topik
Affordable Housing – Owner or Tenant
Affordable housing need not mean minimalist housing.
It’s time to re-think apartment ownership options.
Habitat for the Personal Automobile
Leveraged Ownership
Calculations for Leveraged Ownership
Phased and Partial Equity
Prepaid Lifetime Lease
topik
Habitat for the Personal Automobile
We are constantly hearing about threatened and endangered species of animals and birds. A dominant reason cited for this increasing trend is loss of habitat.
Conversion of prairie grasslands to farming pushed the buffalo into a few reserves and now a bit of farming. Converting marshlands to farms threatens waterfowl.
Polar bear, grizzly, spotted owl, the list of species impacted by loss of habitat is endless. Whistler was mousquito heaven until most of it was drained and filled.
Sometimes an area is converted back to marshland full of bugs, and in a few years the waterfowl are multiplying again.
The secret to increasing or decreasing anything is creating or removing its habitat.
The species called cigarettes was prolific in Canada. Governments wanted to reduce smoking. Taxes had some impact, as did education, but the progress was slow. The decision was made to curtail the cigarette’s habitat. Hospitals were the first habitat removed, then government offices, work places, restaurants, bars; now even the parks in the city of Vancouver are smoke free. By removing the habitat, the cigarette species is now in dramatic decline.
Conversely, the species alcohol is on the increase. Sale of beer and wine in grocery stores in Ontario. Introduction of private liquor stores in B.C. 3 a.m. closing in Vancouver City. Governments are adding habitat and liquor consumption is increasing. (Liquor taxes and gambling have replaced the revenue lost by reduced tobacco consumption).
Let’s consider the species known as the personal SOV in an urban environment.
The 2040 report states that in the lower mainland 30 years after the report, the number of automobile trips will be unchanged from 2010. How can this happen in one of the fastest growing regions in North America?
Population of this species has had a rampant increase recently. For example from the 2001 to 2011 census there was an increase of 50,000 cars in the City of Vancouver alone.
At the Mayors Council of Translink meeting on July 17 every voice raised supported the goal of zero growth in trips. One Mayor said that the plebiscite on transit funding must include roads, because if transit does not expand more roads must be built. Two mayors, ‘we can’t build more roads’, ‘we don’t have the land for them’. Unanimity that the increase in car trips must be stopped.
Mayors talked of road pricing, tolling bridges, a registration fee.
But no one stated the obvious, remove the urban SOV’s habitat and the actual population of personal cars will diminish.
An automobile needs a place to sleep every night. Curtail residential parking on and off street and you stop growth cold. No one will buy a car if they have no idea where they can park it at night.
New condos are sprouting up in practically every municipality. This is dramatically so at skytrain/subway stations. 30,000 at brentwood, park south at King George, 10,000 along the Canada line, 10,000 in downtown Vancouver, more pending along the evergreen line, at Lonsdale Quay, and elsewhere.
The only way to keep the population of personal automobiles at its present level is for all new condominium construction to have net zero increase in parking! Every developer must decommission one parking place for every new one built.
This does not deprive any current resident. Those who now have a place to park can keep it, until peoples’ awareness of sea level rise becomes universal. Only the new residents cannot be car owners, so they have not lost anything which they had.
The Mayors Council meeting focused on how to discourage cars from making trips. Why let the tiger into the house and then try to defend against it? It won’t work.
Automobiles have political muscle. They flexed it in the building of a ten lane port mann. The newly re-elected Premier’s campaign platform included a commitment to an expanded deas island tunnel. It also committed to 4 other highway projects in the Province to be built with province-wide tax revenue. But for transit in the lower mainland, a referendum! With the caveat that it must be paid for by the Region.
Allowed to continue proliferating, the automobile will demand more freeways. As their numbers expand, they will get them. There will be two through the City of Vancouver forming a cross. North-South and East-West; with a giant cloverleaf in the centre somewhere, maybe 16th and oak. Possibly all cut and cover at horrendous cost.
When a person undertakes 5 years of mortgage payments to pay for an underground parking place, and 5 years of car payments, that person will want to drive that car.
It almost happened in the 70’s when there were half as many cars as there are now. The Swan-Wooster report, which would have swallowed up multi acres of the City, including much of yaletown and the burrard inlet waterfront, is still available.
So it is incumbent on the Mayors and Councils who are currently accepting this condo boom, without ever asking the populace if they want it, to ensure that it is not also a boom in the urban personal SOV.
www.VancouveRRR.ca Info@ September 19, 2013
topik
Lwveraged Ownership
$375,000 will acquire a nice condominium in a new development in mid-2013.
