Canadian Apartment REIT

The investment in detail:


			Apartment
Assumptions		Condo	Building	Difference
Purchase Price		$300,000	$3,000,000
Number of Units		1	50
Price / Unit		$300,000	$60,000	$240,000

Rent / Month / Unit		$1,500	$700	$800
Rent / Year		$18,000	$420,000

Operating Expenses:	Property Taxes	-$3,000	-$63,000
	Utilities	$0	-$63,000
	Insurance	-$150	-$4,250
	Repairs	-$1,000	-$35,000
	Condo Fees	-$4,500	$0
	Management	-$1,800	-$21,000
	Superintendent Wages		-$15,000
	Vacancy (2%)	-$360	-$8,400
	Total	-$10,810	-$209,650

Operating Income before Financing		$7,190	$210,350
Rental Yield on Purchase Price		2.40%	7.01%

Financing Expenses	70% Mortgage @ 5%	-$10,500	-$105,000

Net Profit		-$3,310	$105,350

Equity Investment	30% Down Payment	$90,000	$900,000

Leveraged Rental Return (Net Profit / Equity Investment)		-3.68%	11.71%	15.38%

2% Capital Growth		$6,000	$60,000

Leveraged Total Return *		2.99%	18.37%	15.38%

To summarize ... you are making $105,000 / year on a $900,000 equity investment which is 11.71% per annum even before considering capital growth. Of course there are expenses of the fund (like management, audit, printing, accounting etc) but the difference between the cash flow on an apartment and a condominium is large. Also, this $3,000,000 apartment may have 50 apartments ($60,000 per suite), with 50 tenants, giving you the diversification that you never could have with a single condominium or house.
In this simple example, an apartment investment beats the cash flow available to a condominium investment by a wide margin of 15.38%. If both the apartment building and the condominium appreciate by 2% per year, the return on investment (cash flow and capital growth) would be:

Condominium 2.99% per year

Canadian Apartment Building 18.37% per year (before management costs)

This is assuming the same interest rate, use of leverage and capital growth rate for both investments.

* There are certain critical assumptions that were made in creating this simple comparison of these two approaches to residential real estate investment and this example was designed to help demonstrate some of the major differences between these two approaches. There are other costs associated with each of these strategies that are beyond the scope of this simplified example that must be considered as part of any fullsome investment comparison.