MY INVESTMENT MISTAKE - CONDO VS TOWNHOUSEBy CondoWongFriday July 5, 2019
In 2019, the condo market continues to go up. On the other hand, the low rise market remains flat since the big drop 18 months ago.
With the same budget, you could buy a 700 sq.ft. 2 bedroom condo in downtown or you could buy an 1,800 sq.ft. townhouse in north Richmond Hill.
The townhouse is really tempting.
But which one is a better investment?
This is one of the top questions that investors ask me every day.
I’m going to share my own story with you because I’ve been there, done that.
In 2015, everyone was lining up to buy houses and townhouses. My developer friend was working on a new site in Newmarket and he let me pick a townhouse.
So I bought an end unit townhouse, pre-construction, 1,950 sq.ft., at $575,990.
It would take 1.5 years to build.
A year later, I bought a 2 bedroom condo at Church and College, prime downtown location. Pre-construction, 775 sq.ft., at $650,400. That’s 13% more expensive than the townhouse.
Early 2017, I got the keys to the townhouse. I was impressed. It’s very spacious, got lots of windows, almost felt like a detached.
But then… the work started. I had to buy all the appliances, get them delivered and installed. Then, there’s the air conditioner, garage door open… oh man.
Worse yet, it was deep in the winter and I had to hire someone to shovel snow before I could even get renters to look at the place.
Guess how much rent I could collect on this beautiful townhouse?
$1,700 per month.
That’s a 3.5% rental return.
That’s only the first part of the problem. The second and the bigger part of the problem is tenant quality.
The applicants are typically families on a tight budget, families with small kids, families with kids and pets…
This is not to discriminate, but from an investment point of view, it does mean extra maintenance time and costs for the landlord.
I paid my own rental management team to manage the unit for me, but the time and money involved really didn’t make economical sense.
So, I sold the townhouse earlier this year because I’d rather get rid of the burden.
I did make a profit from the sale but it completely went against my own investment philosophy.
I believe real estate is like the chicken and the rental income is like the egg. The chicken produces eggs regularly, so it keeps feeding me.
Selling the real estate is like killing the chicken. I had one big meal, but there are no more eggs. I need to hunt for food myself.
A townhouse is not a good investment for me because of all the rental issues. It’s like a chicken that fails to produce eggs.
I believe we need to buy and hold real estate. Once your tenants finish paying off your mortgage, the unit becomes your income generating asset, that could be your retirement income right there. You got a chicken that keeps feeding you eggs.
On the other side of the story...remember I said I bought a condo at Church and College that was 13% more expensive than the townhouse?
The final closing was just in mid-June. It was rented out within a week and guess for how much?
$3,200 per month. That’s almost doubled the rent of the townhouse.
To me, the hands-free experience is crucial.
The unit was ready for rental once the keys are ready. There was no need to buy this, buy that or get things installed.
The tenant quality is another crucial difference. You get a lot of young professionals who are working downtown.
I have subscribed to our own rental management program. For $100 a month, the program delivers exceptional value. I have never been to the unit myself, I have never talked to my tenants, $3,200 goes into my account automatically every month.
To me, an investment must be in an auto-pilot mode. An investment that increases my workload becomes a duty, a job and not an investment anymore.
When you are planning for your real estate investments, remember, don’t kill your chickens. Make sure your chickens produce eggs for you.
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