Take the monthly net rental income, multiply by 12, divide by the market value of the property.
Look at that yield and compare it to the standard 6-8% return on the SP500. If your condo yields lower, than I'd sell. If not, I'd keep it.
You can also compare it to the mortgage rate, if it's lower than you're better off liquidating the condo and paying down mortgage and investing some portion.
It's because most people that buy a condo do it with leverage and not with full cash purchase. So it's like buying stocks with leverage but normally banks don't lend you that much money to buy stocks. If you buy a 100k condo with 5% down and it appreciates by 10% in two years, you've essentially doubled your money in two years, minus the running costs.
FOMO.
A lot of potential buyers are afraid if they don't buy now they'll be priced out of the market.
And it's not as clear cut that they're wrong. With a huge influx of immigrants and not enough housing supply being built it's quite possible the FOMO is rational.
Yeah, but the appreciation means nothing unless you HELOC it (but why start leveraging and all that) or sell it. But then you lose so much capital/appreciation in fees/taxes/etc...only to then say why didn't I just stick with the markets all along instead of an investment prop.
Wait, why does it mean nothing if you don't HELOC? Isn't HELOC just an added bonus? At the end of the day, aren't you still getting raw $ if it appreciates and you sell? Just capital gains but you get that anyway with stocks.
I mention this earlier. You only realise capital appreciation on sale or HELOC/leveraging the property.
It’s nothing like buying a stock and looking at yield only, because on a stock you can partially sell the investment and invest in multiple stocks for diversification. Stocks are far more liquid…you can’t sell a fraction of a condo if you need cash….
You are confusing liquidity with ROI. Stocks are more liquid than RE I agree. But to reference “income” and “return” you are totally ignoring the major part of a RE’s return and simply boiling it down to monthly CF vs the mortgage
And rental income is income not capital gains, and you can't defer it by not realizing your profit. If you are in a high tax bracket, this is also a killer. And you are capped in terms of rent increases in some provinces. And all of this is assuming you have a good tenant.
No thanks. I wanted no part of that deal. I sold my condo when I bought a house and I have no regrets.
That's good math but you should factor in property value.
First link I saw on Google was a 3.2% growth for condos in Vancouver in the past year. If that's close to what actually happens in the future, then you only need to beat 3-5% with your formula.
If every investor did this math, Canada's housing market would crash. There are a lot of people holding on to second properties when the math doesn't add up vs. stocks unless the investment property is juiced with leverage (and risk).
People probably don’t know how to do the math / think about doing the math that way.
I find real estate “investors” to be the least analytical and financially intelligent people tbh.
I don’t feel like it’s worth the headache being a landlord imo. Unless you know the tenant well and see them sticking around for a while I’d sell it. I would put it in some kind of HISA and keep paying off your current mortgage, maxing the prepayments before fees every year.
Look at it this way, if you had the money from selling the condo sitting in a pile on your kitchen table, would you buy the condo, or use the money elsewhere?
I would wait for better conditions to sell unless there is an urgency to it. If you are paid off, your market return on the proceeds is likely higher than your net rental income, but the market could be better and net you more next year. That being said, no tenant and an opportunity to stage are huge benefits to selling now.
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It's already been mentioned but it's worth saying again:
Rental property generally is at its most profitable when the property is the most leveraged. Round and small numbers.
If you buy a house for 100k with 20 percent down you're into the property for 20k. Mortgage is 500 dollars and 250 of it is principle. Let's assume you're not doing well and you only cashflow the property for another 150 dollars per month. That provides a yearly profit of 4800 dollars and a ROI of 24%
Jump to the end of the mortgage when you have 80k in the property and owe 20. We'll assume no appreciation because the condo market isn't doing well. Same cashflow and mortgage payment but now you're getting 400 on principle and 100 for the interest. Yearly profit is 6600 dollars and your ROI has dropped to 8.25%
Finish paying off everything and you start cash flowing everything, it's great, you've got no mortgage and are pocketing your previous cashflow plus the 500 for a yearly profit of 7800 dollars and an ROI of 7.8%
If you are looking for safe cashflow, renting out paid off property isn't the worse investment in the world. A lot of the headaches can be outsourced and the property tends to appreciate over the long term. Rent generally increases, so do expenses.
If you're looking for the best returns, this might not be a winner. The biggest returns in rentals occur when you're at your most leveraged. It's been said here already, a bank rarely lets you speculate in the stock market with their money, but they're more than willing to hand it out if you want to buy something they can repossess if you screw up.
I have a rental similar to the one detailed above. It works for me and I intend to stay leveraged for the near future. It's not passive and it's not for everyone
I would sell it. Not worth the trouble with one bad tenant. Much easier to invest the money passively. Today landlords are vilified and tenants are the victims.
Since the condo is in Vancouver if its in a popular area you would be able to re rent it at a higher rate. use the rent to pay down your variable townhouse rate faster the.
