# Looking to purchase a home in Toronto and keep our condo - Should I?



## CAllinson19 (Sep 27, 2019)

We currently have a 2 bedroom condo in Toronto. Ideally, we would like to keep our condo as we purchase a home for our growing family. Our current condo mortgages, fees, and property taxes would be covered by renting it. What are some good resources when considering on getting a second home? What financial institution offers the best rate? Where should I start to really determine if this is the right choice?


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## Just a Guy (Mar 27, 2012)

Whereas the rent may cover the current mortgage, condo fees and taxes, what about the dead equity portion of your condo?

for example, your condo may be worth $500k, but you’ve paid it down to $200k where it now cash flows. This leaves $300k as an interest free (if not negative) guarantee for the bank, earning you nothing.

Better investment would be to sell the property and buy two or more cash flowing rentals, probably not possible in Toronto, which is a good indicator that it’s not a good place to invest in real estate.

Think of investing in internet stocks at the height of the dot bomb phase.


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## Longtimeago (Aug 8, 2018)

You have not provided anywhere near enough information on which anyone could try and give you a RELEVANT to your situation answer CAllinson19.

So what happens is people then make ASSUMPTIONS which may or may not be correct. If they get the assumptions wrong, guess what that can do the validity of the suggestions?

You need to start with providing info on what you bought the condo for, how much you still owe on it. What do you intend to spend to buy your second home, how much down payment will you put on it and how much interest you will pay on that new mortgage.

As you describe it, the condo rental is not going to earn you any income, so you are hoping for an increase in capital value. Condos may continue to go up in price or they may fall, no one here has a crystal ball.

As Just a Guy suggests, you may have capital stuck in the condo that could be realized and put against the purchase of a new home which would of course mean you would end up paying a lot less interest on the mortgage of that new home. The capital would still be there in the new home and IT might go up as much or more than it would in the condo. Who knows, again no one has a crystal ball that would tell them whether detached house prices are going to increase in value faster than condo values in the next say 10 years.

Then there is the whole other subject which you have not mentioned, of being a landlord. You don't just rent the condo and forget about it. What kind of value do you put on your own time in having to be a landlord? That's a cost that's hard to calculate.


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## AltaRed (Jun 8, 2009)

LTA, better said that what I might have started with 'this looks like a really dumb idea'. Given the price of housing stock in the GTA, there is virtually no way an investment property can provide a rate of return on its own....beyond. perhaps presumptuous assumption of, capital appreciation. At the very least the investment property needs to be leveraged up as much as possible, with tax deductible interest, to avoid excessive dead equity. The equity is much better utilized in the primary residence where mortgage interest is not tax deductible. As LTA said, way too many unknowns in the original post.

For reference, it is suggested in https://www.avisonyoung.ca/document...ulti+Residential+Investment+Review+(Q1+2019)/ and also Page 18 of https://multifamilybc.cbrevancouver...9/07/Q12019-Canadian-Cap-Rate-Report_9PgR.pdf and also page 49 of https://www.cibcwg.com/c/document_l...517-4a12-4ced-9a64-50a932f7a9c5&groupId=39475 that the GTA Cap rate is in the order of 3-3.7% but of course, the OP's Cap rate could be a lot different depending on the market value of that specific condo. It wouldn't take a lot of effort to get a better return in the capital markets... or in the OP's case, throwing all the equity into the new principal residence.


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## themortgageguy (Jun 28, 2012)

Consider refinancing the condo as a rental to the max allowable (i.e. max mortgage that qualifies on condo). Take those funds and use them for down payment on PR. Max expenses on income from rental property and less on your non-deductible expensesfor your PR. Numbers meed to be determined of course.


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## The Black Wizard (May 16, 2017)

Why not seems like that is the Canadian thing to do these days, always plan for all the possible things that could go wrong though. Are you liquid enough?



CAllinson19 said:


> We currently have a 2 bedroom condo in Toronto. Ideally, we would like to keep our condo as we purchase a home for our growing family. Our current condo mortgages, fees, and property taxes would be covered by renting it. What are some good resources when considering on getting a second home? What financial institution offers the best rate? Where should I start to really determine if this is the right choice?


