Are we really going to buy a condo?

A few weeks back, I told you that Jordan and I were discussing an investment property, specifically buying a Condo.

We have narrowed it down to which development we are interested in based on quality, marketability, rental income and re-sale value – while I would like to spend $160-$170, it looks like the best value is around the $190K mark. There are a couple of things we would have to look at including how we are paying for our backyard, as well as how we would be coming up with the cash for a down payment.  The specific unit we are interested in is $194,900, so after GST and down payment the mortgage would be $158,726 for a two bed, 1 bath 876 sq foot condo that has a separate entrance from the outside (no hallways) on the main floor.

Here's why we like this one:

The washer/dryer is accessible by both rooms and it's behind the pantry rather then right next to the cooking surface.
  • It has a separate eating nook, rather then just the counter top eating space - nice for families.
  • The living space is open to the kitchen - which creates a bigger feeling for the space.
  • Storage space within the unit (just off the eating nook).

So, that's the space - without further ado - here is one scenario for our the cash flow would work, keeping in mind that the money for a down payment would need to be in our bank account for at least 90 days prior to fiance approval.

We would pay for our backyard using our line of credit, rather then the cash we are projecting to save this year.  The cash we are saving, would be re-directed to saving for a down payment.  We would begin paying a carrying cost/interest of approx $103/month.

Half of the down payment/closing costs would come from current cash savings as well as savings from May-October bringing us to just over $23K in cash savings.  We would need to withdraw an additional $17K from the LOC to get a total of $39,681.   If we made the withdraw in July and stashed it in our TSFAs we would gain 1.4% in interest (offsetting the interest we would pay on the LOC which is 5.5%, reducing carrying costs slightly - $58/month).

Our total interest costs would now be approximately $160/month including what we pulled for the back yard.

Assuming we would purchase the property in October and get possession and have it rented prior to January/February - we factor in three months of carrying the Condo. The carrying costs would be about $1,125 (shown below).

A note here.  Jordan asked me if we could still carry the condo if I was on maternity leave - we could, but only for the first five months without going into debt.  The first 15 weeks of my eventual maternity leave  (no, I'm not preggo yet) will include a top up (paid by my employer) to 70% of my salary.  There would be some carry over from the top up month to month, which is why would could stretch it to five months, rather then 3.

Once the purchase is complete, we could begin to pay down the LOC as aggressively as possible.   We would have cash flow from November-December of just over $1,700 which would reduce the debt to $38,336 by the end of this year.

Projecting forward, assuming no raises (which their will be) and a maternity leave (which I hope there will be) - as well as rental income of $276-$376/month - the debt would be paid for by the end of 2016.  It would cost us approximately $5,000 in interest cost over less than 4 years.

Is it worth it? 

TLDR: Is it worth $5,000 to both significantly increase the value of our home ($27,181 in equity) and acquire an investment property that would net $3300-$4500 in revenue a year (yes I've accounted for property taxes and the like, but not income taxes).



  1. This is a good time in your life to take a risk. I wonder what would happen to the property market if you were to wait a year to have more cash? The extra interest cost is not very much over 5 years for sure.

    1. Thanks for the vote of confidence!

  2. Two thoughts:

    1. The rent you propose to charge and collect seems kind of low; and

    2. Condos are more of a gamble than a house. Definitely have a condo assessment done (similar to a house inspection) where everything about the condo board and finances are examined (ie. reserve fund). If it's an old building there may be big repair bills in the future (ie. roof replacement) or if it's a new building, there may have been shoddy construction if it was built quickly during a "boom" period. An example of this would be the 'leaky' condos in Vancouver. It's not unusual for a condo owner to be given a bill for $20,000.00 'special assessment'.

    1. The proposed rent was based on research we did in the area - $1,400-$1,500 is the very top end.

      Yes, they are - and they also cost less to get into. If we decided to purchase, my intent would be to try to get on the board and at the very least, be at all of the board meetings. We're actually looking at a brand new development, so in theory if their were assessments they should come later down the road.

  3. I agree with Anonymous. Condos are not exempt from shady practices.

    1. I think that every investment has risk and certainly condo's are not the only types of real estate that have trouble from time to time. A lot of research must be done before jumping in with a cheque.


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