Would Condos be a good investment in Toronto / GTA?

13 Replies

Hello all!

I am wondering if Condos would be a good investment in Toronto / GTA?

I understand that it might not be a good investment from a CF perspective, but how about from an appreciation/captain gain perspective?

For example, my friend purchased a pre-construction condo @ $300,000 a few years back in Markham, ON.

Now he rented it out for $1,750 per month.

Not sure his condo fees, I assume maybe around $400-ish? (Since it's a fairly new condo)

Also not sure about his mortgage and downpayment - I didn't ask much details.

And most importantly, the condo is now worth around $420,000 (according to other units that were sold past 60 days)?

Thoughts?

Thanks in advance.

In my opinion, banking on appreciation and not being cash flow positive is a potential recipe for disaster.

Break even or costing you monthly and let’s say worst case happens - market slides and you have to sell for some unforeseen reason as you can’t afford to top up payments or whatever could happen.

Now you’re left with a detriment to your personal net worth, not an investment.

Don’t get me wrong, some people have done well buying purely on speculation, but out here in 08/09 many people lost their shirt on being spec purchasers.

Weigh out the risk and reward...make sure you do your research and time the market right...buying at a boom peak before the bust can be devastating.

Hey Kim,

If you are interested in finding out more information in investing in condos, I highly recommend reaching out to Jordon Scrinko at PreCondo.ca. He is filled with information on condo development and investing in condos and would be able to assist you with any questions you may have in this REI space.

Cheers and best wishes,

Duncan

How long do you plan to keep it? If prices come down will you still hold on and not try to panic sell? If times get tough and rental rates come down and you get hit with a bit of vacancy will you be able to hold on to it? Those are some things you need to think about when looking for appreciation. Predicting the market is very difficult, but you can at least analyze the amount of risk involved if things don't go as planned.

I'm not local to the area, though did just recently visit and see the booming construction at every corner.

I like to see cash flow & appreciation potential. The problem with a condo in Toronto is that they're sprouting up on every corner now. Which means if you buy now and sell in 10 years, will your condo be worth more or the new condo complex down the block? That's the same problem I see in San Francisco - while real estate has skyrocketed in recent years, condos have hit a plateau because there's a bunch of newer condos - and for the same price who wouldn't go buy the newer one? They usually come with the new bells and whistles not available in the older developments too.

That's not to say the condos haven't appreciated - everything has and at insane rates - but now people wanting to sell their condo to move into a SFR in the suburbs are finding out that their condo hasn't appreciated at the same rate as houses have.

Again I've only had a peek at the Toronto housing market and in no way made any real market research over there, this is just my experience with a booming metropolitan area building lots of new condo complexes in the last two
Originally posted by @Kim Wu :

Hello all!

I am wondering if Condos would be a good investment in Toronto / GTA?

I understand that it might not be a good investment from a CF perspective, but how about from an appreciation/captain gain perspective?

For example, my friend purchased a pre-construction condo @ $300,000 a few years back in Markham, ON.

Now he rented it out for $1,750 per month.

Not sure his condo fees, I assume maybe around $400-ish? (Since it's a fairly new condo)

Also not sure about his mortgage and downpayment - I didn't ask much details.

And most importantly, the condo is now worth around $420,000 (according to other units that were sold past 60 days)?

Thoughts?

Thanks in advance.

 

After speaking to many local investors in the GTA. We need to accept the reality that every single tenant residential single family rental is not a CF play but appreciation. 

Your question whether its good or not depends on your tolerance. 

Speaking for my local investors. They are "ok" with negative cash flow as long as it does not exceed the principal amount of their mortgage. They are willing to pay out of pocket to bank on appreciation. Its the comfort of investing locally and just accepting the way it is. 

I do have a rental condo in Toronto and it does cash flow but its because I held it for a long time and the rents increased dramatically. 

So for you good could mean the same as the others "its local and accept the way it is" 

There are others ways of generating more income by renting out rooms and STR

Hi all. Been away from Biggerpockets for a few years- been busy. I am from Toronto and work in Toronto. Been busy with life and work but due to recent condo problem now I am back.

I bought a pre- construction condo back in end of 2017 for 365k with a deposit total of 15%. I bought this because 1. I want to live in it by 2020 which is the occupancy date 2. Close to work 3. Literally right beside the subway. Now they delayed construction thus the occupancy is not until 2022 which defeats the purpose because I really wanted to live in it with my fiancee /wife by 2020. 

If anyone has some input. I just want to sell the condo before I get a hold of the title (occupancy and closing dates) and I am anticipating another delay so let's say by 2023. Sell it before getting the title so that the buyer would assume the closing costs and the remaining 5% downpayment. Correct me if my math is wrong but I am projecting profit to use for another property or another house for my wife and I in GTA with a separate basement to rent out:

Bought it for 365k. DP of 15%= 54k. Sell it for minimum 400k. Then I potentially have profit of 35k + I get my 54k. Total of 89k for a downpayment. 

I will contact that Jordan Scrinko- is he alright if I ask him about the process of selling my condo?

Any input or opinion would be appreciated. 

@Paolo Pascual , can you assign the contract? If so, you may have some additional costs you have not considered, builder assignment fee, legal, perhaps a realtor if you need one to find a buyer. When selling on assignment you usually cannot list the sale on MLS or other market places, you have to find a buyer otherwise. Any good agent that deals with new build condos will be able to get you a buyer easily.

