Should we buy condo?

[afshinrein]

Hi,

Anyone has any idea on why or why not to encourage buying a condo in GTA?
The only 2 reasons I am not in favour of condo investment in GTA are:
1) Condo fee is a wast of cash flew
2) Huge inventory of condo makes it harder to rent or to sell.

Any other thoughts?


Afshin

 

[housingrental]

Rent to purchase price in most condo`s around the GTA doesn`t make sense for an investor. A purchase on them is a bet on future appreciation only. If you can find the rare particular one that you aren`t burning through cash on operations, has an appropriate reserve fund and potential for condo fee stability, then it could work. This is rare.

 

[Rickson9]

Poor ROI.

Condo fees aren`t necessarily a poor use of cash flow.

 

[bizaro86]

QUOTE (Rickson9 @ Oct 25 2010, 10:00 AM) Condo fees aren`t necessarily a poor use of cash flow.

Indeed. I have some condos here in Calgary, and I`m quite happy to pay condo fees for things like insurance, utilities, and general maintenance. If the cost and expenses associated with a property are too high to make the ROI/cashflow numbers work, don`t buy it. It doesn`t make any difference HOW you pay your expenses (ie pay the condo board and they pay insurance vs paying the insurance company directly) what does matter is HOW MUCH are the expenses, and does that leave enough cash flow for the property to work within your system.

Michael

 

[SpecialEd]

QUOTE (afshinrein @ Oct 24 2010, 08:14 PM) Hi,

Anyone has any idea on why or why not to encourage buying a condo in GTA?
The only 2 reasons I am not in favour of condo investment in GTA are:
1) Condo fee is a wast of cash flew
2) Huge inventory of condo makes it harder to rent or to sell.

Any other thoughts?


Afshin

Speaking for Toronto, and not the GTA which is a large area and which I do not know details about condos in say Burlington, Mississauga etc., it is hard to buy a resale condo and immediately rent it out for positive cashflow.

Generally, I find it takes a few years for the condo to be in a position to flow cash. What we have done so far is buy a condo and live in it as our primary residence. We then save for the downpayment on our next place. We then buy and move into another condo and rent out the one we used to live in. Generally, by the time we save up and are ready to move (1 - 2 years), the condo we are leaving will flow cash immediately once we start renting it out.

I suppose you could also achieve a similar result by buying pre-construction, but I have not done this myself, and I know some feel strongly against this (I believe Don says this is speculating and not investing... but that is a different discussion altogether).

The condo fees certainly make it harder to flow cash because it is a significant expense on top of your mortgage payment. That being said, our condo fees cover all utilities, hydro, electricity etc. Really all you have is mortgage + condo fees + taxes.

My wife and I work downtown and work long hours. Condos are ideal for us right now because

1) they are close by and therefore easy to manage;
2) there is not a lot of maintenance generally because everything outside of the interior walls of the unit is the responsibility of the condo corp;
3) (generally) no unexpected MAJOR expenses (no new roof, no new furnace etc) - granted a special assessment is an unexpected major expense but if you do your due dilligence your condo building should have a good reserve fund and should be well managed.

The "huge inventory" argument has been out there for a while. True there are a lot of condos but the vacancy rate in Toronto is also very very low. There are also a lot of new people coming into the City every year. If you buy on a subway line or in another prime location you should be alright.

Do condos give you the greatest ROI, most likely not, but they fit into our system well in that they pay for themselves - or flow cash, they steadily appreciate, they are close by, they are easy and (generally) inexpensive to manage. Then again we have had the luxury of owning them all as principal residences for a year or two before we turn them into rentals (which allows rents to catch up).

 

[BrianPersaud]

QUOTE (afshinrein @ Oct 24 2010, 08:14 PM) Hi,

Anyone has any idea on why or why not to encourage buying a condo in GTA?
The only 2 reasons I am not in favour of condo investment in GTA are:
1) Condo fee is a wast of cash flew
2) Huge inventory of condo makes it harder to rent or to sell.

