Real Estate

Economics of buying a condo outside of the GTA

  • Last Updated:
  • Oct 22nd, 2019 8:54 pm
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes

Economics of buying a condo outside of the GTA

Hi everyone,

I am writing because I would like to hear everyone’s opinions on the following issue. It’s going to be a long post, so please bear with me.

First off, a few words about myself. I am a young professional living in the KW (Kitchener-Waterloo) area. My income is close to 100k (base), no debt, and I am saving to increase my net worth. My SO is a student. They have 27k in student debt and most of the money to pay it off, just delaying it for now because it is not necessary (so that inflation can eat up a part of that debt). We are renting. I was thinking of entering the real estate market only after I build a robust stock/bond portfolio (which is happening) and only if I find a good investment opportunity, i.e., I didn’t plan to buy because I need to live somewhere, rent is paying someone’s mortgage, blah blah blah.

Not so long ago we decided to change our rental place with the intention of getting something better (although we can continue stay where we are now). Not only the rent went up significantly but also the competition increased. I was kind of surprised. Quite a few landlords told me that I had to hurry to secure their place because they have 5-8 groups coming to see it. Seems like that wasn’t just a cheap salesman tactics, the properties were actually rented as the ads were brought down quickly.

Long story made short, that made me think about entering the real estate market sooner that I planned and buying a condo in the KW/Cambridge/Guelph. I plan on keeping the condo as an investment property later on. My rationales for that are as follows:

1) The area has two universities and has a strong tech/financial job scene;
2) Recent improvements in infrastructure (LRT);
3) Projected population growth;
4) Proximity to the GTA;
5) Recent measures of the Liberal federal government to “improve” housing affordability.

What I was looking for:
1) Something close to transit, in prime areas, close to universities;
2) Recently built (not a pre-con);
3) Ideally with minimum or no amenities (gym, rooftop terrace, etc) to keep condo fees low. Just an apartment in a low-rise apartment building will do.

I also did some number crunching, and seems like numbers line up - I am making money in the medium and long term under conservative assumptions. Here they are:
1) annual rent increase of 1.8%;
2) 25y mortgage with 2.6% fixed rate;
3) annual opportunity cost of 20% downpayment is 6%;
4) inflation is low and equals to 2.5%;
5) condo fee is 300$ and increases at the pace of inflation as are other payments (insurance, property tax etc).
6) 1% of the property price is used towards its maintenance annually.

Now, I have the following questions:
1) Is condo purchase a good idea in my situation in your opinion? If yes, would you consider Guelph/Cambridge or focus on KW?
2) Is there anything in my analysis that is questionable?
3) Are my assumptions reasonable?
4) Is it possible to find a recently built condo with low condo fees in a prime location?
5) What to look for in a condo purchase? How would you approach it? Should I buy a precon? Where to shop for condos? etc.

How do I buy a condo like a pro?

Thanks in advance, and sorry for the long post. I am researching the topic at the moment. I hope this will be useful to other prospective condo buyers.

