Duke Tower Kitchener | 39 fl | completed

[Rainrider22]

Real estate and renting it out is almost always about the equity built.

The return isn't based on the month to month cash flow, it's on any equity you build for the amount of money you put in. Let's say you put a standard 20% down payment on that $400k condo, or $80,000. To "beat" standard investing, you want to get a 5% return, when you go to sell. Which means you only need to build $4,000 in equity annually from the rent paying the mortgage payments.

Looking at just mortgage payments is the wrong way to look at it. If you are paying down the principal, you're moving equity from your bank account to the condo, it's a net effect of zero. What matters is the interest you pay on borrowed money, and the returns you could earn if you didn't have your own money invested in the down payment.

If you borrow $320K at 4%, that's $12,800 per year. Condo fees and property taxes add $6,000 per year, and property management another $1,500. You're now at $20,300 per year, before any repairs, when your rental income would likely be no more than $18,000 per year (at 100% occupancy), and that's without considering the opportunity cost of the $80,000 down payment (maybe $4,000).

Basically you would be badly upside down on this, and you would be counting on continued appreciation of the property -- which may happen, or it may not. Not a game I would personally want to play.

Interesting point of view. I have rental condos. They carry themselves. So a side from a the down payment money I tied up, someone else is paying off the mortgage for me and I am writing off a lot off expenses like interest condo fees and management fees. I get quite the nice cheque back at the end of the year from CRC. I am very happy with the returns so far and I will continue to look to buying more.   You can crunch numbers all day long but until you actually try it and realize it is worth it...