Tell her

KISS modified

A guy who was in the room with him on election night in 2008 says when Stephen Harper heard I’d been defeated and would lose my seat in Parliament, he air-punched and whispered “Yessss!”

Making people happy. That’s what I’m all about. It’s a talent.

Actually a good chunk of my career has been spent questioning conventional wisdom, whether it’s been buying a house by rote, becoming an employee, or thinking a politician works for a party rather than the people. This makes me dangerous. Merely by reading this blog, you are at risk. Please wear protection.

Challenging me is great fun, and many do it. Let’s focus on interesting comments made yesterday after I wrote these heretical words: “None of the above precludes your daughter from lusting after a condo she could rent for half the cost.” A guy who owns rental properties in Calgary and says, “I manage hundreds for clients”, claims I’m full of it. In fact, this seems to be a widely-help opinion in Cowtown. How odd.

Anyway, here’s his counter-argument:

“Condo’s that cost $330,000 here rent for $1800. Assume 10% down-payment gives you a $300,000 mortgage which is $1433 per month. Typical condo fees about $425/ Maintenance: $25 per month (if that in a condo). Taxes: approx. $150 per month. Insurance: negligible in a condo and not much more then renter’s insurance.

“Total is about $2035. But don’t forget that about $700 per month is going to principal pay down, so actual cost is $1335 per month. And I’ll give you opportunity cost on the $30,000 down payment of 10% AFTER TAX (pretty generous but I don’t like to fudge numbers to make my arguments better). So that’s worth $250 per month. Looks like renting is a flat $1800 per month.

“Owning is about $1600 per month.

“I await you identifying the flaw in my argument. And don’t say my price to rent numbers are wrong. They are not, I own rental properties in Calgary and I manage 100’s for clients.”

Well, let’s drill in to this a bit because it’s a widespread notion Calgary’s different, and renters are not subsidized there as in the rest of the country, where landlords are generally metrosexual, latte-sipping, regulated, tenant-whipped girlymen who have probably never shot anything.

Okay, so a $330,000 condo with 10% down attracts a 2% CHMC premium and some closing costs, which means the mortgage ends up being about $308,000. Finance that with a five-year closed variable-rate loan at a cheap 3%, and the monthly payments are just under $1,500. Add in the fees and taxes our cowboy landlord mentions, and we have a monthly nut of $2,100. Then let’s allow for the downpayment of $30,000 to grow at 7% if it were not buried in a condo, and the opportunity cost is $175. The total cash flow to live there with a $308,000 mortgage: $2,300 a month.

So, the owner pays about 27% more than the renter and is carrying a fat mortgage. On the surface, the tenant wins. But let’s not stop there.

After five years, the owner would have shelled out $30,000 more in after-tax income, and still have $263,000 in debt. It’s also a safe bet to assume the mortgage taken at 3% in 2014 would renew in the 6% range (for a five-year term) in 2019. So, the financing charges would rise to $1,700, even on a lesser amount outstanding. (I did not factor in steadily rising VRM costs from 2015 through 2019 as the Bank of Canada slowly increased its discount rate – which could dramatically slow principal repayment, as well as tank condo values.)

In contrast, if the renter just enjoyed the monthly discount, invested the $30,000 in her TFSA and added in the savings from being a tenant, after five years at a growth rate of 7%, she’d have $71,165. Hey, that’s almost double the ‘equity’ the owner would have by paying down the mortgage.

But, of course, deducting debt principal payments from actual living costs is just a real estate industry trick. It’s simple repayment of a borrowing incurred to acquire the asset. ‘Equity’ is only built through this process if the asset retains its original value, and can be sold to realize the gain. The argument realtors put forward never acknowledges that, or the withering commission payable when selling a property.

Will Calgary condos retain their value over the next half-decade? Beats me. But I doubt it’s different from anywhere else. A 15% decline, and your daughter’s toast. Not only that, her condo could turn illiquid, causing a serious problem in the event of a transfer, job loss or marriage to a rich renter.

Finally, Kijiji Calgary is loaded with nice two-bedroom condos renting in the $1,300 range.

So, let’s recap. Own, $2,500 with $300,000 in debt along with market risk and rate risk. Rent, $1,300, no debt, no risk

Tell your daughter.

194 comments ↓

#1 Vancouver Falling on 02.18.14 at 8:05 pm

You pumped the Vancouver Housing Bubble App up. Check out your results lower on the page –

http://www.findyourworth.org/vancouver-housing-bubble#.UwPygFJdWbU

#2 Meteghan on 02.18.14 at 8:09 pm

Awesome post!

#3 Renting is for fooolzorz on 02.18.14 at 8:13 pm

But Garth, you’re wrong. When you pay a mortgage money goes towards principle, it’s like you’re paying yourself!!

#4 Paul on 02.18.14 at 8:16 pm

There you go again Garth talking sense when will you ever learn?

#5 Keith on 02.18.14 at 8:17 pm

Five year mortgage rates @ 6% “a safe bet” in 2019. I would love to get the kind of return on cash that that mortgage rate would represent, but I have my doubts. That return would attract of ton of investment, which would tend to keep rates down.

#6 BobLoblaw on 02.18.14 at 8:20 pm

Garth – 1
Cowboy condo humper – 0

#7 World According To Garth on 02.18.14 at 8:26 pm

I think Garth is running for PM by stealth. He’ll be a shoe in in a couple of years when everything falls apart, govt workers they can’t afford are fired en masse and the people are looking for a “real” public servant not just a fat cat lottery winner like we have today.

#8 wallflower on 02.18.14 at 8:30 pm

I am working on the “tell your mother” plan.
She is 74; husband 84.
Total savings portfolio: $50,000.
Total pension income: CPP at about $2400 per year.
Other: OAS
Florida condo paid for: $200,000.
Mid Toronto house paid for: $1,600,000.
Husband’s portfolio situation no better but he works full time (! has to, no income, otherwise).
SELL the GD HOUSE.
Sometimes I feel like I am walking through a dream-mare. That’s how it feels. A messy concoction of fright, incredulity, astonishment.

#9 Cow Man on 02.18.14 at 8:31 pm

Sir Garth:
Just think of the power you possessed. “He who angers me controls me”. Obviously you angered “Uncle Creepy” Stephen. You therefore controlled him. Well done.

#10 Jimmy on 02.18.14 at 8:32 pm

I guess Condo Cowboy manages his clients condos for free.
Take off 10% of rent to let him lasso that big turd tasking the high efficiency toilet.

#11 alberta_oil on 02.18.14 at 8:37 pm

Just went looking at homes in St.Albert outside of Edmonton and standard lots are going for $200,000 to $270,000! This is beyond out of control. Wife and I are purchasing 10 acres for $70,000 45 mins from St.Albert. Good luck everyone!

#12 Ralph Cramdown on 02.18.14 at 8:39 pm

“It’s also a safe bet to assume the mortgage taken at 3% in 2014 would renew in the 6% range (for a five-year term) in 2019.”

I wouldn’t bet against it, but I wouldn’t bet on it either. I’d hope for that kind of recovery, but I wouldn’t make analyses assuming it. I’m overall bullish/optimistic, but not to the point I’m pointing to where in the stands the ball will go.

#13 FormerSaskie on 02.18.14 at 8:47 pm

I was hoping you would respond to the Calgary challenge. Thanks!

#14 Greed is God on 02.18.14 at 8:47 pm

Cowtown cowboy pwned!

#15 the jaguar on 02.18.14 at 8:48 pm

You brought up Harper so I just have to say it:
What a total embarrassment that the Canadian Men’s & Woman’s Hockey teams may be on their way to the Gold Medal Game at the the Olympics and our Prime Minister who wrote a book on “our game” won’t be there because the world is pissed at Putin.
Regarding Calgary: Most of the people who live in Calgary these days are from ‘elsewhere’. So finding that true stereotypical cowboy is not so easy. He may be from Orangeville or Mississauga originally and just came out here for a job. Or he is originally from South Korea and working at Starbucks on a work permit. It is a bit of a one industry town, though. And there are clouds on the horizon. Kerry in the news again yesterday talking about climate change, no word on Keystone XL nor is there likely to be despite all the chest thumping of Harper.
And the americans are taking all the pipeline capacity due to their ‘fracking success’ so whatever oil can be moved has to be moved by rail. And that is proving to be problematic. Anyone who thinks Alberta is invincible and would not be affected by the winds of change in real estate must be an import to Alberta. Real Albertans remember the last bust. The real value of the people of Calgary is their ability to dig themselves out of a jam without complaining or expecting someone else to rescue them. The flood of 2013 showed the country that much.

#16 Dinglenuts on 02.18.14 at 8:51 pm

GOOOOOOOO tell it on the mountain! Over the hills! And Everywhere…..

#17 Linda Mulligan on 02.18.14 at 8:57 pm

#3 – seems to me you are not paying yourself until the property has enough equity that you own more of it than the bank does. That usually takes more than 5 years of payments – more like 10 to 15, depending on the interest rate & the amount you owe the bank.
#8 – 84 & still working full time? Wow. Hopefully that is what keeps him going & he enjoys the social interaction etc. BTW, how the heck does someone 84 NOT get ‘full’ CPP plus that 42% increase due to not taking it until age 70 – unless he took it at age 60 which makes my head hurt, especially if he is still working full time at age 84. Plus house evaluation at 1.6 million – can it actually sell for anything like that amount? Here is hoping the parents are not making choices between eating or keeping the house in that case.

#18 Vangrrl on 02.18.14 at 8:58 pm

#3:
You are mostly paying interest for a long time before you start chipping away at the principal. You weren’t serious with hat comment, right?

#19 hohoho on 02.18.14 at 9:00 pm

> When you pay a mortgage money goes towards principle, it’s like you’re paying yourself!!

no, it’s more like paying the bank.

#20 hohoho on 02.18.14 at 9:06 pm

> you are not paying yourself until the property has enough equity that you own more of it than the bank does.

you are paying the bank until the debt is fully repaid.
no wonder people love debts these days, “Get free money now, and pay yourself later!”

#21 Tom on 02.18.14 at 9:06 pm

Garth,

Let’s go back to the line about questioning conventional wisdom, such as becoming an employee…If you were starting a business today, what would you do?

#22 AK on 02.18.14 at 9:06 pm

This Is What $11.52 Trillion Of Household Debt Looks Like

#23 Kreditanstalt on 02.18.14 at 9:14 pm

Not to mention that the renter needn’t worry about the possibility of losing his already-paid fees, etc., plus what little equity he may have amassed, in the increasingly likely case that a)he may lose his job, b)interest rates may rise or c)sundry other Acts of God may occur.

Renting…a little more flexibility and freedom!

#24 spaceman on 02.18.14 at 9:14 pm

he didn’t factor in a rise in interest rates, rise in condo fees, sales tax, realtor commissions, and assumes, like all the other dunder heads, there is no price drop on the horizon.

a weak argument for owning investment property. I much prefer my Nasdaq and Canadian Dividend investments, very liquid, I can exit any time, and now the Royal has dropped their trading fees for my ETF’s and individual stocks. The opportunity costs are more in the 30% range right now, but how long will this last?

