Everything You Need to Know About Condo Investments: Buying New vs. Re-Sale

Toronto Real Estate News

Owning a condominium in Toronto is the dream of many young professionals and investors alike. While many Torontonians continue to struggle to pay rent in a city with an increasingly high cost of living, condo owners are able to rest easily knowing they have an important asset they can turn for profit when the time is right.

Photo by Bart Anestin
Photo by Bart Anestin

Whether you are a first-time home buyer drawn to the allure of big-city living, an entrepreneur looking to make some seriously passive income as you build your wealth, or a landlord hoping to own a piece of prime Toronto real estate, condos are one of the best options for you in the current market. However, it is advisable to do your research before you ever set foot in a lender’s office to calculate your mortgage or contact a realtor.

You might think you’re well prepared, or you might just be eager to buy your dream home. But don’t jump the gun. There are a few important things that condo buyers need to be aware of before they sign on the dotted line.

Consider the location and purpose of buying

Are you looking for an investment property, a source of passive income, or a permanent residence? There are two options for prospective condo buyers: buying new (pre-construction) and old (re-sale).

You might mistakenly believe that the only difference in an old or new condo is an aesthetic preference, but once you start crunching the numbers, you’ll soon realize that there are many important financial aspects to consider before making your final decision, too. Even if you had never considered the idea of "flipping" for a profit later on down the line, you should educate yourself on the financial pros and cons of each.

Condo under construction by  Freaktography
Condo under construction by Freaktography

While many buyers are drawn in by the allure of being in the newest and flashiest building on the block, investors, not starry-eyed young buyers, are the ones making the most out of the new condo market. Condominiums routinely allow investors to make tremendous profits, and there are a variety of other, lesser-known benefits to buying new.

Deposit rates and structures are more reasonable if you buy a pre-construction condo

One of the massive advantages of buying a pre-construction condo? The deposits. Investors can expect to pay very low deposits, typically within the 15-20 percent range, which is astronomically lower than other types of properties. In addition, deposit structures are designed to ensure you pay the least amount of money over a longer period of time, eliminating the stress associated with sky-high monthly rates. Since new condos typically take anywhere from a few months to a few years to be completed, deposit structures are more relaxed: you will likely be expected to pay in increments over 12-18 months.

Deposit rates in Toronto

Why are there so many benefits to investing in Toronto condominiums?

The simple answer is that the Greenbelt legislation changed everything. According to condo real estate website Talk Condo, the Greenbelt is an area surrounding the Greater Toronto Area spanning a larger geographical area than the entire province of Prince Edward Island which became popular amongst developers back in 2005 when the Ontario government implemented the Places to Grow plan.

Prior to the Places to Grow legislation, developers built sprawling low rise buildings. Now, the only places where it is legal to develop low rise is north of the GTA. The GTA itself is now a protected "green zone" where high rise properties have effectively managed to house new immigrants to Toronto and offset the decrease in low rise sales.

The impact of the legislation on condo sales was immediate. Just two years after the Greenbelt Act passed, the number of high rise sales soared above the number of low rise sales. This legislation has worked, making condos vastly more popular than traditional low rise homes in Toronto, and the condo market is booming at least in part due to this legislation.

Marilyn Monroe Towers by Caribb
Marilyn Monroe Towers by Caribb

Location, location, location

But, before you jump on the first chance to invest, keep in mind that not every single property is going to be created equal. Imagine you purchase a condo in preconstruction—a brand new luxury building in a prime location in downtown Toronto that may not be finished until 2018 or 2019.

Talk Condo estimates that approximately 20,000 new condos are sold annually, making it an extremely popular market for investment-savvy owners. CBC reports a similar observation, noting that despite the recent slump in home sales, the condo market remains robust and strong.

Clearly, there are advantages to buying a condo in Toronto right now. But wise investors know which properties will sell for the maximum return and which will not. Obviously, buildings in coveted residential neighborhoods and those close to downtown are the most likely to turn a significant profit. When it comes to real estate, nothing matters more than location. Central Toronto, with its close proximity to the University of Toronto and Ryerson University, reigns supreme. Other popular spots include Toronto West and Mississauga.

JS condo article november-01

Pre-Construction: Flip it or keep it?

On average, most investors hang onto their condo for at least half a decade. You might be wondering: How much profit can you get from your condo after five years? While some actual "condo-flippers" hold onto their property for an average of two years at most, according to this informative article in Renx, this is not a trend that is corrupting the condo market by any means.