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## Mortgage u/w (Feb 6, 2014)

What's your intention with this condo and why do you want to hold on to it? Will it provide such good income that it becomes an 'ideal' investment?. If rent will only cover current expenses, its barely a good investment. If you can leverage max equity from it and still generate a healthy cash flow, then I would consider this a much better investment. 

Given the limited info you provided, my immediate suggestion would be to sell the condo and apply the equity on a home that will satisfy your needs.

As for mortgage rates, all rates are fantastic these days. Pay attention to product benefits which are far more important. And focus on the exit rate rather than the initial rate.


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## themortgageguy (Jun 28, 2012)

If he refinances to 80% LTV and it still covers itself and it provides a sufficient amount of down payment towards the residence purchase why not hang onto it? Possible future capital gains and mortgage is being paid down without affecting personal disposable income


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## Mortgage u/w (Feb 6, 2014)

themortgageguy said:


> If he refinances to 80% LTV and it still covers itself and it provides a sufficient amount of down payment towards the residence purchase why not hang onto it? Possible future capital gains and mortgage is being paid down without affecting personal disposable income


Because you can obtain a much better return elsewhere. 'Breaking even' on a rental is not a great investment. What's your return when a repair is needed? Vacancy? Increase in expenses? And the one that no one ever considers; income taxes & eventual capital gains?


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## themortgageguy (Jun 28, 2012)

I don't think there is one other investment out there that has provided a better return in recent memory than real estate or is as safe. As for taxes, you only pay them when you make money and capital gains are only taxed on 50% of the gain. And breaking even on a condo is fine because its reducing their expenses on disposable income with respect to the home purchase. Also, while you're "breaking even" principle balance is being decreased by some else so a monthly equity increase for them as well.

Also please tell us where the better returns are. I'm seriously interested.


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## AltaRed (Jun 8, 2009)

The national average growth in RE prices does not match capital market growth over long periods of time. That has been proven by a number of studies. The only reason RE can come out ahead (if there is not major downturn and foreclosures) is high LTV ratios.


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## themortgageguy (Jun 28, 2012)

AltaRed said:


> The national average growth in RE prices does not match capital market growth over long periods of time. That has been proven by a number of studies. The only reason RE can come out ahead (if there is not major downturn and foreclosures) is high LTV ratios.


National average growth is irrelevant. Condo is in Toronto. As an example: home purchase is 1998 for $175K now worth $775K


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## AltaRed (Jun 8, 2009)

themortgageguy said:


> National average growth is irrelevant. Condo is in Toronto. As an example: home purchase is 1998 for $175K now worth $775K


You made a blanket statement without qualification as to location.


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## themortgageguy (Jun 28, 2012)

AltaRed said:


> You made a blanket statement without qualification as to location.



No the conversation was always about a condo in Toronto so location was never in doubt and need not be referred to. You didn't read the content and made a blanket statement without the facts of location.


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## marina628 (Dec 14, 2010)

Many times people fail to include repair bills ,missed rental income with bad tenants who do damage to their home ,cost to sell ,taxes and lost opportunities elsewhere with the cash deposits of 20% when running numbers.If you want to do this I would recommend you do finance existing condo to max amount you qualify for and use the equity to buy your new home as interest will be a write off on the condo.The market rental rates change day by day I think today's rate are probably close to what the markets can handle , I actually seen one drop $100 plus offer 1 month free in the building I have been watching as a possible investment.


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## AltaRed (Jun 8, 2009)

themortgageguy said:


> No the conversation was always about a condo in Toronto so location was never in doubt and need not be referred to. You didn't read the content and made a blanket statement without the facts of location.


Thread drift happens all the time so stand alone statements CAN be taken out of context. That be what it may, have it your way........ 

