Comments on: ROI on Investment Condo

By: The Fallacy of Return on Investment

The Fallacy of Return on Investment — Thu, 13 Mar 2008 09:32:55 +0000

[...] posted before on my ROI from my condo (calculated at the 6 month mark – once I’ve done my taxes I’ll post about what it [...]

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Mr. Cheap — Thu, 14 Jun 2007 13:16:20 +0000

Well, I don’t have any other debt, but I feel that I currently have multiple higher-yielding investment opportunities (buying more real estate, buying dividend stocks, contributing to an RRSP) that would yield more then the tax-adjusted 3.4% I’m paying on this loan.

I would be able to meet all of my debt obligations (with cash to spare) out of my regular income, so the only risk is that the investments don’t work out as well as I’d hope (then its “hi-ho, hi-ho off to work I go” for a longer period of time) or that I become disabled and can’t work AND my investments all fail (which would suck, but that’d be a bad situation with or without the debts).

So, in my particular situation, I *do* feel pre-paying on a low-interest (compared to the current rate), tax-deductible mortgage is a little irrational (e.g. foolish).

I definitely understand if other people place a higher value more of a “margin of safety”, but there’s a price to be paid for that as well (slower accumulation of capital).

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FourPillars — Thu, 14 Jun 2007 12:48:49 +0000

If you don’t have any other debt, then paying off tax-deductible debt is not foolish…after all, even after the tax rebate you are still paying for quite a bit of interest.

There might be better uses for the money (or maybe not) but foolish it isn’t!

Mike

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Q at $1 Million to My Name — Wed, 13 Jun 2007 16:41:32 +0000

E-mail me anytime with questions, I’ll do my best to answer them.

onemilliontomyname at gmail.com

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Mr. Cheap — Wed, 13 Jun 2007 16:12:51 +0000

Absolutely! That’s definitely one of the perks I’m looking forward to in the future (although I’ve been foolishly pre-paying on my mortgage, so I’ve maximized this increase, while throwing away a very tax-efficient and low-interest loan).

I have stopped the pre-paying (switch from accelerated to non-accelerated), so I’m at least being a little more rational now .

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FourPillars — Wed, 13 Jun 2007 16:05:12 +0000

Don’t forget your mortgage interest cost is at it’s peak and should go down over time which will increase the profit and ROI going forward.

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Mr. Cheap — Sun, 10 Jun 2007 16:44:19 +0000

Found a blog post with a ROI calculation on a rental property: http://www.2millionblog.com/2006/10/the_real_return_on_my_rental_p.html

He used a similar calculation as I did (net income)/(equity + capital improvements+legal expenses).

His return of 7.72% is quite close to my 7.03%.