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[GandiBaat]

No, because you're not exempted from paying property taxes, and you're required to avail CHMC insurance since your downpayment is only 5% otherwise the bank won't approve your loan. I thought at 3.5K you're already counting both of them, but here goes.

https://www.cmhc-schl.gc.ca/consumers/home-buying/calculators/mortgage-calculator/mortgage-calculator-result?mc_PurchasePrice=$500,000&mc_DownPayment=$25,000&mc_AmortizationPeriod=25&mc_Interest=5.69&mc_Frequency=1

total price of mortgage with insurance: $3,070.19 / month
property taxes: $1,390 / year[down town vancouver @ 500K property price] = 115.8 / month
average house insurance: $300 / year = $25 / month

Total monthly mortgage cost = $3,210

Net Expenses: 25K + 3.21K * 60 = 218K
Net Debt: 444.58 K
Asset FMV = 701K
Total Value: 38.42K

By the way Vancouver raised property taxes by 7.5% so this reflects 2023 property tax, and I did not account for property value inflation for tax evaluation purposes.

Non-FHSA (if invested instead of getting a condo):
Capital: 25K + $210/month
Net Asset Price (S&P 500, 10% return) [25K compounding + 210/month at annuity] : 25K * (1.1)^5 + (210* 12) * ((1.1)^5 - 1) / 0.1 = 55.6K
Capital Gains Tax (assuming 40% income tax rate) = (55.6 - 37.6) * 0.5 * 0.4 = 3.6K
Total Value: 55.6K - 3.6K = 52K

FHSA:
Only looks at tax rebate from FHSA, assumes 0 tax exemption, and exempted income is not re-invested (because I'm too lazy to compute annualized tax exemption and gain, so let's look at worst case FHSA)
Tax Savings: 40K * 0.4 = 16K
Total Value = 52K + 16K = 68K

One more mistake. You are comparing Gains in House vs Total Value in S&P investment.

For Condo you are using this formula, right?

Net Expenses = Downpayment + Mortgage Monthly * 60 + yearly expense in taxes and insurance
Net Debt (after 5 years)
Asset FMV (7% compounded rate) = Condo Value * (1 + 0.07) ^ 5
Total Value = Asset FMV - (Net Expenses + Net Debt)

The above is NOT Total Value at the end of 5 years, BUT GAIN on value.

The Total Value will be Asset FMV - Net Debt. That is the Amount you will get when you sell the house.


You are comparing it with Total Value of investment in S&P @ 10% return:
Since that is compounding at 10%, you used AMOUNT formula (for compounding and annuity).

So lets do the calculation again, with the scenario I had in my mind when I started.

Lets calculate buying a Condo (@500K) with two scenarios :

1. 20% Downpayment (the scenario that I assumed in my first post)
2. 5% Downpayment (the scenario that you used)

1. 20% Downpayment (no insurance required)
Mortgage Rate : 5.39%

Calculator Link : https://www.cmhc-schl.gc.ca/consumers/home-buying/calculators/mortgage-calculator/mortgage-calculator-result?mc_PurchasePrice=$500,000&mc_DownPayment=$100,000&mc_AmortizationPeriod=25&mc_Interest=5.39&mc_Frequency=1

Mortgage Payment per Month : 2416

Property taxes: These are on assessment value and NOT on actual prices. Typically, for Vancouver sales price is 8-10% more of assessment value. Anyhoo lets take your figures. $1,390 / year[down town vancouver @ 500K property assessment price] = 115.8 / month

Average condo insurance: $300 / year = $25 / month (I am discounting this because tenants also typically take a $25 tenant insurance as well to cover liability and personal belonging loss in things like fire damage or flooding. When I came in vancouver in 2017 I also took one at 30$ per month.)

