Recently, in my post about the downside of Vancouver, I talked about real estate values here and gave an example of a recent sale. I also published the post at the Wet Coast Women site where I contribute on occasion. It was picked up by a search and excerpted to Vancouver Real Estate Anecdote Archive, a relatively new site, where the author made some comments that I thought might be of interest.
If you recall the property sold for $1,800.000 as basically a 53 x 130 foot lot since the house is small and considered a knockdown.
This will now be a markedly cash-flow-negative property. One presumes that the new owner is very confident that house and land prices will be going up over the next two years. We also presume that the new owner plans to demolish and build in 2 years.
The property's numbers look roughly like this: Purchase price $1.8 million, Rent (estimated) $1,800-$2,200 per month. Cost of $1.8 million mortgage, at 7.3%, 25 year amortization, 5% down: monthly payment >$13,000. Thus the property will be costing about net $11,000 per month to carry, or $254,000 for the 2 year period. To be more accurate, one would also have to add property taxes and maintenance costs to that. This purchase is a bet on property price direction.
Interesting way of looking at this sale. My question would be what amount of money will the new owner spend to build a house that will warrant paying this amount for the land and not overbuild for the area. Are they looking to flip the property as is? I shall watch with interest.