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SAM THE MAN
NewBee
reply 8
 

Condos as investments: Good or bad idea, and how to do it

The stock market is doing very well but I am concerned about a large drop, and interest rates are very low, so I’m considering investing in the condo market. I have a number of questions about this – primarily, of course, is this a smart idea. But in addition, given that I am not going to live in the condo where is the best place to purchase, should I buy a unit that’s already built, or is it better to buy one that is currently under construction or even just in the planning stages. I have a few hundred thousand to invest – should I purchase one unit or more than one. Finally, I don’t have time to manage the investment – any suggestions on this.

I guess that many real estate agents monitor this Forum, so maybe I’ll get some biased perspectives on whether purchasing a condo for investment is a good idea; I’d like to hear frank opinions from non-agents as well.
60
Canada / General Chit-Chat
 
 
 
BLUEELEPHANTGROUP
NewBee
reply 8 vote 4
 
 
2 BEST REPLY
Like almost any investment, you need to look at the type of return that you are expecting as well as the level of risk that you are willing to assume.

Investing in condos is a safe long term investment with a historical increase in property values significantly above inflation. As far as I am concerned there are 3 certainties in life...death, taxes and the fact that real estate value will always increase over time (at lease until we colonize other planets).

Having said that, I do not recommend "flipping" condos or looking at a condo as a short term investment. The costs of entering and exiting are just too high. For the long term though, condos in the 600-700 sf range in high quality areas are excellent investments.

Real Estate provides 3 powerful ways to earn a return:

1. Property value increase - As I had mentioned above the historical increase in property values is significantly above inflation. At any given time the Real Estate Market can be up or down, but over time it will always increase. The only time that you will lose money in real estate is when you are forced to sell.

2. Paying down your mortgage (building equity) - The rental market is incredibly strong, as are rental prices. This means that you can have someone else pay your mortgage down and build equity for you(hopefully without you spending a dollar on anything other than upkeep).

3. Monthly cash flow from rentals - While most new condo purchases yield are "break even" investment up front, as rental prices increase over time (all things equal) your mortgage payment should actually decrease, which will create a monthly cash flow that will grow year over year.

At this point I think the best thing to do would be to start a new forum to discuss the best projects, areas and units to look at for investments. See you over there.
 
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
1
Hi Sam,
Most of our work is working with clients who purchase real estate for investment. In terms of where the market is headed, there is no one on this board anywhere NEAR qualified to answer that question. There are a number of predictors, some say everything is hunky-dory while there are other predictors that indicate doom. There are thousands of predictors in play and even the most advanced economists argue what is going to happen.

A few things to note as to why the general consensus points to why Canada will remain strong:

a) Our lending policies - special attention to the CMHC which protects our mortgages

b) Canadians (generally speaking) have more equity in our homes meaning we are less likely to walk away from our mortgages if the going gets tough
There are number of ways to invest in Residential Real Estate, however, the ones that you alluded to (and the most popular) are:
a) Buying Resale and Renting
b) Buying Pre-Construction and Flipping
c) Buying Pre-Construction and Renting

Out of the three, my clients in the past 5 years have been the most successful with b) Buying pre-construction and flipping. I am going to go through each of the three options below and give a little pro/con to each.
a) Buying Resale and Renting

Making money by purchasing a resale condo and renting it out would be twofold:

a) The monthly cashflow from the rental income

b) The appreciation rate of the condo year after year
These two kind of work against each other in that: (generally speaking) areas where you will see greater cashflow will generally indicate a low appreciation rate and vice versa. Areas of high appreciation rate (Downtown Toronto) generally yield negative cashflow. A condo that costs you $1600 to run per month (mortgage/tax/mt.fees) will generall fetch between $1500-$1650 per month. However, in Toronto where there are certain pockets of very high appreciation rate (think approx 10% per year) means that your Condo which was worth $300,000 last year is worth $330,000 today. So assuming you lose $100 per month on cash flow, you are still up approx $29,000 at the end of the year "on paper".
On the flipside, if you were to purchase somewhere like Mississauga - you can yield $200-$400 per month cash flow, but would only expect approx 5% appreciation. This means that your townhouse that was worth $300,000 last year is only worth $315,000 this year, but you've also made approx $4,000 in positive cashflow. You're up $19,000.
However, in terms of risk - in Toronto you would see a better return on most years, however, if the market were to turn sour you're left with negative cashflow on top of decreasing values. Whereas somewhere like Mississauga you know that you're not losing month-to-month.

b) Buying pre-construction and "Flipping"
This is my favourite way of playing the market if the market conditions allow you to (as they have in the last few years).
Providing you pick the right development that is priced correctly and in a high appreciation neighbourhood then you can make very good money playing this game. I have a number of clients who will purchase a condo that closes in 3-4 years time, put 15-20% down and then sell as soon as it is ready to sell.

Why do I like pre-construction so much?

Your deposit is HEAVILY leveraged. You're only putting down 15-20%, yet your property is appreciating at the full 100%. Suppose you purchase in an area that has shown appreciaton of 10% per year, and you purchase a property for $300,000 where it closes in 4 years time. Provided the $300,000 that you paid was of market value at that time, then your property stands to increase by approx $120,000. On top of that, you have only put down approximately $50,000 - meaning you can potentially get your $50,000 back and then an additional $120,000 in your pocket.
The most successful one of my clients has been with this was a 4 year turnaround project, with $30,000 deposit - they got their $30,000 back and a profit of $125,000. I don't know of ANY other investment vehicle on the planet that will allow this kind of return.

I invest in pre-construction very heavily myself - I currently own 6 pre-construction condos in high appreciation areas in Toronto. I used to own 3 rental properties in Mississauga before selling them and putting money into pre-con in Toronto.
There is a lot more to this than meets the eye, and I'm happy to go into more detail with you - including which projects right now are good and how many you should purchase etc.

c) Buying pre-construction and renting

This is an extention of B) - if you do not want to sell immediately, you can rent the condo out. The benefit is that you will close the gap a little on the negative cashflow I mentioned above - you are, in theory, paying 2010 prices for condos that are closing in 2013/2014 - and you will gain the advantage of the rent being higher in the future.