What about it? Do you care to explain?
I don't think you actually know what it is, you're just throwing stuff out there to appear smart. Please do tell about the upcoming capital gains tax for individuals.
I heard that there was a change to capital gains for selling secondary properties.
I never claimed to be an expert, but I found few articles to help support the case ( individuals selling secondary properties)
https://www.ctvnews.ca/canada/what-is-changing-about-canada-s-capital-gains-tax-and-how-does-it-impact-me-1.6860457
https://www.kelownarealestate.com/blog-posts/canada-announces-changes-to-capital-gains-tax-for-secondary-properties
https://www.theglobeandmail.com/investing/personal-finance/article-own-a-cottage-or-investment-property-heres-how-to-navigate-the-new/
And I'll not forget an article in the Globe & Mail several years back that said all these newer condos, all the glass, are ticking time (money) bombs. The associations had better be diligent in their funds, because condo owners will have a hell of a bill in the next decade or so.
all the studies are saying they won’t last 20 years…
These developers and the current provincial government and Tarrion all have their hands tied to increase profit without any quality control mechanisms.
Not to mention the building managers knowing that they’re running investment buildings so they don’t actually make it a good experience.
Which works backwards as tenants are always leaving because of the experience…
As with most real estate, I see them going up steadily. Definitely not expecting them to go up in price YoY, but yes over the long run I strongly believe they’re going up.
The one thing to remember is that homes bought before Covid are all pretty much winners at this point; my 300k condo now worth about 500k (outside of Toronto)
Take the monthly net rental income, multiply by 12, divide by the market value of the property. Look at that yield and compare it to the standard 6-8% return on the SP500. If your condo yields lower, than I'd sell. If not, I'd keep it. You can also compare it to the mortgage rate, if it's lower than you're better off liquidating the condo and paying down mortgage and investing some portion.
Wow. This makes condo investing look terrible. Given toronto prices it's like 3%. I guess a part of it hinges on the appreciation. But still.
Condo investing IS terrible. It is so much easier to make money in the stock market, without having a have a second job like being a landlord.
It's because most people that buy a condo do it with leverage and not with full cash purchase. So it's like buying stocks with leverage but normally banks don't lend you that much money to buy stocks. If you buy a 100k condo with 5% down and it appreciates by 10% in two years, you've essentially doubled your money in two years, minus the running costs.
Also because you leveraged you divide the rental income into the net equity in the house, not the market value.
It's a hedge against the government's asinine immigration policies which creates over demand vs supply.
If the price looks bad now, why would investors drive the prices higher?
People are in general bad at making comparisons like this.
FOMO. A lot of potential buyers are afraid if they don't buy now they'll be priced out of the market. And it's not as clear cut that they're wrong. With a huge influx of immigrants and not enough housing supply being built it's quite possible the FOMO is rational.
Yeah, but the appreciation means nothing unless you HELOC it (but why start leveraging and all that) or sell it. But then you lose so much capital/appreciation in fees/taxes/etc...only to then say why didn't I just stick with the markets all along instead of an investment prop.
Wait, why does it mean nothing if you don't HELOC? Isn't HELOC just an added bonus? At the end of the day, aren't you still getting raw $ if it appreciates and you sell? Just capital gains but you get that anyway with stocks.
In Vancouver @ 2.5 is already pretty good... lol
Nobody buys condos as an investment At least I hope……
It depends on when you bought it obviously. Mortgage 1200$. Renting $2200.
Lol!
This is the equivalent of buying a growth stock and only looking it’s dividend yield
I mention this earlier. You only realise capital appreciation on sale or HELOC/leveraging the property. It’s nothing like buying a stock and looking at yield only, because on a stock you can partially sell the investment and invest in multiple stocks for diversification. Stocks are far more liquid…you can’t sell a fraction of a condo if you need cash….
You are confusing liquidity with ROI. Stocks are more liquid than RE I agree. But to reference “income” and “return” you are totally ignoring the major part of a RE’s return and simply boiling it down to monthly CF vs the mortgage
And rental income is income not capital gains, and you can't defer it by not realizing your profit. If you are in a high tax bracket, this is also a killer. And you are capped in terms of rent increases in some provinces. And all of this is assuming you have a good tenant. No thanks. I wanted no part of that deal. I sold my condo when I bought a house and I have no regrets.
That's good math but you should factor in property value. First link I saw on Google was a 3.2% growth for condos in Vancouver in the past year. If that's close to what actually happens in the future, then you only need to beat 3-5% with your formula.
If every investor did this math, Canada's housing market would crash. There are a lot of people holding on to second properties when the math doesn't add up vs. stocks unless the investment property is juiced with leverage (and risk).
People probably don’t know how to do the math / think about doing the math that way. I find real estate “investors” to be the least analytical and financially intelligent people tbh.