Any other thoughts?


Afshin



* Condo fees/Maintenance fees are an issue.
---In older buildings, costs creep up and many are not separately metered
---In newer buildings where builders can make maintenance fees lower to allow for financing and people get a bit of a shock if they don`t have an active condo board.

I`d like to offer my thoughts on why maintenance fees are a bonus
----this is a cost for piece of mind for not having the roof go and you having to repair it yourself and for piece of mind that if you have a vacancy you will have a quicker turnaround for tenants.
----Most people under estimate costs for maintenance in single family homes. Most pro-forma`s i see...even CMHC audited pro-formas have too low maintenance costs per door.


Regarding inventory. I have yet to see a stat showing that there will be a clear over supply of Condo`s in Toronto:

* Vacancy rates are less than a 1%. 1+1`s with parking are renting for $1400-$1700 depending on location. 2 Bedrooms range from $1800-$2250 and MLS Days on market for rentals is less than 2 weeks.
* Despite the many thousand units that came up for occupancy this year, sales have only dropped 15% from last September (compared to 23% drop in sales Toronto wide)
* The market is so segmented: some buildings in the same neighborhood have seen prices drop 10% while others have held values

 

[thejules]

If you self managing, I love the condominium apartments. make sure that you read the status certificate. That document will tell you if there is an upcoming demand for cash to do major repairs. Condo apartments are easy to rent out, as long as your catering to the right profile of renter for the building. And all you really looking after is the air in the box. And that`s easy with a little more experience..

 

[markl]

Jules I think this works in smaller centres but in the GTA the price to rent ratio is out of whack. But saying that people invest for different reasons. Condo`s in the GTA make sense for some people and not others.

It is hard to determine an exact investing strategy for a person from a 2 line post. So does it make sense for some people yes. Are there better investments out there that give you positive cash flow and appreciation with about the same level of management yes in my opinion there is.

Regards,

 

[NeilUttamsingh]

QUOTE (BrianPersaud @ Oct 25 2010, 11:34 PM) * Condo fees/Maintenance fees are an issue.
---In older buildings, costs creep up and many are not separately metered
---In newer buildings where builders can make maintenance fees lower to allow for financing and people get a bit of a shock if they don`t have an active condo board.

I`d like to offer my thoughts on why maintenance fees are a bonus
----this is a cost for piece of mind for not having the roof go and you having to repair it yourself and for piece of mind that if you have a vacancy you will have a quicker turnaround for tenants.
----Most people under estimate costs for maintenance in single family homes. Most pro-forma`s i see...even CMHC audited pro-formas have too low maintenance costs per door.


Regarding inventory. I have yet to see a stat showing that there will be a clear over supply of Condo`s in Toronto:

* Vacancy rates are less than a 1%. 1+1`s with parking are renting for $1400-$1700 depending on location. 2 Bedrooms range from $1800-$2250 and MLS Days on market for rentals is less than 2 weeks.
* Despite the many thousand units that came up for occupancy this year, sales have only dropped 15% from last September (compared to 23% drop in sales Toronto wide)
* The market is so segmented: some buildings in the same neighborhood have seen prices drop 10% while others have held values

Brian,
This is a great response on your end with some really great info.
Thanks for this.

Best Regards,
Neil.

 

[housingrental]

Drawing from Brian`s post if you were an investor focusing on GTA condo market would the easiest path be focusing on condo`s in the 5-10 year age range? I appreciate this will vary from building to building but in general the big fee increases have likely already taken place, and the major deferred maintenance issues / risks of special assessments are less likely to be a concern for a property in this age range over the next ten years.

Brian is this your thoughts / can you elaborate on how to play this segment?

 

[BrianPersaud]

QUOTE (housingrental @ Nov 2 2010, 11:23 AM) Drawing from Brian`s post if you were an investor focusing on GTA condo market would the easiest path be focusing on condo`s in the 5-10 year age range? I appreciate this will vary from building to building but in general the big fee increases have likely already taken place, and the major deferred maintenance issues / risks of special assessments are less likely to be a concern for a property in this age range over the next ten years.

