Rent near your work, own where you can afford


It’s very common to hear many people in Southern BC complain about the high real estate prices. But, if you are in the real estate market, the high real estate prices have increased your net worth and you now have a ton of equity sitting in your house. Many homeowners have seen huge appreciation in their home’s value, more than they would have ever been able to save on their own from the income that they earn. 

Below I will show you how you can get into the market now, and start realizing rental income, home appreciation and mortgage pay down with roughly the same monthly costs you have now. You also avoid the risk of real estate prices growing faster than your savings. (I addressed being outpaced in real estate in this blog: here). If you follow some of the strategies that I have used, you can get into the real estate market now!

Let’s dive into the topic of: rent near your work, buy where you can afford.

Let’s say that you have a job in Vancouver, which means that you have access to many different transportation options such as public transit, bike lanes and car share programs. If you can go without a vehicle, it is one of the best ways you can save money. Have a look at what Mr. Money Mustache has to say about the savings power of getting rid of your car (he is a fan of commuting by bike). If you live and work in the same city, you should be able to get to work without the need for a car.

Look Beyond Vancouver

Let’s say that you are currently renting. Perhaps you’re renting in Vancouver and are saving up to own in Vancouver. Or perhaps you are thinking of moving a little outside of Vancouver. Either way, you’ve been saving your money to soon buy a place in or around Vancouver.

Let me ask you this: Why do you feel that you need to buy in Vancouver?

What if you bought elsewhere, even if it means that you rent it out instead of living in it yourself?

Somewhere more affordable that would be attractive to renters?

Somewhere with a lower purchase price and therefore requiring a smaller down payment?

That’s exactly what I did almost 10 years ago. I was working in Vancouver and Burnaby and wanted to continue living in Vancouver. Since I was newly out of a relationship and only had my income to qualify for a home, I ended up buying in Langley and rented it out, while I continued renting in Vancouver. I could not afford to own in Vancouver at the time, but I still wanted to get into the market, so I had to do it a different way than others.

Now fast forward 10 years later, I used the equity from that first condo to help purchase 4 homes that have 6 rental suites in total. They all are located within Southern BC but none of them in Vancouver. You can definitely do this too!

Affordable Cities Outside of Vancouver

I still am an advocate for buying in Langley right now because you can find good deals on Langley condos! For instance, I just wrote to my newsletter group (shameless plug: sign up here for my free newsletter of market updates and investment opportunities) about a brand new one bedroom condo that was $288,000. Of course, that has sold now, but that was one example of a good deal to be found in Langley. If you’re not a fan of Langley, there are so many other cities that we can look in such as Maple Ridge, Mission, Abbotsford, Surrey, Chilliwack and even further out!

Down Payment

If you plan on living in the home that you buy, for a short while, then you can buy the condo with less than 20% down. It depends on your credit, income and a whole bunch of other factors. If you plan to briefly live in it and then start renting it out, you can possibly buy that condo for 5% or 10% down.

You’re all of a sudden in the market and a landlord! So if you had bought the $288,000 condo and briefly moved into it, you would have needed a down payment anywhere from $14,400 to $28,800.

The Numbers

Let’s look at the scenario if you bought in Langley and rented for yourself in Vancouver:

Vancouver

Rent a 1 bedroom for $1800

Eliminate the car and switch to a car sharing service, bike, transit, or walk to work

Langley

Buying a 1 bedroom for $288,000

Rent it out for $1300

Let me put this into a side-by-side income statement, so that you can see the pros and cons of each scenario. See diagrams below.

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As you can see, you have the ability of owning a home to rent out, AND still live in Vancouver (because who wants to commute anyway?!) as long as you cut costs somewhere in your current situation… which I propose to be your car. It’s actually a cheaper scenario. If you cut out the car and still buy a home to rent out. The difference is a savings of $260 per month.

Imagine if you are able to save that $260 along with the usual savings amount, you can save up to buy a second home quicker.

Of course, it means that your car needs to be eliminated. But it’s healthy and liberating not to have the ongoing expense of a car anyway! Try for yourself and see how it feels. You always have cars available at your fingertips, so you really are not sacrificing a set of wheels.

Opportunity Cost

Maybe you’re sitting there thinking: “but I really want to own in Vancouver! It has the opportunity to go up more in value than a city like Langley.”

Sure thing! We can also look in Vancouver, but let’s look at the costs of owning in Vancouver compared to renting.

Danielle’s Scenario

Here’s why I still don’t own in Vancouver… I rent a really cool 2 bed plus den, 2 bath condo on the 16th floor with peek-a-boo water views in Yaletown. It has every amenity you could ever want. Let’s just say that our rent is pretty darn cheap because our landlord is either filthy rich and doesn’t care about rent increases or the property manager is forgetful. Once you have been renting for 5 years, your rent is usually considered to be quite a deal.

If I were to buy an apartment in Vancouver, and wanted to spend the same monthly amount as I am spending now, taking into consideration mortgage, property taxes, and strata… well, that would give me a home that is $440,000. Which, if you know the Vancouver market at all, is going to get me a small studio or small one bed in an old building, in an area that I probably don’t want to be in.

So every time I work out the numbers for myself to buy in Vancouver, it doesn’t ever make sense for me to do it. Of course, everyone is different and some are happy to get into the Vancouver market and sit on the property. That’s not me. I want certainty that my tenant will mostly cover the expenses (which doesn’t happen in Vancouver) and for my living situation, I want to have enough personal space for myself in my home, especially because I work from home.

For me, the smartest decision that I personally ever made has been to buy outside of the Vancouver area because it allows me to buy homes between $300K to $500K. So owning multiple homes at those prices isn’t overly difficult to do because it’s about the same as me owning only ONE house in Vancouver.

If you’re ready to get in to real estate and think it’s time to see how much you can afford and where we should start looking, contact me at sold@danielleroyrealty.com.