#25 Mr. Frugal on 02.18.14 at 9:16 pm

You can sell your ETFs for $10 and it takes about 5 min. Try doing that with a condo in Cow-Town.

#26 VHNWI on 02.18.14 at 9:27 pm

Hey people, Garth’s math is sound, but here’s how it can be even better, that $30k down payment is enough capital for a 100k portfolio in dividend paying preferreds and bonds to yield $7k revenues less margin interest at 3% net outs to $5100 per year imagine if you extrapolate this ideology to 300k, your income would be 50000 per year and tax free because the dividend tax credit. The math is complex but valid. For all the doubters out there here a teaser CCS.PR.D pays 7.25% of preferred dividends, isn’t spending 300K to earn 50K better than buying a 300k condo in the here and now. Better to pay cash for the condo 6 years later that be a debt slave to it today

#27 Van Isle Renter on 02.18.14 at 9:28 pm

3 Renting is for fooolzorz on 02.18.14 at 8:13 pm
But Garth, you’re wrong. When you pay a mortgage money goes towards principle, it’s like you’re paying yourself!!
++++++++++++++++++++++++++++++++++++

Not really, think of it like this: Your boss puts some of each of your paycheques in an account. You can’t take your $$ out, but you can borrow against it. When you leave/get fired, you get what’s in the account, less what you borrowed. In the mean time, your $$ earns no interest and your boss is free to do something you don’t expect, like lose all your $$ and maybe even more in which case you end up owing him a bunch. Oh, and you get to pay the maintenance and taxes on the account that your boss could pi$$ away.

While you do that. I keep my $$ in a balanced portfolio that pays for my rent, so I live for free. I’m OK with that.

#28 T.O. Bubble Boy on 02.18.14 at 9:28 pm

I like this post… it is EXACTLY what every parent/in-law asks when a child is renting.

I had this discussion with a neighbour on the weekend… they are a couple just out of medical school (with some student debts), and they currently rent half a house for about $1500/month in a neighbourhood where a basic SFH sells for $1M+. They have a 1-yr-old kid, and are planning on more children. Their parents asked “why do you throw away money on rent”… I explained the math to them ($5000/month carrying cost for the $1M house vs. $1500 rent for half a house), and I’m pretty sure the parents won’t be bugging them anymore.

#29 Van Isle Renter on 02.18.14 at 9:31 pm

#15 the jaguar on 02.18.14 at 8:48 pm
You brought up Harper so I just have to say it:
What a total embarrassment that the Canadian Men’s & Woman’s Hockey teams may be on their way to the Gold Medal Game at the the Olympics and our Prime Minister who wrote a book on “our game” won’t be there because the world is pissed at Putin.
+++++++++++++++++++++++++++++++++++++

Putin is a horse’s ass. I’m with Harper on this one. Going only feeds the madman’s ego. The best thing to do is take the gold medals and make sure Russia is shut out. No need to feed the monster.

#30 T.O. Bubble Boy on 02.18.14 at 9:32 pm

I just noticed where Michael Kors has gone in the last 4-5 months… and I’m regretting not following my own advice from September 8th!!!!
http://www.greaterfool.ca/2013/09/08/incredulous/#comment-260463

Probably time to sell this sucker, but it has had a good 35% run.

#31 Early Spring on 02.18.14 at 9:40 pm

You love me as much as I love that???

#32 Mark-Ottawa Realtor on 02.18.14 at 9:46 pm

I am a new reader and I enjoy your commentary. Not sure about the numbers, but the bottom line for me is simple; stay away if you do not have positive cash flow each month. Cowboy seems to imply that the $700 pay down on the principal/equity somehow makes it easier to swallow monthly negative cash flow. If a property pays for itself, e.g. has a positive monthly cash flow, then it could be a reasonable investment, and it passes my first litmus test. The rest of the evaluation is subject to personal opinions, financial objectives, equity analysis, and risk tolerance.

#33 the jaguar on 02.18.14 at 9:54 pm

Van isle renter:::::::
It’s not about Putin or any other politics. It’s about sports and competition. Isn’t that the purpose?
If everybody wants to ‘make their point’ by not showing up, then maybe nobody should have showed up (i.e. boycott). But that would mean a withdrawal of sponsors and the money would stop, wouldn’t it? There is just too much money on the line.
Putin hasn’t been hurt by it. An American athlete asked him to be her valentine on the weekend.
he is winning the media war.

#34 Shawn on 02.18.14 at 9:56 pm

Co-Operators Pref Shares

WHNWI at 26 mentions CCS.PR.D paying 7.25%

Sounds intriguing.

Ans sure enough, I see the following

GUELPH, ON, Oct. 18, 2012 /CNW/ – The Board of Directors of Co-operators General Insurance Company (“Co-operators General”) today announced a quarterly dividend of $0.3125 per Non-Cumulative Redeemable Class E Preference Shares, Series C, payable December 31, 2012 to shareholders of record at the close of business on December 1, 2012.

XXXX These trade just over $22 so over 5.6%

In addition, the Board of Directors announced a quarterly dividend of $0.453125 per Non-Cumulative Redeemable Class E Preference Shares, Series D, payable December 31, 2012 to shareholders of record at the close of business on December 1, 2012.

XXX These, the D series trade at $25.50 so 7.1% or very close to the 7.25% mentioned.

******************************************

So why do the D series trade at the higher yield.

In any case it looks worth looking into.

#35 Ydnew on 02.18.14 at 9:56 pm

Saw a woman on the GO bus today and she was reading Gail Vaz-Oxlade’s “Debt free forever”.
Would have directed her to your blog, but she was clearly depressed enough already.

#36 megsy on 02.18.14 at 9:57 pm

I lived in Calgary for a couple of years around 2006-2008. Won’t move back there unless I have a high enough income that I can save a whack of money AND buy a condo (because as a Millennial I think housing a losing proposition, which is why I read this blog). 6 mth leases, booted out of apartments so they could convert to condos – then offered the wonderful opportunity to buy into the building at ridiculous rates – terrible slumlords, etc. I’m still owed $700 from a damage deposit that disappeared but the idiot who bought my apartment probably lost tens of thousands on her investment, so I figure karma is a bitch.

I have very little good to say about my experience living in Calgary as a tenant.

#37 I'm stupid on 02.18.14 at 9:58 pm

And you didn’t mention what a 25 year old condo looks like. All those ugly buildings you see in your city that look run down were at some point shiny new buildings. Just saying.

#38 Shawn on 02.18.14 at 10:01 pm

CONVENTIONAL WISDOM

Actually a good chunk of my career has been spent questioning conventional wisdom, whether it’s been buying a house by rote, becoming an employee, or thinking a politician works for a party rather than the people.

*****************************************
Good plan, most Conventional Wisdom probably contains a lot more conventiality (if there is such a word) than wisdom.

P.S. I don’t always follow conventional spelling rules.

#39 Freedom First on 02.18.14 at 10:09 pm

Nice Garth! I must say I thoroughly enjoyed watching you hand this condo pumping Calgary cowboy his prairie oysters on a diversified platter.

#40 WTF(Where's Terry Fudge) on 02.18.14 at 10:20 pm

Hey #3 first five years of mortgage is front end interest , so where are you ahead.

#41 VHNWI on 02.18.14 at 10:21 pm

#34 Shawn, preferred shares yields differ depending on when they where issued and the market conditions and floor price is $25 each time. The series C will eventually by redeemed for $25 for a capital gain. Here’s another for 7% BAM.PR.P and a sweet USD one at Citigroup 6.875% C.PR.K

#42 Banjopete on 02.18.14 at 10:23 pm

@#21 Tom

I’d imagine debt servicing businesses will be quite popular, debt coaches, consolodation/bankrupty shops etc. If you really wanted to live off the unfortunate folks get yourself your own moneymart/payday loans store. They keep popping up around here like mushrooms and they’re always busy…

#43 Tony on 02.18.14 at 10:24 pm

Unless he/she made a typo error I read 25 dollars a month for maintenance. This figure of course is absurd. I also mentioned about buying rather than renting resale condos or apartments in Edmonton for about half of what it costs to rent. Yes resale condos and apartments in Edmonton have fallen about 40 to 50 percent since the June 2007 and are still 40 to 50 percent below peak prices. Thus mortgage payments and costs to buy are about half of what renters would pay for the same unit a month.

#44 KommyKim on 02.18.14 at 10:25 pm

RE#15 the jaguar on 02.18.14 at 8:48 pm
The real value of the people of Calgary is their ability to dig themselves out of a jam without complaining or expecting someone else to rescue them. The flood of 2013 showed the country that much.

Ok, the rest of the country wants its 2.8 BILLION in flood relief back now.

#45 Ronaldo on 02.18.14 at 10:29 pm

#15 The Jaguar – ”Real Albertans remember the last bust.”

Not an Albertan but remember the last 3 clearly.

#46 Len on 02.18.14 at 10:37 pm

It is entirely possible that some wannabe is paying $1800 for a condo – fools and their money and all that.

We are renting in a great green neighborhood of Dalhousie, 5 minutes walk from the train. Very close to university, plenty of amenities, etc. Our 4 bedroom duplex sets as back $1400. We moved here 2 years ago and this was competitive market and the rents have not budged these past two years. Most people on our street are paying a lot less than we are so $1800 for a condo is pretty funny! But hey, these same wannabes will pay $330K so $1800 per month – what a bargain!

#47 LJ on 02.18.14 at 10:44 pm

Thanks for leaving out the Special Assessment notice, Garth. They usually crop up after the mortgage renewal happens, about 5 years hence. The Calgary bank slave can probably count on a minimum 10% extra added onto his bill at that point, if he is lucky.

The condo owner could also be stuck in either an empty building, or a tower full of rentals – with people he can’t stand and no way to move!!!

#48 economictsunami on 02.18.14 at 10:47 pm

So CBs are looking for sustainable core inflation of around 2%+. If they marginally overshoot, they’ll take that too.

Japan has decided to do this with a weakening yen; somehow turning their vulnerability of imported energy into a plus.

CBs hope energy/ utilities are the answer because wages sure won’t be a driver, as labour slack / disconnect continues to grow…

How oil pressure can save the Fed:

http://www.marketwatch.com/story/how-oil-pressure-can-save-the-fed-2014-02-13?mod=wsj_share_tweet

Student debt may hurt housing recovery by hampering first-time buyers:

http://www.washingtonpost.com/business/economy/student-debt-may-hurt-housing-recovery-by-hampering-first-time-buyers/2014/02/17/d90c7c1e-94bf-11e3-83b9-1f024193bb84_story.html?hpid=z2

#49 Jordy on 02.18.14 at 10:48 pm

I always wear protection when reading here. Good Costco aluminum foil hat, and some times I’ll even form a nice set of horns :-)

#50 not 1st on 02.18.14 at 10:53 pm

That Calgary rental manager is full of it cause the piece of mind factor, the sweet escape from your contract factor and the job mobility factor of renting is worth well more than a few hundred bucks a month.

He’s a pumper just like all the realtors. Pay him no mind.