RE prices don't always go up in GTA, or anywhere for that matter. It also depends on one's time frame. Per https://precondo.ca/toronto-real-estate-prices it took 10 years for the 1989 peak to get back to that peak. GTA will go through another one of those.... the only question is when.


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## Mortgage u/w (Feb 6, 2014)

themortgageguy said:


> I don't think there is one other investment out there that has provided a better return in recent memory than real estate or is as safe. As for taxes, you only pay them when you make money and capital gains are only taxed on 50% of the gain. And breaking even on a condo is fine because its reducing their expenses on disposable income with respect to the home purchase. Also, while you're "breaking even" principle balance is being decreased by some else so a monthly equity increase for them as well.
> 
> Also please tell us where the better returns are. I'm seriously interested.


All theories are "fine" as long as you are satisfied with the return you are aiming for. To be honest, you have just repeated what the majority of inexperienced and/or wannabe RE investors say. Breaking even is surely one risky way of building wealth. 

While breaking even, why invest in RE then? Why not borrow money at say 3%, invest in the stock market and be content with a 3% return? You're breaking even.....and balance is being decreased by someone else's money. To be honest, I'd rather do the latter since I avoid the headaches of managing tenants and could potentially increase my return. (I still wouldn't do it, just trying to illustrate an example).

I personally own real estate and its been cash positive since day 1. I've been able to recuperate my initial investment and remain cash positive. My return is basically infinite since I have 0 dollars of my own money invested. So this is one example of a better return which you have asked for.

Just to be clear, I am not saying there are better investments than RE. I am saying there are better ways to make money in RE. So in the OP's situation, I would personally sell the condo and place the money in a more profitable property.


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## marina628 (Dec 14, 2010)

I think as long as the OP has the means to go through the bad times they can keep for 5-10 years pay down the principle with the rent and come out on top.A few years ago my friend asked me to buy a house in Georgia with her for $40,000 ,she wanted to pay cash and do work then six month later do mortgage to get all money out .It was suppose to be a one time loan from me to her but today we have 14 homes in Georgia she does all the work I have never seen any of them and trust her to do all work.One burned down 2 years ago but was still vacant as we were renovating ,apparently some kids broke in and caused a fire and we got $100,000 from insurance plus was able to sell the land and bought 3 for the money.It is amazing what you can do in the right markets $800 a month covers all expenses and it is such a small amount of money .


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## themortgageguy (Jun 28, 2012)

AltaRed said:


> Thread drift happens all the time so stand alone statements CAN be taken out of context. That be what it may, have it your way........
> 
> RE prices don't always go up in GTA, or anywhere for that matter. It also depends on one's time frame. Per https://precondo.ca/toronto-real-estate-prices it took 10 years for the 1989 peak to get back to that peak. GTA will go through another one of those.... the only question is when.



Happy you could acknowledge your thread drift. And you're sounding like Garth Turner...grasping at 10 year history to prove your point.


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## themortgageguy (Jun 28, 2012)

Mortgage u/w said:


> All theories are "fine" as long as you are satisfied with the return you are aiming for. To be honest, you have just repeated what the majority of inexperienced and/or wannabe RE investors say. Breaking even is surely one risky way of building wealth.
> 
> While breaking even, why invest in RE then? Why not borrow money at say 3%, invest in the stock market and be content with a 3% return? You're breaking even.....and balance is being decreased by someone else's money. To be honest, I'd rather do the latter since I avoid the headaches of managing tenants and could potentially increase my return. (I still wouldn't do it, just trying to illustrate an example).
> 
> ...


First of all we don't know if its a break even situation I suspect its not but maybe close. Also I deal with these situations all day everyday. Many people have done very very well taking this course of action. And you're speaking like an investor that doesn't take financing into account. Its much harder to refinance a rental as the subject property than it is as your principle residence so much so that if this is their first rental it might not even be possible as a rental refi. Higher rates as well


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## Mortgage u/w (Feb 6, 2014)

themortgageguy said:


> First of all we don't know if its a break even situation I suspect its not but maybe close. Also I deal with these situations all day everyday. Many people have done very very well taking this course of action. And you're speaking like an investor that doesn't take financing into account. Its much harder to refinance a rental as the subject property than it is as your principle residence so much so that if this is their first rental it might not even be possible as a rental refi. Higher rates as well


You are right, we don't know if OP is in a break even situation. I hope he isn't - but I fear he is. 