Most condo investors, while determined to return a profit, do not flip within a year or two. The average investor shows knowledge about current market trends and significant patience when they are buying in pre-construction. The majority purchase in the first few months after a new condo appears on the market, hold during the 12-month pre-construction period, wait for an additional 30 months during the construction period, get past the six-month interim occupancy period, and finally, resell after at least 24 months post-registration. This means that the average condo reseller puts their property back on the market after six years. Rounding down, let’s assume you may wish to sell yours after five. What will the market look like? How much will you be able to get for your property?

Unless you are highly tuned into predictive market trends, you may not be aware. If you are hoping to sell a five-year-old condo before the end of 2017, Canadian Real Estate Magazine reports that your chances of getting a massive return may be slim, since prices are remaining flat right now—with one major exception. If your condo is located in a prime downtown location, you’re in luck.

Lanterra Developments CEO Barry Fenton has seen a similar trend occur throughout the past several months, with condo prices in the heart of the city rising by 7 percent. BNN, using statistics predicted by Fenton, reports that a 40 percent increase is on the horizon. In yet another promising report from PwC, Toronto’s condo market will rise steadily in 2018 to support an influx of young professionals moving to the city to fill research and tech-related jobs.

When to sell your condo purchased in pre-construction

What can you expect to get for a 5-years old condo?

All of this information, while helpful, is useless without actual number-crunching. So, if Toronto is really going through a "golden age" of condominium sales, then how much can you really expect to get for a five-year-old condo? One Gord Collins report indicates that a condo purchased in March 2012 in the core of Toronto for $361,800 could have sold for $555,004 in October 2017. Compare that to homes sold in the same neighbourhoods, which go for upwards of $1,000,000—unfathomable for most millennials buying their first home.

Looking ahead at the real estate market over the next five years, it is easy to see that it appears favourable. The average price of a condominium in Toronto in fall 2017 is $521,842. With rent prices predicted to increase 39 percent over the next five years (due to correlated income increase), the market will surely balance itself out by 2020 and allow for today’s future investors to see some valuable profit.

According to the Torontoist’s predictive glance at the city in 2020, condos will likely continue to sell in pre-construction, but with more and more immigrants and young professionals moving to Toronto to take finance and tech jobs close to downtown, a condo purchased in 2017 will very likely sell for a considerably higher profit in 2022, exactly five years from now. The Toronto of the future will inevitably have a much larger and more diverse population, and condos will be able to house many newcomers to the city.

Condo purchase profits after 5 years

Re-sale: Is the renovation worth it?

What if you are not planning to buy for the purpose of investment? If you are planning on staying put for a while, and you are unconcerned with owning a unit in a brand new high rise, the most affordable option is to buy a previously owned condo. Every day in Toronto, about seventy people buy resale condos. Unfortunately, you may not be entirely satisfied with the unit. One way to spruce up your condo—and potentially add investment value for the long term, if you change your mind and decide to sell—is to renovate.

What renovations are profitable?

Home Trends Magazine warns that the cost of renovating a condo can be up to 30 percent more than renovating a house, mainly due to restrictions set in place by the builders and the inevitable limitations you will encounter due to the existing building design.

Though your milage may vary depending on the total square feet and age of your condo, Home Trends estimates that between designing, outlining, purchasing materials, and installation, condo owners should expect to pay between $10,000 and $16,000. On the other hand, demolition and removal can be relatively cheap—no more than $1,500—or even free, if you choose to do it yourself or share the manual labour with a friend or relative.

Another thing to keep in mind: Renovation shows on HGTV or any other TV channel are unrealistic. One recent post on Money Sense quotes Robert Koci of Canadian Contractor:

When I see their budgets sometimes I’m scratching my head. It seems like it costs half of what it normally would.

The reason for this is due to the fact that contractors often donate materials and do work for free for the exposure. In real life, costs might be double what you see on TV.

 Southeast by Michael Muraz
Southeast by Michael Muraz

The future is bright

Renovating, watching predictions, and investing in insurance that will protect your condo in the case of damage are the main keys to ensuring that you can see a good return on investment five years from now. On the other hand, if you are shopping for your dream home and have no plans to move, downtown Toronto’s condos are located within walking distance of many major corporations and offices. You can save money by walking to work and be sure that you are in the middle of all the action. The affordability of condominiums in Canada’s most exciting city make the lifestyle possible for millennials and a good investment in the future.



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