#51 Tony on 02.18.14 at 10:54 pm

Re: #5 Keith on 02.18.14 at 8:17 pm

Probably the same as today in 2019 around 3 percent the same as the rate on the 30 year Government Of Canada bond.

http://www.marketwatch.com/investing/Bond/TMBMKCA-30Y?countrycode=BX

#52 Frugal Gal on 02.18.14 at 10:55 pm

Sounds like the Cow-town man is a RE agent. I noticed many RE agents in our area getting into rental management. Not sure if they make money off both the renter and the owner, though.

#53 not 1st on 02.18.14 at 10:56 pm

Garth, I am working on the ultimate double whammy investment. That is, having my dividends pay my entire monthly mortgage amount. $350-400k receiving a 5% dividend should just about do it.

How come you never talk about this strategy?

#54 Basil Fawlty on 02.18.14 at 10:57 pm

#29 Van Isle Renter: “Putin is a horse’s ass. I’m with Harper on this one.”

If we start boycotting all countries where the leader is a horse’s ass, travel will cease.

#55 DreamingInTechnicolour on 02.18.14 at 10:57 pm

Read this very carefully;

Just as in legalized gambling –

The “House Always Wins” – the gambler may get ahead on their bet here and there, but not always.

Gambling that a home will go up in value is no different than a gambler pulling a one armed bandit, playing roulette or poker – the odds are always stacked against the gambler.

#56 Chickenlittle on 02.18.14 at 10:58 pm

#35 ydnew:

Don’t knock Gail Vaz O!

She is right about how people spend their money. No one needs 2 big screens, 5 Wendell Clark jerseys, or a closet full of Robert Graham shirts.

I’m not sure of her stance on rent vs own but whatever.

Now where can Old Man be? Turner Nation is right. We need some more death bed confessions.

#29 van isle renter:

I’m with you and Uncle Steven too. Poutine is a jerk. He can keep Ovechkin.

#57 settee potato on 02.18.14 at 11:06 pm

All you Vancouver Island posters ! I am interested in moving to Comox but prices seem a little steep for that burg, even with the small correction they have had. Any insights or ammo to counter act the “we’ve hit the bottom” “it can only go up from here” jargon. Thanks in advance

#58 Snowboid on 02.18.14 at 11:16 pm

#52 Frugal Gal on 02.18.14 at 10:55 pm…

Same thing in Kelowna, but many left RE agencies to work full-time at Property Mgr. companies.

Seems a plausible way to hedge your bets, but I would likely not rent from a RE agency as this often means the home is also for sale.

#59 DON on 02.18.14 at 11:17 pm

Just watched a US commercial…couldn’t believe my eyes..

QuickenLoans.com

“If your mortgage is $300,000 and
Your house is worth $150,000 – Take advantage of the Federal program”

OH CANADA! WE ARE F%@$ED LIKE THEEeeeee.

#60 Role on 02.18.14 at 11:19 pm

Has Anyone Really Been Far Even as Decided for house to Use Even Go Want And Buy to do Look More Like?

#61 VHNWI on 02.18.14 at 11:25 pm

#53 not 1st
just lever up the 400K investment and gain economic freedom forever. You don’t have to work for money, your money now works for you.
Live long and prosper.

#62 Infused with Opiates on 02.18.14 at 11:29 pm

18 Vangrl – with these very low rates, the principal starts to get paid down relatively quickly. At 3%, it
translates into about 0.25% per month, or about $750
on a 300K mortgage, which is approx half the payment.

#63 the jaguar on 02.18.14 at 11:32 pm

#44 Kommykim….

Just who do you think has been floating the boat in this country financially? Maybe review the “have and have not” provinces and add up the outflow of dollars out of Alberta to other places in the country. It’s called ‘transfer payments, and 2.8 billion wouldn’t even be close to to what the outflow entails……Southern Alberta is not the first place to experience weather related calamity. It is an annual occurrence throughout the country.
We pay our way in Alberta and not every province can say that…
At least Calgary and the people who live here come together in a crisis. We move on. We don’t “burn and trash our city” because we didn’t win a Stanley Cup game like some other cities who know who they are, and we have a Mayor we can be proud of……

#64 Bottoms_Up on 02.18.14 at 11:33 pm

Renters unite. You now have this link to send to all your friends that chastise you for renting. An excellent summary.

#65 Bottoms_Up on 02.18.14 at 11:36 pm

#55 DreamingInTechnicolour on 02.18.14 at 10:57 pm
———————————————-
I would say that’s a horrible analogy. A better analogy would be knowing that a slot machine was rigged in your favour, and piling ever more money into it, as it keeps spitting more and more money out at you.

#66 Trojan House on 02.18.14 at 11:38 pm

Seems the debt problem is being facilitated by Garth’s old buddy. Interesting read:

http://mises.ca/posts/articles/canadas-tidal-wave-of-credit/

Also, as in every case, things are not always what they seem, but hey, ride the wave while you can!

http://mises.ca/posts/articles/fake-it-til-you-make-it/

#67 Infused with Opiates on 02.18.14 at 11:40 pm

Should clarify – what I mean is $750 is the interest and the remainder of the payment is principal.

#68 Bottoms_Up on 02.18.14 at 11:40 pm

#53 not 1st on 02.18.14 at 10:56 pm
—————————————-
He hasn’t talked about that strategy because he’s actually talked about a better strategy, where you own your own mortgage as an investment, can charge yourself higher rates, and pay it off slowly. But you can only do this if you have enough cash to ‘buy out’ your mortgage.

#69 Mark on 02.18.14 at 11:40 pm

#53 not 1st

So your portfolio is bringing in 7% (conservative assumption). After taxes, that becomes 4%. After inflation, lets call it 3%. But whoops, you’re paying off your mortgage which is also at 3%, so that cancels out your remaining profits. And mortgage interest is not tax deductible on your primary residence.

Congratulations – Now your $4ook portfolio is doing exactly nothing for you, and might as well be in a GIC. Except you’re also paying property tax. And maintenance. And possibly condo fees. I need a drink.

#70 Humpty Dumpty on 02.18.14 at 11:48 pm

This kiss is for the following:

Internet trolls are sadists and psychopaths:

Trolls – Internet slang for people who take to the web to upset people or start arguments – are users who start fights online for their own amusement.

The Canadian psychologists found the same users were also more likely to report trolling as their favourite online activity – sadists, for example, troll because they enjoy it.

http://globalnews.ca/news/1157137/internet-trolls-are-sadists-and-psychopaths-canadian-study/

My 3 minutes are up….
Goodbye!

#71 Longterm on 02.18.14 at 11:53 pm

#54 Basil Fawlty on 02.18.14 at 10:57 pm

#29 Van Isle Renter: “Putin is a horse’s ass. I’m with Harper on this one.”

If we start boycotting all countries where the leader is a horse’s ass, travel will cease.

______________

But only after we all have to leave Canada.

#72 Waterloo Resident on 02.19.14 at 12:00 am

People keep posting here about the wonderful gains that they had on individual stocks.

That’s great, but you forget to include the wonderful losses that you’ve also had on other individual stocks also.

Garth’s advice here on this blog makes a lot of sense, he tells everyone to buy ETFs, not individual stocks, because that way you remove most of the risk in buying and holding any one stock. That’s what I do; I only buy ETFs that track the individual exchanges.

(ETF = ‘Exchange Traded Fund’)

#73 Joe Calgary on 02.19.14 at 12:09 am

This is the kind of flawed logic I hear from everyone in this dillusional city. “Why are you throwing money away on rent, your loosing out”. My reply usually goes a little something like this, “If I’m throwing money away than why am I driving paid for exotic cars, going on lavish holidays multiple times a year with huge reserves of cash invested at my discretion, while your struggling to pay your mortgage eating out of soup cans”? I know several people in Calgary renting $450000 homes for the $1800-2100 range and know of one renting a 3000sq ft penthouse in the Montana for $4000 which is on sale for $1600000.

#74 TEMPLE on 02.19.14 at 12:10 am

#53 not 1st on 02.18.14 at 10:56 pm

Garth, I am working on the ultimate double whammy investment. That is, having my dividends pay my entire monthly mortgage amount. $350-400k receiving a 5% dividend should just about do it.

How come you never talk about this strategy?

That isn’t really a strategy. What you are talking about is just a way to spend cash flow from dividends. It’s still a decent goal, but arguably less effective than spending your dividends on rent or reinvesting the dividends in stocks.

TEMPLE

#75 Blacksheep on 02.19.14 at 12:10 am

Lets review:

1) A 3% rate increase in four years. (rates flat for the next 12 months)

And,

2) An average 7% ROI of for the next five years.

That sounds like a rock’in, economic environment.
My business is going to be on fire!

But wait………

Condos are going to lose 15% of their value under the above, high growth conditions?

I believe JFK’s “a rising tide lifts all boats” reasoning applies

#76 Harry Balls on 02.19.14 at 12:28 am

When factoring owning expenditures, why does nobody ever mention renovations. The building I live in has every new owner drop $000s on a new kitchen, flooring, bathrooms, etc.

#77 Cici on 02.19.14 at 12:36 am

Great post as usual Garth ;-)

#56 Chickenlittle and #29 van isle renter – Yes, you are right…Putin is a jerk. But then again, so is Harper.

And I agree with Chickenlittle about Gail Vaz Oxlade. She’s great and she’s doing her part by knocking some sense into a lot of people.

I’ll be the first to admit that she was really influential in helping me get off my own ass to pay that student loan and credit debt off when I finished university. I’ve always known the basic financials and how compound interest works, but after finishing school and getting my first career position I was into moving up a bit in life beyond total student squalor. So, I bought some decent clothes, got a bigger apartment, enjoyed frequent dinners and cocktails out with like-minded friends who were in the same position: pissing away their money on non-necessities while only paying the monthly minimums on credit and student loan debt.

Randomly came across Debt-Free Forever in a local bookstore and started browsing the content: it angered me and it scared me, and I decided it was going to be the last frivolous purchase I was going to make in a long time. Followed her advice (started brown-bagging it, moved into a smaller and cheaper apartment, did away with gadgets and lattes, started mending clothes, got a higher paying job, and most importantly, started putting more $ towards the debt) – two years later I was free of all credit debt and had paid off a huge chunk of the student loans. In year three the student loans were gone.

When that was all done and over with I had the satisfaction of knowing that I could start saving money and building myself a nestegg. Naturally, having just dug my way out of debt, I was looking to take on mortgage debt, especially in the insanely risky and overpriced Canadian RE market. A then house-horny friend (who has since come to her senses) told me I sounded like Garth Turner…who was that? And so it was that I stumbled upon Greaterfool…best blog EVER!

Garth, if you do ever go back into politics, you’ll definitely have my vote (and my friend’s too) ;-)

#78 Cici on 02.19.14 at 12:38 am

Oops…meant I WASN’T looking to take on mortgage debt…

#79 sasquatch on 02.19.14 at 12:49 am

Thanks for pointing out that his rates are screw loose. Unless the cowboy is managing super nice shoe boxes right in the down town. even then the rates are high. Can rent a house for $1500-$2000 a month in cow town.

#80 World According To Garth on 02.19.14 at 1:03 am

Greater Fool Mexican Standoff

Garth – up

Soros – down

http://blogs.marketwatch.com/thetell/2014/02/17/soros-doubles-a-bearish-bet-on-the-sp-500-to-the-tune-of-1-3-billion/

I can’t get Good Bad Ugly outta my head now……

#81 As Is Old Man on 02.19.14 at 1:07 am

Who invited DA back? Was wondering when he would reappear and blab at length about his hot wife and wonderful life as is insecure.

