New Condos Versus Resale Condos, Which is Better to Buy?

23 September 2010

The whole focus of media today is whether buying a condo is a good investment or not. Since real estate investment has outperformed the stock market in the last ten years, investment gurus have been desperate to down play real estate (vested interest?) and try to outdo each other with predictions of a real estate bubble. The truth of the matter is that everyone needs a place to live. The choice is either to buy or to rent. The gurus tell you it is cheaper to rent and they prove it by assuming that the adult individual will invest the difference in living costs in some sort of mythical investment that will return a 7% compounded annual return. The problem is that people do not invest the difference and they can never find that mythical return after accounting for Management Expenses. (You know that 2.5% that managers charge to look after your funds, whether you make money or not each year!) What I do know is that anyone who has bought a condo or a house and has lived in it for over 20 years has always made money! Make enough money and you can almost live rent free over the period when you do the math. Why are so many Americans in such housing problems? First their tax system lets them deduct mortgage interest for income tax – one of the reasons why Americans kept refinancing their property. In Canada mortgage interest is not tax deductible and Canadians are schooled in paying it off quickly. Secondly, Americans pay capital gains tax on the sale of their house – in Canada your house or condo as your principal residence can be sold and the gains are tax free. There is no need to expound on the non-financial benefits from ownership. People just want their own place to fix up and put their mark on. That’s why real estate and condos will continue to be a place where you can put your money, pay off your mortgage, and have something to show for your hard work after 20 years. Did someone mention Nortel shares??