The benefit of investing in condos

May 4th, 2018 - by UrbanCondo Team

A man in a suit holding a graphic of a half built condo building

Condos are a great investment if you do your homework and plan ahead!

If you’re interested in purchasing a condo, you probably fall into one of these three categories: young professional seeking entry into the housing market; retiree aiming to downsize; or, property investor looking to rent out their purchase at a profit.

Let’s look at these categories to see why a condo can be a good investment for each.

Having some mental math done in advance will save all condo buyers the stress of financial gymnastics, and put them in a better position to live the life they envision for themselves as property owners.

The young professional

Young professionals making a steady income want to put their money somewhere that matters. A condo looks like a great stepping stone towards buying a house because you can eventually sell your smaller unit and put that money into a larger property.

Some of the homework this buyer requires revolves around the right level of down payment - typically above minimum to reduce mortgage interest - and added expenses and bills.

These extra bills come in the form of hydro payments, condo and maintenance fees, internet and phone costs, plus any other utilities that must be put in your name.

Having a 10-year plan in mind is a great tip that will allow you to pay things down within your budget and provide enough time for the value on the condo unit to mature enough to profitably achieve your next stepping stone: selling it!

The retiree

Not having to look after a large yard or fix a roof may make condo ownership seem like a breeze of a property investment to a retiree. However, anyone on a limited budget must think realistically about how affordable a condo purchase is.

You have to make sure you have enough money in the bank to cover unforeseeable charges that come with co-owning a multimillion-dollar building. If something breaks in the shared pool, every condo owner may be expected to chip in.

Buying pre-construction is a great way to ease your way into the condo market, and ease yourself out of the detached home you’ll leave behind. You’ll have enough time to save and budget so your move goes smoothly.

The investor

Condo ownership is a great opportunity for investors to pick up affordable properties they can flip or rent out for years to come. New investors should put down a big down payment and aim to profit 10% or more per year by renting it out in order to justify the occasional costs associated with the shared property.

Landlords buying pre-construction, you’ll save more money in the long run, but you’ll have to sacrifice a couple years of income.

Appreciation

Condo units do appreciate, but they have to be purchased in the right location for that appreciation to escalate quickly.

In big cities like Toronto and Vancouver, the housing market is so stressed that condos are the only option available to many prospective property owners. Detached home prices are often prohibitive, which in turn has ratcheted up condo prices in a staggering way.

In places with less demand, condos should be viewed as more of a long-term investment. Property values still typically rise, but not with the same ferocity as in larger markets.

Investing in a pre-construction condo

One of the benefits of investing in a pre-construction condo is that the condo starts gaining value as it gets built. For the three or four year period between purchase and occupancy, you’ll have enough time to get the floorplans down, get your down payment together, and get started paying down your mortgage.

Furthermore, neighbourhoods often develop around condo sites, especially if it’s one of the only new buildings in an up-and-coming place. This means you’ll have a new customer base; one that wants to get into this trendy area with new, accessible amenities.

What’s more is that property values generally move up, not down. This means that by the time you’re ready to sell or rent, the condo will be worth more than on the day you bought it. Pre-construction condos can be a great option for investors, but as always, homework about the developer, location and market is required.