Rent or Buy in Vancouver, BC

I received a comment on my previous post, and I wanted to write a bit on it today.

Anna said...

I am currently renting and want to buy a home of my own. The housing market where I live is very expensive - Vancouver, B.C. Would I be better off investing my money and waiting longer or should I save as much as I can and jumping into the real estate game as soon as possible?? Thanks. Anna.

Should I Rent and Invest, or Buy in Vancouver B.C, Jack?

This is a bit of a loaded question because I don't have the whole picture. There are quite a few questions that would be needed to be answered for me to make any sort of recommendation.

How much does she make in a year?
Is she in a sustainable industry?
Does she have any dependents?
Does she have to remain in Vancouver for her job?
How much does she have saved up for a down-payment?

I'm going to dig deep and make up some numbers here.



Anna Version 1
Age: 25
Annual Income: $42000 (Gross)
Job Industry: Stable
Job requires remaining in city: Yes
Dependents: None
Down-payment Saved: $32000

For this Anna, she could survive by renting a postage stamp apartment, without much room, and have still have a bit left over at the end of the month. If she expects to be able to live in style, she is sorely mistaken.

In my search for rental apartments in Vancouver I was unable to find hardly anything to rent for less then $1500 a month. And that is a small, 1 bedroom apartment in the rougher part of town.

To purchase, the costs are in the range of ~$200000 for a 'dumpy', old apartment on the wrong side of town. She would be able to swing this, and maybe even ~$225000, and still be under the ~38% maximum percentage of income mortgage payment.

What would she have in the ~20-25 years it takes her to pay off the mortgage?

A dumpy, old, smelly apartment on the wrong side of town.

I would rent for the moment, invest any largely spare money into stable, long term, passive income investments, and try to go for a promotion. If she purchases in Vancouver's core, in a few years, I don't believe she'll be happy with the results.

After she has some more saved up, and perhaps a small passive income stream to help her along, I would move out of the city, and secure a house at a fraction of the cost. She could get a part time job, and start enjoying her life instead of living a hand-to-mouth existence in the city.



Anna Version 2
Age:31
Annual Income: $75000 (Gross)
Job Industry:Unstable
Job requires remaining in city: No
Dependents: 1 Child, Single Parent

Down-payment Saved: $12000

This Anna was blessed with a child earlier in her life, at 23. She had finished school, and now works as a sales rep for a pharmaceutical company that sells a newer, untested drug for good profit. She will be the first to get fired if the profits stop flowing, but she makes good money at the moment.

She doesn't have enough money saved up to even think about buying in the city.

She needs a little more space, and would prefer to be nearer schools for her child.

The 'husband' disappeared a long time ago.

I believe that she should consider moving out of the city. I feel this way because I don't believe that the city is the best place to raise a child, especially when you work full-time and don't have any help from a spouse.

She may even be able to work out a tele-commuting agreement with her current employer, and the locational-leeway would allow her to pick a place that has some space for her child,  as well be nearer to schools and other family oriented activities (parks, playgrounds, cinemas, etc).



Anna Version 3
Age: 27
Annual Income: $38000 (Gross)
Job Industry: Stable
Job requires remaining in city: Yes
Dependents: None

Down-payment Saved: $52000

This Anna has a sizable down-payment saved. Perhaps it was inherited, because her job certainly doesn't allow for that amount of savings.

She could get a mortgage for a place up to around ~$250000, but that still isn't much better then a slummy apartment.

She has to stay in the city for her job, but her job is pretty poor income for a city-living person. It's likely that she could move out of the city, and put that down payment to far better use on a house outside of the city.

There are even tracks of land in the 'boonies' that are less then ~$100000. She could own a few acres on the outskirts of civilization in a few years, take a few more to set up a long-term passive income stream, and raise her child in the peace and quiet of the country.

Maybe she would even have the time to teach her child the value of hard work and having a good savings and investing plan.



Jack, you obviously don't like the city! What if I want to live in the city, and buy a scummy apartment for a small fortune?

All the more power to you.

Just don't say I didn't warn you when you're gaining on 45 and you don't have anything to your name but a mortgage for a scummy apartment on the wrong side of the tracks, with a gorgeous view of a brick wall and the cringe-worthy stench of the docks.