One of the most striking changes in investing habits over the past five years is the increase in holding real estate as an investment.
I see it often in notes from readers where they mention that their investments include properties like houses, apartments or condos. Many rent these properties in order to generate income that will play a role in their retirement plan.
Owning property and renting it out worked great if you bought a few years ago – you’re sitting on capital gains and you’ve made a good stream of income. But is real estate investing the way to go now?
That’s the question a Vancouver condo owner asked recently: “I am going to move to live with my partner soon,” she wrote. “I wonder if I should sell my condo and transfer the proceeds to an investment account (to be invested in stocks), or rent it out through property management companies?”
True believers in real estate may advise keeping the condo, providing this reader can rent it for enough to at least cover her costs. But recent developments in Vancouver real estate offer a strong argument for selling the condo and investing the returns.
The lesson of Vancouver is that real estate is not a sure thing investment. A Globe and Mail story published in mid-May noted how sales fell to a 24-year low in April and prices were off 8.5 per cent from the same period a year earlier. It’s ugly in Vancouver if you’re trying to sell a house or counting on a property to rise in value so you can justify it as an investment.
Renting the condo could work out fine, but hiring a property manager to run things won’t be cheap. Add mortgage payments, property taxes and upkeep/repairs/maintenance and you end up with a big chunk of expenses to soak up those monthly rents.
Investing the condo proceeds is so much easier. You can diversify with bonds and stocks from around the world, so you won’t live and die by a single asset class. That’s what happens if a lot of your wealth is in real estate. Investments are also much more liquid. If this reader ever wanted money to buy another place in the future, she could simply sell her investments. Selling a condo can be a challenge – just ask people in Vancouver.