Things to Know Before Buying a Pre-Construction Condo
Due to high demand, the pre-construction market is booming once again, offering condo buyers the unique opportunity to get in on the ground floor. Literally. Condo buyers are certainly not without options if they’re willing to consider purchasing in pre-construction. If you’ve been looking high and low for a place that feels just right, don’t worry. Your dream condo might not even have been built yet. However, buying in pre-construction doesn’t come without its downfalls; there are a few things to keep in mind.
CONDO FEES ARE GENERALLY SET EXTREMELY LOW IN
PRE-CONSTRUCTION
This occurs for two reasons: the fees are a rough estimation made several years in advance, and no one can really be sure how much it costs to run a building before it’s fully constructed. Unfortunately, this means that you could easily end up blindsided by fees that rise substantially—usually between 10 and 20 per cent —within the first two years. Be prepared for this inevitability long before you move in.
BUILDERS MAKE CHANGES TO BUILDINGS, EVEN IF THEY’VE BEEN PRE-SOLD
This is one of the sneaky ways that builders capitalize on the pre-construction market. If you’re aware that changes could occur and you’ve reviewed your sales agreement thoroughly, this probably won’t be an issue; most “material changes” will not affect the buyer, due to protective clauses in the sales agreement. But make sure you read the fine print. Not all changes will qualify, and buyers may end up paying steeper fees if builders decide to make significant alterations to the units and the building itself.
YOU’LL BE EXPECTED TO MAKE A LARGE DEPOSIT
If you’ve ever purchased a resale condo, you know that deposits are usually no more than 5 per cent, but builders of condos in the pre-construction stage typically require a bit larger of a deposit. The deposits range from 10 per cent to 15 per cent to fund the expected construction fees. There will be a flat rate (usually at least $3,000 CAD), but it may be timed with the different stages of construction, so you don’t have to pay everything upfront.
THE TEN-DAY “COOLING OFF” PERIOD
This is a godsend for many buyers in Ontario. Everyone who purchases a brand new condo in the province has a total of ten calendar (not business) days to back out of their contract and have their deposit returned in full. If, for any reason, you should need to back out of your contract, be sure to contact your lawyer and get them to review your sales agreement. Getting financing pre-approval is advisable, too.
THERE IS AN INTERIM OCCUPANCY PERIOD
Most buyers aren’t aware that they don’t actually own their condo until the interim occupancy period is up. In the meantime, you will be permitted to move in and take possession of your unit, paying the builder an amount that adds up to the equivalent of your monthly mortgage payment, utility fees, and taxes. Keep in mind that during this period of time you are not technically the owner of the property and no transfer of land has taken place, although it will cost you the same as if you were.
CONDOMINIUMS NEED TO BE REGISTERED AFTER CAREFUL REVIEW
A building must undergo a thorough inspection by the city before anyone can take possession of their units. In addition, it may take a while for all the documents to be processed ensuring that the building is a legal entity. This registration period can take up to two years, but typically, it begins around the time of the interim occupancy period. In other words, you’ll likely become the owner of your condo during the registration period. This process can be inconvenient and annoying, but for most buyers, it’s worth it, because they’ll have the official seal of approval indicating that their condo meets Toronto’s rigid standards of safety and health.
CONSTRUCTION MIGHT BE HALTED OR DELAYED WITHOUT WARNING
If you’re hoping to move into your new dream condo as soon as humanly possible, buying in pre-construction might not be for you. You might be better off looking elsewhere. You’ll very likely be expected to wait for a longer period of time than you’d like. For some people, this is a small sacrifice, since they end up with a beautifully constructed condo with an enviable view. However, for others, it’s a frustrating part of the process. Builders usually have an approximate completion date in mind, but due to unforeseen circumstances, they rarely meet their deadline. Expect to wait at least six months—and sometimes up to several years—for construction to be fully completed.
TAXES
The old adage remains true: it’s one of the only things you can count on in life. You will be charged HST if you purchase in pre-construction, since new condos are subject to federal taxes. Resale condominiums, on the other hand, are not. If you’re purchasing for the sake of investment, you’ll be hit especially hard. Live-in buyers qualify for HST rebates, while investors will be forced to pay upwards of thousands of dollars in HST upon closure. If you’re concerned about how this might affect you financially, consult legal advice.
FIVE SIGNS IT’S A GREAT TIME TO INVEST IN TORONTO’S CONDO MARKET
Toronto is on the fast-track for stardom and with its growing popularity, the housing market is in high demand. Here are five signs it’s a great time to be investing in Toronto’s condo market.
Toronto is a growing city on the fast-track for stardom and when a city experiences growth the way Toronto has over the last decade, this inevitably puts a demand on its housing market. The increase in population is a reflection of how incredible our city is and despite the steady climb of home prices in Toronto, we are still far behind home prices of other major cities. With this in mind, here are five signs it’s a great time to invest in Toronto’s condo market.
1. Condo Prices are at an All Time High
2. Toronto Rental Prices are at an All Time High
3. Toronto has Big Plans for Transit
4. Toronto is a World Class City
5. Toronto’s Population is growing
1. CONDO PRICES ARE HIGH AND CLIMBING
With the prices in the detached and semi-detached markets exceeding affordability for most first-time buyers, Toronto’s condo market is in high demand. Condo prices have been steadily climbing but remain the most affordable option.