I suspect you may be a mortgage broker - are you? And why do you feel its easier to qualify for a principal residence than a rental? Or you are just repeating hearsay? Also, not sure what you mean by "...doesn't take financing into account". And why would a first rental not be possible to refinance? 

Coming from someone in the industry, I can confirm that aside from the rate being slightly different, there's not much else that's different. You're still limited to 80% LTV on a refinance for either or and still need to qualify with both properties as liability. 

If you deal with these situations every day, can you provide examples of people who have done very well taking the "break even" course of action?


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## themortgageguy (Jun 28, 2012)

Mortgage u/w said:


> You are right, we don't know if OP is in a break even situation. I hope he isn't - but I fear he is.
> 
> I suspect you may be a mortgage broker - are you? And why do you feel its easier to qualify for a principal residence than a rental? Or you are just repeating hearsay? Also, not sure what you mean by "...doesn't take financing into account". And why would a first rental not be possible to refinance?
> 
> ...


If you're in the industry then you know rental rates are higher and that if they are the subject property then the usual income recognition is 50% of the rental income from it - less income means less mortgage hence my comment. Also as a SFD a condo isn't insurable again reinforcing higher rates. As for providing examples I see no need to - they are everywhere


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## Mortgage u/w (Feb 6, 2014)

themortgageguy said:


> If you're in the industry then you know rental rates are higher and that if they are the subject property then the usual income recognition is 50% of the rental income from it - less income means less mortgage hence my comment. Also as a SFD a condo isn't insurable again reinforcing higher rates. As for providing examples I see no need to - they are everywhere


How do you know these people are doing well when you don’t have tangible figures? 

I get it now. Your looking at this from a broker’s perspective. Explains you’re analogy. 

You should try investing yourself and then offer advice. It’s easy to feel the illusion that people are doing well when your simply succeeding in qualifying someone for a mortgage. 

I once invested 1$ In a rental and now it’s worth 1 million. You believe me? You should, cause I tell you - “I’m doing well”.


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## themortgageguy (Jun 28, 2012)

Mortgage u/w said:


> How do you know these people are doing well when you don’t have tangible figures?
> 
> I get it now. Your looking at this from a broker’s perspective. Explains you’re analogy.
> 
> ...


You don't get it at all actually. If you were in the industry or much less an U/W you would realize qualification doesn't just depend on income. Cash flows, value of asset etc etc are very important and taken into consideration.The fact that you said there is little material difference between financing of a rental vs a principle residence is patently wrong and tells me all I need to know. You really should change your screen name. And as for offering advice you should stay out of the financing side of things


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## Mortgage u/w (Feb 6, 2014)

themortgageguy said:


> You don't get it at all actually. If you were in the industry or much less an U/W you would realize qualification doesn't just depend on income. Cash flows, value of asset etc etc are very important and taken into consideration.The fact that you said there is little material difference between financing of a rental vs a principle residence is patently wrong and tells me all I need to know. You really should change your screen name. And as for offering advice you should stay out of the financing side of things


You’re right once again, I should change my screen name cause I was an u/w only 10 years ago. I now run a mortgage centre - one you most definitely deal with. And my close to 20 years in the mortgage industry may not have taught me nearly as much as you may know. So I apologize for my ignorance. 

You sound like a broker in his first year of operation and get excited cause you know what a rental offset is. Lol. 

Not sure why you keep referring to qualification to support your point. By the way, regardless the rate (which you allude reduces the borrowers capacity to borrow), you seem to omit the fact that all loans are qualified using a stress test so rate has no impact on that. And why does adding 50% rental income make it harder to qualify for a rental refinance?

