Who can afford million dollar houses?

When you drive the streets of Vancouver's west side, virtually every house for sale is worth $1 million or more, which prompts the question: Who is buying them?

The answer is people who are moving up, sometimes after also receiving inheritances or cash gifts from parents.

Still others are stretching themselves in surprising ways with huge mortgages and long periods of interest-only payments to get into the neighbourhood they want to live in, on the premise that appreciation in their equity will keep them afloat.

However, there is no getting around previous ownership, because equity is a requirement for entry to the $1-million club.

Don Bull, a 44-year-old independent branding and design consultant, carried equity from three purchases over some 15 years, starting with a 700-square-foot condo at Fourth Avenue and Main Street, to his purchase of a half-duplex in Kitsilano last April for $1.1 million.

"My grandmother, a long time ago, said to me, 'don't buy a car, buy real estate,' " Bull said in an interview. "And that is the only reason I'm in this building today."

Bull added that he doesn't like to boast, because he has almost always lived in the Kitsilano neighbourhood and didn't do anything special to get there except follow some sage advice, buying property with downpayments and making lateral moves at the same time "the market went crazy."

Now, he and interior-designer partner Donna Toppings are comfortably ensconced with a mortgage that is significantly less than 50 per cent of their purchase price.

West side property values have skyrocketed more than 100 per cent over the past five years, which Bull no longer finds shocking, since it is his neighbourhood and he's kept close tabs on the market.

"It almost has a false economy aspect to it," Bull added, because the assessed value of houses doesn't represent cash in the bank.

"[Million-dollar homes] are a function of the economics of the area, and it's only good to me if I move somewhere 400 miles from here. That is the only benefit I'm ever going to see out of it."

Bull's realtor, Lorne Goldman, with Macdonald Realty, said Bull and Topping are fairly typical of the demographic moving into westside million-dollar properties: A bit older, and with substantial equity to bring to a transaction.

Goldman added that more and more, buyers are relying on basement suites to make the economics of westside ownership work.

In making their requests with realtors, he said buyers will list which schools they want to be near, how many bedrooms they need and that they need a basement suite.

"And they need the suite specifically to make the mortgage payments," Goldman added.

However, while million-dollar buyers need equity, not all of them are entering able to cover the majority of their property's value.

Mortgage broker Geoff Willis, a partner in the Vancouver firm Origin Home Financial Partners, said he has dealt with a significant number of thirtysomething professional couples willing to heavily leverage their equity, buying for lifestyle reasons.

Willis said that lenders have catered to the people he has worked with, so long as they have the income, or the equity and good credit, to be in the market.

"As long as you can have the income to qualify for [a mortgage] at the three-year posted rate, you can get any mortgage product you want," Willis added.

For some, Willis said, at the most exotic end, the loan has been an equity line of credit. Buyers take the loans at the prime interest rate, and only have to pay back interest, and they take the loans in order to reduce their monthly payments.

Willis brokered the mortgage for one thirtysomething couple, the husband a utility-company manager and the wife a chartered accountant, who put $300,000 down on a $1.15-million westside house, winding up with an $850,000 mortgage.

A basement suite in the house that rents for $1,500 per month, however, reduces their net mortgage payments from $4,800 to $3,400 per month.

"Really, their upside, from their personal net-worth statement, is in equity appreciation," Willis said. "They're not going to be chunking away at that mortgage anytime soon."

However, Willis said that couple just received their latest property assessment, which has increased $250,000 since they bought their house a year ago.

Willis added that Vancouver buyers are aware of the market's cycles, and that they may have to endure a downturn where values deflate, they are hedging that if and when a downturn hits, it won't erase the equity appreciation they've earned.

In the meantime, Willis said a lot of westside buyers are sacrificing and pouring 40 to 50 per cent of their net income into housing, but do it because it is the neighbourhood they want to live in and worry that if they don't get in now, they never will.

"It is definitely a live-for-now mentality," Willis added.

(prepared by Derrick Penner/Vancouver Sun)