There is a lot of info above, hope you find it useful. Let me know if you would like anything clarified. I write a lot on my websites about which developments I like and go into a lot of analysis and you can find samples of how I analyze developments below:
amitandroy.com : Chaz on Charles - http://www.amitandroy.com/new-developments/chaz-on-charles

TalkCondo : Bisha - http://www.talkcondo.com/toronto/bisha
(Note: talkcondo is my new website and is still being populated, Bisha is the first development that I have written about)
 
 
ADDY SAEED
Buzzer
reply 65 vote 1
 
 
Hi Sam,

Roy went through a lot of detail about buying real estate for investment and did an amazing job at it. I work with lots of investors as well but generally don't do new condo project rather rehab and flip properties. I look for properties that show an upside in terms of area they are in or a particular property that has an upside. I usually blog about my picks on daily basis if I find one at www.TorontonianOnline.com.

These type of investments usually require someone with more hands on experience and ability to look past a lot of "junk". The returns are more lurative but so in the initial investment as well (depends on the purchase and condition of property).

I ask any clients I have that are new in real estate to invest in new condos as it's a much safer bet. you don't have to worry about contractors/permits/city etc etc etc... Just collect a return after three to five years. Experienced investors are able to take on one to two projects a year and generate anywhere from 50K to 200K per project.

Hope this helps...
 
 
SAM THE MAN
NewBee
reply 8
 
 
Thanks Roy - very interesting analysis; and thanks Addy.
New construction and then flipping sounds very attractive, but there has to be a down side. Do you know or can you can you guestimate what percentage of investors have actually lost money by buying pre-construction and flipping? I guess that a critical issue is ensuring that you buy from a reliable, competent builder.
Thanks .....
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
1
The downside is that there is of course risk and that your 15%-20% is tied up for 3-4 years with no monthly return. The following would be issues to consider:

a) Am I buying from a reputable builder/are my cheques made out properly? There are a number of stories where the development has died and because the cheques were not made out to "IN TRUST" they never saw their deposit. The two words "IN TRUST" are of extreme importance.

b) At what stage are you buying? If you understand how builders "tier" their pricing, you will realise that the earlier in the process you buy, the cheaper you will buy at. Since June, my clients are collectively up approximately $1 million based solely on the price increases since the time that my clients got in. While it may sound that I am trying to sell a Realtors services, but my general rule is that if you can walk into a sales office and purchase a condo without an agent, you're already too late. Prices have already been increased 3-4 times and various perks have already been removed.

c) Can you close the deal? Many buyers put down the deposit but are unable to CLOSE the transaction (i.e. get a mortgage) as they hope to flip the condo before they take over (assigning it). This is playing a very dangerous game and we have heard people getting stung like this. If you can assign the condo it is a bonus...if you cannot close on the condo then you are probably playing the wrong game.

d) There are a number of critical issues that I look at when determining whether a development is "worthy of investment" and I started a thread a little while back on this forum that discussed it (I would put the link here but I am currently writing this on my phone while the whole family stares at me during halloween family time :)) - this past year there are maybe 6-7 developments where I would have put my own money into - but that's it (Don't want to go into that here for fear of harming my reputation with certain builders :))

To answer your question have investors lost money - the answer is probably yes. Most of them do not work with pre-construction specialists and there are a few around that really know what they are doing. Other agents will just sell you whatever development you like, but I (and a few others I know) will genuinely give you direction on where and what to buy. Most of the time I am buying one for myself so you know I am serious about it ....

Many investors do as I have said before, they walk into a construction sales office and buy a unit without realising that the prices have already increased and you are probably out most of your forecasted profit.

There are a number of other developments where I KNOW people have not made money because they were paying an inflated price in the beginning. The market simply did not catch up the price that they originally paid. There are 2 or 3 MAJOR AAA projects in Mississauga that I know people have invested in and broke even and even lost a little when they had to sell immediately.

None of my clients have ever lost money buying pre-construction, and pretty much all of the time they have more than doubled their money.

If you know what you're doing, there is excellent money to be made in pre-construction - but please do ask questions and I'm happy to answer them (as soon as the family stops staring me down....)

Thanks,
Roy
 
 
BENJAMIN BACH
Buzzer
reply 41 vote 1
 
 
1
It is important to note that while you can make money buying pre-construction condos and waiting for the price to improve, this *is not* investing, it is SPECULATING.

You are counting on inflation & demand (that is currently greatly inflated because of interest rates being kept artificially low) to carry the market up, and if it doesn't, you can lose money every month AND when you exit the investment (as correctly noted above).
Buying negative cash flow properties in the hope they increase is not a sustainable investment plan for most people.

I recommend to my clients - I'm a commercial agent who helps people with investment real estate - buy properties that make sense today. Don't buy based on "what if" or "but in 5 years" etc. This isn't to say don't buy with an eye for the future - we all do that - but make sure the investments make sense today.

ASK: If prices stayed flat for 5 or 10 years, would you be comfortable holding it?
(PS this advice is worth what you paid for it :)

@benjaminbach on twitter, or http://benjaminbach.com
(PS I'm a sales rep and Director at KW Commercial, i'm not trying to solicit business from other brokerages, yadi yada yada)
 
 
ADDY SAEED
Buzzer
reply 65 vote 1
 
 
Hey Ben,
Thank you for making the distinction about Investing vs. Speculating. All too often we get caught thinking speculating is investing and end up putting all our eggs in one basket. This is partially the reason why I've always been reluctant to post about new developments for investment rather would suggest it to newbie investors for them to get a taste of it.
Thanks for opening this up for me...
 
