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August 9, 2010

What happens if the real-estate market turns? Check out the story below, from the Financial Post:

Erica and Jeff Manger never thought the price of their house could drop.

The Alberta couple bought a condominium in the Rockies resort town of Canmore three years ago and when they decided to move in 2008 to Sylvan Lake in Alberta, where they could afford a detached home, they kept the condo as an investment.

“It never occurred to us that we wouldn’t be able to sell for what we paid,” says Ms. Manger. “People were making $100,000 [on paper] a year on their condos.”

Now they’d be lucky to get the $315,000 they paid for their condo, even though it may have fetched $345,000 in 2008 when they were thinking about selling it to help pay for their new home. Instead, they’re getting $1,100 a month in rent for an investment that costs them $1,800 a month to carry and isn’t going up in value.

It gets worse. They have to sell the house in Sylvan Lake because Jeff, who is a helicopter pilot, is looking for a better location for work. They paid $375,000 for the house and fixed it up. Not even counting Jeff’s labour, the couple spent another $30,000 on supplies.

“We tried to sell it and put it up for $409,000. We lowered it to $385,000 when we hired a realtor, but that didn’t work,” says Ms. Manger.

“We lowered it again and now we are down to $374,900,” she says about the home that has now been on the market for two months. “We’ve lost all of our downpayment, which was almost $30,000.”

Yikes! It seems that these two people are the poster children for the Alberta real-estate bust.

They were naive to assume that real estate would be a great investment and assumed that it could only go upward. This was worsened by the fact that they jumped ship after only a few years.

They bought at the top of the market, then one year later they bought another property (in a small town – for more money than the price of a house in Calgary), and they have jobs where they know they may need to sell quickly for relocation…. now they can’t sell. Seems like some silly financial planning!

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