# Condo Investment Opinions



## Franky Jr (Oct 5, 2009)

Looking at my first investment property:
New 2B Condo in Alberta. 6% Cap Rate.(with 8.3% vacancy rate)
Estimate that after the CRA takes their piece and slush fund added to, etc. I'll be left with $100/m profit. (again 8.3% vacancy).
This is 20% down 25 yr mortgage.
Is it worth it or is this not enough of a margin of safety? (I know it will be work) I estimate I would need about 8.7% on the markets over the next 25 years to turn my downpayment into an similar end value.

?


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## Mortgage u/w (Feb 6, 2014)

Condos tend to be poor choices for RE investment. Personally, I find $100/mth too low.....but all depends what your initial investment (down payment) is. Post a few more numbers...purchase price, DP, taxes, condo fees, insurance and rental income.

Reasons I do not like condos as an investment:
They do not increase in value as quickly as a single dwelling or a multiplex....condo fees chew up a good chunk of your profits....1 door, 1 tenant, no safety net....governed by a co-op so if extensive repairs are required, no choice to cover the expense.

Then again, everyone has a different comfort level for the size of their investment and return potential.


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## Just a Guy (Mar 27, 2012)

$100/month profit is pretty slim for a market at 3% mortgages. One month vacancy would eat up all your profits, forget about the repairs that would probably come along with it. I'd keep looking do better options.


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## the-royal-mail (Dec 11, 2009)

Agree with the above. It would be easier to reduce personal expenses by $100 a month and save the nuisance and expense of dealing with tenants.


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## fraser (May 15, 2010)

We are renting a condo in Calgary. We had intended to buy but may not. Renting is fine given our lifestyle at the moment. Besides, since selling our house we are getting a better return in the market that we would have on real estate. We did a little research...there are lots of condo issues in Calgary. Apart from the assessment issues, the condo legislation is in the dark ages. It is being re-written but after six years there is still no output from those who are assisting the gov't in this endeavour.
No surprise, Alberta is not known as a province with many safeguards in place for the average consumer/buyer/worker etc. The opposite is in fact the case.

The condo we rent returns the owner just under three percent. We know what the purchase price was, the condo fees, etc. But, last year there was an assessment. That assessment took away six/seven years of profit plus the condo was empty for several months. Hopefully for this owner, the capital appreciation will offset the assessment, and any future assessments as they come along.


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## Just a Guy (Mar 27, 2012)

When will people learn that just because you can buy an investment, it doesn't mean it is an investment.


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## kcowan (Jul 1, 2010)

If it is a new condo, make sure that the fees are realistic. Often they are kept unreasonably low by the developer until all the units are sold. We looked at one that had $400/mo which did not cover the common expenses, let alone a special fund. We estimated that the owners' association would have to immediately increase it to $575/mo.

I would think a $500 surplus would be needed to make it even a consideration.


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## Franky Jr (Oct 5, 2009)

More info:
Price 200K, DP 40K+closing, Taxes 1200, Insurance est. 250, condo fee's 250, rent 1600/m.


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## tygrus (Mar 13, 2012)

Some advice from someone who owned, rented and sold 4 condos in the boom back in 2008. Don't.

Here's why;

- First, always always buy a piece of land under any RE investment. A condo does not fit that category. The land is the intrinsic value, not the structure or the cash flow or the ROI.

- Always buy something that you have 100% control over. A condo board stands in the way of that goal. My experience is a couple activists own these boards and force improvements that you do not want but everyone pays for in fees, like the smoking gazebo that a few people forced through in the complex where my condo was.

- Always buy something that you can do what you want with. Renovations or modifications are banned in condos. Most you can change is the paint color. The reason is that you cannot distinguish your property from the rest, so you will get the same level of renter as anyone else in the building and when you go to sell, every condo is exactly the same. This prevents you from adding value to your property.

And lastly, if you do buy a condo, make sure its steel and concrete, not wood. Two reasons, just better quality building and soundproofing and if it burns, the superstructure will likely be unaffected. A wood building is a match and who is going to rebuild that after wards? You will be left with a fractional ownership in a park.

Hint: True North REIT yeilding 8%, Dundee 7.8% etc


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## fraser (May 15, 2010)

Very good advice. 

Other investments will provide you with an opportunity for immediate liquidation should you sense the markets are turning or if you need some cash. Not so with a condo. We are huge fans of owning the dirt.


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## OurBigFatWallet (Jan 20, 2014)

I own a condo in Calgary.....I'm always amazed at the number of people who want to buy a condo as an investment. There are many, many other (better) investment options than condos. We lived in the condo for 5 years and then moved to a house. The condo is still rented out and although the monthly rent covers the expenses, others aren't so lucky. It may seem like a great investment (thanks to the media) but always crunch the numbers before investing. In most cases you're better off to put your money elsewhere. Condos can't compare to single detached houses in terms of an investment. 

