you'll come out ahead, but as Lexicon will show, in the right market the cost of rent can be significantly higher than having a mortgage.

# ? Oct 21, 2014 08:39

I would blow Dane Cook: Dec 26, 2008

This guys sums up the Australian property bubble well

https://www.youtube.com/watch?v=tU-JP5A0yVc

# ? Oct 21, 2014 11:18

mik: Oct 16, 2003; oh

Is the rent vs. own dichotomy as it's portrayed in a purely financial sense really only valid in larger cities? My point is, the math assumes the property you rent is equivalent to the property you buy. Somewhere like Toronto obviously there's thousands of condos to rent and thousands of equivalent condos to purchase, but where I live (30k population) there's a distinct line between rental properties (for the poors) which are almost always townhouses or apartments, and detached housing which is pretty much purchase-only. There's no way I would be able to find and rent a house here that would be equivalent to the one I bought, or at the very least the rent would be so high that it would no longer make renting the 'smarter' choice.

It's easy enough to say that factoring in opportunity cost and all the other nuances renting is financially better than buying, but this is predicated on the properties being equivalent in every other way. Is this equivalence a reasonable assumption based on availability in larger cities?

# ? Oct 21, 2014 14:05

MickeyFinn: May 8, 2007; Biggie Smalls and Junior Mafia some mark ass bitches

mik posted:

Is the rent vs. own dichotomy as it's portrayed in a purely financial sense really only valid in larger cities? My point is, the math assumes the property you rent is equivalent to the property you buy. Somewhere like Toronto obviously there's thousands of condos to rent and thousands of equivalent condos to purchase, but where I live (30k population) there's a distinct line between rental properties (for the poors) which are almost always townhouses or apartments, and detached housing which is pretty much purchase-only. There's no way I would be able to find and rent a house here that would be equivalent to the one I bought, or at the very least the rent would be so high that it would no longer make renting the 'smarter' choice.

It's easy enough to say that factoring in opportunity cost and all the other nuances renting is financially better than buying, but this is predicated on the properties being equivalent in every other way. Is this equivalence a reasonable assumption based on availability in larger cities?

Yes.

# ? Oct 21, 2014 16:09

Baronjutter: Dec 31, 2007; "Tiny Trains"

There's always going to be extremes and outliers in any situation. If you're stuck someplace with no rentals and you want to stay there forever and houses are cheap then go ahead and buy something. The worst though would be being in a village with inflated housing prices though.

But yeah, most of the advice here is generalized at the 80% or so of Canadians who live in cities.

# ? Oct 21, 2014 16:12

namaste friends: Sep 18, 2004; by Smythe

There's this prevailing misconception in Canada going on with every single bull that it's impossible to determine if you're paying too much for real estate. To every bull, there's no such thing as a property that's too expensive.

This is retarded. For years, a basic measure (amongst many others) for the viability of any investment has been price to income ratio. At least with real estate, you can compare the income (rent) generated by a property vs the cost to buy it.

If the village you're thinking of buying a house in has a price to income ratio comparable to Vancouver or Toronto, stay well away.

# ? Oct 21, 2014 16:25

triplexpac: Mar 24, 2007; Suck it
Two tears in a bucket
And then another thing
I'm not the one they'll try their luck with
Hit hard like brass knuckles
See your face through the turnbuckle dude
I got no love for you

I was hanging out with a friend on the weekend, her mom is some bigwig at a bank. They're well-off, for sure.

Anyway I found it interesting that her parents were talking about how the housing market is nuts and young people shouldn't buy houses. I'm used to people who have money saying "get a house you poors". Maybe thinking is changing on some level?

# ? Oct 21, 2014 16:30

ascendance: Feb 19, 2013

I'm a loser who bought a house in Toronto back in May.

Nice to meet all of you.

# ? Oct 21, 2014 17:19

Baronjutter: Dec 31, 2007; "Tiny Trains"

ascendance posted:

I'm a loser who bought a house in Toronto back in May.

Nice to meet all of you.

You're not a loser if your pride of ownership levels are still high. You have to compare the Pride of Owership with the shame of renting and see if you come out ahead.

# ? Oct 21, 2014 17:23

ascendance: Feb 19, 2013

Baronjutter posted:

You're not a loser if your pride of ownership levels are still high. You have to compare the Pride of Owership with the shame of renting and see if you come out ahead.

Main thing though is that trying to find a rental 3 bdrm house that is less than $2k, offers TTC access (say, 10-15 mins to subway), and is not a shithole is kind of challenging in Toronto.

# ? Oct 21, 2014 17:25

Rime: Nov 2, 2011; by Games Forum

ascendance posted:

I'm a loser who bought a house in Toronto back in May.

Nice to meet all of you.

You're not the pre-construction condo goon that we were all rigorously mocking back then, are you?

# ? Oct 21, 2014 17:25

ascendance: Feb 19, 2013

Rime posted:

You're not the pre-construction condo goon that we were all rigorously mocking back then, are you?

Oh, no, not at all. I have one of those single story bungalows built in the 1920s in the old City of York.

Probably bought one that was a little too nicely renovated, but it was taken care of very well.

Edit: loving stove lasted 3 weeks before it died. And by died, I mean randomly beeped like crazy so I had to put it down.

# ? Oct 21, 2014 17:28

triplexpac: Mar 24, 2007; Suck it
Two tears in a bucket
And then another thing
I'm not the one they'll try their luck with
Hit hard like brass knuckles
See your face through the turnbuckle dude
I got no love for you

If I bought a house I would stay far away from this thread. I'd hate to feel like I made a mistake or something.

# ? Oct 21, 2014 17:40

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# ? Jun 1, 2024 18:03

PT6A: Jan 5, 2006; Public school teachers are callous dictators who won't lift a finger to stop children from peeing in my plane

triplexpac posted:

If I bought a house I would stay far away from this thread. I'd hate to feel like I made a mistake or something.

I dunno, as long as you didn't buy some overpriced dump with a lovely, low-money-down 40-year-amortized mortgage or something legitimately retarded like that, it doesn't feel that bad.

# ? Oct 21, 2014 17:46

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