If you are thinking of investing in real estate in Toronto, you may want to consider condos. They are gaining popularity and are cheaper than detached homes, but the rules may be stricter in certain buildings.
Weigh The Pros & Cons
Investing in real estate may seem glorious. You receive extra cashflow each month! But with the pros come cons and it is best to do your research beforehand and talk to your real estate agent. They should offer their utmost honest and professional advice, especially if you are new to investing in properties.
Pros to renting out a condo:
- Lower purchase price than detached homes
- Taxes and insurance are lower too
- Fewer repairs and upgrades to make than if you were renting out a house
- Amenities that attract to people
- Condos are in higher demand in some cities, especially Toronto
- Condo board looks after maintenance (snow plowing, cutting grass, repairs on elevator etc.)
- Can deduct expenses at tax time (condo fees, insurance, marketing vacant unit, etc.)
Side note: Condo fees are only deductible while the unit is being rented.
Cons to renting out a condo:
- Condo fees are involved – the more square footage your unit has and the more amenities the building has, the higher the condo fees will be
- Slower appreciation – condo prices do not appreciate as quickly as homes, so reselling could be tough
- Could be a lot of rules and regulations involved
- Mortgage rates on condos may be higher (if you pay a higher down payment, you may be able to avoid higher interest rates)
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Hire A Local REALTOR® & Lawyer
Not only should you hire a local real estate expert who knows the neighborhood you are looking in and who the target market is, but working with a real estate agent and lawyer will be helpful too, especially if there are a lot of rules and condo laws you are unsure of. They can also connect you with mortgage brokers who can help answer all your financial questions, since some condo boards will require a higher down payment.
Find Out The Rules & Restrictions
Each building will have different rules and restrictions, including how many units in the condo building can be rented out. Your real estate lawyer should be able to help you understand all the rules involved. If you would like to update the condo before tenants move in, there are also certain permits you will need to acquire from the condo board before proceeding. You must also ensure your tenants understand, and adhere to, the condo rules outlined because if something goes wrong like damage to the property or illegal activity, you will be the one at fault since it is your unit.
Attract Your Target Market
Different neighborhoods and different condo buildings will attract certain buyers. Age, gender, and marital status will come into play, which is another great reason to have a local REALTOR® market your unit. Make sure you are clearly stating what kind of amenities are included in the building:
- Parking space
- Locker space
- Pool & spa
- Rooftop patio
- Laundry room on site
Also include what is around the building:
- Shopping districts
- Parks & trails
Potential buyers will love reading everything included with the unit and what is nearby, especially if it attracts to that certain age group.
How Do I Manage My Unit In A Condo?
One thing about renting out your condo unit is, even though you become their landlord and their rent goes to you, you are not the one having to worry about inquiries regarding snow removal, cutting the grass, or repairing something – that will be placed through the condo board and their property management company. Although if you would prefer, because you are the owner of the unity, you can ask your tenant to inform you first.
You will also need to clearly state to your tenant the condo fees involved with their rent.
Know Your Location
One of the most important real estate investment rules is knowing your location. Make sure you understand who the target market is in the area, what city amenities are around, and tenant turnover rates. Have a plan in place if you know you will experience vacancies for a long period of time.
You may want to rent to students, or young families, or people who are new to Toronto. Your ideal clientele will help you decide on a neighborhood.
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Know The Risks of Short-Term Rentals
Up until the COVID-19 pandemic, investing in condos was a hot topic in real estate. For condo investors with long-term tenants, the fear of tenants not being able to make rent payments became a reality for many landlords. The fear was even bigger for condo investors of short-term rentals like Airbnb who saw 100% of their bookings cancelled. As a result of the pandemic, many condos in Toronto banned short-term rentals entirely and it's unclear when they would implement them again. For condo owners of Airbnb units, they suddenly had no income from their units and many were forced to list their units for sale or for long-term rentals.
2020 is showing that you truly never know what could happen to the economy and shocks can come when you least expect them. Invest wisely and make sure you know what you can afford in case your potential investment temporarily experiences vacancy or time where your tenants cannot make rental payments.