Homeowners and investors who’ve purchased a condo in the last few years have experienced incredible equity on their purchases. Historically, the real estate market sees a 4-5% growth rate per year but in the last few years downtown Toronto condo prices have seen the average condo price jumping upwards of 20% in some municipalities in a single year.
Condo prices are expected to continue climbing which means the best day to invest is today, because they’re only going to be more costly tomorrow. The sooner the better is definitely true when investing in Toronto’s condo market. If you’re waiting for prices to drop before getting into the market, think again. Get in now to get your money to start working for you.
2. TORONTO RENTAL PRICES ARE AT AN ALL TIME HIGH
Toronto’s rental market is hot! With the extremely low vacancy rate, the competition for rentals is at an all time high with bidding wars taking place among renters. Gone are the days of getting a one bedroom rental in downtown Toronto for less than $1,800 per month.
Investing in the Toronto condo market means you are able to earn significant rental income from your tenants. Investing in the pre-construction condo market in particular gets you further ahead because it requires less up front with an added bonus of an HST rebate of up to $24,000 when you lease the property for minimum one year.
3. TORONTO HAS BIG PLANS FOR TRANSIT
We know first hand that properties on Toronto’s transit lines sell for higher than their less accessible counterparts. The areas set to become more accessible by transit have already begun to see high resale price growth.
We expect this to continue and so does one of the mayoral candidates who, while campaigning for a transit addition, actually said property values in the areas around the future transit addition would rise. So much so that the additional property taxes would fund the build of that future transit line.
Over the next 20 years there are four major transit projects for Toronto: Eglin ton Crosstown, Smart Track, Downtown Relief Line, and the Waterfront Transit Line.
Similarly, keep your eye on pre-construction opportunities along the east end of Toronto’s Bloor-Danforth subway line where there is still lots of room for development. One of our investors who purchased at Platform condos last fall is already seeing a 20% return on his investment.
4. TORONTO IS A WORLD CLASS CITY
Toronto has been building a positive reputation for itself over the last several years gaining recognition the world over. Consistently ranking in the top 10 Most Livable Cities according to the Economist’s Global Livability Report and recently made the top 10 list of Future-Proofing cities in the world.
In the age of technology, Toronto has become known as the ‘Silicon Valley of the North.’ With our lower dollar for high-caliber tech employees, it’s no surprise that global companies are drawn to Toronto as a place to do business.
According to Robert Half Technology, the tech employment rate is growing four times faster than the overall employment rate in Canada. This tech job growth is most prevalent here in Toronto which recently ranked highest in Canada for tech jobs and fourth among Canada and the United States.
One thing to remember is that the real estate market is cyclical. The boom in Toronto’s tech industry means more jobs are being created which drives demand for more residential real estate and positive price growth.
5. TORONTO’S POPULATION IS GROWING
Canada’s high quality of living -Toronto ranks 16th in the world- is attracting migrating foreigners to our wonderful city. The Toronto Region’s population base is one of the fastest growing in Canada.
Toronto has more than twice the proportion of recent immigrants (8.4%) as Canada (3.5%) with approximately two million more expected by 2023. Investing in the Toronto condo market is a great way to add to the much needed rental supply.
It’s hard to keep up with the increasing demand for rental inventory but without the help of investors there’d be far fewer units being added to alleviate the strain on the rental market. According to a study by Ryerson last year, more than half of the 105,000 condos being developed in the GTA were investor-owned.
When you’re thinking about investing, think about what the city’s future holds. With several large commercial developments, massive transit plans on the horizon and our steady population growth, Toronto’s condo market is ideal for investors to see great returns. Toronto is a world class city but compared to other world class cities in the U.S.— and frankly, anywhere in the world — you’re paying less per square foot.
Toronto’s condo market is primed for profit, investing today will only benefit your future wealth. If you’ve been thinking about getting into the pre-construction condo market, book a call with me today and we can discuss the best options for you and how to start building your real estate portfolio.
HOW MUCH DOES IT COST TO SELL A HOUSE OR CONDO IN TORONTO?
You’ve gone through the buying process but selling your home is a whole other undertaking. We break down the costs affiliated with selling a house or condo in Toronto.
So you’re planning to put your home on the market, ready to make your next move in the real estate world. You’ve gone through the buying process once, but selling your home is a whole other undertaking. You likely have a few questions, such as: how much does it cost to sell a house or condo in Toronto? Let’s break down the many costs affiliated with selling a property so you can best prepare.
WHAT ARE THE COSTS ASSOCIATED WITH SELLING A HOME?
Home Preparation Costs
The costs affiliated with selling a house or condo will depend on how you want to approach listing your property. If you want to make sure you’re striving for the best possible outcome when your property hits the market there are some things you can do to prepare your home to sell that can go a long way.
Some of the minor costs would be to hire a handyman to make minor home improvements like recaulking the bathroom, fixing screen doors, swapping out hardware, and giving your walls a fresh coat of paint.
