[cdr108]

thanks for the interest in our (my) situation

dlam -- we're currently renting. We've saved a sizeable deposit and can put 20-30% down, but I would rather keep those funds in stocks and other investments for retirement 25 years from now. Our non-housing retirement savings would basically be cut in half to put down 200k. I would prefer to put 100k down on a 500K property than 200K down on a 1M property, but nice places are twice the price they were 10 years ago. We can afford 1M as 4x our income, but I would prefer something less. I've never liked the t

interested -- I'm ready financially, but perhaps not emotionally -- For me there are other negatives, not all financial (responsibilities of maintaining an old house, something I would surely be the point person in the household... I own a triplex rental property, so I'm weary of all the responsibilities of upkeep). Renting these past 2.5 years has been a nice dose of freedom.

i was under the impression alot of reno'd 2s semi's (3 bed/1 or 2 baths) in leslieville were around $700-750K range, or buy a fixer upper in the $500-600K.

if you already own a triplex, why not live in one of those units instead?
it'll still provide you with 2 income units.
but i agree, the appeal of not having to maintain an old house (time and $$$) is great as long as it's much cheaper than owning, which it is now.

 

[dlam]

ponyboy: thanks for further sharing. I am especially interested about this because a friend of mine also expressed desire to live in leslieville. I personally am not familiar with the area. I've driving through it and I remember seeing a nice stretch along Queen St E. your financial/saving situation sounds solid and in addition you have a rental property. $500k isn't getting much these days. just looked at mls.ca, 500-600k can get you a 2 bedroom condo at queen/carlaw. i personally dont like 2 bedrooms. should have at least 2+1 or 3 bedrooms so you can have up to 2 kids.

 

[ponyboy]

yeah, we want room to grow, and other niceties like a study/home office not tucked into the corner of the living room. I realize that Leslieville may not be 1M, but I just used that as an example. We're also looking at the Annex, Trinity Bellwoods, and other places. I'm still hoping to continue renting...and that a sweet place will present itself, but my wife doesn't like the feeling of not owning, not setting down roots, being booted after a 12 month lease because the owner wants to take posession (our current situation is displacing us from a great place we've rented for 2.5 yrs).

 

[rbt]

Sorry, I can't agree with that.

Cheap credit is the biggest culprit.

Cheap credit doesn't create demand.

The price of silverware isn't skyrocketing because people have gone to collecting silver spoons on cheap credit. People don't want massive artisan silverware collections but people do want large homes.

 

[Wooba]

Cheap credit doesn't create demand.

The price of silverware isn't skyrocketing because people have gone to collecting silver spoons on cheap credit. People don't want massive artisan silverware collections but people do want large homes.

Exactly, and cheap credit has allowed them to do it. I agree with detroit, cheap credit is a major part of these high prices.

 

[interested]

thanks for the interest in our (my) situation

dlam -- we're currently renting. We've saved a sizeable deposit and can put 20-30% down, but I would rather keep those funds in stocks and other investments for retirement 25 years from now. Our non-housing retirement savings would basically be cut in half to put down 200k. I would prefer to put 100k down on a 500K property than 200K down on a 1M property, but nice places are twice the price they were 10 years ago. We can afford 1M as 4x our income, but I would prefer something less. I've never liked the t

interested -- I'm ready financially, but perhaps not emotionally -- For me there are other negatives, not all financial (responsibilities of maintaining an old house, something I would surely be the point person in the household... I own a triplex rental property, so I'm weary of all the responsibilities of upkeep). Renting these past 2.5 years has been a nice dose of freedom.

Ponyboy, thank you for sharing.
I sensed the trepidation you are feeling but as you point out, I may have misinterpreted ability to achieve as a want rather than your ability being not ready on an emotional level.
I apologize.
None the less, whether emotional or financial, a $1million purchase should be something you are raving about, not something you approach with a sense of trepidation.
As others have suggested, perhaps there is some reasonable mid ground between your wife's desires and your comfort zone.

Whatever you decide, good luck with the decision. However, I do understand your wife wanting to "plant roots", especially given that you are having to move now. There is something to be said about having control of your situation and you know what they say: "happy wife, happy life". All the best.

