Market volatility not over: A closer look at condos
Last week I discussed how the condo market for the first time since the pandemic has shown some real sales strength. Let’s take a closer look as to what is going on there.
In bigger metropolitan markets like Toronto and Manhattan, we’ve seen a rapid exodus from the condo market, with both listings for rent and sale exploding this year. Not so in Victoria as of yet. Although condo inventory has built up over the year and is now above the 10 year average in Victoria, it hasn’t been exploding. That stands in stark contrast to Toronto where condo listings went from a 10 year low to a 10 year high in 4 months.
Toronto chart from Ben Rabidoux
We know that the detached market is still much stronger than condos, but middle of the road active listings and a very high sales rate still translate to an active market. Within the bigger cities, market activity has shifted to the suburbs as people pursue more space and some people no longer need to commute. We haven’t really seen that in Victoria since we don’t have much of an inner city to start with, and for some people we are the extended suburbs of Vancouver.
Are buyers scared of tall towers?
One of the headwinds against condos is the fear of common spaces. That’s no big issue in a 4 story lowrise where it’s easy to avoid others on the staircase, but it’s a concern in taller towers where elevators are more important. However there does not seem to be any evidence in the sales data that condos in taller towers are performing any worse than those in smaller ones. Both sales patterns and the growth in active listings is broadly similar between towers over 10 floors and those under, so it doesn’t appear that buyers are staying away from taller towers, or that owners are bailing out of them.
Two bedroom units do better than studios and 1 beds
Sales of condos are up across the board, but there is a distinct difference between 1 bed units more commonly bought by investors, and 2 bed units. In the last two months, sales are up more than new listings for 2 bed condos, while the opposite is true for studios and 1 beds. Although the rate of bidding wars are low and equal in both (7% of sales), that imbalance is definitely visible when looking at the market. The inventory of 2 bed units is only up 16% from last year, while there are 62% more studios/1 beds on the market. On average, units of both categories are selling for about 2% under list price at the moment.
Looking at the months of inventory, the market for 2 bed condos has tightened up substantially from last year, similar to the detached market, while the market for smaller condos has continued to cool off slightly year over year.
With the weakening of the rental and AirBnB markets, it’s possible that investors have contributed to the increase in listings in smaller units and have kept that market from heating up, while 2 bed condos are seeing some increased demand from people priced out of the detached market. Historically speaking though both are in sellers market conditions, but the very high level of market activity on the new listings and sales side make for a precarious balance. Things could change quickly if one of those sides drops off.
Market volatility is not over
Speaking of things changing, we’ve seen a drop in sales and bounce in new listings to start November. After radically outpacing last year in September and October, the sales to new list ratio is now below last year’s level for the first time since the end of August.
The surge in new listings is being driven by condos, with 80% more of them hitting the market in the last 2 weeks compared to a year ago. Blip or trend? Too early to tell but I will bet that the surprises in this pandemic market are not over. The condo market, though in pretty good shape right now, remains the most exposed to pandemic uncertainty.
Construction remains near all time highs, but much of it not for condos
Although we still have very high levels of construction in Victoria, most of the apartment construction remains destined for the rental market. The pandemic doesn’t seem to have put a dent in construction, in fact speaking to local engineers and builders it seems business is booming with many projects coming out of the woodwork, both public and private.
As of September there were 1641 condo units under construction in the region, down substantially from the nearly 2600 we had 18 months ago, which makes me think we probably aren’t running much of a risk of overbuilding on the condo side at the moment. Unlike in the detached market though, the condo market with it’s higher percentage of investor owners always has the potential to make a lot of inventory available on short notice if investors sour on the prospects. So far we’ve seen that the increase in new listings is driven by the ownership and investor markets, while there has been no increase in a primarily retirement market like Sidney. The degree of future supply from investors will depend largely on the handling of the pandemic from here on out, including the supports available to renters and how soon students and tourists will return to Victoria.
Also the weekly numbers, courtesy of the VREB:
| November 2020 |
Nov
2019
|
||||
|---|---|---|---|---|---|
| Wk 1 | Wk 2 | Wk 3 | Wk 4 | ||
| Sales | 192 | 577 | |||
| New Listings | 280 | 750 | |||
| Active Listings | 2124 | 2397 | |||
| Sales to New Listings | 69% | 77% | |||
| Sales YoY Change | +33% | ||||
| Months of Inventory | 4.2 | ||||
New post: https://househuntvictoria.ca/2020/11/16/returns-in-the-investment-condo-market/
55 dB is a lot more than birdsong. And if every house eventually gets a heat pump, it will be a symphony of obnoxiousness.
Further, there are many studies demonstrating that noise pollution isn’t just annoying; it’s bad for our health.
We have a small house heated with electric baseboards and a gas fireplace. Always silent, affordable, esthetically pleasing, almost no maintenance, and comfortable as each room is separately controlled. You can’t beat sitting next to a fire on a day like today like I am right now. I’m not sure what our comparative environmental footprint looks like but our energy use is on the low end anyway as we don’t get to step 2 and everyone gets to set their own room temperature. Our rentals have a variety of heating sources, including one with an electric heat pump which I find noisy and less efficient in some ways as it blows through a central vent system with no individual controls.
Makes no sense. Outside noise should be around 55db. More like dishwasher level. Maybe there’s something wrong with it.
I agree that maintenance needs to be factored in. Same with gas. You’re supposed have all your gas appliances checked every year. Hundreds of dollars in costs that people don’t factor in, even if nothing is broken. Our gas fireplace stopped working last winter, probably gonna just rip it out instead of fixing it.
Something to be said for passive house level insulation + simple resistive heater that lasts forever. A bit more energy but not that bad, and the insulation does most of the work in terms of savings.
I agree about the noise. We have a neighbour with a newer heat pump and the constant noise is very disruptive to the point that my wife can’t outside without ear buds. We have asked them to consider a barrier to cut some of the noise but they have refused saying it would interfere with the efficiency of the unit. Are there ways to cut down the irritating sound of heat pumps?
And don’t forget about the good ol’ electric forced-air furnace.
Going on 12 years in this house (late-70s GH box) and only maintenance has been <$350 to replace a few burnt-out heating coils.
I don't think this furnace will ever kick the can, but when it does, I'll probably get a modern version of the same unit.
Heat pumps seem complicated, expensive to maintain, and I’m not a fan of the obnoxious whirring sound they emit outside.
A condo in Langford also give first 6 months mortgage free, strata free, and free lawyer as incentives. And, in the past many landlords offered free rent on the first month up to 3 months that I have seen.
I think it is to get customers, and prevent price crash.
You are not going to ruin anything, if it is kept within reasonable tolerance (tolerance shift at different outside temperature and humidity levels). However, you will void the warranty if the settings are changed from manufacturer preset.
If your heat pump is multi stage, then stage 1 would run only the heat pump, stage 2 would also call for backup heat (emergency heat) be it electric strip/s, natural gas, or oil, and some also have stage 3 that would turn on secondary electric strip/s. You can set the threshold tolerance manually before stage 2 and 3 kick in, but generally we try to keep it to no more than 3.5 C degrees spread, the reason is to prevent frost (iceing) on the outside coil. Icing can damage the tubings and expensive compressor, and reduce efficiency due to defrost mode cyclings.
I notice that Hudson One is offering three years of free strata fees as an incentive. Brain is a bit slow why is this better than dropping the price?
While I love my heatpump, I don’t disagree with QT. Installers do a really bad job of educating buyers on how to size and run their heatpumps efficiently. Most heatpumps have a backup electric furnace (most?) and the default settings mean that if you do try to setback your heat at night, you end up spending more as it tries to bring temperature up quicker than the heatpump can handle. If you try to run it like an oil or gas furnace, you won’t have good results.