So to obtain leveraged title to this condo with $40K down, the mortgage will be $335,000 With a monthly payment of $2,000. and interest at 5%, the mortgage will be paid off in 25 years, on the dubious assumption that the party resides there that long.
But the cost of a parking place in a deep dig is $35,000. If the person buys only the condominium and not the parking place the mortgage need only be $300,000. Therefore the first year interest is only $15,000. instead of $16,750. As the years progress the difference increases dramatically, so much so that the mortgage is paid off after only 20 years.
Incredibly, the last five years of the mortgage payments are for the parking place.
Unbundling is called for in Vancouver’s “Greenest City 2020”, “Transport 2040” and “Cambie Corridor” plans. but Council is not making it a condition of comprehensive development approvals. Yaletown parking is largely unbundled with an online site tailored to resales (www.ConcordPacific.com/condos/parking-storage.htm)
Moreover, by walking, cycling, riding transit, and occasionally using share cars or taxis, the person saves $5,000. annually. Applying this 5K to the mortgage each year reduces the payment period to only 15 years. Right! Own in 15 years, not 25.
Consider a person who purchases a condominium at age 40. If driving a personal SOV and having leveraged title to a parking place, the person will be making payments until age 65. Yet without either car or parking place the person can be mortgage free by age 55. Someone in their mid 40’s, even more important, a person cannot retire while they still have mortgage payments.
Vancouver City Council is super keen on affordable housing. Much of CAC is directed toward it. Here is affordability. Affordability of ownership, not tenancy! People in their 40’s can obtain leveraged title to a condominium with reasonable expectation of paying the mortgage off well before retirement.
Supposing the person moves after 7 years of residence. In the base case, equity build up through payments is only $60,000, appx 16% of the total price. Subtracting transaction costs of 5% of 375,000. netting only $40,000. But the person who owns neither the car nor the parking has enhanced their equity by $115,000. almost 1/3rd of the total purchase price, netting almost $100,000.
A person age 30 chooses to obtain leveraged title with 25 years of mortgage payments, rather than continue to pay rent. If owning a car and buying a parking place, the person will be paying $2,000. per month, plus maintenance etc. But if the person buys only the condo unit without parking, and applies the $400. per month saved by not owning a car to the payment, the effective monthly payment is only $1,350! Comparing that to rental, obtaining leveraged title becomes affordable, even with maintenance and property taxes added on.
In 2012 and 2013 Vancouver Council has approved and is in the process of approving 10,000 new condominiums on cambie, at olympic village, and around science world. Those on cambie are being dramatically upzoned because the property is immediately adjacent to the Canada line stations, each of which coincides with at least one crosstown bus route. The olympic village area is on both expo and Canada lines, as their advertising states, and 6 bus routes.
They are in the process of approving 10,000 new residential parking places between false creek and robson street, along burrard and davie.
Terrific opportunity to make residences available with transit at the door. So what has Council done?
The new condominiums are being brought on line with a parking to suite ratio averaging 1.1 cars per suite. At olympic village the parking spot is included in the property title. You cannot buy a suite without buying a parking place. It can’t even be sold separately later. That is typical of all the cambie corridor and olympic area.
Council is also approving 10,000 condominium suites in the downtown peninsula, bordering false creek along granville and burrard. Why 10,000 more people where 120,000 already live? No one knows.
Equally amazing these suites, walking distance to pacific centre, right on the wonderful English bay cycling and walking circuit, are being brought online with at least one parking place per suite.
Burnaby is rezoning the entire area around brentwood mall right on the millennium line and the willingdon transit route between hastings and metrotown. Willingdon and lougheed is a traffic nightmare. Same story. Upzoning because there is both rapid and local transit. At least one parking place per suite.
Skytrain is going to the tri-cities. Rezonings are well underway. Surely the same practice will continue? If everyone owns a car, money must also be spent building roads while the transit line is running below line capacity. Will these Councils realize how much it costs to build two systems to achieve one purpose?
A major condominium development is going in at king george. Municipality of Surrey has a bylaw saying that for every suite, even a one-bedroom or a studio, there must be at least 1.3 parking places. Will park south be exempted? Will unbundling be mandated?
Traffic. The personal SOV, is a major problem in every municipality, urban sprawl being made worse by every road and bridge built, but every municipality is forcing its residents to buy parking places if they want a new condominium, thereby adding to the traffic congestion.
