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The Canadian Multiple Listing Service (MLS) shows a three-bedroom house in Vancouver, British Columbia, just sold for $4.23 million.
The asking price was $3.495 million. It was an all-time record for “overbidding.” (It beat out four other offers.)
Vancouver is a classic “bubble” market. A teardown house a few blocks away just sold for $2.4 million…
Regular Daily readers know PBRG espouses “bubble-proof” rental real estate investing.
Mark uses a quick metric to evaluate potential deals. It’s called a gross rent multiplier (GRM).
[GRM = Selling Price/Gross Annual Rent]
The price Mark pays is a function of how much he can expect to make each year in rent. He never pays more than a GRM of 8.
Let’s apply Mark’s technique to this deal…
Rentometer lists the median rent for this Vancouver area at $2,650. That means Mark’s maximum offer would be $254,400 ($2,650 rent x 12 months x 8 GRM).
At $4.23 million, this house just sold for a GRM of 133…
Bottom line: The only way someone will profit on this property is to sell it to a bigger fool. Use GRMs to stay away from bubble markets. And if you do want to invest in one… wait for the inevitable crash.
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