Renting

RENT

Two years ago Pat and Kelly decided to punt their suburban Vancouver OSB McMansion, invest the bundle for income, and rent. Happily, this pathetic blog played a role. “Not gloating or arrogant here,” says Pat, “but there but for the grace of God and Garth, go I!!!  I’m so glad I found you and decided finally after 50 or so years of life to stop being a greater fool and switch to being a somewhat lesser fool :).”

The landlord lives in HK, tried to sell the house for $900,000, and now leases it to P&K for $2,250. “I figure that unless they had a quadruple whopper of a down payment, they are losing money at tsunami proportions just to keep up the payments on their ‘investment’”, Pat says.

Two weeks ago, as the term came due, the landlord announced a rent increase. Days later came another email, rescinding the increase. “I just have time to check the rental in Burnaby area yesterday afternoon,” it said. “After checking, I’m offering to keep the rental intact at in order to be comparable to market rental despite rising miscellaneous costs.”

Huh? Why would an absentee owner, already in negative cash flow, waive a rent hike? “Seems rents are starting to inch downward,” says Pat, who looked around after the rent notice arrived “and there is certainly lots of supply. I even restricted my search to pet-friendly places (we have a dog and a cat). If those restrictions were removed I’m sure the list would be much longer.”

Like this place, in Surrey – where similar houses (about 400 of them) are listed in the $900,000 range. Monthly rent: $2,250, half of which can be recovered from renting out the downstairs suite. And no yard work, since the LL lives next door. How handy is that?

RENTAL

In fact here’s an example of how delusional offshore investors are subsidizing smart people like P&K. The same principle applies to all those snappy Toronto specuvestors who own condos and humanely subsidize their tenants. After all, in the absence of capital gains on real estate churned out by a rising market, owners lose and renters win. It’s especially true when the massive cost of acquiring and selling real estate is factored in, along with the lost opportunity cost of the money invested in equity.

All of that is handily represented in what’s called the price-rent ratio.

This compares the cost of owning with that of renting. The complicated method involves adding annual mortgage payments, property taxes, closing costs, insurance, monthly fees and the missed investment returns on the down payment and accumulated equity, and comparing that to rental income. The simple formula is (List Price/Rent*12) – in other words, divide the market value of the real estate by the annualized rent. See what ya get.

Here is one way to measure the result (as suggested by US real estate site Trulia):

  • P/R ratio is lower than 15 = Listen to your mother-in-law. Buy the place.
  • P/R ratio is between 16 and 20 = Nah, better off renting
  • P/R ratio exceeds 21 = Your landlord is a munificent god.

The price-rent ratio on the house Pat & Kelly lease is 33. Ditto for the one they sourced in Surrey. And this may well be on the low side of the equation.

To put things into context, the OECD recently issued a report comparing price/rent ratios around the world. Guess what? Only Norway is more screwed up than we are. In fact, the organization divided countries into four categories: (a) Where houses are correctly valued, like the US, (b) Where houses are cheap and getting cheaper, like Greece or Ireland, (c) Where houses are undervalued but prices rising, like Germany, and (d) Where houses are dumbass, stupid expensive and still swelling, like Canada. Oh yeah, and Norway.

“Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.” And guess what?

“In the meantime,” says Pat, “I remain happy with my decision to trust my learning and research.  Dreams can come true!”

OECD1

222 comments ↓

#1 Smoking Man on 08.13.13 at 5:39 pm

Early to night, obviously your going bozzing, enjoy

#2 Serge on 08.13.13 at 5:43 pm

Unintended Consequences to Unneeded CHMC changes.
http://www.rosskay.com/

#3 victoria the original on 08.13.13 at 5:46 pm

Are there companies out there that will help you find something to rent? I look on craigslist etc. every day and find nothing. We need 4 bedrooms, pet friendly house and $3,500 or so.

Nothing in Victoria.

#4 T.O. Bubble Boy on 08.13.13 at 5:47 pm

Offshore-owned SFH in North Toronto (that just came up for rent this week) scores a 26+!!!

Purchase Price = $1.1M
Rent = $3500/month

ahhhh – to be so rich that you can pay $1.1M plus $30k-$40k in land transfer tax, and still only make 3.8% on your 1.1M *before any maintenance costs*.

#5 Finally on 08.13.13 at 5:47 pm

I rent a 3 bedroom 1500 sq foot duplex for $1800 in Kerrisdale, West Vancouver. Not the best deal, but I’m happy with the area.

#6 condo out on 08.13.13 at 5:47 pm

Garth, Good or bad?
Sold my condo in toronto and bought a townhouse in thornhill…for almost the same price….did I do a stupid thing?

Congrats for ur predictions…right on target

#7 Donald Trump on 08.13.13 at 5:48 pm

Oh yessssss

First….

#8 condo out on 08.13.13 at 5:50 pm

Oh, and forgot to mention… both condo and townhouse has the same maintainance fee ….and new place still in ttc range….good or bad move??? Feedback please

#9 Depends on your Rent on 08.13.13 at 5:52 pm

It seems like the most expensive the property the larger the ratio becomes.

I’m currently in a modest 3bdrm ~360K townhome and paying $1650/mnth (ratio of 18.1), but I have seen many 800-900K homes renting for only $2500 in the GTA. To me that seems like a waste, for space I don’t need.

I guess there is a lot more competition for the more reasonably priced rentals, and therefore reduced ratios at the lower end of the spectrum. You’re getting a better “bargain” renting an expensive home.

#10 Art on 08.13.13 at 5:57 pm

Fiiiirrrrrrsttttt

#11 Common Sense on 08.13.13 at 5:57 pm

Handy P/R ratio.
Another good blog tonight.
Thanks

#12 Jimmy on 08.13.13 at 5:58 pm

Yes!!

#13 ILoveCharts on 08.13.13 at 6:13 pm

What Vancouver does this man live in where it is easy to find pet-friendly rentals? Perhaps it is easier for houses. Are there any good tools for finding listed rental apartments. Craigslist is annoying.

#14 Anthony on 08.13.13 at 6:17 pm

So if you’re buying a condo with maintenance does the formula change to

(Price/(12*(rent-maintenance))?

#15 Gildan on 08.13.13 at 6:18 pm

We are in the process of selling our house in Edmonton and are moving to Vancouver but plan to rent. There are literally 100’s of rentals in the greater Vancouver area and more every time I look(mainly on craigslist). We will rent a house, not interested in the condo life. I have found a number of homes for rent in the Shaughnessy area- a beautiful area of Vancouver and very central for between- $4000-$5500/month- redone character homes-newer kitchen and bathrooms etc. We could never afford to buy in that area but we can afford to rent. One house for rent was also up for sale for $4,500,000 but would rent for $5000- it was a beautiful home. Haven’t sold our house yet, but when we do, we will have a virtual plethora of choices for rental in Vancouver.

#16 wilson on 08.13.13 at 6:23 pm

Thank you for the detailed analysis. Renting is good now

#17 RonH on 08.13.13 at 6:23 pm

Hi Garth, everyday you come up with another reason
why RE is in trouble. Maybe its time for a review, say going back to 2009. The non-believers can print it out and see which reason does them in. Can I start it?
Owning a house is a lifestyle choice.
Your personal house is not an investment.

#18 Toronto_CA on 08.13.13 at 6:24 pm

“Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.”

Income growth never really took off in an out of control way here, so that slowing down wouldn’t affect the market nearly as much as increased borrowing costs and/or a tighter credit market.

Poor Japan.

#19 Smartalox on 08.13.13 at 6:30 pm

Post your price to rent ratios!

Assessment $373,000
Rent $1290/mo

Price to rent = 24.1

#20 pathcontrolmonk on 08.13.13 at 6:30 pm

Could it be that we have something in common with Norway other than a long sub zero winter? The difference is they dont need pipelines, and they rank #1 in quality of life according to the UN. Canada isnt even in the top 5.

#21 Bill Gable on 08.13.13 at 6:32 pm

“A recent study reveals Vancouverites have the highest net worth in Canada as a result of their pricey homes; so why do so many of us feel like we’re in the poor house?

It’s probably because, with median incomes below the national average, Vancouver residents are grappling with monster mortgages, as well as the highest consumer debt loads in the country.

And while it’s great building home equity, this does little to improve financial positioning until a place is sold and a profit realized.

Peter Miron, author of the 2013 Wealthscapes study for Toronto-based Environics Analytics, confirms Vancouver’s enviable net worth — the value of real estate plus liquid assets minus debt — is due largely to a real estate market he describes as “out-of-this world”.

LINK: http://tinyurl.com/llqypph

#22 ILoveCharts on 08.13.13 at 6:35 pm

I don’t understand.

Let’s say that you pay $1300/month in an apartment that would sell for $343,000.
The price to rent ratio is 22 so the “rule of thumb” says you are correct to be renting.

Let’s take a closer look.
Rent scenario:
$1300 is expense (out the door to never be seen again.)
Anything you make and save above that can be invested in other areas. You can also continue to invest the amount that you would otherwise make as a downpayment.

Buy scenario:
Put 20% down ($69,000) and do a 30 amortization at 3.39% (lots of people still have this rate.)
You are then paying $1,212/month for the mortgage In the first year, about 62% ($762/month) is interest expense and the rest ($450/month) is paying down principal on the house (it’s an investment.)
The other main expenses are $250/month in strata fees and $175/month in taxes.
That means that $1187 each month goes out the door to never be seen again. This is lower than the $1300 is you were renting.
$450 each month is being invested in your house (in addition to the one-time investment of $69,000.)

Buying does mean that you are putting money into a house that you could otherwise put in other places. However, the math fails to show that a price to rent ratio of 22 means that your landlord is doing you a huge favour unless we all make some wild guesses about which classes of investments will provide the best returns over the next decade. Also remember that the calculations above are the first year costs. Over time, a larger portion of each monthly payment is principal. In addition, your rent in a single location will generally go up.

What have I done wrong with these calculations???

Is it possible that the “rule of thumb” really needs to include a few variables to be relevant?

You neglected closing and sale costs, ignored the potential of a higher mortgage renewal rate and ascribed zero value to the $70,000 down, earning nothing. Worse (and likely), a correction will wipe out all equity gains. — Garth

#23 Gildan on 08.13.13 at 6:37 pm

@ #13- I Love Charts: just google rental homes in Vancouver- all kinds of property management sites come up. I have also found on craigslist, which works well for me,( I know it takes time to go through all the listings) that many of the property management companies post homes on there. http://www.vivaliva.com is a good one, along with http://www.adventvancouver.com.

#24 TurnerNation on 08.13.13 at 6:43 pm

From Leons’ Furniture quarterly financials released today:

” This year is again proving to be a challenging one where the company continues to see a soft economy with no clear signs of any major turnaround. Having said that, the company is pleased that it completed the purchase of the Brick Ltd. at the end of the first quarter 2013. “

#25 Toronto_CA on 08.13.13 at 6:44 pm

Also with Toronto having extraordinarily high condo fees relative to other parts of the country; the formula really doesn’t work if you’re renting an older condo/apartment like this:

http://www.realtor.ca/PropertyDetails.aspx?&PropertyId=13265870&PidKey=-1072827789

Where the rental cost is about the same as the condo fee and much more than you’d pay in maintenance for a 2 bedroom house.

But yeah, as Garth says it’s a simple formula meant for a simple answer. I’d just not use it when your unit has high condo fees (anywhere in Toronto, really).

#26 Renter in Markham on 08.13.13 at 6:46 pm

As I’ve posted before, a brand new 4 bed-room 2750 sqft Semi for 2.000 CAD – estimated value close to 680000 CAD – not too bad of a ratio I guess ;-))

#27 Devore on 08.13.13 at 6:47 pm

Huh? Why would an absentee owner, already in negative cash flow, waive a rent hike? “Seems rents are starting to inch downward,” says Pat, who looked around after the rent notice arrived “and there is certainly lots of supply.

This is what we’re seeing here in BC. Rents have gone nowhere in the last 10+ years. You can blame rent controls all you like, but rents have not even increased at anywhere near the rate allowed by rent controls.

And of course there are no rent controls between tenants. Those landlords who gleefully rub their hands at this fortuitous “oversight” end up on Craigslist, reposting their sorry pleas for tenants day after day, mystified why the calls are not pouring in. After all, their only reference point are all the other Craigslist ads from landlords like themselves.

