A little research goes a long way
As Toronto continues to rank in every Top 10 list for livable and desirable cities and detached single-family homes become less affordable for average families, more people’s thoughts turn to condominium ownership.
Many people think of condos as an investment: Whether they use it for an investment property from the beginning, or figure they’ll live in it for a couple of years and then rent it out when they move on to a larger place, condos are often a ‘gateway property’ to real estate investment.
And overall, Toronto condos do make sense. The city is growing, it’s desirable, and while no real estate market offers guarantees, it’s generally safe to assume that a condo in a desirable downtown Toronto building will retain and grow its value over time.
However, it’s important to remember that condominiums have unique characteristics that make ownership different than the four-walls-and-a-yard of single-family homes. They also come with specific rules, regulations and government legislation that can affect ownership, costs, and how well your unit can function as an investment property over time.
We’ve been managing Toronto condo units for investors for 20+ years now. Here’s what we think all potential condo owners should know before buying a unit they intend to use as an investment property.
Understand the market (for buyers and renters)
In the past few years, the number of Toronto condos purchased for investment purposes has risen significantly. And while there are plenty of potential tenants to go around, the best ones are market savvy, and have a good idea what a ‘fair’ rent looks like. Attracting and keeping good long-term tenants means pricing your unit competitively within your building or neighbourhood.
Read the condo rules carefully before signing on the dotted line
As the number of rental units as increased, so has concern on the part of condo owners about the rise of tenants in their buildings. Tenants are often seen as transient and less invested in the overall well-being of the condo building, and that makes resident owners worried about their property values.
In response, many buildings have added clauses about rental units to their condo rules. This may involve everything from minimum tenancies to access to elevators for moving in and out, and can limit your ability to rent your unit. Just about all buildings, for example, prohibit renting your unit on a per-night/Airbnb-type model. So before you sign anything, read the condo rules – and don’t skim!
New condos are most desirable to high-end renters
Generally speaking, if you’re looking to attract renters at the high end of the market ($3500+/month), you’ll want a new (less than 1 year old) condo. This is largely because new condos come with new appliances and newer floors, and prospective tenants feel like they can just move in without having to paint or change too much.
Older condos have the advantage of size
As most of us know, Toronto condos have gotten steadily smaller – the city of Toronto says the square footage has shrunk by more than 25%!
But this is where older condos have an advantage: There are plenty of tenants who would rather have room for a king-sized bed or more counter space than a Sub-Zero refrigerator. You’ll still need to update your condo every few years (we see more potential tenants really resisting even larger condos if they are fully carpeted, for example), but the potential for long-term tenants will likely make the investment worth it.
Understand your options regarding furnished and unfurnished suites
You may decide that you want to lease your suite as a regular, unfurnished apartment: Tenants sign a 1-year lease agreement, the situation is bound by the Landlord & Tenant Act, etc. And this can be a great option (though most investors discover that being a landlord isn’t quite as easy as they’d hoped).
Or you may decide to offer your unit as a furnished suite: The condo is fully furnished, right down to dishes and flatware, to be used primarily by shorter-term guests who may be in town for business or need a place to say for a month or two because their own home is being renovated or was damaged in some way.
Both of these options can be beneficial for investors: Unfurnished suites provide the predictability of a year-long lease; furnished suites tend to attract shorter-term tenants but at a higher monthly rate.
WANT TO KNOW MORE?
For more than 20 years, we’ve been helping Toronto condo investors get the most out of their properties, via both furnished and unfurnished suites. If you’re thinking of buying in the city, but aren’t sure what will make the most sense for you, get in touch – we’d love to help.