A client messaged to ask whether they should sell their house and downsize to a condo. Here's our convo.
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Me: Condos may be a lucrative investment if investors know how to choose. For example, condos along Apartment Ridge Road are over 20 years old but continue to have healthy demand. Meanwhile some condos have existed for less than 13 years but have hardly seen any capital appreciation.
Client: For example, a condo unit is for sale at *High-end Condo (HEC). Assuming we sell our house, is it wise to buy a condo unit there?
Me: Yes, I’m familiar with HEC, and yes, that condo would be one of the better investments. Ask yourself, could I live there when I retire? Since we do not have retirement homes, older people have downsized and moved to condos. Less maintenance, easier upkeep, and there’s a community. That's the trend now.
Client: Yes, I could imagine that. But I'd like to know if the appreciation of our house is greater than the appreciation of the HEC. The HEC is conveniently located, but I fear the condo is not as good as land as an inheritance. I'm worried about long-term appreciation. In my specific example, would the appreciation of our property outpace the appreciation of a condo unit in HEC in, say, 15 years?
Me: Generally, the capital appreciation of land would always outpace condos in the long run. And your theory is correct; it's because the improvement deteriorates. For example, West Triangle has enjoyed over 10% annual growth in value in the past 30 years, considering it was originally a government housing project. No condo has seen such capital appreciation for that long period.
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If you noticed, my answer switched from condos being suitable investments to lots being better investments. This is because the client's follow-up questions revealed more about his investment objective and investment horizon–two critical factors in providing the right advice. In this case, the client's objective and horizon are "capital appreciation" and "greater than 15 years." Thus, the clear advice would be to keep their house.
Note though, the answer isn't always house > condos. It depends on a variety of factors and this is where having an independent broker that could provide reasonable advice would be useful.
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