Jan 16 2025

Real Estate Investment: The Case for Renting Your Condo

So, I just met with the realtor – We think we can sell my condo for about 180K. I owe about 144K on the mortgage. After breaking my mortgage, lawyer fees for new home purchase, realtor fees for new home purchase, etc…I’ll probably have 20K left over. Not as much as I’d like for living in it for 10 years. But better than a kick in the pants.

However, I currently pay about 790 in Mortgage, 390 in condo fees. So about $1200 a month total. I could rent it out for about 1600$ a month. Principal is being paid down right now at about 200$ a month.

I have zero landlord experience. But I thought I could get a property manager. Would they take care of most of the work? I don’t need to sell the condo to buy the new home. (We have 100K saved). The condo is in an excellent location near a university, and it would likely be rentable. We have steady jobs as both a teacher and a health care worker. If I sell, I’ll probably never have a rental property again. Also, we have no debt other than this current mortgage and our upcoming home purchase. Excellent credit. 40K on a line of credit if needed.

I could also take that 20K and put it in a TFSA of some kind. Let it grow. Maybe that’s easiest and least risky.

The condo is in Sask.

Thoughts?

Here’s my analysis. I know which decision I’d make. Hopefully it helps you to make an informed decision.

Option 1 (Stocks): total benefit of $73,200 over 20 year duration.

  • After 20 years, your $20K will be worth ~$93.2K; a gain of $73.2K
    • The above assumes that you obtained average returns of 8% per year, compounded annually.

Option 2 (Real Estate): total benefit of $407,807 over 20 year duration. ($294,951 + $112,856)

  • After 20 years, it is anticipated that the real estate will be worth $294,951
    • Assuming 20-year mortgage at 5.24% interest on average.
    • Assuming 2.5% average real estate property value appreciation per year, compounded annually.
  • During those 20 years, you will have collected $112,856 positive cashflow over 20 years.
    • Assuming an increase in rental income each year by 3%.
    • Assuming property management fees of ~12% of rental income, so that you can outsource property management. ($1,600 x 12 x 12% = $2,304)
    • Assuming $2K per year of repairs in addition to the condo fees (internal unit repairs).
  • At the 20 year mark, your mortgage balance will be $0
    • Moving forward your positive cashflow will be significantly higher (+$790 monthly, as there is no more mortgage). Congrats!

On top of all the above, I left out the biggest benefit of real estate investment, being able to write off all mortgage interest payments on your income taxes to reduce your legal tax exposure for the entire duration while you retain the investment property. Additionally, there are other taxation benefits that can be leveraged in appropriate situations (e.g. depreciation of real estate to offset capital gains, etc.)

So, with that, it’s your choice, but as you can see the option of keeping the real estate will deliver 557% better returns from year 0 to 20; and even better returns thereafter as you will no longer have a mortgage on the property, delivering you positive cashflow in perpetuity moving forward.

Reference Worksheet:

YearStocksReal EstateReal EstateReal Estate
ValueValueAnnual CashflowMortgage
0$20,000$180,000$0$144,000
1$21,600$184,500$4,200$139,779
2$23,328$189,113$4,326$135,334
3$25,194$193,840$4,456$130,652
4$27,210$198,686$4,589$125,742
5$29,387$203,653$4,727$120,552
6$31,737$208,745$4,869$115,087
7$34,276$213,963$5,015$109,331
8$37,019$219,313$5,165$103,287
9$39,980$224,795$5,320$96,906
10$43,178$230,415$5,480$90,186
11$46,633$236,176$5,644$83,109
12$50,363$242,080$5,814$75,670
13$54,392$248,132$5,988$67,823
14$58,744$254,335$6,168$59,560
15$63,443$260,694$6,353$50,859
16$68,519$267,211$6,543$41,704
17$74,000$273,891$6,740$32,055
18$79,920$280,739$6,942$21,894
19$86,314$287,757$7,150$11,194
20$93,219$294,951$7,365$0
Total: $112,856
Sep 16 2024

What makes you happy? What gets in your way? Don’t forget to also invest in yourself!

People are so busy in their daily lives that they don’t give themselves the time to see anything that falls outside of their routines and habits. Unfortunately, as a result, most people never achieve peak happiness. Take the time to do one of the favorite exercises that I do with my students :

– What makes you happy?

– What keeps you from doing these things?

More often than not, the first one revolves around family and friends. New experiences, travel, social gatherings and games are typically involved the descriptions.

