Please evaluate my "deal"

[littlewenzi]

Just signed for the units yesterday, but think I am not getting a good deal out of it just want some thoughts. Not an experienced buyer, so your help is greatly appreciated. My overall experience with this transaction haven't been great. The rep from Concorde seems shady and not very helpful. My own real estate agent was pretty helpful, but there were some surprise at the end (read below)


Details: Bought 2 units (Surrey Park Ave by Concorde) (One was bought by my parent)

2 units, same plan, one on 18th floor, other on 32 floor.


Both same plan (C), 515 sq feet + ~50 sq ft balcony
FYI, the plan C is that one that they have in the showroom

There are 3 of these units with this plan left, the last one is on the 5th floor (by fifth, I meant 2nd, since it goes to 5 after ground, iirc).

Price (Both were the original asking price, they wouldn't budge on the price. we did not specifically said a lower price point, just ask them to lower the price.:
Unit 1 $233,900
Unit 2 $240,900 (IIRC, dont have it on me)

Down payment schedule
1. 5% on signing
2. 5% May 2014
3. 7% Sept 2014
4. 3% Feb 2016
5. The rest on completion (est. summer 2016)

"deals"
From Concord
1. Half price locker (Originally $3000, now $1500 additional)
2. Referral Program (Since we bought 2, I "refer" my parent, so we each got $1000 back in Visa Gift card 7 days after we sign)
3. Furniture move in bonus $3000 each

From my real estate agent:
1. My agent actually bought a unit as well, so he referred me, so I got $1000 Visa gift card back.
2. My agent also said he will give me his $1000 referral card as well.
3. My agent will give rebate me back $2500/ unit, so $5000 in total. (but he said I wont get the money until completion (Est. Summer 2016). This was the surprise, he never mentioned anything about the getting the $5000 until completion. I was under the assumption that I will get it 7 days after signing (like the referral program). When asked why I won't get it till 2016, he said that he doesn't get paid from this sale until 2016. When I heard that I was lost, I have never heard of real estate agent getting paid from the developer until completion. I always thought they get their share after the contract is set in stone (ie. after 7 days of signing).

On a side not, another surprise I had was this:
Previously, Concorde Agent said that there is a rental agreement bonus, which was 6%/year for rental income guaranteed. When I went to sign it, she told me that I only get that 6% IF if don't take that $3000 furniture move in bonus
I was never mentioned of this up till the very last moment when I sign the contract. And here's the "deal" with the 6%.
1. You still need to pay a $75 management fee
2. The 6% does not start until the first of 2 calendar month after I get the keys. (ie. If I get the key on Sept 10, then I don't get rent till Nov 1) Even if during this time the property is rented, the money goes to Concorde/management company and not to me.
#1 + #2 was not mentioned right up till the last minute when we signed the contract. I ended up picking the $3000 deal. I guess I will find my own tenant.



So there you have it, I felt somewhat pressured when I signed it, so I need to settle down and evaluate the whole deal.


Sorry if this seems like information overload, but I really couldn't explain it with less words. My deadline is this Sunday, so hope to hear experience from you guys.


On a side note, other deal (gov incentive)
1. I was told I will get a rebate of around $4000 upon completion if someone lives in the apartment (whether rented out or I live in)
2. First time home buyer (if I decide to live in it)

My questions:
1.how would you rate the deal, fair or which side had the edge
2. $5000 rebate from agent at completion, is it true they don't get paid till completion?
3. I thought I could bargain for less, but nah. Concorde didn't drop a penny. All the deal from Concorde was offered and not negotiated. My agent's deal was negotiated from $2000 ->$2500 rebate / unit. Do you think it is reasonable for them to not drop the price (because it is the last 3 unit available with that plan. (BTW: I was told it is the last 3 unit with that plan, I never see any "book" or list with what's sold and what's not. So the Concorde Sales can be BSing and I wouldn't know. When I went to other, like Century, they would have a mock up apartment, showing which unit is sold and which is left. If I had the money, I would buy other. But that is out of the question.

So Should I or ?

Wenzi

[littlewenzi]

I forgot to mention, this is for investment purpose.
I could walk away if there is a better deal out there.
My budget is low 200's, so there is not a lot to choose from to begin.

I picked Surrey mainly because of the growth in the future, I estimate to sell before 2024.