I had to spend time reading badly-written technician manuals for my unit in order to figure out how to turn up the threshold where the electric backup heater would kick in, despite lots of ominous warnings on the system that said I would could ruin it. My technician didn’t know how to do it, and would only repeat the manufacturer line to “keep it at a constant temperature 24/7”- which is correct for some, but we like to sleep cooler than we like it during the day.
I’ve got a graduate degree in engineering (but not in this area at all) so I don’t mind doing the research and playing around with the unit- but 99% of the population won’t and shouldn’t.
People who are currently installing them aren’t doing it for the operating savings- they are doing it for climate reasons or for summer heating, and a small increase in costs doesn’t bother them. Getting them into the next 40% of homes will require better education, better default settings and better installers to help people understand what they are good at and how to use them.
Hmmm, interest point.
The one thing that also bugs me about heatpumps vs other like baseboards is no one ever factors in maintenance. I literally have three invoices from this year alone ranging from $3,400 to $4,200 on relatively newer heatpumps we discovered issues with on inspection. I just had a recent one, new compressor $1,900, R410a $684, HH drier $185…etc, total bill $3,900.00.
You walk into a 1970s house with baseboards, on/off….still works 🙂
Obviously heatpump is the better way to go but people omit some key points in comparisons.
It all depends on many factors that manufactures can’t anticipates, such as fluctuating humidity/dew point vs. temperature, and location of outside/inside unit/s, and it also greatly depends on the installer diligent as well as sizing of the unit.
Add, cheaper installer costs doesn’t necessary translate to saving, because it may mean that the installer may have to cut corners to lower the bid price and perhaps lead to poor performance/efficiency of the heat pump.
I agree that COP of 2 is great, however it seems to give people with heat pumps a license to not conserved energy than before they have their heat pump installed. The average homeowner tend to not see much if any less energy consumption, because they tend to use cooling mode in the summer which they didn’t have that option pre heat pump installed. And, many home owners tend to keep their house warmer than pre heat pump installed (average is around 3-4 degree higher).
I’m sorry that it make you feel defensive when face with facts and experiences from the field. And, there are no FUD apply here. The results are from personal, and accumulated experiences with working/retired professionals, distributors, installers, techs, and mechanical engineers.
Review of Test Procedure ForDetermining HSPF’s of Residential Variable-Speed Heat Pumps —
https://pdfs.semanticscholar.org/dd75/0189450a47b5e44bbe92ad7167322d289ba7.pdf
What worst is that many installers push homeowners to oversize their heat pumps claiming less work on the unit means it last longer and perhaps it provide headroom when higher load is needed. It is matter of fact that oversized is worst for the equipment, and greatly reduced the efficiency of the unit (in depth discussion is save for another time).
Wherever possible I try and use independent lab results. Not sure it’s really possible for manufacturers to use real-world (not lab) test results since there are so many variables in play. Instead of pointing fingers at Tesla, attack the test designers themselves (Tesla is quoting the results of tests done by government bodies).
As for heat pumps, I’m just curious if you have references for your claims. Ecotope/Washington state university have done research on heat pump water heaters (providing both DHW and heat) which are applicable to the Victoria area. I have one of these systems and the COP is definitely lower than the shiny numbers on the brochures. Having said that, COP >2 is still pretty darn good.
You’re talking about the head units on ductless minisplit heat pumps. Heat pumps can provide heat via forced air, hydronic, etc.
Retrofitting these tend to be pretty expensive.
Not saying I have all the answers, but to suggest that we all must give up our freedoms or live in soviet style block housing is pretty laughable. Look around…the world is electrifying, renewables are replacing fossil fuel energy sources, technology is being applied to help de-carbonize our lives. Be part of the solution instead of spreading FUD.
No details on the actual testing that they are basing that on. Got any good links? The HSPF ratings I believe are generally based on Region V, which is 3000-4000 HDD(18C). Victoria’s average for the past 5 years is 2789 which would put us into 4C and heat pumps have higher HSPF4 vs HSPF5. So based on our milder temperatures shouldn’t the performance of our heat pumps be better than the HSPF5 rating would indicate?
The First Nations along the route are in fact part owners of the railway. As for rehabilitation, yes of course that needs to be done. But that’s nothing on the scale of major transit projects that you see in the big cities. Ottawa built a 8 km diesel LRT line on a disused railway for $21 million. Yes you read that right.
https://en.wikipedia.org/wiki/Trillium_Line
The 1990s are 30 years ago now… That would be similar to comparing projects and getting things done in the 1980s to the 1950s. They are different eras and different circumstances. Even though is was 30 years ago, the west coast express had one thing an island passenger rail corridor is missing… an actual scale number of people to support light rail transit. Yes, there is an existing rail right of way, but if the reconciliation mandate is to believed, indigenous consultation along the route will be a major factor unlike what would have occurred during the start up of the west coast express. Also, it is important to remember the the rail line for the west coast express was always and is still maintained for freight. The E&N was in disrepair when it was last operating and has been rotting for a decade, so it won’t be running trains any time they want. Don’t get me wrong, I would enjoy the light rail option on the island, I actually used to use the E&N railway a few times a year when it was operating. I just don’t see a way to make it work.
It’s still legally a railway. They could run trains any time they want really. The NDP government in the 90’s got the West Coast Express to Mission up pretty quickly and they had to deal with the CPR who own the tracks and run a very busy freight operation.
13.4% of new vehicles registered in Victoria are electric
From: https://www.cbc.ca/news/business/insolvency-bankruptcy-covid-1.5798319
Well, it appears the Covid delay that saved a lot of people from bankruptcy is about to catch up. We have about 8 months of pent up insolvencies to catch up on… Should be as interesting to watch as what occurred with the pent up housing demand.
Correction: 239 miles instead of 149 miles
https://househuntvictoria.ca/2020/11/09/market-volatility-not-over-a-closer-look-at-condos/#comment-74211
If Vancouver do it for $500 million per km. I’m sure that the CRD could do it for $1 billion or more per km, and that work out to cost roughly $15 billion for 15 km or roughly $83,300 per household in the CRD if the municipalities manage to stay within the guesstimate to serve less than 75,000 people in Langford/Colwood/View Royal.
SkyTrain construction soars to $500M per Km – https://vancouversun.com/opinion/columnists/vaughn-palmer-skytrain-construction-soars-to-500m-per-k-but-why-is-confidential
I agree.
Under wood floor hydronic radiant floor is about 10-15% more efficient than hydronic radiators, in concrete slab it is often rated between 30-40% more efficient, and in industrial/commercial usage it is often rated 40% or more (as high as 60%) due to more stringent (expensive) construction and much lower heat lost in high ceiling applications.
Are you one of those person who believe everything that manufactures advertised?
Manufactures tend to use the highest possible rating that they can get away with for their products in an ideal/controlled lab (optimal dust free/airflow/humidity environment), hence we will never be able to replicate that in a normal working environment.
“It is important to note the advertised COP values are based on lab tests – in practice, the overall efficiency of a heat pump is likely to be lower, e.g. one rated as COP of 2.0–4.5 may have an actual overall operating efficiency of around COP 1.5–3.0. ”
http://www.level.org.nz/energy/space-heating/heat-pumps/
Take the Tesla Model 3 for an example of how manufactures pump up the numbers (advertised 329 miles on a full charge), but in a normal working condition it fell short by 27% (real world test in the UK its maximum range is 149 miles).
https://www.thisismoney.co.uk/money/cars/article-7364605/Test-reveals-range-Teslas-Model-3-90-miles-claimed.html
18 false advertising scandals that cost some brands millions – https://www.businessinsider.com/false-advertising-scandals-2016-3?op=1
Big brands ‘cheating’ consumers with false lightbulb efficiency claims – https://www.theguardian.com/environment/2015/dec/17/leading-lightbulb-brands-making-false-claims-on-energy-efficiency
Please show us the nirvana solution that you have if it is not a “trade” secret to get to and from that mc mansion with out the sprawl or commute that waste time and energy on that bitumen blacktop?