While experiences often mentioned require some money in order to experience, they typically don’t require amassing possessions, which is most often what keeps people from doing these things. They’re often neck-deep in work so that they can pay for their amassing of bigger, better, upgraded possessions; most of which they don’t use nearly enough to ever break even on.

When I remove these individuals from their daily lives to see what they’re doing, it’s always so crystal clear to them. You see, humans tend to get into routines and develop habits. We just keep doing the same thing over and over again, even if it never helps us to, and even pushes us even further away from, achieving peak happiness. Nearly everyone keeps themselves so occupied that we don’t even give ourselves time to think about what makes us happy.

If someone finds themselves in this boat, they should block off time each week to remove themselves from their daily lives so that they can sit down, relax and just think about what makes them happy and what gets in their way. This will lead to a plan as to how to achieve more happiness while eliminating the obstacles.

Removing ourselves from our daily lives is a gift that everyone should give themselves regularly – a few hours each week and a few weeks each year – the return on happiness from doing so will be immeasurable.

May 9 2024

Why should I become a venture partner in real estate investing? I want to do it all on my own!

Time for successToday I had an interesting call with a colleague of mine, a friend that I hadn’t talked to since college.  She called me up because she was flustered, clearly aggravated and there was an easily detectable amount of sarcasm in her voice.  The first words that I could understand while trying to read between the lines of her rant-like statement were “Why are you looking for venture partners?  If I was going to invest in real estate, I would do it on my own!  In fact I’ve been saving and saving and have a wonderful nest egg built up and I’m going to do exactly that when I find the right deal”

Typically I wouldn’t even bother getting immersed into a debate of this type or even take the time to explain myself for that matter.  If I spent every day trying to convince people to do business with me; I wouldn’t be an effective leader.  I’d spend the majority of my time talking instead of actually creating deals and working towards financial freedom for both my investors and myself.  But, she was a friend, so I bit the bullet and decided I’d at least try to extend her the courtesy of explaining myself.

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Nov 17 2023

A Single Sacrifice Is All It Takes To Retire Early

necessity-vs-luxuryLast night I met with a colleague of mine who said she didn’t have any money to invest in her retirement. As it turns out, within five minutes I found several instances where she was believing her own lies. The biggest one? Her car costs as much as her mortgage… that’s nuts!

Mortgage ($810 mortgage + $140 property tax)
$950 / month

Car ($465 payment + $250 insurance + $240 gas)
$955 / month

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May 26 2023

It’s Just One Purchase… It’ll Only Irrevocably Change the Final 50 Years of My Life!

Investment DecisionsWhat can $100,000 buy you?

  • Home expansion / renovation (~500-750 sq. feet)
  • Luxury car & costs for 5 years (insurance, gas, maintenance, etc.)
  • Camping trailer, insurance & lot for 5 years

What can $100,000 earn you?

Alternately, if you deposited the $10,000 saved each year over the duration of 10 years instead of spending on one of the luxuries above and then earn an average return of 7.8% each year for the next 30 years you would own investments valued at $694,763.08.

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Sep 16 2022

As mortgage interest rates are on the rise, what will the impact be?

One of my colleagues was talking today about their mortgage. They have a mortgage of approx. $600,000 on a house worth ~$1MM in Ottawa that is coming up for renewal in the next ~8 months. (at that point he will have 20 yrs left of a 25 years amort.)

He’s been paying 3.34% interest rate and their monthly outlay is $2,945 monthly or $35,340 annually.

If he could renew right now without penalty, his current options would be in the range of 5.34% which would amount to $3,607 monthly or $43,284 annually. This would result in ~$8,000+ in additional annual expenses, or $40,000 over the next five years.

Even worse, if the rates continue to rise as they are expected to do so, he may be presented with a much less favorable option. Should that be in the range of 7.34%, his annual mortgage expenses will balloon to $51,948 annually, which is a whopping ~$16,000+in annual expenses; or $80,000 over the next five years.

Neither option is affordable to him; he’s essentially going to become “house poor”. This is the reality of purchasing the absolute biggest home that he could afford at the time when interest rates were at all-time lows.

If you have mortgage renewals coming up, make sure that you are proactive in assessing their impact on your financials. We’re beginning to snap back to reality and a lot of people are going to be faced with sobering new financial situations. Best prepare yourself for what that means and ensure that you have a plan as to how to best address your new monthly costs.

Jul 16 2022

How to invest in appreciating assets to create your own financial freedom

7 years ago today, we took possession of a luxury 6-plex with 3 bedrooms / 2 bathrooms / underground indoor parking / central air for four of the units and the 2 bedrooms / 1 bathroom / central air for two of the units.

