In Toronto, around 50% of all condo buyers are purchasing a unit as an investment. While this is often a worthwhile way of making extra cash, it’s also easy to make mistakes that will end up costing you valuable time and money.
Fortunately, you can learn from the mistakes of previous buyers. Here are five of the most common mistakes that new condo investors make.
1. Not Researching the Developer
This is particularly risky if you’re buying pre-construction, however even if you’re buying a re-sale unit some clever marketing and a reassuring salesperson can disguise all manner of problems from leaking pipes to poor ventilation.
With pre-construction condos, the worst case scenario is that the building never gets built and buyers lose their deposits.
A simple internet search can alert you to how many projects the developer has worked on and how many warranty claims have been made against them, giving you a useful indication of how reliable they are.
2. Being Unaware that Closing Costs May Increase Over Time
Again, the risk here can be amplified when you’re buying pre-construction, but it’s something that all investors should be mindful of. When you sign the purchase agreement, many of the closing costs will be estimated, and are subject to change.
Charges can escalate and a whole list of new fees that you didn’t know about can appear. It’s important to budget a little more than expected for closing costs, and pay close attention to any adjustments along the way.
3. Not Hiring a Lawyer
Closely linked to the two points above, it is a terrible mistake of not hiring a lawyer. Whether you are buying a brand new unit or a resale property, you will be required to sign a purchase agreement crammed full of fine print and legal speak.
They can be very confusing to someone who isn’t familiar with the terminology, and you could end up agreeing to something in a legally-binding document that you don’t actually want. While lawyers are costly, they could save you thousands of dollars.
4. Not Researching the Neighborhood
While most buyers will look at local conveniences and proximity to transit, many first-time investors don’t consider future plans to the area, which could actually significantly decrease the value of their new condo.
For example, if a homeless shelter is opening up close by this would affect the value of your property, or there may be plans to build a new skyscraper that would completely obstruct your view. Do your research and hire a realtor who is familiar with the neighborhood.
5. Buying Based on Emotion and Not on Investment Value
It’s easy to fall in love with certain design features or amenities when buying a condo, and this can lead to overpaying for something that isn’t actually a worthwhile investment.
With rising condo prices, there is a risk that you won't actually make money when you rent out the property if you don't think it through properly.
So rather than following your heart, use your head and research the cost of renting similar units in the area, and the cost of resale units in the neighborhood. Keep in mind that costs such as maintenance fees may also increase, particularly in new condos.