# Condo vs Townhouse



## CuriousReader (Apr 3, 2009)

I am still 50-50 on which property to buy, both are in the Yonge&Finch area. The condo unit is pretty much right on the intersection ~1-2 mins walk to Finch Station, the condo townhouse is a bit further down the street, about ~10-15 mins walk to Finch.

Condo:

Probably can get at about $350-360k
Monthly maint $518 - includes all utilities, gym, pool, party room, billiard (and of course, security guard)
No need for renovation, prob just upgrade later in the future

Condo townhouse

Probably can get at about $415-420
Monthly main $500 - does NOT include heat and hydro, still need to pay for hot water tank rental, need to install alarm system and monthly monitoring costs
Master bathroom definitely need renovation, 2nd and 3rd floor ripping out carpet, replace with laminate/hardwood

Purchase price-wise, condo townhouse definitely win, BUT monthly cost is a concern for me. The condo unit give more value with all uti included and the facilities, while for the townhouse I still need to pay this and that also to install alarm system myself.

And the biggest worry for me for the townhouse is other than the monthly costs, but also the amount of work / renovation I need to do (hence amount of more money I need to invest into it) and whether or not it would be worth it at the end in terms of re-sale value.

In the future, I would think the condo unit would be easier to rent out as oppose to a condo townhouse?

What do you guys think?

Thanks!


----------



## Potato (Apr 3, 2009)

Aren't you planning on living there? We discussed the overbuilt/overpriced nature of the condo market in that area in one of your earlier threads, so I can only assume you're planning to buy based on an irrational love of one of these units. Which do you like better?

In that vein, I'm surprised that the very stark difference between a condo and a Y&F townhouse haven't made the decision for you. Pretty much all the townhouses in that area are narrow 3/4-storey jobbies. Do you love stairs? I mean, _love _stairs?

For the townhouse, I'd also be concerned about a bathroom needing renovations. Except for a few townhomes behind the former Northtown plaza, everything there is new within the last decade. Nothing should "definitely need" renovations. How old is it?

I don't know why you're worried about both resale value and renting out in the future, but the townhouse should be slightly easier to rent out in terms of finding tenants (can't speak as to which would come closest to breaking even for you or which would be the least work). There is a ridiculous amount of inventory for boxes in the sky at that intersection (several dozen 2+ bdrm available for rent at the moment, I think the 1/1+1 bdrms may be in the hundreds now, and certainly are if you add in what's just down the subway line at NYC and Y&S).


----------



## michika (Apr 20, 2009)

As someone who has done similar renos to what you've listed, they honestly aren't THAT hard. Depending on what you'd like to replace the flooring and bathroom with, and the current state of the bathroom, you're probably looking at two weekends worth of work if neither are hiding anything terrible.

Plan it out as best out can, if you're not a DIYer shop around for someone who has the skills to make it work.

Even though stairs suck they are great for you. I have family that purposefully purchased a four story townhouse for the stairs and the hidden exercise benefits of them.


----------



## GeniusBoy27 (Jun 11, 2010)

I agree ... for renting, I would think the townhouses would be easier, because the supply and demand ... dictates that there's probably more demand and less supply of the townhomes in this area.


----------



## CuriousReader (Apr 3, 2009)

After much discussion and number crunching, I am leaning towards the condo for now.

This will be my first place and I think starting small would be better (yes, less risk, smaller gains - I am fine with that). The convenience of having facilities in the building with no extra costs, smaller monthly costs in total and smaller mortgage - all will enable me to kill down the mortgage faster.

In 5-8 years or so ... we'll probably be looking for a house outside of the city (as the need for bigger space grows), so having a condo first and move on to a house later makes more sense to me (ie. start small, move to big, rather than start medium, move to big)

I dont deny the townhouse is a very very interesting value, and looks great, but the biggest killer for me for the townhouse is the monthly costs, and add the renovation required - and then add to that small things here and there (those weird air cond holes, weird old style fire alarm, master is so huge I have no idea what to do with it, etc etc)


----------



## dagman1 (Mar 3, 2010)

Not to turn this into a "housing is going to crash debate", but considering the inventory of condos in the area, have you priced out the difference to rent, possibly even in the same building?

If you crunch the numbers, your mortgage payment at 5.8% would be about $2100 plus the $520 maintenance puts you at about $2630 a month.

Assuming it's a two bedroom, it could probably be had for $1400-1500/month (in fact, I see many on MLS). 

If you rent, you will probably have almost the same place, but there is going to be $1200 a month in free cash flow for you to do whatever with (i.e. investing or having an even bigger down-payment for the house you plan on buying). Even if you consider whatever equity you might be putting into the house over, say, the next 5 years, it won't come close to $1200 a month. The flip side of that is if you are going to rent it out, you will probably be doing so at a loss, unless the rental market makes a drastic upward correction.

If you run the number, it really doesn't make sense to buy at those prices. In 5 years, you condo will have had $26,000 paid down, whereas, if you rented, you will have saved close to $72,000 (not including the growth if invested).