We acquired it for roughly $1 million after environmental fees ($965K + closing costs and fees) with ~$220K down. While most people assume this would be out of reach for nearly everyone, we borrowed the capital from the equity within our homes by using a home equity line of credit.

Many people take out home equity lines of credit to perform renovations, purchase trailers / luxury vehicles or to take luxury vacations. All of these purchases depreciate in value and/or eliminate wealth, so we chose to go against the norm and to transfer our equity into assets that appreciate instead.

In this timeframe of 7 years, having borrowed ~$220K from our home equity, we’ve paid interest of ~$42K on the loan (~$6K per year x 7 years). In that same timeframe the property has appreciated to a value of $1.5 million and our mortgage owed is now down around the ~$650K mark. Paying interest of $42K have earned us a return of $600K ($1.5 million value minus $650K mortgage minus $250K outstanding home equity line of credit). This investment has resulted in a whopping 1,300% return in just seven years!

Now, to acknowledge the unusual market conditions, we are acutely aware that this won’t always be the case; properties have appreciated at a ridiculous and unsustainable pace over the last several years; in fact our forecasts had us earning $300K less, which had that happened, it still would have been an incredible return. What were the assumptions we used to calculate our returns? We assumed historical averages of appreciation aligned w/ inflationary metrics.

I’m not sharing this to brag. I’m sharing it because I have family, friends, clients and investors that continue to be apprehensive to invest in their own financial future. If this helps even one person to take the first steps required to invest in their future selves, then this post was worth my time. Anyone could do this. It does require a bit of learning and some patient due diligence, but it is absolutely a worthwhile investment. The biggest barrier to us having ever taken this step was fear. Once we got over that, it’s been mostly smooth sailing.

The biggest lesson of all that we’ve learned on this journey is that if we had never taken these first steps to invest in our future selves, our net worth would be millions of dollars lower, we wouldn’t be in any position of financial independence and the only people who would have paid the cost of our inaction would have been ourselves.

If anyone takes anything out of this post today, stop procrastinating, write down your dreams, put a plan together and begin working towards it. Baby steps, one at a time, a little bit each day; believe me, if I can do it, so can anyone else. We’ve achieved our dreams, not because we did anything extraordinary, but because we took action, set our fears aside and moved forward a little bit at a time. Why wouldn’t you do the same? Your future situation depends on what you do today. Go get ’em tiger!

Mar 5 2019

The new Tesla Model 3 is only “$35K”?

Tesla Model 3The new Tesla Model 3 is only $35K? That’s at least what their advertising would like you to believe. It’s only a “bit more” expensive than your last vehicle purchase. Maybe it’s finally time to get on that; you’ll save so much money on gas too!

Hmm… it seems too good to be true, let’s slow down and take a moment to do some due diligence… after all, the advertised price is after government tax rebates and alleged gas savings. That seems like a shady way to advertise… after all, the base purchase price is really ~$47,600 and after all the fees and high financing costs it’s really much, much more.

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Sep 5 2018

Luxury condo vs. multiplex – a comparison of the likely outcome

21902074-1-175187114[1]Scenario 1:
You can purchase a luxury 3 bed/2 bath condo for $600K (http://bit.ly/2Clh7J9) which would cost you $4,400 monthly excluding utilities ($3K mortgage + $600 property tax + $500 property maintenance + $300 insurance)

Scenario 2:9424169_1[1]

…or you could purchase a 6-plex (http://bit.ly/2MLDgVP) which earns you positive cashflow ($500-900 / month), appreciation ($1K-1.5K / month), equity via mortgage paydown ($1K-1.2K / month) and tax benefits via reducing tax basis due to depreciation ($2K / month).

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Aug 23 2018

The quadfecta of building wealth in real estate investing

Real estate investment returnsIn 2015, we purchased this luxury 6-plex for $960K with indoor parking, central air, four 3 bedrooms/2 bathroom units and two 1 bedroom 1 bathroom units. Each year we’ve been close to cashflow neutral, earning absolutely no monies from positive cashflow. Many of my startup students ask in bewilderment, “Why bother?”

The reality is that many of my new startup students have walked away from investment opportunities simply because they don’t generate cashflow. Unfortunately, they have likely missed out on some pretty amazing opportunities. The reality is that positive cashflow isn’t the only way to build wealth in real estate investing; in fact it often isn’t even the typical way.

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