Dear Landlord,
I want to express how much I appreciate what you do for me and my family. We purchase housing from you at a reasonable cost and this housing meets my family's needs on a month to month basis.
I know you may see me as a lowly tenant who can't afford to purchase a home and is relagated to the unwashed renting masses for eternity. Little do you know that I could easily purchase the home you rent to me but I won't because it would cost me nearly double what I pay to you every month. Our arrangement allows me to save a very significant sum of money every single month.
This is the reason I am writing this letter as I truly do appreciate the ability you give my family to rent for less than what it would cost us to purchase the same property. I know this is a sacrifice for you because the rent I pay you doesn't even cover your costs, including the interest you pay on the mortgage, strata fees, and property taxes. All of this in addition to the hassle and work that goes along with being a landlord as well as the potential for large costs like special assessments or appliance replacement.
I don't known why you do it but thank you for your service to my family.
Sincerely,
Mohican, Mrs. Mohican, and Baby Mohican
25 comments:
Mohican
Referring back to your last post about units under construction, I've been playing with some numbers just for fun.
I've looked at GVRD population growth estimates. Through to the end of 2007, the GVRD added an average of 31,909 persons per annum, and this is trending slightly downward (each of 07 and 06 is less than the previous year).
GVRD also estimates that the average persons per household unit for the entire Vancouver Census Metro area is 2.59. Your estimate that 27,000 units under construction represents enough to house 60,000 persons is sound if not conservative.
We've all been made aware that there are large percentage of condos and townhouses owned by investors - up to 50% in the downtown core, for example. We've also all heard about BC Hydro's estimate that roughly 18,000 units are unoccupied based on power consumption figures. Using a more conservative factor of 2.0 persons household, as most of these unoccupied units would be condos etc., the 18,000 units represent housing for roughly 36,000 persons.
So, when existing unoccupied stock, if BC Hydro numbers are accurate, is added to units under construction the total would house 96,000 individuals. Assuming units under construction take an average of two years to complete then, over the next two years we could have 100% more new or nearly new units available than we have population growth to support.
While there are obviously still no shortage of FTBs, the pool must be dwindling. Even if price appreciation moves towards mid single digits, as I suspect it is already, I would think the investment appeal of condos and townhomes would wane considerably. Looks like a perfect storm in the making to me.
Mohican
Correction. My numbers suggest that we'd have 50% more new housing units than required over each of the next two years, not 100%. Mind you, I didn't factor in units owned by investors that are occupied, which I understand to be in the majority. Still a perfect storm in my view, any way you slice it.
Dear Mohican Tenants -
Many thanks for your letter.
I must say that it came as something of a surprise in all sorts of ways.
For a start, I was surprised that people in your situation could actually write a letter. I'd previously believed you all to be woefully undereducated and illiterate. In fact, I always come to lease signing meetings equipped with a thumbprint-ink-pad with the certainty that I’ll be faced with a prospective tenant who is incapable of signing their name.
I was also impressed that the stationery on which you wrote your letter was clean and not at all filthy or grubby or smelly. Well done!
I thought your estimations of the lowliness of the masses, the renters, and the common-folk, and the obvious elevated status of we landlords, was absolutely spot on, and somebody of your modest stature needs to be congratulated for knowing your place in the world. Humility is a blessing, particularly in folks in your circumstances who have so much to be humble about.
All of this was pretty clear, but I must confess that some of the incoherent ramblings in the rest of your letter made absolutely no sense at all. You seem to be living a deluded dream and imagining me actually somehow assisting you financially with your accommodation costs, whereas we all know that it is actually you who is paying my mortgage, building my assets, enlarging my equity, and making me rich, rich, rich. I started sketching out some of the figures to show you, but after a few attempts, and about a dozen napkins, I gave up. Math and numbers never was my forte, and I’d imagine you find them completely incomprehensible, too. In lieu of the actual figures, I’m sending you a clipping from a truly excellent article in this weekend’s Vancouver Sun, “B.C. real estate: 15 myths and realities”. In particular, look at the section on why “Buying an additional property to rent out is a solid investment”. The Sun emphasizes that this statement is ‘A Reality’, so I suspect that lays our little argument to rest. You may also want to take a look at the rest of the article, particularly the bit about how we owners are knowledgeable and make good decisions based on our research in sources like Real Estate Weekly, the real-estate sections in newspapers (like the Sun), the realtors' Multiple Listing Service posted online and Home and Garden TV. So that’s that then.
