Give Me Back My Five Bucks

The crazy Vancouver real estate market

houseWe lovingly refer to our laneway house as the servant’s quarters, as it sits on top of a garage in the alley behind what is essentially a $3 million home. I’ve never been inside the main house, which looks very big and lovely from where we are. But we’ll never buy a home like that in Vancouver.

Related: We will never be homeowners in Vancouver

That’s why when we saw a piece of property in our neighbourhood being developed into multiple units, we were intrigued. I pass it every day on my way to work, so it’s been interesting to see the progress and speculate on how much it would cost to buy. From what I can tell, the property is divided into one stand alone unit (the laneway), and the main house is being sold as four separate units (two 1-bed units, and two 3-bed units). This is the only way in Vancouver to actually buy a laneway house – you’re essentially buying into a small strata, where you have to pay monthly maintenance fees towards the upkeep of the common property. You can’t buy a laneway house outright.

Related: I live in a Vancouver laneway house

Anyway, I was mostly interested in how much the laneway house would cost, as it’s the kind of place we are living in now. And since neither of us are interested in a big house or a big mortgage, we both agreed that the perfect sized house for us in the future would be about 900-1000 sq.ft.

Okay, so the new laneway house is nicer than ours. It’s 2 bed + den/2.5 bath and 1,077 sq.ft. Ours is 2 bed/1 bath and just under 700 sq.ft. Our home is nice, but their offering is bigger, has a secure parking spot, and comes with a second floor balcony (which I wish we had). But is it worth $1,400,000? 

I’ve thought about this a lot, and I can’t figure out how anyone could afford to pay $1.4m for a laneway house (and that’s not even considering a multiple offer or bidding war scenario which would drive the price up). It’s not like you have a basement suite to rent out to help offset the cost of the mortgage! If you were to estimate monthly costs at $5,800 ($5,000 mortgage + $50 hydro + $350 maintenance + $400 taxes), you’d need monthly net income of about $16,500 to stay within a 30% housing cost budget. Ha!

So then I ran the numbers through a mortgage calculator using the list price of $1,398,000 and a 20% down payment of $279,600 to see how much interest you’d pay in the first 5 years of ownership.

mortgage

The interest alone is more than then $19,800 we pay per year for our place. And that doesn’t even take into consideration the $4,080 in maintenance fees (which can only go up), or the $4,900 in property tax – which would mean whoever buys that home would see $36,425 disappear in the first year alone … and pay $128,794 in interest over 5 years. Which makes me wonder – why would anyone buy real estate in Vancouver when you can rent a similar home in a similar neighbourhood for a fraction of the price?

Related: From home ownership to renting

It seems crazy to invest so much money into one single asset – an “asset” in a market that is so unstable. But I’m pretty sure that all 5 units of this property will sell this weekend when they have their first open house (they’ve probably already received offers!).

I’ve always loved following the real estate market in Vancouver because it’s so fascinating. Even now that I’m renting and even though I know we’ll never buy a house in Vancouver, it’s still so interesting to me. I’ll be keeping an eye out on more multi-unit houses going up for sale in my neighbourhood, as well as other laneways. And in the meantime, we’ve both been looking online at vacant land on Vancouver Island, as well as the cost of pre-fab houses, tiny homes, and even yurts. :) It’s a fantasy for now, but could become reality in the future since the money we’re saving from renting could potentially pay for land and/or a home outright elsewhere in the province.

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


Comments

  1. Janine says:

    We’ve reached the same conclusion, despite having a very good income. We will never own in Vancouver and we will not stay here long term, despite having been born and growing up here. Sad, sad, sad.

    Why do people buy? They don’t do the math. Period.

  2. SP says:

    How home prices, rents and stock returns change over the life of renting/buying are the key

    But it seems like it would be really hard to beat renting in at your rate, even in the long run.

  3. Dana says:

    And I thought Toronto was bad….

  4. ARBM says:

    Vancouver is so crazy for real estate! Lately, I think many of those people pushed out of the Vancouver market are going over to Victoria because the market there has also been going crazy with bidding wars and houses selling the moment they hit the market for well over asking.

    • Krystal Yee says:

      Oh, absolutely! I always thought that one day I’d move back to Victoria, but if things continue the way they are, we’ll be priced out of Victoria too. :)

      • Kelly says:

        Just an example why you will probably regret getting off the property ladder on the future. Did you ever do a post on how you invested the net proceeds from your sale?

        • Krystal Yee says:

          I guess it depends if you think prices are going to keep on rising, and if it’s a good idea to invest so much money into one single, highly illiquid asset. I don’t believe that keeping my townhouse would have done anything for me in terms of eventually getting me into a house in the Lower Mainland (and I never considered buying that home as my first step on the property ladder either). The difference in price between my suburban townhouse, and a detached house in Vancouver is way too big of a gap to ever close.

          And to answer your question about where the money went from the sale of my house – the majority of that cash is currently in an Equitable Bank high interest savings account, and a small portion of it lives in a savings account in my TFSA.

          • Tamir says:

            Why is your TFSA a savings account? Interest rates are too low to justify the shelter. Why not a TFSA brokerage or roboadviser for long term growth?

            • Krystal Yee says:

              Great question! It’s because I don’t know what I’m doing with it yet. This cash is earmarked for a down payment, but the when and the where of buying is up in the air.

              I think we will be in Vancouver for the next while, so I could consider short term investments. But we both do want to buy somewhere eventually, so I think the best thing to do is just keep it liquid for now.

  5. Kelly says:

    I totally agree the vancouver market is insane and a unique situation. But in general, I think your examination of solely looking at interest costs is shortsighted. Property typically increases in value and while people are saying the bubble had to burst, nothing seems to be giving. A full cost benefit analysis needs to consider growth in value of the property. I’m in the GTA and half an hour out of Toronto and just sold my home for a 300 percent return over 10 years. No one should buy a house they can’t manage payments for but you also need to consider future growth.

    • Beth says:

      But it doesn’t always increase in value. I thought I had missed my chance not buying a townhouse condo in my area 5 years ago. Today, those same homes are selling for the same price or even less because of how the market is shifting. Had I bought, I would have lost money when you factor in closing costs, maintenance and repairs, renovations, etc.

      I think if you’re going to consider your home an investment, you have to treat it like an investment — that is, be willing to buy and hold and wait out market down turns. For someone like me who anticipates moving sometime within the next 5 years, it’s not worth it. For someone like you who was able to hold for 10 years and sell high, that’s pretty awesome! :)

  6. Andrea says:

    It’s crazy how much homes are going for.

    My parents’ (who live on the east side) neighbour sold their house for 1.3 million and the realtor is thinking about reselling it should her son decide he doesn’t want to live in Vancouver.

    My husband and I each own a condo (one in Vancouver, the other in Burnaby) and make a good living. Even if we sell both, we couldn’t buy the neighbour’s house. I can’t imagine taking on a 700K mortgage in my late 30s.

  7. Lloyd says:

    I totally agree with this assessment and therefore prefer to rent in Vancouver
    It may not be a bubble but the math does not support home ownership at this level

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