Khan Academy!!

[Hehe]

Originally Posted by Glove

what if the reverse happens? and prices go up 40%? he would never be able to own anything, and thus will be paying rent for the rest of his life.

I think it's better to discuss how much more can it increase?

In historic norm, houses have been around 3x the average yearly income. Let's say that Vancouver carries a premium of being the *best place on earth* of 5x the yearly income. Where is Vancouver now? about 11x.

So, at 11x the yearly income, where and how do we get people to buy at even higher price?

Lower interest on mortgage - BoC is already at the absolute bottom

Higher income - With the job market being tight and unemployment being high, wages have no pressure to go up. Not to mention our real wage have been in steady decline over the past decades.

Foreign investors - these investors would ultimately want to unload their holdings onto locals, but if the price plus the premium that they want to charge is at a price local can't pay, investors would stop buying.

[z3german]

I did the math and i talked to the bank about mortgages and stuff, learned a lot! Really eye opening! The video helped me ask the right questions and took a huge rock off my shoulders.

Now the argument of renting vs buying. I understand what the video says about it and reading the other posts i see what the people agreeing with Khan are saying. But i also see what the other side is saying and its completely logical and understandable too. Is there no definitive science behind it? For my situation renting vs buying my monthly payments are approx the same, i would just be losing out on the initial lawyer notary stuff, house inspector, property tax which might be about 3k? I mean if my monthly payments are similar is it still foolish to buy? (btw looking for housing 200-250k range if that makes any difference.) Thanks for the light shed!

[Ferra]

Originally Posted by Glove

while its true that if a person waits it out and buys for 60% of the cost, he is laughing,

what if the reverse happens? and prices go up 40%? he would never be able to own anything, and thus will be paying rent for the rest of his life.

pick your poison, pay a high price now, or wait it out and possibly an even higher price later, or possibly a lower one, its like gambling on stocks.

Most of the people I know who kept saying vancouver housing price is gonna crash (for whatever reasons), are the same people who have been saying the EXACT same thing since 2005/2006...
Truth is, no one knows the answer. Like gambling, it could go down 30% in the next few years or it could go up another 30%

Financially, renting vs buying always come down to the return you made on your money/investment (when you are renting) VS the rise/fall of your house value (when you are buying).
either way, no one knows what's the future return will be like for certain. They are all guesses
Anyone can make up some numbers and examples to support one choice vs the other.

Personally, i think it should come down to whether you take enjoyment out of owning your very own place, or whether you prefer the flexibility and hassle-free of renting.

Buying vs Renting is more of a lifestyle choice than a financial one.

[Ferra]

Originally Posted by Hehe

I think it's better to discuss how much more can it increase?

In historic norm, houses have been around 3x the average yearly income. Let's say that Vancouver carries a premium of being the *best place on earth* of 5x the yearly income. Where is Vancouver now? about 11x.

So, at 11x the yearly income, where and how do we get people to buy at even higher price?

Lower interest on mortgage - BoC is already at the absolute bottom

Higher income - With the job market being tight and unemployment being high, wages have no pressure to go up. Not to mention our real wage have been in steady decline over the past decades.

Foreign investors - these investors would ultimately want to unload their holdings onto locals, but if the price plus the premium that they want to charge is at a price local can't pay, investors would stop buying.

Property Prices Index
Compared to other cities from around the of the world, vancouver housing price to income ratio is not too bad...but then again the culture and income equalities here is very different from Asia and other European cities, so it is not a fair comparison

Maybe vancouver will turn into the Aspen of US?


Also, what I found is a lot of my friends in vancouver (late-twenties) are all wanting and waiting for a chance to buy their own place. (i.e. waiting for price to fall a bit) It seems like there are so many young first-time buyer on the line I doubt those condos in the 300-500k range will ever fall much in prices.

edit*btw...i dont' own any property in vancouver... I don't even live in vancouver now, so I don't think I biased toward a particular trend or choice. Just telling what I see as an outsider...

[AWDTurboLuvr]

Originally Posted by z3german

I did the math and i talked to the bank about mortgages and stuff, learned a lot! Really eye opening! The video helped me ask the right questions and took a huge rock off my shoulders.

Now the argument of renting vs buying. I understand what the video says about it and reading the other posts i see what the people agreeing with Khan are saying. But i also see what the other side is saying and its completely logical and understandable too. Is there no definitive science behind it? For my situation renting vs buying my monthly payments are approx the same, i would just be losing out on the initial lawyer notary stuff, house inspector, property tax which might be about 3k? I mean if my monthly payments are similar is it still foolish to buy? (btw looking for housing 200-250k range if that makes any difference.) Thanks for the light shed!

Budget about 1% of the value of the home a year for maintenance and don't forget mortgage interest over the length of your term.

[Gridlock]

I watched the video, and appreciate it, BUT..as was said, its a very specific scenario.

Run that math out 10 years. As soon as you hit the stride in mortgage repayment where you are now making a dent in principle, and it gets a little different.

We have a woman in one of our buildings that lived in that apartment since 1988. I ran some rough math. She should own it outright. But she doesn't. Plus, although maintained impeccably for her duration(it really is a beautiful apartment), it looks the exact same as it did in 1988.

Now, you get to the point where you want to retire, and you are stuck paying out rent until the end of time. Whereas, she should be able to say, I own my place, I pay a $200-$300 strata fee and a power bill and I'm done. Whatever she makes from CPP and RRSP should be more than enough to live on comfortably.

There are a lot of scenarios to look at. Here's the deal on owning a house. You shouldn't be moving every 5 years. I look at it like owning or leasing a car. If you want to be in a new car every 3 years-don't buy it! If you want to have it for 10 years-then buy the thing.