With Victoria, 50 years sounds about right.
I feel like, with the right plan, the E&N could be a decent people-mover, especially for folks living in the West Shore — I mean, the tracks go right through Langford’s West Hills development; you could build a station right there.
But I also don’t understand why moving freight by rail isn’t seen as more desirable than moving it by truck through a narrow two-lane seam beside a salmon-bearing river.
That seems pretty low – where are you getting your numbers? Seems like most quality heat pumps will be mid-3’s at 5C.
Nonsense.
Denman is a nice community.
On the heating discussion, does anyone else see the heat pump systems as interior eyes sores? When I have been looking at places and every time the heat pump is pointed out to me hanging on the wall as some sort of plus, my mind just reverts to seeing a big ugly appliance hanging on the wall in every room. It just doesn’t seem like an esthetic sales feature to me. On the efficiency side of things combined with an esthetic benefit, I have been considering the hydronic radiant floor systems. They are easily convertible between gas and electric (when the hydronic part is in place) depending on a persons desires and either the gas or electric systems for it are extremely efficient to run. I guess the draw back would be the install cost (to the studs gut and then some Reno) or having to basically be going the new build route where you can control the what goes in from the start of construction.
It is too much of a headache to ever get done… The prohibitive cost is just one part, but the for what it takes to get any kind of project off the ground between community consultation, indigenous consent and the standard Canadian say no to anything crowd; it is unlikely that any government will spend political capital on it and any business group would see it as any other than an unprofitable never ending endeavour. 10 years for a bridge, 30 years for sewage treatment, light rail transit….maybe in 50 years? Honestly, we are likely to see the downtown government offices disperse to where the staff live instead of a bigger need to get people in and out.
I agree completely, but one must address the elephant in the room is that human are destroying the environment by having too many offsprings, and the simplest solution at cutting off 25-30% of the carbon foot print immediately is not to have pets or outlaw pet/s. And, the only way to reach the net zero goal is that people need to give up their rights, and except the fact of living in smaller centralized Soviet style communal apartments to save the planet.
<– zero offspring and no pet
https://populationmatters.org/the-facts/climate-change
https://www.sacbee.com/news/local/environment/article164990657.html
Could passenger rail down the E&N solve Victoria’s congestion woes?
https://www.capitaldaily.ca/news/vancouver-island-esquimalt-nanaimo-rail-corridor-transit-transportation-victoria-langford
We did an oil to heat pump about 2 years ago- before the incentives went way up. We paid $12k for it, vs a quote for $6k for natural gas. Our total electricity bill last year was $1500 for a 2100sq. + 1000sq. ft basement home. This includes heat, hotwater (we have 2 kids, so lots of HW use), lights, cooking and charging our EV. Seems pretty reasonable. Would have been an absolute no brainer with the current incentives.
The problem with the argument that Natural Gas is better used in a home vs in a natural gas plant in arizona is that recent experience has shown that it’s a lot easier and quicker to move an electricity grid to renewables than to rip out millions of heating systems in homes and replace them. Although furnaces nominally have a lifespan of 12-15 years, in reality it’s closer to 20-25 for many people. If you don’t get them making this choice now when they are already replacing an end of life system, your next opportunity is likely decades away. If one believes the science on climate change, we can’t wait for 20 years before starting to replacing heating systems with low/zero carbon ones.
Highest rated heat pump efficiency is around 4.5 COP, but in reality is that they are around 1.8 to 2 COP for our climate (or roughly 40-50% energy saving) compare to electric baseboard heating. Condensing boiler and high efficiency furnace are 97-98% efficient so it is much better that we burn gas for heat instead of convert it into electricity then back into heat.
And, for every 100 kWh of produced heat energy it cost $3.09 worth of gas and associated fees, while it cost $9.35+ for baseboard electric or $4.68+ for heat pump at best (step 1 pricing, and basic charge/rate rider/transit levy are not included).
Re gas vs electric for heating. I agree that in the long term we have to get away from burning fossil fuels to heat our houses. However in the short and medium term it doesn’t seem clear cut. I could install a heat pump and use electricity to heat my house at an efficiency of perhaps 250%. Or I could stay on gas and BC Hydro could instead export that power I would have used and it would displace natural gas being burnt at 40% efficiency to generate electricity elsewhere on the North American grid. Seems fairly close to a wash.
You can get 27 acres on Denman Island for the price of a house in the core:
https://www.realtor.ca/real-estate/22237695/2640-swan-rd-denman-island-denman-island
Wow https://www.latimes.com/california/story/2020-11-13/district-square-ruling-los-angeles
2 in ICU as of today’s update.
https://www.economist.com/graphic-detail/2020/11/12/rich-countries-grab-half-of-projected-covid-19-vaccine-supply
Which is a little odd considering they had an outbreak at Nanaimo General.
I am concerned a bit with the increasing hospital numbers. This is the most that we have ever had in hospital in BC. None on the island yet but it is not a good situation.
Clearly (and gladly) wrong on that. Looked like they were fudging things to get numbers under 4 digits. Hopefully honesty and transparency continues. It is becoming increasingly clear that we were just lucky in the spring timing wise, that it occurred as the weather was getting better and people were starting to get outside more, and it was before spring break, so people didn’t go away.
Almost forgot, there’s an additional “group” rebate offered by the CRD of $200-500 (depending how many people sign up for the same code in the same timeframe). The government REALLY wants you to get a heat pump (and help rationalize an expensive dam 😉
I’m sorry I can’t help you with it, because I got out of residential since 2006. I now focus mainly on industrial and some commercial.
There are so many other things that need to be addressed before more prisons are considered. Besides there is no escalation in crime, Covid is working well to bring down the crime rate:
https://www150.statcan.gc.ca/n1/daily-quotidien/201109/dq201109d-eng.htm
https://globalnews.ca/news/7451469/pandemic-crime-rate-dips-statistics-canada/
Leo, if it’s of interest, I recently replaced my oil furnace for a central heat pump for 12k. Had a couple other quotes come in for $1000-2000 more. In City of Victoria the rebates cover $8350. I think gas would have been about the same price after rebates.
I hope the feds figure out how to build more prisons for the escalating crime rate across the country.
Hope the feds have figured out how to get more GPs and medical facilities before bringing more people here from anywhere.
Feds setting up new streams for Hong Kong residents to come to Canada
https://www.ctvnews.ca/politics/feds-setting-up-new-streams-for-hong-kong-residents-to-come-to-canada-1.5186013
Welcome!
Seems like the residential units aren’t quite there yet. Current EVEMS systems are meant for MURBs and commercial, but it’s only a matter of time that there is approval for residential-sized units. Another approach is putting in a load miser which is commonly done right now for EVSE installs (so sharing a dryer circuit and it would be one or the other).
If that is possible that would make things a lot easier.
With heat pump heating I think you can. No need to go heat pump dryer either, just put the car chargers on a smart controller that runs them if capacity is available so they don’t count against you on the load calcs. I’m not an electrician but I’ve been told these are approved now. On the off chance that you’re running 2 dryers, 2 ranges going, the fridges are cooling, the heat pump is on and everyones got their gaming PC running at the same time, the car chargers just reduce power until more capacity is available.
Take a look: https://www.technicalsafetybc.ca/electrical/electric-vehicle-energy-management-systems-process-faq
With respect to step 4/5/PH you’ll be using heat pump dryers which sit on the same 30A circuit as the washer. You’ll also likely be looking at heat pump water heater, which are often 240V 15A. In the case of step 5/PH, you could use that same water heater as a primary heat source, or dedicated heating at less than 30A (remember the loads are much lower). Main consumers will be induction cooktop/oven (40A or 50A) and car chargers at 50A. Also remember with LED lighting you can wire and entire house with two or three circuits (for lighting).
