Thursday, January 03, 2008

what if?

Back in 2004, my wife and I felt that we had enough of a down payment (better than 35%) to buy into what we thought was an outrageously over-priced market. Problem was, we saw very little that caught our fancy, and what we did look seriously at were all involved with bidding wars. I thought to put an unconditional, full asking offer on a character house that had obvious issues, but my agent suggested not to bother. It went for $150K over.

So what if we had been reckless, and got the place? It needed foundation work, modernized plumbing and wiring, a new heating system and a new roof, not to mention windows and what not. I could have done a lot of the heavy-lifting, but it still would have cost at least $50G's that we did not have. Second mortgage? The first mortgage, including property taxes. would have been $500/month over what we were/are paying in rent. We would have had some tough months even without a 2nd mtge. Doing the work mostly myself would have been a few years' project in itself. Looking back, I'm glad that we didn't, because we would have been buying at our margin, and at the time, I thought that a turn-around was probably imminent. Appreciation was far from my mind.

I guess I was wrong about the appreciation, the place is probably worth $700K now. Maybe more. We missed out on a couple of hundred G's. That sucks. At the same time, we had a kid, and our income has dropped a bit, so we might be a bit uncomfortable now.

There are certainly intangibles to owning, and I wondered what those might practically be. Starting with interest rates: we were approved at 4.2%/5 years. If we had taken a 3 year term and had to renew at today's 5.79% or there abouts, we would be priced out and would have to sell. Mind you, we would walk away with a nice chunk of change, and go travelling for the time it takes for fundamentals to return. I would have gone for 7 years at a slightly higher rate though, and would be sorely tempted to cash out. Ooops. I forgot about li'l solipsist. I guess we would be locked in... But, as of December 07 we would have paid down $18,174.81 in principle, and $30,102.78 in interest. Instead, we have saved over $24K in the difference between rent and own, and we have been making interest instead of paying it, and I always feel better about that. And then there are those pesky repairs and maintenance, and increasing property taxes. But oh, yeah, the paper equity.

Bottom line is, I don't really have any regrets. It was over-priced.


Larry said...

Seems like there was a lot issues working against that particular home.
Is the $24k a net of tax number?

Consider that if you had to sell the increased value upon selling would be. My guess the total from the sale would be in the $000's - a lot more than $24K.

Hind sight - yah gotta luv it.

Will said...

This has been one of your best postings to date. More personal, more eloquent, and more enjoyable.

There are a lot of What Ifs I could toss out... I think a lot of us could.

Anonymous said...

i lived through your what-if. My wife and i had fixed up a condo that we sold for a profit. She was 4 months pregnant and we needed to get into something bigger than a 3 bedroom condo.

We bought a crappy house just off Renfrew (the downhill side) for $375k. it had a revenue suite in the basement, but the place needed serious work. We budgeted $25k for the reno but we ended up spending $50k (old wiring, plumbing was f"£ked, leaky roof, new furnace, chimney leaking, sump near clogging point). we didn't even finish the basement.

i had used $40k on a line of credit plus $10k on my visa to pay for the renos. i was terrified that i would take a loss on the house if the market turned. we sold it a year later, and after all was said and done i walked with a bit of profit.

however, was it worth it? hell no. i sacrificed so many opportunities because of having all my money and lines of credit tapped for that ugly dump.

i hear it is now "worth" $550k. i have no regrets about selling it.

Anonymous said...

man, you completely missed the boat. should have bit the bullet and bought that place! oh well, hope you get another chance.

Scullboy said...

What if, indeed....

There really are two kinds of people nowadays, the ones who understand risk, and the ones who don't.

Bears know risk. You look at all the variables, weigh them and consider your options. A 10okK appreciation x 50% probability of occurance makes that option worth 50K

People see these huge paper appreciations and think "that couuld me me". It's like buying a lottery ticket, except those are cheap.