[Gridlock]

OK...so this has bugged me a bit, because I don't think the scenario rang true.

So I decided to play with something a bit closer to home. I'm not a mortgage broker, so take this as a what if, and don't slam it in people's faces, because they may just poke some holes in it.

Oh, and I didn't make a fancy video with my soothing voice walking you through it.

My scenario. I found a building, here in New West that has a unit for sale, and a similar unit for rent. Apples and kind of apples. In question, we have a 2 bed, 2 bath unit in a newer building. The ad for the purchase unit says that it needs some work...carpets and a couple of doors and some paint. Perfect...That's a part of home ownership right.

Purchase price: $300,000(rounded up)
Strata: $279
Rent: $1600
Strata: Included
Interest: 4% both for investment and mortgage.

A few notes...didn't include anything like mortgage insurance for the less than optimal down payment and I guessed prop tax. It's just a straight up excel amort schedule.

Here's a more likely deal. You have $10,000 and your parents are willing to loan you $20,000. If you rent, you invest 10k, if you buy it goes to closing and whatever is left buys you some new doors.

The rest of the assumptions are listed on the spreadsheet. Sorry, its kind of ugly.



There are only a couple of numbers I'm interested in.

1. I wasted $17000 more on renting vs. the money "wasted" on owning(strata, prop.tax and interest)
2. Even after "wasting" less on owning, you also "earn" either 36,000 or 16,000 depending if your parents want their money back or not.

Keep in mind, this has NOTHING to do with the value of the apartment going up or down over the first 5 years of ownership. AND...those numbers get worse if the landlord increases the rent. It's highly unlikely that the rent would stay the same over 5 years.

[Gridlock]

I'm going to add..here's the responsible decision. Rent less. If you drop your rental budget by $300 but still pay that $300 into an investment...you are laughing.

In my realistic New West scenario, $1300 gets you a very decent apartment. You may not be in a new condo, or a condo at all, you may be in an older, but renovated apartment but very decent place.

So that's where the argument comes in on forced saving, because for most people that "extra" $300 will be burned anyway.

[vl_86]

Hey Gridlock,

Your assuming that if you buy, your initial balance will be 280k with the parents helping out, if you wanted to compare apples to apples you should have done the same thing for the investment side for renting, or not done the helping out at all


Also it seems like your interest rate is being calculated at around 4%, which is historically very low, you might be able to get away with that within the first 5 years or so but i do not think that is very sustainable. With that in mind a 1% increase could increase your payments by $250

So all in all you might be saving within the first 5 years, but what about the follow up mortgage renewals? with a 2% prime rate swing it could change the outcome drastically. In my opinion, whether you gain or lose out is too closely linked to the prime rate, which is just a educated guessing game, very similar to investing in the stock market

[Liquid_o2]

In an MBA class I just finished taking, our final project was; what is the better investment, purchasing condos or investing in a REIT. Even though we were looking at the Toronto market, Vancouver would be very similar. After running all the models, the REIT came out on top for every scenario, owning a condo as an investment gave very little yield no matter how we played with the numbers over a long term period. And this is with using very low interest rates. The only reason to invest in a condo right now would be for a certain type of lifestyle that you are looking for.

[d1]

Lets say at this point you already own the $1M property - would it better to sell it and rent or to keep it?

[Bahhbeehhaaaa]

Originally Posted by rsx

His example is for one very specific scenario ONLY.

+1, still need to include appreciation.

Anyone know what's the property transfer rate?

[Hehe]

IMHO, buying a condo unit is never a good investment no matter how you want to put it. Because your long term cost is increasing (maintenance+strata) while the value goes down (two condos building in the same location, the new one is almost always more valuable than old one)

The only exception is when RE market is going nuts and you can sell and gain big bucks in very short time.

In the long run, RE investment only makes sense if you own the land. As my parents would say, there can be old houses, but never old land.

Buying a condo essentially gives you a license to live somewhere on a perpetual basis. (assuming you pay your fees+maintenance+being freehold)

[Gridlock]

Originally Posted by vl_86

Hey Gridlock,

Your assuming that if you buy, your initial balance will be 280k with the parents helping out, if you wanted to compare apples to apples you should have done the same thing for the investment side for renting, or not done the helping out at all


Also it seems like your interest rate is being calculated at around 4%, which is historically very low, you might be able to get away with that within the first 5 years or so but i do not think that is very sustainable. With that in mind a 1% increase could increase your payments by $250

So all in all you might be saving within the first 5 years, but what about the follow up mortgage renewals? with a 2% prime rate swing it could change the outcome drastically. In my opinion, whether you gain or lose out is too closely linked to the prime rate, which is just a educated guessing game, very similar to investing in the stock market

Yes, we can all sit here and shoot holes in scenarios. For me, the one illustrated in the video didn't ring true, so I changed it to something that seemed more likely to me.

In my scenario, the parents help is for buying only, which I think is very likely. Most parents aren't going to just hand you over money to invest for yourself.

I decided to end it after 5 years, the period for a standard first mortgage. YOu can sit there and either say" its going to be fine, or its going to be doom and gloom". That's really your call to make, and decide right from the start if you want to run that risk.

Also after 5 years, you will be making more(hopefully) more established in a career and blah blah blah.

I guess my end point here is this: I can easily change that scenario to make it that renting comes out ahead. Drop the downpayment to the absolute minimum and increase the interest rate a bit and you are dead even.

The main lesson is on renting. If you are making the decision to rent instead of buy, do it smartly. Don't spend a mortgage payment in rent. Drop it down and invest the difference.