Thanks for the letter, anyway, even though, as I say, I don’t really get the point. Especially regarding the ‘service’ you think I provide! I think you’re getting this all ass-backwards! Which reminds me: Thanks for the note about the toilet system being blocked. Perhaps I’ll have to open the sewer again, like I did over the long weekend when you guys were in Hawaii. (Quite frankly, I’d rather not be reminded of this, I recall my fingernails took a week to clean! But I suppose that’s part of the responsibility of being landed gentry.) Anyway, let me know when you guys are going to be out on one of your biking or golfing weekends, or touring the wine country, or whatever else it is you get up to, and I’ll come over with my equipment. A bit of a chore, but that’s the price I’m willing to pay to build equity and get rich!
Yours feudally,
Your Landlord.
I wouldn't actually send this letter unless you want your rent to go up.
I lover renters by the way. They pay my mortgage and carrying costs and I make a profit every month. The one property I have in Saskatoon would cost my renter $1600 month in mortgage payments etc if they were to buy it from me right now. They rent it for $820. My costs? $750. I bank the surplus every month while my equity grows. The renter (whom I've never met as I use a professional property manager who takes care of their every need for the low cost of $60/month) can only dream of owning such a cash cow.
Dear 'your landlord' -
ROTFLMRAO (rolling on the floor laughing my renting ass off) -
Stop! No more parody letters - please!
Rent $820, Mortgage payments $1600 at current market 'value'....
I'll bust a gut!
Thanks for the laugh,
rentah
You're laughing at the profit I make? You need a course in capitalism son, or you'll be living in your rental shack for the rest of your life.
I can up their rent for the rest of my life while my costs decline as I pay down the mortgage. Profit will grow every year. Rentah, you don't know sh*t about sh*t.
I presume that "your landlord" is being sarcastic, but if against all odds it is the real deal, please please google "opportunity cost".
shove opportunity cost up your ass egghead.
freako:
'your landlord' is either
1. the real deal
2. a relative that mohican has hired to liven up the discussion; a plant a la the 'Bill Good' show..
(Actually, he's pretty clearly now '1.' above).
Amazing.
Given his metaphor, I'd judge that he's about to go out and unblock a toilet.
you doofuses wouldn't know a good deal if it came up and bit you on the ass.
ah well, whatever, i don't need anymore competition for cash-flowing property, go on, keep paying that rent, i love you guys!
I'm confused. The value to his property in Saskatoon went up since he bought it. His mortgage payment is half what it would be at current market prices. His renters are more than covering it because they can't afford to buy since the market went up.
Sounds good. What's wrong with that? I guess you guys are saying that he should cash out and put the gains into a better investment? That the interest on his mortgage is actually slowing him down? If Saskatoon real estate is still appreciating though isn't he better off staying put? Please explain.
The $70/month "cash cow". Only in Saskatoon you say. Pity. That covers almost a whole week's worth of cappuccinos. There must be no more land there, being hemmed in by the prairie on all sides. A landlord's paradise.
good for you 'your landlord' for finding an investment in real estate that is able to carry your costs and does not require much work for you. What if you sold now? What would your cashflow be? Would it increase from the lofty $70 per month you currently make?
Let's assume you paid $100k for your property and now it's worth $250k and you still owe $100k on it. You currently earn $70 of net cashflow and the prospects of rising rents are positive. If you cashed out of your property by selling your place you would net over $500 per month in a simple GIC and you could still take out your current $70 of cash and compound the rest of the earnings to ensure your money would increase until you decided to use it.
Who is the idiot?
goulash:
Yes, he should sell and invest the capital elsewhere. He'd get as good yields at far lower risk.
Holding on is a pure speculation on price increases, as the prices have long ago left relationship with fundamentals (like rental income).