#82 bill on 02.19.14 at 1:10 am

calgary property manager:
I think Garth let you off easy…
you know what I think is going to happen?
I think you are going to get a ‘special assessment’
so just throw another ,oh say 75 g’s on top of that to get the roof fixed and the structural rot as the pent house owner put a few 8 inch spikes into the roof and braced his little cedar trees that kept blowing over.
[not a hypothetical case either] …1.5 million later divided by the 20 or so condo owners…. all the rain water just seeped into the holes he left in the roof when the penthouse owner moved.
guess that would never happen Calgary eh?

#83 jon on 02.19.14 at 1:20 am

Don’t forget the months without renters, typically renter leaves and rarely will you get top dollar without at least a month of vacancy, sometime two if you try to hold out for 1800.

When you sell you need to pay capital gains and to top it off you can’t legally qualify for a rental property with 10% down, for investment property they want 25%.

Go to vancouver and the numbers are much worse, however I must admit you can buy a cheap place in vancouver/surrey and make it work but it is still hard at the current low rental price to make it cash flow positive unless you are putting 25% or more down.

#84 };-) aka Devil's Advocate on 02.19.14 at 1:52 am

#165 Form Man on 02.18.14 at 1:32 pm
I would like to add my thoughts to the discussion regarding different types of house construction.

The best overall type of construction for SFH is wood frame. Reinforced poured in place concrete is the most robust, but is also very expensive. Wood frame is affordable, energy efficient, and provides convenient cavities between the studs to accomodate plumbing and wiring. If one does not like the waferboard sheathing, simply substitute plywood ( it costs only slightly more in the total price of the building ).

Traditional log homes are not very energy efficient, must be built to accomodate significant settling ( 8 to 10″ per storey ), and in the case of post and beam log, not very resistance to earthquakes.

ICF is stryrofoam blocks filled with concrete. Styrofoam is flammable, and gives off poisonous gases when burned. It is expensive and provides challenges for wiring etc, as there are no cavities.

Each situation is unique, and people should research which type of construction best suits their needs.

Well now, there is something we can both agree upon ;-)

#85 };-) aka Devil's Advocate on 02.19.14 at 2:02 am

#52 Frugal Gal on 02.18.14 at 10:55 pm
Sounds like the Cow-town man is a RE agent. I noticed many RE agents in our area getting into rental management. Not sure if they make money off both the renter and the owner, though.

But of course he’s an RE agent. We’ve got you comin’ or goin’, buyin’ or rentin’, livin’ or dyin’. It’s a conspiracy.

};-)

#86 };-) aka Devil's Advocate on 02.19.14 at 2:09 am

#52 Frugal Gal on 02.18.14 at 10:55 pm

Is that to say that an RE agent would give anything but his/her own best advice to their own daughter?

#87 Chinook on 02.19.14 at 2:23 am

#44 if you want to be a jerk about it, we can discuss how much Alberta has been sending your way in per-equation.

Fact is, Calgary is also in a bubble. This bubble was caused by the same reasons as everywhere else but was compounded by the floods this summer. This created a short term shortage of housing which pushed prices higher again. We’ll see how this plays out soon.

#88 Happy Renting on 02.19.14 at 2:27 am

Thank you for responding to reader comments. It adds a lot to the educational and entertainment aspects of your blog.

Love your insider H and F anecdotes, Garth. Hilarious. Just think, now you have us doomer/goldbug/closet realtor/misc. loony blog commenters instead of them. Good deal, huh? :)

#89 JUNO on 02.19.14 at 2:28 am

Your last statement says it all

“NO RISK” –> ” no stress” –> “priceless”

Don’t forget the money you save goes into RRSP saving 30-40% in taxes. TFSA which can bank up to future money which will make money (tax free), Kids education fund which the government will give you$$.

We maxed out on our education fund every year. I pay myself min wages and leave the rest in my corporation. The government gave us 30% return.

Ontop we use 25% of the rent as office space which is written off. ( Its much harder to do if you own.) + Utilities written off. Easy peasy.

There are many games you can play as a renter which you cannot do as a Owner. I would say I save about 6G’s on rent + all the other tax shelters and other government grants that are there for the taking.

Unlike stressed out owner which are just making it paycheck to paycheck. BTW I use to own 2 houses. Fully paid off. I don’t believe in debt and was stress out when I had a 2,500 student loan and 40K mortgage.

I just can’t see how people can sleep now adays with a million dollar mortgage, huge credit card debt and student loans. But they just keep on chugging away and dig themselves deeper and deeper each day

#90 David Lee on 02.19.14 at 2:56 am

Calling a spade a spade …

http://www.scmp.com/comment/blogs/article/1430978/vancouvers-126m-question-will-axing-investor-migrants-kill-home-prices

#91 NoOneOfConsequence on 02.19.14 at 3:24 am

Well Garth, I have to say that I think I finally am feeling something like your pain and frustration.
I posted a couple years ago about my MomInLaw trying to sell her house. Well…it sold finally. It sold for $8,000 less than what I told her to sell it for 2 years ago so she could just “get out as fast as you can.” ($402,000 – she was convinced it was worth $459,000).

Now my wife and her mom are convinced that a new condo in the lower mainland is the way to go. Off they go looking at condos. They asked me what I thought – I said she should rent and invest all her money. (she is 74 and going blind).
Apparently I am an “ignorant son in law”.

So anyways…they go and view a condo, ONE THAT SHE LOOKED AT 2 YEARS AGO! Apparently, now it’s a good deal. The price has dropped from $358K to $344, and they are offering 6 years of internet, phone and gas.

#92 NoOneOfConsequence on 02.19.14 at 3:28 am

So yeah…I say…”doesn’t that tell you something? The condo hasn’t sold in 2 years, and has declined in value by about 5 percent.”
Then I pull up two ads on craigslists where brand new ones are renting for $1350.00 per month. I tell her about your balanced portfolio returning 7%…which is $28K per year. She could live rent free and bank like $400 per month. The condo fees are $358.00.

Yeah…anyways…I am about to go sleep on the couch tonight, and snuggle up with a blanket.

I won’t be talking about real estate being retarded ever again with her….until she is blind and has to sell it I guess.

Sigh. I finally feel your frustration.

#93 jane24 on 02.19.14 at 3:30 am

With 4 kids aged 26, 28, 28 and 32 I can tell you that the number one reason that younger ones should rent is that they change jobs every two/three years and then need to be somewhere else to build their careers.

I do wonder if a subliminal reason for parents offering up down payments to 20 somethings is to prevent this from happening and keep their kids geographically close. Kind of selfish really.

Just a thought.

#94 live within your means on 02.19.14 at 4:35 am

#56 Chickenlittle on 02.18.14 at 10:58 pm
#35 ydnew:

Don’t knock Gail Vaz O!

She is right about how people spend their money. No one needs 2 big screens, 5 Wendell Clark jerseys, or a closet full of Robert Graham shirts.

I’m not sure of her stance on rent vs own but whatever.

#29 van isle renter:

I’m with you and Uncle Steven too. Poutine is a jerk. He can keep Ovechkin.

………

Agree with your first comment.

Can’t stand Putin but think Uncle Stevie is a wannabe Putin.

#95 Aggregator on 02.19.14 at 6:32 am

Children of Chinese janitors outscore wealthy Canadian students in global exams. Here’s what should change

The latest analysis of international math scores will have some disturbing news for Canadian professionals spending loads of cash on tutoring and enrichment for their kids: Their offspring were outmatched by the children of janitors in Shanghai.

Ever since the PISA exam scores were announced in December, parents and education experts have been fretting over Canada’s 13th-place ranking in math. But when parental education is taken into account, it turns out the children of the country’s doctors and lawyers fall even further in the rankings: They placed 22nd when compared to their similarly advantaged peers around the world.

What was that about all those rich Chinese sending their kids to Canada for a better education? Ya, your kid is smart in a country where the graduation rate trend is heading for 100% in under ten years. Smart relative to what?

Canadian doctors urged to limit testing to contain costs

Canadian doctors are under increasing pressure to think twice before reflexively ordering some tests and procedures as evidence mounts of the costs of unnecessary testing to the health-care system and to the well-being of patients.

Eight Canadian medical societies are set to unveil in April lists of diagnostic tests and other procedures they will urge their members not to perform unless patients exhibit symptoms that are a “red flag,” according to a commentary published on Tuesday in the Canadian Medical Association Journal.

Don't expect StatsCan to make any medical or tax CPI adjustments for health care quality if more doctors start denying requests for more test. This is one perfect example of how the government pillages Canadians through inflation without nobody noticing.

Is everybody starting to notice what is changing? It's not the numbers that matter so much, rather what Canadians are getting in return for it.

#96 ILoveCharts on 02.19.14 at 7:03 am

Do you ever get one of those days where you just want to leave your job and go live on a beach for a year?

Those days are much better when you realize that nothing is stopping you from doing that!

I don’t know why anyone would want to owe/n.

#97 Sgip on 02.19.14 at 7:07 am

So who here has enjoyed harpers so called hockey book?

OH YEAH. NO ONE.

It’s only purpose was for him to collect a fee from right wing corporate bus people as a thank for raping Canada

That is all

.

#98 Ydnew on 02.19.14 at 7:57 am

#56 Chickenlittle
Where do you get that I was knocking Gail Van O? It was merely an observation that some people, at least, are finding debt load onerous. I’m not even sure that they realize that it is possible for property prices to go down or become increasingly illiquid, which add more weight to their existing problems.

#99 Joe on 02.19.14 at 8:00 am

Whether you dump your savings into a property or ETFs, you’re placing a bet your assets will increase. But to claim all ETFs grow on average 7% a year isn’t realistic, just like people who expect the same increase from their houses.

I never made that claim. I said a balanced and diversified portfolio of many assets, including ETFSs, achieved 7% over the last decade! which included the worst crash in 80 years. I expect similar. — Garth

#100 maxx on 02.19.14 at 8:10 am

Booyah Garth!

#101 maxx on 02.19.14 at 8:33 am

#22 AK on 02.18.14 at 9:06 pm

This Is What $11.52 Trillion Of Household Debt Looks Like

Wow. Consumer (unsecured) credit trending the opposite way I had thought…..and how it compares to mortgage loans is an eye popper.

#102 TurnerNation on 02.19.14 at 8:33 am

Losing to a trained seal? No contest.

I no longer recognize Canada’s government as legitimate. If it was not clear then it is now; we are under control of a hostile supranational force. Recent actions have confirmed this, by the planeload.

#103 X on 02.19.14 at 8:56 am

24% of Canadians should list soon with long closing dates:

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/a-quarter-of-canadians-see-their-homes-as-a-primary-source-of-retirement-income/article16939799/

#104 Condo Minion on 02.19.14 at 9:09 am

So Toronto new condo buyers should prepare for about $100,000 in extra expenses for repairs of window walls over the next few decades.

Per unit.

