I make no secret of my passion for real estate investment. And it’s not a gimmick or a sales thing. Real estate investment helped me climb out of a debt hole of more than half a million dollars.
It was a really difficult time in my life, for a number of reasons. I had decided to buy and run a spa, an industry that I thought would be competitive and resistant to technological changes (unlike, you know, Blockbuster). I wasn’t totally wrong - nothing can replace human touch - but I also didn’t know how to run a business. At all.
In those years of my life, running a business into the ground and losing money by coming to work, only one thing stood out as a fiscal silver lining: my condo.
I had bought a condo downtown, hoping to live a fabulous life while running my business. It was the only thing that made money in the five years I had it. When I sold it, because I couldn’t afford to live there any more, it was worth about 20% more than when I had bought it.
A figurative light bulb moment: sitting and doing nothing sometimes is better than working your butt off.
Strange, right? Although I wouldn’t recommend you quit your day job, at least just yet. Maybe it’s time to start thinking about how condos are an effective, long-term method of generating income outside of your salary.
When you own an asset like a condo or a house, there’s a demand to use that asset. Especially in a city like Toronto. In fact, the vacancy rate in Toronto is currently sitting at 1.7 percent. That means that fewer than two condos are vacant for every 100 on the market at any given time.
It’s pretty fantastic for condo owners. You’re essentially guaranteed to find a tenant. All you have to do is price just above your carrying costs, and you’ve got someone else paying your mortgage for you until you own the asset.
But it’s not all about month-to-month. In a recent comparison between stocks and condos, condos have shown to consistently outperform TSX-listed stocks in almost every measurement. The Globe & Mail summarized their findings beautifully: “Investors would have done better with condos than TSX-listed stocks over the past 15 years.”
One reason is that condos are most consistent - or stocks are more volatile. Stocks did - briefly - outperform condos, in 2008. And then they fluctuated back below. This volatility of the TSX is the main reason condos are a better investment.
While stocks have briefly out-performed condos, they have also fluctuated much more, often to extreme lows. Real estate dividends, on the other hand, have risen steadily and consistently since 2000 - averaging 4.6 per cent yearly. The only exception was during the recession, where property values still outperformed stocks by a huge margin.
Since condos have higher capitalization rates in comparison with stock dividends, total return on investment is consistently in favour of condos.
It also does not require offloading of the asset to make a profit, but that’s a whole other story.
The only downside? “...Shareholders don’t get called in the middle of the night to fix a broken water heater” says BMO senior economist Sal Guatieri. Which is true. But I’d rather have a broken water heater than a bad investment!