Wenzi

[GMasterAres]

Originally Posted by littlewenzi

I forgot to mention, this is for investment purpose.
I could walk away if there is a better deal out there.
My budget is low 200's, so there is not a lot to choose from to begin.

I picked Surrey mainly because of the growth in the future, I estimate to sell before 2024.

Wenzi

Sell before 2024? How much before? If around 2024 that's about 8 years. You will probably make some money but given you will eat costs the first 5, you may actually not.

Remember every loss you net per month initially, you have to make up for when you reach black before selling if you aren't strictly hoping for equity return. You will be paying off the mortgage but for the first 10 years or so you largely pay interest not principal so you're banking on prices raising quite a bit.

1 bedroom units around here rent for between $950 and $1100 a month right now. I would be surprised if you could get more and I'd go with the lower of the numbers for estimations.

Take that number, add inflation every year for the next 10 years, then factor in your costs which are mortgate + strata + property tax + any damage repairs (appliances, etc.) + rental management if you go that route.

That will then tell you when you will turn from red to black (if you are red at all) and how long you have to be in the black until you are making money now completely outside of equity gain.

That then will tell you how much equity you need to gain in that time frame to make a profit. And remember you have to gain equity to actually make a profit because even though you will make money on selling, if you gain or lose equity, you only make back your original down payment basically so you're no better off.

[Alex Mackinnon]

I've been saying this for a while, but I staunchly believe that investors will lose their shirts when higher interest rates come back. Regardless of how much down you put in, the bulk of people out there are leveraged up and can drag the market down with them.

I think real estate is just about the worst investment that can be made in Metro Vancouver short of a needle and heroin right now. While there is likely a lot of shadow demand waiting for prices to fall the average income in Vancouver doesn't support anywhere near the current cost of real estate.

[Blease]

Okay Alex, I agree that Vancouver incomes don't support Vancouver property. However, the model you refer to has never really held in this city and Vancouver has never been a typical city in that regards. While Canada is regarded as a leading world nation with a very high standard of living (and quality of life), Vancouver is it's only major city with winters that could be described as non-Siberian. And being surrounded by an ocean and picturesque mountains doesn't hurt. So while Toronto, Montreal and Calgary have all the perks of a major Canadian city, they don't have our weather or scenery and that's the difference. Chinese zillionaires and wealthy Canadians from across the country will ALWAYS pay a premium for a slice of life here. Hence local incomes count for little when it's affluent outsiders who are driving the real estate market. And yes China could indeed fall into a perilous recession, but some other global economy will step in to its place to pay exhorbitant rates to buy that little bit of Vancouver paradise.

Wenzi, sorry to go off topic. I sense you will do just fine investing into his neighbourhood. Park Place looks beautiful, has a lovely park across the road and the King George station development next door looks very exciting.

[jlousa]

First, please stop calling them Concorde, there is no e. Sorry major pet peeve.

It is not unusual for a developer not to budge on price. How would that be fair to all the early purchasers if they could've just waited and bought cheaper? Not to mention what that would potentially due to financing when completion comes around. What is normal is if a developer is having difficultly moving units is incentives, which is what you got. Cheaper storage unit, move in allowance, etc. Another common one is prepaid strata fees for a set period of time.
Do not know the contract used by Concord as to weather your realtor is being upfront with you or not. It does seem unusual for them not to receive their commission until completion... But it's certainly not impossible for it to be the case. You could simply ask Concord at this point as they have no reason to keep that info from you now.

While I don't share Alex's point of view on real estate in Vancouver being the worst investment, I would be careful about buying a condo with the idea of positive cashflow right now. I'd only be buying for my own use, or if I truly believed in the area and had no problem with being cashflow neutral for a few years.

[GMasterAres]

Originally Posted by Alex Mackinnon

I've been saying this for a while, but I staunchly believe that investors will lose their shirts when higher interest rates come back. Regardless of how much down you put in, the bulk of people out there are leveraged up and can drag the market down with them.

I think real estate is just about the worst investment that can be made in Metro Vancouver short of a needle and heroin right now. While there is likely a lot of shadow demand waiting for prices to fall the average income in Vancouver doesn't support anywhere near the current cost of real estate.

I don't disagree but not sure how helpful this is to this specific poster.