Not to take away from the home heating enviro discussion…
From: https://financialpost.com/news/economy/mortgage-rates-could-be-heading-higher-for-first-time-in-pandemic
This should be interesting to see if market rates for borrowing start to depart from government stimulus policy.
One practical reason is load. I don’t think you are getting electric heat + secondary suite (with its own electric dryer) + car charging into a 200 amp panel so either you have to do a 200 amp + 100 amp if possible or a 400 amp service ($$$$).
It’s not practical for many combustion appliances in step code 4 and 5 (and Passive House) structures. Most gas combustion appliances use indoor air as their air source. That means you must replace that air with outdoor air, which comes with a large thermal penalty that makes it hard/impossible to hit the step code requirements. Same deal with any exhausting appliance such as a dryer, kitchen hood, etc.
Burning gas also produces some undesirable pollutants which means you should run a higher air-exchange rate (which also is a performance hit). I’m hopeful we’ll see some HRV appliances that can handle cooking duties in the near future, as cooking is typically the major source of indoor pollution.
No NG for new builds is a drop in the bucket for total demand. You have seen gasoline get cheaper and you know why. That’s what it takes.
the cost of solar panel is so cheap that for the average household. I went to Beijing Last year and was looking at those decent quality panels, was told it about 5k USD. Our island electrical contractor really jacked up the installation fee and their huge markup.
It’s not a bad heating source, it’s just not sustainable. A third of our emissions come from buildings and in the long run fossil fuels have no future there. Heat pump is similar costs with much lower emissions, so I just don’t see much practical use to go gas either. Bonus, your house won’t blow up when the big one hits
“Vancouver is the same. Gas basically impossible for new builds. Good, has no place in new construction”
Could you elaborate on why CNG is such a bad heating source, and why it has no place in future new builds? What are the prospects for a current home primarily heated with CNG? In searching for a home in victoria, I had always been told CNG was a good thing.
Trying to get some numbers for this from local installers for an article without much luck so far. If you have a few minutes could you drop me an email? Leo.spalteholz@gmail.com
No doubt any kind of battery storage makes zero sense when you’re on the grid in town unless you want it for emergencies. That might change when BC hydro introduces time of use rates
Correction, my mistake on quoting $10,000 to $12,000. 10K to 12K is the cost of average residential central heat pump replacement. Furnace and boiler replacement typically cost about 1/2 to 2/3 of heat pump replacement.
I wonder how many solar panels it takes to power a -85C freezer necessary to store the vaccine. Searched prices of these freezers and was surprised that they were only $10,000-20,000. Unfortunately they only exist in hospitals and labs.
I don’t know how you come up with 12 kW from 14,500kWh/year, but according to the link below “annual average ‘equivalent full sunlight hours’ in British Columbia = 1,004h”, that work out to be 14.442231076 kW not factor in peak winter usage and use BC Hyrdo grid tied net metering at 9.9¢ per kWh, not factor any inverter or transmission lost that could easily increase additional 20-30% PV panels requirement, and not factor in roof replacement before PV panels install.
14,442 Watts x $2.54-2.69 = $36,683-38,849 add 20-30% for inverter and transmission cost would increase the price to $44,020-50,504, and if you are lucky the system will last 25 years before complete replacement (inverter typically last 10-15 years and PV panels is around 20-25 years), and not factor in costs of heat pump replacement.
Typical boiler/furnace replacement cost is aroudn $10,000 to $12,000; $36,683-50,504 – $12,000 NG replacement cost would buy 45.39 to 70.81 years of NG for your house (guesstimate of 20% of energy usage for lighting/electronics is deducted). And, if factor in the lost of stock/real estate investment opportunities of front loading PV system financing then solar will never pay for itself.
<– HVAC/plumber/gas fitter/pipe fitter with electrical endorsement cert.
https://www.energyhub.org/cost-solar-power-canada/
I have been running a solar system on a off grid rec property for about eight years (the sound of generators kind of broke the peace and quiet). The primary factor of solar that the majority of the population will not want to put up with is the constant monitoring and maintenance requirement. It takes a lot of effort to ensure the system is working at capacity and to avoid damage to the batteries (also putting the better half on an amp budget is sometimes a challenge). It will never be a stand alone system for me: for heat I augment with a wood stove and propane heat (along with a propane fridge and clothes dryer). Of course course summer makes things a little easier with the extended daylight hours and the panels south facing with the lake reflecting additional light. The generator gets run from time to time to top up the system (when power hungry city guests visit during the summer) or during the shorter cloudy winter days when there is just not enough juice to go around. The start up cost was prohibitive along with a full battery replacement (another $8000) in year 3 when snow covered the panels and the batteries went into deep freeze when no one was there for a week. I enjoy the solar system, it part of my power plan, but it is still really more of an expensive hobby at my get away location rather than a large scale power solution (looking forward to some pandemic ski touring this winter). ExplorerNet connectivity allows for some real distance work nowadays….
As for costs, Fortis residential natural gas price for the mainland and Vancouver island is $2.844 per GJ ($0.0102 kWh) not include transmission/extra charges etc.., so please tell me how long would it take to pay back heating/cooking costs of a PV system when NG work out to be 1¢ per kWh (all charges included equal to 3¢ per kWh)?
Our not very efficient 70s house w/ 5 people + one electric car is 14,500kWh. That would require a 12kW install (30 panels) to offset. Pretty big install for residential for sure, but it’s only ~700sqft of roof space. A new efficient build would take way less power. No real need to get to net zero either, as long as you’re cutting the bill down. Rate of return on solar is around 3-4% now installed. Starting to make sense even if you don’t care about renewable energy.
No reason to go off grid in the city though. Our hydro is ideally suited to act as storage for solar + wind. Eventually the province may have to go to green hydrogen for seasonal storage (generate it in the summer from excess renewable energy, burn in the winter) but that’s a long way off.
BC Hydro claim average household usage is 900 kWh per month (winter month range can be 3 to 6 times more than average consumption), and Nissan leaf is rated at 21.2 kWh/100 km (30-40% more energy usage if include heating/cooling).
Peak winter usage have to be address if the user look at off grid solution, so rough guesstimate would be somewhere near 300 kwh per day at peak winter for a house with a suite plus 2 electric cars. Even if one could afford the unrealistic costs, what kind of surface area (several acres) would it take to accommodate 300 kWh of PV panels on a rainy/cloudy day? Unless the user have a very large bank of batteries or have a backup diesel generator.
Having said the above, it will very unlikely that all BC municipalities ban natural gas, because both NDP & Liberal parties are pro NG.
Don’t think the cars factor into the equation – can’t run those on nat gas (at least for this discussion). If you can get the loads low enough and you have good solar exposure then it should be possible to go net zero.
Once I have a little space in the budget I’m hoping to install an array. It’s looking like the family is using about 16kWh per day so probably a 3.5-4kW array.
Haven’t run the calculations but a SFH electric heat + suite + two electric cars…..that is a lot of power for solar to generate.
No need. If hydro skyrockets (unlikely) just throw up solar and you’ve solved your own problem. No need to burn fossil fuels in new build in our climate.
Yes, new construction. Anything built to step code 4 or 5, so whenever those get adopted by the various municipalities. It may still be possible to use some sealed-combustion appliances (like power-vented water heaters/boilers, or fully airtight fireplaces with exterior air intake). Cooktops, ovens, most fireplaces, dryers, atmospherically-vented water heaters / fireplaces / boilers will probably be a thing of the past.
Do you mean in new construction? No city has banned existing as far as I can tell. Would be pretty draconian with out full retrofit rebates.
They’re well aware that gas and step code 4 & 5 aren’t compatible. Doubt it’ll be more than a year or two before gas is banned in most of the CRD. Plus municipalities won’t be able to reach their carbon targets if they follow the ‘Marko Model’.