And if all the above is not enough to convince most people, consider this. Sea level rise will cover much of the nikomel valley, delta municipality, Richmond, and many of the summer delights in around english bay: ambleside, all the beaches, davie and denman, arbutus and cornwall. Let’s delay it a bit by owning less cars.
www.VancouveRRR.ca info@ May 6, 2013
topik
Calculations for Leveraged Ownership
Payment Schedule including
$35,000. for a parking place
| Interest | Payment |
$335,000 |
||
|
1 |
$16,750 |
$24,000 |
$327,750 |
|
|
2 |
$16,388 |
$24,000 |
$320,138 |
|
|
3 |
$16,007 |
$24,000 |
$312,144 |
|
|
4 |
$15,607 |
$24,000 |
$303,752 |
|
|
5 |
$15,188 |
$24,000 |
$294,939 |
|
|
6 |
$14,747 |
$24,000 |
$285,686 |
|
|
7 |
$14,284 |
$24,000 |
$275,970 |
|
|
8 |
$13,799 |
$24,000 |
$265,769 |
|
|
9 |
$13,288 |
$24,000 |
$255,057 |
|
|
10 |
$12,753 |
$24,000 |
$243,810 |
|
|
11 |
$12,191 |
$24,000 |
$232,001 |
|
|
12 |
$11,600 |
$24,000 |
$219,601 |
|
|
13 |
$10,980 |
$24,000 |
$206,581 |
|
|
14 |
$10,329 |
$24,000 |
$192,910 |
|
|
15 |
$9,645 |
$24,000 |
$178,555 |
|
|
16 |
$8,928 |
$24,000 |
$163,483 |
|
|
17 |
$8,174 |
$24,000 |
$147,657 |
|
|
18 |
$7,383 |
$24,000 |
$131,040 |
|
|
19 |
$6,552 |
$24,000 |
$113,592 |
|
|
20 |
$5,680 |
$24,000 |
$95,272 |
|
|
21 |
$4,764 |
$24,000 |
$76,035 |
|
|
22 |
$3,802 |
$24,000 |
$55,837 |
|
|
23 |
$2,792 |
$24,000 |
$34,629 |
|
|
24 |
$1,731 |
$24,000 |
$12,361 |
|
|
25 |
$618 |
$24,000 |
-$11,021 |
Payment schedule for $300,000.
principal because of not buying
the parking place for $35,000.
| Yr | Interest | Payment |
$300,000 |
|
1 |
$15,000 |
$24,000 |
$291,000 |
|
2 |
$14,550 |
$24,000 |
$281,550 |
|
3 |
$14,078 |
$24,000 |
$271,628 |
|
4 |
$13,581 |
$24,000 |
$261,209 |
|
5 |
$13,060 |
$24,000 |
$250,269 |
|
6 |
$12,513 |
$24,000 |
$238,783 |
|
7 |
$11,939 |
$24,000 |
$226,722 |
|
8 |
$11,336 |
$24,000 |
$214,058 |
|
9 |
$10,703 |
$24,000 |
$200,761 |
|
10 |
$10,038 |
$24,000 |
$186,799 |
|
11 |
$9,340 |
$24,000 |
$172,139 |
|
12 |
$8,607 |
$24,000 |
$156,746 |
|
13 |
$7,837 |
$24,000 |
$140,583 |
|
14 |
$7,029 |
$24,000 |
$123,612 |
|
15 |
$6,181 |
$24,000 |
$105,793 |
|
16 |
$5,290 |
$24,000 |
$87,083 |
|
17 |
$4,354 |
$24,000 |
$67,437 |
|
18 |
$3,372 |
$24,000 |
$46,809 |
|
19 |
$2,340 |
$24,000 |
$25,149 |
|
20 |
$1,257 |
$24,000 |
$2,406 |
Payment schedule for $300,000 because
a parking places is not bought and the
$5,000. saving from not owning a car
is applied to the mortgage.