Boots on the ground, and statistics from multiple sources, tell otherwise. Rents haven’t been going up, not even keeping pace with inflation.

#28 Renter in Markham on 08.13.13 at 6:49 pm

Oh, I forgot to mention that my LL is a Chinese flipper living in Mark-HAM ;-))

#29 Renter in Markham on 08.13.13 at 6:52 pm

Plus we got 1 year free Cable (Triple Play Service) – a promotion deal between the Builder/LL and Cable Provider (100+ $ value ;-))

#30 Condo Chris on 08.13.13 at 6:53 pm

If you need any help renting in Toronto, Drop me a line.
http://www.condochris.ca/2013/07/toronto-condo-rentals-condo-chris-helps-renters-2/

Dude. No commercials. — Garth

#31 4 AM Sunrise on 08.13.13 at 6:54 pm

When I was looking for a rental in West Vancouver back in May, I came across a 1200 sq ft, 2 bedroom, 2 bathroom condo perched on the southern edges of the British Properties for $900/month. Breathtaking views of the Lions Gate Bridge and Burrard Inlet. At the same time, the poor landlord was trying to unload the property for $900,000. P/R ratio = 83! (It’s no longer listed). The only reason why I didn’t bite was because there’s almost no bus service and I don’t have a car to take me to the amenities I need. Getting home means a brutal hike uphill in the winter, partly on a piece of highway with no shoulder.

#32 Jarret on 08.13.13 at 7:00 pm

Garth, I have been reading your blog for over a year now, and love it! Anybody who can’t see the writing on the wall has lost their mind! Our RE market is out in the middle of the lake on a deflating water tube….nowhere to go but underwater!

My family and friends call us (my wife and I) crazy for not buying. I strongly disagree….we are currently renting a 1300 sq ft bungalow on 4 acres, 30 minutes from Winnipeg for 800/month. We make over 130k together per year…and they call us crazy!
We laugh. We srongly beleive a patient renter (in the right situation of course) will only benefit when the bubble goes…
POP!!

Good Job Garth!

#33 TurnerNation on 08.13.13 at 7:00 pm

Rotate this (Blog Dog Scott must be shortly happy):

“After 21 straight months of inflows, bonds looking at 3 straight outflows.”

Chart:
http://stocktwits.com/message/15167647

#34 not 1st on 08.13.13 at 7:03 pm

Garth, what about letting your dividends pay your mortgage? Isn’t that the “ultimate” investment strategy?

Seriously, whats the downside?

The poor people will hate you. — Garth

#35 Ahead of the Curve on 08.13.13 at 7:05 pm

The problem is that the market is not always dictated by logic. Fear and greed rule the day.

I guess if the government doesn’t step up the efforts to curve up mortgage lending, the markets may continue to increase driven by house hunters who believe the market will have these rates forever!

#36 Cat in the hat on 08.13.13 at 7:05 pm

Garth, your formula needs to take into account risk free return. If risk free return climbs, so should rents.

In Ottawa’s Rockcliffe Park, I am surprised to see houses in the $1.5 M range renting for 4000-4500. This seems low to me given that property taxes alone are close to 1000/month. Insurance and maintenance are another 1000/month. This means that income to the owner is less than two percent. It seems like the foreign diplomats are getting a deal on rentals, because I don’t think the houses are overpriced. But they aren’t getting a deal nearly as good as Pat’s.

#37 Large on 08.13.13 at 7:05 pm

My 900k house is paid off. Toronto. Now what? Can’t wrap my head around renting.

Nine hundred invested at 7% gives you five grand a month for rent. Bet you can live in a better house for that. — Garth

#38 Siva on 08.13.13 at 7:06 pm

#14 Anthony: “So if you’re buying a condo with maintenance does the formula change to (Price/(12*(rent-maintenance))?”

Yes!

#39 Mister Obvious on 08.13.13 at 7:08 pm

That graph pretty well says it all. Too bad so many people had a bad math experience in high school and are loathe to look at ‘number pictures’. It will eventually cost them dearly.

I live in a Vancouver apartment rental building but there are hundreds of similar selling condos in the area. Based on typical values in my hood I estimate my price to rent ratio to be about 24.

So… maybe my landlord’s a God. I don’t know, I’ve never met him and probably never will. I only deal with the manager.

BTW, the microwave just died a few weeks ago. I made one call and they had it replaced in days.

You gotta like that.

#40 Nosty the Vladman on 08.13.13 at 7:09 pm

#38 Smoking Man on 08.12.13 at 9:06 pm — “For the love of god, please lets have a real estate crash.”

Were you contemplating something along these lines?

BTW, a couple of decades ago or so, two sleeper hits — Waking Ned Devine and The Full Monty – made their respective debuts.

This could be classed as a different take on those films!

#41 Renter in Markham on 08.13.13 at 7:11 pm

Garth, I’ve bought with a business partner of mine an 8-plex in Germany in a city in size comparable to Mark-HAM (between Dusseldorf and Cologne) for 180.000 EUR plus tax, agent and notary fee of close to 20.000 EUR. The annual rent is 36.000 EUR net. I can only dream of such deals here in Canada, especially in the GTA area. Canadian real estate is way overpriced and is ready for correction. Everybody should be thankful for ‘die gute Arbeit’ you’re providing. BIG THANKS…

#42 Spiltbongwater on 08.13.13 at 7:14 pm

I thought all the foreign Chinese owners were laundering their money in the Vancouver real estate market? Why would taking $2250 monthly in clean laundered income be a good thing?

#43 dienekes on 08.13.13 at 7:15 pm

Canadians believe money exists to be spent, and if you can leverage your life away, so much the better.
All this crap you see on TV about how Canadians are adventurous and outdoorsy is a lie. They just go to there wage earner job and pass it on to a bank, and sit and get fat in there houses.
I can’t even call anyone to go on vacation with, because they are broke. What boring people.

#44 Donald Trump on 08.13.13 at 7:23 pm

They say the Asians don’t worry…they don’t panic…they plan ahead for future generations.

IMHO, that was then…. this is NOW. All bets are off.

Are they going to hang onto asset classes that have very indication on flu$$$$h ?

#45 Siva on 08.13.13 at 7:24 pm

#39 Mister Obvious on 08.13.13 at 7:08 pm

“That graph pretty well says it all. Too bad so many people had a bad math experience in high school and are loathe to look at ‘number pictures’. It will eventually cost them dearly.”

Sadly you are right!

Math-Challenged Americans More Likely to End Up in Foreclosure… http://www.cnbc.com/id/100840057

#46 DavidL on 08.13.13 at 7:28 pm

@victoria

Try PadMapper: http://www.padmapper.com/

#47 Victor V on 08.13.13 at 7:31 pm

PRICE DROP #6 – 360 Walmer Road – CASA LOMA

http://themashcanada.blogspot.ca/2013/08/price-drop-6-360-walmer-road-casa-loma.html

This 4+1 bedroom, 5 bathroom Grey House on a 25 x 174.75 foot lot in Casa Loma has been listed since December.

It has some issues such as the fact that there is no dining room, just the chairs around the counter in the kitchen, and there isn’t really a living room, just the family room in the kitchen and the room in the basement. Not to mention the toilet right in front of the window on the third floor.

So, when they were asking $3,249,000, I thought it would be a tough sell.

And it was.

It never sold and the price was dropped to $2,999,000 in February. I thought it was still a tough sell.

The price dropped again in March to $2,899,000.

Then again in April to $2,699,000.

And again at the end of April to $2,599,000.

And again at the end of May to $2,499,000.

Aaaaaaaannnd once more…….

But like the house in my last post at 34 Vesta Drive, the price was dropped by only $4,000.

The new price is $2,495,000.

Like I said for 34 Vesta, that’s not going to help.

#48 Victor V on 08.13.13 at 7:36 pm

PRICE DROP #18 – 15 Ridgewood Drive – FOREST HILL

http://themashcanada.blogspot.ca/2013/08/price-drop-18-15-ridgewood-drive-forest.html

I am not sure when this happened, but my favourite listing has had another price drop!!!!

Here is the price history for this listing:

February 23 $4,398,888
March 5 $4,397,888
March 12 $4,396,888
March 14 $4,394,888
March 15 $4,393,888
March 16 $4,392,888
March 17 $4,391,888
March 18 $4,388,888
March 28 $4,349,000
April 15 $4,348,000
April 22 $4,299,000
April 29 $4,249,000
May 4 $4,199,000
May 11 $4,149,000
May 23 $4,099,000 (this price didn’t last long!)
May 23 $3,999,000
June 13 $3,888,888

The new price is….

$3,598,888.

That’s the biggest drop yet!

#49 Devore on 08.13.13 at 7:40 pm

A simple number is for a quick and dirty simplistic evaluation. People shouldn’t get hung up on that, missing the forest as they’re hacking away on that one tree. There are more sophisticated formulas for judging investment potential of individual specific properties. Price/rent is meant as a general fuzzy market gauge.

#50 Donald Trump on 08.13.13 at 7:46 pm

#18 Toronto_CA on 08.13.13 at 6:24 pm

“Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.”

Income growth never really took off in an out of control way here, so that slowing down wouldn’t affect the market nearly as much as increased borrowing costs and/or a tighter credit market.

Poor Japan.
=================================

If one follows history and understand the pattern, Japan is one of many dominos set up to fail.

It will be the Detroit of the East.

Remember the 1980’s and Japan’s economy was overheated….Japanese real estate was priced by the “square inch”?…Japanese were coming to the US and buying up Hollywood…..outbidding others for famous works of art.

Much of the U.S industrial base (aka middle class jobs)had shifted to Japan…now its shifted to China.

Nexxtttt!

#51 Seven Stars and Orion on 08.13.13 at 8:01 pm

FWIW, I rent a 3 BDRM semi in Hintonburg (Ottawa) with a P/R ratio of at least 23. (no, I’m not a hipster)

#52 Ben on 08.13.13 at 8:06 pm

UK FT headline tonight Garth:

“Gilt yields hit two-year high”

Awwwwww yeah. The US is on the way back up and the countries that “grew” off low rates are going to find life hard.

#53 The real Kip on 08.13.13 at 8:09 pm

Do you mean to tell me we can’t even beat the Norwegians? Wow, that’s lame eh?

#54 observer on 08.13.13 at 8:11 pm

The Majority of the Renters are renters for a reason. They don’t have the cash to buy.

So how much can you raise your rent before you price them out. But once price out renter will simply share a single place with buddies. I did when I was going to school. There were 5 of us sharing a place and we had mattresses and bunk bed.

That is why you can’t raise the rent too high. My landlord won’t even bother raising rent, its been 2 years now and were good clean renters. So why would you want to take a chance. Cause we will be out the door before he knows it. The previous renters rented for 200 dollars more /month than us.

#55 Question on 08.13.13 at 8:12 pm

Great Blog!

Question 1: why do you not rent?

Question 2: why do you own multiple rental properties?

Thanks in advance for answering.

1. I do. 2. I don’t. — Garth

#56 timoftrees on 08.13.13 at 8:22 pm

Assessment 325000.00
Monthly rent 950.00.

P/R Ratio- 28.5 Yippee!

#57 Xyz on 08.13.13 at 8:23 pm

Rental ratio… 44.22
BC Assessment. 870,400
Rent. 1640.00

And the landlord is local, lives right next door. I should be shaking his hand on a daily basis…lol

#58 wallflower on 08.13.13 at 8:39 pm

$530,000
Rent $2100/mo
Price to rent = 21

Dumped the high rise condo — 30 degree air in winter – sucks the life out of you – but it was better ratio:
Price to rent = 23
675,000 / $2500
However – that is what landlord is asking for sale price right now and if someone actually pays that, well, let’s pray for their folly; so many infrastructural problems with that place. I shudder to think of the black mould growing amongst all the floor/ceiling spaces. A unit above me drenched one area of my condo (drained through the ceiling lights of a bathroom into mine – I think someone had left their bathtub filling and then gone on holiday) and nobody ever did anything about it (that would probably explain why the wiring is faulty in so many places throughout the unit; water dumping down-unit, etc.).

#59 The real Kip on 08.13.13 at 8:47 pm

Funny thing about the OECD, they also rank Canada and Norway as number 3 and 4 respectively for overall quality of life.