That’s in addition to the usual exorbitant condo fees, of course. Property taxes not included.

http://www.thestar.com/news/gta/2014/02/19/degrading_condo_windows_expected_to_trigger_major_wave_of_replacements.html

#105 berniebee on 02.19.14 at 9:25 am

Looks like 6.4 million U.S. owners have still not recovered from their recent housing crisis.
Nearly one third of Orlando mortgages are still underwater!

Still wondering if renting is the right decision?
Read the anus clenching statistics here:

http://www.forbes.com/sites/erincarlyle/2013/12/17/6-4-million-still-have-underwater-mortgages-as-of-q3-2013-says-corelogic/

But a housing crisis could never, ever, ever, happen in Canada, right?

#106 raider on 02.19.14 at 9:40 am

What on ever happened to the concept of ‘profit’ and ‘operating margin’?

Seriously, the Calgary guy allegedly has a portfolio of properties that he rents out and he still cannot beat allegedly financially illiterate renters.

Just look at the financials of REITs, for example:
http://www.reuters.com/finance/stocks/financialHighlights?symbol=CAR_u.TO
(scroll down to “profitability ratios”)

If you really do this as business, dude, this is what you need to aim for, not trying to convince your neighbours (or the greater audience here) that you did not screw yourself…. It will be hard if not impossible to get even remotely close to these ratios at the current price levels by buying Condos that have fees, or inflated detached properties.

#107 Louis on 02.19.14 at 10:03 am

Garth’s math look good but on the other end, I have a rental building (a 4-plex) and I make money on it (not huge, but 7% return on the current equity when I take all expenses and leverage into account).

At some point you can’t have it both way… it’s either better for my renter or for me.

With the current prices, we are close to the break-even point…

If you are just starting out, have a low down payment, cashflow problems or if there is a decent possibility that you will move and/or lose your job in the next 5 year -> rent.

If you have enough downpaiment to avoid paying CHMC premium, are confident that you wont need to sell any time soon, then buying might make sence.

In 2-5 year prices may correct, but it’s pretty much 100% sure that in 25 years prices will be higher than today.

#108 rosie "moving forward" in the knowledge that, "this won't end well" on 02.19.14 at 10:27 am

This advice might come in handy over the next little while.

http://www.marketwatch.com/story/how-to-rent-an-apartment-if-you-have-bad-credit-2014-02-19?link=MW_home_latest_news

#109 Infused with Opiates on 02.19.14 at 10:59 am

57 settee potato – prices on upper VI have melted 10-15% on average since 2008. Yes they still seem high to many of us, but the reality is they are now below the canadian average which is skewed by other crazy markets. I would not be in any panic to buy, but I dont see prices falling much further either.

#110 Ralph Cramdown on 02.19.14 at 11:12 am

#53 not 1st — “Garth, I am working on the ultimate double whammy investment. That is, having my dividends pay my entire monthly mortgage amount.”

You have to either sell the shares, pay off the mortgage, get a new mortgage and buy the shares back, or pay cash for the house in the first place, then get a mortgage and buy the shares. Once you’ve done that, the borrowing was for taxable investments, and you can deduct the interest on your tax. If and when I buy a place, this is what I’ll do.

#111 thinker on 02.19.14 at 11:14 am

Gents, let’s have a lady clear this cowboy argument up please.

1) Garth, you are wrong – See banks in Canada offer interest only loans, you have to ask, they are available. This type of loan brings clarity to your math error. Since the principal payment (which you don’t have to wait to sell), you can borrow it right back in a HELOC). Yes, this chap can run cash flow positive on 30k down

2) Let’s cut the financing crap out and think what realtors use called “CASH on CASH” If had this money, after my expenses, I am earning 2400$ a year on 300k? The argument for this type of investment is a non starter for any real estate investor, a GIC will do better.

3) After you really understand 1) and 2) then you can think more along the lines of this question? What is my potential upside on the future sale after real estate costs, a flat price would mean almost five years rent risk just capture your real estate exit fee’s? What if it goes down? At this point, I would THINK about my alternatives and move on. I would rather click then deal with people. 100’s of property at 2400 a year each, 240,000$ on a 30,000,000$ portfolio of assets – DOES THAT MAKE SENSE FOR THE RISK, I THINK NOT.

#112 Ian on 02.19.14 at 11:14 am

I always question when out of Towners drop a Kijiji link saying that rent is cheaper than locals think it is. While I know nothing about Calgary, currently living in Saskatoon there are often gorgeous full houses for cheap rent in VERY questionable neighbourhoods with high gang activity.

Gangs in Toon? — Garth

#113 Linda Mulligan on 02.19.14 at 11:33 am

True story of Calgary condo conversion: rental townhouses we lived in for a year in 1983 were ‘converted’ to condos 2 years ago. What was done: new shingles on roof; cedar siding taken off & new paintable siding put on; new paint, carpet, linoleum, fixtures inside. Fresh sod laid down on small green spaces & old poplar trees cut down or back (didn’t do much to dig out roots, though). Fenced back yards were repaired/painted. So these former rental units (newish in 1983 so I’d say at least 30 years old) had maybe $25-$35 K spent to make them look new & shiny, then were sold at ‘bargain’ prices of mid-$200’s per unit. They are a 3 story walkup, 3 bedrooms of the usual size – two extremely small rooms & one ‘master’ that is as I recall about 10′ x 12′ in size. Full basement though & they had a half bath on the main floor kitchen level plus a full bath upstairs with the bedrooms. If the converters installed new windows or doors I didn’t see it happen but they were snapped up as bargains. At least the buyers got some space & can now upgrade everything if they want fancy fixtures, granite etc. I also don’t know if they replaced the furnaces in the units before selling. Would have really increased the cost of conversion if they did & again, didn’t see it but then wasn’t around 24/7 to see so could have been done. If not, furnaces are 30 years old too……

#114 Daisy Mae on 02.19.14 at 11:35 am

#77 CiCi: “Garth, if you do ever go back into politics, you’ll definitely have my vote (and my friend’s too) ;-)

********************

Nah….then he’d be a glutton for punishment.

#115 Nemesis on 02.19.14 at 11:35 am

TeeHee! Talk about “Kiss&Goodbye”!*… [a CautionaryTale]:

[CBC] – Lawsuit over $228K engagement ring withdrawn by B.C. widower

…”Renkers and Miller began dating, and he says he started supporting her financially. He says he spent tens of thousands of dollars to repay her debts (including UBC tuition), furnish her Kitsilano apartment and pay her rent, repair and straighten her teeth, purchase her a new Volkswagen, and provide her with money for incidentals. He also gave her a Visa card and several blank cheques.

Renkers says Miller’s “out of control spending” was taking a toll on him…

…Renkers says he confronted Miller about it last month, and the two broke up. Renkers says he has since cut off all financial ties to Miller and is trying to get the ring back before she sells it.”…

http://www.cbc.ca/news/canada/british-columbia/lawsuit-over-228k-engagement-ring-withdrawn-by-b-c-widower-1.2542028

[NoteToSaltyDogz: *Hopefully, that wasn’t our very own ‘OldMan’.]

#116 learningfromyou on 02.19.14 at 11:45 am

Hello Garth
I wish you a quick recovery and becoming a balanced person soon. :)

Garth, in a past year you exposed a portfolio analysis that I was able to read and you promised another for last year.
I’m dying to see that analysis even when there is not compromise or responsibility for you in the outcome of our own decisions.

Come one Garth, courage!!, push yourself a bit and provide us that document.

It was published a month ago and was linked here by others. — Garth

#117 Pipedoctor on 02.19.14 at 11:45 am

Routine condo fees are fine, but this article talks about major periodic repairs. A little frightening…

http://www.thestar.com/news/gta/2014/02/19/degrading_condo_windows_expected_to_trigger_major_wave_of_replacements.html

#118 Alex n Calgary on 02.19.14 at 11:47 am

Lets say that owning the condo is about 400$ a month more then renting. Lets say that its even pretty close. Now lets look at Reality. Who is buying condo’s in Calgary with 30,000$ to put down? nobody, they are buying houses. People buying condos here for the most part can’t afford a house yet and their downpayment will be the smallest (unless parents give the money, its a sure thing after all).

Not to mention who is affording 1700$ solo a month in rent on a Condo? Since the condo will be pretty small, you’d have to make sure you have a partner to pay for part of that or a roomate in your little condo (ewwwww) so thats not really happening. You can rent a pretty solid 1200 sq ft house at inner city for that money, which is huge and nearly as close.

You didn’t mention all the risk of buying into a poorly built building. My immigrant friend at work and a bunch of his co-tenants got booted from their downtown Calgary building when the russian landlords decided the 8yr old parking lot needed to be torn up and redone at the cost of 12,000$ (around that) per tenant, pay up in 3 months or loose your unit (bought at 1/3rd price to the condo board consisting mostly of the russian owners)

Condo ownership is LETHAL, but commuting sucks too. Well we’re moving into our 4th rental house in just over 4yrs, would be nice to have some kind of correction soon, getting booted from houses is getting kinda old!

#119 Glen on 02.19.14 at 11:53 am

Stats is out
Insanity continues

For Detached, everyone in 416 is almost milliner: $942,066

#120 Daisy Mae on 02.19.14 at 11:53 am

#92 NoOneOfConsequence: “Sigh. I finally feel your frustration.”

*****************

I am sorry. And I understand your disappointment…

#121 not 1st on 02.19.14 at 12:19 pm

#110 Ralph Cramdown on 02.19.14 at 11:12 am

Not using a HELOC for this. Just getting enough invested that pays a monthly dividend of about $1500. Then simply apply that amount to the mortgage payment. Then I have all bases covered, RE, stocks, dividends, growth, speculation, granite, moen, etc.

Plus the dividend income is all tax free too. win win win

#122 jean on 02.19.14 at 12:21 pm

“…Maintenance: $25 per month (if that in a condo)…”

Nope. A condo owner is responsible for all the upkeep and maintenance to their unit, as well as a portion of the cost of the upkeep to the building and grounds. No way $25 a month will cut it. And don’t assume the condo fees include a contribution to a sinking fund either. You need to check before you buy what the condo fees include. Oftentimes it excludes major works, for which condo owners are billed separately.

The following article gives a good idea of the things an owner needs to budget for.

http://www.thestar.com/news/gta/2014/02/19/degrading_condo_windows_expected_to_trigger_major_wave_of_replacements.html

#123 Victor V on 02.19.14 at 12:47 pm

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/a-quarter-of-canadians-see-their-homes-as-a-primary-source-of-retirement-income/article16939799/

Almost one quarter of Canadians say they are looking to their homes as the primary source of retirement income, according to new research.

Twenty-four per cent of respondents to Sun Life Financial’s annual “unretirement” survey said they agree with the statement, “My residential real estate will serve as my primary source of retirement income.”

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

This will not end well.