| Yr | Interest | Payment | Car$ |
$300,000 |
|
1 |
$15,000 |
$24,000 |
$5,000 |
$286,000 |
|
2 |
$14,300 |
$24,000 |
$5,000 |
$271,300 |
|
3 |
$13,565 |
$24,000 |
$5,000 |
$255,865 |
|
4 |
$12,793 |
$24,000 |
$5,000 |
$239,658 |
|
5 |
$11,983 |
$24,000 |
$5,000 |
$222,641 |
|
6 |
$11,132 |
$24,000 |
$5,000 |
$204,773 |
|
7 |
$10,239 |
$24,000 |
$5,000 |
$186,012 |
|
8 |
$9,301 |
$24,000 |
$5,000 |
$166,312 |
|
9 |
$8,316 |
$24,000 |
$5,000 |
$145,628 |
|
10 |
$7,281 |
$24,000 |
$5,000 |
$123,910 |
|
11 |
$6,195 |
$24,000 |
$5,000 |
$101,105 |
|
12 |
$5,055 |
$24,000 |
$5,000 |
$77,160 |
|
13 |
$3,858 |
$24,000 |
$5,000 |
$52,018 |
|
14 |
$2,601 |
$24,000 |
$5,000 |
$25,619 |
|
15 |
$1,281 |
$24,000 |
$5,000 |
-$2,100 |
25 year amortization @ 5% and
applying $400 per month saving from not owning a car
reducing the payment to $1,350.
| Yr | Interest | Payment | Car$ |
$300,000 |
|
1 |
$15,000 |
$16,200 |
$5,000 |
$293,800 |
|
2 |
$14,690 |
$16,200 |
$5,000 |
$287,290 |
|
3 |
$14,365 |
$16,200 |
$5,000 |
$280,455 |
|
4 |
$14,023 |
$16,200 |
$5,000 |
$273,277 |
|
5 |
$13,664 |
$16,200 |
$5,000 |
$265,741 |
|
6 |
$13,287 |
$16,200 |
$5,000 |
$257,828 |
|
7 |
$12,891 |
$16,200 |
$5,000 |
$249,520 |
|
8 |
$12,476 |
$16,200 |
$5,000 |
$240,796 |
|
9 |
$12,040 |
$16,200 |
$5,000 |
$231,635 |
|
10 |
$11,582 |
$16,200 |
$5,000 |
$222,017 |
|
11 |
$11,101 |
$16,200 |
$5,000 |
$211,918 |
|
12 |
$10,596 |
$16,200 |
$5,000 |
$201,314 |
|
13 |
$10,066 |
$16,200 |
$5,000 |
$190,180 |
|
14 |
$9,509 |
$16,200 |
$5,000 |
$178,488 |
|
15 |
$8,924 |
$16,200 |
$5,000 |
$166,213 |
|
16 |
$8,311 |
$16,200 |
$5,000 |
$153,324 |
|
17 |
$7,666 |
$16,200 |
$5,000 |
$139,790 |
|
18 |
$6,989 |
$16,200 |
$5,000 |
$125,579 |
|
19 |
$6,279 |
$16,200 |
$5,000 |
$110,658 |
|
20 |
$5,533 |
$16,200 |
$5,000 |
$94,991 |
|
21 |
$4,750 |
$16,200 |
$5,000 |
$78,541 |
|
22 |
$3,927 |
$16,200 |
$5,000 |
$61,268 |
|
23 |
$3,063 |
$16,200 |
$5,000 |
$43,131 |
|
24 |
$2,157 |
$16,200 |
$5,000 |
$24,088 |
|
25 |
$1,204 |
$16,200 |
$5,000 |
$4,092 |
www.VancouveRRR.ca info@ April 30, 2013
topik
Phased and Partial Equity
Phased equity is an alternative to renting, clear title, leveraged title, and involving family or others.
An apartment building or a complex of buildings is set up as a Real Estate Investment Trust, or a new vehicle similar to a reit.
Each unit: residential, commercial, parking, or extra storage; is strata-ed separately and assigned a number of Reit shares.
The complex is administered by a board of directors elected by the share holders. Voting rights are such that a simple majority does not elect the entire board. Rentals are negotiated between the board and the residents, both owners and renters.
Any party wishing to reside in the complex, or to do business in one of the units, may choose to buy shares in the Reit. A resident may own the whole amount of shares for the suite, own some shares, or may begin as a renter.
Investors may purchase shares in the Reit. This investment may occur prior to construction reducing the need for bridge financing, and may include the existing owners of the property.
A person may wish to assist another with living expenses. Example, a parent helping a child continuing education. The parent owns the shares, the child resides there without rent.
A process is set up to facilitate buying and selling of shares at minimal transaction cost, possibly through existing stock exchange facilities and discount brokers, possibly a notice board in the laundry or locker room.
Typically a party wishing to own and reside will initially purchase some shares. Over time the party will purchase more shares and, after a moderate number of years may own the full amount of shares for the unit in which they reside.