Then there are the larger investments you can make that will help improve your home’s appeal on the market and hopefully boost its resale value. These costs include things like upgrading any old our out outdated appliances or, in the warmer months, hiring a landscaper to boost your home’s curb appeal.
Listing Preparation Costs
If you’re selling a house, you may consider paying for a home inspection to try and avoid any conditional offers, especially if your agent wants to do an offer date for your listing. The cost of a home inspection will depend on the size of the property but they range between $300 to $500.
The condo equivalent to a home inspection is getting a status certificate. These cost $100 and provide interested buyers with a look at the overall standing of a condo building. It’s like looking at a person’s health records, credit score, and values all rolled into one. You can learn more about Status Certificates here. You will also want to have your home. cleaned ahead of listing and showings. This will vary depending on the size of your home or condo and is sometimes included in your realtor’s commission.
Realtor Fees and Closing Costs
When selling your home, especially in a market like Toronto, you’ll want to use a professional to make sure your home sells for a competitive price. The average realtor fee in Toronto is 5% of the sale price plus HST. This means if you sell your home for $800,000, you are paying your realtor $45,200.
The best real estate agents will spend much of their commission towards successfully marketing your property in order to sell it for top dollar. Each realtor will have different services included in their commission so it’s important to ask your realtor what they offer. These things can include things like home staging ($2000 – $5,000), listing photography ($500), and marketing your listing ($100 – $1,000), which can really add up.
Beyond your realtor commission, the only other official closing expenses you will need to budget for are the legal fees, which are typically between $1,500 and $2,000. However, when buying a property you will have a few additional closing expenses.
WHEN SELLING A HOUSE WHO PAYS FOR WHAT?
Whether you’re selling a house or a condo, it is the seller who pays the commission. While you may be forking over the 5% to sell your home, you won’t have to pay any commission buying your next property.
Earlier we mentioned home inspections and status certificates. Sellers aren’t obligated to pay for these up front, but are sometimes encouraged by their realtor depending on their listing strategy.
DO YOU PAY TAX ON ANY PROFIT FROM HOUSE SALE?
If the home you’re selling is your principal residence, you don’t pay any tax on the profits earned from the sale. However, if you’re selling an investment property, you will pay 50% Capital Gains Tax on the net profits.
POTENTIALLY OVERLOOKED COSTS AFFILIATED WITH SELLING A HOME
Moving Expenses
One expense that shouldn’t be overlooked is the cost of moving. Whether you’re hiring movers or doing it yourself, you’ll need to budget accordingly. The cost for movers will depend on the size of your current place and the distance you’re traveling. If you’re doing it yourself, you’ll need to budget for boxes, packing supplies, and likely a rental van, plus gas and mileage.
Bridge Financing
One thing to be mindful of if your new property closes before your current home sells, you may need to get a bridge loan. This type of loan exists to help those who need access to the equity in their home for the down payment on their new property.
SO, HOW MUCH DOES IT COST TO SELL YOUR HOME?
Now that we’ve gone through the many costs that are associated with selling a home or condo, you can see there are many variables to consider. Though we can’t provide a concrete answer to the cost to sell a house it’s important to be mindful of these potential expenses along the way:
- Home repairs and improvements
- Home inspection ($300-$500) or condo status certificate ($100)
- Realtor commission (5% of sale price and may include below items)
- Staging expenses ($2,000-$5,000)
- Listing photography ($500)
- Marketing ($100-$1,000)
- Legal fees ($1,500-$2,000)
- Cleaning ($150-$300)
- Moving Expenses ($300-$3,000)
FREQUENTLY ASKED QUESTIONS WHEN BUYING A TORONTO PRE-CONSTRUCTION CONDO
The process of buying a Toronto pre-construction condo can be a bit confusing compared to a traditional resale purchase, but it doesn’t have to be. We’ve selected five frequently asked questions our clients have asked when buying their pre-construction condos.
1. IS MY DEPOSIT PROTECTED?
Yes, your deposit is protected in the builder’s trust account. It will accrue minimal interest during the course of construction starting the day your deposit is received until the property takes possession three to four years later.
The interest rate they are required to pay is 2% per year below the Bank of Canada’s overnight bank rate. Which, as it stands, is currently 1.75% meaning you actually don’t earn any interest. If, in the rare instance, your Toronto pre-construction condo doesn’t proceed, you will have your full deposit returned to you along with interest, if any.
2. WHAT IS THE DIFFERENCE BETWEEN REGISTRATION AND INTERIM OCCUPANCY?
It’s at interim occupancy that you are able to move in or begin leasing your condo. Keep in mind that interim occupancy on lower floors will begin sooner than those on higher floors as it is being completed. While the building is ready for occupants there are still areas of the building that are being completed such as amenities and common spaces.
Registration typically occurs three to eight months after interim occupancy. Registration is when you’re closing costs are due and will include Land Transfer Tax, development charges, legal expenses and HST, if owing.
3. AM I ELIGIBLE FOR AN HST REBATE?
When buying a Toronto pre-construction condo, HST is included in the purchase price but things differ depending if you’re buying as an investor or as an end-user.
