Hell, I’m living in one. We pay $1500 a month and the unit next door (identical) went for $275,500 a few weeks ago.

I guess I’m coming around to you guys’ thinking. My example of a condo going from 300K to 200K is extreme. A crash as extreme as shaving 30% off condo values would necessitate some sort of crazy economic event that would change the rules. I mean, that crash would be the result of some other event, as opposed to the cause of a new event (renters being able to buy)

The one thing indisputable in all this is good on you MR. C for getting more than 10% of your condo’s total cost in rent every year.

I used to work up at Don Mills and York Mills (Financial Post is up there) and I guess I would have paid that to live there then. I just have a hard time justifying that from here, as I gaze out upon the CN Tower and Rogers Centre for the same price.

GIV – I guess we’ll just have to agree to agree??

Seriously though, I think a scenario where house prices drop by half would probably mean that either the economy is tanking and/or interest rates are skyrocketing. Either case would lead me to think that renters would be likely to keep renting so the rents might not correlate too well with the house value.

Mike

GIV: Its funny actually, but that hasn’t been my experience. Downtown condos that rent for $1300 / month easily go for double what I paid for mine. Rent and property value don’t seem to be perfectly correlated. My buddy who answers all my real estate questions often makes reference to certain properties being “good to live in, but no good for renting out” (ie better for owner-occupants than as investments). I think *ALL* sorts of other issues come into play, so it may not be quite as clean of a relationship between the two as you may be thinking… (I agree with you in theory, but suspect it would seldom show up in practice).

You’ll get no argument from me that what’s happening in housing in Van City isn’t loopy and unsustainable. To me, that’s an anomaly

Your point re: supply and demand is a good one, but i don’t see how we’re disagreeing. I could say the same thing in my favour. I guess what I’m getting at is that the demand for rental housing is conditional on how accessibility of home ownership. Because fundamentally, All but very few people would own some sort of housing if they had their druthers. Most renters are renters because they simply can’t afford to own at that particular time.

This might be a chicken-and-egg scenario, but what i’m saying is, if a condo bought for $300,000 one year was having troubole being sold for more than $200,000 the next, then my reaction, as an owner, would probably be “well I guess I can’t sell into this crash as I’m not getting value for my money. I’ll hold on and rent it out a little longer.”

I just think I’d soon find the amount I could charge in rent would come down too, multiplying my loss.

So if landlords got screwed by a crash (as in the case above) most tenants would view that same event as a buying opportunity — they have a picture in their mind of where they want to live, and at one time it costs $300,000. Out of their reach. If that lifestyle all of a sudden becomes a more attainable $200,000, many of them will say “now we’re talking. now I can get what I want at a price they I can handle.”

If a tenant becomes an owner, it reduces the pool of tenants. Which reduces demand for rental apartments. Which reduces the price for rents.

I get the point of saying “I’m in it for the cash flow” but I don’t see how you can ignore the purchase price. If it dips low enough, there’s just less people out there willing to “flow” you some cash.

At the end of the day, there’s a certain point at which “how much does housing cost” matters to someone who only cares about rental income, because if the former gets low enough, there are simply less people willing to give him the latter, or at least less of the latter.

that’s all I’m saying.

Mike

Yes, but only to a point. If your condo were to halve in value, for example, I bet the amount you could charge in rent would come down as well. Renters are savvy enough to know whether they’re staying in a $100,000 place or a $300,000 place, in my experience. So as much as you only really “care” about the monthly income, (not the asset’s price) the former is indirectly dependent on the latter.

Mr. C – it seems that everyone is more interested in your cash flow statement rather than your balance sheet (including yourself). Maybe a good monthly update post should have your expenses, savings and passive income? Net worth could be part of that post or maybe separate?

Just a suggestion!

Mike