Personal Finance

Buying a condo

  • Last Updated:
  • Apr 2nd, 2013 10:40 am
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Deal Addict
May 7, 2006
2373 posts
149 upvotes
Toronto

Buying a condo

Just considering buying a condo right now.
Let's say it costs $400,000. I have a property that when sold will give me enough money to buy it with cash.

But is it better to pay it all in cash, or to mortgage it with current all-time low interest rates, and invest the rest? Mind you, the economy isn't going great either right now, so not sure where putting money in stocks would go.

Thanks!
5 replies
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User avatar
Feb 15, 2008
26318 posts
3242 upvotes
Calgary
Review the thread entitled "Smith Manouevre". Keeping in mind that you'd pretty much have to put it into stocks in order to achieve a positive return.
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Member
Mar 31, 2013
396 posts
84 upvotes
Toronto
Personally, I doubt I would take out a mortgage (or maybe only a small one), but this depends how debt adverse you are.

You can certainly come out ahead with a 2.8% 5 year mortgage (or whatever it is), then if the rates go up in 5 years pay off the whole mortgage at the end of the term. You probably will come out ahead even if you just put your money a couch potato type portfolio.
Deal Expert
User avatar
Jul 30, 2007
33237 posts
21168 upvotes
Toronto
Given your scenario. Say you took out $400K in full mortgage and took a 5 year lock in mtg @ 3% and renew for another 5 years @ 3.5%. Total mtg repaid in full in 10 years time. The grand total interest you paid on the $400K mtg amounts to around $66,000 over the 10 years time.

Therefore, your $400,000 investment in elsewhere will have to be better than $66,000 in return to justify your scenario. You will need your investment to have a annual return of 1.55% compounded over 10 years (before income tax) to equate the amount of interest paid. That means the real compounded return will have to be in the 2.5 - 2.75% range, compounded annually.

Unknown variables:
future trend of interest rate
your marginal income tax rate
stock market direction
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Nov 2, 2012
2778 posts
473 upvotes
Hamilton
Another variable: Does not buying the condo mean you will be paying rent?
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User avatar
Nov 2, 2012
2778 posts
473 upvotes
Hamilton
The condo market (in the GTA at least) is not where I would put my money right now.
But if that choice has already been made, then I would invest a portion of your money rather than putting it all towards the property. But it really depends on whether you're comfortable researching and picking your own stock. Personally, I would not do it if the plan was to let a financial advisor pick stock.

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