BUYING AS AN END-USER
Purchasers who plan on living in their pre-construction condo will have the HST portion of their purchase tied into their mortgage and will not have to have the money ready upfront.
BUYING AS AN INVESTOR
Purchasers who are using their pre-construction condos as investments will need to pay HST upfront to a maximum of $24,000. Your HST is owed when the building registers with the city, typically three to eight months after interim occupancy. Your lawyer can file for a full HST rebate, refunded approximately 4 to 6 weeks later, provided you have a one year lease in place.
4. WHAT IS THE DIFFERENCE BETWEEN MY MORTGAGE AND OCCUPANCY FEES?
At interim occupancy you will begin paying occupancy fees because you haven’t yet taken possession of the property but the builder is allowing you to occupy it. Occupancy fees include condo fees, property taxes, and the interest portion of your mortgage.
When the condo building registers with the city, typically three to eight months later, the title is transferred into your name. Now that you have taken possession of your condo, your mortgage begins in lieu of occupancy fees, which will now include the same components as occupancy fees as well as the principal portion in the payment.
5. WHAT ARE THE RULES AROUND BUILDER DELAYS?
It’s good to go in with proper expectations regarding the projected occupancy of a pre-construction condo. Most pre-construction condos will take three to four years to build but there can be delays. Your real estate agent will know which builders have better reputations for being on target with their projected occupancy dates.
Builders are governed by Tarion which enforces the Ontario New Home Warranties Plan Act and Regulations. This act stipulates different requirements that mandate builders to let purchasers know if there will be any delays. They owe different amounts of notice depending on where they are in the construction process.
If you’ve been thinking about buying or investing in a pre-construction condo, let’s talk. I have twelve years of experience in investing in the Toronto pre-construction market and have six investment properties of my own.
Buying a Condo Checklist: Don’t Make These 7 Common Mistakes
Buying a condo is often more complicated than buying a house. When you buy a house the only things you’re really worried about are the appraisal and the inspection. With a condo you not only have these but also a host of other issues. To do it right you almost have to have done it before and learned from your mistakes.
Luckily for you, those who have tripped and fallen have shared their tales of woe. Here are the top seven mistakes past condo buyers have made and are now passing on to help people like you.
Mistake 1: Not Knowing How Many Parking Spaces You Get.
It’s a simple enough thing to look into and is easy enough to verify. How many parking spaces will you be guaranteed with your condo purchase?
Do you have a spouse? Does he or she drive, too? If he or she doesn’t, is it possible they will want to one day?
If you only get one guaranteed parking space, but you need two, it’s going to be a daily grind finding parking. Is the condo nice enough to warrant the added stress? Are you really that good at parallel parking?
Mistake 2: Not Understanding the Condominium’s Demographics.
Are you a professional with no intention of settling down and having kids? Do you have kids, but the condominium caters mostly to older retirees? Make sure that both you and your would-be home are compatible with one another. You want neighbors who are on a similar life path and journey as you. If you and your neighbors are too different, problems are likely going to arise.
Mistake 3: Not Walking Around the Entire Grounds.
Buyer’s remorse is often associated with buying the metaphorical ‘pig with lipstick.’ Escape this plight by doing your due diligence. Walk through the entire neighborhood and condominium. Is the condo you’re interested in the only good one? Why is that? What might that indicate about the neighborhood, condominium, and HOA? Yours may be the first in a revitalization effort, or it may just be a box with a fresh coat of paint.
On a similar note: Get a thorough home inspection and pay the inspector a few extra bucks to walk around the perimeter. If he sees any red flags with drainage, gutters, or with the building’s foundation, these are all things that will likely come up in future HOA fees! Meaning more out of pocket expenses for you in the near future!
Mistake 4: Not Reading Through the Condo’s CCRs
Conditions, covenants, and restrictions, aka CCR for short, are what you can and cannot do in your purchased condo. They are the rules you and your neighbors will have to live by. If you violate them you’ll be fined, or worse, have a lien placed on your home. Read through the CCR backwards and forwards. Is it something you can live with? Or do they seem a little too strict? If you’re on the fence about them, it’s likely you won’t feel at home there and should probably resume looking elsewhere.
Mistake 5: Not Verifying that the Building isn’t in Litigation
If some sort of legal action is taking place with the condominium complex, you don’t want any part of that. Whether owners are suing each other or management, you know the general environment is not going to be conducive to a relaxing evening. The most common type of litigation that takes place with condominiums is building defects (usually as a result of the owners trying to cut corners during construction). When this happens, lenders are usually reticent to finance any purchase there.
Mistake 6: Not Looking into the HOA’s Financials
HOAs collect fees and make assessments of included properties. Any money spent by an HOA always comes first from the homeowners (meaning you if you buy the condo). How well an HOA spends and manages its money should be very important to you since, after all, it will be your money. Before you sign anything, look at the HOA’s annual revenue, monthly dues, average balance, pending lawsuits, and reserve funds for catastrophes. If there are any dips or spikes in the funds, request a full explanation as to why.
If the HOA doesn’t have a good hold on its financial obligations, the most likely thing that will happen is that your HOA fees will increase. If the condo is already at the higher end of your budget, spiked HOA fees might put it out of reach. The next likely thing to happen is that the HOA will take away or reduce certain amenities (such as pool cleaning and repair, lawn services, gym hours, etc.