Total Monthly Expense : 2416 + 115.8 = 2531.8

Net Expenses: 100K + 2.532K * 60 = 252K
Net Debt (after 5 years) = 358K
Asset FMV (7% compounded rate) = 500 * (1 + 0.07) ^ 5 = 701K

Total Value NET GAIN = Asset FMV - (Net Expenses + Net Debt) = 701K - (252K + 358K) = 91K
Total Amount (or house equity) you will get after selling the house = Asset FMV - Net Debt = 701K - 358K = 343K

2. 5% Downpayment (the scenario that you used)

(Here I am using 5.39 %, which the best mortgage available right now.)

https://www.cmhc-schl.gc.ca/consumers/home-buying/calculators/mortgage-calculator/mortgage-calculator-result?mc_PurchasePrice=$500,000&mc_DownPayment=$25,000&mc_AmortizationPeriod=25&mc_Interest=5.39&mc_Frequency=1

total price of mortgage with insurance: $2984 / month
property taxes: $1,390 / year[down town vancouver @ 500K property price] = 115.8 / month (rounded to 116 / month)
Average condo insurance: $300 / year = $25 / month (I am discounting this because tenants also typically take a $25 tenant insurance as well to cover liability and personal belonging loss in things like fire damage or flooding. When I came in vancouver in 2017 I also took one at 30$ per month.)

Total monthly mortgage cost + property tax = $3100

Net Expenses: 25K + 3.1K * 60 = 211K
Net Debt: 442.45 K
Asset FMV = 701K
Total Value NET GAIN = Asset FMV - (Net Expenses + Net Debt) = 701K - (442.45K + 211K) = 48K
Total Amount (or house equity) you will get after selling the house = Asset FMV - Net Debt = 701K - 442.45K = 259K

Now Comparing with your S&P ones (for 5% down payment ) :
Capital: 25K + $100/month

Annuity Calculator : https://www.calculator.net/annuity-calculator.html?cstartingprinciple=0&cannualaddition=0&cmonthlyaddition=100&cadditionat1=end&cinterestrate=10&cyears=5&printit=0&x=Calculate#annuity-result

Amount = Net Asset Price (S&P 500, 10% return) [25K compounding + 100/month at annuity] : 25K * (1.1)^5 + (100* 12) * ((1.1)^5 - 1) / 0.1 = 40K + 7.7K = 47.7K
Gain over Downpayment = 47.7 - 25 = 22.7K

I will not even talk about capital gain tax here now.

Now Comparing with your S&P ones (for 20% down payment ) :
Capital: 100K
Additional you will be paying to rental: 400 dollars each month

Amount = 100*(1.1)^5 = 161K
Extra Expenses per month in rental = 400*60 = 24000 (for simplicity)

Total Amount = 137K
Gain over Downpayment : 37K

 

[Lord_Tony]

I think he loosely used the word "banker". I think the professions he meant were more like Bank Tellers who don't make much in comparison.

Yes, I was not referring to Investment bankers who have the cream of wealth making after the film stars, will be making millions. I meant the Bank employees who work in the local Bank Branches in most suburbs helping us open accounts loans, and similar stuff, etc.. I think they are called personal bankers or advisors. That job I hear is often filled with immigrants, one of my friend's wife from Singapore recently came and took such a job. She tells us these roles are often young local folks in their mid to late 20s or immigrants. It is a physically and mentally draining job and pay doesn't match the stress they face.

The Tellers or the ones who handle the cash counters supposedly only make basic low wages as much as the lambdas in McD Timmies etc.., however, due to regulations Banks don't take folks on WPs hence often part-time local college kids do that job. One of the boss's daughters does that job apart from her post-graduate degree nd gets some 20$ an hour daily wages. If I total that it is less than 30k a year including OT.

 

[Lord_Tony]

Lol. Accountants with 5 years of experience easily cross six figures. Investment bankers in Toronto start off with six figures. The wages you quoted are entry level wages for people working in Finance or Accounting. I’m not sure where you got your figures from. Professions in Canada don’t pay as much as the US. That is true but they are nowhere as low as you put them to be. What other countries are you comparing Canada to?

Maybe the bulk of the qualified CPAs with the right skills and aptitude to make the money you mention, but most run-of-mill accountants make much less, I have been involved in a lot of recruitment for my organization and customers alike when we implement accounting systems. The wages are much less I have used websites like these to understand statistics https://www.jobbank.gc.ca/wagereport/location/on usually.

I do not disagree with you a lot of other countries are poor in wages also but the real-estate and other Cost of living is not as bad as Toronto or Vancouver, probably Sydney - Australia, NY - USA, and Bay Area - USA are in that range.