 
BENJAMIN BACH
Buzzer
reply 41 vote 1
 
 
In good times it can be great. In bad times.... well, go look at Nevada and Florida :)
 
 
ADDY SAEED
Buzzer
reply 65 vote 1
 
 
and we know that there's no way to really predict the future...
We can see how additional income can be generated from investment properties to help the bottom line because prices when dealing with investment real estate are driven by income and local cap rates amongst other variables...
Sam,
This is just another perspective of investing in real estate... Is it right or wrong?
Depends on who is looking at it...
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
1
I'm not sure I agree with the "investing vs. speculating" analogy. Isn't all forms of investing speculation? We have no idea how much a condo will rent for, we are speculating. We have no idea how much money any venture will generate, we are speculating through careful analysis. We buy stocks on speculation of where it is heading in the future. When you purchase a commercial plaza and take out a loan for $3 million, you are speculating that demand will always be in place to cover your loan.
Any venture you enter with the expectation of generating some kind of funds in the future is speculation. Buying pre-construction if done correctly is an amazing form of investing, and just like any commercial venture we are using past trends to predict the future. Of course there is risk, just as there is with any investing venture but that is where it helps to work with people who have done it successfully in the past.
 
 
BRENT WILKER
Buzzer
reply 126 vote 4
 
 
In my opinion the best advice given is make sure it makes sense today.
 
 
AMAR PAL
Buzzer
reply 98 vote 7
 
 
Speculating is just investing with heightened risk, and sometimes heightened reward.
Benjamin's advice on making sure the numbers work now is great if you want to minimize your risk and great for income generating rental properties.
However, someone buying into a pre-sale with the thought of flipping it soon after completion for a profit is taking on a risk in the speculation they can make a huge profit. Their goal is ultimately different from the person buying a rental property and they should be aware they are taking on a larger risk if the number don't make sense today, and if market values go down before completion and the property is worth less than their contract price.
 
 
ADDY SAEED
Buzzer
reply 65 vote 1
 
 
Both are valid means of investing by definition and takes two different types of individuals. For the part time investor, speculative investing is much easier than to have a project that require management (though you can hire a property manager) where as other avenues such as rehab/flip/lease options require more tending too.
As mentioned, all are valid as long as you do something to attain your goals but don't go blindly into it. Do have some numbers to review and don't do it just because everyone is doing it...
Definitely an interesting chat so far about the topic...
Thanks Sam for starting it all :)
 
 
BRIAN ELIZABETH
Buzzer
reply 164 vote 7
 
 
Lots of information to take in, especially regarding the difference between "investing" and "speculating".
However, I would like to throw in my own two-cents regarding the original questions from Sam as a non-agent.
sam said:
is this a smart idea...

Yes. As long as you are willing to hold on for the long run. Do not think of real-estate as a stock, but as something to hold long term. It may rapidly rise, and it may drop, but in the long run real-estate goes up.
sam said:
...given that I am not going to live in the condo where is the best place to purchase

There was a great discussion recently on purchasing properties at the "ends" of the City (if in Toronto). Personally, I find the east end of Toronto appealing as it has a lot of end users, prices are lower than the core and the West end, and has great public transit.

sam said:
.. should I buy a unit that’s already built, or is it better to buy one that is currently under construction or even just in the planning stages.

I think that was answered above.. but, it sounds like you have enough for a down-payment as an investment into a multi-unit detached home, where you could rent out multiple units. I still think that owning actual land is better than a condo.
sam said:
.. I have a few hundred thousand to invest – should I purchase one unit or more than one.

That is enough of a downpayment to purchase a few units in different areas of the city... or, see my option above.
sam said:
Finally, I don’t have time to manage the investment – any suggestions on this.

In line with the two questions above, have you heard of "bulk deals"?
 
 
BENJAMIN BACH
Buzzer
reply 41 vote 1
 
 
Brian said:

Yes. As long as you are willing to hold on for the long run. Do not think of real-estate as a stock, but as something to hold long term. It may rapidly rise, and it may drop, but in the long run real-estate goes up.

Smart advice

re: Roy, we sure can determine how much a unit will rent for today. We can survey what the other comparable units are renting for. As long as we're talking about existing units, thats doable

With the retail plaza you mentioned, we can do a needs analysis of the area, look at the demographics, get covenants from our tenants (for the layppl out there, these are guarantees for rent backed up by a national corporation - very common when dealing with franchises and national companies), look at the traffic counts over time etc. In short, we can do a lot of due dilligence. This mitigates (but doesn't remove) risk, so we can make an informed decision.

That type of investment (and other asset classes like an apartment building or a leased office building) are bought and valued based on the cash flow they produce - the investment yield.

With a pre construction condo, we sure can do a needs analysis and demographic study of the area, but that won't project appreciation. If you're buying a property NOT based on the yield - i.e. a property with zero or negative cash flow - but rather based on hoping it goes up, this is a complete unknown. Past performance is no indication of future return.
"However, in Toronto where there are certain pockets of very high appreciation rate (think approx 10% per year) "

How long will that go on for? What happens to condo prices when interest rates go to 5% - or 7% ?

When an economic downturn hits, the people holding pre-construction are a lot more exposed than someone holding a commercial plaza with quality tenants backed up by covenants.

Again, this advice is worth what you're paying for it :)
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
This is an excellent thread and you're really benefitting from the experience of a wide variety of real estate investing. The truth is, if done correctly there are a number of ways to make money using real estate. It's important to determine which works best for you. We've covered resale rent, pre-construction flipping and renting, commercial investing and there is some amazing advice on all fronts. I'm sure each agent has incredible success stories for all forms of investing.

For myself and my clients, Pre-Construction has been an incredible investment vehicle. I would not change a single thing looking back as it has made myself and many of my clients insane amounts of money for doing very little. I have seen it work so it's something that I stand by no matter what the naysayers say. I have seen my clients put 6-figure profit into their pockets with 5-figure deposits a number of times, and have the land registry to prove that many others have done it too.

Is it for everyone? Absolutely not. It is a calculated risk and not a risk that everyone is willing to take. There is no cashflow, which you are exchanging for a heavy leverage of your deposit. I meet with prospective investors everyday, and I know that some are willing to take on the risk and others are not.
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2208 vote 131
 
 
^^Hey Roy, would you agree with Brad Lamb, when he says:
Brad Lamb said:
ALL YOU NEED TO DO IS BUY A NEW CONDO FROM FLOOR PLANS BEFORE CONSTRUCTION STARTS AND YOU WILL MAKE $40,000 PROFIT IMMEDIATELY!