Brian is this your thoughts / can you elaborate on how to play this segment?


Hi Adam, it really depends on the location, building and how well its managed.

I`ll give you an example of a building that is not in the 5-10 year range:

There is a project being launched in Humber Bay shores that is set to be completed 2014 that is actually cheaper than some of the resales currently on the market. If given a choice I`d take that because its not really speculating if you are buying at cheaper than current prices and you have no property management headaches for 4 years.

Regarding the Rent to Price, I`ve been hearing people renting singles in Barrie and KWC with the same ratios but higher vacancies.

what i mean is a single in Barrie in a decent area would go for slightly under $300k would usually rent for $1800...much like a condo.

I guess the plus side for singles is that you can try to squeeze in a second suite which will introduce more management headaches that Jules avoids and Adam specializes in

All in all, in Toronto, KWC and Barrie you are going to do your homework to find areas that will appreciate more than 8% per year. It`s going to come down to individual property and how you position it.

In particular, in Toronto...i`m still seeing bidding wars and many showings in some areas and price reductions and few showings in others.

 

[housingrental]

Thanks Brian
Has anyone in REIN been having success making recent purchases in the GTA condo market? What sort of numbers have you been able to obtain?

 

[Berubeland]

One big advantage to buying new condos and other new properties is that they are not subject to the rent control guidelines in Ontario.

You must still give 90 days notice and the form from the Landlord & Tenant Board but you can increase as much as you like.

 

[shwainvestor]

QUOTE (housingrental @ Nov 3 2010, 11:26 AM) Thanks Brian
Has anyone in REIN been having success making recent purchases in the GTA condo market? What sort of numbers have you been able to obtain?


I bought in downtown Toronto a couple of years back. Initially it worked out because of the low interest rate I was paying (currently 1.85%, but as low as 1.35%). However, I discovered if i furnished the place i could get much higher rent. Recently, i started to accept short term rentals - mostly professionals who are moving cities or people who need a place to stay while changing homes. With the short term rentals I`ve had to provide other items like linens, cookware etc. Ii furnished the place for about $2500.

The result is that in my 10 year old building in downtown (which i originally paid 240k for with parking, locker, 1 bed, 590sqf) - i can get rent for as much as $1995/month for a 3 month lease and $1700 for a 1 year lease (tenants pay hydro and gas). This means I can have as much as $400 in + cash flow a month.

Tenants have been great - rents in about 2-3 days - always professionals.

So for me, what made it work was furnishing the place and being more flexible with lease duration. Otherwise, I`d have little/no cash flow and would be in trouble if interest rates were higher.

This is my first and only rental property but so far so good. There are many advantages with condos but with the current selling prices (340k or so with parking for decent 1 bed) it would be very difficult to break even (unless you have a large downpayment) - even if you rent it furnished. Because of this I`m now thinking my second property should be a single family home outside the city. My fear is that I won`t be able to attract professional tenants and it might take longer to rent, in addition to more headaches due to maintenance etc.

Hope this helps.

 

[housingrental]

Thanks Shawn
Those numbers aren`t too bad for Toronto!
Anyone been able to get anything going with current valuations (ie recent purchases?)

 

[BrianPersaud]

QUOTE (housingrental @ Nov 4 2010, 10:43 AM) Thanks Shawn
Those numbers aren`t too bad for Toronto!
Anyone been able to get anything going with current valuations (ie recent purchases?)


It does take 4-5 years to complete, but i`m starting to see signs of stress of some buildings going through occupancy now. You can`t flip them because they are only worth what you paid for them...then you got to add occupancy fees, closing costs and commissions. They have live through some lean times with them for a few years

 

[RCC]

I have been looking at condos in downtown Toronto since start of the year. Prices vs. rental rates does not make sense
and cannot cashflow unless you are putting a lot down.
Will be counting on appreciation which would be slim as prices are already in $700 SF range.