Most Canadians live in a condo as some stage in their lives. This type of real estate especially attracts young couples making their first home together in rented accommodation: Thereby making investing in condos for rental attractive. We decided to delve deeper into how this pans out in practice.
Some Inside Truths about Condo Living
These young tenants have little or no interest in the day-to-day running of the condo. They just want to enjoy the swimming pool, gym and other perks. This contrasts strongly with the needs of older residents, who bought their units to escape the drudge of real estate maintenance.
Condos are largely controlled by condominium boards or their nominated agents trying to satisfy everybody. In Calgary, these fall under governance of the Condominium Authority of Ontario. Owning individual units for rental purposes within condos can be a terrible idea when you have no control over decisions made by these boards.
Moreover most condo residents express dissatisfaction with their condo board when asked. They hear persistent rumours of dishonest bidding, and inadequate controls over the funds in their care. For the above reasons investing in condo units for letting may not be a wise move. Moreover, the Globe and Mail reports a massive inventory in unsold condos holding back capital growth.
Half of Condo Investments in Toronto ‘Making Losses’
The Financial Post reports an alarming number of investors are making losses, and we believe this applies to Calgary too. It completed a survey in April 2018 that uncovered the shocking fact that 44% of 2017 purchases were not covering costs. The discrepancies between rental income, and mortgage payments and condo fees were as follows:
- Shortfall of less than $500 per month – 45%
- Shortfall between $500 and $1,000 a month – 20%
- Shortfall of over $1000 a month – 34.5%
However, Financial Mail reports many have made ‘very nice money’ on their investments in terms of their capex growth. If there is a large-scale exit then those remaining could see their values fall.
What Are the Possible Impacts on Condo Reserve Funds?
Condo boards set their rates at a level sufficient for administration, plus an amount over to cover unexpected costs that may arise in future. Having so many vacant units is threatening their ability to grow these provisions. It is thus as important as ever to diligently investigate a condo’s financial health before purchase a unit.
Stonegate Equity has a number of fine real estate investment opportunities on offer . Please contact us when convenient for solid, honest, impartial advice.
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Calgary, Alberta: Jonibean BY CC0