When you factor in a high standard of living with good jobs, medical coverage and life satisfaction, it’s hardly surprising that many people want a piece of Norway as well as Canada.

http://www.businessinsider.com/top-countries-on-oecd-better-life-index-2013-5?op=1

#60 mortgagebrokeron on 08.13.13 at 8:48 pm

market value of house i rent 400000 rent is 1200 per month
p/r ratio = 27.77

#61 IM in C on 08.13.13 at 8:49 pm

@#9 Depends on your rent.
We buy with someone elses money, we rent with our own money! Consequently, there is a typical price range for a rental , and it isn’t really affected by the actual price of the unit.

#62 Ralph Cramdown on 08.13.13 at 8:52 pm

#36 Cat in the hat — “Garth, your formula needs to take into account risk free return. If risk free return climbs, so should rents.”

I understand the idea behind that theory, but I don’t think it’s so. Income properties have such high transaction costs that short holding periods usually don’t make much sense. So the theory isn’t “buy low, sell high,” it’s “buy low enough that the rents cover the mortgage payments and sundry expenses, and wait.”

Landlords already charge what the market will bear, and the number of homes in an area is basically fixed, usually changing only slowly. So bonds offer a better return this week… Do you sell to another landlord dumber than you? Sell to a previously renting new homeowner thus removing one customer from the rental pool?

I’m willing to be convinced that my thinking on this is incorrect.

#63 TnT on 08.13.13 at 9:01 pm

Upper Beaches GTA

3 + 1 BDRM, Finished Basement semi

House Value – $575,000.00 (down from $600,000 as comparable on same street sold 2 years ago).

Monthly Rent – $2095

Ratio: 22.9

No increases for 2 years, LL a professional agency

Proceeds from house sale 2 years ago collecting interest while LL supplements my worry free maintenance / repairs dwelling.

Also know annual taxes on this house is $3200 and bank just had an appraiser come through which means he has a mortgage on it.

Thanks Garth

#64 T5_INCOME on 08.13.13 at 9:05 pm

@22

$69,000 Buys about 3,300 units of CHB.TO which would yield you about $330 a month which more than makes up for the difference between rent and owing.

That $330 is the “cost” of your downpayment.

#65 GenXer on 08.13.13 at 9:10 pm

Downtown Toronto, 3+1 bedroom house with parking, renovated. Probably worth $1.0M or a bit more if it were sold in today’s market. We are renting for $3K/month. P/R ratio of 27. But it’s only a 12 month lease so we will have to move again within a year — I just need to find another place like that will let me stay longer! We were lucky – single family homes for rent are scarce and nice ones are scarcer, so hope there will be another good rental like it next year.

Hubby is considering spending more on rent next year ($3500? $4,000) since we could spend our income and not save, and let the home equity we liberated this spring “save itself” by growing. But I see huge P/R ratios in the Annex or Yorkville – earlier this year $3M houses being rented out for $5K a month or a P/R of 50!

#66 ILoveCharts on 08.13.13 at 9:15 pm

Some people seem to be missing the point…

Just because the P/R ratio does high doesn’t mean that it’s ok to be spending a lot of money on rent. Rent is wasted money. With a high P/R it might be less waste than interest/strata/taxes but it’s still waste. Minimize it.

Save that money for a downpayment when the P/R ratio drops due to a reduction in prices.

Why is rent ‘wasted’ when an owner will never retrieve mortgage interest, condo fees, property taxes or repairs, not to mention land transfer tax and sales commission, plus shoulder interest rate and market risk, as well as a loss of mobility, which renters do not bear? If that’s your best argument, fail. — Garth

#67 Derek R on 08.13.13 at 9:16 pm

Hope that chicken has granite and stainless. Otherwise it’ll never fly.

#68 Donald Trump on 08.13.13 at 9:16 pm

You couldn’t pay me enough to live East of Rockies…and West of Newfoundland. Not enough fiat currency, Gitmo threats and REIT shares combined..no sireee.

P.S. Yeah?…. same 2 ewe

#69 Happy Renter on 08.13.13 at 9:27 pm

Am renting a 1 bedroom condo in Yaletown (Vancouver). 10 years old, wood and tile, granite and stainless steel, view of False Creek.

There is an identical one in the building for sale for $434k .

I guess my price to rent ratio is then 21.52 and my landlord is a god. Cool!

I just rented it after selling my house and didn’t even look around very much. There seems to be a fair bit for rent now, even downtown.

#70 driesdtl on 08.13.13 at 9:32 pm

I rent in one of the best subs in Sydney Australia 2 mins walk to beaches on 3 sides. Ratio is 31:)

#71 RE Observer on 08.13.13 at 9:32 pm

Hey Garth

Thanks for the simplified calculation re rental vs. owning. I just ran our investment property in Ottawa through that, and came up with a P/R ratio of 14.6, using what we paid for the place. Glad to know that we are not really subsidizing our tenants’ lifestyle!

#72 Tomas on 08.13.13 at 9:45 pm

Here’s a good laugh, Garth…check out the video…they call her the Condo Queen here in Ottawa

http://www.bennettpros.com/zerodown.asp

#73 Dave on 08.13.13 at 9:47 pm

I thought for sure you would offer some insight on the Trump Tower fiasco in TO. It’s a bloody mess…

#74 a prairie dawg on 08.13.13 at 9:54 pm

But everyone wants to move to Norway.

#75 Morgan on 08.13.13 at 9:55 pm

22 ILoveCharts – are heat and hydro included in strata fees for condos? Here in Toronto I’ve heard they are separate, or, if they are included, it’s something crazy like $600/month for the package with useless cable subscriptions thrown in that you can’t opt out of.
I have a house, fully paid off, and my monthly costs are maybe 40% of what they were when I had a mortgage… but they’re not gone away by any means. The mortgage is just the beginning. I’d also balance off the higher % going to principle over time with the fact that the equity on which that principle is based is getting older and more likely to trigger some special assessment repairs if not outright depreciation. Lofts and other unique living spaces hold their value much better than 5-10 year old condos.
And yes, as Garth pointed out, the 20% downpayment and closing costs and LTT would probably total $85K in the end, returning $1700/year in a 2% GIC and balancing out the equation you gave.
Some of the worst liabilities with buying are the purchase taxes and selling fees, and they are crushing if you move within a 10 year cycle. So… doing a real dollar calculation would have to include those odds as well. If you’re single, will you meet someone and move to a bigger place? If you’re coupled, will you have a child or two, or divorce? Will you relocate for work? These costs are probably best predicted by age, and are a bit steadier once you hit your 30s, but are always a bit of a risk.

#76 Renting — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer™ on 08.13.13 at 9:56 pm

[...] via Renting — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. [...]

#77 Morgan on 08.13.13 at 9:58 pm

Also, my own calculations on ownership:
I own for roughly $630K. Based on my neighbours, could rent it out for $3500/month. Ratio is 15… yeah, I figured. And considering I didn’t pay anywhere near $630K for it, and I don’t have to pay tax on money I don’t have to earn, I think I’ll stick with it.

#78 AK on 08.13.13 at 10:01 pm

#7 Donald Trump on 08.13.13 at 5:48 pm
“Oh yessssss

First….”
====================================
#10 Art on 08.13.13 at 5:57 pm
“Fiiiirrrrrrsttttt”
====================================
#12 Jimmy on 08.13.13 at 5:58 pm
“Yes!!”
====================================

Night of the Living DEAD

#79 Renting and Loving it on 08.13.13 at 10:07 pm

Renting a home that could easily sell for 600,000. Paying 1300 a month. I knew I was getting a good deal but the ratio is about 38. Maybe I won’t give the LL a hard time after all if my rent increases this year ;-)

The best part is that based on info on “this pathetic blog”, I sold my house, set aside a chunk just for rent, invested the rest of the proceeds and still make more than enough to cover my rent each month. Basically, I’m living rent free and don’t have hundreds of thousands tied up in a house any more. A house that despite being priced right and in a “demand” area, still took several months to sell.

#80 StatisticsFreak on 08.13.13 at 10:15 pm

West Vancouver
Waterfront studio apartment
value $500,000 (compared to those for sale in my area and for the size of space I have)
$1194.00 /month rent
34.9
No brainer, and pure bliss!

#81 Looking for direction on 08.13.13 at 10:17 pm

List: 420000
Rent 2000
Ratio 17.5

North York

#82 Chris L. on 08.13.13 at 10:21 pm

Rent is $31,500 over $350k = 11.11 on my rental = keep.

#83 ILoveCharts on 08.13.13 at 10:24 pm

Re:
__________________________________
“Why is rent ‘wasted’ when an owner will never retrieve mortgage interest, condo fees, property taxes or repairs, not to mention land transfer tax and sales commission, plus shoulder interest rate and market risk, as well as a loss of mobility, which renters do not bear? If that’s your best argument, fail. — Garth”
__________________________________

I don’t think we are arguing on this point.

If you rent, your rent cheque is waste.
If you buy, the expenses you listed are waste.

Either way, you should minimize the waste so you have more money to save and invest.

I don’t care if the P/R ratio is 200, I don’t see a reason for anyone to pay $3000/month unless they are very wealthy (which they may be.)

#84 Smoking Man on 08.13.13 at 10:24 pm

My un fans must be in a joyful mood, not a lot of posts,

SMOKING MAN OFFSPRING INC keeping me busy.

Putting the marketing campaign together with snap one hour motivational speeches. Getting the grasshoppers to belive they are superior hunters, and every one they meet are pray

School really did a number on them.

Was so funny when I made them look in the mirror and chant, I’m superior, I’m the best. I deserve my forth coming riches.

I’m a son of a smoking man.

To my 18 fans, bit of a drought coming up. HANG IN, don’t go away, need a few focused weeks.

#85 Peter on 08.13.13 at 10:25 pm

Hi Garth,

Good post, I own rental properties in Toronto, good neighborhoods , duplexes, bought in better times , (although it never seemed like it at all).

Going back to 96′ . Rents did not cover my expenses, I knew full well I was subsidising my tenants housing costs and a better lifestyle than mine (2 jobs , maintenance on the house) and I was trying to attract good tenants for what the market would bare (and I did , mostly).

Counting costs in the first year , is not taking into account that closing and land transfer costs get divided by how many years you own and rent the house, and as rents increased (I thought they were pretty high at the time) incrementally . I have never increased rents to the same tenant (they deserved it) and would again raise rents when they moved for what the market would bare (much higher).

As the house appreciated in value I would borrow against to make improvements and make investments outside of real estate, making my place more rentable and increasing the value.

My P/r today is 23, but adding all expenses , including improvements made out of pocket plus interest on borrowed money and all closing costs and land transfer taxes, it is 11.

Through the years I went from subsidizing peoples’ rent to being a god , I respect my tenants enough to not to be one, and have always respected my renters, and I think they always knew I tried to keep costs down as to keep rent down.

I agree this is a better time to rent than own but you will not know for sure how your real estate investment has gone till you own it for 10 years , flipping never worked in Canada because closing costs, taxes , realtor fees and required vacancies during the flip eat up any profit, it is a longer term investment .

I now have the lifestyle my tenants had in 96′ , most of them now have two jobs , and condos, but I could not see that then and neither could they.
thank you

#86 Snowboid on 08.13.13 at 10:30 pm

Okanagan:

Price to rent – 24.4 (we worship our landlord)

Phoenix:

Price to rent – 10.2 (mother-in-law(s) had no say when we purchased)

#87 salmon_wilde on 08.13.13 at 10:40 pm

and this one:

It’s called ‘moral hazard’. And precisely the same thing has happened in Canada. Joelle Fricot of brokerage Euro Pacific Canada estimates that over half the outstanding mortgages are backed by Canada’s equivalent body, CMHC.

However, the two private sector insurers, Glenworth Financial Canada and AIG, receive 90% state backing. This means that the government underwrites, directly or indirectly, nearly all of the C$1.1trn (the Canadian and US dollars are roughly equal at the moment) market.

http://moneyweek.com/profit-as-canada-housing-bubble-pops-64000/

#88 Mister Obvious on 08.13.13 at 10:41 pm

#54 observer

“The Majority of the Renters are renters for a reason. They don’t have the cash to buy.”
—————————–

Not me. I could easily buy, even here in Vancouver. But to do so right now would be utter madness. Take another look that graph.

My money works for me now. Not the other way around as it was during my time of home ownership.

#89 Chickenlittle on 08.13.13 at 11:00 pm

One of my cousins goes with the room, eh? I’m already taken…

#90 Chickenlittle on 08.13.13 at 11:01 pm

I’m pretty sure they meant kitchen.