Not all HOAs are created equal. Board members, believe it or not, often don’t know what they are doing. Sometimes they’re elected just because they showed up to a meeting.
So, it is not uncommon for HOAs to be unable to maintain their yearly expenses, nor is it abnormal for their reserve funds to be completely drained. Keep in mind that when fees are raised too high, foreclosures often happen, which reduces the value of everyone’s home in the complex. Not good news for when you decide to sell!
Mistake 7: Not Seeing Whether or Not a Reserve Study Has Been Done.
A reserve study can be thought of as a type of home inspection that tells you what elements of a building’s construction will likely have to be replaced in the future and, likewise, how much those replacements will cost. The study looks at a building’s physical state and then assesses its future financial needs. If you are planning on living in a condominium, a reserve study will tell you what future financial commitments you may have one day.
Advisers recommend that HOAs have, at minimum, 50% set aside for what the reserve study states will be needed in the future. Should a calamity befall your condo, and your HOA is not prepared, your fees will skyrocket overnight. As anyone who has owned his or her own home will tell you, Murphy’s Law is very much a reality. You should always be prepared for the worst.
Do your homework.
Buying a good condo isn’t rocket science. As with any home purchase, just make sure you do your homework so you’re not walking into a money-pit. A good realtor that has sold condos before and who is familiar with the area will help you avoid many of the above pitfalls. However, even if he or she has great credentials, don’t take their work for granted! Verify that whatever information comes your way is accurate and reliable. HOA financials from two years prior is a good place to start, but you need recent, up-to-date information!
101 Best Tiny Luxury Interior and Decor
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It’s at a more compact scale, and it is an excellent procedure. It is a diverse spectrum of individuals who reside in houses which are so small, they’re often illegal. The capability to the small house can come from several sources.
Bathroom Renovation
Not all homes are created from wood. To live within this glam tiny house, it’ll cost you! The small homes that are constructed during the filming of little Luxury are constructed within six to eight weeks.
Some houses have land, some don’t. For some, it’s not only about cleaning your home, but about eliminating your home, too. People might rent the small house for the initial few decades and be added to a lien for the past four. It’s important to recognize that a very small house isn’t an excellent space since it’s small, but rather most small houses are very good space that just so chance to be small. These very small houses are the ideal example which you don’t require a lot of stuff to be happy. If you prefer a small house, for any reason, you need to have one. The very small houses are perfect for out-of-towners, but in addition for Chattanoogans who wish to unplug or relax, in addition, he said.
A Tiny house is a new method to construct in a sustainable method. Tiny homes cost the exact same amount irrespective of location. Though they aren’t for everyone, they are the ideal home for those looking to live in the lap of luxury, but without needing the vast square footage. Small homes arrive in an assortment of one-of-a-kind styles like this rustic Texas prairie home. It isn’t the exact same as a manufactured mobile house, and it is not the exact same as an RV. Building an expensive very small home goes against the very small house movement.
Unlike conventional caravans, a Tiny Home was made to resemble a little house. If your small home requires a bit additional space, just build up! When you’re building a very small home having rooms which serve many purposes is critical.
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FINDING THE BEST CONDO INVESTMENT
Investing in pre-construction condos has proven to be a successful investment strategy but it’s not the only way to make the best condo investment in Toronto.
Traditionally over the last 15 years, the majority of people who have invested in pre-construction Toronto condos have made a lot of money doing so. The ability to leverage a small amount of money over a longer period of time has proven to be a successful investment strategy and we’ve been conditioned to believe that this is the best way to make a great return. But the real estate market is exactly that — a market — and the market is changing. As 2019 comes to a close, where will you find the best condo investment in Toronto in 2020?
In this article we will cover:
- Why pre-construction Toronto condo prices have risen
- Insight into the Toronto condo market
- Why you may need to adjust your condo investment strategy in 2020
- Pre-construction condos Toronto versus resale condos
- How to make the best condo investment in Toronto
- Why investing in condos is still a great investment
THE COST TO BUILD THE TORONTO CONDO MARKET
The cost to build is more expensive than ever. Labour costs, material costs, city-imposed development charges, and land prices are all driving up the average condo price in Toronto. There’s really not a whole lot of land left to develop downtown. Parking lots around the city are quickly transforming into new condo developments to keep up with our growing population.
But material and labour costs aren’t the only thing driving up prices. Babak Eslahjoub of Core Architects said to the Global and Mail that “construction costs are going up as a result of the demand being quite high; we’re the victim of our own success.”
In today’s market, the price developers need to charge has nothing to do with whether or not it’s a fair price for the property. In order to make any kind of profit, they are now charging more than resale property values are worth because the cost to build new condos in Toronto has increased dramatically over the last few years.
TORONTO CONDO MARKET 2019 VS 2020
We as consumers are conditioned to think that investing in pre-construction condos is the only way to make a great investment. In order to find the best condo investments in Toronto, we’re constantly tracking the active market and adjusting our strategies in order to earn our clients the best returns possible.