Gas is so cheap to install that I am a big fan of doubling up (run a gas line to stove, dryer, hwt, bbq, gas fireplace, etc. etc.). If hydro skyrockets you just switch to using more gas. Fortis is doing some massive rebates right now, just received a $4,400 rebate on the last house we built (you need to do be a licenced builder, they don’t give the rebates to owner-builders for some reason).
Nice. It will make for cheap gas for those that already have it.
First run of people getting this will be at the hospital already since they work there.
There is one major barrier to distributing the Pfizer vaccine to the public. Only hospitals have the deep cold storage capability necessary to maintain the vaccine. That means people would have to go to an already overstressed and understaffed hospital to get the vaccine. Not very practical.
Why It’s a Big Deal If the First Covid Vaccine Is ‘Genetic’
https://www.wired.com/story/why-its-a-big-deal-if-the-first-covid-vaccine-is-genetic/
Ks112- that was the interest. The rest went to principle, basically into the owner’s pocket.
How does 400k mortgage = 875 a month in payments?
Vancouver is the same. Gas basically impossible for new builds. Good, has no place in new construction
No more natural gas in new San Francisco buildings starting next year
https://www.sfchronicle.com/bayarea/article/No-more-natural-gas-in-new-San-Francisco-15717658.php
I could be wrong, but I thought it was 15% down. Hence, CMHC wouldn’t be much more than $5-6K property tax would be much more than $16K plus strata $22K over 9 years, so the return of $150-160K on $40K over 9 years would still be spectacular compare to most people investment portfolios.
My self directed TD investment portfolio average return in the last 9 years is just over 9.5% per annum as of Oct 31, which I considered excellent in my book, compare to the mutual fund manage RSP rate of return is 4.4% per annum as of Sep.
It seems you may not have factored in the following?:
$3200/month and my expenses per month are $500 taxes + $110 insurance and I just pay interest on the mortgage of $400000 of $875
That leaves 1715 a month in cash flow – over seven years that is 144k before taxes assuming no other expenses.
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That’s great if your in a low income tax bracket and you would only have to pay tax at 20% but if your in a 40-54% tax bracket your rental income is taxed at the at the highest rate. The one great advantage dividend paying stocks have for retirees is that a couple could make a combined 100K in dividend income and pay no tax vs just over $20,000 on the same income from a rental, so maybe the best strategy would be to sell your rentals in the first few years of retirement when you could have little to no income and pay less cap gains, then buy dividend paying stocks like banks at 5% and the head down south and not have t deal with tenants and prob double your after tax income.
According to a huge study by Bessembinder, the median stock loses value. The top 1.3% of stocks account for all the wealth creation in the stock market. So you can buy the market to capture those, or you would have to not only pick those 1.3% of top stocks but also hold them during the small number of days they actually deliver those returns.
And the market is often highly counterintuitive. For example, railway stocks outperformed the market from 1900 to 2019, despite the fact that they went from 63% of the market to less than 1% in that time.
I highly recommend the Rational Reminder Podcast. Unbelievably good evidence based discussion of markets for Canadian investors.
I was just using Marko’s numbers. So 25% down, no mortgage insurance, and rest is cash flow neutral, that’s including all expenses including taxes, strata, insurance, etc. IRR is before taxes, but yes if you sold you’d have to pay capital gains.
ks 112 I am a realtor in Calgary and yes you could find cash flow positive properties with very careful and diligent analysis and search. But times are extremely tough in Calgary, unemployment is at 12.5% probably close to double that for people in rental income bracket. There is a huge number of vacancies in the rental market, perhaps 10,000 units and Calgary is experiencing a net migration right now. There are niche markets for rental such as I have discovered by converting my units to furnished. Even so with the all likelihood that we are about to go into a severe lockdown in the coming days because our hospitals are rapidly approaching being overwhelmed, no body wants to move now. Three major hospitals in Calgary have Covid outbreaks within their institutions, it’s a complete mess.
To see how many rentals are available in Calgary go to Calgary RENTFASTER and that is just one website although admittedly the largest.
Have to pay taxes all 9 years + mortgage insurance since you don’t have 20% down + strata no?
Doesn’t make sense for me. Here I pay myself the commission when I buy, save on fees when I have to sell, no property management, and I understand the market. I’ve also now had three of my previous tenants use me to buy properties so lots of spinoff.
I’ve owned Telus, Fortis, etc. for years. I still have BMO shares I bought for $33 back in 2009.
At the end of the day the absolute numbers not close real estate….once again goes back to leverage.
And how many people do I know that bought 100k of Apple back then or 100k worth of Tesla just 10 months ago.
Only for the period of time it was not a principal residence.
It seems you may not have factored in the following?:
That leaves 1715 a month in cash flow – over seven years that is 144k before taxes assuming no other expenses.
Easy to find stocks that beat residential RE by a mile. For example Telus currently yields 5.18%. That’s equivalent to a NET rental yield of 7% after tax.
You don’t have to sell them all at once either. A 100K bump in taxable income from a property sale is going to be taxed heavily, unless you have some unused RRSP room you can use against it.
Hmm.. MLS 858984 didn’t expect to see a price drop on that one. I was expecting to see how much the sold price was going to be listed at after the weekend.
IRR on that Bayview after 9 years:
$20,000 dep.
+ 40k in 2014+ $2000PTT + 1k legal.
Operating neutral
$360k net proceeds after selling costs – $80k mortgage
= 22% annualized return.
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I assume your going to have to pay capital gains taxes of just under 200K profit?
just for a comparison Apple computer is up 1000% over the same time period
Bayview, Juliet, Era, Legato, 989, Ironworks all made sense to me…. most of them are paid down more than 50% now after Era allowed Airbnb, all proceeds went to the holding company and paying down the mortgages as fast as I could.
R Haysom,
Your house in Fairfield probably would have sold for a little less than $621K if you had decided to sell in 2013/14. So it could happen in Victoria too, but the risk is less compared to Calgary as it is not so boom bust.
Marko have you looked at cashflow neutral or positive rentals in Calgary? I guess you would probably need to get a property management company involved and would probably make it cash flow negative…
Golden Boy – your RBC dividends aren’t a certainty. Plenty of companies have encountered market headwinds and cut the dividend (which usually also sinks their stock price). You might argue that that’s why you have to pick good companies (not like when I bought some Bombardier at $5 a share a few years back; they were offering %2 dividend at the time); but a RE investor will counter by saying that’s the same as buying good quality properties in good locations. Both investments have their place. But it is fun to live in a nice place while it appreciates, and while you pay it off. You can’t do that with securities (I have heard similar arguments for ‘investing’ in fine musical instruments; it’s more fun to own a 1950s Gibson guitar than a bond certificate).
I bought my house in Fairfield in 2007 for $621,000 including the transfer fee. My guess today it’s worth $1.4 M. I bought it as a retirement home and moved into it in 2010 and lived there for 3 years till 2014, renting it prior to 2010 and after I left. Regrettably I left as my wife wanted to return to Calgary where my son and daughter live. I have always rented the house for $3200/month and my expenses per month are $500 taxes + $110 insurance and I just pay interest on the mortgage of $400000 of $875 which has been more or less the same for the entire time I’ve owned the property. I made improvements when I lived there new roof, new furnace, HWT, redid both bathrooms spent maybe $40,000 but have done nothing since. The house built in late 50’s is very solid and requires minimum maintenance. I’ve never figured out what my investment return has been, perhaps Leo’s expertise will deliver !
I am very pleased with the property and am so thankful that I decided to buy it in 2007. Meanwhile my properties here in Calgary are worth approximately 30% less than what they were in 2007 which was the peak in the Calgary real estate market, very sad story. On the plus side, I have updated them all and rent them furnished and have increased my rents since 2007 by 30%, so the cash flow has improved inspite of the properties devaluing.