The problem a lot of people face is they don't realistically calculate their total cost of ownership (TCO) and miss a lot of costs or the fact that if you lose up front you have to gain to get back to $0 before you actually made money outside of equity.

[rofina]

- What kind of cash-flow do you assume on a unit like this?

- What will you reasonably be able to rent this unit out for to maintain constant tenancy and keep headaches low?

- What rate will the bank give you upon completion in 2016 and how will that affect your cash-flow?

- How many competing units will be complete in the area in time for 2016. Development is bullish, overbuilding is not.

- How do these projections stack up against purchasing an existing unit?

- Would you benefit more from purchasing an existing unit, knowing you might have potentially more leverage over a motivated seller.

I certainly would ignore $1000 Visas as an incentive to purchase a $230,000 piece of property, you need to do some number crunching and figure out what kind of cash-flow you can expect out of this unit upon completion.

Also don't forget you are about to tie up your capital with no return for 2-3 years. That money could be earning a conservative 5% in a low volatility REIT.

[WarrenC12]

That area of Surrey is getting a heck of a lot of bad press lately. Paying ~$466/sf seems a bit steep to me. I agree with Alex on RE being a pretty bad investment today.


Since you can effectively walk away prior to completion, I can understand why your agent isn't getting his share. He also wouldn't get a share if 2016 comes and the bank decides not to finance you. The whole thing would fall through. The problem is that 2 years is a long time, and anything is possible between now and then.

[VanK]

1) $450/psf+ for Surrey is not cheap. I am not saying its a good or bad deal but this is an area that will have LOTS of units coming to the market.
2) Yes its true that realtors don't get paid their full commission until completion.
3) Its very difficult to negotiate with developers at this stage of the sales program. At this stage, sales prices are usually set. It is very likely that the Concord sales rep is BS'ing. You have no real way of knowing how many units are left. In most cases there is a BS-factor. Some developers BS more and some less. In general I am not a fan of the Prompton Real Estate sales reps used by Concord. They are not the most helpful and are only looking out for themselves.

[Alex Mackinnon]

Also, you pay commission to buy, commission to sell, sales taxes, income taxes on the rent and capital gains on the appreciation. All of which pretty effectively offset a couple years of solid capital appreciation if the market doesn't indeed pop like the ridiculous gasbag that I think it is.

[littlewenzi]

Thank you guys for your prompt reply.

I forgot to clarify a few things.

1. I don't have enough money for the 20% down payment right now. It was actually one of the things with under construction that I like, I have time to pay up the 20%. I have about 7% right now that I can afford.

2. I still live at home, not paying rent, so my cash flow is actually pretty good.

3. I estimate $1000 upon completion (the current going price is $950 for the tower next to it with similar size/layout). I don't think it will be that hard to find a tenant since it is 2 minute walk to the skytrain.

4. Let's just say I don't pay much tax right now, even if I made money on the investment, I can offset most of the capital gain. (My T4 is "flexible")

5. In case I couldn't sell the unit in the next few years, I estimate I will get about $600 / month to pay for the mortage ($1000 - fees/taxes/insurance), so I will need to fork out about $500 for mortgage payment (which I can afford).

6. One thing I was worried about was over development, because there was few more towers being built next to it

[Alex Mackinnon]

So you have about $15,000 on hand and can save about $14,000 per year for the next two years? If you can't show the income it's going to be hard to get a mortgage.

So you wait 2 years, and sign on for a $184,000+ mortage. Rates will be higher then, no questions. I have no idea how much higher, but lets say 5%.

That's $9000/yr of your $14,000/yr expendable income. Assuming you're in a low tax bracket, you keep about $10,000/yr in rent, you have $15,000 per year to put against the principle minus all other expenses. Subtract some money for maintenance, strata, potential occupancy etc...

Also, any losses that the property takes will be felt 4x more since you're only 20% down. So a 3% loss in price means a 12% loss of your principle. That's a lot of risk considering that lots of people could swear we're in a bubble and that the federal government is try to cool the housing market.

By 2024, assuming a flat market you end up with somewhere near $170,000 in equity, minus agent fees, transfer taxes, etc...


