Edit: Hi greaterfool.ca visitors! I’ve added a few more points of interest at the bottom of this post if you want a few more details about our condo and the sale.
The sale of our condo closed yesterday afternoon (late evening for us), and while we slept, we amassed a delightfully large bank balance.
That’s basically what we have left after paying off our mortgage and the other costs associated with selling (realtors fees, mortgage penalty, etc.). Sadly, it’s not all Ale & Whores from here on out. The cash has since been moved into our managed portfolio to be looked after by someone far more savvy and responsible than ourselves.
But the big question: did we make out like bandits by buying into the Vancouver real estate game? Or was purchasing a condo during the bubble instead of remaining renters our ruinous downfall? If all the real estate hype is to be believed, we must fall into one or the other of those camps, right?
Not so much. The actual result, after crunching the numbers, is decidedly underwhelming.
Real Estate purchase info is publicly available, so I’m not giving away anything particularly personal when I share that we purchased the condo in 2006 for $610,000 plus 5% GST ($640,500 total) and sold it in 2012 for $699,000. A gain of $58,500 over 6 years, or just over 9%. And if you want to get really silly, you could call it a gain of 45% on our original 20% down-payment. Not bad, right?
Not so fast.
Take away from that the selling costs we paid of realtor fees, repairs (new paint & floor), staging, legal fees, and we barely made away with $20,000 profit. And of course that doesn’t take into account all the costs of holding that investment: property taxes, condo fees (including a couple special assessments), and mortgage interest.
Putting all those numbers in, we spent about $1750/month “rent” (those holding costs, not including any mortgage principle repayment) for 55 months to make that $20,000.
What would renting for the same period have cost?
We know the mirror-image unit across the hall was charging just about $3000/month rent. They’ve got a few more square feet, and an amazing view of English Bay, so say ours would have rented for $2500/month. It would have cost us an extra $41,250 (plus the $20,000 we wouldn’t have made) to live in the same suite.
More realistically, we’d have stayed in our previous rental. Accounting for the maximum 4% annual rental increase, we would have averaged $1855/month in rent. At $100/month difference ($5500 over the 55 months we lived there) it’s almost enough to call it a wash.
So, the real question becomes, could we have done something different with our down payment of $130,540 to make $25,000 in 55 months? Maybe. The markets were absolute shit during those few years, so getting 5% a year wasn’t likely, but I think in the right investments it was probably possible.
So there you have it. Renting vs. Buying, in our particular situation, had no clear winner.
I did love our condo and really enjoyed both the space and the location. It was a great place for us to live, so I’m happy the numbers didn’t show it was a financially terrible idea to have done so.
But, considering renting isn’t bankrupting us either, I’m really enjoying the freedom and flexibility of non-ownership, and am in no hurry to buy property again any time soon.
Edited to add: Our condo spent three months on the market (after letting ourselves be talked into listing FAR too high by our delusional realtor) and sold for $36,000 below assessed value. It’s a penthouse unit in Vancouver’s Kitsilano neighbourhood, and we only sold because we’ve moved away from Canada. We bought what we could afford, with 20% down, and didn’t buy with any intention to flip. We had considered selling in November 2011, but ultimately decided we liked the unit and wanted to stay. In March 2012 the opportunity to move abroad came up, and renting wasn’t going to be cash-flow positive, so it was time to sell. We’re currently happy renters living in Oxford, UK.
This would have been a very different blog post if your time had shifted 6 months to either side 🙂
July 27th, 2012 at 8:34 am
I know, right? crazy-making. all of it.
Thank you for your straight forward analysis. I find your financial honesty refreshing, and try to be open about our own situation as appropriate. If we were in scads of consumer debt I might be more reticent to share those figures, but some seem surprised when I answer how much our house cost with no hesitation ($326 000). As you say, it’s public record so if someone really wants to know they can find out.
August 1st, 2012 at 8:12 am
@Riann Thanks! I wonder if we’ll ever get to a point where salary data is public (or at least where people don’t think it’s taboo to talk about). I hear it happens in some places, and there is much less hang-up over talking about finances.
Great post. I agree with geekphilosophy about the timing and would also say that if you were speaking about a house rather than a condo, the numbers would be much different.
August 1st, 2012 at 8:13 am
@thethirtiesgrind Absolutely. I feel like we’re kicking ourselves a tiny bit for not bailing (as we’d been considering) in late 2011 – but then we’d have had moving/renting costs to deal with, and potentially a house to sell (since that’s what we’d have been looking at getting into).
Great post, Jenn. It really illustrates how confused people are about the Vancouver real estate market. It’s detached houses in Vancouver City that have made huge gains while the condo and townhouse price gains have been much more modest. Glad you had a great living experience and made some money, and that you decided what works best for you by experiencing both renting and owning.
August 1st, 2012 at 8:15 am
@Editor, REW Thanks. I’m not-so-secretly glad we had this reason to opt-out of Vancouver real estate entirely! At least for the next few years.
I think that one thing here has to be clarified here. You can’t fairly say that owning vs. renting was “a wash” if you’re comparing owning your condo vs. renting another space. That simply isn’t a true comparison. Sure, you can say that perhaps you might not have chosen to rent your place if you didn’t have the option to buy, but that’s still bringing in a whole new set of variables. If you want to title your experiment: “let’s compare our decision to buy our condo vs. had we stayed in our old place”, this is fine. But, mathematically, you have to compare owning vs. renting the exact same space if you want to really compare how you did financially with all other aspects of your life equivalent. So, really, you guys are roughly $60K head, not $5K, correct?
