Personal Finance

Buy a condo and rent it out...is that still a good business?

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  • Jun 21st, 2005 12:03 pm
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[OP]
Sr. Member
Nov 26, 2002
541 posts
26 upvotes
Western Canada

Buy a condo and rent it out...is that still a good business?

I'm in Toronto. Anyone doing this? Is it still a good business as a landlord of condos?

Thanks...any opinion appreciated.
28 replies
Newbie
Mar 26, 2005
15 posts
If you are looking for a short term rent, then flip with a big price rise in the value of the unit.......not nearly as attractive from a few years ago.

If you are looking for long term investments....with interest rates still being low, and you can keep mortgage payments below rental income, then its still ok, but not as attractive as a short term hit as it was say 3-4 years ago
Did you dabble today? :lol:
http://www.dabble.ca
Deal Fanatic
Mar 15, 2005
5035 posts
580 upvotes
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.
Sr. Member
User avatar
Aug 4, 2003
574 posts
Ziggy, are you assuming return on equity will go up based simply on location and future community development? I'm just curious.
Sr. Member
Mar 27, 2003
653 posts
18 upvotes
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

but I think it depens on the location
if you get a condo in yonge subway line, I think it will bring u a steady investment income

I don't think it's a good idea if you just want to do it as a short term investment
Sr. Member
Jun 27, 2004
548 posts
Toronto
In Canada, the best rule of thumb is to buy the best house you can afford to live in. Upon resale, 100% for profit goes into your pocket.

Other than that, you have to treat it like any other business, that's right "business" and not treat it as a simple investment like a gic, mutual fund. The business takes up your time, how much is your time worth to you? only you can answer that; like dealing with tenants, prospective tenants, repairs and bylaw compliance, bad debts (take time off work to attend rental tribunal) and vacancies (currently 5% vacancy for apartments in GTA area). If you want to buy a condo unit, make sure you have sufficient liability insurance (potential floods originating from your unit due to mischief or negligence, image the damage if your unit in high up in a skyscraper.

If you are not prepared to deal with all these issues then you are better off going to securities and mutual funds as investment.
Deal Fanatic
User avatar
Jul 18, 2003
6268 posts
63 upvotes
Etobicoke
With condo rentals, your have monthly rent income (or loss, to get tax deduction) and capital appreciation.

Monthly income depends on the rent collected vs mortgage interest paid + maintenance expenses. You have a lot of control over how much you make here.

Capital appreciation depend on the condo location, current market conditions, building management etc. You don't have much control here.

As a general rule, condos appreciate less than houses but have lower maintenance requirements than houses (as the condo corp will take care of a lot of that for you). Houses appreciate more/faster but you'll have to spend more time, as landlord, to fix it up (ie. condo walls are concrete, tenant is not likely to punch a hole in it. Houses, OTHO, have gypsum board walls).
Deal Addict
User avatar
Aug 7, 2003
1187 posts
1 upvote
Toronto ON
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!

Tracy
Deal Expert
Oct 20, 2001
18709 posts
1179 upvotes
Sauga
From http://www.thestar.com/NASApp/cs/Conten ... 0599119419 :
Investment units may be set to dip
Too many suites sold, report says Prices climbing as rents drop


THERESA BOYLE
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.
Deal Guru
User avatar
Mar 30, 2002
12415 posts
1 upvote
31 Spooner St. NIFOC
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!

Tracy
Great post. Thanks for the info.
:hay:

[You got a dream, you gotta protect it. People can't do something themselves, they wanna tell you that you can't do it. You want something? Go get it. Period.]
Sr. Member
User avatar
Feb 18, 2005
550 posts
5 upvotes
Toronto
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.

Return on Investment is ALWAYS better in the city than the 'burbs. Buy in a premium location, and a property is always rentable...(ie. close to U of T), and it will appreciate in value.

Ie. I have partial ownership of a condo at University and Dundas that has gone up 25% in 2 years. I have partial ownership in a condo in Thornhill on Bayview, that is worth about what we paid many years ago... Both rent well enough to carry the mortgage and show a small profit.
RubRDucky
Newbie
Jan 18, 2005
94 posts
16 upvotes
And don't forget, if you do buy a place to rent, to use the income to help reduce your own mortgage (and effectively make your mortgage tax deductible).

For example, if your the rent you charge is $2000/month and the rental house/apartment mortgage payment is $1500, don't take the $2000 and pay $1500 of mortgage and pocket the rest. Instead, use the $2000 to pay down your own mortgage and borrow $1500 to pay the payment on the rental. Then the interest on the $1500 you borrowed is tax deductible because it was for an investment. Eventually you end up paying off your mortgage and have a (big) tax deductible loan to pay off later. The difference between a tax deductible loan and non-deductible loan is huge.

Just an idea.
Deal Addict
Mar 10, 2005
4988 posts
2 upvotes
I have a positive cash flow of about $100 a month. the rent covers my mortgage and then some.

in the meantime, my house appreciated by 150,000 in the two and half years since I bought it.

Poco's got some good advice there. will have to look into this myself. thanks
Deal Expert
Aug 2, 2004
24888 posts
2581 upvotes
East Gwillimbury
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.
I agree with that 100%

Friend of mine Purchased a condo downtown Toronto (City Place, next to CN Tower) and it took the developers almost three years to complete it.

The place is the size of a shoe box. She paid $174k + $15k for the Parking spot.

Upon completion, before she even moved in. She was offered $275k and almost $20k for the parking spot.

That is totally nuts.
Jr. Member
Feb 6, 2005
185 posts
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

Well, I think it depends on the location
For example, in vancouver, condos are increasing faster than houses
http://www.realtylink.org/hpi/rebgvhpig ... YPE=buyers
apartments especially in downtown area are goin crazy

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