Generally speaking, a real estate investment is considered good when the value of a property is higher than the purchase price – but what other factors should be kept in mind? And, more importantly, are condos a good investment?
Firstly, there are two main ways to purchase a condo – buying from a builder or buying a resale unit. Here are some points to consider for both options:
Buying a Pre-Construction Condo
Advantages
- You are the first owner and can customize things such as appliances, cabinetry, flooring, etc.
- You can save money because pre-construction condos tend to be less expensive the earlier they are purchased.
- You have time to save for the payments required. You pay the builder a series of payments as a deposit – this deposit usually adds up to 20 – 25 per cent of the purchase price by the time of occupancy.
- Condo fees in new buildings tend to be significantly lower than in resale condominiums. (These condo fees will most likely increase within the first few years as adjustments are made to reflect actual costs.)
Disadvantages
- Unless the building is already in its final stages, you are purchasing based on a floor plan and artist’s renditions. It can be hard to tell what your unit will actually look like.
- You can be waiting a few years and can usually expect delays of some sort. There is also always a chance that the builder will not sell enough units to proceed with construction, or they might not finish construction for other reasons.
- Prepare to pay “phantom rent” – you are permitted to occupy your unit if it is ready while other parts of the building might still be under construction. Because the building is not considered completed and is not officially registered as a condominium corporation, you pay the builder rent. You cannot start making mortgage payments because you do not officially own the unit.
- At the time of closing, you will be paying a number of fees to the builder and this can be a bit confusing. Unlike a resale condo, pre-construction condos are subject to HST (If you are planning to live in the condo, you might be eligible for an HST rebate).
Buying a Resale Condo
Advantages
- You can see exactly what you are buying – you do not have to imagine how it will look from a floor plan. You will be able to see who lives in the building and how well the property is being maintained and managed.
- There is no wait, you can move in as soon as the sale closes.
- It is easier to calculate your monthly payments – you can get your mortgage pre-approved right
- away and calculate your monthly payment based on the current rate.
Disadvantages
- If the unit has been occupied for a few years, you might need to invest in renovations. An older building will also mean higher maintenance costs.
- You might end up in a bidding war for a unit in a sought-after building (selling prices for condos purchased from a builder are set).
Once you decide on the type of condo you would like to purchase, ask yourself the following questions:
- Will you be buying a new build? If so, what stage of construction will you be purchasing the condo at?
- Do you plan on living in the condo? Will you be renting it out?
- How long do you plan on owning the condo for?
- Is the condo you are considering in an accessible and desirable location?
Why are condos a good investment? Is it simply about finding a condo at a good price, and selling at the perfect time? There are other factors that might affect the validity of your investment:Does the condo need renovations? Consider condo fees, the cost of maintaining the unit and any renovations or improvements that need to be made. While buying a freehold home in need of renovations can be an opportunity to get a good ROI, the same might not apply for a condominium. Since your condo improvements are only in the interior, the changes and investments you make might not be enough to change the value drastically and recoup your renovation costs.
What is the property like and what is happening in the area? Even though the property value is likely to go up, consider if the property is well-maintained and what, if anything, is being built around to improve the area. Will any nearby construction likely increase or decrease the value? Nearby construction could affect the quality of life or the amount you would be able to charge for rent, but after completion, it could be a big selling point for the unit.
Do you plan on renting out your unit? If you plan on leasing your condo out, you will need the rent to be high enough to cover your costs. If this amount exceeds the average rent price in the area, you could be looking at a loss. Carefully consider the expenses associated with the unit and whether you would be able to rent it out at a profit.
Before purchasing make sure you, your lawyer and your accountant go over the building’s Status Certificate to ensure it is being run well and is in good financial health. Find out how much is in the building’s reserve fund – if it is managed properly, the reserve fund should have the money to cover any major repairs and expenses that the building might face. This can set buildings apart and give you an indication whether the condo is a good investment.
What type of condo are you interested in purchasing? If you are still wondering are condos a good investment, just give me a call to get all your questions answered: 416.960.9995 or contact me here. Happy Hunting!