Yes, it is a crazy world out there, and there can be great swings in real estate. At some point Calgary real estate will rebound perhaps 5 more years but when it does it will be dramatic. That will be close to 20 years of nothing ! WOW !
When I bought my house in Victoria, I sold one here for the +- $220,000 down payment. I sold the house here for $510,000 and paid $610,000 excluding transfer tax for the one in Victoria, so there was approximately $100,000 difference in the value of the two homes. Today the house here would be maybe worth $610,000(because of location) whereas the Victoria home is worth approx $1.4M. Crazy how two homes almost worth the same now are so completely diverged.
I am hoping to return soon to Victoria and build a Garden suite for myself as it is allowed in my area and I have a lot of approx 22,000 sq ft.
Forgive me for musing away as I sit out a howling snow storm outside ! Cheers to you all !
And insurance, yes.
It is pretty tough to find these days. Last opportunity I saw was $279,000 studios at Ironworks.
Key is to buy when it makes sense not when you wake up one day and want to buy an investment property because you saw an YouTube video about investment properties.
Right now there is nothing I would buy and if it takes another 5 years for something to pop up that makes sense I’ll wait 5 years.
You mean like when an agent sells a house one day on market, earns a 30k commission and does the right thing and offers his or her client a 50% discount?
It is the nature of a business. Sometimes you sell a house in a day and sometimes you get fired after two years of trying to sell it and you make zero.
Cash flow neutral after strata and property tax? Also, special assessment for condos is a real risk and being a landlord has its associated risks and headaches etc.
However, given the leverage and downward stickiness of both price and rent along with the general desirability of Victoria, having someone pay your mortgage is probably the best risk adjusted investment the average individual can make in the long run here.
IRR on that Bayview after 9 years:
$20,000 dep.
+ 40k in 2014+ $2000PTT + 1k legal.
Operating neutral
$360k net proceeds after selling costs – $80k mortgage
= 22% annualized return.
I think this is an interesting area to discuss. There is certainly pretty decent evidence that real estate agents can use their information advantage to outperform the average RE investor. Also it’s definitely true that information is far less available for RE than in the stock market, so it is fundamentally easier to discover unique information in RE than it is in equities.
But the majority of your return is still due to market. Your Bayview presale went from $193k to $365k. Hard to say what part of that return can be attributed to your competence as an investor vs good timing in the market. I think you could argue that:
Both of which are aspects of skill. The rest is market timing. Which one could argue that timing correctly is reflective of skill as well but an ignorant investor can do just as well by chance on market timing, so it’s hard to ascribe good market timing to skill. It would require a long history of correct market timing to really build a case for that, just like in equities.
If you want to be in the top 1% financially you can’t be paying MERS @ Investors Group, Edward Jones or some other “Wealth Management” outfits or for that matter paying 6%+3% (***commissions may vary) to sell your investment property.
A house sold this morning in Oak Bay using a mere posting for $2.8 million. That seller used some common sense (6 homes have sold on his or her street for over $2.5 million in the last 60 days) to save $45k. They were able to recognize that everything was flying off the shelf….why spend the equivalent of Tesla Model 3 to sell a house that is going to sell either way?
Personally I use TD Waterhouse, $9.99 per trade and if I was not a licenced agent I would sell all my properties using mere posting and on the purchasing end I would find a cash back agent or I would just go in unrepresented and if I did enough personal investment volume I was just bite the bullet and do the real estate course.
Real life example markets vs real estate.
I purchased a pre-sale in 2011 (Bayview Promontory) for $193k, 10% deposit. Completed on it in 2014 25% down, 140k mortgage. Currently worth around 375k. Assuming I mortgaged it in such a manner where it was cash flow neutral the mortgage would be maybe around 80k. Let’s say 15k fees to sell it. 360k-80k = 280k….that is an insane return. Not so much the 193k to 365k but the 60k to 280k secondary to leverage.
Is it realistic to think I invest 20k in the market in 2011, invest another 40k in 2014 and now it is worth 280k? Not in my opinion.
The other thing about the markets is you are competing against people and institutions way way smart than you.
Real estate you compete against average people (average person has incredibly poor common sense) where I believe you can actually outperform the real estate market if you use common sense logic.
In another life I would have studied architecture/design. This is the number one reason why I enjoy RE. The second is what Deryk also said, it is a real life thing that is a boat in a storm if you or any of the people you care about need it. Stocks are hands off but you can’t live in them and you can have times where they drop precipitously in value, as we have seen.
@Deryk There certainly isnt one right answer for all senarios. I myself will be prioritising paying down my mortgage faster over the next 6 months. At 1.99% interest rate this does not see to be the optimal financial decision but in the short term I am comfortable with it. Chasing high risk high rewards situations 100% of the time is not a great long term strategy for your mental state. It is important to take some “risk breaks” and re-evaluate your position from time to time. Paying off my mortgage faster in the meantime has its appeal.
I agree stocks are much less work and real estate will require not just tenant management, but property management too which a lot of people understandably don’t want to deal with. We have a skill set that works for both but it would be stressful without this.
Pretty easy to start investing in stocks if you have a PR and extra cash flow. Much harder to get to the point where you can purchase a second property. Learning how to DIY stock investing is well worth it for those who already own a PR.
Yes, I agree it is not all about money. We’ll pay off our primary residence next year. Definitely not the optimal financial move.
Listening to the pros and cons of investing in real estate or the stock market, I’m still left with the opinion that real estate is better for me.
I say “Me” because I know what works for my situation. I also believe in investing in stocks. Why not do both?
I like real estate because I love taking a run down place, where no one would want to live, and transforming it into something beautiful that everyone clambers to rent. That’s what turns my crank. That’s what brings me joy and it is hard to put a profit value on that.
It doesn’t seem right to claim that one investment is better than the other because we all have various things we are looking for in returns.
I like real estate because it is so flexible in times of the unpredicted events that can occur. For example: One can move into the basement suite and rent the upper floors allowing you to ride out tough times if that happens.
Real estate gives you the ability to hang on, which I believe is the cornerstone of any investment choice.
We have invested both ways over the past forty plus years.
Overall……….I’m much happier with the returns on our realestate adventures. But that is just me:)
I write this because there might be someone out there who is not sure what to do and is afraid to take the leap into buying their first home.
@totoro thanks for the comments, i always appreciate differing perspectives. It seems you have key skills that make managing tenants a smaller risk. I do not think I have those same skills and that may make me overestimate the tenant risk.
I do disagree with rental properties ever really being passive income. Long term tenants could always move out for multiple reasons and fixing the unit is a constant concern. I do not think rentals could ever come close to securities in terms of being truely passive income.
As to your comment “There are a lot of highly educated/experienced people posting here” – I am very aware of the intelligence on this site. I was simply giving background info on myself to show any biases – I invest in RE and stocks, see the merit in both, own a PR, and dont work for REMAX lol. I just think someone who owns a PR and is looking to invest their savings should think twice before investing those savings into the local RE market. (Over, say, the canadian stock market) Your PR is already a large personal investment in your local RE market.
This is where the “personal” in personal finance comes in. Even though the math may say to stay in debt a long time, I just don’t want to.
R Haysom: For some people it might be something as simple as a change of heart; for me it would be a change of circumstances. The mostly likely is that the work on our new home gets seriously delayed again. We are already running a couple of years behind schedule. Then of coarse there is health problems that might arise or for some people domestic issues. Drastic change in the market either up or down.
With all due respect, listing a property on the market is a small investment of time and money balanced against a very high potential return. The probability of refusing a reasonable offer is extremely low. But, everyone makes business decisions on their own merits.
Using other people’s money to invest comes with a price but it is an asset overall if used wisely.
