Real Estate info?

[AreWeThereYet]

I have read a few posts from seemingly well informed sources on real estate. My question I recently sold my edmonton house for 420k and am now in victoria. I had a 4 month GIC at just over 3.25%. I recently saw a newer "leased" condo 2bdrm 2 bath for sale at 270k rented at 1200$. Seems like a pretty good return on investment too me as Im only getting just over 1100 per month. My question good "investment" to offer 255 or so? What would you do with the money? Thanks for any serious comments will probably laugh at any dumb ones.

 

[Cosmo]

What should I do?

Well, first off, social commentary on economic trends hardly equates to sound financial advice.

So... Tip #1: Don't seek specific investment advice from the peanut gallery of a service provider board.

Having said that, why on earth would you want to buy anything right now????

I’d say it makes more sense to diversify your finances instead of swallowing a piece of real estate. We are at the absolute end of the boom, and not even at the end of the beginning of the bust.

Buying Real Estate at this time is catching a falling knife.

But, what the hey, let's look at it for a second.

You've got $420,000 invested at 3.25% (let's assume we keep this rate for the course of the year).

You want to take $255,000 out to buy a condo. Factor in closing costs, legal fees and you're adding minimum of $10,000 to that.

So you have $265,000 that would have been earning $8,612.50 annually @3.25% (or $717.71 per month).

Your question is should you convert that to a condo with a rental income of $14,400 per year (a difference of and extra $5,787.50/yr or $482.29/mth).

Hey, what a deal. If you were actually making almost an extra $6,000 per year!

But you are not.

First off, you have to factor in other expenses.

Start with property tax (approximately 0.5% of the purchase price with is normally paid once a year). That takes $1,275 off the $5,787.50 = $4,512.50

Set aside money for maintenance ($800.00/yr), insurance ($1,000/yr), and a minimum expectation of one month where the place sits empty without a tennant ($1,200/mth, no rent) and now our net profit for the year is reduced by another $3,000 and takes us down to $1,512.50/yr ($126 per month).

Finally... don't forget income tax. Subtract a minimum of 33% for CRA ($499.13) and your profit for the year is $1,013.37 or $84.45 per month.

Your questioning the wisdom of your GIC for the sake of an extra $84.45 per month in extra revenue????

And that says nothing about the time you spend dealing with a tennant, the buildings strata council (god help you if it turns into a leaky condo), etc.

Then there is the future of real estate.

Even the conservative estimates are predicting the real estate market to drop 10% of it's value in 2009. That takes $25,000 from your investment.

That's a net loss of $23,487.50.

Your question, therefore, is: Should I be happy making $8,612.50 annually or should I pump equity into a potentially declining asset and lose $23,487.50 on the year?

IMHO, I would look for other options for your GIC.

 

[TheGuy]

Had coffee with an agent this week who said condo prices in Vancouver will drop at least another 20% next year. Some people will owe more than the value of their homes.

Prices in the UK are expected to drop 30% by next year over their highs.

 

[Cosmo]

one of his regular customers who put deposits on 8 condos in Yaletown planning to flip them prior to completion, something he'd been doing for a while.

Soo many people were doing this downtown. I have tons of co-workers who got into this big time in 2002. It was easy money. They started off putting $10,000 per suite down as a deposit and on a $300,000 condo (and would take two each)... then flip the assignment 8 -14 months later, just prior to completion. They would sell the assignment for $360,000. After subtracting the deposit, they made $100,000 for doing fawk-all (and didn't report it to Rev Can - as a side note CRA is not pulling assignments from realtors and back checking those assignments for unreported revenue streams).

The lure of easy money was so strong, they got caught up, like the example you posted, and committed to 8 and more at a time.

That's why the coming conditions downtown will DESTROY the bubble in Vancouver. So many condos will be liquidated and forced on the market.

It will be interesting to see if their profits vs losses from this crash balance out.

 

[chancy4me]

Well, first off, social commentary on economic trends hardly equates to sound financial advice.

So... Tip #1: Don't seek specific investment advice from the peanut gallery of a service provider board.

Having said that, why on earth would you want to buy anything right now????

I’d say it makes more sense to diversify your finances instead of swallowing a piece of real estate. We are at the absolute end of the boom, and not even at the end of the beginning of the bust.

Buying Real Estate at this time is catching a falling knife.

But, what the hey, let's look at it for a second.

You've got $420,000 invested at 3.25% (let's assume we keep this rate for the course of the year).

You want to take $255,000 out to buy a condo. Factor in closing costs, legal fees and you're adding minimum of $10,000 to that.

So you have $265,000 that would have been earning $8,612.50 annually @3.25% (or $717.71 per month).

Your question is should you convert that to a condo with a rental income of $14,400 per year (a difference of and extra $5,787.50/yr or $482.29/mth).

Hey, what a deal. If you were actually making almost an extra $6,000 per year!

But you are not.

First off, you have to factor in other expenses.

Start with property tax (approximately 0.5% of the purchase price with is normally paid once a year). That takes $1,275 off the $5,787.50 = $4,512.50

Set aside money for maintenance ($800.00/yr), insurance ($1,000/yr), and a minimum expectation of one month where the place sits empty without a tennant ($1,200/mth, no rent) and now our net profit for the year is reduced by another $3,000 and takes us down to $1,512.50/yr ($126 per month).

Finally... don't forget income tax. Subtract a minimum of 33% for CRA ($499.13) and your profit for the year is $1,013.37 or $84.45 per month.

Your questioning the wisdom of your GIC for the sake of an extra $84.45 per month in extra revenue????

And that says nothing about the time you spend dealing with a tennant, the buildings strata council (god help you if it turns into a leaky condo), etc.

Then there is the future of real estate.

Even the conservative estimates are predicting the real estate market to drop 10% of it's value in 2009. That takes $25,000 from your investment.

That's a net loss of $23,487.50.

Your question, therefore, is: Should I be happy making $8,612.50 annually or should I pump equity into a potentially declining asset and lose $23,487.50 on the year?

IMHO, I would look for other options for your GIC.

Hell be smart your from Alberta! go in an offer the guy $175,000 for the condo make him take the hit up front. You keep low balling these people someone will bite. Thats how I have bought a few houses and acreages and yes it sucks but........do you really think one of them would give a rats ass about you if the shoe on the other foot.....not likely