With that being said, there are many pre-construction condos in Toronto that we are unable to recommend for the purpose of investing because they have prices that far exceed what the current market is trading for. Your 2019 condo investment strategy may need to adjust for the 2020 condo market.
CONDO INVESTMENT STRATEGY 2020
Our condo investment strategy has largely been focused on investing in the Toronto pre-construction market. By remaining in tune with the resale market we look for the best condo investment opportunities by analyzing things like:
- what different neighbourhoods are selling for
- what new developments are in the works for an area that will make prices rise such as transit, infrastructure, new retail
- what external factors, like the economy or new laws that are being implemented, could give us clarity on why something may be a good investment
Pre-construction condos are still a hot commodity and buildings have been selling out in record time but, however from an investment standpoint, it’s becoming more difficult to generate a great return using this investment strategy.
The New Average Price Per Square Foot
The majority of projects are charging far more than what the current market is trading for in any neighborhood. The new norm is anywhere from $1200 to $1500 per square foot (psf) and for luxury condos that price can jump to $2000psf. Mind you, this doesn’t even include the cost for parking which could run you an extra $60,000 to $90,000 depending on the project and neighborhood.
Comparatively, the highest selling resale buildings with premium units are selling for $1100-$1250psf with parking across the city. Take our recent listing at Musee condos in King West for example. This two bedroom condo is in one of Toronto’s most sought after neighborhoods, has a very desirable split floor plan and a huge terrace. We sold this unit for $865,000 which equates to $1122psf with parking and locker.
If you wanted to buy a pre-construction condo at a project that launched around the corner from Musee, you’d be paying roughly $1300psf + $89,000 for parking + $10,000 for locker. For the same sized unit, you’d be paying roughly $1,100,000. Along with the higher cost to buy, you have to account for the extra closing costs and development charges that go along with them down the road. In order to break even on this type of investment, you’d need to sell around $1650psf.
In real estate you should be looking to maximize your investment. Why pay a 30% premium to buy something that will be built in the future? You can buy a premium unit on MLS for far less today knowing that new builds will float the value of your investment, providing you with an even better return.
Despite the new benchmark price for pre-construction condos, there are still condos that we believe are a good investment.
Pre-Construction Condos VS Resale Condos
With resale condos, you do need to be ready to put all 20% down plus your closing expenses. One benefit of investing in resale is you can have someone start paying down your mortgage right away. You also have the advantage of knowing how a building performs on the resale market.
By making smart and well educated investments choices, you can bank on areas where new builds are selling for a much higher price point than what’s currently trading and reap the rewards. Hold on to that investment for the next 5 to 7 years and you’ll make really great return on your investment.
When looking for the best condo investments in Toronto in 2020, you may need to adjust your condo investment strategy and look to the resale market. We’re always sourcing the best investment opportunities across Toronto and negotiating behind the scenes to get you a great return.
10 Questions You Need to Answer Before Getting a Mortgage
There is a lot to know when it comes to buying a home. I remember when my husband and I first started talking seriously about it over two years ago. I spent months researching online, reading real estate books, and of course checking out blogs from people who went through the process themselves.
Now that I’m officially a homeowner, one of the things I wish I looked into a bit more was mortgages. Sure, everyone knows you need a mortgage to buy a home, but there are so many intricacies involved in finding the right mortgage for you, I want to make sure you are fully in the loop!
To break things down so you can easily check them off on your house hunting checklist, here are the 10 most important questions you need to answer before getting a mortgage. Once you’ve successfully answered every question, then you are ready to get yourself a mortgage!
1. Are You Getting a Conventional or High-Ratio Mortgage?
This is something you can probably answer fairly easily once you’ve figured out your budget. To put it simply, a conventional mortgage is one in which you put 20% or more towards your down-payment. That’s the type of mortgage my husband and I got because we really wanted to keep our payments low and we wanted to avoid paying mortgage insurance.
If you’re unable to put 20% or more down, then you’d be getting a high-ratio mortgage. It’s called high-ratio because they are considered riskier than conventional mortgages and because the mortgage will account for more than 80% of the purchase price. And if you do get a high-ratio mortgage, you will be required to get mortgage insurance.
And just so you know, insurance premiums depend on how much you put down. The key thing to remember is the more you put down, the lower your premiums will be.
2. Do You Want an Open or Closed Mortgage?
An open mortgage allows you to add extra contributions to your mortgage on top of your regular payments. So if you get a surprise windfall or save up some extra cash, you’d be allowed to throw it onto your mortgage without having to pay a penalty.
In turn, a closed mortgage doesn’t allow this, unless you’re okay paying a penalty (and I’m gonna guess you’re not). So why would anyone get a closed mortgage? Well, they usually have lower interest rates associated with them, which could make your regular payments more affordable if you’ve got a big mortgage.
3. Do You Want a Fixed, Variable or Convertible Rate Mortgage?
This is an important one, so pay attention. A fixed mortgage means your interest rate will stay the same throughout your term. It’s a good option if you want your payments to be consistent, and this just might be easier to integrate into your budget.
However, a variable rate, which fluctuates based on market conditions, can mean you’ll be paying a lower interest rate than a fixed rate. Then again, if the market doesn’t continue to be so low and starts to climb, so will the interest on your mortgage.