Source: July 2009 Newsletter http://www.bradjlambmarketing.com/JulyNewsletter/newsletter.pdf
My response: http://blog.buzzbuzzhome.com/2009/07/brad-j-lamb-reveals-real-estate.html
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
I would agree with your retort. What Brad Lamb has stated is an over exaggeration of the truth and if you read the article he does state that you need to pick the right project....which is what it is all about.

I have stated already that:

a) Out of all the launches in the city I would have only put my own money into 6-7 projects. There are a few very high profile projects (some of which are featured on this very site) that I would not have highlighted as "good investments". Most of the time it is because they are not priced well and therefore limits the profit that my clients can make.

b) I KNOW of people (not my clients lol) who have not made money when buying from floorplans. Why? A combination of: overpriced for the location, buying in an area with low appreciation (does the average agent know how to calculate the appreciation rate of a building or an area? 99% of the agents I speak to don't have a clue and just do it based on speculation...). I used the example of a client who HAD to sell his condo in Mississauga immediately because he was moving to Vancouver. It is in "Mississauga's top condo location" by a Triple A builder. The problem? They were overpriced to begin with and the market never caught up to the price he had paid. He had a net loss of approximately $8,000.

c) There IS skill in buying and choosing pre-construction condos. Not all agents will agree with what projects are the best, and some agents will just agree with their clients and sell them whatever they want to buy. I do challenge my clients to think about different options before settling on a project and we go through pros/cons of each. Not all agents are cut from the same cloth, either. I was at a VIP launch earlier and had a casual conversation with a fellow agent and I asked him "any idea what the levies are being capped at?" and he responded... "What does that mean?". I thought... "your poor clients...".

You cannot say things like "buy a pre-con and you will immediately make $40,000" because we all know it's not true. It's the same as saying "buy a commercial plaza and make $100,000" - sure there are commercial plaza's out there that will make you $100,000 but not all of them do. I do, however, believe that with careful planning and the ability to pick out a good project from the crowd, pre-construction is one of the best investment vehicles available to us.

Questions? Comments? I am really enjoying this debate... :)
 
 
ROY BHANDARI
BabbleBee
reply 492 vote 42
 
 
Also, to carry on from the point...If it was as simple as "buy from floorplan and make $40,000" then agents such as myself, Andrew LaFleur, Mark Savel etc. would not be so successful with selling pre-construction developments. Believe me, it is not by chance. You can tell from a mile away which agents deal with pre-con this all the time and which agents do it part time. Picking a good agent to navigate you through the process is vital.
 
 
JEREMY SHIFTLER
Buzzer
reply 161 vote 1
 
 
Real estate is a long term investment, 25 years and not 2 years. Does anyone know about the long term appreciation of a condo as compared to a house?
I always thought that with a house, the land is increasing in value (not the house). So, in 25-100 years, if the house has to be demolished or renovated, it is fine because the land has appreciated so much.

However, with a condo, what will the shape of the condo be in 23-45 years? How much repairs will have to be made on the structure of the building? I would imagine that it would be hard to sell your "land" in the sky if the condo is falling apart. And, if the building has to be demolished, how are the proceeds split between the hundreds and hundreds of suite owners?
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2208 vote 131
 
 
A really interesting newspaper article was published today in the Globe and Mail called "Chinese stoke Toronto’s condo boom" dealing with the Chinese condo market in Toronto.
Some points that I found most interesting:
Globe and Mail said:
Estimates of their impact suggest overseas Chinese investors, the 100,000-strong local community and the 20,000 to 25,000 Chinese citizens who are students resident in the Toronto area now account for anywhere from 25 per cent to 40 per cent of all new condos purchased here.

Globe and Mail said:
The importance of Chinese investors is shown in the fact that there are six major brokerages now specializing in the trade and about 10 Chinese publications in the GTA dedicated to the real estate market...

Globe and Mail said:
...because of rent controls, about 98 per cent of new rental suites have come from investor-owned condos.

Globe and Mail said:
The three most important factors for them are location, price and design, says Mr. Chan. Design has to follow the principles of feng shui.[/quote
Source: http://www.theglobeandmail.com/real-estate/chinese-stoke-torontos-condo-boom/article1795047/page2/
Where are they coming from?
Why are they buying in Toronto?
Is this good and healthy for Toronto?
 
 
AMIT BHANDARI
Buzzer
reply 162 vote 12
 
 
1
Jeremy said:
Real estate is a long term investment, 25 years and not 2 years. Does anyone know about the long term appreciation of a condo as compared to a house?
I always thought that with a house, the land is increasing in value (not the house). So, in 25-100 years, if the house has to be demolished or renovated, it is fine because the land has appreciated so much.
However, with a condo, what will the shape of the condo be in 23-45 years? How much repairs will have to be made on the structure of the building? I would imagine that it would be hard to sell your "land" in the sky if the condo is falling apart. And, if the building has to be demolished, how are the proceeds split between the hundreds and hundreds of suite owners?

To answer your first question, I think it really depends on the location of the house v.s. condo. I know some areas of downtown Toronto have seen a 9-11% year-over-year growth. There is even strong evidence to suggest that this will continue. Some neighborhoods with houses have been appreciating at 5% in some areas, and some higher.

By definition, Real estate is a legal term that encompasses land along with improvements to the land (buildings, fences, etc, that are fixed in location). Sometimes though, Real Estate can also refer to the land and fixtures together, referring to ownership of land and including anything of a permanent nature such as structures, trees, minerals, and the interest/benefits associated with ownership. (I paid attention in Real Estate Law!! ;-) ). So, real estate as a whole increases in value. For sure, if a home needs to be torn down, the land still has ‘value’ but I don’t think the land is worth as much as a home + land.

