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I was over at the Vancouver Housing Market Blog and noticed the above chart showing the inflation adjusted cost of an average Westside condo. Looking at this chart one has to question one’s self for investing in this kind of volatile market. However, that’s exactly what I plan to do. When done correctly, real estate is an extremely safe and sound investment, even if prices move against you. The key is to structure the deal so that rental income covers all expenses. If that is done then it doesn’t really matter what happens to prices in the near term. In the long term prices will always go up and the longer you wait the more equity you build up.

In the red hot Vancouver market, it’s pretty much impossible to find a place where rent can cover the mortgage payment, unless you put up a significant down payment – at least 25%. This is a problem for many investors. The average Westside Vancouver condo now cost over $450,000. That’s a $112,500 down payment. Yes you can try to get the place for less down but then you’ll run into insurance requirements, higher interest and chances are your rent won’t cover the mortgage payments.

Assuming you do have that kind of money to play with, you stand to do very well if the price of housing continues on its crazy uphill climb. Vancouver condo prices have been increasing by 20% per year in the last few years. If this holds, that $450,000 place will be worth $540,000 next year. That’s a $90,000 profit on a $112,500 investment, or 80% return. What if price doesn’t go up? Then you just sit and wait and let the tenants pay down your mortgage. Either way, you can’t lose.