EDIT: Based on calculators, I can afford up to a 800k home ( I plan to spend 500k max).
Last edited by stanleyinfrared on Oct 18th, 2019 9:50 pm, edited 2 times in total.
15 replies
Deal Fanatic
Mar 27, 2004
5488 posts
3353 upvotes
Toronto
get a freehold in kw area. old bungalow with basement apartment.
Full-time Realtor
Deal Addict
Jan 1, 2017
1402 posts
1229 upvotes
Have you figured out how much you can afford? There are various calculators online you can use to find your max affordability. Try ratehub.com or any of the banks
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
oasis100 wrote: get a freehold in kw area. old bungalow with basement apartment.
Can you give me an example of a property from realtor.ca?
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
ProductGuy wrote: Have you figured out how much you can afford? There are various calculators online you can use to find your max affordability. Try ratehub.com or any of the banks
Yes, I have. Edited my post.
Jr. Member
User avatar
Aug 11, 2019
177 posts
191 upvotes
Toronto
KW, 100%
If you plan to grow your family over time, buy a freehold. You can rent out the basement for extra $$$
Full Time Realtor
GTA & Surrounding Areas
Deal Addict
Feb 19, 2019
1152 posts
1582 upvotes
Stouffville ON
KW is a great area for investment. Since you are planning on living there yourself for a period of time you should think about investment aspects as well as your personal preferences and comforts. Older bungalow with a basement rental is best for cashflow but you need to weigh pros and cons if you want to live on the main floor. Condo is a good option if it fits your lifestyle.
I like your approach.
Full Time and Full Service Realtor
Jr. Member
Apr 25, 2019
192 posts
217 upvotes
Ontario
My suggestion would be to Get a townhome (freehold) or detached home in Waterloo-Kitchener-Cambridge along with hwy401 so you can easily commute to/from Toronto in future.
If you get a walkout basement that’s a bonus. Prices are still affordable outside GTA. Keep your condo as an investment for rental purpose.
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
senasena wrote: KW is a great area for investment. Since you are planning on living there yourself for a period of time you should think about investment aspects as well as your personal preferences and comforts. Older bungalow with a basement rental is best for cashflow but you need to weigh pros and cons if you want to live on the main floor. Condo is a good option if it fits your lifestyle.
I like your approach.
Thanks for your suggestions. What's the best way to purchase a condo? Are there any specialized websites? I check realtor.ca regularly, and seems like it has very few condo options.
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
GaryR28626 wrote: My suggestion would be to Get a townhome (freehold) or detached home in Waterloo-Kitchener-Cambridge along with hwy401 so you can easily commute to/from Toronto in future.
If you get a walkout basement that’s a bonus. Prices are still affordable outside GTA. Keep your condo as an investment for rental purpose.
Yes, that's a good idea. But isn't it reasonable to expect that there will be a regular high-speed train to Toronto in the nearest future? There are a lot of discussions surrounding this. It's bound to happen given the increase in the population density. Honestly, driving on 401 every morning would suck big time, right now I just walk to work every morning.
Deal Addict
Feb 19, 2019
1152 posts
1582 upvotes
Stouffville ON
stanleyinfrared wrote: Thanks for your suggestions. What's the best way to purchase a condo? Are there any specialized websites? I check realtor.ca regularly, and seems like it has very few condo options.
For resale condos all of them will be on realtor.ca, but a better website to look up will be bungol.ca, it will give you a bit more details including sold prices. I suggest finding an agent familiar and experienced in your area offering a commission cash back rebate. The supply is pretty limited and you need to know what you are doing, since so many condos are rented to students you want to ensure the place you buy to live in is suitable for you, being surrounded by party animals may or may not suit you.
Full Time and Full Service Realtor
Deal Guru
Feb 29, 2008
14425 posts
10682 upvotes
senasena wrote: For resale condos all of them will be on realtor.ca, but a better website to look up will be bungol.ca, it will give you a bit more details including sold prices. I suggest finding an agent familiar and experienced in your area offering a commission cash back rebate. The supply is pretty limited and you need to know what you are doing, since so many condos are rented to students you want to ensure the place you buy to live in is suitable for you, being surrounded by party animals may or may not suit you.
I don't even go to realtor.ca anymore. Bungol is the only site I use.
Deal Fanatic
Jul 3, 2011
5825 posts
2976 upvotes
Thornhill
You didn't say how long from purchasing a condo you would turn it into an investment property. Depending on the timeline, unless it is an exceptional building, that is generally not be the most equitable arrangement.

As others have suggested, and given that your budget would more than allow for a reasonable house in KW, it seems to make more economical and equitable sense in several ways to buy a house with a second unit if you and your SO don't mind having tenants. It will pay for a significant portion of your mortgage, and depending on how you treat capital expenditures, a sale later on may be capital income neutral.

Additionally, since 2017, an owner occupied house is far better to have as an investment property given the changes to the RTA and especially in KW because it is a student housing zone where properties should be closely monitored to stave off unwanted depreciation..
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
Thanks everyone for your input. I am learning a lot from you, guys. My goal is find something that in the medium to long term will result in fewer expenses than renting. It can be a carefully chosen condo or even a detached house with a rental basement apartment. I haven't thought about this the latter option before I started the thread, though.
You didn't say how long from purchasing a condo you would turn it into an investment property. Depending on the timeline, unless it is an exceptional building, that is generally not be the most equitable arrangement.
No more than 5 years. I guess what you mean is that, as the building ages, condo fees sky-rocket. I have seen a lot of cheap condos, but with ridiculous fees like 700$ or more, which kills any possible source of profit.
It will pay for a significant portion of your mortgage, and depending on how you treat capital expenditures, a sale later on may be capital income neutral.
New to the real estate market (but have experience investing in capital markets). Would you please elaborate what you mean by "capital income neutral"?
Additionally, since 2017, an owner occupied house is far better to have as an investment property given the changes to the RTA and especially in KW
Would you please expand more on this?
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
To sum up at this point, a good purchase with the intent to maximize gains in the KW/Camridge/Guelph would be:

1) something in KW, preferably in Kitchener;
2) a duplex or detached house with a basement apartment that one can rent;
3) a carefully chosen condo.

I feel like competition for 2) is fierce.
[OP]
Jr. Member
Mar 20, 2018
180 posts
112 upvotes
Thanks again everyone who contributed to this thread. I was going to revive it. I would be very grateful if anyone could share an example of a cash flow analysis for a potential real estate purchase, from a real estate blog or elsewhere. Thanks.

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