My Alternative

You put $15,000 in your TFSA today, $14,000 in next year, $7500 in year two, and $5500 for every year until 2024. Use it as a trading account. An average yield of 6% would give you $110,000 in your TFSA and another $66,000 in your pocket account that you didn't spend on mortgage payments in 2024. All with no leverage and no additional taxes.

The best part you can get your money back whenever for maybe $50 to $100 in trading fees and a few minutes on a website. If you want to be leveraged for greater returns then you can, and you get the interest deducted off your income when tax times rolls around. That's something you can't do with a mortgage in Canada.

[rofina]

Originally Posted by Alex Mackinnon

So you have about $15,000 on hand and can save about $14,000 per year for the next two years? If you can't show the income it's going to be hard to get a mortgage.

So you wait 2 years, and sign on for a $184,000+ mortage. Rates will be higher then, no questions. I have no idea how much higher, but lets say 5%.

That's $9000/yr of your $14,000/yr expendable income. Assuming you're in a low tax bracket, you keep about $10,000/yr in rent, you have $15,000 per year to put against the principle minus all other expenses. Subtract some money for maintenance, strata, potential occupancy etc...

Also, any losses that the property takes will be felt 4x more since you're only 20% down. So a 3% loss in price means a 12% loss of your principle. That's a lot of risk considering that lots of people could swear we're in a bubble and that the federal government is try to cool the housing market.

By 2024, assuming a flat market you end up with somewhere near $170,000 in equity, minus agent fees, transfer taxes, etc...


My Alternative

You put $15,000 in your TFSA today, $14,000 in next year, $7500 in year two, and $5500 for every year until 2024. Use it as a trading account. An average yield of 6% would give you $110,000 in your TFSA and another $66,000 in your pocket account that you didn't spend on mortgage payments in 2024. All with no leverage and no additional taxes.

The best part you can get your money back whenever for maybe $50 to $100 in trading fees and a few minutes on a website. If you want to be leveraged for greater returns then you can, and you get the interest deducted off your income when tax times rolls around. That's something you can't do with a mortgage in Canada.

This all makes sense, and if you feel like you are missing out on the opportunities Real Estate provides, invest your TFSA into REITS.

This gives you reliable monthly cash-flow, professionally managed properties, fantastic liquidity, ability to own properties you typically wouldn't have a chance to, and any growth including dividends is tax free.

It sounds like your primary motivator behind purchasing is investment purpose, I think the case for a condo investment in the Lower Mainland is shaky at best.

With an investment the picture is black and white - is your capital better of in RE or invested elsewhere? Right now the yields on condos are very poor - you are speculating on future price appreciation. Given our overall weak population growth, and recent condo boom I don't see a rush to dive into the condo market.

Odds are in favour that a better opportunity will arise by the end of the decade - of course a constant review of conditions is important. Things do change, higher immigration, loosening of lending standards, cheaper credit, etc can lead to another bull market. What are the odds of this?

If you intend this unit to become your principal residence upon completion, the picture is different. And the questions become different.

[GMasterAres]

Originally Posted by littlewenzi

Thank you guys for your prompt reply.

I forgot to clarify a few things.

1. I don't have enough money for the 20% down payment right now. It was actually one of the things with under construction that I like, I have time to pay up the 20%. I have about 7% right now that I can afford.

Ok that's a bit more worrisome. I know it technically is 20% but most lenders want 25% keep this in mind, especially if you are seen as high risk aka you are quite close to the GDS and TDS maximum ratios.

Given you have 7% though, that's $16373. That means you need another $30407 to reach 20% + another $11600 for the GST at closing (and maybe $700-1500 for legal fees). So worse case scenario you need at least another $43507 before closing.

Summer 2016 so let's say June. That's 29 months or $1500 per month every month until closing. If you can afford above and beyond your regular expenses today (car, gas, food, etc.) then you're OK.

2. I still live at home, not paying rent, so my cash flow is actually pretty good.

Make sure based on your income you will qualify for the mortgage. If you have 0 debt and you make a good coin you probably will, but it is 39% GDS and 42% TDS and they do now take into account credit cards and lines of credit when calculating.

3. I estimate $1000 upon completion (the current going price is $950 for the tower next to it with similar size/layout). I don't think it will be that hard to find a tenant since it is 2 minute walk to the skytrain.

