Is Buying in Metro Vancouver Worthwhile?
Part II – Considerations in Buying Real Estate
In Part I of Is Buying in Metro Vancouver Worthwhile, we discuss the importance of a long-term timeline for investing in real estate. This is not to say you should never sell soon after you buy, that is always a possibility and you can make a return on your investment. The long-term timeline, however, represents an increased probability that a longer retention period and your ability to control when you want to sell will more than likely guaranteed a decent return on your investment.
In addition to a long-term plan, I have made a list of considerations that I think are important when you are looking to buy or build a real estate investment portfolio:
1. Find an area you like, somewhere that provides a seemingly higher return for the price paid (i.e. may be an older building (still solid and well kept building), but the transit access, shopping, and schools are big features). You can always renovate the interior, it’s much more difficult and slow to have the surrounding area see community service improvements.
2. Do your research on the area of interest. Mainly look at the growth patterns of the city and surrounding areas. Is the area of interest due for a revitalization, does it have easy access to transportation, what services and retail options are near by. Are there grocery shops close and what kind of community recreation facilities and parks are available? Are other projects planned that may improve or hinder the livability of the area? Look into rental prices to get an idea of the projected monthly income, should renting be an option in the future.
3. Find a property that meets your initial budget. Buy a place based on your income now, not what you think you will be making in a couple years. This will allow you to put more towards your mortgage if you have extra funds later on. This will also protect you if the market takes a big dip over a year or so, which may impact your financial position or work stability. If need be, consider cutting back on frivolous activities if it means being able to own. Review your needs versus wants regularly to ensure that you are making smart decisions, but are happy and enjoying your home and lifestyle.
4. Plan to own the property for at least 5 years, but consider upwards of 10+ years. Just know that you don’t have to live there for 10 years. Life is ever changing and may require constant movement and if you have to move, try to keep the property you already have for investment purposes. This ties in with points 1, 2 and 3. Point 1 and 2, the better the location the easier the property will be to rent, especially in a down market. In relation to point 3, which encourages you to grow steadily with your financial income. Knowing that this property may not be your end home, but may help you to get started in the real estate market, you may be more willing to forgo the bells and whistles now, to get in the market and realize more down the road.
By holding the property for an extended period of time, you are more likely to see the increase in value as represented by the best-fit line shown in the real estate and stock market charts I discussed in Part I. The point is to hold the property to see the growth, but also hold it comfortably so you are not in a situation at any point where you have to sell in a down market. Additionally, if you can put lump sum payments against the mortgage each year and the value of your property increases, this will give you greater buying power to purchase additional properties by refinancing or taking out a home line credit.
Lastly, the transaction costs of constantly buying and selling can greatly depreciate any profits realized.
5. Make value-added improvements. Space is the at an all time prime in the Greater Vancouver area. Any way you can increase the space in your home will be beneficial to you and any future user. I have always invested money into creating user-friendly closets, cupboards, offices, and storage, and this has paid off in renting and selling properties. Check out your local home improvement store or Ikea for your options and ideas. Prepare to pay a bit of money initially, but the return can be ten fold. I believe this is a hot topic for Vancouverites and plan to write more detailed articles with pictures, recommendations and suggestions in the future specific to space improvements.
6. Have access to cash. In owning your home or investment property, there are many instances where maintenance and repair requires immediate funds for servicing. Homes may need new equipment or appliances and condominium strata councils can require owners to pay lump sum special levies to make general improvements. Making a plan early that allows you to have quick access to cash, ease the stress levels of managing a rental property.
Economist and real estate guru’s try to predict as many elements as they can to foresee the future trends, but it’s impossible to really see what could be coming down the pipeline; the next black Friday, world war, economic turmoil, terrorist attack, or natural disaster. These events usually put real estate on the riskier side of investments. However, for the most part Vancouver has done very well through the recent recessions seen in the States and around the world. The desirability of the city to immigrants is an important element to keeping the housing industry strong. The versatility of the city in its natural surroundings and the mild climate are also features that attract people to come and stay.
So in a round about way to answer the question, do I believe that buying real estate in Metro Vancouver is worth it? I do. However, there are some key considerations that need to be made to ensure that value is made and hopefully not lost. Planning and research can help to eliminate a number of the risks, but understand that not all risk is ever removed. Every buyers’ situation is different and how they adapt to the daily market fluctuations, but by being aware of your current factors and addressing a long term plan, you can potentially be very successful in seeing a high return on your home purchases.