For real life scenarios, look around some of the prestigious neighborhoods, you will find lots of investors picking up the older, non-renovated properties, tearing them down and selling the land as lot’s – this happens a lot in Lorne Park (Mississauga). But none of these lots are priced at the same price as home + land. We personally own a lot in Grimsby but this lot is worth nowhere near the home + land. It just wouldn’t make any sense.

In summation, you are right in a way. Land will continue rising, but the future value is not as much as land + improvements to the land (eg, a home).

Your final question – hard to project that far into the future as to what the shape of a condo building will be. It really depends on the management company involved and how neglectful the owners are! I know there are some older buildings that look in great shape (relatively speaking) – even the maintenance fees have not suffered as much as newer buildings. Ones that come to mind are the older buildings on Palace Pier. If the building is falling apart and needs substantial repairs, those costs are passed onto the condo owners – but an important point to note is the owners have a say in repairs and where money is spent.

Remember, a condominium/condo, is the form of housing tenure and other real property where a specified part of a piece of real estate is individually owned but at the same time the use of and access to common facilities such as hallways, heating system, elevators, exterior areas is also under legal rights associated with the individual ownership and controlled by the association of owners that jointly represent ownership of the whole. Each "condo owner" is like a shareholder.

If the building needs to be demolished, I am sure there are provisions in-place for how the monies will be dispersed. As I said before, each owner is like a shareholder of the whole.

-Amit
 
 
ANONYMOUS
 
 
There is no investment, speculative or otherwise, that goes up in a straight line and provides a meaningful return. Invest in yourself through education and it will pay off. Information and knowledge are the keys. Tip... Why rely on an Agent? Become one yourself (it's really not that hard) and make even more money on your investments.
 
 
AMIT BHANDARI
Buzzer
reply 162 vote 12
 
 
Brian said:
There is no investment, speculative or otherwise, that goes up in a straight line and provides a meaningful return. Invest in yourself through education and it will pay off. Information and knowledge are the keys. Tip... Why rely on an Agent? Become one yourself (it's really not that hard) and make even more money on your investments.

Interesting...
 
 
BRENT WILKER
Buzzer
reply 126 vote 4
 
 
Jeremy said:
Real estate is a long term investment, 25 years and not 2 years. Does anyone know about the long term appreciation of a condo as compared to a house?
I always thought that with a house, the land is increasing in value (not the house). So, in 25-100 years, if the house has to be demolished or renovated, it is fine because the land has appreciated so much.
However, with a condo, what will the shape of the condo be in 23-45 years? How much repairs will have to be made on the structure of the building? I would imagine that it would be hard to sell your "land" in the sky if the condo is falling apart. And, if the building has to be demolished, how are the proceeds split between the hundreds and hundreds of suite owners?

That is a great question, something I've often wondered myself.
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2208 vote 131
 
 
^^I think... in that situation, the condo corporation would own the land and as a suite owner, you would be an owner of the corporation. As such, the value of that highrise site would have (hopefully) increased in value by a lot! And, if the corporation were to sell the land, as an owner, you would be privy to the uptake.
Can anyone confirm?
 
 
FIL B
NewBee
reply 1
 
 
Hi everyone, this is my first post but I have been following this forum for quite some time.

I’m not an agent or a broken but I’m presently, and have been investing in real estate for about 10 years with a primary focus on pre construction condos.
I have traded many units in the past and I have to agree with Ben that preconstruction investment TODAY is strictly speculative on future appreciation and should ONLY be treated as such and with caution.

For example in 2001,02,03 and even maybe up to 06, preconstruction condo sales were not as glamorous as they are today. Pre construction purchases were seen as a risk investment and buyers at the time were not comfortable with purchasing on paper. Builders were aware of this and directly rewarded you by offering lower prices than the market.

This was definitely less speculative as you were buying at a discount, but never the less dependent on market appreciation rather than performance of your investment.
With today’s low interest rate environment, the large supply of pre-construction sales in addition to prices on par or higher than the current condo resale market I would be very cautious.

Having said so, I’m not disregarding the possibility of a greater demand and appreciation in price, nor disregarding the value of “long term holding” in real estate nor the value of an in-demand location and exposure, however I’m also not disregarding a serious correction.

Having said so, after learning a couple of hard lessons I now leave my decision making on an investment strictly to the NUMBERS and FACTS rather than the hype.
With a future % return in mind, I forecast 3-5 years out assuming a stable environment with a conservative property appreciation year over year. I account for all expenses related to the purchase and carrying of a property plus other factors that can impact your investment. (Local area’s tax trend, changes in interest rates, employment rate, demand, vacancy rates, marginal tax rate etc..).

I would then, based on the above, and taking into consideration tax implications, perform financial calculations for any given year of the investment.

If the numbers match my desired return rate and timeline I then purchase, if not I simply walk away.

This has helped me to not get wrapped up in the hype of a project or an agent and has helped me sleep at night.

I must admit that I have been steering away from pre construction as I can only project on a stable environment and cannot rely on a past performance.

Thanks for starting this thread Sam, and if anyone read this post thank you for reading.
 
 
SYED SHAH
Buzzer
reply 10 vote 1
 
 
Talk to a financial planner to get your finances in order - this will give you a clear idea of how much debt you can manage. A good financial planner will also take a contingency buffer into account. You should definitely diversify and get multiple condos seeing as you have the funds to do so. We think these projects are fantastic:
1 - http://groperty.com/Yorkdale_Village.html
2 - http://groperty.com/Local_at_Fort_York_Condos.html
3 - http://groperty.com/INDX_Condo.html

The real estate climate is leaning towards a buyers market now. Hopefully you didn't invest in multiple condos at the end of 2010?
 
 
MATTHEW SLUTSKY
Senior Buzzer
reply 2208 vote 131
 
 
Nice selection @Syed Shah. If you want to keep up to be kept up to date with the most relevant information on those project, be sure to click "follow" on the projects, here:

@Yorkdale Village Townhomes, @Local at Fort York Condos, @INDX Condos.

