Real Estate

need advice re real estate situation

  • Last Updated:
  • Feb 8th, 2020 1:15 am
[OP]
Newbie
Feb 6, 2020
2 posts
toronto

need advice re real estate situation

Hey guys, im in a bit if a dilemma. Hoping you guys could provide some insight and advice.

Let me first explain my current situation:

my wife and i currently own a condo in Toronto by the lake in the west end which we've owned for about 7 years (2013) here are the specs:

2 bdrm + den penthouse unit, 2 bath, parking, locker, lake views, panoramic, approx 1100 square ft. 15 min drive to downtown, close to highpark, 24 hour street car to downtown right outside the condo, 10 min bus ride to the ttc subway station, 1 min drive to gardiner expressway ramp. The condo was built in 2007. i bought it as resale in 2013.

how much do you think this condo would sell for?

When we first moved in maintenance fees were 650/month, they are now 850/month. Keep in mind the unit square ft is larger, also this maintenance fee includes all your hydro, elec, water, amenities etc... The condo has doubled in value in the past 7 years. So lets say if I sell it (say for 800k) I will have about 500K profit (after paying off the balance of the mortgage). Since its a primary residence this 500K would not be taxed.

We had a baby who turned 1 recently. We are now thinking of upsizing to a detached or semi detached house.

I am debating whether to sell the condo buy a home or keep the condo and rent it out.

If we sell the condo we can buy our dream home as we would have a big down payment (500k proceeds from sale of condo). But i'm worried about losing this prime condo as its rare to come across pent house units this big and if i were to buy anything like this again it would be very expensive. I see the average rental price for similar units to be 3200/month. this would generate an excess of about 300-400 per month (this would cover prop tax, mortgage, maintenance fees, insurance). Rent prices are continuing to soar as well.

my questions:

question 1: If we keep the condo and rent out, what happens if i sell it in 10 years. Would I pay Cap Gains on the difference of the final sale price 10 yrs from now, minus the original price i paid back in 2013? or do i pay cap gains on the sale price 10 yrs from now minus the value at the time i switched it from a primary resident to a rental property? Do you see this condo go up in value, considering its older 2007, maintenance per month is rising. Is it time to just sell it as its reached its prime growth??

question 2: if i decide to buy a fixer upper home in a prime neighborhood say under 1 mill (keep the condo) and do a complete rebuild, how much would a complete tear down and rebuild cost approx on avg for a 2 storey 3 bdrm house be?

the rebuild would take a year, if i stay in my condo until my home is built what is the status of the house i just bought? is there a rule that since the house i just bought is inhabitable, from a tax perspective that it wont be considered primary yet nor will it be considered rental etc... ? what status would it be?

question 3: should i do nothing and stay put in the condo, use my equity in the condo to buy another investment property instead?

Please help with the above and please provide advice on whether i should keep or sell this condo? please take into consideration, cap gains, maintenance fees, rental income... feel free to throw out some other ideas or solutions as well.

i need to make a decision and i just need as many inputs. some agents say sell and buy a home, but im wondering if they are seeing me as an opportunity to make money off me cuz theyd earn commission on the sale of the condo and the purchase of the new house. i need a non biased guidance/advice.

thank you all so much! appreciate it.
6 replies
Sr. Member
May 3, 2013
643 posts
199 upvotes
Toronto
how much do you think this condo would sell for?
Condo prices are relatively simple to estimate based on previous sales in the same building. Can't answer this one properly without more info.

I will have about 500K profit (after paying off the balance of the mortgage) Technically, you POCKET 500K. Your profit will be less since you must've paid interest on your mortgage, which will increase your cost.

i'm worried about losing this prime condo I would use Warren Buffet's advice: say you didn't own this condo, and if you had just enough money, would you re-buy this condo and get a house? or just get your dream house? There are pros and cons to each choice, no right answer.

question 1: best to check with your accountant. My understanding is you pay cap gains from when it is not your primary residence to the time you dispose of it. The difficulty is showing the value of your property when it converted, you should ask CRA what you need to do to track the value during its conversion. I, nor can anyone, can tell you if the price has reached its prime growth. For ex: I had a client looking at a 2-br condo near Bay St 4 years ago, 900+ sq ft for $700k, her friend told her it's over-priced and that the market has reached its peak. My opinion to her at that time was I don't know, but personally, I think price will increase due to strong demand. Obviously, I was right, BUT I could've easily been wrong as well.

question2: this varies a lot, depending on materials, design, firm, labour, etc. I've only come across one client who did a complete reno on their 2 storey house, price tag was $350k. That's just one quote, not an average, and money wasn't an issue for them.

question 3: you did say you are thinking of moving to a house previously, so why are you looking to buy a condo?

I was in your situation a few year back, what I did was sell my condo, bought a house, built some equity, bought an investment condo. Was that the best choice for me? I don't know, but I'm happy with it.
Sr. Member
Feb 19, 2019
847 posts
923 upvotes
Stouffville ON
Whether to live in a condo or in a house it’s a lifestyle decision, only you and your family can make it.
1) The capital gains tax will be based on the difference between the price when the condo is no longer your principal residence and you sell it. You will have deemed disposition for the change of use from principal residence to rental, you will report it on your tax return but there will be no tax consequences at this point of time, this will establish the cost base for your rental property. This condo will likely continue to go up in value, I personally see the most value in smaller units with small condo fees.
2) For a teardown you looking at $300 per square foot and up, the sky is the limit depending on what you want. Your condo will continue to be the principal residence until you move to your new built home, the cost base of the new home will be land plus construction, plus soft costs etc.
3) That’s an option only you can answer, if you decide to stay with a condo you definitely could consider using the equity you have to buy investments.

You could sell this condo, buy a house with 20% down (think twice and thee times if you are considering building a house, that is a big undertaking and lot’s of headaches and stress to go along with this, not to mention very expensive), and with excess equity in the house buy a smaller condo (or condos if you have enough) for investments, your cashflow will be better, you will be able to 100% finance it with the dowpayment from your house, and write off 100% of your business (You can’t do it on your current condo), smaller units have smaller condo fees, your return on investment may be better than on a larger condo with higher condo fees.
Full Time and Full Service Realtor
Sr. Member
May 3, 2013
643 posts
199 upvotes
Toronto
Good advice by previous poster about thinking twice and thrice about rebuilding a house. I've seen houses on the market where the seller's intention was to do some major renovation, and then ran out of steam (for DIY) or ran out of budget (un-expected costs), and had to sell at a loss. It's easy when someone else talk about it and you see the final result, but it's definitely a lot of stress (at least it would be for me).
Deal Fanatic
Jul 30, 2003
5676 posts
460 upvotes
Toronto
Your Q has been answered mainly - but if it was my choice, I will keep the Positive Cash-Flow condo. Refinance if you REALLY have to. Buy a dream house as much as finances will allow it in that financial position.
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Member
Jul 2, 2018
250 posts
238 upvotes
GTA
Your Q's have been covered pretty well. As for building a dream home, I am a Tarion Registered builder and if you have any questions feel free to shoot me a PM. It's not that difficult of a process, but for people who are busy or easily stressed out it can become a huge huge nightmare. There will be difficulties and silly problems along every step of the way, you need to be able to just deal with them and keep moving.
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