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> Housing increases in value over time; someone holding on to an empty apartment in Vancouver is making lots of money in absolute terms, even if comparatively

> Housing increases in value over time; someone holding on to an empty apartment in Vancouver is making lots of money in absolute terms, even if comparatively less money than if the apartment were rented. When a new tenant agrees to pay a higher rent for years to come, the waiting pays itself off in a few months, and the rest is profit. This doesn't hold up to basic scrutiny. According to https://www.zumper.com/rent-research/vancouver-bc https://www.zumper.com/rent-research/vancouver-bc, "As of August 2023, the average rent for a 1-bedroom apartment in Vancouver, BC is $2,800" So let's pick a median apartment but an owner who thinks they can wait out a higher rent. What extra revenue do we believe is reasonable for them to hold out for? Let's be EXTREMELY generous and say they want to hold out to get $3200. The maximum legal rent increase in BC is 2%/year. On a 5 year timeline, the baseline is 2800+2856+2913+2971+3030=14,570. If they somehow get $3,200, that's instead 3464+3396+3329+3264+3200=$16,653. A difference of 2083$! Wow, 2 thousand dollars, that's a lot of......wait, no that's literally less than ONE month of rent revenue. Holding out for even ONE month and having the unit unoccupied erases ANY possible benefits from the extra rent. I really really liked everything else about this article. But this super fundamental mistake makes me question the credibility of the author :/

eesmith 3y ago
You calculated gross. You should calculate net. It's a non-zero cost to have a tenant. For demonstration purposes, if it costs $2700/month then the difference is $1,070 in profit vs. $3,153 over 5 years, corresponding to about 2.5 years. If the market rate increases by 10%/year than if you wait a year you can charge an additional 8% over having a tenant.
- deanCommie 3y ago
  The vast majority of the cost of having a tenant is the MORTGAGE you're paying. Which you have to pay regardless of whether the unit is occupied or not. So the actual situation is FAR worse than what I estimated.
  - eesmith 3y ago
    Mortgage payments give you equity. Once you pay it off, you get title to building, and its full worth. If your tenants are paying enough to cover your mortgage plus maintenance then after the mortgage is paid off (in 20-30 years), you can sell the building and not split the sale price with anyone. Now, you do lose out on the interest payments. On the other hand, access to more capital via a loan gives you access to a better ways of generating money, so you need to calculate the full expected future value. Just like if you buy the building with cash - no mortgage! - you have to factor in the effects of your lower liquidity. In any case, my point is that your earlier "basic scrutiny" omits some very important "super fundamental" details so cannot be used to reach the conclusion you think it did.

eesmith 3y ago

You calculated gross. You should calculate net. It's a non-zero cost to have a tenant. For demonstration purposes, if it costs $2700/month then the difference is $1,070 in profit vs. $3,153 over 5 years, corresponding to about 2.5 years. If the market rate increases by 10%/year than if you wait a year you can charge an additional 8% over having a tenant.

deanCommie 3y ago
The vast majority of the cost of having a tenant is the MORTGAGE you're paying. Which you have to pay regardless of whether the unit is occupied or not. So the actual situation is FAR worse than what I estimated.
- eesmith 3y ago
  Mortgage payments give you equity. Once you pay it off, you get title to building, and its full worth. If your tenants are paying enough to cover your mortgage plus maintenance then after the mortgage is paid off (in 20-30 years), you can sell the building and not split the sale price with anyone. Now, you do lose out on the interest payments. On the other hand, access to more capital via a loan gives you access to a better ways of generating money, so you need to calculate the full expected future value. Just like if you buy the building with cash - no mortgage! - you have to factor in the effects of your lower liquidity. In any case, my point is that your earlier "basic scrutiny" omits some very important "super fundamental" details so cannot be used to reach the conclusion you think it did.