A convertible rate is a mix of both. It starts out as a variable rate, but you get the option to lock it into a fixed rate at specified times.
4. Are You Going to Get Your Property Taxes Rolled into Your Mortgage?
When my husband and I first started talking to family about buying a place of our own, one thing I learned from my parents was that you could roll your property taxes into your mortgage.
The benefit of this is that you’ll never forget to pay it (or save up for it), so there’s definitely some peace of mind there. The downside is it might cost you more than just paying your municipality directly.
Also, some lenders require you to roll your property taxes into your mortgage, so this might require some extra research on your end to find out if the convenience factor outweighs saving some money every year.
5. What Amortization Period Do You Want?
Your mortgage amortization period just means how many years it will take you to pay off your mortgage. The most common amortization period is 25 years, however you can choose a shorter period of time to pay off your mortgage quicker.
A shorter amortization period also means you’ll be paying less interest in the long run. To see how much interest you’ll end up paying with different amortization periods.
6. How Long Do You Want Your Term to Be?
Your mortgage term is how long your agreement and interest rate is with your lender. A common term is 5 years, but you can also do a 1 year or 3 year term. Once your term is up, you are free to renew or renegotiate your mortgage with your lender, or you could shop around for a new lender.
7. What Payment Schedule Do You Want to Be On?
These are the different mortgage payment schedules you can choose to be on: monthly, semi-monthly, biweekly or weekly. You may want to choose a payment schedule that matches when you get your paycheque, however that may not be the most cost-effective choice.
If you choose biweekly payments, you’ll end up paying your mortgage faster than if you were to do semi-monthly payments. Because there are a few extra payments involved with biweekly payments compared to semi-monthly, this is a simple way to cut your 25 year mortgage down to 21 years.
8. Do You Pass the Stress Test?
As of Oct. 17, 2016, you need to pass a stress test to be approved for a mortgage. These rules were put in place to protect buyers from buying more house than they can really afford. So what is the stress test? It’s seeing if you can still afford your mortgage if it goes up to whatever the Bank of Canada 5-year rate is at the time.
This was actually something my husband and I did before these rules kicked in. We wanted to make sure if interest rates go up, which they will eventually, that we could still afford to carry our mortgage. This also helped us figure out our housing budget, which was a big reason we decided against buying a house and opted to buy a townhouse instead.
9. How Are You Going to Get Your Mortgage?
There are basically two ways you can get a mortgage: go directly to a lender like a bank, or hire a mortgage broker. My husband and I went with a mortgage broker for our home purchase because it just made sense to us.
The first reason was because we didn’t have to pay to use a mortgage broker. Brokers are compensated by the financial institutions they broker mortgages for, not the buyers. That being said, some brokers do charge buyers a fee, so make sure to ask if this is the case before doing business with a broker.
The second reason was because their job is to find the best rate possible for you without significantly impacting your credit score. You see, if you were to shop for a mortgage yourself, every time the bank would check your credit, your credit score would get dinged. Since a broker only checks your credit once, it would only ding your score once. And why does that matter? Well, you want your credit score To be as high as possible so you can qualify for a low interest rate.
10. Are You Ready for this Big Responsibility?
This is all a lot to take in I know, so the last question you need to be confident in answering is if you are really ready. As I’ve learned after becoming a homeowner myself, owning a home is a big deal. It’s expensive, it’s a lot of responsibility, and it means you may be on the hook to pay off hundreds of thousands of dollars for the next 25 years.
If that doesn’t scare you off and you’re ready for this challenge, then go for it!
7 Things to Do Before House Hunting
House hunting can be overwhelming, especially if you’re a first time buyer.
You have to think about the location of the property, square footage, layout, finishes, flooring, and oh yeah — getting a mortgage. The list is endless.
It’s exciting and exhausting at the same time. How do you even know where to start in the process?
Whether you’re hunting for your very first house or your fifth, the process will be much smoother if you have a plan and a house hunting checklist.
If you’re jumping into the real estate market, here are 7 things to do before you start house hunting.
1. KNOW YOUR CREDIT SCORE
First things first: don’t go house shopping without getting a mortgage pre-qualification.
Have you found a house online you’re just dying to see? Don’t pull into the driveway until you’ve talked to a mortgage broker first.
There’s nothing worse than putting in an offer on your dream home, only to find out you don’t actually qualify to purchase it. That’s unnecessary frustration not only for you, but for the sellers and realtors as well.
As a former mortgage broker, it was so hard for me to tell someone they didn’t qualify to purchase the listing they had just laid on my desk, but sometimes I had no choice. I felt like a dream killer more than once.
Your credit score in particular is important because only two things determine the interest rate you get on your mortgage: the amount of your down payment and your credit score. You can check your credit score online with a tool like Credit Sesame. It’s not the exact same as your FICO score, but it’ll give you a good idea of where you stand.
There’s nothing that will kill a sales contract faster than finding out you can’t qualify to buy a home. If you find out your credit isn’t up to par to buy a home, work on fixing it first, and put your house shopping on hold for a while.
