As history has shown, there is so much to gain by investing in real estate as a principal residence or as an income property.
Ten years ago, many Waterloo Region buyers thought only of buying a detached home. Today, because of rising prices, many now need to consider a condo as a market entry point or for portfolio expansion. The former is viewed as the “gold standard” in terms of potential equity gains but carries a more significant financial commitment; the latter is much more affordable but sometimes viewed as having lower growth potential.
While there’s no one-size-fits-all answer as to which you should buy, it helps to understand how both of these options have performed as well as their future growth potential. Here are some things to consider:
10-Year Price History and ROI
To start, here’s how detached home and condo prices have risen in Kitchener-Waterloo over the past 10 years:
| Time Period | Detached | Condo |
| Aug 2021 | $895,756 | $445,280 |
| Aug 2020 | $734,427 | $386,972 |
| Aug 2019 | $615,568 | $324,778 |
| Aug 2018 | $583,564 | $335,827 |
| Aug 2017 | $519,910 | $294,787 |
| Aug 2016 | $487,050 | $233,302 |
| Aug 2015 | $401,533 | $241,508 |
| Aug 2014 | $378,251 | $225,167 |
| Aug 2013 | $359,291 | $223,114 |
| Aug 2012 | $354,064 | $231,654 |
| 10-YEAR ROI | 153% | 92% |
As you’d expect, detached homes saw the largest gains, both in terms of percentage ROI and total equity. But, at 92% ROI, condos still performed INCREDIBLY well with a relatively low cost of entry. Either way, homeowners have won big over the past 10 years.
Predicting Future Returns
Obviously, this is what everyone wants to know: how will these two property types perform going forward?
We don’t have a crystal ball, but we can look to our big-city neighbours to the east to see how detached home and condo prices have grown during the same time period and from a much higher starting price point. This helps us understand trends as well as the price points our local market could eventually tolerate.
Here’s how prices have changed in Toronto over the past 10 years:
| Time Period | Detached | Condo |
| Aug 2021 | $1,239,978 | $669,248 |
| Aug 2012 | $617,486 | $326,998 |
| ROI | 101% | 105% |
What’s interesting here is not so much that detached homes outpaced condos in terms of overall equity gained; this will likely always be the case. It’s that condos had, albeit slightly, a higher percentage ROI than detached homes.
The most logical explanation: as prices rise and detached homes become less affordable, buyers gravitate toward more affordable products: semis, townhomes, and condos. This is also why Toronto buyers move to Kitchener-Waterloo and everywhere else in Southwestern Ontario: the desire to enter the market at lower prices.
These trends, working together, suggest that both property types have room to grow in Waterloo Region and that the pace of condo price growth could eventually keep up (from a % ROI perspective) with detached homes.
Other Considerations
Rental Potential
Obviously, you’ll be able to rent a detached three-bedroom home for more than a one-bedroom condo. The key, from a cash flow perspective, is to make sure you’re covering your costs.
Here’s what you should consider when crunching the numbers.
Condo Fees and Maintenance
There will ALWAYS be costs of homeownership. Condos are low maintenance but you’ll need to pay fees each month for building upkeep and amenities. Detached homes, on the other hand, don’t have fixed monthly maintenance fees but you’ll be on the hook for the roof, windows, HVAC, and anything else requiring repairs or replacement.
We’ve outlined many of these costs here.
Opportunity Costs
This is something EVERY buyer needs to think about: what is the cost of buying now vs. waiting? Often, this comes down to lost equity.
If prices rise 5% over the next year, that’s $25,000 in lost equity on a $500,000 condo. And, as prices rise, it only becomes more difficult to enter the market. You’ll also need to factor in equity that could be gained through mortgage paydown vs. renting.
Depending on the math, the benefits of purchasing in the short term may outweigh the value gained by waiting and purchasing your ideal property later on.
Your Needs and Preferences
This article is focused mostly on financial returns. That said, if you’re simply looking for a place to LIVE, one property type may make more sense than the other depending on your needs and preferences.
If you can afford either option, you’ll likely see equity gains either way. That said, if your end goal is to purchase a detached home but you cannot afford it right now, you may want to consider a condo as a stepping stone to build equity and reach your end goal faster.
Take a Holistic View
This article is in no way intended to get you to make one decision over another; it’s to help you evaluate your options from all vantage points.
As always, you’ll want to have clear goals (e.g. “I want to gain $500,000 in net worth within the next 10 years), understand the options available to you, then make a game plan for success.
Having helped thousands of local buyers and investors grow their real estate portfolios, we’re able to answer your questions, help you understand your options, and convert your goals into an easy-to-understand action plan.
If you would like to pick our brains and get your game plan in place, contact us below.