Ha… just reread my comment… correct that first sentence to remove a “here” 🙂
For some reason, I can’t leave a longer comment (I blame Firefox)… but I did want to add that your financial honesty is always appreciated. It annoys me that something that influences most of life’s decisions is so taboo for so many people. I think we could all learn from other peoples’ choices/successes/mistakes/situations, but that’s only possible if we actually talk openly about it.
August 1st, 2012 at 8:18 am
Thanks Nicole! And you do make a good point that we got a helluva deal for a very nice condo when you compare renting it vs. owning it! We never would have spent that much in rent, but buying gave us a great opportunity to take things up a notch in terms of the place we were living.
Are you kidding me ! if you used your $130,540 in 2006 to just buy Gold or silver bullion you would have made 300% gain over your initial investment , you hassle no hidden fees and above all no freaking taxes , gold /Silver Bullion is the way to go , a $130,540 in gold bullion could very fit inside your pocket and you could walk with it in your pocket no condo fees involved no repairs and no property taxes …..invest in Gold bullion with the money you have you will be glad you did , forget about real estate
August 1st, 2012 at 8:20 am
@Nicole B I try not to walk around with 13lbs of stuff in my pockets ($130k worth of gold at $800oz in 2006), but maybe it’ll become the hot new fitness craze? Like the ankle-weights of the 80’s.
Wow, 3 grand a month rent, who the heck can afford that??? Besides that great article
August 1st, 2012 at 8:23 am
Thanks Rob. We spent about $3k/month on mortgage, maintenance and taxes – it’s certainly not terribly far-fetched in terms of monthly costs for Vancouver. We’re fortunate enough to have two professional salaries in relatively well-compensated industries for Vancouver, but it is an astonishing amount for anyone making the Canadian (or even BC) average income (which is, rightly, why so many are screaming about the city’s affordability).
Jen, great article. I would suggest a simple edit to make it more clear the $1750/mn “rent” does NOT include mortgage principal repayment. It took me a moment to realize this and I’m sure others will gloss over it.
Your total monthly payment was ~$2650/mn, of which $900 was paying down the principal. If that $900 was being saved and earning interest you’d easily offset the $5500 loss by renting further adding to the wash renting vs owning.
As for the gold nut – if you don’t want to speculate on housing, speculating on gold is even worse. Gold tends to follow the economic cycles, with some epic crashes historically.
August 1st, 2012 at 8:30 am
Thanks Christopher – good point about being more clear about not including the principal repayment in the calculations. I’ve edited to hopefully help that.
Another blip in the math that I didn’t explain well is we purchased presale in 2006, but didn’t move in until 2008: there were 19 months where we were renting and saving up the rest of our down-payment (we put 15% down on the contract, saved up the rest for closing). So we did have $92,500 tied up for a year and a half earning a pittance of interest in the developer’s bank accounts (I think we got about $3k in interest from the developer for that time).
The 55 months in calculations accounts only for the time we lived in the condo.
Yup. you should have read up on real estate cycle.
History repeats…..
2011 to 2014 is an up cycle in real estate and you sell near the bottom.
Your next buying opportunity is 2020
when real estate slides from 2015
Joe, I think you are confusing Vancouver with the US. Vancouver (and much of Canada) has just peaked and is headed for a few years of falling prices.
Wow, what a great commentary. We are happy you’re here on this side of the pond. With your newfound freedom, maybe the W’s need to schving down to Barcelona for a wee reunion… 😉
Hi Jen,
Your blog post was picked up over at VREAA (vreaa dot wordpress dot com) where I read it and made a comment regarding the financials. My take is that like most homeowners, most of the time, you didn’t actually make any money — you had an accommodation cost. However, your accommodation cost was significantly lower over the 55-month period than it would have been had you paid $2500/month to rent the same condo. It was a bit challenging piecing together your numbers, so I may have gotten some things wrong. You could check the numbers I used on VREAA and post any corrections if you’re so inclined.
Within the next few weeks I’m planning to post on VREAA a full account of the financials associated with the East Van bungalow my wife and I own. I agree with Nicole — we’re too deeply inhibited as a society when it comes to discussing personal finances. Which is probably why many otherwise intelligent people are financial dunces.
@Froogle Scott – thanks! I’ll pop over to check it out, and leave any additional info I can.
Strip away the noise of the actual house. Here are your book ends.
You started with an investment of $130K
You ended with an investment of $241K
Your time horizon was about 4.5 years
Let’s pretend that you got suckered into this housing thing and really should have rented a more modest place for $2K /month and put the rest in your investment. That is, you grow your investment by adding $1K every month since you had $3K to spend
Now, take away the privileged tax-free status you get on the increase value of your primary home. Let’s say you’re smart investors with a balanced portfolio so your tax liability will be more than just capital gains – let’s say a blended tax bill of ~30%.
Your investment advisor doesn’t work for free. Unless you’re going for an index fund, you’re probably looking at about 3% management fee.
So the net is, for you to have made the same amount that this house gave you:-
Had you rented a cheaper $2K/mo place, the equivalent pretax, pre-fee annual compounded rate of return for your investment would have to have been ~ 19%
Had you rented the similar $2,500/mo place, the equivalent pretax, pre-fee annual compounded rate of return for your investment would have to have been ~ 24%
Both of these are fairly unrealistic targets.
How much were you hoping to make? Seems like you had a nice lifestyle and made a tidy sum which none of these other options would have given you.
————–
IMHO, there are four reasons that made your house a better investment:
1. leverage was your friend. You borrowed a ton of someone else’s money at a cheaper rate and invested it in something that made more than that borrowed rate. Then you pocketed the difference.
2. Your property appreciated in value
3. Tax was your friend. The government didn’t charge you tax on the gains that you made on the increase in your investment.
4. As you paid your mortgage, you continued to build equity. That is, albeit small, you grew your investment monthly by adding to the principal