It won’t make you rich quickly, but buying one or several condominium properties as investments can be part of a strategy to increase your wealth faster than working only for an hourly wage and saving for retirement via RRSPs. In my experience (31 years and counting) buying rental properties is the best middle-class investment option, but it is the least promoted because no one in the investments industry makes a margin when we buy or sell or hold them.
The strategy is no secret; you buy a modest condo suite, townhouse or house with as little down payment as possible, perhaps by assuming someone’s mortgage, because lenders want 25% or 35% down from the buyer for an investment-property purchase. You improve the property as might be needed and rent it out at the highest-possible rent, covering as much as possible of your expenses for the mortgage, condo contributions, property taxes and maintenance. You’ll probably have some monthly shortfall initially that you subsidize from other income and deduct from your taxable income, so at least the loss is tax-free. You’ll still be ahead if your monthly subsidy is matched or exceeded by the monthly reduction in the mortgage balance.
Over a decade or two the mortgage debt will consistently decline and, other than a market dip as happened in 2008-2010, the value of the property will increase and your rent return will improve along with inflation. In fact, inflation becomes your friend if you’re holding investment debt because incomes and rent rates have to rise in step with inflation to make up for the declining value of each dollar.
While investment high rollers would tell us to go big or go home, the average working person can’t finance the purchase of a multi-suite apartment building nor administer 20 or 40 rental suites, which is a full-time job. Yet it’s easy for a middle-class person to buy a suite or two, paint a room and fix a faucet now and then, and sell the suites or townhouses after 20 years to collect several hundred thousand dollars upon retirement.
Calgary is a good market for this investment option. Rental vacancy rates are consistently low and the real estate market is not over priced (hello Vancouver!). Interest rates are currently low and should be snapped up and locked in for as long as possible. Inflation is expected to make a comeback as countries are tempted to print money to stay afloat; remember my comment about inflation being our friend when we’re carrying debt. Sure inflation can damage our economy in other ways, but we’ll let Mark Carney worry about that.
Keep in mind that some people aren’t good at being a landlord. If you’re not willing to paint, fix a faucet or a leaking toilet, or can’t deal with people in an authoritative way, owning rental properties might not be for you. You’ll also need to have a degree of financial security before undertaking a rental investment because it may happen that your property will be vacant at some point, but you’ll still need to pay the mortgage and other costs. Yet it’s for those maintenance services and risks that you’ll be rewarded—eventually—with a paid-off property or properties that you can cash in when the time is right.
Exploring a rental investment is easy enough; use the Realtor.ca web site to price suites, townhouses or houses, and a web site like RentFaster.ca to estimate the rent those properties obtain. Consult your lender about borrowing costs and crunch numbers to see if you can afford to carry a suite until rents and property values rise. If you have more cash to invest you’ll have more options in higher-standard properties and should see net cash flow each month with 50% down.
Since condo suites and townhouses involve less hands-on work than houses, with their lawns, roofs and furnaces, you’d then call a condo-specialist Realtor who has experience owning rental condo suites, so that you’ll receive advice on the rental business in addition to professional real estate service.
Calgary Condominium Directory
