Condo vs. REIT 2012 (straw man comparison?)

Macquarie Equities Research has run a series of comparisons comparing the value of owning a Real Estate Investment Trust (REIT) to owning an individual condo (see latest).  That comparison compares publicly traded REITs like Boardwalk REIT (see chart) and the Canadian Apartment Properties REIT (see chart).

In the latest comparison, the 2008 to 2011 return for the Toronto Condo was 35.3% compared to 66.1% for the Canadian Apartment REIT.  Here's a snippit:


More recently, the value of condos in downtown Toronto area slipped by 1.8 per cent in 2012, equivalent to a $6000 capital loss given an average price over $340,000.  With some net rental income, say $1500, 2012 would still leave you with a total annual loss of over 1% holding the condo.  Canadian Apartment Properties REIT appreciated by 9.8% in 2012 and provided a distribution of 4.9% - a total annual gain of 14.7% holding the REIT.

I would not be just a nothin'
 my head 
all full of stuffin'
If I only had a brain.
The condo investment is really a "straw man" in this comparison - set up to easily knock down and beat out his stuffing.  A more reasonable comparison would be between a duplex or triplex in a non-frothy market, since the return on condos in Toronto or Calgary is obviously speculative and dependent on the price increases.

You can have the same hands-off management of a condo by considering a joint venture with a group like Brennan Property Investments.  They list current investment opportunities on their site (here) - today there is an Orillia fourplex opportunity with an expected total annual profit of 45.0% over a 5 year period - that is a 225% total return over 5 years.  This relies on only a 3% capital appreciation per year.  This exceeds the annual return of the REIT and the straw man Toronto and Calgary condos.  The purchase price for the 4-plex is the same as the average Toronto Condo price in 2012.

Of course there is the issue of diversity and level of effort involved - public REITs win on diversity and level of effort in the initial stages.  And for the Orillia fourplex, while you may get paid out first, you are sharing returns with your joint venture partner.

PS - Look for a future post on a comparison with private apartment REITs and smaller joint ventures.