Let me ask you a question. Do think the values of Toronto condominiums will only rise in the future? I want to keep the question vague for now and only apply it to investment condos, so answer to yourself with a simple Yes or No.

Yes you say?

Well some might say (myself included) that you’ve possibly been bitten by the scarcity bug. You know, the one where developers and well intended friends (albeit often mildly informed on the topic) are convincing anyone who will listen, that now is a great time to buy that investment condo. Prices are only going up you are told, but also that the rental market is super strong so giddy-up, what are you waiting for?

Maybe it will, Maybe it won’t?

Ignoring facts like the one that has been well documented earlier this year, that almost half of all new investment condos purchased are losing the average of $1,000 per month. Does that make buying a new condo now sound like a good deal?Note: You can read the links at the bottom of the page for more information on this.

This is not to say that everyone shouldn’t look at new condos as an investment option. Individuals looking at wealth preservation, those suddenly flush with cash from an inheritance, high income earners, all can still benefit in the current market alongside some small investors even with sky high price per square foot costs. All I’m saying is that not everyone should put their hard earned money at risk, without giving thought to what the costs (purchase) verse income (rental income) will be.

But before I continue and address the No side of the equation, let me get it on the record that I do believe in the long term (10-15 years+), some or most condominiums will be highly valued and sought after in the Toronto region. Not all condos are created equally and if you’ve being paying attention to past blog posts from me you will know why I believe this is.

So that being said let’s tackle the No side of the equation. This is where me keeping the question vague ties in. Above I noted that I believe longer term values will be higher than today’s costs. Hard and soft costs that go into condo development are only going to go up. What can happen when they do is it creates a “pause” in the selling of new projects while the economics catch up. This pause can last a short amount of time or stretch out over years.

If you bought pre construction today for example and in five years time (pretty much the Toronto average for delivery of  pre con condos) you took occupancy, and we happen to be in a “pause”  with the market, you might have some serious issues on your hand. And don’t count on being bailed out with an assignment sale of your unit even if your builder tells you there are okay with it.  Assignment sales are tricky things, and even the most experienced of agents and lawyers don’t love them. Even the Canada Revenue agency has ramped up their attack on assignment sales.

Yes the rental market is extremely hot right now. But will it be the same in five years when you get your new condo?

If you want to get into the condo investment market, and after going through a consultation to determine if it’s the right fit for you, maybe consider an already built unit? The pros are huge:

• Property can be had for less than what developers are charging (you pay less for more.) win
• You can buy with confidence knowing what interest rates are like now. win
• You can capitalize on the current hot rental market rent wise. win
• You can benefit from a five years head start in having your mortgage paid down. Did you know, with a $400,000 mortgage balance amortized over 25 years with a rate of 3.75%, you would have your mortgage paid down by over $53,000!!! win

I hope you can see my point in that buying something because everyone says it’s a no brainer, or that it will only continue to rise in value, is not entirely true. As with all investments proceed with caution and take the time to educate yourself in advance, and when ready, align yourself with competent professionals.

CIBC: Over 44% of Toronto Condo Investors Don’t Get Enough Rent …

Many Toronto condo investors struggling to cover costs — and it’s going to get worse: Study

Toronto Real Estate’s Harsh New Reality: Buyer Beware