“Condominiums in Toronto have appreciated at an average rate of 7% to 8% over the past 15 years. Condominiums also have the added attraction of requiring minimum cash up front until they are registered. It can take three years to build a condominium, so you can get away with putting as little as 20% down before you have to come up with the full amount.
The math is simple. You put $73,500 down on that condo and hope the value of the $367,500 condo jumps to $450,000 in three years, based on a 7% increase. That’s an $82,500 return and, even if you take out $20,000 for transaction costs, you are left with $62,500 profit, or an 85% return on your money in three years.
It’s attractive to many. Financial planner Ted Rechtshaffen has a client with a net worth of $2-million who owns seven condominiums.
“It is a strategy that has worked,” he says, adding the model could come tumbling down if interest rates rise. “If you strip it all down, it’s a highly leveraged strategy. If you are of the view that real estate only goes up, highly leveraged is a smart thing.”
- from ‘Into the arms of housing’, Garry Marr, Financial Post, 18 Oct 2011
From that same article:
“This real estate boom is over. It’s not crazy to invest now, but it’s not the best way to utilize cash.”
- Benjamin Tal, deputy chief economist at CIBC World Markets