No, I was not referring to Investment Bankers, they are like film stars who make a lot.

 

[Windsor37]

One more mistake. You are comparing Gains in House vs Total Value in S&P investment.

Good point, I guess in some cases you could get better returns in flipping. Although I think it might still vary from case to case, for example my rent is below $2000, since I was able to land in Vancouver before the rental prices went insane. So taking up a mortgage would have significantly strained my investment money; and I think there are HOA fees which are not as visible but mandatory, at least that's what I heard from one of my office mates who are in the rental business. I might have to dig deeper on this.

 

[GandiBaat]

Good point, I guess in some cases you could get better returns in flipping. Although I think it might still vary from case to case, for example my rent is below $2000, since I was able to land in Vancouver before the rental prices went insane. So taking up a mortgage would have significantly strained my investment money; and I think there are HOA fees which are not as visible but mandatory, at least that's what I heard from one of my office mates who are in the rental business. I might have to dig deeper on this.

HoA fee or maintenance vary from strata to strata. Many Duplex do not have them but they get the strata insurance directly (I do this, mine is shared with my duplex partner). Needless to say, interest rates have peaked. If anything, they will go down a bit from here. That will make flipping even more attractive than renting. A 0.45 drop in interest rate in this case will be drop monthly by 100 dollars at 400K mortgage.

Thing with renting is that, you may also get renovicted for higher rental. For vancouver this is not unheard of. Some of the more crafty ones --specially in surrey-- further use the pretense of giving condo to their "family members" who are just another punjabi family. And given RTB is so backlogged that it is not even funny, you will end up with more trouble than worth it.

 

[Windsor37]

HoA fee or maintenance vary from strata to strata. Many Duplex do not have them but they get the strata insurance directly (I do this, mine is shared with my duplex partner). Needless to say, interest rates have peaked. If anything, they will go down a bit from here. That will make flipping even more attractive than renting. A 0.45 drop in interest rate in this case will be drop monthly by 100 dollars at 400K mortgage.

Possibly yes, but liquidating property has more legwork than clicking "sell stocks" from an app. I have to study the whole set of pros and cons, all fees hidden or otherwise, before jumping into this, for example or if housing inflation rates drop to 4-5%, and I'm no longer meeting the expected value because I had to sell low, things like that.

Thing with renting is that, you may also get renovicted for higher rental. For vancouver this is not unheard of. Some of the more crafty ones --specially in surrey-- further use the pretense of giving condo to their "family members" who are just another punjabi family. And given RTB is so backlogged that it is not even funny, you will end up with more trouble than worth it.

Agree on renovictions, but I'm on a purpose built rental, relatively new, just built in 2022. I'm actually the first tenant of my unit, and one of the very first tenants of the building, which why I have a relatively lower rental rate, because I'm an early bird. I don't worry about renovictions just yet, maybe after 5-10 years, but I doubt I'll last that long here anyway.

 

[GandiBaat]

Possibly yes, but liquidating property has more legwork than clicking "sell stocks" from an app. I have to study the whole set of pros and cons, all fees hidden or otherwise, before jumping into this, for example or if housing inflation rates drop to 4-5%, and I'm no longer meeting the expected value because I had to sell low, things like that.

No doubt! I spent 5 years before doing it and before that I was going into all details, attending open house almost each weekend. This is why I was able to buy a sea side duplex in 2022 for the assessment value of 2019. There were few more details, but I was able to rule out those that do not matter to me and those which did.

I do not plan or need to sell before coming 10 years or more till my son hits junior high. Then I want to get him into a good high school and will need to move near to one. May be then I will move in a totally independent house. This all ofcourse assume I remain in Canada for that long.

Agree on renovictions, but I'm on a purpose built rental, relatively new, just built in 2022. I'm actually the first tenant of my unit, and one of the very first tenants of the building, which why I have a relatively lower rental rate, because I'm an early bird. I don't worry about renovictions just yet, maybe after 5-10 years, but I doubt I'll last that long here anyway.

If you are in a purpose build rental, that is great. I generally avoid them because I have found the management company tends to be a bit more .... "A-hole" and unconcerned with upkeep of things like elevator and central heating. My friend lives in a CapREIT building. His .... management "forgot" to inform him when they did asbestos remediation... He has a 14 year old. And then they gave him warning for noise .... That being said since 2017, he has not seen his rent go from 2400 to beyond 2600.