Such a resident will pay rental for only the portion of the unit in excess of the shares which they own. The resident will pay maintenance for the portion of the unit corresponding to the shares which they own.
Similarly for a commercial resident. Merchants need not live with the spectre of expiring lease and a leap in rental. They can own their business premises, as was the case decades ago.
Parking spots and additional storage are separate units and treated similarly to an apartment. A resident may occupy one parking spot, two, or none. There could be other storage units suitable for furniture, boats, campers which will not be used until the following season, etc.
Reit share equity offers many new equity options.
A party finishing high school and entering the work force may start to buy shares in a complex with a view to eventually living in that complex, or simply as a means to establish a presence in that market.
Parents wishing to help a child who is or may become married may purchase shares and assign the rental value to the child. The parents’ assets remain intact, the child benefits from not having rent payments. Should the relationship not endure, the asset does not get split with the other party as would be the case if the parents had gifted a portion of a ‘matrimonial home’ to the couple.
A resident who decides to take long term employment in another area may retain the shares owned, intending to return to the complex or merely to the City even years later. Contrast this to the current situation where the person would have to arrange a rental at the time of taking the new employment, and either manage the rental remotely or pay a rental agent.
People who run into temporary tough times, or who have retired, may sell some shares without disrupting the residency.
Two people who are merely friends may choose to cut their residence costs by sharing an apartment, why shouldn’t two people have one kitchen, one bathroom. Each can purchase as many reit shares as appropriate for them.
This system offers enormous financial advantage. The individual owns what they have purchased. A drop in the market only reduces the resale price of the share proportionally, not wipeout. It removes speculation, which admittedly may be a good or bad thing.
A person who becomes unemployed is not facing default on mortgage payments, they simply don’t buy additional shares. Not enough wages to pay the rental portion, sell just as many shares as needed, not the entire apartment.
Increase in value of the Reit needs to be defined as capital gain of principal residence, and therefore not subject to income tax.
There is no realtor’s commission, survey, or notary/lawyer cost each time a reit share is bought and sold. This is an enormous saving. Transaction fees with discount stock brokers are typically $10. for the entire transaction. Some comparable means can be found or designed.
If this system had been the norm in the U.S.A. the financial collapse of 2008 would have been so much smaller! Without leverage, decline in market prices puts far less financial pressure on the financial system.
The explosion of rezoning applications throughout the Region offers municipal councils a rare opportunity to take leadership in implementing phased purchase of apartments. It can be done!
This prospect should be very attractive to pension funds and to insurance companies. Since people will be migrating, the principal backer will continue to hold a significant although fluctuating portion of the building. Opportunities to sell and purchase will occur, and the presence of a major investor will help stabilize demand for the shares.
www.VancouveRRR.ca Info@ May 6, 2013
topik
Prepaid Lifetime Lease
Many people have no great interest in leaving an estate. No children or living siblings. The children may be better off than the parents. They may be happy merely to see their parents have a nice place to live without asking the children for support.
Yet in order to have security of premises for their lifetime the current situation requires them to purchase a premises. They may then have to decide who should receive the half a million when they pass on. Or find themselves in some reverse mortgage situation which apart from the expense introduces uncertainties.
A prepaid lifetime lease is extremely simple. A collection of suites, one building, 25% of a building, several buildings, or any agglomeration of suites forms a pool. This pool can be owned by a life insurance company, a pension fund, an NGO, a government, an investment firm, or any combination of entities.
As suites become available due to new construction or purchasing, they are made available to individuals.
An ‘individual’, be it one person, a couple, or some other combination of people lease a suite. They prepay the full amount. The lease terminates when the individual, the last of the two, or whatever arrangement is contracted passes on. There may be zero residual value, or there may be an amount payable to the individual, possibly considering final expenses.
In the event the individual no longer wishes to live there, they still have the value of the remaining years. An option would be that they receive a lifetime annuity for their interest. They might opt to resell their interest. Any arrangement could be made.
The price is negotiated.
The leased property operates just the same as a suite which is owned outright, through leveraged title, or whatever their ownership might be. Maintenance payments would be as usual.
When the lessee passes on, ownership remains with the lessor.
In this way the ‘individual’ has the pleasure of living in a suite which they could not afford to purchase. There is no uncertainty as there would be with a fixed term lease. There is no inflation in the lease rate. No threat that their future income may fail forcing them to move. Their apartment is their home for life.
www.VancouveRRR.ca info@ May 6, 2013
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