QUOTE (thomasbeyer2000 @ Oct 16 2008, 02:36 PM) house: more land per sq ft of living space, hence more expensive. On the extreme side it is an acreage or: a raw piece of land with no dwelling. The ultimate, indestructable piece of real estate and no tenant problems. But usually tough to mortgage and thus bad $s on $s invested.
You rent living space, i.e. sq ft, so the extra land is hard to "cash-flow" .. BUT: land appreciates whereas a dwelling deteriorates, so usually you have more equity upside potential in land (with or without a house) vs. an apartment.
We go one step further and buy many apartments also called a building or multi-family investment. You get more operating efficiencies, less cost per sq ft of living space and slightly better mortgage terms, i.e. a better long term hold potential, i.e. more $s on $s invested !
the money is made by holding LONG TERM, which is easier in an apartment building or a condo than a raw peice of land or a large house.
Real estate does NOT grow linearly .. it wobbles up and down an inflationary slope of 4-6% ON AVERAGE .. and in the last 3-4 years we were (across the globe in UK, Victoria, Australia, Spain, BC, AB ..) WELL above that 4-6% inflationary growth .. so even a drop of 30% from 2007 peak is NOT a surprise !!
Hence the emphasis on cash-flow so you can hold .. and weather out these troughs !! It is NOT a fast path to wealth .. don`t flip .. the time to buy pre-sales condos and sell them 2 years later for a huge gain (after realtor fees, tax, legal fees, ..) is over .. and the time to make a fast buck is over too !! It is a PROVEN LONG TERM PATH TO WEALTH .. if you are patient enough and can hold long term !
Why is real estate a great investment - (even in a flat market with no cash flow) ?
If you buy an asset with a 20% down-payment, and no positive cash-flow for 10 years, with:
a ) No appreciation (equity upside) :you have more than DOUBLED your money as the mortgage has been paid down over 20% !)
b ) 20% price increase (less than 4% annually compounded, below Canada`s long term average !!), you would have TRIPLED your money.
c ) 30% price increase (less than 6% annually compounded, about Canada`s long term average as house prices in Canada have doubled every 15 years in a normal economy !!) you would have made 250% on your money.
d ) 40% price increase (slightly higher than Canada`s long term average as house prices in Canada have doubled every 15 years in a normal economy, and AB has a better economy than the rest of Canada !!), you would have made 300% on your money, i.e. quadrupled it!
This latter scenario "d" is very likely in a strong economy like Alberta with cheap investor condos (or apartment buildings or cheaper townhouses or cheaper homes) - even if higher priced condos or houses are not so great an investment these days due to very high prices and ongoing negative cash-flow with 20-25% down! And yes, there may be better markets like SK or TX right now showing higher growth potential for the next few years due to lower prices .. but AB is OK too ! .. many markets have potential .. some more .. some less ..
HOLD ON TO YOUR (cash-flowing or at least break even) ASSETS .. AND ENJOY THE RIDE !!
Happy investing .. with cash-flow AND (at least inflationary) equity growth (in time ..) !!!!
I am so glad that I am involved in real estate investment. I totally agree with you on the long-term growth of real estate.
To answer the question, I tend to go for condos because they are easier for me. I am not trade-inclined here so the idea of maintaining an older bungalow is not very pleasant to me. I would probably end up spending more cash on immediate renovations and repairs. However, I do agree with the fact that suited properties have much better cash flow from all sources combined (and more buffer to rental market fluctuations).
Tommy