#124 Aggregator on 02.19.14 at 12:49 pm

GTA REALTORS® REPORT LATEST MID-MONTH RESALE MARKET FIGURES

How To Read TREB Resale Stats

The Realtor View
Feb Mid-Month Sales: +1.3% yy

The Klump Insignificant View
Mid-Month Sales +1.3% yy
minus: Double Sales Count -0.8%
= +0.5% yy

The Conservative View
Mid-Month Sales +1.3% yy
minus: Double Sales Count -0.8%
minus: Revisions -3.0%
= -2.5% yy

I Don't Trust Organized Realtors View
Mid-Month Sales +1.3% yy
minus: Revisions -3.0%
minus: Double Sales Count -0.8%
minus: Presales Counted as Resales -5.0%
minus: Adjustments for GTA Population Growth -1.0%
= -9.8% yy (real terms)

#125 James on 02.19.14 at 12:52 pm

#107 Louis on 02.19.14 at 10:03 am

In 2-5 year prices may correct, but it’s pretty much 100% sure that in 25 years prices will be higher than today.

——

That’s is why people are buying up the SFH in 416 Toronto. The greater fool is not being in the RE market.

#126 DR on 02.19.14 at 1:03 pm

Semi sold in Leaside near a future subway. 983000.

#127 Adam F on 02.19.14 at 1:08 pm

Hello Garth,

The only issue that I have with your analysis is that you are assuming a 7% growth for the investment portfolio while you are assuming a 0% capital appreciation or depreciation for the house.

How is your analysis not flawed?

Zero appreciation for the condo will be a gift. — Garth

#128 Nemesis on 02.19.14 at 1:12 pm

BonusZen! [#StrangerThanFiction]

After consulting his itinerary, MonarchInWaiting PrinceCharles was beginning to harbour some well founded doubts about his valet’s insistence on traditional Albertan costumary for the upcoming MapleLeaf 2014 tour…

[AlArabiya] – Illustration – earlier today, Riyadh]

http://tinyurl.com/qe5jqd5

[NoteToSaltyDogz: Context – http://www.cbc.ca/news/canada/prince-edward-island/prince-charles-camilla-announce-canadian-tour-1.2498978 ]

#129 Calgary Conditional Owner on 02.19.14 at 1:15 pm

If the buyer in question will have to pay CHMC anyway, why not put only 5% down? The other 5% can be invested and produce the super-thrilling 7-8% that makes Garth lose balance and fall out of excitement and makes everyone drool on this blog! Make it grow for 5 years to offset the principal come renewal time.

Further, you can even get cashback on it and still get a very low rate (2.9% VRM, closed for 5 yr), and get nice features like unemployment insurance on the mortgage, etc.

Cheers.

#130 World Traveller on 02.19.14 at 1:24 pm

Yeah, Harper and the fist pump.
I’ll be pumping my fists and doing roundhouse kicks when he is voted out of office.

#131 World Traveller on 02.19.14 at 1:25 pm

So yeah…I say…”doesn’t that tell you something? The condo hasn’t sold in 2 years, and has declined in value by about 5 percent.”
Then I pull up two ads on craigslists where brand new ones are renting for $1350.00 per month. I tell her about your balanced portfolio returning 7%…which is $28K per year. She could live rent free and bank like $400 per month. The condo fees are $358.00.

Yeah…anyways…I am about to go sleep on the couch tonight, and snuggle up with a blanket.

I won’t be talking about real estate being retarded ever again with her….until she is blind and has to sell it I guess.

Sigh. I finally feel your frustration.

***

It’s amazing that people will not listen to common sense, you have presented her with a way to live rent free! The real estate industry has done its marketing job very well.

#132 HD on 02.19.14 at 1:28 pm

@ Nemesis

This one is for you.

Enjoy ;)

http://www.youtube.com/watch?v=gLDYtH1RH-U

Best,

HD

#133 World Traveller on 02.19.14 at 1:29 pm

Condo ownership is LETHAL, but commuting sucks too. Well we’re moving into our 4th rental house in just over 4yrs, would be nice to have some kind of correction soon, getting booted from houses is getting kinda old!

***

I think you have plenty of renting years ahead of you. Until the interest rates rise to a somewhat reasonable level the house hornies are going to keep on buying.

#134 World Traveller on 02.19.14 at 1:32 pm

Renkers says he confronted Miller about it last month, and the two broke up. Renkers says he has since cut off all financial ties to Miller and is trying to get the ring back before she sells it.”…

http://www.cbc.ca/news/canada/british-columbia/lawsuit-over-228k-engagement-ring-withdrawn-by-b-c-widower-1.2542028

[NoteToSaltyDogz: *Hopefully, that wasn’t our very own ‘OldMan’.]

Hate to say it, but an escort would have been cheaper, and probably more fun

#135 eddy on 02.19.14 at 1:35 pm

“he air-punched and whispered “Yessss!””

–come on Garth, you probably did the same thing when Haarper’s drummer got arrested

#136 Form Man on 02.19.14 at 1:46 pm

#84 DA

Glad to see you can agree on some things. Perhaps one day you will agree with the facts about MOI and how it influences home prices…….

#137 not 1st on 02.19.14 at 2:07 pm

Whenever Garth doesn’t approve postings for a little while, I think he has spun his chair over to another computer to make a vicious stock buy while the blog dogs here are posting drivel.

#138 Mixed Bag on 02.19.14 at 2:20 pm

#92 NoOneOfConsequence on 02.19.14 at 3:28 am

Yeah…anyways…I am about to go sleep on the couch tonight, and snuggle up with a blanket.

———-

They ask your opinion, and when you offer it, the result is you sleeping on the couch? Pfft. No good deed goes unpunished.

#139 JL on 02.19.14 at 2:21 pm

Garth, I’m flattered you used my comment as the theme of a whole post.

1. No one should call me a condo thumper. I don’t necessarily advocate any investment. If a client wants to own investment real estate and wants a property manager I will do an excellent job for them and work hard for their interest.

2. Garth, you missed a few more things in the comparison. Rents have increased 153% in Calgary in the last 10 years. In our comparison’s we assumed no rent increases which history does not show is reasonable. 3% annual increases would mean rent of $1854 in year 2, $1910 in year 3, $1966 in year 3, $2045 in year 4 and $2106 in year 5.

Yes taxes and condo fees will increase we well with inflation but that’s only on the $600. So the effect will be 3X as high on the $1800 rent. By year 7 or 8 of renting even with renewing at a “sure thing” mortgage rate of 6% the cash flow difference (ignoring principal pay-down is negligible).

3. Garth, how can you compare the equity gained from pay-down vs the $71,000 in the TFSA? That’s apples to oranges. The total equity in the condo assuming flat prices is ($330,000-$263,000 = $67,000) vs the $71,000 in the TFSA.

I’ve consistently felt for some time that buying vs renting is a marginal decision in Calgary. That’s a FAR cry from saying “owning costs twice what renting costs” which is what you wrote Garth. That’s the only issue I take with your post. 90% of what you write is bang on, good advice, but why the need for the hyperbole? Can you make your arguments effectively without them?

4. Any condo on kijiji for $1300 is going to be worth $220,000-$230,000. Like I said Garth I manage 100’s of properties. I know the price to rent ratios very well. Why on earth would a guy in TO sitting in his office debate with someone in the business in Calgary. That’s like me in Calgary telling a commercial real estate broker what CAP rates are in Toronto because I went on kijiji and found some office space for rent.

#140 omg on 02.19.14 at 2:30 pm

#43 Tony
“Yes resale condos and apartments in Edmonton have fallen about 40 to 50 percent since the June 2007 and are still 40 to 50 percent below peak prices.”
——————
Do you mean prices of condos in Edmonton have fallen 40% to 50% since 2007?? – do not really see that in any of the numbers – looks like they might be down 2-3% but no where near 40% to 50%

#141 Ian on 02.19.14 at 2:32 pm

#112 … Gangs in Toon? — Garth
***
I understand where that impression could come from, but Saskatoon leads the country in gang violence.

http://www.thestarphoenix.com/touch/story.html?id=9309123

And police are struggling to keep up
http://www.cbc.ca/m/news/#!/content/1.1876216

Most, if not all, of that activity is isolated in about 100 blocks with DIRT CHEAP rent and house prices.

The point isn’t what crime is like in a particular city, but a quick search on Kijiji to refute the rental costs of compatible units presented by a local doesn’t take into account those factors. I think you are correct in the rent vs buy analysis, but don’t bite off more.

#142 KommyKim on 02.19.14 at 2:41 pm

RE #63 the jaguar on 02.18.14 at 11:32 pm
#44 Kommykim….
Just who do you think has been floating the boat in this country financially?

Don’t be so full of yourself!

#143 omg on 02.19.14 at 2:42 pm

#57 settee potato

Have you checked out Qualicum or Parksville? I think prices have dropped further there and they are 20 minutes from Nanamio’s big box shopping.

#144 airhead princess on 02.19.14 at 2:48 pm

“jane24 on 02.19.14 at 3:30 am

With 4 kids aged 26, 28, 28 and 32 I can tell you that the number one reason that younger ones should rent is that they change jobs every two/three years and then need to be somewhere else to build their careers.

I do wonder if a subliminal reason for parents offering up down payments to 20 somethings is to prevent this from happening and keep their kids geographically close. Kind of selfish really.

Just a thought.”

Think again. Canadians are the least mobile population in the world. Workers won’t migrate, programs are restricted withing provincial boundaries, qualifications are restricted by unions. Canada generally has no international business focus…except for interfering politicians. There are no great companies ( like the Europeans and Americans have created) to send our youth off into the world for employment. Thank Trudeau and the libs for gutting Canadian industry. Unless your son or daughter is a civil servant they have zero opportunity to find jobs outside their own region.

Like we saw when the libs decimated the fishing industry so that the Maritimes would be stuck in liberal dominated poverty….poor people tend to vote for who controls their welfare cheque…..and don’t ask why the libs created more seats for the liberal / welfare dominated maritimes than all of western Canada.

Kids are stuck because the entrenched bureaucrats and the unions that support them want them to be.

#145 Shack on 02.19.14 at 2:55 pm

I really don’t understand the rabid hatred for real estate displayed by most people commenting here, but I bought a condo in Calgary in May 2008. I paid $325,000. 4 or 5 months later, the world’s finances went into meltdown and the value of the condo dropped about 20% or 25%. That made me kinda sad, but I held on.
Recently my neighbor sold their condo for slightly more than what I paid in 2008 – a good sign which may or may not last, but with my payments over the years, my mortgage is now $125,000 less than what I paid.

So is this a good investment? I’m sure there are better opportunities out there but I look at this as one part of a balanced portfolio and as long as you keep your investments reasonable in relation to your income level real estate – in my opinion for what it’s worth – is actually very solid over the long term.

And don’t forget, renters may not have a mortgage, but the net present value of future rent payments over one’s life converts into a pretty big debt obligation.

But to each his own.

#146 Happy Renting on 02.19.14 at 3:02 pm

#92 NoOneOfConsequence on 02.19.14 at 3:28 am

Sorry, man. That sucks. Family members will do what they want, the best outcome you could hope for will be not having to financially support your MIL in the future (fingers crossed).

Do you mind if I ask what your MIL’s cultural background is? In some cultures it seems like real estate is the only asset class to really invest in. If you can call the market top/bottom you’re “smart”, but if you get creamed on your house it’s just “bad luck”.

#147 Bottoms_Up on 02.19.14 at 3:10 pm

#97 Sgip on 02.19.14 at 7:07 am
————————————
I know someone that ordered that book and when they found out it was written by the PM they returned it promptly.

