Are you thinking about buying a condo for investment? With 75,000 condo units currently under construction in the Greater Toronto Area and another 25,000 due to be constructed between now and 2023 – it appears these days that condos are a dangling carrot. But before you take a bite into a big opportunity, there are some important things to know about buying a condo for investment. Here are some important things to consider and/or prepare for before diving in.
Do NOT Trust The Floor Plan!
A common misconception many people make when condo hunting is assuming the square footage of a condo only includes the living space and not the balcony or the washroom. This is true of condos for resale, but not for new and pre-sale condos! When it comes to new and presale condos, balconies and/or terraces are almost always included in the total square footage of the suite. It can be a very tricky business, and the rooms may not end up looking like what the brochure may have told you, which is why I strongly suggest you find a good real estate lawyer to help you through this process.
If you are looking to purchase a new or pre-sale condo, nothing will tell you as concretely what is included in your purchase as the purchase agreement. These contracts tend to be full of fine print and legalese, so signing it without consulting a lawyer can be very risky. Real estate lawyer, Martin Rumack adds that should you hire a lawyer to help you with your purchase they can open a door for re-negotiating the terms of the sale. You do not want to put yourself in a situation where you have agreed to be, “stuck with unexpected substitutions, exclusions or inclusions that could detract from your unit’s future value.”
Be Prepared For Delays
While nobody wants their new-build condo to have construction delays, they are almost inevitable. And while ten years ago you might have been out of luck if your new condo was not built on time, today the law is on your side! Because Toronto condo buyer Keith Markey challenged Tarion in 2006, he was compensated several thousand dollars because his possession date was pushed back six times.
If you choose to purchase a new-build condo, the purchase agreement will contain critical dates for construction and options to the buyer if these dates are missed. Examples of the options are that they can simply agree to a delay, seek compensation or exit the deal entirely. Before making any decisions I would suggest, again, to consult with a reputable real estate lawyer.
Budget For Unexpected Costs
There can be unexpected costs in two parts of condo investment life, and here are the solutions to these problems! The first is that whenever you sign the purchase agreement for a new condo, your real estate lawyer will tell you that these closings costs are estimates. It is unfortunately likely that these costs will increase as the possession date approaches. Having a lawyer who knows what they are doing can save you from a lot headaches with these unexpected costs.
The second issue comes from how you budget your revenue and profit from your condo investment. Many people who are considering buying a condo for investment are excited by the prospect that they can pay off the condo’s mortgage relatively quickly because rent is so high in the area they are purchasing. However, it is important to budget for real estate taxes, insurance, and advertising the property. It is important to also always have a special fund for maintenance and repairs as these are certain costs you will incur with any property purchase.
While it is still likely you will make an attractive return on your investment, it may not be as high as you think. Taking all of these thoughts into consideration, you can anticipate having steady growth over time because you will have budgeted in advance for any hiccups along the way, instead of being surprised when they happen out of the blue.
Buying a condo as an investment can be a prudent financial decision if you are looking to invest in your future. I hope this article has equipped you with many of the tools you will need to wield to get the most value for your money in your future endeavours! To get the ball rolling, please check which condos I currently have for sale.