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Baby, we got a bubble!?

Riverdale Rink Rat said:
I thought it was a bit of a giggle that TREB tried to blame the Land Transfer Tax as well. I bet if a baby gets run over on Bloor, TREB blames it on the LTT.
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Speaking of babies and misfortune...check out this youtube video of an eagle in Montreal trying to snatch a toddler.
http://www.youtube.com/watch?v=CE0Q904gtMI

If that child was 5lbs less, the story ends differently. Quite a video. (watch the slow motion)
 
units are getting smaller to. I wonder whether the same sized condo is selling for less at this time. Maybe some realtors can enlighten? Or does Teranet report this?
 
rbt said:
Indeed it is. Quickly calculated 6 years rental versus larger than average losses and expenses (property taxes and maintenance fees) and it's basically a wash for me.
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RBT, I'm not sure I understand what you are writing here. Are you referring to two scenarios, one where you sell and rent, and the other where you retain your unmortgaged home for 6 years and experience price decreases per the graph? If so, did you reflect the 6 years investment income on the sale proceeds in the first scenario?

It may be that for your financials and quality of life it is indeed best to remain where you are. The issue is not whether someone should sell their home and rent. It's just to be informed about the range of possibilities and be prepared (especially for those heaving leveraged and overallocated into RE)
 
daveto:
This is a logical way to look but as the authors say...inflation or wage increases may help "engineer" the soft landing.

I am trying tp look at a larger macro picture and ask another question especially as relates to the condo market in TO. If investors play a significant role in the price of condos, presumably there has to be a better place to put the money for them to leave. We know that money is staying on the sidelines as far as the stock market is concerned so I assume at present it won't go there. Let's assume the stock market "takes off" and the issues we have talked about (Europe/US Fiscal Cliff/China slowing) all miraculously improve so significantly that confidence in the world comes. Stock market gets money...does money come out of real estate further driving down the price? Or does this also herald inflation and investors stay or invest more in real estate?
If things are poor around the world...the money has to go somewhere. Will people buy stocks? If not...bonds with yields of 1-2%, Gic's...."gold" like the authors elude to?
I am asking because I think this psychology of the investors needs to be answered if one is going to predict what happens in the real estate market.
Clearly if there is large scale deleveraging by the central banks and less capital available one would assume R/E will drop quite dramatically since especially investors leverage this asset markedly and since this worked going up the R/E ladder, I would have to assume it would work on the way down in the opposite direction.
 
daveto said:
RBT, I'm not sure I understand what you are writing here. Are you referring to two scenarios, one where you sell and rent, and the other where you retain your unmortgaged home for 6 years and experience price decreases per the graph? If so, did you reflect the 6 years investment income on the sale proceeds in the first scenario?
Click to expand...

Yes. Safe investment income is pretty minimal with 5 year GIC's giving 2.2% per annum. The USA is due for another recession in the next 5 years so stock market likely isn't a great choice, plus I have enough exposure there.

Rent: 6 * 12 * 1750 ($1750 is average rent, assume some escalation)
Investment Income: 350,000 * 0.022 * 6 (2.2% APY rate includes an adjustment for compounding)
Sale Commission/Legal/Moving Fees/Time&Effort: (350,000 * 5% + 1500 * 2 + 2000 * 2 + 1500 * 2)
Rent Total out of pocket: $-107,300


Hold: $350,000 - 25%
Other fees: $300/month (maintenance -- average expected fee) + 250/month (property tax average expected)
Hold loss from current paper gain: $-127,100


I do expect to move in the next 5 years. One consideration was listing my unit for sale with myself as the tenant on a 2 year lease at market rent rate.
 
daveto said:
RBT, I'm not sure I understand what you are writing here. Are you referring to two scenarios, one where you sell and rent, and the other where you retain your unmortgaged home for 6 years and experience price decreases per the graph? If so, did you reflect the 6 years investment income on the sale proceeds in the first scenario?
Click to expand...

Yes. Safe investment income is pretty minimal with 5 year GIC's giving 2.2% per annum. Stock market over the next 6 years may not be pleasant as USA is due for a recession in the 2015 time period (every 7 to 8 years).
 
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Actually, I believe the gap might not be properly represented. Have you accounted for taxes because it is after tax cost that is important for you.


Investment Income will be 2.2% Before tax whereas Rent, Sales commission and rent out of pocket is after tax. So the $46K of preincome if I assume you are at 40% bracket is $18.4K less.

Also, when you sell you have to consider since you have a gain you will have capital gain taxes to pay. If your present gain is say $100K and the gain disappears entirely...At the 40% tax bracket your capital gain will be$40K which is 1/2 taxable so you would not pay that 20K and this would have to be lowered from your hold loss.

Sorry, I just realized if this is your principal residence, the issue of capital gain is incorrect. This applies to rental property.
 
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rbt said:
Yes. Safe investment income is pretty minimal with 5 year GIC's giving 2.2% per annum. The USA is due for another recession in the next 5 years so stock market likely isn't a great choice, plus I have enough exposure there.

Rent: 6 * 12 * 1750 ($1750 is average rent, assume some escalation)
Investment Income: 350,000 * 0.022 * 6 (2.2% APY rate includes an adjustment for compounding)
Sale Commission/Legal/Moving Fees/Time&Effort: (350,000 * 5% + 1500 * 2 + 2000 * 2 + 1500 * 2)
Rent Total out of pocket: $-107,300


Hold: $350,000 - 25%
Other fees: $300/month (maintenance -- average expected fee) + 250/month (property tax average expected)
Hold loss from current paper gain: $-127,100


I do expect to move in the next 5 years. One consideration was listing my unit for sale with myself as the tenant on a 2 year lease at market rent rate.
Click to expand...

You omit mortgage costs. Hugely significant for many homeowners.
 
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