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Speculating on Vancouver's flippin' real estate market

Speculation in real estate is a big topic in Vancouver. For those not familiar with the term, it's the notion that you buy property for the purpose of reselling later at a profit. The problem lately in the Vancouver real estate market is that we are seeing this happen at an unreasonable pace.

Unintentional speculators

We bought our first house for sale by owner in the late 80's for $97,000 and a Chinatown parking pass for five years. Now that’s a story in itself, but it was the start of my interest in real estate and my awakening to what is now the last tax exempt bonus we have -- The Principal Residence.

It wasn’t our dream home so years later we had it fixed up and sold it for $256,000 -- no tax payable. The next house ended up being in a very noisy location, so we moved again. Each time we were able to upgrade our house a little bit with every move, a bigger home or a better location.

In hindsight, we were unintentional speculators. Selling the home at a higher price enabled us to slowly move to where we wanted to, and could not have afforded to, the first time.

We all know someone that seems who seems to do this kind of activity as a living. It's not possible, by the way, to keep doing this for too long, because Revenue Canada will find out and consider this a source of income if a person sells too often or doesn't seem to have any other meaningful income. How many homes is too many is unclear, but if you're trying to flip three houses in 10 years, I would recommend getting some legal or accounting advice.

Upgrading and reselling

In the course of upgrading our homes to a slightly bigger or better home each time, my family had renovated and resold four homes. Each time we were making a little more money. The thought of moving with three kids isn't fun, but this process of finding hidden gems and cleaning them up is quite addicting so I decided to get my Real Estate license and help other people do this.

But it has now become harder and harder to do so. The prices on the market today are exceedingly high. How can a person add value to a property that is selling now for 20 per cent more than it did two or three years ago, with no upgrading done to the home? 

Were people like us speculating partly to blame for the current high prices for the state of the real estate market today? 

I don’t think so.

Back in the days of adding value, you bought a place and renovated the kitchen, bathrooms, entrance and yard over the years, then tacked on a profit and resold. There is value added to the home. 

Today, however, speculation in real estate is a much faster and higher stakes game.

Speculation by foreign buyers

We have all heard about the foreign buying issue.

Hundreds of thousands of dollars are added to a home for no reason other than there is someone out there willing to pay it. I know of a brand new big house in my neighbourhood (West Vancouver) that sold for $4.3 million two years ago and is now listed at $7.3 million.

I don’t believe anyone ever moved in -- the home just had a few visitors.

Is this healthy for our community? The concern now is the rate at which these prices are escalating. This is, I believe, largely a result of foreign buying. Foreign buyers are looking at a global economy and see Vancouver as undervalued compared to other large cities. Vancouverites don’t earn the types of salaries that people can earn in London or New York, however.

Chart thanks to Vancouver Real Estate Anecdote Archive

I've heard numbers in the press of around 15 per cent of transactions being offshore buyers. After discussing this with colleagues, I would say certain areas like Westside and West Van would probably be two, maybe even three times that. But is this a problem? Does it really matter who is speculating, whether they're local or foreign?

It becomes an issue when a large amount of non-resident foreign buyers buy up small neighborhoods. Where will the people go that need to live and work here live?

Keeping track: who's buying? 

We almost need to separate the issues of speculation and foreign ownership. Why don’t we keep track?

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