Well after some detailed investigation into the renovation budget, property zoning and allowances, future developments in the area, and asking price we have determined that…they are asking too much. A few pointed questions to their realtor gave us a clear indication that the asking price was not going to budge into a reasonable level for our comfort and return on investment calculations. Here is the quick breakdown of how it looks:
Asking Price: $680,000
Renovation: $180,000 – $200,000
Potential Market Value Post Reno: $800,000 – $850,000
Return on Investment: -$10,000 – $60,000 (ROI in the red…hmmmm…)
This one doesn’t make sense for us. Although we would end up with essentially a brand new house top to bottom in a good area with good future potential we are not looking at this place as a ‘forever home’. This is a 5-10 year home and as such the return on investment needs to be higher or at least breaking even to be a consideration.
The reason for this? In order to make up a shortfall of $10-60,000 in 5-10 yeas we would be relying solely on the market value to increase. Now, traditionally in the Greater Vancouver area this is not far fetched, however, it is still a gamble to start out ‘in the hole’ rather than starting from zero or a positive market position. Given the shorter timeframe we need to be starting from a positivity position for our goals.