Besides, if you want to take price changes into account, what about considering the possibility that prices may plunge (as they have already started doing in Alberta and every other jurisdiction in the world, other than Vancouver.)
ah well, whatever, i don't need anymore competition for cash-flowing property,
Ain't that the truth given how scarce positive cash flow is.
I guess you guys are saying that he should cash out and put the gains into a better investment?
Yes, Captain Oblivious is evaluating his investment based on cost, not market value. Obviously the value of an investment is totally independent of the price that the owner paid.
Thank you for the explanation.
Are there markets where mortgage payments get out way ahead but rents soon catch up, maybe within a couple of years, and then appreciation resumes? Does that happen?
Are there cities in the world that are historically cheaper to rent in than to buy? Where appreciation consistenly occurs despite the ratio being off?
Or is it always the case that when that occurs a correction comes?
Are there markets where mortgage payments get out way ahead but rents soon catch up, maybe within a couple of years,
Rents can grow reasonably fast in cities with fast growing populations and booming economies. But the gap that has opened up with prices will take a heck of a lot more than a couple of years to close.
Are there cities in the world that are historically cheaper to rent in than to buy?
Density premium aside, that would be odd, as a renters discount is a landlords loss. Appreciation cannot make up for lack of rental income. If prices go up faster than rents, the problem only gets worse.
Also, Landlord...
Have you paid for any repairs on the house yet? Or had a vacancy? $70 a month surplus won't cover too many repairs or months sitting empty.
Are there cities in the world that are historically cheaper to rent in than to buy?
In countries with historically high inflation, monthly ownership costs normally exceed rent at time of purchase, because rising rents close the gap going forward. Note they also have high interest rates.
But owning is still cheaper than renting in toto, i.e. the present discounted value of the net rental income exceeds the cost of buying the property.
That's the way landlords make money, as Freako pointed out.
Apart from the occasional local RE mania, in Canada it was always cheaper to buy than rent from the point of purchase, with 25% DP and 25 year amortization. During the 30's it was a lot cheaper. This ended in the 70's as inflation expectations were factored into house prices.
BTW the only inflation that is positive for house prices is wage inflation. Price inflation with static wages is negative for house prices. What kind of raises are people getting these days?
"During the 30's it was a lot cheaper."
During the thirties, one could purchase a house, rent it out, and have the tenant pay it off in 3 years!!
In countries with historically high inflation, monthly ownership costs normally exceed rent at time of purchase, because rising rents close the gap going forward.
And that is why the insane affordability situation in the early 80's wasn't as bad as commonly perceived. Inflation was high, and incomes AND rents meant that the pain was relatively brief (provided one could hang on to the property). In our low inflation environment, the insane affordability and cash flow shortfall will stay with us for a long time ... unless prices drop of course.
During the thirties, one could purchase a house, rent it out, and have the tenant pay it off in 3 years!!
The mortgage market didn't exist back then, so there were true barriers to entry for ownership back then. And one reason why FHA and CMHC was created. I think these bureacracies have worn out their mandates and have taken on life of their own by now, but at one time it was a sorely needed service.
"Are there markets where mortgage payments get out way ahead but rents soon catch up, maybe within a couple of years, and then appreciation resumes?"
There would need to be very specific conditions for this to happen. Ultimately if dwelling supply does not keep pace with population growth then people will densify (i.e. share a flat/bed) and raise rents in the process but that requires a low level of building, which there is definitely not now. Any other situation, where new dwellings can be formed at a rate equal to or greater than pop growth, will lead to rents staying at or below wage inflation.
And that is why the insane affordability situation in the early 80's wasn't as bad as commonly perceived
Yes it was, because house prices were anticipating continued double-digit wage inflation, which didn't happen.
Looking backwards to the 70's, yes the prices made sense, but lots of things make sense looking backwards when they don't going forward.
And one reason why FHA and CMHC was created.
House prices were seriously undervalued on a fundamental basis in the 30's. By turning renters into owners, they were increasing the former renters' disposable income and stimulating the economy long term.
The situation today is the exact opposite of the 30's. Then capital was too hard to get, now it's too easy to get.
In the 30's facilitating home ownership was part of the solution, today it's part of the problem.
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