#148 tkid on 02.19.14 at 3:15 pm

The total equity in the condo assuming flat prices is ($330,000-$263,000 = $67,000) vs the $71,000 in the TFSA.

The $71,000 in the TFSA is money in hand, not to be lost unless I take a trip to Paris and do a little light shopping.

The $67,000 is pretend money – only to be liberated by a heloc or the sale of the condo and this is only if the value of the condo does not decrease. The theme of this blog is real estate in Canada, particularly condos, will decrease in value, yo …

#149 Bottoms_Up on 02.19.14 at 3:19 pm

#75 Blacksheep on 02.19.14 at 12:10 am
——————————————-
I agree with your underlying reasoning, the USA rocking, pulling us along, and if economy stays decent, the average house price is likely not going to crash.

A rising tide, however, does not raise sunk boats (i.e. condos). A glut of anything reduces it’s price.

#150 Happy Renting on 02.19.14 at 3:24 pm

#123 Shack on 02.19.14 at 2:55 pm

I think the point of this blog is that the RE madness has too many people doing wildly unreasonable things: mortgage debt too high in relation to income, no other investments to diversify risk, panic selling (market bottom) and frenzied buying (top). Even the prudent will feel the pain when the bubble bursts; economic recession and friends/family calling to borrow money!

Living somewhere costs money, even if you own outright. There is a cost to maintaining your home (house maintenance and repairs or condo fees and special assessments.) After condo fees and the interest portion of any mortgage, the rent on my apartment is very palatable. If you’re going to NPV rent, the corresponding “debt obligation” with owning is at least the cost of keeping your condo/house from falling apart.

#151 bdy sktrn on 02.19.14 at 3:25 pm

whew, that was too close

2-1 over the lusty lativans.

bring on the yanks!

#152 devore on 02.19.14 at 3:38 pm

I keep hearing about these condos in Calgary renting for $1800. I have not seen one yet. I have no doubt there are plenty on CL asking $1800, but that is a different matter.

#153 Rational Optimist on 02.19.14 at 3:40 pm

#15 the jaguar

The Russian governments reflect none of the values that the Olympics seek to embody. We should have boycotted the games for any number of a long list of human rights abuses. The least our PM can do is to not show up.

The Prime Minister is currently doing his job representing us abroad to our partners and friends. This week, part of that is to consider how to react to the Ukrainian government’s murder of its own citizens. That government is being propped up by Russia.

#154 father on 02.19.14 at 3:41 pm

looks like the fed is going to raise interest rates soon. GARTH do you think it is possible?

#155 Renter's Revenge! on 02.19.14 at 3:44 pm

#145 Shack – “the net present value of future rent payments over one’s life converts into a pretty big debt obligation.”

I see where you’re going with that, but it depends on the discount rate used. Perhaps we should be doing sensitivity studies using a range of discount rates to compare the NPVs of buying vs renting. And when I say “we” I mean someone else… please :)

#156 :):(Ying Yang on 02.19.14 at 3:55 pm

Toronto Condos in general may not hold their values but some areas are just insane. Just go along Bloor West Village and see. I have a friend whom bought a re-sale condo. The original owner had turned a nice profit on his sale and my friend just got transferred to New York. He just sold for profit in a bidding war? On a condo???? Bloor West Village is a very desirable neighborhood but will it last? I know the downtown scene is going to have bloodshed when the hammer comes down.

#157 devore on 02.19.14 at 3:58 pm

#52 Frugal Gal

Sounds like the Cow-town man is a RE agent. I noticed many RE agents in our area getting into rental management. Not sure if they make money off both the renter and the owner, though.

That’s property management. It is not done for free of course, and is another expense our Calgary cowboy “forgot” to mention. It is usually 1 months or 10% of the annual rent amount. Paid by the owner.

#158 Peter on 02.19.14 at 3:58 pm

Notice how Garth is narrowing concerns toward Condos as oppose to SFH. Change of heart or an eureka moment?

The question was about condos. — Garth

#159 Hank Rearden on 02.19.14 at 4:07 pm

Just a reminder to all Blog Dogs that there is no such thing as home ownership in Canada. Just stop paying your property taxes and you will see what I mean.

#160 Rational Optimist on 02.19.14 at 4:08 pm

139 JL on 02.19.14 at 2:21 pm

“Any condo on kijiji for $1300 is going to be worth $220,000-$230,000.”

$1300 rent on a $230,000 property is a bad ratio. The rent is too low, or the price is too high. The only reason someone would buy a $230,000 to rent it out at a 4.5% cap is that he is speculating that prices will go up, or he is speculating that rents will go up faster than inflation.

#161 airhead princess on 02.19.14 at 4:20 pm

Think of all the reasons our housing market could crash. List them in your head and then add them to every other reason that has been brought to your attention. The list is….really long. My attention is drawn to the massive overhead we’re saddled with that is taking us towards a 100% taxation environment. There are 15% of the population sucking up 100% of the tax revenues…..and they want more. Take the travesty at BC Ferries for example

http://www.vancouversun.com/opinion/columnists/Stephen+Hume+Ferries+bloated+inefficient+recessionary/9520800/story.html

This is typical of the civil service / crown corporation wreckage that is strewn across the floor of the Canadian economy. Ontario Hydro any one? How about the guy at Ontario Housing who is keeping his politically correct $245,000 job in spite of gross incompetence. Extrapolate this across the civil service and then ask yourself why taxes keep being raised to fund the insanity.

How does the Chief of Police in Vancouver warrant a hundred thousand more than the Chief of New York City? Vancouver is a strip mall by comparison. How do Sky Train cops make $200,000 +++ to write tickets for bum riders with no question from the provincial watchdogs? Think about all the pigs in the trough who will make their mortgage payments long after you have been Bangalored because businesses can’t put down roots in Canada. Interest rates are just one of many things you should fear……. Did you know the BC Ferries has a retirement plan that pays executives over $300,000 per year?

#162 Mortgage as a form of saving on 02.19.14 at 4:21 pm

People make mortgage payments as one form of long term saving and investment.

This is nearly always valid an idea – provided they stay in the same property for the medium to long term – as the value of the property almost always rises beyond it’s purchase price.

The ROI of such investment is influenced by the timing of the purchase but this is not unlike the problem associated with timing purchases in any market.

Alwyn

#163 Edmonton on 02.19.14 at 4:25 pm

ANother equation to the formula that has not been seriously addressed is the assessments issues. Here in Edmonton, a whole sling on “California Style” wooden walk-up condos have gone to mould due to no vapour barrier paper used in their construction. Out of the 8 friends a I have that own condos, 5 have had assessments in the last 4 years ranging in price from $15,000 to $43,000

#164 Bottoms_Up on 02.19.14 at 4:30 pm

#101 maxx on 02.19.14 at 8:33 am
——————————————
Those are USA numbers. Student loan debt in the USA is roughly equivalent to our entire mortgage debt in Canada. That is crazy.

#165 Bottoms_Up on 02.19.14 at 4:33 pm

#159 Hank Rearden on 02.19.14 at 4:07 pm
——————————————
Stop paying your income taxes or tax on purchases and see where that lands you too.

#166 Bottoms_Up on 02.19.14 at 4:37 pm

#136 Form Man on 02.19.14 at 1:46 pm
—————————————–
Where do you get your stats for MOI?

#167 werter on 02.19.14 at 4:38 pm

It looks like that unsold condos getting hit by foreclosures

http://www.homeforeclosuresbc.com/PortCoquitlamForeclosures.ubr
(1969 WESTMINSTER Ave, Port Coquitlam)

#168 Shawn on 02.19.14 at 4:49 pm

#145 Shack – “the net present value of future rent payments over one’s life converts into a pretty big debt obligation.”

By such logic we are all born a million dollars or more in debt.

Some truth to that but we are also born with millions of future earnings potential.

Not sure such analysis has much use especially during our working lives.

Just follow Kevin O’Leary and devote your life to getting rich and you will surely be OK.

#169 :):(Ying Yang on 02.19.14 at 5:15 pm

Hey where the hell is Smoking Man? Not a single comment today? Please tell us he is not in re-hab! Come on Smoking Man got some new titles for your book!

Smoking Hot Sausage!
If you got em, smoke em!
Gambling for Dummies! (Like we need that one)
Fear & Loathing In Last Vegas!
The Universe is Bent!

#170 Calgary Rip Off on 02.19.14 at 5:19 pm

No no no. You arent getting it.

No rent controls. Good luck finding a rental. No renter protection. Z-E-R-O-. So unless you want to stay mobil or are near retirement age, it makes more sense to buy a mortgage in Calgary, even if the prices are ridiculous, because the rents are just as ridiculous.

Each person must decide what to do based on circumstances. If I had listened to this blog about the bubble bursting I would lose thousands of dollars and additionally have the joy of dealing with a landlord that had no accountability for rental increases. Big big headache.

The smart investor advisor would suggest what trends apply specifically to what locale rather than just suggesting arbitrarily that renting is always better than acquiring a mortgage. In Calgary not dealing with shifty landlords is a definite benefit of having a mortgage, even if the bank owns it. Like last night the phone rang, it was a 403 area code, so I picked it up and asked who it was calling. Some dude selling windows. He said, “are you the home owner?” Pause. Silence. Then I said “No.” Another pause. Then him saying, “thank you for your time”. Click.

Even if a person thinks that Calgary housing value is a joke(I do) they should seriously consider getting a place instead of subsidizing one of the not nouveau riche Calgarians(aka people who own multiple properties and bought them for $120K) and tell the landlord to pack sand, unless you need to move/retire in 5-6 years. If you will be around the housing “advice” in this blog applies to Ontario only, not Calgary.

You need to get out more. Calgary is not different. — Garth

#171 JRH on 02.19.14 at 5:21 pm

Trojan House #66 Excellent !!

#172 Victor V on 02.19.14 at 5:33 pm

http://www.thestar.com/business/real_estate/2014/02/19/average_gta_house_price_hits_547107_as_market_starts_to_thaw.html

The Toronto real estate market is showing signs of stirring from its deep freeze, with new listings starting to pick up — and an almost 8 per cent spike in prices — as of mid February, year over year, according to figures released Wednesday.

Some 2,767 properties were sold during the first two weeks of February, up just 1.3 per cent from the same period a year ago, says the Toronto Real Estate Board.

But the average sale price was up 7.8 per cent to $547,107 from the $507,474 recorded in the first two weeks of February 2013.

“Price growth well above the rate of inflation will be the norm for the remainder of the year,” said TREB senior manager of market analysis Jason Mercer.

New listings remained down about 6.1 per cent as of mid February, year over year. But that’s a significant improvement from the 16.6 per cent decline in new listings in January which was blamed, along with the unrelenting polar vortex, for a 2.2 per cent drop in sales across the GTA.

#173 JL on 02.19.14 at 5:37 pm

Why don’t we look at this debate with a simple example:

Two choices for a family in Calgary. Buy a house for $410,000 or rent it for $2000/month. (That is bang on for price to rent ratio, I just rented a clients house for $2000 per month that they just purchased for $410,000).

Buyer will put down 10%. Means a mortgage of $368,000 with CMHC.

Maintenance: $200/month
Taxes: $225/month
Insurance: $100/month
Mortgage: $1740/month

Total of $2265/month vs Rent of $2000 per month.