Come to think of it, I wonder... if you multiply the cost of buying a ticket by the probability of winning the jackpot, and compare to the cost of a home times the probability of appreciate, which one would be the better "investment" (read: gamble)?

Makes ya think!

milo said...

Not much info on how many immigrants eventually return to the home countries after satisfying the required 2-year-stay, but ads are abundant with personal effects being sold and resold, e.g.
18000 KMS
2dr, Automatic, FWD, 2.5 L, Cylinders 5, Gas, Green, Sunroof, Alarm, AM/FM Stereo, Air Conditioning, Alloy Wheels, Anti-Lock Brakes, Anti-Theft, Anti-Starter, CD Player, Daul Air Bag, Fog Lights, Intermittent Wipers, Keyless Entry, Power Brakes, Power Mirrors, Power Steering, Power Windows, Rear Defroster, Side Impact Air Bag, Tilt Steering, Tinted Glass, Bucket Seats, Heated Seats, Power Locks, Traction Control, Cruise Control

Those staying with or w/o jobs flip real estate on both sides of the Pacific.

blueskies said...

what if? indeed.....

May 07 we looked at a house in East Van Collingwood ask $530 kitchen was a disaster, realtor told us Grab it! great deal.... we walked away.
it sold for $525K checked assessment last night....$517K :-0

Anonymous said...

anon at 8:32: I have lived through a couple what-ifs as well. We bought a lot on the central island a few years ago, then sold it after 2 years when I got nervous about the coming crash. We didn't make enough after fees to make it worthwhile.

We also bought a house in the UK in 2005, which we lived in for 2 years before selling when again we got nervous about the UK market. We were lucky and made a bit, but again after fees it wasn't that much, and if we'd rented with lower monthly payments, we might have saved nearly as much money.

Unless you've got perfect (i.e. crystal-ball, twilight-zone) timing, I figure it's not worth the risk anytime in the last few years. The only what-if that's worth playing, really, is what-if you bought a house prior to the mid-nineties and then sold it post-2005. For myself and I'm sure most others who didn't do this, it couldn't have been done anyhow (I was fresh out of high school in 1993).

I think the best place you can be now is out of the game entirely. Either because you sold your house and are renting, or because you've never bought and are still renting. Those still in the game have far more reason to be nervous than anybody else. Even equities look shaky. I figure the only game in town today is to be in all cash and some gold, with no debt. But YMMV.

Paul said...

REBGV stats for Dec are posted:

Also some commentary on my blog:

Anonymous said...

In 2004, we bought a crappy house in Renfrew for $397K and hated every minute living there. Then Oct 2007 when I was worried about crashes (these blogs are such downers!!!) i spotted a GORGEOUS house in Grandview area listed for $675K. I KNEW that it was underpriced. I put in an offer for $750K and was absolutely shocked to get it. Had to sell crappy Renfrew house quickly. Got 6 offers and it sold for $675K. So, moved into my gorgeous 1907 house (completely renovated 10 years ago) and according to BC Assessment, value today is: $807K. Guess i was lucky. The only catch to all this is, if I stayed in crappy house, mortgage would have been paid off in 10 years. To get current house, I had to absorb an extra $100K...but at least I like walking up my front porch.

Ulsterman said...

Scullboy said:"...People see these huge paper appreciations and think "that couuld me me". It's like buying a lottery ticket, except those are cheap...."

It's not really. Anyone who bought a place up to say 18 months ago was essentially buying a winning ticket. The market was roaring ahead and all the pundits said it would keep on truckin'. They were right. A few bloggers said "sell now" and they were dead wrong.

Don't get me wrong - i'm one of the "dead wrong" brigade, but i believe it's important for us to admit that they were right and we were wrong - not make the buyers out as misinformed fools.

What happens from here? No idea. Given up trying to predict turning points and percentage declines.