#91 mwerk on 08.13.13 at 11:09 pm

Garth, not sure if commercial RE has anything related to housing, but on my drive to work everyday in Calgary I have seen more and more FOR LEASE signs, even in good areas in downtown Calgary, some signs been there for quite a while.
As for houses around my NW community, one was listed for 420k a month ago, a week ago 410, yesterday 399… as the ad says “priced to sale”
Good Im renting as my P/R is 18.

#92 KG on 08.13.13 at 11:12 pm

those spell checks, I tell ya..

#93 Dr. Bunsen Honeydew on 08.13.13 at 11:13 pm

Ratio of 28 here in North Van. Thanks owner-god! Doesn’t include a chicken tho.

We had a hellova time trying to find a decent kid & dog friendly rental in Van proper that wasn’t (a) a fortune (b) a UBC student rats nest (c) replete with creepy denizens in a separate basement suite or (d) an offshore-owner special ie. permanent mothball aroma, good luck getting anything fixed, plus “oh BTW the place is for sale now sorry I’m bailing out PS there’s an open house this Sunday”.

Much better rental value north of the bridges.

#94 Smoking Man's Old Man on 08.13.13 at 11:14 pm

I was prepared to buy, until I saw that the rental comes with a chicken, doesn’t get any sweeter than that….

Oh, retired from work and retired from marriage, cause Garth always says to be diversified and balanced and being married didn’t meet those parameters.

#95 Freedom First on 08.13.13 at 11:20 pm

Before I learned to shut my mouth when talking face to face with the numbers challenged house horny, I showed this formula to someone I know who bought a house that was way over the top against this P/R formula in a bad way. His reply was “You’re still throwing your money away on rent”. Found out later he also had credit card debt. I don’t share my financial situation with anyone. Like Garth said on #34 “The poor people will hate you”. It’s true, and is the reason why many well off people say, and show nothing, while listening to the ignorant all around them.

I believe in balance, diversifying, income streams, cash flow, and being debt free. I started with 0$ at 17, through events beyond my control, with no $$ from anyone. Forced to learn instantly. Worked and took business at night school and studied everything else on my own on top of that. I am very grateful how things turned out. I watched people my age and how they were living. By the time I was 20, they looked like children to me. Just like the people on todays post by Garth who are arguing against the logic Garth has presented for free. It is heartening though to read the posts by people who have taken Garths advice, and write him to let him know how thankful they are. I applaud Garth for his ability to keep putting out his free blog, while listening to and answering the insane comments of the financially illiterate.

#96 young & foolish on 08.13.13 at 11:39 pm

When it comes to investment RE the calculation should be made as return on moneys invested to secure the property, minus expense (including the cost of rented money). Think positive cash flow.

That is your return on investment …. much like dividends, but at a higher tax rate.

#97 Carpe Diem on 08.13.13 at 11:47 pm

This is a tale of 2 families.

Family number 1 has two working parents that can’t seem to budget. They go on vacations, party plenty and if we were to look at their investment, they don’t have much. They purchased their current home 10 years ago for $300K but still have $250K mortgage. They placed their home on the market his week. Why? Because they bought a place that will equate in a $500 mortgage!! They are still waiting to sell their place. They also pay $7000 per year for a car they hope will be a classic someday.

Family number 2. Has one working parent and rents a Tudor-like manor on the same street. This family has NO DEBT and they rent at +21 PR ratio. Net worth increases per year by at least 50K per year. The family is also planning to move and rent a smaller but spacious home in a forest-like setting so the kids can enjoy that adventure! They will also save 7200K a year on rent. That’s equates to yearly RESPs for 3 kids! This family visited the place today and by tomorrow, will know if they get to move there (in 2 months) !

These days renting seems like the easy way out. Stupid can’t be cured and fools are everywhere!

I don’t try to help the fools. I tried a few times but when they are too stupid why bother? I think the dogs on this blog are not pretty bright …. an the Alpha keeps up a great fight!

We visited a new place to rent today. More jungle-like. Less grass more trees. This should be fun for my kids.

I like the tudor manor but moving one street away equates to 600 bucks less in rent.

In one year that equates to the RESPs for my 3 kids!

#98 Carpe Diem on 08.13.13 at 11:49 pm

Oops!

I meant:

I think the dogs on this blog are pretty bright …. and the Alpha keeps up a great fight!

#99 R on 08.14.13 at 12:00 am

Confused
If i have bought house At 300k years ago and Street value is 600k . If rent is $2500 or $3000 whatever Why in am calculating rent ratio at Street value. Asian owner in should bedrijf looking at my expenses VS rent isn’t it?

#100 FleetwoodBoy on 08.14.13 at 12:01 am

Just a quick update from my area of Surrey in Fleetwood. Within two streets of the SFH that I rent, around five or six houses have been constantly on the market for the last year or so – some have sold, others taken off the market, and others come on. Today there 12 for sale within 3 blocks. A couple have stuck for a while, with one dropping from $829k to $769k, but still for sale. Others have not had any price drops, or just the odd $5k or $10k. Nothing much is selling – just one has sold in the last six months.

Out of interest I have also been watching the prices of townhomes in Surrey and Langley as there are three mid-sized developments on my doorstep. Just looking at advertised prices in the papers, town homes of around 1,100 sq ft use to be on the market for around $330k. Over the last three months this has drifted towards $310k, and now today a new development is listing some at $290k. One sold in Langley recently for $265k according to a realtor’s newspaper ad. What is also interesting is that one of the developments near me, where I believe they are putting up around 120 townhomes has stopped building. Around 30 homes have gone up and I don’t think many have sold. Although roads and services are in on the rest of the site there has been no building work started – it’s been like this for around two months.

Also keeping an eye on a couple of areas in Langley. Walnut Grove now has a number of houses in the low to mid $500s (a year ago there was nothing much below $600k), and in Willoughby Heights, where there has been (and continues to be!) a frenzy of SFH building activity, there is a significant number of for sale signs on new builds and almost new homes. I think this area is going to be hit hard as 3,500 sq ft homes were going in the low $700k range….and now go for around $650k, but I’ve seen as low as $619k.

#101 raisemyrent on 08.14.13 at 12:05 am

a bit late to the party, but for people looking, try padmapper.com or get the app. cheers

p.s. the BC government said my rent could go up $48 and it only went up $15. I bet lunch in 2 years with a friend who doesn’t believe rent could ever come down; thinking about what I’m going to eat lol

#102 Not_So_Zombie on 08.14.13 at 12:05 am

I found a P/R ratio of 38 !!! no estimate, all the numbers are available.
http://www.realtor.ca/propertyDetails.aspx?propertyId=13235205&PidKey=424231006\
The realtor quote : ” good rental ($1800)”.
Is he mocking ?

#103 Vancouvermom on 08.14.13 at 12:18 am

Rent a 4 bedroom house near Oakridge.
LL has a 2.5 million mortgage

Rent $2200

P/R = 94.69

#104 Piccaso on 08.14.13 at 12:24 am

I rented two years for $700 a month in a hotel in Dallas.

I had to say no everyday when they wanted to change my towels and sheets, vacuum my floor and dust.

It came with 100 channels of satelite, wi-fi internet and a swimming pool.

I could also get a $20 blowjob whenever I wanted.

It was grrrrrrrreat !!!

#105 Donald Trump on 08.14.13 at 12:28 am

#77 AK on 08.13.13 at 10:01 pm

Night of the Living DEAD

—————————————————————-

Listen….don’t need to hear about yer wedding night….just the thought makes my perma coffed hair curl

#106 timmy on 08.14.13 at 12:32 am

Re #20 that’s because Norway doesn’t have a neo-con leader who is selling off their assets like our big oil puppet Harpo. Norway has set things up so their people get the profits from their resources instead of selling them off to the Chinese

#107 SomeCallmeTim... on 08.14.13 at 12:33 am

I wonder who gets here first? Garth’s housing correction or Jesus Christ? No slowdown in White Rock. Knockdowns and Malibu Barbie homes forever.

I see homes listed in WR that were on the market two years ago. — Garth

#108 Donald Trump on 08.14.13 at 12:33 am

#72 Dave on 08.13.13 at 9:47 pm

I thought for sure you would offer some insight on the Trump Tower fiasco in TO. It’s a bloody mess…

=====================================

No worries…we changed the name to ” Smoking Man’s Dumpster “

#109 Turd Durden on 08.14.13 at 12:43 am

Point Grey 4 bedroom tax assessed $1.5M renting for $1800. P/R 67. Granted it is bulldozer bait for this hood.

#110 BigEnglish on 08.14.13 at 1:19 am

Are we not fast approaching the bottom for the number of Sales? Can anyone remember the date?

#111 Dean Mason on 08.14.13 at 1:34 am

The worse possible thing for real estate but especially rental real estate is rising interest rates more specifically rising mortgage rates and higher government,corporate bond yields.

This brings much higher mortgage interest costs and much unwanted competition at the worse possible time for rental real estate because for example 4.15% to 4.85% provincial,corporate bond yields are a better investment option.

A $900,000 house that rents for $2,250 a month is only $27,000 a year.I did not here about utilities so I am assuming that it is paid by the tenant.Even if this is the case,the annual gross rent is only 3.00% a year.

Even if you want to do a cash on cash comparison with no mortgage,when you add up property taxes,repair and maintenance costs,insurance and the fact that they can easily rise by triple in about 25 years this is a crappy financial mess.It can easily cost 2.00% annually or $18,000 in the first year to just keep this house.

The fact that prices are falling or even stabilizing over the next decade leaves not much capital gain possibility anymore.The 7% -8% compounded annually effectively doubling houses every 9-10 years is gone.You can easily make $38,000 in annual interest or $3,167 a month from provincial bonds 25-27 year maturities.

If you use investment grade corporate bonds you can easily make $42,000 a year or $3,500 monthly interest.In this example,the $900,000 after all property taxes,insurance,maintenance,repairs leaves him with net rental income of $9,000 a year or $750 a month.This is a dismal 1.00% net annual return if nothing goes wrong.If he can’t raise the rent that 1.00% declines every year as all these taxes,costs increase.

I can see that a person that has many bonds,preferred shares,REIT’s etc. can easily get a $50,000 yearly income from these investments.It does not matter which way you look at it, a $750 a month return versus $3,167 or $3,500 or $4,167 a month is not even close.
Imagine if you have a huge mortgage,YIKES! your really finished.

#112 PermaBear on 08.14.13 at 1:38 am

Slovak Republic – also known as Slovakia.

#113 A Nightmare on Bay Street on 08.14.13 at 2:29 am

____________________________________
#55 Question on 08.13.13 at 8:12 pm

Great Blog!

Question 1: why do you not rent?
Question 2: why do you own multiple rental properties?

Thanks in advance for answering.

1. I do.
2. I don’t. — Garth
___________________________________

lololol …

… lololol

… lollolol … jeez …

#55, you are new here, right ? did you really tought you can corner Garth on simple questions like that ?

have fun with your mortgages in 2014 …

#114 TO and GTA Sales and stats on 08.14.13 at 3:04 am

TO and GTA Stats and Sales 2013/08/13
http://recharts.blogspot.ca/2013/08/416905-condo-sales-and-stats-2013-08-13.html
http://recharts.blogspot.ca/2013/08/905-sfh-sales-and-stats-2013-08-13.html
http://recharts.blogspot.ca/2013/08/416-sfh-sales-and-stats-2013-08-13.html

#115 Smartalox on 08.14.13 at 3:07 am

Funny to see the renters listing price to rent ratios of 20 or higher, while the owners goose their numbers to justify owning. But I guess that’s because renters use market prices to calculate their ratios (correctly) while owners compare the price they paid at some time in the past, to the rent they dream they would get in the future.

Still no reports from any landlords, to get price to rent ratios from their perspective!

#116 dadanson on 08.14.13 at 3:44 am

#22 ILoveCharts on 08.13.13 at 6:35 pm
Let’s take a closer look.
Rent scenario:
$1300 is expense (out the door to never be seen again.)
Anything you make and save above that can be invested in other areas. You can also continue to invest the amount that you would otherwise make as a downpayment.

