Welcome to Passive Real Estate Investing. And another episode of Ask Marco where I answer your investing related questions.

So I'm going to cover about three questions here today on this Tuesday episode. And the first one comes from Raphael. He says, Hey Marco, I've been listening to your podcast and it has motivated me to start investing in condos. Why condos? I'm not exactly sure, but that's cool. Let's move on. He says I have already purchased one condo in the past year in a good location and still waiting for the turnover. Uh, I recently stumbled upon a new condo in a great location, good developer, and a good deal. The only problem is that it is a leasehold property being leased by the city. What he means there is the, a property is owned by the city and it's being leased to whoever has the rights to that property. He goes on to say the developers had at least for 50 years but already used 10 for construction. That's a long construction cycle and other delays. Now only 40 years remain. I plan to buy this property purely as an investment and to maximize rentals and I have no intention of living here. I've been reading about leasehold properties and saw that it does not affect the rentals.

Do you think it is a good idea to purchase the condominium? If I compute correctly, I will break even in 20 years. Well earning about $100 of passive income a month. This is deducted already from the monthly amortization from the bank. My fear is that I won't be able to sell it to anyone if it only has a few years left after I maximize the rentals. Hope to hear from you. Thank you.

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Okay. I struggled to read that last paragraph here cause it was a little bit broken up so, uh, I apologize if I was choppy. Okay. Raphael right off the top before I even get into an explanation here.

If your break even on this property is 20 years and I'm not sure if you're just looking at cashflow only or if you are looking at the potential forecasted appreciation in terms of equity growth in this property as time goes on, but regardless, either way if your break even is 20 years right off the bat I would say pass. The other thing that concerns me is that it is a leasehold property and I'll explain that for the listeners here in a moment, but a leasehold property in only very rare occasions actually makes sense as a true investment and now let's understand what we're talking about here. You have two types of title or ways to hold property. There's freehold and leasehold. Freehold is what most investors as in 99.9% of the time have and are used to, which means you actually own title, hold title. With a leasehold property, you essentially are leasing the property from the actual title holder, so you are the tenant.

Let's just look at it that way. You are leasing from the person or company or city that owns the property and they are agreeing to lease the property back to you for 50 years or 99 years often with the option to renew but not necessarily true. My concern with a leasehold property is that when it comes time to sell the property, whether to another investor or someone who wants to be a homeowner, they may look at the title work and the paperwork and say, well there's only five years or 10 years left.