----------



## CuriousReader (Apr 3, 2009)

dagman1 said:


> Not to turn this into a "housing is going to crash debate", but considering the inventory of condos in the area, have you priced out the difference to rent, possibly even in the same building?


Thanks dagman ... I did crunch the numbers - it's a 3-bedroom btw, and I will have my gf and her brother live with me and will be paying rent to me. Other than running the numbers, we figured rather than we both "giving away" money to other homeowner, might as well "invest" in ourselves ...


----------



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

CuriousReader said:


> Thanks dagman ... I did crunch the numbers - it's a 3-bedroom btw, and I will have my gf and her brother live with me and will be paying rent to me. Other than running the numbers, we figured rather than we both "giving away" money to other homeowner, might as well "invest" in ourselves ...


That's a bad way to look at it. Remember to also consider all the money you'll be "giving away" to RE agents (when you sell), school taxes, property taxes, water bill, condo fees, land transfer tax, lawyer fees, closing costs, GST. These are all costs you have when owning vs. renting. dag1 is right.


----------



## CuriousReader (Apr 3, 2009)

the-royal-mail said:


> That's a bad way to look at it. Remember to also consider all the money you'll be "giving away" to RE agents (when you sell), school taxes, property taxes, water bill, condo fees, land transfer tax, lawyer fees, closing costs, GST. These are all costs you have when owning vs. renting. dag1 is right.


Understood and I have built into those calculations (over-estimating them) as well ...


----------



## dagman1 (Mar 3, 2010)

When you think about buying versus renting, you need to be careful about the "giving money away to someone else" line of thought.

Ultimately, when you buy, you are giving most of your money away to the bank, only a small portion will even touch the principle, especially in the early years. The principle payment is the money you are not giving away (but that money has the disadvantage of being locked up in a single, illiquid investment). Aside from interest payments, there are also a lot of fixed costs with ownership that are effectively wasted money, not to mention some high initial transaction costs. It is also fraught with quite a bit of risk, as condo fees and interest rates can effectively slaughter the value in your "investment".

I don't see why it would make a difference whether you gave your money to the bank or to a landlord.

It would be interesting to see the numbers as to why you think buying is obviously advantageous in this situation. I would think with the uncertainty in the housing market as well as the aforementioned risks, it might be wise to build in a substantial margin of safety before you buy.


----------



## seven3 (Apr 4, 2009)

The "giving money away" line and "paying someone else's mortgage" are such effective lines for RE marketers. They've effectively convinced everyone that renting is evil..

At the end of the day, all that matters is

a) how much you spend
b) how much is left in your pocket (savings and equity etc.)

Whether my expenses go to service interest or pay rent makes no difference. I really get annoyed with all this Real Estate marketing crap!!


----------



## MoneyGal (Apr 24, 2009)

The company I work for prepared one of those "rent versus buy" calculators for Industry Canada (and we updated it in 2009, but they have not updated their site yet. Which is unfortunate, because we made some really cool modifications to the calculator). 

Here is a link to the existing calculator, for anyone's interest...

http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca01821.html

If anyone has questions about the inputs, ask away. There are a lot of ways to model this question - our model is slightly more sophisticated than some others. Be sure to read the application notes to see some of the underlying assumptions powering the calculations.


----------



## Sherlock (Apr 18, 2010)

CuriousReader said:


> and I will have my gf and her brother live with me and will be paying rent to me.


LOL your girlfriend and her brother will live with you? Isn't that kind of awkward? I mean what will he think while you and her are making love noises in the bedroom?


----------



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

Sherlock said:


> LOL your girlfriend and her brother will live with you? Isn't that kind of awkward? I mean what will he think while you and her are making love noises in the bedroom?


Good point - I never thought of that!

Besides, if I'm living with a woman the last thing I want is someone else in the house to have to work around. Sherlock raises a good point. But anyway.


----------



## CuriousReader (Apr 3, 2009)

Sherlock said:


> LOL your girlfriend and her brother will live with you? Isn't that kind of awkward? I mean what will he think while you and her are making love noises in the bedroom?





the-royal-mail said:


> Besides, if I'm living with a woman the last thing I want is someone else in the house to have to work around. Sherlock raises a good point. But anyway.


let's leave it to the fact that we come from different background and culture


----------



## Berubeland (Sep 6, 2009)

I would figure out how much you are paying in rent and find a house that costs that much to service. Then you're not paying your landlord you are paying yourself. 

Who said you had to buy a nice new condo in perfect condition? 

When I moved into my house I did that and I had one cupboard and rented out the basement to make double payments. 

I went where I could afford...


----------



## andrewf (Mar 1, 2010)

Berubeland said:


> I would figure out how much you are paying in rent and find a house that costs that much to service. Then you're not paying your landlord you are paying yourself.
> 
> Who said you had to buy a nice new condo in perfect condition?
> 
> ...


You're not paying yourself, you're paying your bank. I think that for many people living in Toronto, it makes no sense at all to buy. Let someone else subsidize your rent to live in their condo.