 

[Windsor37]

No doubt! I spent 5 years before doing it and before that I was going into all details, attending open house almost each weekend. This is why I was able to buy a sea side duplex in 2022 for the assessment value of 2019. There were few more details, but I was able to rule out those that do not matter to me and those which did.

I do not plan or need to sell before coming 10 years or more till my son hits junior high. Then I want to get him into a good high school and will need to move near to one. May be then I will move in a totally independent house. This all ofcourse assume I remain in Canada for that long.

Good Luck, the last part is also a reason why I'm hesitant to buy hard-to-liquidate assets.

If you are in a purpose build rental, that is great. I generally avoid them because I have found the management company tends to be a bit more .... "A-hole" and unconcerned with upkeep of things like elevator and central heating. My friend lives in a CapREIT building. His .... management "forgot" to inform him when they did asbestos remediation... He has a 14 year old. And then they gave him warning for noise .... That being said since 2017, he has not seen his rent go from 2400 to beyond 2600.

So far all is well, they do follow rent increase rates from the BC government, so nothing too unpredictable. I wanted to move after a year once I get a much better idea of how things work in Canada, but by that time, rent prices was around 3K, and I'm like, I'm not giving up this rate.

 

[LeilaOzawz]

Hello guys ! Do you have any idea why IRCC did not treat FSW-O files for the last 3 months?

 

[GandiBaat]

Good Luck, the last part is also a reason why I'm hesitant to buy hard-to-liquidate assets.

Well... if you choose to leave Canada, you can still keep the property, keep it rented and you will not be taxed in Canada for your world wide income, provided you closed all the rest of your economic ties to Canada. Finally, you can dispose property in less than a week in the next frenzy. And yes, there will be a next frenzy.

 

[GandiBaat]

So far all is well, they do follow rent increase rates from the BC government, so nothing too unpredictable. I wanted to move after a year once I get a much better idea of how things work in Canada, but by that time, rent prices was around 3K, and I'm like, I'm not giving up this rate.

Thats one more issue. It becomes a sword too sometimes. Sword which you can not remove. I know families in victoria who have been priced out of victoria and only reason they are here is because they have not been renovicted or their rental did not need a real renovation. I will hate to give anyone that kind of power over me.

 

[GandiBaat]

Hello guys ! Do you have any idea why IRCC did not treat FSW-O files for the last 3 months?

No one knows man. But first confirm what you are saying. It is likely FSW-O are being processed but you just don't know.

 

[iSaidGoodDay]

No one knows man. But first confirm what you are saying. It is likely FSW-O are being processed but you just don't know.

FSW-Os are getting processed, it appears that IRCC is processing eligibility and background check while medicals are not "marked" pass and BIL is delayed. That is giving an illusion that IRCC isn't processing FSW-O.

 

[Windsor37]

Well... if you choose to leave Canada, you can still keep the property, keep it rented and you will not be taxed in Canada for your world wide income, provided you closed all the rest of your economic ties to Canada. Finally, you can dispose property in less than a week in the next frenzy. And yes, there will be a next frenzy.

Oh, I say no to renting... Not that they have bad income, for sure you're going to make money from it, it's just that I don't have the necessary time, patience and effort to deal with managing the rental unit especially if I'm residing from a different country. I have heard horror stories from some of my coworkers that had bad renters, so one tenant basically decided to stop paying rent, and they had to take them to court and get them out, which apparently took several months, cost them about 6 months worth of rent plus the tenant trashed the place giving them more costs, and headaches. If I want a property as an investment, I'd rather own a REIT.

 

[Windsor37]

Thats one more issue. It becomes a sword too sometimes. Sword which you can not remove. I know families in victoria who have been priced out of victoria and only reason they are here is because they have not been renovicted or their rental did not need a real renovation. I will hate to give anyone that kind of power over me.

For sure, but I'm confident that I'm not going to face a renoviction, at least not yet, as I said the unit is still relatively new (<2 yrs old). If the unit had been 7 years old or more, I would have been preparing to adjust my budget based on current rental rates.