You also haven’t factored in the very real chance that the owner of a strata unit (condo or T/H) will face Special Assessments, often in the many thousands of dollars. The strata fees don’t cover anything beyond regular repairs (and sometimes not even that). This has happened to me, and to friends and relatives. Not to mention the lack of liquidity, lack of flexibility if you want to move, responsibility for repairs, etc etc. With renting, there are no surprises. If you’re not happy, you move. That’s worth a lot to me too. I’m a happy renter in Van these days (former owner). BTW, for all those Vancouver haters, just have to say that it has been a truly spectacular summer here. So enjoy your mosquitos, storms and early signs of impending winter :)

#117 Zoronqueen on 08.14.13 at 3:57 am

Rental in oakridge, Vancouver $1650, old 1960’s rental complex

Selling price– http://bchomez.com/206-6076-tisdall-st-vancouver-apartment-condo-for-sale-v1019966/

319K-condo fees however are not included….

the Rent ratio would be 15.1

What am I missing here???

#118 JWD on 08.14.13 at 3:59 am

Vancouver is the gateway to North America. Rich chinese that have made millions selling their flats in Hong Kong and now China view Vancouver as a safe and solid investment. Also as a future second home for their children and their children. Investment might be the wrong word but I believe they just want to diversify their larger holdings of cash and get it offshore to somewhere they or their kids can live one day.

Have a look at Hong Kong and mainland prices in the last decade. It makes Vancouver look very cheap. These people are not stupid. How else can anyone explain it?

If Hong Kong and Mainland China have a real estate crash, it would pretty much guarantee a huge correction in Vancouver.

#119 JWD on 08.14.13 at 4:18 am

#15 Gildan

A perfect example of a Chinese owner. Ratio of a whopping 75!

Why would any sane person buy in Vancouver or Toronto to just rent out their house?? I can tell you it’s simply HAM putting cash somewhere for future generations. If anyone has another reason, please share.

You can buy a condo in Vegas for 150k and rent it out for about 1200-1500.

#120 Frustrated Kiwi on 08.14.13 at 6:33 am

#59 The real Kip
The “everyone wants to live here” argument fails to explain the gap between rents and owning. Clearly the owners of these rental properties are speculating on future capital gains to pay for their current low return on investment (or they are idiots who haven’t noticed they are getting a really bad deal). NZ is third in the list of shame behind Norway and Canada, and I can assure you lots of both types of speculators here.

#70 RE Observer: You can’t use the price you paid (unless it was recent), it has to be today’s market price! If the ratio is over 15-20 then you should strongly consider selling and investing the money as you should get a better return.

#121 renting sucks on 08.14.13 at 7:05 am

ya man lets rent, liquid assets is the best, the housing crash will correct home prices bla bla bla…all you guys and gals get a life and buy a home get some equity going in your lives. There will be no crash, home prices will be what they are. Owning a home is the way to live life. If you can’t afford to own then STFU.

#122 Mike Leblond on 08.14.13 at 7:10 am

Apologies to all if this was posted already:

“Trump Tower Toronto: Project At Risk As Investors Fail To Pay Up”

http://www.huffingtonpost.ca/2013/08/13/trump-tower-toronto_n_3745382.html

“…Real estate investors in Toronto are getting nervous about the market’s future prospects, but few of them are as nervous as the investors behind the Donald Trump-branded hotel-condo tower that opened last year.”

“Here’s an idea of how badly the glitzy project has been doing: Investors buying units in the building for the most part can’t even get a mortgage to cover what they owe…..”

#123 Dr. Bunsen Honeydew on 08.14.13 at 7:17 am

Hey Picssso

So ya lived in a motel with $20 skanky hos for neighbors?

Can I get your autograph?

#124 Potato on 08.14.13 at 7:28 am

I prefer to use the monthly price to rent: saves a calculation step (as you just look up the comparison figures anyway). Just price over monthly rent (after all those are the figures you usually get — not annualized rent). For comparison Garth’s break-even 15 becomes 180, and his crazy landlord 21 becomes 250.

So I’m at about 250 here in Toronto. Interestingly, the landlords have been like clockwork with their ~3% increases… yet this year out of the blue they offered a 0% increase.

#125 B on 08.14.13 at 7:32 am

Renting in Ottawa in the nicest neighborhood in town, at a (rough) PE ratio of 23. I get a detached house for a monthly cost half of what it would cost for a cardboard townhouse in the suburbs or a shoebox sized condo in the city. If I were to buy the same house I estimate it would take 6 years of steady price appreciation before I break even with the money I save every month – betting (hoping?) that won’t happen.

#126 T.O. Bubble Boy on 08.14.13 at 7:51 am

@ #118 renting sucks

Have fun selling and renting in retirement because you haven’t saved a dime, or being forced to sell when you lose your job and have no money.

#127 T.O. Bubble Boy on 08.14.13 at 8:02 am

@ #82 ILoveCharts on 08.13.13 at 10:24 pm

Either way, you should minimize the waste so you have more money to save and invest.

I don’t care if the P/R ratio is 200, I don’t see a reason for anyone to pay $3000/month unless they are very wealthy (which they may be.)
—————————————

The average detached SFH in Toronto is about $800k.

With a 20% down / 25-yr mortgage @ 3%, the monthly payment on that $640k mortgage is….

you guessed it: $3000/month (plus property tax, other costs)

I also posted earlier that a $1.1M detached house was listed last week for $3500/month.

So, you’re basically saying that every SFH owner or renter in Toronto is rich or stupid.
(and, you may be right)

I’m even more confused by the empty nesters that could have $1M+ in the bank by selling, but hang on to their giant homes with 3-4 empty bedrooms and a bunch of maintenance that they have no interest in doing.

#128 Aussie Reader on 08.14.13 at 8:08 am

Here in Australia, we have a unique tax system which rewards investors for losing money when their rents don’t cover the mortgage – it’s called negative gearing. The loss on the investment is able to be deducted from their whole taxable income, not just income derived from the property. This system encourages investors to buy loss-making properties specifically to pay less tax, and the more one earns, the more one can benefit from negative gearing.

This has had the effect of pushing up prices higher with subsidised investors outbidding would-be home-buyers every time. (Well, almost every time, because now that the laws on foreign investment have been relaxed, we have a lot of HAM here too.)

Negative gearing has been discussed a lot in property forums and when the mainstream newspaper websites allowed comments on their real estate pages, there used to be a lot of heated debate, but now they have largely deactivated comments at the end of their real estate advertisements, sorry, should have said, articles.

The thing is, no politician from any party will even whisper the words “negative gearing” for fear of scaring off investors, offending vested interests or popping the housing bubble. It is simply a taboo subject.

So while it is cheaper to rent here, investors are handsomely rewarded, not only by their tax concessions, but even if they still make a loss, the capital gain at the end is more than compensated for, and negative gearing ensures that property only goes up and up and up.

#129 renting sucks on 08.14.13 at 8:10 am

@ #123

Keep on renting and paying down someone elses property-that’s sure going to pay off at the end (pun intended). You need to own a place to live. I don’t like condos or even homes with a road maintenance fee. The home should be with the expense of your mortgage per month and property tax thats it. I don’t like renting anything not even the water tank or the HRV system- so buy them too. At the end of the month the payments should be transparent. Mortgage, property tax and utilities. So again there will be no crash everything will remain as is and yes interest rates will rise so need to be frugal, prudent and budget. Keep on renting and renting and renting – make the property manager/owner richer and richer.

Nobody ‘needs to own a place to live.’ This is a NA fetish, which just wiped $6 trillion from the US middle class. — Garth

#130 Nukeit on 08.14.13 at 8:16 am

At City Place Toronto Community Housing put up a new tower along with the condos. The condos are going for $400k plus fees while the 2 bedroom rentals were in the $1,100 range. Using Garth`s calculation those are great rents. 26 plus ratio.

#131 NorthOf49 on 08.14.13 at 8:22 am

Ancaster (the tony part of Hamilton)

House value: $619K (confirmed as LL listed last week. House needs $100K in renos and no A/C – FAIL!)

Rent: $1,500 (no increases in 5 years)

P/R ratio: 34.4

For the renter critics, FWIW, I sent my kid to two synchro swimming camps this summer, one in California, one in Toronto. US & Canada Olympic athletes and coaches at both, paid cash, no debts, love being liquid.

#132 Piccaso on 08.14.13 at 8:33 am

#120 Dr. Bunsen Honeydew

Well the hoes weren’t really neighbours, I lived on Hollywood ave overlooking the pool. The hoes and methheads were on the backside. I was making 130K a year there and you couldn’t get me to move, I loved it!

Most of the people were just down on their luck. A lot of them had lost their homes during the U.S. real estate crash.

But they’d still have a cold beer for ya during those 3 months of 100F+ days and a smile on their face.

#133 Rapier Wit on 08.14.13 at 8:33 am

So, is this advice pretty much out to lunch? The advisor advises that RE will always rise in value….

http://business.financialpost.com/2013/08/13/ask-us-can-i-buy-a-house-with-zero-down/

An advisor who sanctions 100% financing in Calgary. Unbelievable. — Garth

#134 2CentCdn on 08.14.13 at 8:38 am

Looks like lots and lots of LL’s renting cheap with fingers crossed for a miracle. I’m sure most figure “Yah I’m subsidizing the cost of the place but when I sell (for a fortune) … I’ll get it all back and then some”. Well …. you ain’t gunna sell for a fortune. It’s over. And has been for a year or so. Right now ….. the price you can get for your place is going down every day (on all but a few streets in Canada). So the big question is …. how long can (or will) these owners (investors???) hang on to their money sucking places before they eat sh!t and unload them. I read that many think this “down cycle” will only last a few months. Lol. The factors that caused this mess were the perfect storm for a real estate price explosion …… house horny, over entitled 20 and 30 somethings who didn’t experience real estate in the the early 90’s, messed up global financial conditions allowing under 3% mortgage money, a nervous gov’t (how will we get voted back in if the economy crashes on our watch? … make the voters happy …. everyone gets a house now!) that opened up CHMC rules and dollars and therefore …. 35 and 40 yr am’s, banks do liar loan applications and lend bucket loads of money to anybody (risk free lending! what a gift!). These conditions will never happen again …. and are already reversing. We, the industrialized countries are only getting poorer .. and there is no sign in sight that that will change soon. People still holding properties in Canada for investor purposes are in for a very long money sucking wait. Now we all need a place to live, and there is a price for a house that makes owning (even with a reasonably sized mortgage) the best alternative. But not at what houses have cost in Canada the last 3 – 5 years.

#135 CrowdedElevatorfartz on 08.14.13 at 8:49 am

@#125 Aussie Reader

“…we have a unique tax system which rewards investors for losing money when their rents don’t cover the mortgage – it’s called negative gearing…..”
++++++++++++++++++++++++++++++++++++

Wow! Crazy!
I wonder when the politicians will be forced to “stick the bubble with a pin”?

#136 CrowdedElevatorfartz on 08.14.13 at 9:00 am

@#83 Smoking man
“…To my 18 fans, bit of a drought coming up. HANG IN, don’t go away, need a few focused weeks…..”
+++++++++++++++++++++++++++++++++++

Sentenced to several weeks of community service were we? Naughty boy.
Just have a few words of advice for ya before ya go in “Soap on a rope”……..

#137 TnT on 08.14.13 at 9:21 am

#118 renting sucks

LoL – weak sauce Troll….

#138 Rational Optimist on 08.14.13 at 9:26 am

Here is an interesting article from Bloomberg about gold’s crummy year: http://www.bloomberg.com/news/2013-08-13/losing-faith-in-gold-from-ghana-to-vancouver-proves-rout.html

It mentions the hit to a few backwaters places, included Ghana, Vancouver, and Toronto. We’re at least in good company.

This blog told the metal-lickers for two years to rebalance down, and issued an outright ‘Sell!’ at $1,900 an ounce. Nobody listened. Now they just hate me. — Garth

#139 Gilden on 08.14.13 at 9:28 am

@ #116 JWD- I think you are right they bought initially as some form of an investment, whether for their children or otherwise. Although even these foreign investors are putting their homes up for sale. An economist who specialized in the Asian economy once said, they don’t want to buy in a dropping market and they do not want to lose money on their investment, so will try and sell and let me tell you, I have looked at many homes and condos for rent in Vancouver and at least 50% of them are Asian owned, so they are renting them out, maybe some didn’t initially think they would be but they are now.