----------



## toronto (Aug 9, 2010)

*my experience with rental property*



dagman1 said:


> When you think about buying versus renting, you need to be careful about the "giving money away to someone else" line of thought.
> 
> Ultimately, when you buy, you are giving most of your money away to the bank, only a small portion will even touch the principle, especially in the early years. The principle payment is the money you are not giving away (but that money has the disadvantage of being locked up in a single, illiquid investment). Aside from interest payments, there are also a lot of fixed costs with ownership that are effectively wasted money, not to mention some high initial transaction costs. It is also fraught with quite a bit of risk, as condo fees and interest rates can effectively slaughter the value in your "investment".
> 
> ...


Totally agree. 
I made a mistake of buying a property and renting out. Now I am paying someone to live there. Plus I have to hire paralegal to collect part of my investment. It is intellectually disappointing. 
I am looking a management company to handle this and sell the property after current lease. 
Who makes money: lawyer, tenant, city Toronto, the court , and the Bank. 
Who lost money? Me, only me.


----------



## GeniusBoy27 (Jun 11, 2010)

toronto said:


> Totally agree.
> I made a mistake of buying a property and renting out. Now I am paying someone to live there. Plus I have to hire paralegal to collect part of my investment. It is intellectually disappointing.
> I am looking a management company to handle this and sell the property after current lease.
> Who makes money: lawyer, tenant, city Toronto, the court , and the Bank.
> Who lost money? Me, only me.


I think when you're buying property as an investment, offer only what you'd feel comfortable with ... if you don't get it, don't worry. Work out the numbers, and be willing to live with the consequences.

It's about building margins and making it cash flow positive as soon as possible. I think in the current Toronto market, it makes no sense to be a landlord unless you get a ridiculously low buying property price (and to be honest, I'd be trying to flip this property as soon as possible.) Or you're looking at multi-unit residential units, and some condos on the suburbs of Toronto.

There is money still to be made, but it's pulling out the 1% of properties that make sense to purchase.


----------



## MoneyGal (Apr 24, 2009)

toronto said:


> I made a mistake of buying a property and renting out. Now I am paying someone to live there. ...Who makes money: lawyer, tenant, city Toronto, the court , and the Bank. Who lost money? Me, only me.


There is a truism that any investment can offer 2 of 3 payoffs: tax-preferred income or tax benefits, capital gains, and current income. 

If you are not getting current income from a property (or any other investment), then look to see whether you are getting tax benefits (i.e., capacity to apply losses to other income to reduce total tax payable), and/or long-term capital gains. If you are NOT getting at least one of the other two, this is not, technically, an investment. 

I know the mantra around RE investing here seems to be "cash-flow positive." However, there are other reasons that someone might buy an investment property beyond positive cash flow from day one. Nonetheless, the conditions for AT LEAST one of the gains must be there, otherwise you aren't investing.


----------



## GeniusBoy27 (Jun 11, 2010)

MoneyGal said:


> There is a truism that any investment can offer 2 of 3 payoffs: tax-preferred income or tax benefits, capital gains, and current income.
> 
> If you are not getting current income from a property (or any other investment), then look to see whether you are getting tax benefits (i.e., capacity to apply losses to other income to reduce total tax payable), and/or long-term capital gains. If you are NOT getting at least one of the other two, this is not, technically, an investment.
> 
> I know the mantra around RE investing here seems to be "cash-flow positive." However, there are other reasons that someone might buy an investment property beyond positive cash flow from day one. Nonetheless, the conditions for AT LEAST one of the gains must be there, otherwise you aren't investing.


Although I agree with MoneyGal that there must be tax gains and/or capital gains associated, if a property is to be bought for investment purposes, I think that tax benefits are over-rated, and unless there are large capital gains involved are generally not worth it.

The real question is the opportunity cost of having invested in a property. Is it worth it compared to some other investment (over whatever defined time frame)?

MoneyGal: Could you give me an example where the tax benefits would be beneficial by itself (i.e. in a situation with 0 capital gains?), or is it only in the coupled situation with both tax benefits and capital gains, that it's worth it?


----------



## MoneyGal (Apr 24, 2009)

I have tediously entered an image verification to agree with you! 

I agree that the tax benefits are often overstated with real estate. And I absolutely concur that unless there are large capital gains are generally not worth it. 

My larger point is that you need to evaluate all of these points of the triangle (so to speak) to see where and if you can get wins. If your property is not cash-flow-positive, is it worth it to hold onto it with the expectation of tax-preferred capital gains? 

Put another way, if a property is not cash-flow-positive, by default you MUST be holding it for tax-preferred income and/or capital gains (tax-preferred by default). If you aren't getting or don't expect either of those other wins, then you are not truly investing. Make sense?


----------



## MoneyGal (Apr 24, 2009)

You edited as I was posting. 

The simple answer is taking current losses on current income, even if the investment produces no capital gains. 

The issue is that long-term capital gains are never guaranteed - you are always buying with an expectation of gain, not a promise or guarantee of gain.


----------



## GeniusBoy27 (Jun 11, 2010)

Okay. I agree with that 100%.


----------