They plan to live in the home for 25 years when the mortgage is paid off.

The Future Value of the $40,000 down-payment that could be invested at 7% in 25 years is $217,000.

The renter also has the $265 per month less outlay to invest (assuming they are disciplined). However they will not have this surplus for the 25 years, rent inflation will outpace inflation in taxes and maintenance so the two lines on the graph will converge. In fact the differential will be falling each year starting at year 1. HOWEVER to give Garth’s argument more credit, I will say 10 years of the $265 per month and I will assume equal monthly outlay of renting vs buying for years 10-25 (even though that is very unlikely, by years 15 – 25 the monthly cost of renting will be higher than owning. By year 20 the rent is $3200 per month, meanwhile your taxes have probably doubled and the maintenance has increased, and insurance has increased, and your mortgage payments are probably up to $2100 per month (at 6%). So renting is a couple hundred more than owning at this point.

So you have the $265 extra for10 years, that equals to $44,000. Now do a lump sum future value calculation on that $44,000 invested at 7% for 15 more years and you get $121,000.

So the value of the $40,000 plus the 10 years of savings has a future value of $217,000 + $121,000. So you have investments of $338,000 vs a paid for house.

If anyone thinks the $410,000 is not going to be worth more than that in 25 years is delusional. No price increase in 25 and 2.5% inflation puts the property at $221,000 in today’s dollars, for a fall in value of nearly 50%.

But even if you did believe prices are going to be flat in nominal terms for 25 years you’re still $80,000 ahead owning than renting for the next 25 years.

You attributed no value to the building equity. Bogus calcs. — Garth

#174 JL on 02.19.14 at 5:42 pm

#60 Rational optimist:

Most people consider a price to rent ratio of 14.7 ($230,000 / $1300 x 12) to lean in favour of the renter.

Rule of thumb:

Price/Rent ratio of under 15 = way better to buy.
Price/Rent ratio of 15-20 = often will be better to rent but it could go either way, depends on many factors.
Price/Rent ratio greater than 20 = way better to rent.

#175 JL on 02.19.14 at 5:44 pm

You attributed no value to the building equity. Bogus calcs. — Garth

There would be no building equity if you didn’t buy in the first place. Circular reasoning.

Are you arguing to not buy right now in this market and to wait 5 years for better prices??

#176 docteurfolamour on 02.19.14 at 5:57 pm

“It’s also a safe bet to assume the mortgage taken at 3% in 2014 would renew in the 6% range (for a five-year term) in 2019.”

IMPOSSIBLE! At 5%, it’s mean a krach in RE in Canada. so 6%, it’s an utopy. after hitting 4.5%, they’ll return quickly to 3% and stay there till the end of the world.

#177 brainsail on 02.19.14 at 6:02 pm

“TransCanada Pipeline Route Through Nebraska Ruled Illegal”

http://www.bloomberg.com/news/2014-02-19/transcanada-pipeline-route-through-nebraska-ruled-invalid.html?cmpid=yhoo

#178 recharts on 02.19.14 at 6:10 pm

#172 Victor V on 02.19.14 at 5:33 pm
http://www.thestar.com/business/real_estate/2014/02/19/average_gta_house_price_hits_547107_as_market_starts_to_thaw.html

The Toronto real estate market is showing signs of stirring from its deep freeze, with new listings starting to pick up — and an almost 8 per cent spike in prices — as of mid February, year over year, according to figures released Wednesday.

Some 2,767 properties were sold during the first two weeks of February, up just 1.3 per cent from the same period a year ago, says the Toronto Real Estate Board.

But the average sale price was up 7.8 per cent to $547,107 from the $507,474 recorded in the first two weeks of February 2013.

“Price growth well above the rate of inflation will be the norm for the remainder of the year,” said TREB senior manager of market analysis Jason Mercer.

New listings remained down about 6.1 per cent as of mid February, year over year. But that’s a significant improvement from the 16.6 per cent decline in new listings in January which was blamed, along with the unrelenting polar vortex, for a 2.2 per cent drop in sales across the GTA.

This is just pumping. The reality is that it is a huge disparity between what is happening in To with sales and listings right now and what is happening in GTA. Just look at TREB’s report and see YoY sales up in GTA down in TO Why ? Did they have better weather in GTA or what?

This deja-vu … looks like what is happening in Ottawa, Quebec, Montreal…for apparent no reasons the sales stalled ..next the inventory is mounting up.

“Apparently” no reason my … ! The fact is that probably everybody and their dog sold and bought a property in the last 5 years and the prices have become too high in this game. That being said that article looks complete crap to me, I am surprised that you posted that here

#179 Form Man on 02.19.14 at 6:23 pm

#166 bottoms up

It can be a bit of a challenge to get the stats in some jurisdictions. The Kelowna real estate board has one of the better sites for info. They release the numbers around the end of the first week of each month. Simply divide the total listings by the monthly sales to get the MOI.

http://www.omreb.com/files/01%20-%20OMREB%20January%202014%20Stats%20Media%20Release.pdf

#180 jess on 02.19.14 at 6:33 pm

clueless
http://truth-out.org/opinion/item/21969-predator-banks-enter-brave-new-world-of-epic-scams-and-public-hasnt-got-a-clue
—————-

Fed Orders Post-Crisis Crackdown at Big Banks
Wednesday, 19 February 2014 13:23
By Kevin G Hall, McClatchy Washington Bureau | Report
http://truth-out.org/news/item/21968-fed-orders-post-crisis-crackdown-at-big-banks

#181 World According To Garth on 02.19.14 at 6:45 pm

Where is the foreclosure price? $160K for a 650 ft shoe box is still overpriced. Brand New 2 bedroom 1100sqft in Chilliwack selling for $180.

#167 werter on 02.19.14 at 4:38 pm

It looks like that unsold condos getting hit by foreclosures

http://www.homeforeclosuresbc.com/PortCoquitlamForeclosures.ubr
(1969 WESTMINSTER Ave, Port Coquitlam)

#182 Vamanos Pest on 02.19.14 at 6:45 pm

#173 JL

In general, 2k per month for a house with a market value of 410k it is pretty tough to make a compelling argument on a 25 year analysis.

However, what does an analysis over 25 years have to do with anything?

(Renting isn’t a 25 year commitment.)

#183 The Truth on 02.19.14 at 6:59 pm

Harper is personally boycotting the Olympic games because He invaded Afghanistan.

#184 Quite Interesting on 02.19.14 at 7:01 pm

An interesting tweet from the BBC’s QI show. I’m guessing similar numbers would apply to Canada.

The QI Elves ‏@qikipedia
If wages had risen as fast as house prices since 1997, the average UK couple would earn £44,000 a year more than they do today

#185 jess on 02.19.14 at 7:12 pm

underwriting garbage

rbs agrees to settle

The lawsuit accused RBS and other defendants of violating U.S. securities law in packaging and selling an estimated $25.39 billion of securities in 14 offerings of mortgage-backed securities linked to the Harborview Mortgage Loan Trusts…”

http://uk.reuters.com/article/2014/02/19/uk-rbs-settlement-idUKBREA1I15920140219

#186 bdy sktrn on 02.19.14 at 7:49 pm

vancouver 1m teardowns are apparently a screaming deal compared to american prices, did ya know?

i guess it’s just a myth our prices are higher – santa monica makes vancouver look cheap

dumpy house, not big,
1418 Grant St, Santa Monica, CA 90405

For Sale: $1,795,000
which is higher than pre crash pricing.

i guess we can expect van sfh prices to keep going up to keep up with US prices!

#187 bdy sktrn on 02.19.14 at 7:54 pm

http://www.zillow.com/homedetails/1418-Grant-St-Santa-Monica-CA-90405/20480809_zpid/

#188 Spiltbongwater on 02.19.14 at 8:22 pm

#183 The Truth on 02.19.14 at 6:59 pm
Harper is personally boycotting the Olympic games because He invaded Afghanistan.

I believe PM Harper has been to one Olympics, the one in Vancouver. Not sure what your point is, but he never went to China, London, Torino, or Russia. So what, get used to it, our PM does not attend the largesse that other world leaders do. He just eats out of different troughs that taxpayers fund for his caviar and fancy drinks.

#189 lisa thomson on 02.19.14 at 8:30 pm

Thank goodness someone’s ‘doing the math’ (without their cowboy hat on).

#190 McExpat on 02.19.14 at 8:54 pm

Calgary renter – yup ratio is 26. Not going to buy anytime soon. 3000 square foot home in one of the best school catchment areas in the city. We save more each month than most people throw into their mortgage, plus have close to 7 figures in retirement savings. Did I mention our landlord is buying us a brand new gas range this week because the current one is not working as well as it should. No worries, that little expenditure won’t dampen our trip with our kids to Oz next month because it isn’t coming out of our pockets….
Be house poor or have a life….not a hard decision. A house is a place to live, period.

#191 TSL on 02.20.14 at 9:02 am

The whole rent vs. buy thing is moot for over 60% of the market: those with kids.

I surveyed 2 markets (Halifax and Winnipeg) for rental homes of 1600 sf+ in low-crime neighbourhoods with good schools and modest commutes (sub-20 minutes each way) and found pretty much zero rental housing stock. Zero. None. Nada.

Our housing market for townhomes and SFD’s is driven by people with kids for whom there are no rental options because no one buys to rent in Canada’s largelylsuburban neighbourhoods. The entire market is siphoned off towards a buy-to-own.

#192 Mr. Plow on 02.20.14 at 2:24 pm

Everyone needs shelter for their life.

Making this comparison in the short term is pointless, because you don’t need shelter over the short term.

Over the long term, providing you aren’t buying and selling all the time (growing your debt) owning wins out.

You spend more up front than renting, but when that asset is paid off, you spend less than renting and overall that sacrifice up front wins out.

Simple example:

50 years of shelter at an avg of $1,500 a month renting: $900,000

25 years of paying a mortgage at $2,000 a month, plus the remaining 25 years at $500 a month: $750,000

Plus you own an asset valued at ‘X’ in the end.

Yes maintenance costs, repairs blah blah… if you think those outweigh the value of the asset in the end plus the $150,000 you save in monthly costs, go for it and rent for your life.

#193 Bob on 02.21.14 at 7:16 pm

I’m surprised no one has said this yet
but Calgary for 330K condo that rents for $1800 is already a better deal (for owners) than in Vancouver 700K for $1800 rent.

And yet, here in Vancouver, people still use wonky math to say buying is better than renting. When you start amortizing your 25 year costs over months, a few dollars here and there don’t look like a lot.

but in this example we are talking 330K vs 700K. Same arguments. owning loses unless properties appreciate, in which case, mortgage = debt = leverage. But it works in reverse too.

#194 jrochest on 02.22.14 at 4:15 am

The ‘renting is better’ argument is just fine, provided that you’re 1) single or a childless couple, living in an urban area 2) making enough money to rent at the high end of the market without batting an eyelash and 3) prepared to absorb doubling or tripling housing costs (often over the space of a few months) if the vacancy rate falls.

As several people have pointed out, rental suites are often a better deal than condos, but rental houses are usually badly maintained and located in lousy neighborhoods.