INDX has been a top performing project on BuzzBuzzHome this year, and a super-star in terms of sales.

Could you give reasoning on why you selected these three as "fantastic"? Would love to hear your definition and how you selected these three from all the projects in the City.
 
 
CHRISTOPHER GREEN
NewBee
reply 1
 
 
Condos can be a good and bad investment but it primarily depends on its location. for example, usually the best time to invest in during the pre selling stage of a condo. I just bought 4 units in this <a href="Thekasara.com">condo in pasig</a> and I hope I will be able to triple the money I've invested by selling two of them and renting out the other two. However, this could also lead to losing a lot of money since its in pre selling the project could lead to a halt due to the company's financial problems and you lose your entire investment

 
 
HELEN BROOKES
NewBee
reply 1
 
 
I joined this discussion mainly because we bought our first Condo two years ago in Burlington and it is closing in August this year and don't know whether we can flip it straight away or will have to rent it out. Do we have to wait until the Condo is registered and we have taken posession before we can sell?
 
 
JASON TANG
NewBee
reply 9 vote 4
 
 
buying pre-construction is the purest form of speculation as you are anticipating returns based on leverage, akin to buying stock on margin. If you put 20% deposit and the value of the unit drops 20%, you've suffered 100% loss and vice versa.

Sam, you say you have a few hundred thousand. In some markets, that allows you to buy a duplex or triplex and int Vancouver or Toronto, that's only a 1 bed room condo. 

As for whether to buy condo or freehold, it really depends on how much time and handy you are. Most downtown Toronto homes where I work are 100 year old and landlords are pretty busy keeping up the house whereas the condo management handles all the issues if you invest in condo.     

If you are holding for a longer term, 5-20 years, invest in prime locations where renters are drawn to so you minimise vacancy rates. 

There are many factors to consider.  
 
 
LOUISE VERSACE
NewBee
reply 2
 
 
Very nice discussion. I learned so many things from the experts here. Im a newbie in real estate investment. I purchased my first pre-construction condo (20% dp) two years ago and purchased another pre-construction condo (20% dp) last week both are in Cebu, Philippines. Quite far from here.

My thoughts really on this is buying pre-construction condo through 20% dp and 15 year mortgage then rent it out, Planning to get at least 5 condo's total so i can retire early. Im still quite young at the age of 30. I will let the tenant pay for the monthly mortgage that will still earn a positive cash flow.

I never thought about Buying and Flipping till i stumbled in this thread. The return of investment is quite high, IMO this one is a good short term strategy and not ideal for long term, ;)



 
 
JAMIE K.
Buzzer
reply 142 vote 39
 
 
@louise versace very interesting. What made you decided to invest in the Philippines? Compared to the Canadian real estate market, how open is the Philippines to foreign investment? This is a very important factor in the viability of investing abroad.

I agree with a lot of what people have mentioned already.

@Roy Bhandari makes great points about how important it is to get in early AND buy in the right project. This is very very very true. I was emailing with someone who invests in US real estate the other day. He said his investment team looks at 100+ properties and may only buy 1 or 2..... this should give everyone a real sense of how small the number of REALLY good deals there are out their in the marketplace. Most of which aren't available to the general public in terms of pre-construction condos. I'm not sure if everyone would agree, but I'm of the opinion, that by the time the sales centre is up the best deals are long gone.

The other point I would make is this. Most people today are not speculating on real estate. They are gambling. They make broad assumptions and take absurd risks. Like the example Roy gave with people buying and trying to sell assignments before they actually take ownership. CRAZY!

 
 
ROMELO RODRIGUEZ
NewBee
reply 3
 
 
My condo was delayed by a year. I was planning on moving into it when it was supposed to be ready but now I want something bigger. Will I get hit with hst if I sell When it comes up or am i exempt because I still bought with the intention of living in it?
 
 
ROMELO RODRIGUEZ
NewBee
reply 3
 
 
Do you make any interest on money that is held in trust while waiting for your preconstruction?
 
 
MARCO DIFOTI
Senior Buzzer
reply 527 vote 31
 
 
@romelo rodriguez Yes, but it is pretty minor.
 
 
JAMIE K.
Buzzer
reply 142 vote 39
 
 
@romelo rodriguez It's really up to the Canadian Revenue Agency on whether or not you would be hit with taxes on the sale of the property. There are cases of people living in a condo for a few days and never being hit with taxes and there are cases of people living in a condo/home for a year and getting dinged with taxes. 

It's probably wise to seek independent legal and tax advice to help answer that question. 

Hope that helps!  
 
 
LOUISE VERSACE
NewBee
reply 2
 
 
@Jamie K. Sorry for the late reply. I invested because Im from Philippines but I'm not working in The Philippines. Its very open for foreigners especially private properties such as condo, office properties. More than 50% condo buyers are foreigners from neighboring countries such as Singapore, Hongkong, Japan, korea.

The property in Philippines still very cheap so I grab as much as I can because within 10-15 years it will be very expensive. ;)

 
 
ISSACK DERCHANSKY
NewBee
reply 8 vote 3
 
 
I know the original post was made several years ago, but some food for thought from a lawyer's viewpoint:

1.When you're calculating your financials and deciding whether a real estate investment is a good or bad decision, remember to factor in the costs associated with purchasing a property. In my experience, the largest cost is land transfer tax (and if you're purchasing a condominium in Toronto, you get the special privilege of paying a second land transfer tax). For example, a $480,000 Toronto condo incurs over $11,000 in land transfer tax. Remember, too, that investment properties do not qualify for the first time buyer's land transfer tax credit.

2. When you purchase a property from a builder, there may be additional amounts you have to pay on closing to the builder (known as "adjustments"). These amounts are for development fees, park levies, TARION enrolment, utilities installations, and so forth. Hopefully when you sign a pre-construction Agreement, you have a lawyer review it to try to minimize these adjustments, but I have seen final adjustments in the five figure range. Also, you have to pay land transfer tax on these adjustments.