Originally posted by @Paolo Pascual :

Hi all. Been away from Biggerpockets for a few years- been busy. I am from Toronto and work in Toronto. Been busy with life and work but due to recent condo problem now I am back.

I bought a pre- construction condo back in end of 2017 for 365k with a deposit total of 15%. I bought this because 1. I want to live in it by 2020 which is the occupancy date 2. Close to work 3. Literally right beside the subway. Now they delayed construction thus the occupancy is not until 2022 which defeats the purpose because I really wanted to live in it with my fiancee /wife by 2020. 

If anyone has some input. I just want to sell the condo before I get a hold of the title (occupancy and closing dates) and I am anticipating another delay so let's say by 2023. Sell it before getting the title so that the buyer would assume the closing costs and the remaining 5% downpayment. Correct me if my math is wrong but I am projecting profit to use for another property or another house for my wife and I in GTA with a separate basement to rent out:

Bought it for 365k. DP of 15%= 54k. Sell it for minimum 400k. Then I potentially have profit of 35k + I get my 54k. Total of 89k for a downpayment. 

I will contact that Jordan Scrinko- is he alright if I ask him about the process of selling my condo?

Any input or opinion would be appreciated. 

You can assign the condo/contract to another buyer. First you have to make sure that there is an assignment clause in your contract with the builder. There is normally a fee $3-5k pending on development. 

The numbers that you provided is pretty good especially the fact that you only have 15% down. According to your numbers based on a $400k purchase price you want $89k at closing minus costs. So that is about 22.5% not bad. But is there another deposit that is required before closing or is it capped at 15% ($54k)? 

Sometimes if it is not a hot development that you need to make it worthwhile to the buyer for paying out of pocket more than 20% down at closing to you when the condo is not built and not built for 2-3+ years. A selling strategy can reduce a lot of risk to buyer.

PM me if you need clarification or assistance. 

Originally posted by @Paolo Pascual :

Hi all. Been away from Biggerpockets for a few years- been busy. I am from Toronto and work in Toronto. Been busy with life and work but due to recent condo problem now I am back.

I bought a pre- construction condo back in end of 2017 for 365k with a deposit total of 15%. I bought this because 1. I want to live in it by 2020 which is the occupancy date 2. Close to work 3. Literally right beside the subway. Now they delayed construction thus the occupancy is not until 2022 which defeats the purpose because I really wanted to live in it with my fiancee /wife by 2020. 

If anyone has some input. I just want to sell the condo before I get a hold of the title (occupancy and closing dates) and I am anticipating another delay so let's say by 2023. Sell it before getting the title so that the buyer would assume the closing costs and the remaining 5% downpayment. Correct me if my math is wrong but I am projecting profit to use for another property or another house for my wife and I in GTA with a separate basement to rent out:

Bought it for 365k. DP of 15%= 54k. Sell it for minimum 400k. Then I potentially have profit of 35k + I get my 54k. Total of 89k for a downpayment. 

I will contact that Jordan Scrinko- is he alright if I ask him about the process of selling my condo?

Any input or opinion would be appreciated. 

Hi Paolo,

Welcome back.

I'm in the market to buy a pre-con condo. To use a realtor the fee/coop cost would be around 2 to 5k. To maximize the profit, a lot of owners are selling condo assignments privately over kijiji.

As others mentioned, the first step of selling a pre-con condo is to ask your builder about the fee and paperwork.

Thank you for all your responses @Derek Merdzik , @Hai Loc and @Steven Lin . I will have to find out the answer to those questions from the developer- since they put me in this predicament.

Do you think it buyers would be more interested in buying them now or next year in 2020 as opposed to closer to the occupancy in 2022? Hate that my money is sitting there or should I be patient and maybe I stand to make (a little bit) of profit if I wait closer to 2022?

Thanks again.

If you are buying a pre-constuction condo, you have to anticipate a delay of 2-3 years. One thing about assignment sales, you should take into account the tax implications of a quick sale. Obviously, talk to a tax professional about this. But even though your intention was to buy the condo and live in it as a principal residence (thus, making you eligible for the principle residence exemption), if you sell using an assignment sale or if you sell soon after taking possession, the sale will most like be seen as business income and be taxed at your full person tax rate (let's say 30%). So you would have to pay taxes on your $35k profit ($10.5k if your tax rate is 30%). However, if you waited for construction to finish and lived in it for ... i dunno... at least a year and then sold, you could be eligible for the principal residence exemption and not pay tax on the profit. It's up to you and obviously, the sale isn't purely profit driven, but also lifestyle driven. Then again $10.5k isn't a small amount of money. Something to take into consideration.

@Ange Ferns thanks for that... very informative. I was just thinking about the sales tax. I anticipated a year to a max of 2 year delay when the construction as I thought they already finished Building tower 1 within the expected occupancy date. But in my case, they had to revise the plans and changed the occupancy date to 2022 which means I will have to add another 1-2 year of allowance for delays so 2023-2024. Although if they don't meet the final date set out with TARION which is 2025 they will get penalties. I guess my point is that the money was allotted for me to live in not mainly as investment if I can pull it out now before it gets worse then I can use it for a house and renovate/rent out the basement. I haven't gotten around to talking with the developers about assignment sales but I will consider it and look at the numbers. 

Lesson learned the hard way but still a good lesson.