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The Best Canadian REIT:
The best Canadian REIT will offer investors a direct way to invest in real estate - a Real Estate Investment Trust (REIT) can be a better alternative. The Scenario:
"I´ve owned condominium investment properties before and my income was never as good as you are offering. How do you do it?"
There is no magic. Individual investors often look at condomiums or houses as a direct way to invest in real estate. While this may be suitable for some, remember that houses and condominiums are mostly bought by individuals looking for a home, not an investment. There is often no income or investment criteria that a homeowner applies to a home purchase. As a result, the income yield on a condominium or house is usually very low and often negative after financing. However, an apartment building, bought by professional investors, is designed to be an investment. It is the home for the investors money and not for the investor themself.
To compare these two approaches to real estate investing on an equal basis, let´s consider the following examples:
Let´s assume:
You use 70% leverage (ie you put down 30% equity and get a mortgage for 70% and you can get a mortgage at 5% interest rate per annum.
Example 1
A condominium purchased for $300,000 as an investment.
It rents for $1,500 per month
It has the following expenses: |
Property Taxes |
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$3,000 / year |
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Insurance |
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$150 / year |
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Repairs |
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$1,000 / year (not covered in condo fees) |
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Condo Fees |
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$4,500 / year |
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Management |
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$1,800 / year (for leasing and property management fees) |
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Vacancy |
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$360 / year (about 2% which is very low) |
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Total Expenses |
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$10,810 / year |
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Net Income Before Financing Costs = |
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$7,190 |
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Financing Costs = $300,000 x 70% x 5% = |
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$10,500 / year |
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| Net Result / Loss: |
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$3,310 / year (-3.68% yield a year) |
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You are losing $3,310 / year and must count on the market going up just to break even or make money.
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Example 2
An apartment building bought for $3,000,000. It has an unleveraged yield (capitalization rate) of 7% |
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Rents |
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$420,000 |
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Expenses |
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$209,650 (vacancy & bad debt, repairs, property taxes, insurance etc) |
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Net Income Before Financing Costs |
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$210,350 |
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Financing Costs = |
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$3,000,000 x 70% x 5% = $105,000 / year |
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Net Result: |
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+$105,350 / year
(+11.71% yield a year) |
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You are winning against the tide!
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The best Canadian REIT
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Paid Monthly
