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DARRYL DYCK/The Canadian Press

Dear Nancy Woods,

I am a 28 year old new graduate as a lawyer and I have been lucky enough to get employment as an associate lawyer. I have approximately $200,000 saved and I am single. I'm thinking about buying an investment property in either downtown Toronto or Calgary. I see the real estate as a way to diversify my portfolio. Does it make sense? My portfolio has been doing well with an over 10 per cent return. I'm thinking about buying a pre-construction condo. Thanks, Dan

Dear Dan,

Diversification is often used in tandem with the word "risk." We usually assume that if we diversify we lower our risk. It sounds like that is part of the reason that you are looking to buy real estate.

My question to you would be more along the lines of timing. I'm not saying you should only invest in equities or bonds because most will think that I am biased towards that. I am questioning your investment in a condo primarily because of the constant talk right now about the "overheated" condo market in Toronto, specifically. That particular area, I cannot give you an opinion on.

There are many factors that effect the condo pricing. Primarily, low interest rates, and low vacancy rates. There are many new condos being built right now, so one would have to look at the supply and demand factor.

These are some of the questions you need to ask yourself: Is there going to be an increase of supply that will satisfy the demand and therefore lower the rental pricing? Will that cause buyers that can't carry empty units or rent them to sell them? Will there then be more units for sale? When would this happen and can I afford to carry it if I can't rent it out? Is the time I spend as a landlord going to be a burden for issues such as finding a tenant, collecting the rent, and maintaining the property?

There are some advantages that may be useful to point out to you. If the condo is truly an investment property, you will be able to deduct that mortgage interest cost as an interest expense and any other related costs. If you are not already a home owner, it may be a good way for you to enter the real estate market. You may be able to rent the property out for a couple of years and then move into it yourself. It would be best for you to seek professional tax advice to find out the advantages and disadvantages to your specific scenario.

Finally, what kind of return would be required versus the expected return and how does it fit into your long-term financial plan? Find someone who can give you a financial plan and lay out the results, with and without the real estate investment. As with all investments, the most difficult part is the fact that the future return is unknown. It is always best to make an informed decision before you act.

Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website or send an email request to You can send your questions to as well.