The Long Term Value of Condo Rental Properties
Property investing, for the most part, is a long-term play. Unless you're flipping, investing in real estate involves picking a market, property type, and investment strategy, and sticking with it for the long-haul.
With that in mind, you might want to consider how the market has performed over a longer period of time. So, imagine if you were back in 1996, and just about to put down the deposit on your first condo investment.
Lets do some quick math to see how a 1996 investment would look now.
What's the cash flow on a 20 year property investment
According to the official statistics, a five-year fixed mortgage interest rate among lenders on average was 8% back in 1996. By 2006 as the global economy picked up that, had fallen to 5.6%, and in today's market is around 4.6%. The average of those 20 years is therefore around 6% which we will use for this comparison.
Given that you could buy a new condo in 1996 was $136,000, as an average price for a two-bedroom unit. That would mean a 20% deposit of $27,200, and your mortgage payments at 6% over 20 years would of been $780 a month.
Factor in the likes of historical condo fees, insurance premiums, and typical property taxes, which are difficult to nail down, but should at the very worst leave you breaking even, and now the mortgage is paid off. In early 2016, condo selling prices averaged, in the Toronto area, for $393,500.
What are your current costs?
- Today's typical monthly condo fees for owners of a 2-bedroom unit are $588.
- Property taxes at the current rates are about $300 a month.
- Insurance is likely to be around $75
Therefore, you are still paying just under $1000 a month, but the average rent in Toronto for a two-bedroom condo is now $2,375.
Since you invested in this condo 20 years ago, you're now mortgage free. Your cash flow of about $1,300 is now money you can bank or invest elsewhere. And, you now own a property that is worth $400,000. Imagine if you had invested in multiple properties!
So, while you may be keen and eager to enter the property market, remember, this is a long term market with very sizeable returns if you go the distance.