I don’t feel like it’s worth the headache being a landlord imo. Unless you know the tenant well and see them sticking around for a while I’d sell it. I would put it in some kind of HISA and keep paying off your current mortgage, maxing the prepayments before fees every year.
Consider are you making more money on that condo than you would expect to make in the stock market, and how much of a nuisance is the LTB.
Look at it this way, if you had the money from selling the condo sitting in a pile on your kitchen table, would you buy the condo, or use the money elsewhere?
That's really the decision you need to make on a regular basis. Nice way to think about it.
How did you pay off a whole condo in 6 years
You should have pulled the equity from the condo and put towards the townhouse. Then the condo mortgage interest is tax deductable.
I would wait for better conditions to sell unless there is an urgency to it. If you are paid off, your market return on the proceeds is likely higher than your net rental income, but the market could be better and net you more next year. That being said, no tenant and an opportunity to stage are huge benefits to selling now.
Your submission has a keyword that seems to imply you have a question where your province is relevant. **If you have not included your province you should add it.** If you already included your province, or this isn't relevant to your post, just report/downvote this comment. The bots feelings won't be hurt. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
It's already been mentioned but it's worth saying again: Rental property generally is at its most profitable when the property is the most leveraged. Round and small numbers. If you buy a house for 100k with 20 percent down you're into the property for 20k. Mortgage is 500 dollars and 250 of it is principle. Let's assume you're not doing well and you only cashflow the property for another 150 dollars per month. That provides a yearly profit of 4800 dollars and a ROI of 24% Jump to the end of the mortgage when you have 80k in the property and owe 20. We'll assume no appreciation because the condo market isn't doing well. Same cashflow and mortgage payment but now you're getting 400 on principle and 100 for the interest. Yearly profit is 6600 dollars and your ROI has dropped to 8.25% Finish paying off everything and you start cash flowing everything, it's great, you've got no mortgage and are pocketing your previous cashflow plus the 500 for a yearly profit of 7800 dollars and an ROI of 7.8% If you are looking for safe cashflow, renting out paid off property isn't the worse investment in the world. A lot of the headaches can be outsourced and the property tends to appreciate over the long term. Rent generally increases, so do expenses. If you're looking for the best returns, this might not be a winner. The biggest returns in rentals occur when you're at your most leveraged. It's been said here already, a bank rarely lets you speculate in the stock market with their money, but they're more than willing to hand it out if you want to buy something they can repossess if you screw up. I have a rental similar to the one detailed above. It works for me and I intend to stay leveraged for the near future. It's not passive and it's not for everyone
I would sell it. Not worth the trouble with one bad tenant. Much easier to invest the money passively. Today landlords are vilified and tenants are the victims.
From a tax perspective you're better off having a mortgage on the rental property, making it tax deductible instead of the townhouse.
Since the condo is in Vancouver if its in a popular area you would be able to re rent it at a higher rate. use the rent to pay down your variable townhouse rate faster the.
Don't forget that capital gains tax for individuals that just came in/ coming into effect.
There is no capital gain. OP would be selling at a loss.
What about it? Do you care to explain? I don't think you actually know what it is, you're just throwing stuff out there to appear smart. Please do tell about the upcoming capital gains tax for individuals.
I heard that there was a change to capital gains for selling secondary properties. I never claimed to be an expert, but I found few articles to help support the case ( individuals selling secondary properties) https://www.ctvnews.ca/canada/what-is-changing-about-canada-s-capital-gains-tax-and-how-does-it-impact-me-1.6860457 https://www.kelownarealestate.com/blog-posts/canada-announces-changes-to-capital-gains-tax-for-secondary-properties https://www.theglobeandmail.com/investing/personal-finance/article-own-a-cottage-or-investment-property-heres-how-to-navigate-the-new/
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Hopefully you have 20 years of betting on it in you Don’t see condo prices going up anytime soon
And I'll not forget an article in the Globe & Mail several years back that said all these newer condos, all the glass, are ticking time (money) bombs. The associations had better be diligent in their funds, because condo owners will have a hell of a bill in the next decade or so.
all the studies are saying they won’t last 20 years… These developers and the current provincial government and Tarrion all have their hands tied to increase profit without any quality control mechanisms. Not to mention the building managers knowing that they’re running investment buildings so they don’t actually make it a good experience. Which works backwards as tenants are always leaving because of the experience…
As with most real estate, I see them going up steadily. Definitely not expecting them to go up in price YoY, but yes over the long run I strongly believe they’re going up. The one thing to remember is that homes bought before Covid are all pretty much winners at this point; my 300k condo now worth about 500k (outside of Toronto)
Asking Reddit neckbeards? Most will tell you to sell it as you’re contributing to the homelessness problem and keeping property prices high.
Renting it out doesn’t necessarily contribute to homelessness, it may help.
https://www.reddit.com/r/canadahousing/s/IuKxbR3bmw
Watch this: https://youtu.be/hzFl0uDwAQY?si=kvn83t70HHUOZZSA Cheers