Drafted By: Melissa Kubek
One of the questions I’ve been asked multiple times over the past couple of months is “What do you see ahead for the 2015 Vancouver real estate market…is it going to be a good year to buy/sell?”. I learned a long time ago to gain clarity before answering such a broad question and as such, my answer is typically “Why do you ask? Are you thinking about making a move?” People are always looking for the right time to buy and or sell real estate and assume that realtors have psychic ability to be able to see into the near future. Know this, no one can accurately assure you that the market will rise/fall this year. Real estate purchasing and ownership, unless you are a developer/builder or an investor who ‘flips’ properties, should be considered a long-term investment.
Statistically over time, regardless of temporary downward price adjustments in the market, housing prices have continued to climb. For example, your great grandparent’s home that they purchased for $10,000 many years ago is likely worth 100 times its initial purchase price now. There is power and strength in holding on to your real estate investments for the long-haul…at least for 8-12 years. During this time you’ll likely live through one or two downward adjustments in the market, however you’ll also enjoy watching your investment climb higher than your initial purchase price, or previous peak as the market recovers.
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I want my clients to view their home purchases as investment tools and not just as their homes. By having a long range view of where they ultimately want to be financially, we can create a plan to find them not only a great home, but a great investment that will allow them to live their dreams as well. Therefore, the sooner you can get into the market with a longterm goal in sight, the better off you’ll be. If you’re purchasing a home with the intention of likely selling again within the next few years, you’re taking a gamble that the market will be in your favour at the time you need to sell. Keep in mind you need the market to increase enough in order to gain a profit from the sale of your home. For example, let’s say you purchased your home for $800,000 4 years ago and you’re wanting to sell it now. You must take into account the following costs when selling your home:
1. Real Estate Commissions (on $800,000 are approximately) $25,725 incl. GST
2. Early Payout of Mortgage (if applicable). This fee will vary depending upon your agreement with your lender. I’ve seen it range between $3,000 – $25,000. Verify this with your lender prior to selling your home!
3. Lawyer fees for completing the transaction $1,400 approx.
4. Costs of moving $1,000 – $5,000 approx.
Total cost of selling $31,000 (low side) – $57,000
5. You may also have CMHC/Mortgage Insurance premiums attached to your mortgage that need to be paid off as well. This has not been added to the equation.
You will need to sell your home for approximately $831,000 – $857,000 in order to just break even. Providing that the market has continued to climb even by 2% each year, you’ll be able to sell your home, clear title and net a small profit. However, what happens if the market takes a 2% dip over those 4 years after you purchase your home? Your $800,000 home is now valued at just over $735,000, therefore the difference between the original purchase price of $800,000 & the current price of $735,000 = -$65,000. Add this to the cost of selling (approximate only) $31,000 – $57,000, you now need $96,000 – $122,000 in order to sell your home and break even.
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The above example may paint a somewhat bleak picture and you may be wondering why should you invest in real estate at all!? The reason I’ve shown this example is because buying and selling real estate with a short term timeline can be a gamble regardless if the year is 1995, 2005 or 2015…you might win, you might lose, however investing in real estate over the long term has proven time and time again to be a solid investment in the Vancouver British Columbia.
Let’s think outside of the box for a moment. Let’s take that same $800,000 property and have you hold on to it for a number of years until the equity has grown to a point where you can take out a line of credit against your home and use the funds as a down payment on a second home to hold as a rental property (just one of many options available to you as your equity increases). Providing you and your realtor have done your research, you will have purchased a property that yields a profit each month from the rent monies paid by your tenant, thus paying down your mortgage each month. As you hold on to your initial property and your rental property over time, with both properties increasing in equity (over the long-term) and one of your properties being paid down by someone else, you’ll be in a position sooner than you may realize to purchase another investment property or hold-tight & simply allow your investments to grow.
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Unless you are a savvy investor/property renovator, developper/builder, I believe it’s in your best interest to purchase the right home at the right price and use that investment as leverage to create a great financial future for yourself over time.
To answer the initial question “What do you see ahead for the 2015 Vancouver real estate market…is it going to be a good year to buy/sell?” My answer is this: It’s always a good time to buy and sell real estate providing you’re being strategic about it. If you’re not in the market yet, find a way to get in as soon as possible! In 2015 we will likely see a slight rise in interest rates according to the many mortgage brokers I speak with & recent lending publications and a slight decrease in housing values/price, however no one knows for sure. Don’t ‘bank’ on any one year as being ‘THE’ year! Set yourself up for a win, by having a long term strategy and ultimate goal anytime you invest in the real estate market.
*This information while deemed to be correct should not be relied upon. Speak with your realtor or financial advisor prior to making any real estate investment decision.
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