Frances Bula

Special to The Globe and Mail

PublishedFriday, Jan. 15, 2016 4:47PM EST

Amber and Rob Stefanson didn’t plan to become condo investors. Or landlords. Or renters who are condo investors.

But somehow they have become all three, as they – like many younger people trying to grapple with Vancouver’s increasingly hostile real-estate market – try to figure out a way to accumulate some equity but also live in a place that meshes with their work and family situation.

They thought, when they bought their two-bedroom condo in New Westminster in 2007 for $250,000 – all they could afford at the time – that they would live there for a few years, then lift themselves up the property ladder to a townhouse or house when children arrived.

The first child arrived in 2008. By 2010, Ms. Stefanson says, “I just started to lose it.” She, her husband and her little girl were commuting every day from New Westminster to central Vancouver, she to her job as the administrator for a health-care research centre, he to his work as a recording engineer, her daughter to the daycare near the hospital. The trips were gruelling for everyone, but especially the two-year-old.

However, by 2010, a significant gap had appeared in Vancouver’s idiosyncratic real estate market. In 2005, the benchmark price of an average condo was about $250,000 and a house about $600,000. By 2010, the difference had increased, with condos at around $350,000 and houses at close to $900,000. The gap kept growing. And in the Vancouver market, where it made the most sense for the Stefansons to live, that trend was even more pronounced. And their condo in New West was still only worth about $250,000.

So the Stefansons did what seemed like the only reasonable thing at that point. They found a large apartment in Vancouver to rent for their growing family. And they rented out their condo, becoming – reluctantly – landlords and investors. That’s what they’ve been doing the past four years.

“I want to sell it but it’s our last hope that we have some kind of leverage in this market,” says Ms. Stefanson, who found a “unicorn” apartment renting for about $2,000 in the South Granville area that is big enough for the family, which has now expanded to three children.

They’re not the only ones trying this new strategy as they try to hang on in the Vancouver market.

“It seems to be in the air,” says University of British Columbia business professor Tom Davidoff, who studies real estate dynamics. “It’s an interesting proposition.”

Kera McArthur and Neil Monckton are another couple who found themselves in the role of reluctant condo landlords.

She bought a Woodward’s condo downtown in 2006, when she was on her own. Then she met Mr. Monckton. Then they had a baby. Then the condo started to be too small.

Like the Stefansons, they couldn’t find a place that was close to daycare and Ms. McArthur’s work, both at UBC, and that was something they could pay for. A slightly larger two-bedroom, maybe, leveraging up from the $500,000 condo. But nothing bigger. Sure, they could have moved to a townhouse in Port Moody, more than an hour from UBC, as some her age are doing.

“But we’re a generation that really bought into the idea that we wouldn’t commute,” Ms. McArthur says.

At the same time, they were afraid to give up on accumulating some kind of equity. So they, too, rented out their condo and then found a place to rent big enough for the three of them – 1,500 square feet with three bedrooms on the top floors of a house near the university.

Ironically, although single-family house prices on the west side have reached the kind of heights that put them out of reach to anyone but double-surgeon couples or millionaires from elsewhere, it’s still possible to find houses to rent there for reasonable prices – in part because investors who own them are banking on making their money from a rising market, not rent. And they prefer long-term older tenants, not students.

So Ms. McArthur and Mr. Monckton rent a house for around $3,000 a month and then, in turn, rent their condo for enough to cover the mortgage interest and strata fees. The approximately $900 month they pay on the mortgage principal is something McArthur sees as a forced-savings plan, plus a way to maintain their foothold.

“Everybody’s calculation now is that ownership is no longer about having a place to live.”

Among her circle, others are doing the same as she has done. Still others are buying holiday homes as their real estate investment and continuing to rent in the city.

That strategy is also showing up in some exurban markets near Vancouver, where young buyers are purchasing places that they rent out to locals, while they continue to live in rented quarters in the city.

“We did see that recently. We didn’t market to that kind of person, but we did have a small number of buyers in that scenario,” said Michael Henson of Parkhouse Condominiums, which recently sold out a 65-unit complex in Squamish within an hour and a half. Squamish is about an hour’s drive north of Vancouver.

“That was a surprise to us,” said his business partner, Mario Gomes.

One of their surprise buyers was Steven Davis, a 37-year-old tech-sector worker, who lives with his 33-year-old wife and baby on the rented main floor of a house on Kits Point.

Buying anywhere in that neighbourhood is increasingly an impossibility, Mr. Davis said. The lot next door, with a condemned house on it, recently sold for $1.8-million. The new owners constructed a mansion. Even duplexes nearby are $3- to 4-million.

“You’ve just got this circus happening in Kits,” Mr. Davis said.

So Mr. Davis went to Squamish and bought two two-bedroom condos in the Parkhouse for close to $600,000 total. He thought the drive was reasonable to handle tenant problems and Squamish seemed far more appealing than the one-hour drive in another direction, to Coquitlam or beyond.

“I’ve run the numbers and it’s within a band that I’m comfortable with,” said Mr. Davis, who estimates he will break even between rent, mortgage costs, strata fees, taxes on rental income and other anomalies of being a landlord.

Part of making that kind of move depends on being secure about having a place to rent. He said he and his wife have been in the same house for four years, renting at a favourable rate from a retired couple who have owned the house for 40 years and don’t show any signs of wanting to cash in.

“We’re in a pretty enviable situation,” Mr. Davis said.

The trend is not visible everywhere in the region, though.

South of the Fraser and into the valley, especially, realtors and builders are seeing almost exclusively young local buyers from their community at the door, scrambling to get into the market.

“The majority of our buyers are owner-users,” says Dennis Wiemken, senior vice-president with Vesta Properties, which is focused on properties in the Fraser Valley. “We don’t have any investors.”

But he does know of one group of people doing something like the millennials and Generation Xers in Vancouver. That’s retirees who have decided to cash out while the market is hot in the Lower Mainland and move to cheaper places such as Kelowna, Penticton or Parksville. Mr. Wiemken reminds them that, if they think they might ever want to come back, they should hedge their bets.

I say, ‘Before you leave, buy a rental property. At least that way you’re in the market,’” Mr. Wiemken says. “Once you get out of the market, that ship has sailed.”

They’re listening to him and doing exactly that.

Mr. Davidoff said that can be a useful strategy for people, young or old.

“It’s a partial hedge. You own a little bit so you’re protected from a large price increase.”

But he said it only makes sense for some people. Because prices could also drop, which matters mainly for buyers who are just buying in Vancouver as an investment, not as a way to hang on to something in the region.

“If you’re flexible about where you can live in Canada or the U.S., it’s a gamble. If you’re really committed to Vancouver, it’s a good idea.”

There are challenges. Renting out an investment condo can be a hassle (Amber Stefanson knows all about that) and the net income is taxable.

“If there weren’t the tax and hassle considerations, it would make a great deal of sense,” Mr. Davidoff says. And even with them, “it’s not a terrible idea at all.”