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Like many of you, I'm against buying a house in the Vancouver region at this time. However, a friend of mine and his new wife is hell bent on getting into the housing market and no amount of persuasion is going to change their minds. They're in their late 30's, $100,000 total income before tax, and have about $300,000 saved. Here are their options:

1. Buying a detached house for about $750,000 with $300,000 down and mortgage the rest. For that price you get a 60+ yr old, non-standard (small) lot house with about 1100 sq ft of living space and a rental unit. The monthly mortgage comes out to be about $2200 (TD 3.2% 5 yr closed over 25 yr) and potential rental of $1100. So, monthly expenditure is about $1100. Yearly property tax and insurance will be the most.

2. Buying a townhouse for about $450,000 with $300,000 down and mortgage the rest. This gets a 20+ yr old attached town house with maybe $300 maint. fees. Total living space is again around 1100 sq ft, but no rental unit. Monthly mortgage is about $730. So, monthly expenditure is about $1030. Yearly property tax and insurance will be half of option 1.

3. Buying an old condo for about $350,000 on a non-prominent neighborhood with $300,000 down. That gets a 20+ yr old condo with about $250 maint. fees. Total living space again is about 1100 sq ft and no rental unit. Monthly mortgage is about $250. So, monthly expenditure is about $500.​

Even if mortgage rates doubles in the next 5 yrs, they still can afford it. They want to go with option 1, but I suggested they go with options 2 or 3 and wait for a few years. They say in a few years, prices will rise to the point where they won't be able to get in. Can someone offer any wisdom or advice against option 1?
 

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Doesn't matter. They're going to be screwed either way. Holster up a big I told you so for 5 years time and tell them the information was there and they ignored it. You can only help stupid so much.
 

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Well they have enough capital that they likely won't have to worry about being trapped in almost any scenario, though it may be painful. I guess the real question is why do they want to take on the risk of being landlords for the privilege of having some renter share their walls?
 

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Have you shown them Garth turners blog? They really should read several blog entries before proceeding. Even if you think Garth is a crackpot, his opinions still should be considered in this case.
 

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I am with 4 Pillars.
This is the 2nd thread in 2 days where someone is offering unsolicited, unwelcome advice.
My experience is that people (esp. family) seldom expect or appreciate unsolicited financial advice.
I tend not to press such matters too far.

R/E is such a huge emotional issue with most people that no one wants to change their mind, and everyone is looking for confirmation bias.
 

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If they like the neighbourhood of the house and that's where they want to live for the next 10+ yrs, I'd go with option 1.

Their equivalent out of pocket rent is likely similar to what they're paying now, or would have to pay for the main floor of that house. They get the joy of tenants in their home and the fun of 70yo+ plumbing, electrical etc. But they are building equity in a home that will always be worth substantially more then that townhome at similar annual cost.

It's a lifestyle thing more then an investment. Repairs and maintenance, tenants etc....and the freedom to what you want with the home. That's their choice, and while it may not be a great investment, it's not necessarily a bad one given their sizable downpayment. It's not going to cripple them even if markets tank.

so I think MYOB is the best advice here.
 
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