Your’re right, I don’t get it. So please enlighten me. But before you, it would be nice if you finish supporting your point on how breaking even on a rental is great and all those examples of people you know that are doing very well.


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## AltaRed (Jun 8, 2009)

LOL... The OP has not been around since the first post in September. No way of knowing if the numbers work, especially leveraged back up, but almost certainly not based on what the first post appears to say. Prospective (newbie) landlords often do not factor in nearly enough on their cash flow break even. A hiccup or two and they bleed red ink.


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## Mortgage u/w (Feb 6, 2014)

AltaRed said:


> .......Prospective (newbie) landlords often do not factor in nearly enough on their cash flow break even. A hiccup or two and they bleed red ink.


Exactly. Everyone is in a hurry to own a rental without understanding the investment itself. And the figures of a rental on paper is never the reality. 

On the bright side, these newbies allow investors to get top dollars on resale.


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## Just a Guy (Mar 27, 2012)

Mortgage u/w why didn’t you mention the fact that you are a landlord?

As a landlord who owns more than most, ill attest that real estate has the best returns out there...if you get the right property. I can cite many examples of properties on which people lost their shirts, they tend to be the ones I pick up in foreclosure.

From experience, I didn’t need much more than the original post to see there was no way the property would cash flow unless you played games with your numbers to make it look like it on paper as opposed to dealing with reality. Any true real estate investors could do the same. That’s why one can tell that mortgage u/w knows what it’s like and the mortgage guy has never actually owned a cash flowing company and only understands getting mortgages.

Just because a bank will lend you money doesn’t make it a good investment for you. All it means is it’s a good investment for them. They feel the assets will cover their risk. They’ll get the property when You fail, and get their money back from selling it. They’ve rarely got a clue as to what makes a good rental.


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## Mortgage u/w (Feb 6, 2014)

Just a Guy said:


> Mortgage u/w why didn’t you mention the fact that you are a landlord?
> 
> As a landlord who owns more than most, ill attest that real estate has the best returns out there...if you get the right property. I can cite many examples of properties on which people lost their shirts, they tend to be the ones I pick up in foreclosure.
> 
> ...


I kind of did explain I’m a landlord but that’s besides the point. Numbers don’t lie - unless you want them to. What I find a shame is that mortgage brokers out there are enticing wannabe investors by explaining to them that they are making a good investment. As you mentioned, qualifying for a mortgage does not mean the investment makes sense. People turn to so-called “experts” to get sound advice. Clearly, this is not the case with some brokers.


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## Beaver101 (Nov 14, 2011)

This is such a confusing thread - mortgage u/w vs. mortgageguy ... whose posts do we read into?


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## Mortgage u/w (Feb 6, 2014)

Beaver101 said:


> This is such a confusing thread - mortgage u/w vs. mortgageguy ... whose posts do we read into?


Since this thread is already highjacked and OP is long gone.....


Mortgageguy is the broker who solicits clients for a mortgage. 

Mortgage u/w is the institution that analyzes the mortgages and tells the broker and client if they qualify or not. 

Mortgageguy also has no experience in rentals or investments whereas Mortgage u/w does - not to mention extensive knowledge and experience in mortgages.


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## Just a Guy (Mar 27, 2012)

Beaver101 said:


> This is such a confusing thread - mortgage u/w vs. mortgageguy ... whose posts do we read into?


If you can’t tell the difference, stay out of real estate as an investment.


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## sags (May 15, 2010)

I am thinking that real estate capital gains in Toronto have risen far faster than someone would spend subsidizing rent for a tenant.

If the prices stop rising or decline in Toronto, they might have a problem. Until then they are hauling in the cash.

A $1,000,000 property rising 7% a year is a lot of money. Some Toronto homes have doubled in price in 5 years.

https://www.blogto.com/real-estate-toronto/2019/08/toronto-home-prices-neighbourhood/


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## Beaver101 (Nov 14, 2011)

Just a Guy said:


> If you can’t tell the difference, stay out of real estate as an investment.