The two things the media doesn't like to talk about with condos: condo fees and special assessments. Both can kill your investment returns.

If I could go back and do it again I wouldn't buy a condo, I'd put my money into a REIT or single detached house.


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## kcowan (Jul 1, 2010)

tygrus said:


> And lastly, if you do buy a condo, make sure its steel and concrete, not wood.


And be prepared for the inevitable remediation if it is a glass wall envelope structure.


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## RBull (Jan 20, 2013)

Tygrus, this is great advice. 

OP, good luck with the decision.


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## tygrus (Mar 13, 2012)

Yeah, I got an expensive education in real estate investing back then.:neglected:

One positive for condos though, they make it easier to control and keep tabs on your renters. The board and other tenents see to that. If you rent a SFH, then your renter could be doing anything in there and you would never know.


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## fraser (May 15, 2010)

Yes, like a friend of mind who got a visit from the police and a court appearance. 

His tenants had a grow operation in his rental house in Coquitlam. Lots of damage but not nearly as bad as it could have been if the police had not found out about it so quickly.


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## Just a Guy (Mar 27, 2012)

I think it's foolish to rule out any opportunity based on what it is...there are good deals and bad deals. Benefits and drawbacks to everything...

He biggest problem you'll face these days in the purchase price, which are usually too high for long term cash flow. Yes, condos have fees, but that also covers all the outside maintenance, and probably utilities. Condos are usually better maintained than single family homes because landlords aren't forced to maintain the property as well...the included utilities are attractive to renters.

that being said, I wouldn't buy a trailer, unless I owned the whole park.


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## Franky Jr (Oct 5, 2009)

Yeah apparently trailer parks have good cap rates..

Thanks for the good, real information.

I guess what I like about it is that I put down say 45K and make about 1200/yr cash of that, and my condo will be paid off for me. It just might not be enough to offset the said advice.


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## Just a Guy (Mar 27, 2012)

Well, as many have said, this wasn't a deal most of us would take. Your 45k is only bank insurance against a market correction.


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## Letran (Apr 7, 2014)

I own a couple of rental condos in Downtown Toronto, right in the Entertainment District and another in the Financial District.

It started as a lazy investment and possible "too drunk to go home retreat" when vacant. (doesn't happen) I wanted something that is very low in involvement. Within the year and a half the value went up by 100k its pretty stable in value now 350k and 475k.

Bought it 2008 for 210k and I can seriously count in one hand the number of months its been vacant. I can't recall the exact figures but my cash flow in my first years is just over $150 my cash flow is a bit higher now with the mortgage and down payment paid down. Very easy to rent its just been paying for itself. The same for the one in the Financial District. 

I would love to own a piece of dirt Downtown and actively looking for Commercial/residential . I do not know about downtown Calgary but condo prices in Downtown Toronto is continuously creeping up. Imagine buying a condo in New York when it was still affordable. For those who knows did the housing market in New York, New York get largely affected with the US economic downturn? I live in the GTA and I know that Downtown is a different Real Estate ecosystem on its own. I plan to hold several properties in Downtown Toronto dirt or not I just think that I would like to own something there that would grow in value as oppose to trying to catch up later when everything is inflated (like now)

That said, my RE dollars are currently being spent south of the border. I bought SFH in Las Vegas in 2011 and looking to buy one this year in Florida. Cap rates are higher 

Good luck in whatever investment you decide.


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## nobleea (Oct 11, 2013)

As has been mentioned, the condo fees are not guaranteed. Developers in Alberta have a habit (maybe this is true everywhere) of advertising low condo fees and once everything is handed over, the board realizes it's way too low. Figure on an increase of 50-60% in the condo fees within 3 years, and then growing at inflation after that. Depending on the construction type, you can also count on some kind of special assessment within the first 5 years. There's always something that wasn't done properly and the builder doesn't fix and your reserve fund isn't big enough to cover it. That could be anywhere from $500 to $10K a unit. I speak from experience.


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## johnlena (Sep 6, 2014)

I have an opportunity to purchase a studio condo in Friendship Heights as an investment. I am considering it, and I wanted to hear some feedback from others as to whether or not you think this is a good idea.

The condo is small but adorable, about 500 sq ft in a well-maintained building with low fees (about $220 per month).


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## Sixth_Circle (Nov 22, 2010)

tygrus said:


> Some advice from someone who owned, rented and sold 4 condos in the boom back in 2008...First, always always buy a piece of land under any RE investment. A condo does not fit that category. The land is the intrinsic value, not the structure or the cash flow or the ROI.





