In the market for a good real estate investment? A condominium property can be a smart choice, whether it's a secondary residence or an income-generating vehicle for you.
Bill Gray, a Toronto real estate broker with 37 years of experience in various parts of Ontario and Western Canada, is an expert in condominium investment properties. Gray says that no matter what your reasons for buying a condo, it's essential to know the market where you're buying.
"In some areas, condos are not as good an investment as others. As an example, in the Greater Toronto Area, if you buy a condominium for investment south of the Gardiner Expressway or south of the Queen Elizabeth Way, you're pretty well recession-proof with it. If you're buying in downtown, the business core in Toronto, that's also a good spot to be. Although north of the Gardiner you've got lots of them coming on the market right now, so you've got to watch that you don't get flooded out."
Gray focuses on the one area of Toronto that is best-supplied with highly desirable amenities: the land between the expressways and Lake Ontario. The combination of waterfront property with proximity to both highway and track [streat car] transportation creates what Gray considers relatively recession-proof investments. In most growing, metropolitan areas there's likely to be at least one such district, with prized amenities and near-constant demand. That's where you want to buy for investment purposes.
Gray also likes condos as investments for rental because they're "headache-free." He explains: "You don't have any maintenance on the outside, and if the tenant is bad, somebody next door is going to go to the committee members right away and they're going to be contacting you. You don't have to be babysitting your tenant in a condo the same as you do [in a single-family home]. So they're very safe that way."
Lots of people consider condos for flipping, but according to Gray this can be a fairly risky proposition. "If you're buying to flip, you better make sure you know what you're doing. Coming new into the market to buy and flip is a dangerous thing." He doesn't recommend it in the current environment. Wait a year, he suggests, and see where the market stabilizes: "Then certainly buy when it's starting to go on an upswing. That's when you want to be buying."
A growing trend is parents buying condos for their kids to live in while attending post-secondary education. Rather than pay excessive rents in high-demand areas, or compete for limited and pricey spots in on-campus residences, parents who can manage it are buying condominium units for their kids to live in for three to four years. Extra bedrooms can be rented to other students to help cover the mortgage. Gray considers this a really smart way to get your money working for you. "You've got an 80% or better chance that that property's going to go up more than what the rent would have been had you been renting."
"Also you have the option at the end of that time period of whether you want to sell it or keep it, and some parents are keeping them, especially if it's a condo. It's easy to keep them in those locations, as a long-term rental unit. So some people will hang onto them because they see the benefit of having that now."
Gray's recommendation? "If every household owner bought one condo or one other property—condos just happen to be simple for maintenance for people—other than their prime residence before they retired, they'd have a much better retirement."
"What happens with a lot of people now is they have that home paid for, and yeah, maybe it's doubled or tripled in value, but in order to enjoy their retirement they way they dreamt of, most of them have to sell or refinance or whatever to pull the equity out. And then your cost of living has changed. So if you had the extra piece of real estate and you sold it…one thing you know is [that] good real estate's always going to double over a 20-year period."
"And of course, there's the take-out cash if you want to refinance; that's tax-free money."
Gray points out that there can be tax benefits to a condo investment property, even if you're not making a profit: "If you're financing it to the maximum that you can, there might be a negative cash flow. Well, another advantage, especially if you're in a high tax rate, is that you can deduct some of that cost that's a negative income change from your personal tax." In addition, if you're investing in a condominium rental property, you can probably deduct some of the expenses you incur for managing your investments. Consult your tax accountant for advice.