 

[marsh]

why not sell the triplex to free up some cash for a downpayment?

 

[interested]

^^^
I would bet that ponyboy has +ve cash flow from the triplex and it is an investment that generates cash vs. a SFH which does not.

 

[ponyboy]

the triplex has been the best investment I ever made, and provided me housing until I got married. I purchased it 10 years ago, and it generates about 1.2% of the original purchase price per month in rents, or 14% per year before expenses of 6%. I have pondered selling, and shedding the responsibility of owning is alluring, but have hesitated. Maybe I'll do that, but we don't need to to get a deposit together. I think of it as part of my investment portfolio right now. Living in one of the units wouldn't be suitable for us because we now have a little one and have grown accustomed to niceties not found in the triplex. Thanks for the suggestions.

 

[interested]

^^^
I vote you keep it if you can handle the maintenance.
Where are you going to get 8% return consistently today?
I also agree with your investing approach... some investment real estate that is in positive cash flow.

I am sure as well you appreciate that you will have not only significant costs with selling but also capital gain thereby losing 25% of the capital gain to tax as well as recaptured depreciation which will be lost at 50% (assuming the top marginal rate which I believe based on your other posts will be the case). Hence you will likely if just assume that the triplex has doubled in value and that you have depreciated it 38% to date (4%/year except 2% on year one) that will be another 19% of the original value lost. This would work out to 9.5% of the present value. Adding 12.5% of the present value as capital gain (assuming it has doubled) you will lose 22% of the present value. If I just allow 6-8% for soft costs....real estate commission of 5%, legals and some other soft costs... that means 28-30% of the present value will be left.

the question to pose is: will 70% of the present value be investible at such a good rate. Given that you have an 8% net return now, you would have to get 11.42% return on the residual 70% to be back at the same point.

I have done these calculations to illustrate a phenomenon often not appreciated when people look at selling investment properties they have held for a relatively long time. I am not writing this as much for you ponyboy as it is clear you grasp the implications but more for some of our more novice members on the forum who not having sold investment real estate may be unaware of the actual "numbers" when they are actually laid out.

 

[interested]

From the globe and mail:

http://www.theglobeandmail.com/repo...way-in-cooling-housing-market/article2437702/

For middle-class Chinese, buying a first home in the country’s previously roaring property market is slowly falling back within reach.

Property prices fell again across most of China in April, as central government regulators intended, down year-over-year in 46 of 70 major cities across the country.
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Homes in Wenzhou, scene of a local debt crisis last fall, fell hardest, down 12.3 per cent from this time last year. Homes in top-tier cities Beijing and Shanghai were also cheaper, down 1.0 and 1.3 per cent, respectively, from last year.

Government regulations that have slowed the market are seen as risky by many economists, some of whom – following a wave of dismal month-end results on imports, exports and industrial production – are now busy revising their forecasts down for China’s growth this year. Goldman Sachs cut its forecast for the year this week to 8.1 per cent from 8.6.

Still, Chinese officials are pledging to continue their strict home purchasing regulations. The regulations vary from city to city but generally limit purchases to those with permanent residency permission, or hukou, for the city, as well as restricting purchases of multiple properties.

“We will keep our severe crackdown against investment and speculative housing demand,” Zhang Xiaohong, vice-head of property market supervision at the Ministry of Housing, was quoted as saying to news portal www.china.com.cn. “We must firmly stick to the tightening measures, further strengthen our achieved results and drive home prices back to a reasonable level.”

At stake is the role of the housing market in China’s economy. The real estate market made up about 13 per cent of GDP last year; it’s seen as the best and safest investment in a country with an immature financial market and notoriously volatile stocks, and was heading for a bubble when government introduced the regulations last year.

Now that property bubble is deflating fast, although some economists say the market is still overvalued. More importantly, though, restricting property prices to try to keep them within reach of China’s rising middle class is seen as key to preserving political stability. For an authoritarian regime obsessed with maintaining a harmonious society, this has been a relatively dramatic year of labour protests, self-immolations by Tibetan activists, continuing food inflation and then a political scandal involving the murder of a British businessman that felled one of China’s most popular politicians.