This comes down to the cash flow issue and the amount of return you are getting on your pay down. The more you pay down the lower your ROI currently. If it is about math and you are younger and still working, it may not be the best decision. If it is about cash flow to support non-investment goals or about a sense of security – or both – it might be the right decision. And if you are closer to retirement it might be the best lifestyle decision.
There are a lot of highly educated/experienced people posting here.
I would disagree that the securities market is an overall better investment vehicle if you optimize and measure based on the bottom line – ROI. As for tenants, they can be a PITA, but a large part of that is your skill in managing. Rentals become almost passive if you have good tenants who feel they are treated fairly. I personally am willing to manage tenancies and do so with gratitude knowing that I may need to resort to follow res ten procedures if things go sideways.
What rentals in Victoria don’t generally provide you with is good cash flow. The buy in is too high for the rental income return. They are a long-term investment and it is appreciation/pay-down that provides the real return and appreciation is not a guarantee – just a good bet like with stocks. Stocks may provide you with better cash flow as they are not leveraged so you don’t have to pay off the loan with proceeds. If you are auto-investing your returns then you will have faster growth but own leveraged RE means you are also auto-investing while you hold if prices are increasing.
As far as diversification goes, I think if I had a do-over I’d go all in on RE. As it is, we aren’t and unwise from a tax perspective to change this.
Strikes me as ludicrous that an agent would receive $40,000 from a seller who has not actually sold their home because an offer was presented and refused. It would be fairer, imo, to have a clause that provides a reasonable compensation for the expenses and time spent by the realtor, say $5000. I personally would strike this clause from the listing agreement. If the selling agent didn’t agree to this I would, as Barrister said, find another one. You don’t know what you don’t know and if you get diagnosed with cancer after listing you don’t want to be stuck paying 40k for no sale.
Change of heart. Might be caused by unforeseen circumstances such as illness, but also some people really don’t like change and don’t take stock until pushed.
As far as I can tell, the ability to analyze investment options comes down to spending the time to understand all the variables, and then doing the math, including future projections. Most people don’t seem to do the math. It would be good to teach this in high school. Would stop a lot of people from just carrying on as their parents did when circumstances change or relying on experts who are motivated by their own ability to profit from the transaction.
So true. Think that because your interest rate is 2 or 3% you’re not paying a lot of interest to the bank? Think again.
Another consideration is that, the sooner the mortgage is paid off, the sooner your income will be freed up to accomplish other goals.
Now that I got my first post out of the way, I wanted to take the time to sincerely thank Leo S. and all the regular and irregular posters on this site. You ladies and gents are awesome! I would not have bought my first house in Vic without the confidence I developed regularly lurking here.
I moved from Ontario a few years ago and this site has provided me with a wealth of knowledge regarding the local RE envoirnment. Very difficult to find such specific information in every local market. This site provides an invaluable service to those interested in buying Victorian properties. Hats off to you all!!
@leo S. The beta of real estate is a tough one! First concern I would have is how to compare the TSX or vancouver exchange to the RE market. Which market do we use? Canadian RE market vs. Tsx? Canadian RE market vs. (Tsx and Vancouver and Montreal exchange combined?) I am not sure!
To your second point Leo i completely agree. I think people who invest in the stock market are also assuming stocks will go up forever. The results there are tough to refute as well. Being a bear in either market has been a good way to become insolvent!
BARRISTER….As a realtor there are a couple of ways to accommodate your request, and yes, I would accept your listing given those requirements.
1.) I would make it very clear on the listing that the seller reserved the right to not have to accept an unconditional full price offer. ( I would need to do this to protect myself from being liable to pay the selling realtor commission, for usually it is stipulated that the listing company warrants to pay the selling realtor commission)
ALTERNATIVELY …..
2.) I would list the property with the same caveat of “seller not required to accept…..” and, without a selling realtor commission, therefore the selling realtor would have to negotiate their commission with their own buyer.
Barrister, I don’t recommend you list with “a hungry” realtor, but rather an experienced one especially with a 3.5 million dollar home.
Curious, other than a multi offer situation where a no condition full price offer wouldn’t be required to be accepted, what other reason would you not agree to accept a full price offer no conditions ?
So what’s the Beta of real estate? Is there a way to compute the risk adjusted returns?
Cap rates are low in Victoria, at least for residential, not sure about commercial. The only way it works is because people are betting on capital appreciation. And for many decades that has worked out just fine in most cases. Although it’s fundamentally risky it’s hard to argue with the results.
Personally I hope we keep up the high level of rental construction for another decade or two and the secondary rental market loses importance and market share over time.
As for investments, it’s a low yield world. Expected return from equities is low too because of stretched valuations and people are concerned about currency devaluation so they are looking for hard assets. Definitely agree that all in on RE with no diversification is not a good decision though.
Stock Market vs. Real Estate: An Educated Opinion
First time poster here and I’m aware this is a real estate site but after mutiple mentions of the godliness of RE throughout the year from an investment perspective, I thought a different opinion might be useful.
When a house is viewed as an investment, people here and throughout Canada underestimate a wide variety of costs as posted below but it goes even farther than that. There are implicit costs that are almost always overlooked.
When i get my monthly ‘rent’ from RBC and Bell canada for instance, I do not have to deal with probably the worst part of RE – TENANTS. My divdends takes ZERO effort. I wake up on a saturday and poof! The money is there. Rbc never calls me up to say rent is late. No NSF fees. The BC govt doesnt dictate increases or freezes. There is no tenant moving out and a showing to follow.
How do measure that in dollars? No clue but i guarentee the risk you take with a tenant is not accounted for here. My rbc dividend never put a hole through my roof or walls, never was late to pay, and RBC doesnt complain each year when there is a default increase. Instead, they increase it for me like clockwork!
How about underestimating diversification? Imagine if you had 1 million to invest in canada and you decided to put it all into one stock or one cash flow like a tenant. You would be a moron. When it comes to RE, people not only put 99% of their savings into it, they LEVERAGE THEIR SAVINGS. Even if the implied volatility of RE is super low, 8x leverage on low volatility starts to become a concern.
I am someone who owns a PR, is well educated, (J.D. and BBA) and understands the value of RE. All in all, INVESTMENT properties are not all what they are cracked up to be. From an INVESTMENT perspective, although much more risky prima facie, The securities market provides more choice, less “Extra” costs and an overall better investment vehicle. Add in the liquidity of stocks, the ability to invest globally in different currencies, and the amazing amount of diversification you can achieve through bonds, hedges, precious metals, commodities, derivatives etc.. and it becomes a no brainer the power and superiority of the Securities market.
Very helpful comments on the question of an agents fee being due, or not due, on presenting the seller with an offer of forty thousand dollars more than the asking price subject to an inspection that might have cost the seller twenty thousand to fix an issue that came up with the inspection. (The seller still coming out with twenty thousand more than they expected….but then deciding to take the house off the market and whether a comminssion was due to the listing agent.)
It can be a complicated world out there:)
Thanks everyone ….I’ll pass this on.
Deryk: As I have explained to people on countless occasions your real estate agent is NOT on your side but on his own side. He is not your friend, business partner or your advocate. I have always modified my agreements with real estate agents that commission is only due when I accept an offer and that I am not required to accept any offer even if it is for full asking price with no conditions.
A lot of real estate agents will not accept that condition but there is always a few hungry ones that will. Come to think of it I have never had a real estate agent refuse perhaps because I was always selling very high end homes.
I will be listing my house in about a year from now when the restoration on our new property is completed. So let me ask ask the real estate agents here whether they would turn down the listing on a 3.5 million dollar house because of my insistence on modifying the contract. If you would turn it down what are my chances of finding an agent that would take it?
Give us a break. That’s not insurance against RE or rental market risk, that’s insurance against perils affecting your property. The companies which you own through the stock market have that kind of insurance on their properties, too.
