Are Condos a good investment?
You'll get many different answers here, depending on which economist you ask, which builder you ask, which renter you pole, which realtor you interview and which condo owner you ask and finally which building you are focussing on when you ask this question.
Look, in the perfect world, one would buy a condo off spec from the builder and pay entry level prices. Then the condo would be built and owners absorb their units. If the market is participating with low interest rates and a large buyer pool (particularly first time buyers)--you're going to likely be happy with your investment should you decide to sell.
That game is old. Where it gets tricky is when you factor in economic realities. So for those who bought say 5 years ago and moved in a year ago and decided to sell...it may not be quite so simple. Whats going for them is, 1) interest rates are low 2) strong pent up demand 3)prices have increased.
Now the tough part. If everyone decides to do the same at leverage this strong market, multiple units hit the market at the same time. So now a buyer is left scratching their head at the numbers and whats going on in this building that everyone wants out. For some it has been drilled into their heads that home is where you lay your hat and if you bought and immersed yourself in the purchase of your condo, you'd likely live there upon completion. Often not the case. With that many units for sale, naturally the supply outstripping demand, buyers have the upper hand on negotiations but still may not feel great about moving into what feels like an "empty" building.
I just ran into this scenario in the central core. On MLS my buyer and me found 3 units available. When we got there, the concierge showed me 25 lockboxes. There were so many available that sellers didnt want the impression that everyone was selling. So they asked the doorman to advertise the units for sale and let agents know they exist upon requesting the keys for the units booked through MLS!!
Another issue with new construction that you just won't know until down the road is the mix of renters versus owners. Renters dont have the same vested interest in the upkeep of the building and have little interest in talking the building up and continuing the marketing job after the developer has left the building, the same way that the owners will.
That said, we also run into a square footage issue in Toronto development. At 500-600 dollar a sq ft and little new inventory being built in the 1000 plus sq ft range (for obvious reasons...a developer can squeeze more units in and there are more buyers in lower range then higher range). So new construction is often built with open concept and light colors and big windows and tall ceilings to create a larger feel. The good news is that the finishes often rival those of detached homes. And if youre lucky and do your homework, you can find a good split plan open concept building that suits your needs. Layout in this ftg is everything in my opinion.
Finally, its the age old arguement of fees. It's true that the sexier buildings are often sold with the pool, gym, billiards room, concierge, spa, dining room, movie room, etc. All those amenities clearly increase the fees. If you're going to use the amenities-wonderful. If you're not, think twice.
Often older buildings have stronger reserve funds/savings for rainy day stuff. But...older buildings may soon need replacement of windows, furnaces, roofing, refurbishing of units and common areas and this can result in a special assesment (temp increase in fees for a period of time to top up the reserve fund after the fixes are complete.)
Reserve funds are always an issue. Often buyer can't see the documents of the condo corp until they come to a conditional agreement. If the condo just had a big withdrawal, you need to analyze for what purpose? Are you going to buy and get caught with the letter in your mailbox that fees are going up for a period so as to replenish the reserve fund? How old is the building? Typically lifeline of mechanics is 15-20 yrs. You'll wanna try to learn when mechanics were last updated and what service contracts there are available as well as who is responsible for the mechanics.
Look, at the end of the day, I strongly believe you want to build equity. Renting does not achieve that. Detached homes are quite expensive for many buyers and condos can offer a great simplified lifestyle.
Theres pros and cons to the condo lifestyle for sure. Often money decides quickly which direction you will go. Now if you edge towards condo shopping...there's lots to know!
As always, I'd love to hear from you. Email anytime. And thanks for all the questions thru the website http://www.TheSmithsBuyAHouse.com
Michael Gruenstein MBA CSC
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