For rent? $1000 is probably right. $950 is the minimum here in Park Place but keep in mind our units are larger. Also keep in mind our strata will be less than yours since you have more expensive amenities so you have to factor that in your costs. I'd expect to pay around $200 a month in strata at least for your unit.

4. Let's just say I don't pay much tax right now, even if I made money on the investment, I can offset most of the capital gain. (My T4 is "flexible")

There is no capital gain until you sell and only if it is a rental property not your primary residence. It is just income on your tax return.

[/quote]
5. In case I couldn't sell the unit in the next few years, I estimate I will get about $600 / month to pay for the mortage ($1000 - fees/taxes/insurance), so I will need to fork out about $500 for mortgage payment (which I can afford).[/quote]

You won't be able to sell it in a few years, not for more than you purchased it for. In a new development there is a flood to the market so selling becomes very difficult without losing money especially if Concord doesn't sell out all their units. Once the buildings are built Concord will largely discount the remaining units.

So expect not to be able to sell and make money for a good 5 to 10 years. Minimum. King George is a new area not a mature area so the market will be flat for the next decade more or less.

As for your mortgage payment $500 or $600 a month what? What are you calculating based on???

Your interest rate will be based on 2016 rates. If we assume even 4.5% interest on a 5 year fixed (which is low), that puts your mortgage payments at:

$233,900 - 20% downpayment = $187,120

5 year fixed @ 4.5% am 25 years (maximum you can do now) = $1,035.66 a month.

So not sure where you're getting $500.

$1,035.66 per month + Strata of $200 + $125 for property = $1360.66 a month minimum cost to you.

So if you're renting for $1000 a month, you are losing (red) $360.66 a month. Please let me know where you are getting a $500-600 mortgage from??

6. One thing I was worried about was over development, because there was few more towers being built next to it

There will be upwards of 2,000 more units built around King George station in the next decade. So yes, yes there will be more development. Over development? I don't know yet. But like I said, expect the market to be flat. If you want a quick buck then I would definitely suggest you pull out of the contract and purchase somewhere else in a more mature market.

[b5baxter]

Over the last five years condos prices in Metro Vancouver have increased by 11.9%. That is the official number from the REBGV.

It is highly unlikely that we will see the same return over the next five years. The last 20 months have seen prices decline. And I would expect the next five years to see flat or declining prices.

But let's pretend that condos do follow the same trend. That means your condo is now worth $23,800 more. Sounds great right? But you spent $500 / month for your mortgage (assuming you had it rented the whole time). That means you spent $30,000 to make $23,800. In other words you lost over $6,000!!!

And your money could have been in a bank making more money!

And that is probably the best case scenario.

Buying a condo as an investment under the current conditions in Vancouver is a financial disaster.

It CAN make sense to buy real estate as an investment under conditions where there is a reasonable price to rent ratio. But Vancouver has one of the highest price to rent ratios in the world.

How does it make any sense at all to buy real estate as an investment in Vancouver right now?

[matrix_dot_ca]

littlewenzi,

I am almost at the same boat as you are a month ago. I have looked around Surrey Central developments new and existing and did my math. While some might be cash flow positive, you might end up loosing some $$ down the road due to low or no appreciation when selling time comes. I have looked at Ultra, 3Civic, University District, Park Ave and the existing Park Place.

I almost put an offer on one of the units on Park Place but I backed out on the last minute. If you looked at the sold properties on park Place, the owners got break even and some lost $$$ on their properties. The price has not appreciated at all. Over the next few years, there were more or less a dozen high rises that will be built around central City/Whalley area so overbuilding would be a concern. Rent $$ will be tight as you have to compete with lots of units. I did ask a Property Manger at prompton and some of the rentals at Park Place sits for sometime to get rented.

Condos and TH in surrey almost flatlined in the last 5 years. So don't expect for price appreciation if you were banking on it on your condo investment.

[Laniatus]

Note: I am not an expert, this is just my thought process in how I would evaluate the purchase if I were in your shoes.

Purchase Price/Assumed Value: $233,900
Down Payment/equity: $46,780
Mortgage Principle: $187,120

year 1 Costs
Mortgage: $13,060 (5% interest)
Strata Fees: $1,854 (~$0.30/sqft)
Taxes: ~$1000
Misc: ~$300+++ (unit maintenance fund)
Total: $16,214

Year 1 Gains
Rent: $12,000
Equity Gained: $3887
Total: $15,887

Year 1 Net: -$327

Assuming no gaps in rental occupancy, you will be hovering around breaking even depending on interest rates. Realistically, there will probably be some gaps in rental which would for sure put you in the red. You should also consider income tax on rental income, albeit you say to assume it is ~0 through a "flexible" T4.