All of this comes ahead of an expected transfer of power at the top that is supposed to begin with the Communist Party's national congress in October. “You can make a pretty strong case that it’s overvalued, the property market, so I personally don’t think there will be any reversal … I think they’ll hold the line,” said Alaistair Chan, China economist with Moody’s Analytics. In some cities, he pointed out, there has been something of a recovery even without policy change; last December, about 49 cities saw falling prices, compared with the previous year, which means a few cities are already seeing prices stabilize.

Still, some property developers are settling in with what they have, and downgrading any ambitions of big acquisitions.

“In the rest of this year till early next year, there will be no big changes in China’s property policies,” Freddy Lee, the chief executive officer of Chinese property developer Shui On Land, told Reuters this week. Though he said he expected home buying to pick up later this year, prices are likely to continue to fall 5 to 10 per cent before year’s end. “Currently we don’t have any plan to buy land, as we have enough stock in hand.”

There may be some relief to the restrictions later this year, but – in typically Chinese fashion – these are likely to begin sliding away almost without notice. The restrictions, imposed by China’s central government, have been challenged multiple times by regional governments for whom land sales to developers are a major source of income.

So far, each time a local government has tried to relax the policy, it has been quickly reversed. But later this year, that may not be the case.

“From a political point of view, it’s very difficult to make large changes to anything. Even with monetary policy, it’s difficult to make large change. … Too much change has happened in the past and people are losing confidence, they are getting tired of it. The best policy is to leave it where it remains now,” said Zhu Guozhong, an assistant professor specializing in real estate at Beijing University’s Guanghua School of Management, who nonetheless predicts the property market is nearing a plateau that could leave room for some loosening.

“The central government also doesn’t have to do anything. The local governments will try to relax the central government policy until the central government says stop. … In the third quarter, you may see more implied relaxed control on the property market.”

Special to The Globe and Mail
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6 comments

A few thoughts/comments/questions:
Down 12.3% in Wenzhou is a big drop in a year. More reasonable 1-2% which is not a problem in some larger cities. Shows that a housing decline can be massive.
How would TO adjust to 12.3% in 1 year?

The developer is quoted as expecting 5-10% more drops expected.

Is all that money being exported to Canada (Australia put restrictions)driving up our prices to the point where the Canadian government will have to exert more controls. Note in China they are restricting who can buy for exactly the reason that locals are frozen out in Vancouver and getting to that point in Toronto. If next year the article is correct and prices stabilize, does all that money invested in TO condos repatriate back or go elsewhere?

And if so, does that mean money leaves TO and suddenly we start looking like the emperor with no clothes? No one knows how much foreign investment there actually is in TO condos and further, how much of that is China vs. other locations.

 

[Eug]

It should be noted that many lenders won't accept a 20% downpayment on million dollar homes. They may still ask for CMHC insurance if you can't come up with say 30% down.

This bubble is being pushed more by granite/hardwood home hungry wives than anything else, even more than Chinese investors.

I guess I should point out that hardwood floors were the norm a century ago. Lots of detached homes today with carpet actually have hardwood underneath that.

Hardwood isn't really all that expensive. Even today it's only about $4 per square foot for materials, or a couple of thousand dollars for hardwood in the living room and master bedroom. When you're talking about a $750000 property, that's not much.

^^^
I was just talking to my neighbour's son. He is "in the investment business". MBA. Knowledgeable pleasant and quite knowledgeable 30 year old.
He has told his father to sell his home for the past 2 years. Our home prices are up about 15% I would say in 2 years.
There would be another 10% of soft costs to sell. So 25%.
His parents have not followed. 25% would be quite a correction.

To hope for 25-30% drop from present prices will inflict a lot of pain on a lot of people and probably the economy as a whole.

Timing is difficult in anything. I agree a correction is due. I even believe it has started in the condo Precon and the luxury markets. The degree and the exact timing however is difficult to know.

Yeah, he's smart for not listening to his son on this. People have been predicting this drop since almost a decade ago.

 

[ponyboy]

^^^
I vote you keep it if you can handle the maintenance.
Where are you going to get 8% return consistently today?
I also agree with your investing approach... some investment real estate that is in positive cash flow.

