Condominiums continue to be a popular form of home ownership among Canadians – especially in Toronto. According to the latest data from Statistics Canada, 30% of all home dwellings in the City of Toronto are condominiums or condos as they’re popularly known. That’s the highest percentage of condo dwellings among major Canadian cities, and nearly double the rate in Vancouver where 16.7% of all homes are condos.
The rise in popularity of condos in Toronto can be attributed to high prices for single detached homes in Canada’s biggest urban area, where the average price now tops $1 million, as well as increasing density that is forcing developers to build up rather than out. Plus, condos suit the frenetic lifestyles of today’s city dwellers with their built-in gyms, coffee shops and supermarkets.
However, while popular, condos, like any real estate investment, carry financial risks. Owing to strong demand, many people in Toronto buy a condo in the "pre-construction" stage before it is actually built. This enables people to secure a condo, and many don't mind paying upfront before the property is built as their investment is likely to appreciate.
But before putting money down, there are a number of things that every would-be condo owner should consider in order to protect their investment and ensure that they get a good return within a relatively short period of time. Here are five tips for making a smart condo purchase and ensuring that you don`t pay too much money and can sell the condo for a profit within five years.
1. Choose the right neighbourhood
It may be a cliché, but the old real estate adage of ’location, location, location’ remains true. Where your condo is located will have a big impact on its future resale price, so be sure to give special consideration to the neighbourhood where it is situated. Is the neighbourhood central? Are there a lot of amenities in the area? How is the transportation? Is the neighbourhood turning over or being redeveloped? Is the area the centre of particular sector or ethnic enclave, such as the financial district or Chinatown? This may sound like a lot to think about, but location is still one of the primary motivators for homebuyers. Where the condo is situated within the city will determine its future value. A condo that is outside the downtown core may be comfortable and have lots of local amenities, but ask yourself if anyone else will want to live there besides you?
2. Research the condo developer or builder
It`s important to feel confident placing a large sum of money in the form of a down payment with a condo developer or builder. Keep in mind that many condo complexes take five years or longer to construct, and more than one condo developer has gone bankrupt in Toronto. As such, it is important that you do your homework and research the condo developer or builder you`re thinking of making a purchase from. Fortunately there is ample information available online. Be sure and check that the developer has experience building condos and a track record of completing projects on time. Also look at customer reviews to see if people are happy with the finished product. Canada Mortgage and Housing Corporation (CMHC) provides a condominium buyer’s guide that highlights the research you should do before putting any money down.
3. Avoid paying too much
Demand for condos in Toronto is so strong that it is common for bidding wars to breakout – even for new units that have not been built yet. This heated environment, and the rush to secure a condo before they are sold, can lead people to make emotional decisions that result in them bidding too much or agreeing to pay too much money for a condo they want. It is not uncommon for bidding wars to drive the price of a condo up by 20% or more. But be warned. This is a situation that people most often regret over the long-term. Overpaying for a condo at the outset will harm your future return, especially if you plan to resell the unit within five years or less. Keep a cool head and appraise the situation with dollars and cents in mind. Remember that more condos are coming on the market all the time. If you miss out on one opportunity, another one will present itself before too long.
4. Don't overpay for luxury amenities
From upscale downtown locations in the heart of the city, to private onsite gymnasiums and high-tech security features, the condo market is often sold as being about luxury. This is true for both the amenities found in a condo building and the interior design of a condo unit. When buying a new condo that is being built, you will be given the option to add upgrades throughout – from granite countertops to crown moulding. While nice, most luxury upgrades are not a good investment. Not only do these upgrades drive up the cost to you, it is doubtful you’ll get the money back on resale. Try to limit the amount of upgrades you put into your condo. Similarly, try not to pay for too many onsite amenities. These include underground parking, indoor pools and so on. That onsite gym might be a great place to hang out, but if it costs $500 a month, you may want to consider jogging outside.
5. Understand all the costs
There are a lot of costs associated with condos. Beyond the initial purchase price, you’ll also have to pay a monthly or yearly condo fee to cover items such as the cost of building repairs, landscaping, snow removal, concierges and upkeep on amenities such as rooftops and fitness centers. Condo fees can also cover insurance, utilities such as water and trash collection. And they are not cheap. The more amenities and services provided at a condo building, the higher the fees. Additionally, you could be hit with additional fees for renovations or repairs that are over and above the condo fee. Other costs to keep in mind include property taxes, unit and contents insurance, mortgage payments and storage fees. Lastly, there is often a cost associated with condos called an "occupancy fee," which is sometimes called "phantom rent." This fee covers the period between when a condo is completed by the builder and your mortgage starts and you move into the unit. Given the myriad of costs involved with condo ownership, it is advisable to do the math before buying a unit.
Condominiums are popular for a reason – they are convenient and more affordable than detached houses in Canada’s major urban centres. They can also be a solid investment. But getting a good return on a condo requires that you treat the purchase like a business transaction and consider all the pertinent factors before putting down your hard earned money. If in doubt, be sure to consult a licensed realtor. They have the knowledge needed to ensure that your condo purchase goes smoothly and you come out ahead.