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In this issue Tony Kaleel, Intracorp’s Vice President of Acquisitions, helps us
look at the Vancouver real estate market with a longer investment horizon.
From a distance, the hills and valleys are less extreme.
A Q U A R T E R LY O N L I N E M A G A Z I N E
The upside of taking a longer view with real estate
As Tony Kaleel puts it, “We have a fixed
land supply and consistent population
growth. Housing is a fundamental
human need. It will never be obsolete.”
He goes on to say, “Year over year,
since 1991, the Vancouver real estate
market has increased 3.95% per year
on a median basis.” (source: REBGV)
To that end, Tony ran a model to show
us how an investment in real estate
today can pay off very handsomely
in the long run. Even using the most
conservative figures, the upside is very
attractive.
For this exercise, he used a
2-bedroom, 2-bathroom D Plan at
Silver. It’s a 747 square foot home with
a very efficient plan with great rental
potential. That home is available for
as little as $440,900 on the 19th floor,
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which will have some great views. For
the purpose of this demonstration he’s
shown us a model for an investor.
The upshot is that if you were to buy a
home at Silver today and keep with the
investment for 8 years, you could see
a potential 57% return on your equity
investment by 2020.
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Purchase price: Down payment of 20% Transfer tax, legal fees and GST: $440,900
$88,180
$29,663
Total equity invested over 8 years:
$161,819*
Rental income over five years: Projected property value in 2020: $45,597**
$524,744***
(assuming a 2.2% annual appreciation)
Net cash out on sale of property in 2020: $91,912****
IRR (Internal Rate of Return on your money) 13%
(continued...)
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Here are the highlights, but you can
view Tony’s figures in their entirety by
clicking here.
Suite 1902 – Plan D at Silver in Metrotown.
That number is based on a host of
assumptions, but the assumptions
that Tony has made have been very
conservative. For example, he has
allowed for only 2.2% annual growth in
the value of the property as opposed
to the historic number of 3.95%.
Also, Tony has suggested a mortgage
interest rate of 5% whereas you may
be able to qualify for a 5-year fixed
term mortgage today at 3.49%. He’s
allowing for things to change over the
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next 3 years while the building is being
constructed.
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A Q U A R T E R LY O N L I N E M A G A Z I N E
The simple beauty of investing in
real estate is that you get to enjoy
the increase in the total value of your
property while having invested only a
percentage of the total cost.
Remember that the annual increase
in property value has been 3.95%
historically. But, for the sake of this
conservative model, Tony has used the
annual rate of inflation of 2.2% increase
in value per year. So, it’s a pretty safe
model that you could apply to any real
estate purchase over the next 8 years.
Tony once had a boss who told him to
understand the risks, invest within your
means and never sell any real estate
investment that he bought. But, even
if you don’t hold the property forever,
you can still see a very good return on
your investment – much better than you
would see at a bank. Of course, there
are risks, and it’s impossible to predict
exactly what will happen in the market
over the next 8 years, but if history
teaches us anything, it’s that real estate
values – in good locations, with jobs
abundant, mass transit and a balanced
supply (such as Silver) - go up over
time. In general terms, investing in real
estate is a good hedge against inflation.
Plan D
Two Bedroom
Interior:
Exterior:
747 sf
118 sf
Total:
865 sf (approx.)
Balcony
Master Bedroom
* At the end of 8 years, your total equity invested in the asset
would be $161,819.00. That’s the down payment plus the
cost of covering the difference between your mortgage,
strata fees and taxes against what you can get for rent.
Living/Dining
DW
Kitchen
Ensuite
Tech
** You could rent the property out for around $2.00/square
foot in today’s market. That’s about $1500.00/month, or
$45,597.00 over five years allowing for 2% vacancy.
W/D
Bedroom
*** As per the Bank of Canada target inflation rate.
Bath
**** Net Cash out is the combination of the additional equity
you add to the property by paying down the mortgage
[$29,182.00] PLUS the increased value of the property after
you cover your disposal costs such as realtor and legal
fees. [$62,730]
Note: Please refer to Architectural Drawings for deck configuration for 502,
and entry configuration for all D 05 plans
Level 05
Amenity
C
08
The above information is for illustrative purposes only. Each
individual investor will have specific needs and requirements.
Individuals should consult their own financial advisor before
acting on any information in this article.
E
07
Levels 6 to 36
E
09
B
01
D
02
A
03
C
08
A
06
D
05
E
07
B
01
D
02
A
06
D
05
A
03
Level 37
G
08
G
07
B
01
D
02
A
06
D
05
A
03
Levels 38 & 39
G
08
G
07
B
01
D
02
A
06
D
05
A
03
N
Project North
Layouts are not to scale and are for general information purposes only. All square footages, dimensions and layouts are approximate and should not be relied upon. E. & O.E.
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