#140 Toronto_CA on 08.14.13 at 9:32 am

#130 Rapier Wit on 08.14.13 at 8:33 am

Thanks for linking that article. What a crock of crap. I had very little respect for the Financial Post but now that tiny amount has been shredded. Is their no integrity left in journalism that they would post such garbage? I love how no one is fooled by his awful math and one commentor points out the hypocrisy in his own analysis.

#141 North Yorker on 08.14.13 at 9:35 am

Landlord bought my rental for $355k. I pay $1550 per month. So that equates to 19 or so. It’s a condo so I didn’t include any maintenance fees in the calculation; which are about $400/month.

#142 john on 08.14.13 at 9:39 am

Previous rental in Ottawa was probably a $900k house (most of the value in the lot – big lot in a trendy area, house wasn’t that nice) for $2,600 a month. So a ratio of about 30x. Decided it wasn’t worth spending $2,600 a month for a crummy house in a nice area. Now renting about a ~$450k house in the rural suburbs for $1,850 (a still pretty good ratio of about 20x)

#143 Minnie on 08.14.13 at 9:41 am

I was at an open house last weekend in New West. It’s a brand new rebuilt house for total 3 levels. Asking price for 1.4 million. Then, there are 2 rental units on the cold basement level. What’s wrong here, I thought rich people who can afford million dollars house don’t need tenants?

#144 HFXRentVulture on 08.14.13 at 9:41 am

Looking to move into the city of Halifax from our rental in the exurbs, I watched the stalling resell market in areas we considered moving to. I found a 2BR house that had been reduced in price three times over the 6 months it was on the market. I approached the ex-pat owner and offered to rent – he was relieved as he had just received yet another low-ball offer and was pissed. I negotiated a few improvements, a three-month “closing”, and below-market rent.

Current P/R Ratio is about 20 and I’ve calculated that I save about $950 per month rent vs. buy. I pay rent to him, $128 to the power company, and $25 for tenant’s insurance – that’s it. He covers maintenance, repairs, snow removal, appliance upgrades, tax, mortgage interest, his own insurance, costs of a shared private road, and the risks of a depreciating 100-year-old asset. Not sure why everyone doesn’t rent.

Although the perception is that renters rent because they lack the cash to buy (#54 Observer), truth is many renters we meet are more like us: debt-free, 40-something professionals with a few hundred grand in the bank. Considering the large percentage of high-ratio mortgages and massive HELOCs our friends carry, I would argue it’s the average buyers who have no money.

In the 10 years my wife and I have been married, our family circumstances and needs changed in major ways twice (for the better). In both cases, we had the flexibility, mobility, and liquidity to leave one rental and find another within a few weeks. Risk? That the landlord, what….kicks you out, sells the place and you’re homeless? It’s never happened to me in the 20+ years I’ve been renting. Less likely to happen as homes become harder to sell.

#145 Edmontonian on 08.14.13 at 10:02 am

In Edmonton here, there are about 2850 newer apartment/condos for rent, and over 2900 houses for rent! In addition there is a huge 164 suite hbitat project, and 4 highrises over 30 feet are being started, in addition to block and blocks of townhouses and houses almost ready for owners to move in.

Boardwalk properties alone in Edmonton posted over 17 different buildings with vacancies just this morning, and I have seen two people love out of my highrise in the evening unknown to the rental office yet… LOL

Rents have to come down…. there’s too much supply!

#146 Grantmi on 08.14.13 at 10:03 am

#105 SomeCallmeTim… on 08.14.13 at 12:33 am

I wonder who gets here first? Garth’s housing correction or Jesus Christ? No slowdown in White Rock. Knockdowns and Malibu Barbie homes forever.

I see homes listed in WR that were on the market two years ago. — Garth

You don’t know what you,re talking about Tim. Prices have drop like a stone in wr/ss from a year a go. And I’m sure if it wasn,t for the fact the FVRB board lumps the little patch of WR in with South Surrey numbers…WR numbers would be worst.

Are you a RE agent???

http://www.fvreb.bc.ca/statistics/Package%20201307.pdf

#147 Infused with Opiates on 08.14.13 at 10:04 am

104 Tim – yeah Norway really knows how to do it…..

http://www.bloomberg.com/news/2013-03-05/norway-cracks-down-on-mortgage-risk-to-fight-housing-bubble.html

http://www.nytimes.com/2009/05/14/business/global/14frugal.html?_r=0

#148 Westernman on 08.14.13 at 10:09 am

Picasso @ # 129
Yep, living in some hotel surrounded by whores and dopeheads sure sounds appealing all right…
And as an added bonus 100+ heat…

#149 Pounding sand in Peachland on 08.14.13 at 10:13 am

Worse (and likely), a correction will wipe out all equity gains. — Garth You’re “banking” on that correction aren’t you

Ignoring risk is unwise. — Garth

#150 White Rock on 08.14.13 at 10:21 am

I Rent a remodeled condo in White Rock BC for $1300
For 1000 sft the owner can’t sell it for what they paid.
There must be 7 or 8 forsale on my street that have been up for a while.

#151 renting sucks on 08.14.13 at 10:25 am

Most people buy homes that are way too big. Like a lot of people I know have one child but for some reason they need 2000 plus square feet home. Oh and it has to be in Oakville or Toronto or some other trendy place and they pay way too much for the home to top it all off. Then there’s all these property virgins who buy condos whether high rise or town house where they pay up to $300,000 and more for no property and no land and be responsible for monthly maintenance fees ranging average $200 – $500 per month oh and you can’t forget property tax. And all this being said and I didn’t even touch base on the fact that these people over budgeted – hence they barely make ends meet and the end of the month. So they rack up the credit cards. So the bottom line is do not screw up on this purchase in this life time. You could screw up on maybe the type of vehicle you buy or maybe the lazy boy chair you bought but not a house. This is why all these people say renting is great – its b/c they made the wrong purchase and got screwed at the end and now are pro-rent. Renting is throwing your money away each month. Its not wise. You are not building equity.

#152 Dr. Bunsen Honeydew on 08.14.13 at 10:31 am

Gee, 170 or so comments and most from renters who write eloquently about how happy they are and how much money they are banking. Oh and couple of comments by likely a desperate realtor spewing tired old catchphrases.

Go figure.

#153 Dr. Bunsen Honeydew on 08.14.13 at 10:32 am

140 that is

#154 John Prine on 08.14.13 at 10:42 am

Does anybody else just skip past Smoking Man’s posts without reading them?

#155 overskooled1 on 08.14.13 at 10:47 am

Sold our house in midtown Toronto just over a year ago. Been renting a great house in midtown Toronto since we closed. House has a market value of roughly $1.4 to $1.5 million. Rent is just north of $5,000 per month. Price to rent ratio of roughly 22 to 24.

We had planned to buy another house, likely with a “2” as the starting number, but I simply can’t get my head around the lack of value I’m seeing in houses with such stratospheric prices. When coupling this sentiment with Garth’s statistical analysis, other anecdotal information (i.e. seeing the over-priced houses we’ve looked at sit on the market for long stretches before incurring, often, multiple price drops), and a rising rate environment, I’m in no rush to buy.

Our large down-payment is currently conservatively invested (and growing as a result of salaries that far exceed our living costs), but still throwing off enough cash to pay roughly half our rental cost.

Thanks for all your unsolicited help and advice Garth.

#156 Canadian Watchdog on 08.14.13 at 10:53 am

#33 TurnerNation

My bet is U.S. and Canadian bond yields will be lower in six months and make new lows within eighteen months. This chart shows a rolling yield cycle that looks poised to retreat lower over the next few quarters. Alas, we're now seeing a stagflation-like effect, only it's rising yields and declining housing data.

The Fed has to print more. Period.

Actually the Fed will be printing less, starting next month. Tapering is set to commence. — Garth

#157 Sweet Black & Sugar Buns on 08.14.13 at 10:54 am

West Vancouver with a stellar 180 degree view of the city and Gulf Islands with the occasional bear wandering through my yard. P/R = 112. Lots of cash going into savings and investments. The good life.

#158 416 er on 08.14.13 at 10:58 am

We own our home out right. We bought our first home in the mid 90s for a song. I love my house and neighborhood, and the two kids are very happy.Never want to move etc…we also have a large portfolio. Having said that, renting is cool. Renting is not throwing money away. You live there with your family and your stuff. How is that throwing money away? You have spare time when uou rent. Learn how to invest your money, travel, go out and have fun. Thats life.

#159 Screwed on 08.14.13 at 10:59 am

Nobody ‘needs to own a place to live.’ This is a NA fetish, which just wiped $6 trillion from the US middle class. — Garth

$6 trillion were only created in the first place from equity in the walls. That evaporated again when it crashed. So, was the wealth really there? Same as in Canada where most middle class wealth is in the walls. Good luck to all trying to retain that and offloading the walls to a greater fool.

Owning a house is not a privilege but if owning a house turns into a sucker’s game for the 99% so that the 1% can flip the papers, then we’re back to the stone ages quickly.

The middle class has eroded and is eroding further because our governments and large corporations have outsourced the jobs that supported the middle class. Those jobs aren’t coming back and the credit game that started right around the same time to keep the illusion of a wealthy middle class afloat has come to an end as well.

In the meantime, the middle class has been sucked dry and tossed to the curb and is joining the ranks of the lower class. Middle class men and women fighting for low paying jobs and working two jobs at 29.5 hours (part time, no bennies) just to keep the lights on. I’m referring to the private sector of course. The public sector continues to live well until the purse is empty and governments are forced to either go BK (Detroit) or implement austerity (just about everywhere else).

Why don’t you tell it like it is?

Because it isn’t. — Garth

#160 happity on 08.14.13 at 11:07 am

Mortgage Activity Plunges 50% To April 2011 Levels.

So how does that USA economic renaissance look nowadays?

But hey, the real estate market is not really an indicator of a sound economy by it self especially given the state of the rest of the financial system…

#161 Screwed on 08.14.13 at 11:08 am

#153 The Fed has to print more. Period. – Canadian Watchdog

Actually the Fed will be printing less, starting next month. Tapering is set to commence. — Garth

They can save the Dollar or they can save the economy. They cannot save both.

New mortgage apps in the US dropped 50% over the last 4 months.

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/08/20130814_MBA2.jpg

Check out the chart. Ugly.

The decline is analog to the rise in mortgage rates. The housing recovery meme is dead. There is nothing else left.

They can turn off the tap and reduce buying from 85 to 65 billion but it will only exacerbate the trend.

Canada’s economy is limping and will soon be crawling before nearly standing still. The private sector will start to cut jobs in ernest. Something we haven’t seen here for a couple decades.

The Fed will, of course, cut stimulus spending as it determines the economy is strong enough to absorb the change. I believe it has better numbers (the government) than you (the Zero guy). More importantly, check this out: http://reut.rs/15ElWQd — Garth

#162 Siva on 08.14.13 at 11:11 am

#138 North Yorker

Ratio is 25.72

#163 Mister Obvious on 08.14.13 at 11:18 am

#118 and #126

Here’s a better handle for you. (A tad long perhaps but it would greatly increase your credibility)

“Renting Possibly Sucks When Employment Is Reasonably High, Housing Is Somewhere Near Affordable And Interest Rates Are Stable At Their Historical Average Values”

Feel free to use it.

#164 rosie "moving forward" in the knowledge that, "this won't end well" on 08.14.13 at 11:21 am

Rapier wit

You missed this little nugget of financial genius. He works for the Post, probably has no clients, at least I hope not. http://business.financialpost.com/2013/08/06/dont-try-to-time-the-real-estate-market/

#165 Screwed on 08.14.13 at 11:21 am

Canada’s 10yr over 3% today
Now things will start to get interesting

Thank the new bond auction. Anticipated. — Garth

#166 daystar on 08.14.13 at 11:21 am

#109 Dean Mason on 08.14.13 at 1:34 am

Good morning, Dean. When we speak of real estate, what we are talking about here is the power of leverage and when rates rise, that power is minimized or can work against you. Real estate just doesn’t stack up to other investments that are less rate sensitive, its as simple as that.

What’s magnified the problem with RE is that we’ve had rock bottom mortgage rates for so long (4.5 years) and for the vast majority of this duration with such loose lending standards, that valuations have hit an unsustainable peak that is sure to be exposed as rates rise and affordability erodes, thus crashing values leading to capital losses. Real Estate is a real dog with fleas right now considering escalating debt service costs and the ugly shadow of capital losses buying into these valuations. Extreme leverage only compounds the loss as some will unfortunately find out and extreme leverage should really be called what it is. Gambling.

