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Condo Investing: Are Condos Better Rented Than Owned?

Who’s in the Market to Buy a Condo?

Generally speaking, there are three types of individuals who pursue the condo lifestyle: (1) the young professional who’s fallen in love with the notion of trendy downtown living (2) retirees who have had their families and are thinking of downsizing; and (3) investors looking to flip the place at a good price.  For two of these groups, the down payment may be the first financial challenge.  Retirees may have savings large enough to withstand the initial expense but must also consider how far their pension dollars will cover the bills.  For anyone looking to own a condo, they must be aware of increasing maintenance bills and condo fees that they will undoubtedly run into.  These factors must be considered when deciding whether or not condo investing is the right option for you.

condo investing

Are Condos Profitable?

Unless the investor has made a large deposit and has obtained a small mortgage, condos cannot be claimed as a tax loss.  If a landlord is not making more than 10% it might be best to cut the losses and seek alternative forms of real estate investment.  It is an idealization that condo values will actually increase – unless you are in the right neighbourhood and are selling at the right time.  In many instances, you may even sell at a loss.  Toronto has seen this in the last few months especially.  In 2012’s fourth quarter condo costs dropped 3%, contrary to the upward motion many investors had counted on.   The market is weakening because of the overflow of property, which is why the outskirts of the city are noticing more benefits to condo purchasing than for those living centrally.

condo investing

To Rent or Sell?

Many individuals looking to live in a condo building are hesitant to rent but may not realize how this could work in their favour.  If we take into consideration that the average size of a condo in Toronto is around 650 square feet and the average price $330,000, landlords need to expect a rental agreement that will generate at least $1,450 a month.  After property taxes, utilities, condo fees, and special assessment expenses, the owner of the condo faces a much larger debt than expected.  For the renter, their monthly payments will not rise during the contract and it the falls to the investor to cover these costs somehow.   Even if condo values are increasing in Toronto, in order for condo investing to yield positive cash flow the investor will need a substantial down payment and will need to find a way to minimize the impact of rising condo fees.

condo investing

What do you think?  Are condos a good investment or bad?  Given today’s market conditions, unless you are buying a condo to live in, I don’t see any value being created as an investment vehicle… Leave your comment below…

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4 comments

  1. I’m from Ottawa and I agree, If you like condos that much your almost better off to rent one but invest your money in a different Real Estate asset class.

  2. There are definitely other smarter ways to investing in real estate… 🙂

  3. David L. Schiavone

    Investing on condos aren’t a wise thing to do.Like mentioned in this article only retirees will be able to withstand the initial expense.Most young professionals now prefer to rent condos than own it.
    http://www.macsuites.ca/explore-toronto/

  4. Really thanks author for your useful blog and great shared to Real Estate.

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