However, by investing in the Greater Vancouver Real Estate market you are banking everything on the Property Value Annual Growth Rate (PVAGR). The big difference maker will be in the equity you gain. Every year the amount of equity you gain will increase as your mortgage principle goes down. Increasing property value will further increase this.

I used this calculator to play with some numbers:http://www.ultimatecalculators.com/h...alculator.html

Equity Gain, year 1
-2% PVAGR: Home Value: $229,222
Equity Gain: -$791

-1% PVAGR: Home Value: $231,561
Equity Gain: $1,548

0% PVAGR: Home Value: $233,900
Equity Gain: $3,887

1% PVAGR: Home Value: $236,239
Equity Gain: $6,226

2% PVAGR: Home Value: $238,578
Equity Gain: $8,565

Also, don't forget Realtor fees when selling your property.

Questions to consider:

• Is $233,900 a fair price for a 1bdrm condo in Surrey? Will it still be a fair price at completion date?
• How do you predict property values will change, in your area, over the next 2, 5, 10+ years?
• How difficult will it be to find a good, reliable, long-term tenant? or will you make it your primary residence?

Concluding Thoughts

• Personally I think $454/sqft in surrey is asking a bit too much.
• I believe in the next 2 years we may see prices go down or stay the same
• However, over 5 years I believe prices will begin to rise again.
  
• If I were paying rent and planning to move in, I would consider the purchase (again though, I think I could find a better deal than $454/sqft)
• Otherwise, I think you are better off either investing your Down Payment money/savings at a modest return as others have suggested, or, wait 2 years, save your money for a Down Payment on a newly completed/resale unit in 2016

[rofina]

Originally Posted by Laniatus

Note: I am not an expert, this is just my thought process in how I would evaluate the purchase if I were in your shoes.

Purchase Price/Assumed Value: $233,900
Down Payment/equity: $46,780
Mortgage Principle: $187,120

year 1 Costs
Mortgage: $13,060 (5% interest)
Strata Fees: $1,854 (~$0.30/sqft)
Taxes: ~$1000
Misc: ~$300+++ (unit maintenance fund)
Total: $16,214

Year 1 Gains
Rent: $12,000
Equity Gained: $3887
Total: $15,887

Year 1 Net: -$327

Assuming no gaps in rental occupancy, you will be hovering around breaking even depending on interest rates. Realistically, there will probably be some gaps in rental which would for sure put you in the red. You should also consider income tax on rental income, albeit you say to assume it is ~0 through a "flexible" T4.

However, by investing in the Greater Vancouver Real Estate market you are banking everything on the Property Value Annual Growth Rate (PVAGR). The big difference maker will be in the equity you gain. Every year the amount of equity you gain will increase as your mortgage principle goes down. Increasing property value will further increase this.

I used this calculator to play with some numbers:http://www.ultimatecalculators.com/h...alculator.html

Equity Gain, year 1
-2% PVAGR: Home Value: $229,222
Equity Gain: -$791

-1% PVAGR: Home Value: $231,561
Equity Gain: $1,548

0% PVAGR: Home Value: $233,900
Equity Gain: $3,887

1% PVAGR: Home Value: $236,239
Equity Gain: $6,226

2% PVAGR: Home Value: $238,578
Equity Gain: $8,565

Also, don't forget Realtor fees when selling your property.

Questions to consider:

• Is $233,900 a fair price for a 1bdrm condo in Surrey? Will it still be a fair price at completion date?
• How do you predict property values will change, in your area, over the next 2, 5, 10+ years?
• How difficult will it be to find a good, reliable, long-term tenant? or will you make it your primary residence?

Concluding Thoughts

• Personally I think $454/sqft in surrey is asking a bit too much.
• I believe in the next 2 years we may see prices go down or stay the same
• However, over 5 years I believe prices will begin to rise again.
  
