Vancouverites are obsessed with real estate. And for good reason. Vancouver real estate has increased 175% since 2005. But is it a good investment? Let’s compare with a low cost ETF such as the S&P 500 ETF XSP.TO.
Vancouver real estate has increased 175% since 2005, which is an annual increase of 8.1%. However, this includes almost insane gains since 2015 that seem in some part related to foreign investment. Will these gains continue?
XSP.TO has risen 99% in the same time, an annual increase of 5.5%. However, this includes the prior 2008-09 which was a financial crisis. Since 2009 the gains have been much higher. Normal gains are more like 7%.
XSP.TO pays a dividend of around 1.5%.
Real estate dividend is harder to calculate, but let’s try. A one bed apartment in Kitsilano costs around $500,000. Rent is around $1,600/mo. Strata fees are $200/mo. Heat and cable and $100/mo. Repair costs are $200/mo. Occupancy is 95%. That’s an annual net income of around $12,240, or 2.4%.
I can sell an almost unlimited amount of XSP.TO in a minute for $9.99.
It would take months to prepare and sell a property, with realtor costs of maybe $10K and taxes of $9K.
Hard to assess the risk of Vancouver real estate investment. Rising interest rates. Capital outflow from oversees. Government lending regulations. The risk seems medium-high.
The S&P 500 is high diversified but is also dependent on macro-economics, US government policy, inflation. The risk feels lower but not low. Let’s call it medium.
Real estate beats the S&P 500 for capital gains and dividends. Historically. Hard to predict the future.
The S&P definately wins on liquidity and perhaps on risk.
Pick your poison!