With the stock market being so unpredictable lately, there has been a lot of talk amongst my friends about investing in real estate instead of the stock market. Real estate investing, because it involves the benefits of leveraging and the tangibility of the investment, is often seen as a safe and secure investment. As they like to say- land, they are not making any more of it. However, I am finding that the more people I speak to who have become real estate investors, the more decisive the debate is. I seem to find either people who love owing real estate as an investment or hated owing it since it was very high maintenance. There isn’t any in-between. To compare apples to apples, people seem to have a love/hate relationship with real estate investing when the investment is residential real estate investments (which I would define as owing a few properties; if you own 5 condo units, you are not a retail real estate investor but one doing it for a living; I also do not define buying to flip as being a residential real estate investor; you are more of a mini-developer). Most commercial landlords I speak to enjoy being commercial landlords.

Next week, I have two guest posters- one will post on why he invests in residential real estate and another will post on why he is no longer invested in residential real estate. However, as prelude to this debate, I wanted to give my two cents. By way of my experience, I manage a residential condo for my family. “Manage” is a bit of a strong term since we have a great tenant who never asks for much. However, the ROI is quite modest on the unit and there isn’t much price appreciation occurring since it is a cookie-cutter one-bedroom unit surrounded by other units of the same size and quality.

My take on investing in residential real estate is that it really comes down to personality fit. There are more than enough financial instruments you can purchase that will yield you the same ROI over time (albeit without the benefits of selling at multiples of dollars invested). But residential real estate investing has a real human element to it on a day to day basis; you have to deal with tenants and the issues that come with being a landlord. A colleague of mine once rented to rather unreliable tenants who kept missing their appointment with Sears who were attempting to deliver a new washer/dryer- even when they were the ones who requested new units and arranged the time with Sears! Of course, he had to pay for all the cancellation fees every time Sears and the tenants failed to connect. And then the calls at night to change a light bulb. The tenants paid the rent on time but were otherwise annoying to deal with. It is these types of issues I try to avoid.

I have not become a residential real estate because it does not suit my personality or my life style at this point in time. I do travel quite a bit and its hard to deal with emergencies in the middle of the night when I am three time zones away. Even the great tenant we have still requires some time and attention which sometimes is hard to do being on a non-traditional 9-5 position. From a less emotional perspective, residential real estate is also heavily regulated and tenant friendly where I live.  I have always had more interest in commercial real estate given that it can be managed by professional managers, the law tends to be less tenant friendly and triple net leases allow you to download all the costs of operating the premise to the tenant. I looked into commercial real estate several months ago and the price point just wasn’t there. We are at the peak of the market for commercial real estate in Toronto. Hopefully, the market cools a bit.