• If I were paying rent and planning to move in, I would consider the purchase (again though, I think I could find a better deal than $454/sqft)
• Otherwise, I think you are better off either investing your Down Payment money/savings at a modest return as others have suggested, or, wait 2 years, save your money for a Down Payment on a newly completed/resale unit in 2016

Excellent analysis.

I would also like to point out that by not buying today you are not forgoing owning property forever. This is difficult to quantify, but don't feel like you are "missing the boat."

Looking at the last few years of condo prices, if you got this advice 3 years ago and your building was completing now you would be much further ahead having your money invested elsewhere.

The time is on your side to build your savings and purchase a unit closer to completion time - this isn't 2005.

[GMasterAres]

Originally Posted by Laniatus

Note: I am not an expert, this is just my thought process in how I would evaluate the purchase if I were in your shoes.

Purchase Price/Assumed Value: $233,900
Down Payment/equity: $46,780
Mortgage Principle: $187,120

year 1 Costs
Mortgage: $13,060 (5% interest)
Strata Fees: $1,854 (~$0.30/sqft)
Taxes: ~$1000
Misc: ~$300+++ (unit maintenance fund)
Total: $16,214

Year 1 Gains
Rent: $12,000
Equity Gained: $3887
Total: $15,887

Year 1 Net: -$327

Assuming no gaps in rental occupancy, you will be hovering around breaking even depending on interest rates. Realistically, there will probably be some gaps in rental which would for sure put you in the red. You should also consider income tax on rental income, albeit you say to assume it is ~0 through a "flexible" T4.

However, by investing in the Greater Vancouver Real Estate market you are banking everything on the Property Value Annual Growth Rate (PVAGR). The big difference maker will be in the equity you gain. Every year the amount of equity you gain will increase as your mortgage principle goes down. Increasing property value will further increase this.

I used this calculator to play with some numbers:http://www.ultimatecalculators.com/h...alculator.html

Equity Gain, year 1
-2% PVAGR: Home Value: $229,222
Equity Gain: -$791

-1% PVAGR: Home Value: $231,561
Equity Gain: $1,548

0% PVAGR: Home Value: $233,900
Equity Gain: $3,887

1% PVAGR: Home Value: $236,239
Equity Gain: $6,226

2% PVAGR: Home Value: $238,578
Equity Gain: $8,565

Also, don't forget Realtor fees when selling your property.

Questions to consider:

• Is $233,900 a fair price for a 1bdrm condo in Surrey? Will it still be a fair price at completion date?
• How do you predict property values will change, in your area, over the next 2, 5, 10+ years?
• How difficult will it be to find a good, reliable, long-term tenant? or will you make it your primary residence?

Concluding Thoughts

• Personally I think $454/sqft in surrey is asking a bit too much.
• I believe in the next 2 years we may see prices go down or stay the same
• However, over 5 years I believe prices will begin to rise again.
  
• If I were paying rent and planning to move in, I would consider the purchase (again though, I think I could find a better deal than $454/sqft)
• Otherwise, I think you are better off either investing your Down Payment money/savings at a modest return as others have suggested, or, wait 2 years, save your money for a Down Payment on a newly completed/resale unit in 2016

$3887 equity gained will not happen. I've lived in Park Place for 2 full years now going on 3, and the assessments have been fairly flat. Gained $3,000 first year, gained $0 second year, lost $1000 this year based on assessment. Yes you can sell for more than assessments but for investment you have to go based on that or you're just asking for trouble.

So given the market is more flat here due to it being not mature and there being a lot of units coming onto the market, I would say first year equity would be better off around $1500 maximum.

The rest is well said even the advice about simply pulling out and continuing to save. There will be more units available so I'd strongly suggest that as an option to consider. Pull out of the contract, stick your money in the bank, and save $1500 a month until Summer of 2016. When the building is complete there will be units available probably at or around the same price. Even if they are a bit more then you will know the market by then better and have $50,000 in the bank!

I really think investment properties aren't completely worth it unless you can put at least 50% down and get that mortgage down so low that you compensate for the price to rent difference in Metro Vancouver that has been pointed out. Say you put 50% down on a $233,900 unit even if you think that is a bit high (which I don't actually).

That's now a mortgage of $116,950 or $680.19 a month @ 5%. $1005 a month with costs so you're now breaking even with rent or making a bit of money thus not starting in the black right away.