Don’t panic — there will be plenty of homes available once you’re able to start your search again.
2. MAKE A BUDGET
You should decide ahead of time what amount you’re comfortable with paying per month for your mortgage. Then go to your bank for your pre-qualification letter.
Hopefully you already have a budget and know what will work for you and what won’t, but if you don’t, now is the perfect time to start one. It’s important to do before you have a mortgage payment.
A budget is important because by using one, you’ll always be aware of where your money is going. If you currently use one, then you’ll already have a good idea of how much you can comfortably afford.
Don’t get starry-eyed and blow your budget if your loan officer tells you you’re qualified to purchase a more expensive home. Know your max, and stick to it.
A budget will also help you determine how much you can afford to pay for utilities, furnishings, and decorations for your new home it’s easy to get carried away with buying new items for your home, but a budget will help you manage these expenses.
3. FIND A DILIGENT REALTOR
The next step is finding a realtor who will work for you. You want someone who will stand up for you in the final walk-through or at the closing table if something doesn’t go right.
You also want someone who has lived in the area for a long time, who knows the market, and who is knowledgeable about the costs of home repairs and upgrades.
A good realtor can point out problems with potential homes before you get too attached to them. I appreciated having a realtor who pointed out disadvantages to specific properties, especially as a first-time home buyer without good knowledge of basic home repairs.
The best way to find someone who will work hard for you is to ask for recommendations from friends and family members. (The same rule applies to finding a reputable mortgage broker.) They’re making a lot of money off of you, so they should be in your corner at all times.
I’ve seen many bad realtors and many great realtors, so if your realtor isn’t working for you, find a new one. There’s not a shortage of realtors these days, so make sure you are happy with yours.
4. MAKE A LIST OF NEEDS, MUST-HAVES, AND WANTS
You may end up seeing so many properties your head will be left spinning. You might forget some of the things you were looking for in the first place.
Before you look at any houses, make a list of your needs, must-haves, and wants. This way, if you get overwhelmed after seeing too many homes, you can simply refer back to your list and remember what it is you’re looking for.
So many people say that when you walk into the right home, you’ll just know. That certainly isn’t true for everyone, and it wasn’t true for me.
When I first looked at my current home, I appreciated it, but I didn’t get an overwhelming feeling about it.
It actually wasn’t until I slept on it that I realized it would make the perfect house for us. It had everything we needed for our family at a ridiculously affordable price. I didn’t fall head over heels for it at first glance, but now I’m so happy with my choice.
Don’t let anyone tell you it will be love at first sight, because that doesn’t always happen, especially if you’re in the market for a fixer-upper or a foreclosure.
5. CHOOSE YOUR LOCATION
It’s going to be really hard for your realtor to show you the best housing options for you if you don’t know the area you want to reside in. You’ll end up all over the place if you don’t.
If you aren’t sure about your specific location, spend some time in the areas you’re interested in at different times of the day to get a feel for the area. Good times to visit are rush hour times and nighttime.
Afterward, ask yourself these questions:
- Do I feel safe there?
- Is there an abundance of traffic at rush hour?
- Is it on a busy road?
- Does the neighborhood look clean and well-kept?
Choosing a set location ahead of time will help narrow down the list of properties you see. It will also help you avoid seeing tons of houses that are in a less than desirable location.
6. SAVE AN EMERGENCY FUND
If you don’t have an emergency fund saved yet, buying a house isn’t a wise option.
Houses mean constant maintenance, even if you buy new. You don’t want to be caught without heat in the dead of winter just because you can’t afford to fix your furnace.
You also don’t want to be forced to pay for it on a credit card when you realize you really can’t live without heat.
Don’t put yourself in this position and end up sinking. Save for emergencies.
7. CHECK YOUR EMOTIONS AT THE DOOR
Buying a house is an emotional process, but do your best to keep your emotions out of it before you make a hasty and unwise decision about a house that’s financially out of your reach.
Buying a house is a business transaction, so play it cool and keep your emotions in check. You’ll be thanking yourself later.
When I bought my first house, I was so set on finding a charming, vintage bungalow, that I let everything else about the house blind me.
I finally found what I thought I wanted, for about $20,000 more than my original budget. The house was a dream, but it was on a really busy main road, and in a less than desirable school district.
It barely had a yard, and our neighbors were practically on top of us on all sides.
I bought the house anyway, and for the next two years, I never went in my front yard. I constantly worried about our privacy, and I kept my blinds closed at all times.
It wasn’t exactly what I had envisioned when I was signing the closing papers on my house.
Luckily, I was able to sell the property two years later, basically breaking even on what I paid for it. I sense the buyers who bought it from me did exactly what I did. They got starry-eyed.
I was lucky to be able to get out from under that house, but many people aren’t so lucky. It was with that house I learned a great lesson the hard way — buying real estate is a business transaction.
Even though it’s hard to keep emotions out of it, you need to in order to keep yourself from making a bad decision that could end up affecting you for years, and cost you a ton of money.
No matter what you do, try to make house hunting a fun process, because it should be. It’s not every day that you get to run around shopping for houses, so try to enjoy it! If you follow this checklist, then your house hunting process will be easy and painless.