3. Flipping too soon after purchasing a property you renovated in a significant way may actually attract HST. And depending on your renovations, you may have to provide any buyer with TARION-like warranties, which leave you on the hook for up to 7 years to deal with certain construction defects.

4. If you purchased from a builder and the unit was vacant while you owned it, you'll have to register with TARION as a "reseller" before you sell it. If you don't, you can be fined up to $25,000.00! I wrote about this little-known issue a while back: http://www.derchansky.com/2012/04/23/selling-a-newish-property/.

The above isn't meant to scare you away from investing in real estate. Hopefully it just shows you that the picture is rarely as simple as "buy pre-construction and make $40,000 immediately" (although admittedly, that quotation was from 3 years ago when our real estate market seemed to be on 'roids).
 
 
ROMELO RODRIGUEZ
NewBee
reply 3
 
 
@issackderchansky My condo was delayed by a year. I was planning on moving into it when it was supposed to be ready but now I want something bigger. Will I get hit with hst if I sell When it comes up or am i exempt because I still bought with the intention of living in it?
 
 
ISSACK DERCHANSKY
NewBee
reply 8 vote 3
 
 
@romelo rodriguez That question is tough to answer. Newspapers and the internet are full of horror stories. If you want to be safe, consider consulting with a tax lawyer or an accountant before making any decisions, as they should be the most up-to-date with the latest in taxation issues.
 
 
AMIT
NewBee
reply 2 vote 1
 
 
1
Condos as an investment: Good or bad idea? An investment can be either good or bad depending upon what your goals are.

Are you a user, an investor or a flipper?
http://condopundit.com/wordpress/2010/06/the-user-the-investor-and-the-flipper/
Most smart investors who understand the above investment rules do not end up loosing.

On a second note, price growth becomes slower after a certain point, as lesser number of people can afford expensive properties. If all other factors are similar, then properties that are lesser expensive appreciate faster.

Having said that, buyers shop for the best value. That's one reason, why many buyers find value in Mississauga condos in comparison to Downtown Toronto condos. An average 1BR+Den in a newer condo building at Mississauga Square One costs $270,000-$290,000 with 1 parking and locker vs. $370,000- $400,000 for a similar condo in Downtown Toronto.

Check out the prices of some Mississauga condoshttp://www.realestate-ontario.com/mississauga-condos.htm
 
 
JETSON
NewBee
reply 1
 
 
Regarding to what Roy said in the previous comment:

b) At what stage are you buying? If you understand how builders "tier" their pricing, you will realise that the earlier in the process you buy, the cheaper you will buy at. Since June, my clients are collectively up approximately $1 million based solely on the price increases since the time that my clients got in. While it may sound that I am trying to sell a Realtors services, but my general rule is that if you can walk into a sales office and purchase a condo without an agent, you're already too late. Prices have already been increased 3-4 times and various perks have already been removed.

How to I go about buying early before the builders list/advertise the property? Thanks in advance. 
 
 
LISA
NewBee
reply 1
 
 
Hello, this is a very informative thread! Thank you to all!
Wondering if anyone has advise on this pre construction condo to be ready
end 2014-2015 which I have purchased. My cooling off period for me to rescind the offer is this Tuesday Oct 15th!
I 'll offer a little summary on the unit before my question,

Etobicoke area near the subway, won't mention any names for legal reasons of course.
A 1+ den 650 square feet unit including 1locker + 1 parking included = $275K, maintenance fees at about 50-54 cents / square foot.

The builder refuses to delete the developmental charges or any extra fees, levies in the contract, my lawyer says decision is mine but has warned me that council is leaning towards doubling development charges on pre-constructions, maybe in the next year even!
My lawyer has mentioned that other builders are not this way, and usually agree around a mutual understanding, but not this builder!  He says ultimately up to me to decide if I am willing to take a risk.

One of my friends just bought a 1+den 650 square feet pre-construction same price range $278Kin the neighbourhood where I am, and the builder agreed to remove the development charges completely from the contract as well.

Someone else I know just bought a 1+den at Yonge / Eglinton over $400K and they as well got that clause deleted from the contract!

Any thoughts? Shall I risk it? I plan to live in this condo for the first 4years then selling it, I don't want to loose money on this condo, I also don't feel like throwing a possible 3K to 8 k fee in development charges when other people get them deleted from the contract.

Please help, if there is any opinions about location or price as well, let me know as resale is very important to me, I do not want to get stuck with a unit I can't sell if price/value seems to high.

Thank you for all your help!
 
 
ANDREW LAFLEUR
Buzzer
reply 115 vote 32
 
 
1
@jetson
what @Roy is talking about is getting access to units at the earliest possible stages of the marketing life cycle of a project. The best way to do it is to be a family member or a friend of the developer and buy at the friends and family event (usually this is the first chance to buy). Second to that it's all about working with a Platinum VIP level Realtor who can get you access shortly after the friend and family stage.

For example, just 2 nights ago there was a friends and family sales event for a very high profile downtown condo project. About 20-30 units were sold. The platinum VIP sale begins tomorrow and the regular VIP agents sale will probably be a month from now. The grand opening to the public may not be for several months. By that point, the building will be mostly sold out and prices will likely have increased significantly.

As as for how you find a platinum VIP agent to help you, there are several agents who specialize in this sort of thing. Many are on this board. I am one. Roy is one and others.

Oh, I should also add, for anyone wondering if it's still possible to make money investing in Toronto condos and how to do it, I wrote a blog post that shows how one of my clients is doing it and details his experience.
truecondos.com/meet-maxwell
 
 
ADAM BRIND
NewBee
reply 4 vote 3
 
 
1
This is an interesting thread. But, I am shocked that no one has brought up the risk of selling a condo investment inside of the first year of registration - new homes (condos and homes) must be held for at least one year (either personally or leased) or you run the risk of being hit with an HST recapture bill which could significantly eat into your bottom line. More here: http://bit.ly/17oojf6

This reminds me of one of Buffet's old sayings: "be fearful when others are greedy and greedy when others are fearful."

