Is this development nuts?

[seven3]

Saw an ad for a new condo development in Vancouver called 2300 Kingsway. They are marketing as great for investors with the usual "Have someone else pay your mortgage"...

Price starts in the 300s for a ~400 sq foot place that they "estimate" can rent for $850.

Using a 2% mortgage rate it would still require a down payment of over 100k...

After accounting for vacancy, property tax, etc...this seems like an extremely bad deal for investors.

Essentially, you`d be leveraging your dp for almost no return at all....

All this for an East Vancouver condo...

Is this a sign that Vancouver will inevitably end bad for lots of novice investors....?

 

[Berubeland]

Yes, and Toronto too. It`s unbelievable how many people think they are investing when they are actually creating subsidized housing and speculating on prices going up.

The worst offenders are the condos, followed by single family homes, then duplexes, even the majority of buildings on the market have absolutely no cash flow after expenses. The only way to carry them is to skimp on maintenance and property management which is a horrible long term plan that will result in tons of deferred maintenance.

 

[21krunner]

Agreed,

For a quick sanity check use the following

Realistic monthly rent * 12 = Yearly income at full occupancy

If Yearly rent at full occupancy is < 8-10% of the purchase price you are going to have a tuff time using the OPM model... unless you are prepared to put down a very large DP. These major city condos can be easily weeded out this way.

If you don`t know these basics or the above isn`t obvious.. do take a course to educate yourself first. The REIN course by all accounts is solid. But you must educate yourself and not count on someone else to advise which deals make sense at a basic level.

Cheers

 

[21krunner]

I reviewed your post again.

You clearly have self identified that the investment you describe is not appealling. Have confidence in your assessment over the sales pitch of the folks marketing the deal. Always!

 

[seven3]

Oh, I have no intention of investing in Vancouver. It`d be throwing money away at this point in time. I just find the advertisements kind of sad as a lot of naive people will (in my opinion) get wiped out if/when short-term rates move up even a bit.

I suppose it`s not sad if the people learn from this mistake. A large portion of the buyers may actually be new realtors who have only witnessed the past 10 years here in Vancouver.

 

[DaveRhydderch]

The amazing part is that people actually will invest into this. People work so hard to earn their money, and they write big checks without really examining the numbers.

 

[Berubeland]

One of the owners I property manage for has three condos. They are all cash flow negative. He doesn`t care. I tried to tell him to sell these off because he bought them preconstruction and already made the bulk of his profit on them.

Oh and i love that the maintenance fees keep going up too adding insult to injury.

 

[RedlineBrett]

QUOTE (Berubeland @ May 24 2010, 06:34 PM) One of the owners I property manage for has three condos. They are all cash flow negative. He doesn`t care. I tried to tell him to sell these off because he bought them preconstruction and already made the bulk of his profit on them.

Oh and i love that the maintenance fees keep going up too adding insult to injury.

These developers tossing up these huge buildings are making sure our renters will always have gorgeous places to live while some investors make diddly. The developers seem to have seed capital to spurn their first phases to get the pre-sales they need while the consumer is left holding the bag at inflated prices for the latter phases. But it`s an easy purchase with no work and glossy marketing. I really hope the consumer clues in that there is enough high-rise apartment product available that they don`t need to be building any more of these things.

There have been a couple developments in Calgary that have generated some bad press which show these megaplexes for what they really are - apartment building stock. It`s turning off the legit owner-occupiers and cooling off the investment hype but not at the pace I`d like to see. There will be some very sad stories in the coming years in these projects...

Problem is the developers paid millions for the land and will go bankrupt if they don`t build out so the prospect of going bankrupt by building doesn`t seem as bad... And the city loves that most buildings are at least 50% tenant occupied which drives the rents down + all the money they make on taxes and development fees. Only way out of it is if consumers smarten up.