Anonymous said...

latest: Nikkei dropped more than 600 points [4%]

Strataman said...

ulsterman ;"Anyone who bought a place up to say 18 months ago was essentially buying a winning ticket. The market was roaring ahead and all the pundits said it would keep on truckin'. They were right." Some how that doesn't make any logical sense, for instance until you sell you haven't gained a penny? I could have a winning lottery ticket which if I kept it has the potential to make me a multi-millionaire. However if I keep it and don't cash out or sell it to someone else, I have a lottery ticket with lots of potential. There have been many cases of lottery winners who knew they won, however it took awhile before they claimed. If the ticket had been burned up at the family barbecue are they still winners? The family barbecue is real close so I suggest you cash in! :-)

Scullboy said...

The thing of it is, your house is worth whatever the cheque says the minute it's written. Until then all gains are paper gains.

If you bought 18 months ago and sold today you'd probably be ahead today. Of course that would make you a specuvestor.

If you bought 18 months ago at say 550K and your house is worth 600K today then you're ahead ON PAPER.

However if you hold your property, the market crashes and you're out 200K a year and a half from now, you're not ahead.

I think it's a matter of taking all these things into consideration. We're in a market where you're only making money if you are a gambler right now.

Ulsterman said...

Scullboy & Strataman: I certainly take your point on paper profits. I would love a correction for two reasons: one is the obvious one that it may give me an affordable entry point to this city; the second is the (petty) desire to see the paper-profit donald trumps not look so smug.

We must remember that may people who bought back in 1999-2002 are sitting on such huge profits that the likelihood of them not being able to cash in a sizeable lottery ticket are small.

Take my example - failed to pull the trigger on the purchase of 2 one-bedroom condos off commercial and 7th in 2001 - both selling for low 90's. I had plans to be Donald Trump.... Now i see them selling for low 300's. I don't see any future correction in the pipeline that could even come close to wiping out that kind of profit. If i owned both of them now i'd feel like a lottery winner even without selling them. I'd be very confident that 20 years from now they be funding my retirement.

condohype said...

Good post solipsist. I think the best point you make is when you say that even though the house ultimately appreciated in value, it was still overpriced and wasn't worth buying. I think that's a concept that a lot of people in this town need to understand. Market value doesn't make it worth it; it has to be something you can afford.

I might be the Debbie Downer of Vancouver condos, but I don't think I'm being negative when I say that people should only buy what they can afford. Risk is NOT a non-factor.

solipsist said...

Again, thanks for your commentary.

I keep wondering at scullboy's "lottery" factor, and at how many bought when times were reasonable, and whether they are tempted to pack up and sell now.

I have been thinking of a post around it, but I wonder what I would do if I had bought three years ago (when I already thought things were over-priced), and was looking at a 1/4 $million in appreciation. I really think that I would cut and run, but that is just how I am. If I had bought in the late 80's, and was looking at a half million bucks, I would have little doubt

The thing is, I have travelled a lot, and seen lots of places that I could live very well forever with a half mill., but how many are like that? The progeny does make things look different.

solipsist said...

I might be the Debbie Downer of Vancouver condos, but I don't think I'm being negative when I say that people should only buy what they can afford. Risk is NOT a non-factor.

Perhaps better that than Ursula Userer (or Usered for that matter).

As for the risk factor: I believe that a lot are stupefied by all manner of things. It has been quite a while since we have seen a real recession, and many alive and in the market today think that things will always be this way, and better.

I just don't get it, and it makes me cringe.

Anonymous said...

Well we sold in Vancouver, a condo in Mt. Pleasant, last December, figuring it was the peak.

Ah well.
We have waited out the year and had a great time travelling and housesitting.

We have just recently bought a lovely vintage home in Powell River, after living in Sooke, Metchosin, Duncan, Cobble Hill, Comox, Roberts Creek, Gibsons, Halfmoon Bay, Sechelt and Powell River to find the right place to live. We have had a great year and just have to forget about any money lost or gained at this point.