Apr 2011 17

Should I Invest into REIT or a Condo?

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Photo by Phillip Grondin Photo by Phillip Grondin

A recent study by Macquarie Capital Markets Canada Ltd. showed that, if you decide to invest in the real estate market, you would probably make more money by buying REIT (real estate investment trusts) than by investing in a condo. So far, the total returns in both Toronto and Calgary markets proved that REIT is more profitable. In Calgary, Boardwalk REIT returned 16.3 per cent, whereas the typical condo lost about 2.8 per cent. Canadian Apartment Properties REIT in Toronto returned 29.6 per cent, while condo investment returned only 11.3 per cent. Owning an apartment via trust was more profitable than owning it as a condo in the past three years, except for one period.

Boardwalk and CAP REIT were compared to condos of approximately 900 square feet, with a small balcony, two bedrooms, and one underground parking space. The study compared total returns from capital gains and rent produced. Since REIT uses debt, it was assumed that the condo was purchased with 40 per cent equity and that the capital was acquired through a mortgage.

Condos are quite well-known as an easy way to increase one’s income by renting. Capital gains usually cover mortgage fees, and there is always some additional profit left over. According to the study conducted by Macquire, if you want to garner even greater profits, you should enter a stock market and invest into REIT. It takes less effort and the outcome is much greater. As an REIT investor, in contrast with a condo investor, you do not need to take care of the premises or be available to assist tenants at any time. What is more, there are no real estate commissions. However, if you are planning to stay and live in the condo, it is different. Michael Smith, the Macquarie analyst who conducted the study said: “If you’re buying a condo to live in, then it’s a different story because then lifestyle becomes a factor.”

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