Personal Finance

Would you rather own a Rental Condo or an income investment?

  • Last Updated:
  • Feb 4th, 2015 12:46 pm
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[OP]
Penalty Box
Dec 27, 2013
8003 posts
3932 upvotes
Toronto

Would you rather own a Rental Condo or an income investment?

Basic assumptions:

a) You have $100,000
b) You can margin for 70%, that means you could buy effectively $333,000 of stocks/etfs at current going rates of Prime + 1
c) You can buy a property for $333,000 with $100,000 down and a $233,000 mortgage
d) Your mortgage is at 3% (a 30 year amortization is about $910)
e) Your investments can yield average of 5.5% (reits/bonds/etfs/wahtever - this is quite doable currently I believe) and it would be paid to you monthly
f) Your rental property can earn $1550 a month
g) condo/maintenance fees for the property are $300 a month
h) taxes are $150 a month

If you really like to prove your point you can change the basic assumptions above - e.g. downpayment on a home doesn't need to be 30% in which case say you buy a bigger home/condo that can be rented out.

which do you prefer?
which one do you think will give you a better cash flow/income?

(if you think you can get more rent, absolutely. in toronto right now, i think 333,333 can get you a decent 1 bedroom den or so which you can probably rent out for about $1500 but feelfree to correct)
6 replies
Deal Addict
Jan 15, 2009
1031 posts
356 upvotes
Just north.
Putting f), g) and h) together net $1,000 a month from a rental property.

So a price/earning ratio for the investment property, you're looking at a 27.75. A yield of 3.6%.

Based on yield alone, your investment is better than rental property.
[OP]
Penalty Box
Dec 27, 2013
8003 posts
3932 upvotes
Toronto
guyver0 wrote:
Feb 3rd, 2015 11:33 pm
Putting f), g) and h) together net $1,000 a month from a rental property.

So a price/earning ratio for the investment property, you're looking at a 27.75. A yield of 3.6%.

Based on yield alone, your investment is better than rental property.
ok, but thats just the numbers. what would you do in the real world? i forgot cap gains on the property.
Deal Addict
Jan 15, 2009
1031 posts
356 upvotes
Just north.
Everyone's situation is different. I travel a lot, so I don't need a house to tie me down to one city.

Stocks are fungible, houses aren't. I'd go for an investment portfolio first, unless there's a rental property with a 10% yield, then I'd consider.

No tax when you sell your primary residence, but you might not be that ahead if you include property tax, maintenance, realtor's fee, lawyer's fee, and utility fees.
Deal Addict
Jul 9, 2004
1572 posts
168 upvotes
Delta
for comparable gains stocks are less trouble and more flexible so that'd be my pick.
Deal Fanatic
User avatar
Apr 20, 2011
5310 posts
480 upvotes
Vancouver
Sure real estate might go down but then why is it so difficult to get properties at 20% off the market value then? For sure there are some people (not just on this board) that believe the market will go down.
Deal Guru
Aug 2, 2010
14091 posts
4050 upvotes
Here 'n There
Don't forget the front end load for the condo investment, ie you have to pay land transfer tax, lawyers fees, mortgage set up fees, etc and then the back end load, more lawyers fee, perhaps mortgage closing fees, and the real estate commission.

Those take a big chunk of money out of your investment.

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