Condo Investing 101
For many, purchasing a condo as an investment property may be the greatest investment one ever makes. Depending on how well you time your purchase, the location, the elevation, the view, the project, and the builder, a condo investor can make a fortune in the Toronto condo market. So what is the best approach to take when investing in a condo?
A good start would be identifying the BUILDER’S TRACK RECORD for successful developments. You might also want to consider what the year over year appreciation has been for each development in the resale market. If the builder has launched many successful projects which have sold out, and their developments have appreciated steadily since the release date, then there is a good chance you will earn a healthy return investing in that builders new projects.
Another important factor is TIMING of when you invest in the new condominium project. History tells us that builders price their new releases under the local market values at pre-sale events when their project is first released. The reason for this is that the builder is raising money to fund the first stage of development, and they are trying to attract as many people as possible to their new project while the excitement is high in the beginning. Builders will later tender the prices upward depending on the market demand they received in the presale events. The higher the demand, the more they will raise prices. The builder will also raise prices more aggressively on floor plans which have sold faster in the initial release knowing that the demand is high. Many people enlist the services of condo brokers in order to attend these VIP sales events which are only open to VIP Realtors and their clients, however not to the general public. Many people will purchase an assignment privilege during the pre-sale events and sell the rights to their purchase contract to someone else looking to buy into the development at a later date. This method of investment works best when you buy in the early phase of the sales event, and then wait until this particular floor plan sells out through the builder, and only then exercise the right to assign your contract to another purchaser. This strategy has netted investors $20,000, $40,000, and in some case over $80,000 by simply selling the same unit they purchase early in the selling phase, on a later date.
Other factors to consider include the ELEVATION of the condo unit you purchase, and the VIEW of the unit. Builders typically charge a floor premium as you purchase on progressively higher floors. The reason being, condos on higher floors are more attractive to the end-user, and therefore sell for a premium in the future. These floor premiums may be anywhere from $500/floor, to over $1,000/floor. Other than the elevation, investors must consider the view of the condo unit they purchase. View is important for obvious reasons. Nobody wants a cemetery view, or a panoramic of garbage dumpsters Buy lake views, ravine views, skylines and city views whenever possible. These premium views on higher floors usually sell out first at sales events because of the high demand, and tend to appreciate more aggressively in the resale market.
The most important factor you must consider outside of the builder and their development is LOCATION. I can’t stress enough how important this is in the investment decision! Always purchase condominiums in developments that are near the highway, employment centers, developed or developing neighborhoods, and where there are local transit lines. These locations represent convenience to future purchasers of your condo, and this translates to a greater return in the future when you sell your condo. As an investor, you may decide not to even sell the unit, but rather rent it out to quality tenants. If this is a possible revenue source for you as an investor, convenient locations near transit, highways, and major business centers tend to rent out quicker and for higher lease rates. This should be a major factor you consider when investing in condo as a future landlord.
Lastly, always invest in condos based on AFFORDABILITY. If a builder is selling condos for a price higher than what they sell for in the resale market, then this represents a terrible investment. Without giving away names of builders who notoriously over-price their condo projects, I can tell you first hand this has become very common as of late, and will continue to happen in hot Real Estate markets. You need a condo expert who knows your market well, and can guide you toward projects that are well priced, and not putting you in the hole before you even receive the keys.
If you would like to invest in a Toronto condo, have questions about Toronto condos or the Toronto condo market, feel free to contact me anytime.