Really, extreme leverage shouldn’t have been allowed by government but F & H caved to lobbyists (or were lobbyists themselves before they took power, which is much more accurate specifically with Harper, how does one spell conflict of interest) and with government participating in 100% insuring extreme leverage (little to no money down over 25 to 40 year amortizations) for 7 years running, we get what we have today, an ugly housing bubble that has nowhere to go now but deflate and deflation is an ugly thing for economies as Canadians will soon find out.

Its not as though one can give up on RE entirely, there will still be deals out there here and there but the overall market its cooked. Not much to do now, but watch, learn and exercise patience through renting.

Garth makes a real strong point today. There are price to rent/income fundamentals that can’t be ignored here. Much as RE is an emotional asset class, women wanting to nest and all, the shiny skinny of it is that until price to rent/income ratios correct, it makes more sense to rent. Even paid shills are found slipping this out in conversation around the water cooler. That takes some discipline to rent until dark storms pass, but discipline pays off in this world. Go with the fundamentals, kids. Your future will be all the brighter for it.

#167 newbie on 08.14.13 at 11:22 am

What are these 7% returns you speak off all the time? Just started reading your blog.

Then shut up and keep reading. — Garth

#168 Canadian Watchdog on 08.14.13 at 11:25 am

Actually the Fed will be printing less, starting next month. Tapering is set to commence. — Garth

We've already heard that tune played before.

FOMC: March 16, 2010

"Participants were also reassured by the absence of any signs of renewed strains in financial market functioning as a consequence of the Federal Reserve's winding down of its special liquidity facilities."

FOMC: November 3, 2010

"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."

Thinking in quarters, not months, helps.

Try weeks. — Garth

#169 calgaryPhantom on 08.14.13 at 11:35 am

In past one month there have been 4 new office towers announced in calgary downtown. Telus and manulife are two of the companies that announced such a plan.

If there was a correction on the horizon, why wouldn’t they wait. They must be seeing something, don’t you think?
After all these are companies that have been profitable years over years, and i am assuming they know something about the world of business.

Don’t confuse residential and commercial real estate. — Garth

#170 happity on 08.14.13 at 12:05 pm

Gold and Silver are making an interesting rise while s&p 500 chops sideways with the accompaniment of hindenberg omens.

So when garth bashes gold and praises USA stocks like he did a short while ago it might just be an indicator to do the opposite

Losing faith in gold. — Garth

#171 Donald Trump on 08.14.13 at 12:11 pm

In the meantime, the middle class has been sucked dry and tossed to the curb and is joining the ranks of the lower class. Middle class men and women fighting for low paying jobs and working two jobs at 29.5 hours (part time, no bennies) just to keep the lights on. I’m referring to the private sector of course. The public sector continues to live well until the purse is empty and governments are forced to either go BK (Detroit) or implement austerity (just about everywhere else).

Why don’t you tell it like it is?

Because it isn’t. — Garth
==================================

Sounds like Bill Clinton being interrogated…what “is” is?

The Public Sector wages used to be tied to the old bromide of can the taxpayers afford it ?

If they did a hissy fit, and went on strike, you often didn’t notice (like Doctors strikes and the death rate goes down)

Nowadays, if the Golden Goose is worn out…doesn’t matter. What I see happening is this newer culture developing. More empire building than normal, and the politicians, especially at the Local Gov’t level, co-opted to keep certain personnel at any cost, and get rid of others. They will be deemed as” indispensable”, when in fact a properly run City should have no problem with transition.

Then it becomes an incestuous relationship, whereby either one’s personal due diligence and/or some good reporting exposes all the “beyond the inflation rate “salary increases, benefits, expense accounts.

No City has ever learned from Detroit, it’ll simply happen over and over like a set of dominos.

#172 Kent on 08.14.13 at 12:23 pm

Once again, if you live in an area where there are almost no houses to rent (eg: Essex county) make sure you get a long term lease, or else, you can be out on your ass after 60 days. We’ve been trying to get our landlord to do another lease with us and he hasn’t made a decision after two months. We’ve been renting here and in BC for the past ten years, and you really do start missing owning a house after about two.

#173 Old Man on 08.14.13 at 12:29 pm

The Windsor Star has a reporter in Detroit for a week doing an investigative day by day report on the state of the city. It is a must read with photos and guess what? The money is coming in to rebuild, renovate, and peeps in the suburbs are selling out to move into the core for the first time in decades.

#174 Grooby on 08.14.13 at 12:37 pm

FWIW, renting in Calgary at 2,200/mo, for a ~620k place (though it does need about 30k of reno’s). 23.5 ratio. Landlord also recently bought the place, not a long term hold, so they’re definitely subsidizing us.

There are lots of listings in Calgary for rent, of all sizes (we got a 4 bedroom rather quickly in a good neighbourhood). Not sure why people think the listings are so tight, and that ‘rent = mortgage’. It’s not even close, especially when landlords tried to gouge renters for the month or so after the flood. Thankfully, most of those fools have had to drop their prices since, as their listings languished (the ‘updated listing’ on rentfaster.ca).

As for people not getting decent returns. JNK on the NYSE (corporate bonds) has a yield of 6.44%. And that’s on the bond side of my portfolio. 7+% real return across a whole diversified portfolio is very achievable, based upon Garth’s advice and others. Not sure why people find this so difficult…?

#175 Albert on 08.14.13 at 12:38 pm

is that Fraser Heights ?

#176 Bryn on 08.14.13 at 1:06 pm

Our price:rent ratio here is over 29… I definitely have a good deal! Yard work is taken care of (though I have space to do whatever gardening I might want – should have a bumper crop of tomatoes this year)… Tons of space for myself and the family which is crucial since both of us work from the home. I can’t imagine being all tangled up in each other’s business (literally) if we were trying to squeeze in to a tiny townhouse.

#177 Screwed on 08.14.13 at 1:10 pm

The Fed will, of course, cut stimulus spending as it determines the economy is strong enough to absorb the change. I believe it has better numbers (the government) than you (the Zero guy). More importantly, check this out: http://reut.rs/15ElWQd — Garth

Our points of view differ because you attribute the rise in rates due to a stronger and rebounding economy. My view is that rates are rising because the Fed is saving the Dollar and their propaganda stats and numbers will sell the US economy better than it is.

Examples like your link above are in my view lipstick on a pig. Americans have had no choice but to reduce leverage because the rug was pulled from under their feet and access to new credit got very difficult. That can be spun as positive, I guess?

Keeping in mind that all that rebound and ‘recovery’ was brought courtesy of the Fed by continued cheap lending and massive liquidity injections. The verdict on the success of QE is out and it’s not positive. 16 trillion later and GDP is still flat.

Is the American economy truly standing on its own two feet at this point for the Fed to take away the stimulus already? A reduction from 85 to 65 billion is over 20% in monthly fresh capital. They cite a shrinking deficit can make it happen.

I’ve always pretended to be an American living in Canada since 2008. Acted and behaved like the American consumer would behave during the credit crisis. That put me 4 years ahead of the game.

Doesn’t change the fact that we’re all passengers on a slow space train with no escape and moving towards a black hole ever closer. It’s a slow and painful death of our quality of life and status quo as we have known to love and enjoy it.

QE was intended to rescue a troubled economy and reignite job growth and confidence. It worked. Sorry this infringes on your funk. — Garth

#178 CalgaryRocks on 08.14.13 at 1:32 pm

#112 Smartalox on 08.14.13 at 3:07 am
Funny to see the renters listing price to rent ratios of 20 or higher, while the owners goose their numbers to justify owning. But I guess that’s because renters use market prices to calculate their ratios (correctly) while owners compare the price they paid at some time in the past, to the rent they dream they would get in the future.

In my experience this ratio is only relevant if there is no price appreciation. Even when we bought our first house in 2004 in Calgary, it would have been cheaper to rent. But then the prices exploded and rents with them (no rent controls in Calgary) so we were glad to have a sub 1K mortgage on a SFH.

It’s very rare that this ration will be within the low range unless there is a credit crisis (like in the US) in which case it wouldn’t help since there would be no access to credit anyways.

This spring we sold our house in Calgary (which we had paid off) and yes it’s currently nice to be renting and act like a bunch of nomads. We rent a small apt for 750$ in Montreal on what is called ‘Le Plateau’. Plus a parking spot not too far from here. We mostly BIXI / walk / subway wherever we need to go. Very urban of us. LOL

Funny thing though. Why is the rent only 750$? Because we’re subletting it short term from someone that doesn’t want to leave their lease while they are out of town. Should they do so, the LL would be able to rent the place to someone new, for around 1200$+ (market price).

I doubt that originally these archaic rent control laws were meant to protect people like us from paying too much rent but we’ll take it while it lasts.

#179 CalgaryRocks on 08.14.13 at 1:36 pm

As for people not getting decent returns. JNK on the NYSE (corporate bonds) has a yield of 6.44%. And that’s on the bond side of my portfolio. 7+% real return across a whole diversified portfolio is very achievable, based upon Garth’s advice and others. Not sure why people find this so difficult…?

Yes, why do people find it so difficult to dump their life savings into something that’s called ‘JNK’ on the NYSE. Beats me.

Haha, I heard that you can get 10% on ‘GRBG’ trading on the NASDAQ.

#180 Mike on 08.14.13 at 1:41 pm

#167 happity on 08.14.13 at 12:05 pm
Gold and Silver are making an interesting rise while s&p 500 chops sideways with the accompaniment of hindenberg omens.

So when garth bashes gold and praises USA stocks like he did a short while ago it might just be an indicator to do the opposite
———————————————–

He has been bearish on gold since before it even hit a peak of $1900 an ounce. If you follow this blog consistently, then your comment is plain dumb.

#181 4 AM Sunrise on 08.14.13 at 1:47 pm

From what I’ve seen so far, West Vancouver generally has the highest P/R ratios (mid-30’s, 83, 112!). Yay! We won! Let’s all meet at Dundarave and hit the beach to celebrate.

For all those who say that renting is wasting money….I mean, money is emotional. When somebody says, “renting sucks”, that’s the result of an aggregation of a person’s beliefs, cultural influences, personal experiences and overheard anecdotes. Everybody’s life experience is different, so this argument will never die.

Real estate is emotional. It is the one of the few tangible, well-known assets that can appreciate OR depreciate over time, depending on when you got in, and these market gyrations are what get everybody so fired up. I remember some family friends who owned a condo in Whistler in the mid-90’s. Every time we spoke to them over the phone, we could hear their long faces and the cloud of despair hanging over them. Their investment portfolio was tied up in that one condo. I sure hope they sold in 2010.

Everybody knows cars depreciate, so nobody gets worked up about them. Everybody knows dogs depreciate – except for the one family that tried to sell us one for more than the cost of a puppy, on grounds that they’d spent money neutering him and caring for him during the first year of his life.

I know that the cost of a pack of Stayfree maxi pads can be a low as $1.99 and as high as $3.49. Even if I do buy them at $1.99, I can’t flip them to a buyer when the store price gets up to $3.49.

#182 DM in C on 08.14.13 at 1:52 pm

Rented in Calgary for 6 years. P/R ranged from 18 – 24.5 last going off.

No homes for rent in our hood (not making kiddo change schools again) at the time, so looked around to buy if the house was right.

Found a place on a quarter acre lot with an unobstructed view of the mountains, and no neighbors behind us (great for a misanthrope like me).

So, we bought. Utilities are half the cost from the rental (energy efficient appliances). P/R in this area is ~ 16. We’re happy with it, and still have six figures + in the bank and more going into RESP and TFSA monthly.

With 25 years til retirement, we’re feeling ok. YMMV.

#183 gilden on 08.14.13 at 1:59 pm

#142 -Edmontonian- Can you please attach a link to your findings regarding rental in Edmonton. From what I understand there is a 1% rental vacancy in Edmonton- it’s a very tight market. I know a number of people looking for rental and they are having a heck of a time finding anything and rental prices are expensive because of that. I will attach statistics later when I have them.

#184 DG on 08.14.13 at 2:03 pm

Average price to income ratio in Canada is 30!

I see it like the P/E ratio for a stock, price divided by the annualized earning.

It’s not the only info you have to look at before making your decision but if the S&P 500 had an average P/E of 30, would all your assets be in the stock market?