 ... and so I'm off your ignore list on this one, ha! I don't disagree with you that I can't tell the difference between the 3 mortgage-experts here or as to whose posts to believe. 

And ya, I'm staying away from property RE as investments as I'm not keen at all on being called at 3 am about a plugged toilet, or the heat ain't working or the elevator ain't moving or the glass are falling or ... or ... have your pick of the "joys" of being a "landlord" (anytype). In the meantime, I'll just stick to my paper REITs and MICs as investments as they're so much much easier to handle/cash out when the sun sets. Cheers,


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## Longtimeago (Aug 8, 2018)

Beaver101 said:


> ... and so I'm off your ignore list on this one, ha! I don't disagree with you that I can't tell the difference between the 3 mortgage-experts here or as to whose posts to believe.
> 
> And ya, I'm staying away from property RE as investments as I'm not keen at all on being called at 3 am about a plugged toilet, or the heat ain't working or the elevator ain't moving or the glass are falling or ... or ... have your pick of the "joys" of being a "landlord" (anytype). In the meantime, I'll just stick to my paper REITs and MICs as investments as they're so much much easier to handle/cash out when the sun sets. Cheers,


I don't know why so many people think investing in real estate automatically means you are going to be a landlord and subject to phone calls at 3am. I've owned considerable real estate as investments and never once been a landlord. That's what property management companies are for. Nor does using a management company mean you must own large or multiple properties. My brother went full time RVing for a couple of years after his early retirement and rented out his Toronto condo using a management firm. He was in say Arizona while the management company was finding and putting in a new tenant. And yes, they got the 3am phone calls, not my brother.

Yet almost every time you see a thread on real estate rentals here, you immediately see the assumption of having to be a landlord. Are people really that uninformed?


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## Mortgage u/w (Feb 6, 2014)

Longtimeago said:


> I don't know why so many people think investing in real estate automatically means you are going to be a landlord and subject to phone calls at 3am. I've owned considerable real estate as investments and never once been a landlord. That's what property management companies are for. Nor does using a management company mean you must own large or multiple properties. My brother went full time RVing for a couple of years after his early retirement and rented out his Toronto condo using a management firm. He was in say Arizona while the management company was finding and putting in a new tenant. And yes, they got the 3am phone calls, not my brother.
> 
> Yet almost every time you see a thread on real estate rentals here, you immediately see the assumption of having to be a landlord. Are people really that uninformed?


Those are the RE investors who break even and can't afford to hire a management company.


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## sags (May 15, 2010)

Owning real estate and hiring a property manager sounds a lot like a REIT.


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## sags (May 15, 2010)

A comparison of REITs versus direct real estate ownership.

https://www.forbes.com/sites/marcpr...-better-than-buying-real-estate/#53272253d6b7


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## Mortgage u/w (Feb 6, 2014)

sags said:


> Owning real estate and hiring a property manager sounds a lot like a REIT.


Sure....but so does owning a mutual fund vs individual stocks.


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## Beaver101 (Nov 14, 2011)

Mortgage u/w said:


> Those are the RE investors who break even and can't afford to hire a management company.


 ... or don't want to hire a management company to eat into the profits, similar to your analogy of buying mutual funds instead of individual stocks. 

Besides, I don't know any RE tycoons who got their start in properties investing started out with a management company. Ie. get rich by investing a $1M first or something along that line. In fact, a slumlord that I'm aware of in my neighbourhood take rounds (aka visit) to all her properties to collect the rents.


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## Just a Guy (Mar 27, 2012)

Beaver, you were never on my ignore list. 

As a long term landlord, I’ve never had that 3 a.m. call for anything. My tenants probably sleep during that time the same as the rest of us. Also, I set my phone to not ring. I always hear the story of the 3 a.m. calls from non-landlords, never heard about one from a landlord though. Also if tenants plug the toilets, generally tenants pay for it. 

As for a REIT vs. A property manager. One your in control of and could easily make double or triple digit returns, the other pays you what 7-10%? Ever wonder where all the money goes? Nope, too afraid of making money I’m sure.


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