Letran said:


> Imagine buying a condo in New York when it was still affordable. For those who knows did the housing market in New York, New York get largely affected with the US economic downturn? I live in the GTA and I know that Downtown is a different Real Estate ecosystem on its own.


We have been going back and forth on the rent vs buy for a condo since moving to the GTA. We are currently renting near Yonge and Sheppard in North York, but we want more stability now that we are comfortable with our neighborhood and are staying in TO for the foreseeable future. SFHs (in our target area) are beyond not only our finances, but our lifestyle choice. I agree that on the face of it, a condo is a poor choice for RE investment. But here in Toronto, I think the condo will be the future housing for most residents, similar to Manhattan and other urban areas that saw a large increase in density. In places like Calgary, Halifax, and Ottawa, a condo is not going to be as attractive as a single family home, but as density continues to thicken in Toronto, and as urban lifestyles become the dominant choice for most residents, condos will be desired, sought after, and should hold value, especially in the core areas.


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## Jay (May 9, 2012)

I have to admit, I'm rather afraid for Toronto and other Canadian urban centres that have built up mass inventories of glass-walled condos, that are going to require massive repair costs and $25k-ish special assessments when the windows require replacement. These buildings are built to attract first-time buyers and first-time investors (ie the naive), with little consideration for resale value or long term maintenance costs. They are not built to anywhere near the standard of the glass office towers or even the older rental buildings where the owners knew a thing or two about operating a large building. Some of our 5 year old local glass-condos are already having problems with leaks and broken elevators, as well as condo fees on par with 30 year old condos. I grew up in an older condo that was built to far better standards than the new glass condos - and I was still horrified by how much owners can be fleeced by their property manager. New condos are great investments - for developers!

Also, I'm sorry, I love Toronto(great restaurants), but it's not even close to being in the same league as NYC (or London, Paris, etc) when it comes to people and money moving through it, average incomes or rental prices. Given that there are currently more condos under construction in Toronto than NYC (or anywhere else in North America), and that the majority of those are shoe-box sized units (too small for families) in high-maintenance buildings, I would be a bit concerned about being a condo owner in TO.


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## OneEye (Sep 8, 2014)

I am looking at condos as well - We are keeping an eye on assessment data and have found one of the condos we were interested in dropped in assessment 35.91% from 2011 to 2014. If we purchased in 2011 we would be hosed if we wanted to get out of it now. I am really starting to think that condos are NOT the way to go. And this is a sweet condo in Oak bay, Victoria, BC - 1 block away from the Ocean and the Oak bay Marina. This is the top corner unit on the back of the building over looking the gardens under an oak tree. It is sweet and in Perfect condition with hard wood floors under perfectly maintained white carpet. 

What gives with these condos? 

309 - 1400 Newport - Victoria, BC

Assessment amounts:
2011: $376,800
2012: $375,500
2013: $319,700
2014: $241,500

Year over year decreases:
2011 - 2012: decrease of 0.35% during this year
2012 - 2013: decrease of 14.86% during this year
2013 - 2014: decrease of 24.46% during this year

Between 2011 - 2014, there was a decrease of 35.91% in assessments.


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## Sixth_Circle (Nov 22, 2010)

Jay said:


> I have to admit, I'm rather afraid for Toronto and other Canadian urban centres that have built up mass inventories of glass-walled condos, that are going to require massive repair costs and $25k-ish special assessments when the windows require replacement. These buildings are built to attract first-time buyers and first-time investors (ie the naive), with little consideration for resale value or long term maintenance costs. They are not built to anywhere near the standard of the glass office towers or even the older rental buildings where the owners knew a thing or two about operating a large building. Some of our 5 year old local glass-condos are already having problems with leaks and broken elevators, as well as condo fees on par with 30 year old condos. I grew up in an older condo that was built to far better standards than the new glass condos - and I was still horrified by how much owners can be fleeced by their property manager. New condos are great investments - for developers!
> 
> Also, I'm sorry, I love Toronto(great restaurants), but it's not even close to being in the same league as NYC (or London, Paris, etc) when it comes to people and money moving through it, average incomes or rental prices. Given that there are currently more condos under construction in Toronto than NYC (or anywhere else in North America), and that the majority of those are shoe-box sized units (too small for families) in high-maintenance buildings, I would be a bit concerned about being a condo owner in TO.


The quality (or lack thereof) is a huge issue for us. Shoddy workmanship, poor design, and cheap materials are a recipe for disaster. Many of these new condos were never intended to be "homes", but were commodities intended for quick flips. As noted, many already have issues with falling glass, leaks, and poor mechanical installations. Greed ruins everything.


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