Buy a condo and rent it out...is that still a good business?
Thanks...any opinion appreciated.
Apr 24th, 2005 10:14 am
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May 7th, 2005 8:34 am
Investment units may be set to dip
Too many suites sold, report says Prices climbing as rents drop
REAL ESTATE REPORTER
The number of high-rise condos purchased as investments has been too high and is expected to drop in the near future, says market analyst Will Dunning.
In the latest issue of Dunning's Toronto Employment and Housing Outlook, he says investment buying will drop because condos are costing more while pulling in less for rent.
"Completions (of new condo buildings) will mount very quickly during the rest of this year, rents will fall further and investors will find it increasingly difficult to rent or sell," he writes.
"While investors have managed to ignore a negative market outlook so far, an increasingly negative market reality will eventually result in much-reduced investment buying," he adds.
The average price of a condominium in the Greater Toronto Area jumped by $4.93 per square foot in the first quarter of this year.
Rents for condominium apartments have fallen by 15.3 cents per square foot — or 7.8 per cent — since the end of 2002.
Dunning notes that smaller units have tended to have larger rent reductions than large units.
He suggests sales in the highrise market are much higher than they should be because of an "excessive amount" of investment buying.
The condo rental market can support 2,000 new units a year, but investors have been buying up 4,000 units a year for each of the last four years, he points out.
"Construction delays have prevented the over-supply from becoming obvious and have delayed the reckoning," Dunning warns.
He anticipates that sales will drop to 13,000 units in the GTA this year from 14,000 last year. A larger reduction to 9,000 units is forecast for 2006.
"However, if investors rush to the exits, the 2005 or 2006 reductions could be larger," Dunning cautions.
May 8th, 2005 9:30 am
Great post. Thanks for the info.daisyville wrote:It's a math question. So the short answer is "it depends"
Depending on your situation, if you already own a condo, then you know how much it costs you to carry it - at least you know what the costs are now. There are two variables, one is your mortgage rate (whether fixed or variable, they are both subject to change, although the fixed rate is only subject to change upon expiry of your current term). The other variable are the condo fees.
Having recently gone through various math scenarios looking for an investment property, I steered away from condos. The condo fee is not an expenditure that I can personally control. While it may be a certain rate now, that can change at the whim of the condominium developer.
As a general rule of thumb, the newer the condo, the less likely the fees are to skyrocket. If the buildings are new, it can be presumed that major upkeep and capital repair costs will be minimized. After about 10 years, these costs may inflate due to the natural upkeep required for capital buildings.
The first thing I used to determine affordability is to find out what the going rate is for a unit of similar size and features. Once you know that, you know what number you need to either meet or stay under.
Depending on your goals ofcourse, if you want short term gain, you'll have to keep your expenditures lower than the regular rental rate. If you are more interested in long term goals, the expenditures and revenue can be closer together, with the primary gain being a capital one at the time you may choose to sell the property.
Once you know the revenue side, determine if the total of the following will be covered by the tennants:
a) your mortgage payment (principle and interest)
b) any other loan payment that you may need in order to get a downpayment
c) property insurance to protect your investment
d) municipal taxes
e) life or mortgage insurance, to protect your family from your debts in the event of your untimely demise (ie, term insurance for the value of the mortgage so it can be paid off if you die, and can be cancelled without impacting your policy should you sell)
So, is it good business? Dunno, depends on how you decide to get in and where you rent and potentially the kind of landlord you are and the kind of tennants you'll get!
May 8th, 2005 10:27 am
Ziggy007 wrote:Well best bet is get in on some housing going up a bit north of Toronto and drop a downpayment. When the site is done in a year you can turn a profit of about 20k. They are always building around Woodbridge area, high value, easy returns.
May 10th, 2005 12:45 am
May 11th, 2005 5:53 pm
May 11th, 2005 6:16 pm
I agree with that 100%plan b wrote:Ziggy, are you assuming return on equity will go up based simply on location and future community development? I'm just curious.
May 15th, 2005 11:34 pm
ginabobolee wrote:consider house than condo
well, my parents chose to buy a house and rent out because their friends advise them that house has a better return than condos