OK Panke you got me ! I shouldn’t have used the word “completed”. What I meant to say, is that it isn’t just good enough for a realtor to present an offer to receive commission, the offer must be unconditionally accepted to receive commission. Which in this case, it had not been unconditionally accepted as the condition of inspection was not resolved and remained outstanding. Therefore no commissions owed.
“A realtor isn’t entitled to a commission until there is a firm sale, that’s their job, it’s got nothing to do with just presenting an offer, a realtor earns their commission by COMPLETING a sale.”
Just so everyone is aware, the generic BC listing agreement doesn’t say this. There is language that can result in your selling realtor being owed full commission without a sale being completed. When I listed my last place, the realtor was perfectly agreeable to modifying the listing agreement, but you need to ask/demand.
Deryk !
I am always amused that when a buyer finds a defect in a 20 year old property that they want to be compensated by the full cost of that item brand new.
So in your example of the septic field, presumably the property is close to 20 years old the buyer expects to be compensated for a brand new one.
I mean when they entered into making an offer on the older property they would never expect a brand new septic system, so why all of a sudden are they demanding it ?!! A realistic approach would be to say, “ok the septic system may be approaching the end of its life cycle, I would like to be compensated for half of its life cycle, therefore $10,000 worth. That would be an appropriate demand.
DERYK, rereading your comment the situation is a little different but my answer doesn’t change …..
“The purchaser then asked that they wanted the septic field renewed (by the seller) which would have cost the sellers $20,000.00. (The price given by a septic company.)”
…….but it doesn’t change the issue of the sale or the commission. Just as I explained a buyer wouldn’t want to go through the hassle of the septic overhaul, so too the seller has the right not to want to go through the hassle especially if they didn’t see the need for it in the first place. The seller cannot be compelled to do the work. Just as I explained previously the actual cost could go well over $20,000 plus all the interruptions, the seller has the perfect right to refuse.
As a side note, whenever there is work needed on a purchase of a property, as the buyer realtor I always advise my client to negotiate a reduction in price and have the buyer arrange to do the work after they take possession. That way there can never be an argument that the work was done improperly or shoddily and didn’t meet the buyers expectations, which otherwise can cause a whole other raft of problems. Likewise if I am representing a seller, I council them to compensate the buyer by an agreed amount so there are no further implications.
DERYK, As a realtor this is the answer to your question.
You stipulated that the offer was subject to an inspection, therefore if the buyer does not remove that condition it is immaterial that he offered over the ask price, the deal collapses, there is no sale and therefore there is no commission payable.
The fact that the buyer offered over $40,000 and the estimated cost of the septic repair is $20,000 has no influence on the deal. First of all it is only an estimate, the contractor could discover further costly issues, secondly the buyer may have no desire to go through the hassles and inconveniences of a septic replacement and thirdly the buyer may just feel that this is a red flag and indication of low overall maintenance on the property.
The seller has a number of options,
1 .) try and renegotiate with the buyer
2.) take the property off the market, fix the problem and then relist
3.) contact the other offers, assuming there had to be other offers for the original buyer to offer over ask, reveal the latent defect and renegotiate with one of them.
A realtor isn’t entitled to a commission until there is a firm sale, that’s their job, it’s got nothing to do with just presenting an offer, a realtor earns their commission by COMPLETING a sale.
That is because they gave an update on Saturday for the Friday numbers for the first time on months. Giving more frequent updates with cases rising seems to make sense to me. Not sure why that would be considered “playing games”…
Sure, legally they might be able to avoid paying by utilizing a fine print detail unrelated to the real reason they want to avoid the expense. Strikes me as weaselly. The agent did what was intended and agreed to, successfully.
The right thing to do is read the listing agreement. If it says that a commission is payable upon presentation of a full-price offer it is payable and this is enforceable. If it does not, it is not.
It appears that the standard MLS contract in BC may include a requirement to pay if “an offer to purchase is obtained from a prospective buyer during the term of this Contract who is ready, willing and able to pay the Listing Price and agrees to the other terms of this Contract, even if the Seller refuses to sign the offer to purchase.”
https://propertiesinwhiterock.com/_media/Documents/0615%20New%20MLS%20listing.pdf?inline=false
Deryk, the right thing to do is pay the commission. Unfortunately it appears most people these days would try to weasel out of it any way they could.
So this is where we’re at in BC. After months of giving 3 days worth of numbers on Monday, they give only 2. There were 998 cases reported in the media, but then you see actual cases by day and it’s 1001 in the last 2 days for which they have data (Saturday/Sunday).
Games being played.
They need to review the listing contract. https://www.thestar.com/life/homes/2014/01/09/court_finds_agent_must_be_paid_for_doing_the_job.html
Can someone comment on what happens when a family puts their house up for sale and gets an offer that is $40,000.00 over the asking price subject to an inspection. The inspection revealed a septic field that was near the end of it’s working lifetime but was still working and with no issues. The purchaser then asked that they wanted the septic field renewed which would have cost the sellers $20,000.00. (The price given by a septic company.) The seller then decided that they would take their house off the market because the idea of a move started to seem like a lot of effort and might not have been a good idea to start with.
My question: Would the sellers have to pay the realtor their commission because the realtor found a buyer who was willing to pay forty thousand dollars over the asking price? Could it be argued that the commission was due regardless of the sale taking place because in a real sense…. the sellers would still have been twenty thousand dollars ahead of the listed price even after paying for a new septic field? A friend asked me about this problem and I had never seen it before and was unable to provide any kind of advice.
” the leverage on real estate is insane”
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Absolutely, but then again so are the transaction costs of transfer tax and real estate fees and other fees. Most people don’t buy a property to flip it, they pay off their mortgage and up until the last decade most people would end up paying double the actual cost of the house when you consider interest. With interest rates where they are it makes little sense to pay off a mortgage as your only getting a 2 or 3% return on your money, better to pay minimum and invest the rest. Over the past 22 month a balanced mutual fund up well over 20%.
Thanks Marlo, you’re someone who gets it. But you have to invest in a quality market. Lots of people try making money in low quality jurisdictions and have their heads handed to them. Bad renters, willful damage to property and collapse of the local economy are killers. That’s where brains come in handy, and you are able to assess the best area to invest in, and like stocks, quality rarely disappoints. Buy the best you can afford. One other factor people don’t consider is try buying insurance on a stock, other than complicated options and hedges, it doesn’t exist. A house can be insured for total loss in most cases.
Rent freeze until next July. https://www.cbc.ca/news/canada/british-columbia/province-election-promise-freeze-rents-july-1.5795427
100% agree with you; however, I personally cannot ignore that we haven’t had a substantially drop in the market in over 35 years and I don’t plan on living to 90 yrs old, given life expetancy statistics, to await this prolonged bear market.
The worst that has occurred is 1993 to 2001 and that was flat prices which you can ride out if you have a cash flow positive or neutral property.
Even if prices did drop who cares.
Really we would need a drop in prices, huge increase in rental vacancy, and a massive increase in interest rates and at that point everyone is screwed anyway.
Marko your statement is misleading. If we ever experience a prolonged bear market in Real Estate you will understand.
Anecdotal here but I have friends with AirBnB units and not sure how weak it is. One of my friends has an AirBnb basement suite in Colwood and he says he is booked solid until next spring…..all retires from across Canada.
Not anecdotal last few sales at Janion all $1,050 to $1,200 per foot….which is pretty much peak pricing and it is pretty much only investors buying in.
Tnat is the one thing people overlook when it comes to real estate vs stocks; the leverage on real estate is insane. I’ve been lucky in both markets but the absolute gains in RE pale in comparison to stocks due to leverage. Not to mention I’ve yet to own a cash flow negative property (based on 20-25% down) so you can leverage 4 to 5x, not be out of pocket monthly and that is not even factoring in the principal repayment. You can do better in the stock market % wise, but not sure absolute wise unless you like gambling on margin.