I'm a poor fellow who has managed to save 60k on a job paying me about
42k or so. I have no dependants. I keep my expenditures very low and
save as much as I can. For now I have no debts, but I do not own my
I keep all the money in a high interest savings account. It makes me
about 4% a year. I live in Canada and as far as I know, that's as
much as one can get with bank accounts.
I'm astounded when I hear how much money it takes just to retire. I
figure I would have to be working till the day I die to make that
amount of money. I see others taking vacations here and buying a new
car there..etc and I wonder how they manage it.
What strategies can I put in place over the next 5 years to maximize
my returns on what I keep saving.
Not for everyone, but a buddy here did his research and just bought a
condo ... the concrete box type (as yet to be constructed) as an
investment. There's low risk that projects will not complete ... they
are popping up all over this area. And the beauty of course is that
someone else buys it for you.
So what you might consider (with professional advice) is looking into
putting that $60K down (I realize you said maximize returns on what
you keep saving) on say a $250K condo for rental, and how that might
fit into your financial plan down the road.
Sure it's complex ... that's why the professional services are
required for the purchase, management, sale (e.g. avoiding capital
gains). But it's one sure way here anyway to turn $60K into $500K over
Canada it is ... because the OP is in Canada. For what it's worth,
here's an overview of how it is here in Ottawa ... just a steady
growth of 50% by 2021 (refer CIBC presentation). No idea where
"vorange" is at, but real estate, while not particulary exciting like
it is out in Western Canada, is doing ok here ...
Even if that projection does have value, I don't see how it turns 60k into
500k in 10 years. That's a 14 year projection, for one thing, and one of 50%
not 100%. And won't there still be a mortgage on the condo after 10 years?
Hi Elizabeth ...ok, my last post (there's just too great a difference
between the situation up here, and the situation in e.g. the US for
any useful ideas exchange ... imo) ... the 50% projection was
population growth .. the city planners are the experts on this not me.
An aside ... thank god for us in Ottawa that tech bubble broke a few
years back ... we just did not have the infrastructure to support it.
Alrighty then, condos, $200K, showing spring 2008. I put $10K down
today (aside ... speculators will take 5 or so of these, then sell
them the day they're ready to open ... at 10% ... $20K profit).
But I keep my condo, and when it opens I buy it with $60K down on that
$200K. You mentioned 10 years, so I take out a 10 year mortgage ...
could be 20 but that would affect my profit.
So, how about $140K for 10 years at 5.8% ... $1500 per month. Then
there's condo fees, tax, insurance ... round that up to $2K per
month. I rent out the condo at $2K per month ... and that is not
unreasonable here ... the renter pays heat, hydro, ... And that's
pretty much that ... just have to keep up with rising condo fees,
Year 10 arrives ... and I now own that condo outright.
Assuming an original investment of $60K, and a original condo value of
$200K, then it's the $200K that will appreciate. You said to $500K. At
8% per year, the $200K becomes ... well, ok ... about $450K. But, that
$200K condo that wasn't even a hole in the ground when I put the $10K
down, will likely open at $220K ... hmmm, so that would be $490K.
Well, ok ... maybe I'm really reaching. I'm sure one of you financial
wizards can get me out of this.
Ok, how about maybe by year 10 I'm happy being a landlord (that's why
I'd only buy one of those concrete box type condos), and continue
renting that condo at say $2500 per month (in 10 years) and pocket
lets say $1800 per month for myself.
Ok, adios you guys ... all the best.
This is called 'flipping the contract' in the states, and it is an early
sign of an overheated market.
If the $200K condo rents for $2000, and you are able to more than break
even from the beginning, you are doing well. I cannot imagine an
investor who will take a 10 year mortgage out to purposely reduce his
cash flow to zero but then own the place outright. But if you are able
to pocket $500-600/mo and build a reserve while the tenant pays the
mortgage down, that's good. I know that inflation in Canada can't run
too different from here or the exchange rate would drift faster than it
has. In which case, 8% over the long haul is still too aggressive. Are
you in this already or just hypothesizing?
I'd like to see the assumptions that go into this.
If you forecast the $250K condo rises to $690K over 10 years (for a gain
of $440 to get your 60 >> 500) that works out to 10.6% gain per year for
10 years. Even median home prices in the US from 1985 to 2005 'only'
averaged 4.6%. Is this type of condo renting for enough to cover the
near $1k/month interest cost, property taxes, insurance, and the
'professional' management you suggest?
I own a similar described unit in the US, and the condo fee runs $300
and taxes $350, so such a unit needs a rent of $1650 just to break even.
If there are areas that support these numbers, and the OP is willing to
put all his eggs in one basket, that's his choice. But the general
warning is that real estate is more of a career than an investment, and
the less you do yourself, the less return you'll enjoy.
I know what I paid for my house when I bought it in 1984, and when the
previous owners bought it in 1971. The house has been expanded twice since
then, but I can make a pretty good guess of what it would be worth if it
hadn't been, and it works out to about 7% appreciation per year.
You need more than 23% per year to turn $60K into $500K over 10 years. I am
skeptical that it is possible to make that much in real estate without
taking dramatic risks.
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