I am personally pushing my clients to other opportunities in the real estate market. If we're talking strictly Toronto residential investing, I truly believe that land (i.e. soil) is a stronger growth and income play - as of today.

I wrote this article about condo buying almost exactly one year ago and think the same rules apply: http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/five-traps-to-avoid-when-buying-a-condo/article4630744/?page=all



 
 
SEAN
NewBee
reply 1
 
 
Whenever you want to invest your money in real estate, You should study about the whole market and make your decision. Invest in condo is good option you can rent it also, it just like your second income.
http://triangle-real-estate-investors.com/
 
 
SUMIT KUMAR
NewBee
reply 1
 
 
@Sean: I am very new to this interesting blog.... Invest in condo is a good option and can be rented out which could be a second income....which is very true for only those who have their own place to live...otherwise you have to pay the rent wherever you live. 
2. Is it a good idea to buy a house and give rent to either top floor or a basement which can be used towards Mortgage payments as per today's and future's market the way Canada is inviting people around the globe? 

Regards
Sumit  
 
 
SCOTT
Buzzer
reply 84 vote 8
 
 
My huge concerns with condo investment is that they just don’t appreciate. I’m happy to take them for cheap, let the tenants pay them off, then live on cash flow. But appreciation? Probably not.

 
 
LONGTERMINVESTOR
NewBee
reply 1
 
 
Hi all, great discussion and a lot of usefull info!!!..I am also a condo investor, and have few rental properties. I am mostly concentrating on resale condos, as typically pre-construction condos require big downpayment which I don't have. I typically would buy a property that i can at least break even with 5-10% downpayment. The way I look at it, if the rent price is the same as what it costs me to buy/own the condo with little down, then the price must be good, and I am not overpaying. I also think that even with some negative cash flow, it is better to get into the market (then not to...as you are still getting your mortgage paid out, so even if the prices don't increase, you are still better off in 5-10 years or so.) My question is - i would like to eventually own at least 10 rental properties, and I wonder what is the best way to finance the properties/get mortgage? What is the minimum downpayment required once you own more then two properties? Do you need to open a corporation for that?.. Basically what is the best way to get financing for additional properties?
 
 
STEPHEN DUONG
NewBee
reply 3 vote 1
 
 
@Sumit Kumar I agree that a condo isn't a bad option as a second income IF you have another place to live in. Seeing as most people who are just starting to invest don't always have the means to do so, owning a house and renting either your top floor or basement is a great idea to offset payments.

@longTermInvestor That's one way to look at things. Did you get into condos solely because of the lack of capital? I've come across a similar situation recently where a friend and I had a debate about having a negative cash flow but having your mortgage paid for vs waiting for the right opportunity to come along.

Stephen Duong
www.mycapitalcorner.com  
 
 
YOSSI KAPLAN
Buzzer
reply 15 vote 1
 
 
I find that the best results are by getting into private, exclusive deals which are never advertised. More often than you imagine, buyers/investors need to get out of deals, for a variety of reasons, and you can cut deep into the price and find something less then market value. 

The days of buying from plans are largely over, and unless you are planning on holding for a few years and waiting for appreciation, you need to find these secret deals.
 
 
DAVID L SCHIAVONE
NewBee
reply 1
 
 
I think you question is relevant even today.The stock markets are very unreliable and more people still believes on investing in gold.Real Estate is the another best option at these times.I have purchased a condo in toronto on 2009.I am feeling so grateful now that i took the right decision by purchasing condo rather than investing on stocks.
 http://www.macsuites.ca/real-estate/search-for-furnished-condos/
 
 
MANNY
NewBee
reply 1
 
 
In my opinion, not a big fan of condos as we all know the maintenance fees have always shown to increase over time and rate of $0.50/sq ft in the beginning stages when the condo is built, 5-10 years down the road when these rates go up, the value of the condo will decrease. In terms of investing in real estate, the best would be semi-detached or detached homes, and you might think that houses are alot more expensive than condos, which is not true, you can find houses in good areas for a decent price and that generate alot more rental income than condos, and without paying condo fees.

The days are long over of buying a low price condo and waiting 3-4 years and selling for profit. This was primarily the case back in 2008, 2009, 2010. But you also have to consider that almost all properties were cheaper during these days, for ex. a property in brampton, sold for $700k and now can sell for about $1.2M. The past is history and you have to look at the current market and work with it to find the best deals and not compare to the past.
 
 
KATE LOUISE
NewBee
reply 4
 
 
Investing in condominium is a great idea as it provides monthly rentals plus the value of property increases after some duration. I also own a condo in Canada. Visit
www.rentinto.ca for such related services.
 
 
JELENA MARKOVIC
NewBee
reply 1
 
 
Condo as an investment is great,especially if you buy the ones that are easier to sell(smaller units,priced fairly).Just be cautious:every developer/builder has its own set of rules.I believe its better to buy new developments on the outskirts of the city as the return is greater.I don't have the time to write a book right now,but if you have more questions...:)
 
 
ZEROVACANCYGAL
Buzzer
reply 20 vote 5
 
 
1
@sam the man - i see you are thinking Condos...... while they can be a great investment vehicle its all relative to 4 questions if you can answer candidly will assist you decide

- Your purchase price ( never buy high unless of course your down payment is higher)
- Your carrying cost relative to the projected rental income you will earn/receive
- The property management team you retain to be on your side
- How long you anticipate holding the investment for?

Hope this helps, send me a msg if you need to chat some more!
 
 
CLIFFORDFERNANDEZ
NewBee
reply 1
 
 
Now the condition in market in real estate sector is good get best return in real estate sector every developer/builder are investing in large scale in different city.

Looking to design Real Estate Website through Real Estate Website Builder-http://mobilesitemachine.net
 
 
ZACKERY COTE
Buzzer
reply 29
 
 
Condos are a great option for investment. One must plan out a strategy before investing into a condominium. Some of the tips are mentioned here in this article, you may go through it to get a clear idea. http://bit.ly/strategyplancondominiums 
 
 
 
 
 

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