#185 not 1st on 08.14.13 at 2:04 pm

Garth, you have called both RE and gold now. Shouldn’t you be warning of a correction in the stock market? Bound to be one this fall. Its way overbought and way ahead of fundamentals. The U.S. might stage a modest comeback, but the data from the rest of the world shows the opposite.

I did. — Garth

#186 Piccaso on 08.14.13 at 2:04 pm

#145 Westernman on 08.14.13 at 10:09 am

Did I tell you about the revolver I found pool side?

#187 45north on 08.14.13 at 2:05 pm

carpe Diem: I think the dogs on this blog are pretty bright …. and the Alpha keeps up a great fight!

yeah he does

price/rent ratio is très important.

money talks: Walking through the neighborhood, you see many homes with weeds for lawns

http://www.greaterfool.ca/2013/08/12/bad-advice-3/#comment-256438

I’m thinking that his neighbourhood is way over-priced. The price/rent ratio does not adequately describe the situation because, the owners have not even thought about renting. Yet.

#188 Donald Trump on 08.14.13 at 2:09 pm

#179 4 AM Sunrise on 08.14.13 at 1:47 pm

Awesome post…my compliments.

Here I was thinking that only Smoking Man could tie Real Estate, dogs , cars and Feminine Hygiene products into a single post.

#189 Screwed on 08.14.13 at 2:46 pm

QE was intended to rescue a troubled economy and reignite job growth and confidence. It worked. Sorry this infringes on your funk. — Garth

‘it worked’ with a measly 1% growth which will crater once the punchbowl has been removed.

They’re saving the Dollar at the expense of the economy. Same MO as always.

Oil price doesn’t seem to budge though. IF not higher rates, then high and higher oil prices are sucking the blood from the economy.

Will revisit this after Q1 2014 which will be negative again. Only this time the Fed is out of bullets or “tools”.

#190 Incubus on 08.14.13 at 2:51 pm

You also have owner who gives free months.

THREE FREE MONTHS

http://montreal.kijiji.ca/c-immobilier-appartements-condos-4-1-2-Ville-St-Laurent-3-MOIS-GRATUIT-A-ne-pas-manquer-W0QQAdIdZ513193993

#191 Canadian Watchdog on 08.14.13 at 2:55 pm

More importantly, check this out: http://reut.rs/15ElWQd — Garth

U.S. consumer debt drops in second quarter, continuing post-crisis trend

That's exactly what the Fed doesn't want — deflation. Once U.S. housing data begins turning down the Fed will panic (like always) and announce more stimulative measures. All in good time.

#192 Old Man on 08.14.13 at 3:08 pm

Renting is so cool and am glad that I live at the top as all water has just been shut down which means a major line break; looks like a major flooding took place down below. I live in a security building so can monitor the front door that is wide open so people can escape. There has been plumbing problems here for years, and repairs are posted ahead of time – not this time :).

#193 Contrarian on 08.14.13 at 3:19 pm

The price-to-rent ratio definitely scales based on how much a property is worth here in Tdot. Whereas a condo that is 550K+ may rent for $2300, a condo half that price (275K) will rent for more $1150. There are way more people looking to rent a cheaper apartment than a pricey one.

#194 Julia on 08.14.13 at 3:23 pm

That photo made me laugh! Reminded me of photos i’ve taken traveling around India.

#195 Westernman on 08.14.13 at 3:37 pm

Picasso @ # 184
No, and who cares? Grow up…

#196 Form Man on 08.14.13 at 4:02 pm

#193 westernman

grow up ?

that is rich…………..have you looked in a mirror lately ?

#197 vangrrl on 08.14.13 at 4:10 pm

I have a friend who rents a one bedroom top floor of a house (though it could use work) in east Van. He’s been there 14 yrs and his rent has ‘increased’ to about 650 from 500. Plus his gf lives with him now so 50 percent of that, ha! I rarely see them, they’re always travelling. My one bedroom is 850, incl everything, no rent increase in 5.5 yrs. Love the yard, great for my old dog too.

#198 NoName on 08.14.13 at 4:26 pm

BMO is giving a away free icecream yon/fun square, only bad thing is that no express line for kids.

#199 Old Man on 08.14.13 at 4:29 pm

Here is the problem as have seen major commercial property developers over the years using plumbing contractors who buy copper piping on the cheap from somewhere, that begins to pit after 10 years causing major problems with huge expenses. Hey, you get what you pay for, as they go for the cheapest tender to save money on a project, but in the end it becomes hell on earth. Now for you that bought condos in the past 10 years, get ready for a few surprises, as the capital reserve account might not be enough.

#200 CalgaryRocks on 08.14.13 at 4:57 pm

#196 NoName on 08.14.13 at 4:26 pm
BMO is giving a away free icecream yon/fun square, only bad thing is that no express line for kids.

We need an express line for kids to get free ice cream? Really.

#201 Dean Mason on 08.14.13 at 5:02 pm

Canada’s 10 year bond is not over 3.00%. It is Canada’s 30 year bond that is 3.09%. Canada’s 10 year bond is 2.62%. Canada’s 20 year bond is 3.04%.

If you are talking about Canada Housing Trust 2023-September-15 that is 3.11%. It is just over 10 years.It’s 10 years and 1 month.

These are Canada mortgage bonds offered through CMHC backed by Canadian residential mortgages.They are not direct obligations from the government of Canada.They are not the same thing.

#202 Timing is Everything on 08.14.13 at 5:09 pm

#189 Canadian Watchdog

Mortgage Purchase Applications Plunge 5.39% While Average Mortgage Size Declines [US]

http://tinyurl.com/ny9f7hx

#203 Arshes76 on 08.14.13 at 5:16 pm

#125 Aussie Reader on 08.14.13 at 8:08 am Here in Australia, we have a unique tax system which rewards investors for losing money when their rents don’t cover the mortgage – it’s called negative gearing. The loss on the investment is able to be deducted from their whole taxable income, not just income derived from the property. This system encourages investors to buy loss-making properties specifically to pay less tax, and the more one earns, the more one can benefit from negative gearing.
———————————————————-
We have the same here is Canada if the cost of the rental exceeds the income (principal portions not included), this can be offset against other income. But this doesnt just apply to rental losses, it also applys to most business losses (non-incorporated business)

#204 Arshes76 on 08.14.13 at 5:17 pm

#181 gilden on 08.14.13 at 1:59 pm #142 -Edmontonian- Can you please attach a link to your findings regarding rental in Edmonton. From what I understand there is a 1% rental vacancy in Edmonton- it’s a very tight market. I know a number of people looking for rental and they are having a heck of a time finding anything and rental prices are expensive because of that. I will attach statistics later when I have them.
—————————
Google Edmonton rent you should be able to get the same thing. Or just check out Kijji.

#205 Donald Trump on 08.14.13 at 5:23 pm

#190 Old Man on 08.14.13 at 3:08 pm

Renting is so cool and am glad that I live at the top as all water has just been shut down which means a major line break; looks like a major flooding took place down below. I live in a security building so can monitor the front door that is wide open so people can escape. There has been plumbing problems here for years, and repairs are posted ahead of time – not this time :).

==================================

OK…so you have the 2nd floor at the rehab place with padded walls.

Doesn’t give you the right to laugh at other when you plug the toilet.

#206 Smoking Man on 08.14.13 at 5:24 pm

#151 John Prine on 08.14.13 at 10:42 am
Does anybody else just skip past Smoking Man’s posts without reading them?

DELETED

#207 Old Man on 08.14.13 at 5:56 pm

Now for those that think being a landlord is a piece of cake get this, as the bigger they are the harder they will fall. Some of you know about my landlord doing internal renovations to turn this building looking like a five star hotel. I could not figure out why the carpet boarding was not put in place, as all the expensive vinyl commercial wall paper was falling apart too.

I saw someone in the know down in underground parking and said wtf is going? The contractor went belly up, and the carpet was an end run second with none left, and the vinyl commercial wall paper was a knock off from China, so all is in a mess with inferior product, and the landlord paid money up front which is gone, and the contractor has left the country.

#208 Beach Bum on 08.14.13 at 6:06 pm

Just bought a property with a 3 bedroom house in Hamilton for $175k, doing a light $25k reno, aiming to be ready to rent on Oct 1. Comments on what I should ask for rent? Across the street from the beach and lot is about 45’x275′ with lots of trees, and the LL lives next door.

#209 Canadian Watchdog on 08.14.13 at 6:17 pm

#200 Timing is Everything

What American small real estate business revenue looks like. Chart

Just keep believing.

#210 Ralph Cramdown on 08.14.13 at 6:18 pm

#115 JWD — “Have a look at Hong Kong and mainland prices in the last decade. It makes Vancouver look very cheap. These people are not stupid. How else can anyone explain it?”

They’re brilliant! If they keep holding HK property and the current trend continues, they’ll be back up to where inflation adjusted prices were in 1997.
http://www.alsosprachanalyst.com/real-estate/real-estate-30-year-history-of-hong-kong-property-market-in-one-chart.html

#211 Uwinsome on 08.14.13 at 6:20 pm

CANADIAN HOUSING AT ALL TIME HIGH! Yippee….

http://www.bnn.ca/News/2013/8/14/Home-prices-rose-07-in-July-from-June.aspx

#212 JimH on 08.14.13 at 6:36 pm

#189 Canadian Watchdog
“Once U.S. housing data begins turning down the Fed will panic (like always) and announce more stimulative measures. All in good time.”
====================================
The Federal Reserve will panic?

You have NO IDEA how the Federal Reserve operates; nor do you have any understanding of the Federal Reserve’s historical record; now, or in the past!!!

To be sure; the odd chairman has lost his cool; but to say that the Federal Reserve ALWAYS panics? Please!

There have always been and always will be greater and lesser chairpersons of the Federal Reserve.

Eccles, Martin, Jr., Volker, and Bernanke are, in my opinion, among the greater.

Panic? Not among these guys! Sorry! You’re wrong!

#213 Westernman on 08.14.13 at 6:44 pm

Form Man @ # 194
Thats rich coming from a guy living off the labours of others…

#214 censorthis on 08.14.13 at 6:52 pm

Had an exchange with a Vanc reporter…name sounding like ‘Daffy’ …she told me she’s been waiting 25 years for a correction. I assume the prevailing wisdom at the ‘Scum’ is that real estate can only go up forever. I sent her a bunch of charts….I’m not going to hold my breath .

#215 Julia on 08.14.13 at 7:00 pm

A one bedroom condo within spitting distance of my building goes for about $400k plus fees. My apt, same size, is $1200 mo all in. So that’s a ratio of 33 plus fees. That was fun.

#216 Form Man on 08.14.13 at 7:43 pm

#211 westernman

Indeed……it is wonderful to become rich off the labours of others.

Some of us live life to the fullest.

You simply fuss and snarl, parading your bigotry and mysogyny around like a worn out yoke.

It is not too late westernman. Throw your rage and intolerance out the door. Get a job. Get some stones. Stop blaming the rest of the world for the huge blunders you continue to make. You will have to take responsibility, but the reward will be worth it. Perhaps you will even attract a woman some day…………

#217 Screwed on 08.14.13 at 8:32 pm

#189 / Canadian Watchdog

US consumer bankruptcies are up 71k in Q2 from 301k in Q1 to 380k. That’s a sharp increase which explains the drop in delinquencies and the deleveraging. The data is from the Fed and buried in the reports.

#218 Westernman on 08.14.13 at 9:16 pm

Form Man @ # 214
More liberal psycho babble – you should know that trash doesn’t work on me, save it for your focus group meetings.
You do provide a wonderful illustration to Canadians as to where their tax money goes though – elitist, arrogant, effeminate, professional bums like you…
How do you feel about your enormous tax burden now, Canada? Worth it?

#219 White Rock Mom on 08.15.13 at 12:48 pm

My Price/Rent ratios is 29!

#220 Form Man on 08.15.13 at 1:05 pm

#216 westernman

in your infantile rage, you are unable to see we are mocking you ?

you have provided endless amusement for me and my staff………….please keep it up !

#221 happy renter on 08.15.13 at 3:56 pm

Someone’s useing my name ,happy renter.Find your own name.

#222 snake on 08.15.13 at 7:36 pm

#102 Piccaso

I rented two years for $700 a month in a hotel in Dallas

I was making 130K a year
————————————————
what is the name of the hotel ?

I just curious what kinds of job that u do that pays 130000/year I wish I make that in 3 years ?