I am sure as well you appreciate that you will have not only significant costs with selling but also capital gain thereby losing 25% of the capital gain to tax as well as recaptured depreciation which will be lost at 50% (assuming the top marginal rate which I believe based on your other posts will be the case). Hence you will likely if just assume that the triplex has doubled in value and that you have depreciated it 38% to date (4%/year except 2% on year one) that will be another 19% of the original value lost. This would work out to 9.5% of the present value. Adding 12.5% of the present value as capital gain (assuming it has doubled) you will lose 22% of the present value. If I just allow 6-8% for soft costs....real estate commission of 5%, legals and some other soft costs... that means 28-30% of the present value will be left.

the question to pose is: will 70% of the present value be investible at such a good rate. Given that you have an 8% net return now, you would have to get 11.42% return on the residual 70% to be back at the same point.

I have done these calculations to illustrate a phenomenon often not appreciated when people look at selling investment properties they have held for a relatively long time. I am not writing this as much for you ponyboy as it is clear you grasp the implications but more for some of our more novice members on the forum who not having sold investment real estate may be unaware of the actual "numbers" when they are actually laid out.

thanks very much for your input, and more generally, for your contributions to this forum. I am fortunate to have been able to purchase this property 10 years ago when prices made sense from a cash flow investment standpoint. I haven't depreciated it that much to date, but most of your numbers sounds about right. I can manage the maintenance, but it can be inconvenient at times.

 

[cdr108]

the triplex has been the best investment I ever made, and provided me housing until I got married. I purchased it 10 years ago, and it generates about 1.2% of the original purchase price per month in rents, or 14% per year before expenses of 6%. I have pondered selling, and shedding the responsibility of owning is alluring, but have hesitated. Maybe I'll do that, but we don't need to to get a deposit together. I think of it as part of my investment portfolio right now. Living in one of the units wouldn't be suitable for us because we now have a little one and have grown accustomed to niceties not found in the triplex. Thanks for the suggestions.

thanks very much for your input, and more generally, for your contributions to this forum. I am fortunate to have been able to purchase this property 10 years ago when prices made sense from a cash flow investment standpoint. I haven't depreciated it that much to date, but most of your numbers sounds about right. I can manage the maintenance, but it can be inconvenient at times.

i recommend keeping the triplex because of your low cost and high positive cashflow. you won't find anything out there that will give you 8+% return. maintenance shouldn't be an issue as it can always be outsourced.

if you don't mind me asking, where is your triplex? would the location work for you to live at?
you said living in one unit is too small since you now have a child and it doesn't have the 'niceties'.
what about the possibility of renovating the place to your liking and taking over 2 units?
there wouldn't be any capital gains payable yet.

since you bought this 10 years ago, and assuming you made the payments regularly and didn't refinance/accelerate, at least 1/4 of your mortgage should be paid down.
letting go of 1 rental unit shouldn't be a financial burden; however, doing 2 will put you in a negative cashflow position but keeping in mind you're using 2/3 of the place now.

 

[interested]

i recommend keeping the triplex because of your low cost and high positive cashflow. you won't find anything out there that will give you 8+% return. maintenance shouldn't be an issue as it can always be outsourced.

if you don't mind me asking, where is your triplex? would the location work for you to live at?
you said living in one unit is too small since you now have a child and it doesn't have the 'niceties'.
what about the possibility of renovating the place to your liking and taking over 2 units?
there wouldn't be any capital gains payable yet.

since you bought this 10 years ago, and assuming you made the payments regularly and didn't refinance/accelerate, at least 1/4 of your mortgage should be paid down.
letting go of 1 rental unit shouldn't be a financial burden; however, doing 2 will put you in a negative cashflow position but keeping in mind you're using 2/3 of the place now.

I am not sure this is correct cdr.
Once he files a change of use from investment property to personal use, I believe it may be viewed as having disposed of the property and he would have to pay capital gain to date. The present value would become the cost base for any future appreciation which as a principal residence (1/3 or 2/3 of the the 3 units) would be tax exempt.
I am not an accountant but I think ponyboy would need to confirm before doing this.