Don't Buy a Condo--Rent it!!

[andrewf]

And so? Rates will rise, sooner or later. Some price path will have to take housing back to reasonable valuations. Either that is flat for decades (negative real) as incomes and rents catch up, or a significant correction. Neither scenario is favourable for specuvestors who need significant capital appreciation to make money. Which is every investor who owns a rental condo in the GTA.

[Dmoney]

Even at 2.99% which would be difficult to get because it's a second property, it still doesn't cash flow because even with 20% down and 2.99 the payments are $1470.00. Add in maintenance fees and you're over your attainable rent amount.

Over 5 years, you're going to have a few months of vacancy and some repairs and a paint job or two. At the end of 5 years mortgage paydown is $46,000 but realtor commissions are roughly $22,000... the way I see it without capital appreciation, you've risked $78,000 to make $24,000 over 5 years.

There's no money in landlording if you buy condos. There may be some money in specuvesting, which I really have no problem with but you need to be clear that this is what you are doing.

Roughly for the numbers to work for an investor over time the rent attainable needs to be a factor of 10... so 389.000 the rent would have to be $3800 or so. Less expenses such as maintenance fees it makes sense for a landlord.

I was looking at it as me as an individual renting vs. owning the same place. So if I were to buy my current rental unit, I'd be able to get ~3% mortgage. Vacancy wouldn't be an issue since I'm living in it. I ran the math on my current place and it works out in favour of buying the place, but only if I were to stay here for 5+ years, which I will not. I think with prices and rents where they are now, there are some places where buying is better, others where renting is better.

Obviously the deciding factor is further price appreciation, or a crash. $40,000 rental income is nothing compared to how much prices could rise or fall over this period.

[dvelecka]

I read an article the other day published by cbc titled Rent vs. buy? With real estate, it depends. (http://www.cbc.ca/news/business/stor...ersus-buy.html) I think it is worth reading for everyone. They basically mention that the majority of Canadians are in favor of buying, as it is viewed as a safe investment and a wise retirement savings vehicle. However, the mortgage rate that buyers are given for financing is often the biggest factor to consider. When the implementation of the new mortgage rules, borrowers are forced to pay back their loans quicker, which reduces the amount they're able to borrow overall. Moreover, if borrowers refinance these mortgages, and interest rates were to rise, most Canadians wouldn't be able to afford these homes.
In my opinion, this is starting to resemble the same problems the US housing market dealt with... interest rates were held at 1%, allowing people who would otherwise not be able to afford a home to buy one. But once interest rates increased, these people were faced with foreclosure as they could not longer afford to refinance their mortgage at higher interest rates.

[andrewf]

In the short run, the biggest factor is pricing. You can be ruined, financially, if you buy house you can just afford at current interest rates, and the price drops. If in 5 years at renewal time you don't have enough equity, you may find yourself in a liquidity crunch and have to cough up additional funds to renew your mortgage. I don't think this is necessarily likely, but it could happen.