Thursday, May 24, 2007
Home of Insanity - Bridgeview
I have been following the irrational run up in real estate prices for two years now and I have been saying that real estate is overvalued based on fundamentals of price to rent ratio and price to median income ratios (traditional and reliable valuation methods). Despite the fact that I know this to be true, most of the people I talk to on a daily basis think that it is rational and that somehow it makes sense. They usually bring up low mortgage rates, booming economy, rising population, etc and I am quite frankly tired of hearing about their irrational reasons. These ideas have been rationally refuted time and time again and I'm not going to go into that now.
Most people don't live in my world of statistics, analysis and mathematical rigour - they understand stories. The stories they've been hearing lately are about relentlessly rising property values, get rich quick speculators, and the glories of refinancing the family home. Since these people understand stories I am going to provide a story to back up my point of view. I plan to profile MLS listings in Greater Vancouver and the Fraser Valley over the next while to prove my point. I will call these homes "Home of Insanity."
Today's leveraged investor special (MLS F2708994) is found in the lovely Bridgeview area of north Surrey. It is a 1000 square foot rancher and the seller is asking "only" $285,000. It rents for $1000 / month and the monthly carrying costs of the property would be approximately $2000 / month. You can have the opportunity to subsidize a renter to the tune of $1000 / month by buying this property. I wonder why the current landlord is selling?
If you decide to buy this property you will have the pleasure of seeing your home underwater during a 50 year flood and seeing homeless people, hookers, drug addicts, and gang violence right outside the front door. Clearly this home is also of a "timeless" character because we don't even know when it was built. Before you call the realtor to make an offer, remember to bid above asking price because this home is close to Home Depot, Skytrain, and yes - even scrap metal yards - right around the corner.