One of the most reliable sources of passive income aside from bonds and stocks in a condo investment. Investing in an apartment, residential condominium, or office unit to rent it out creates steady monthly rental paychecks similar to purchasing dividend-paying bonds or stocks that usually pay interest income. Besides, any appreciation in the value of a real estate investment comes as an added benefit from holding it over time.
Is a condo investment a good idea during the pandemic?
The GTA condo market may have felt like a ghost town in the early days of the coronavirus pandemic when physical distancing restrictions took hold. Many Canadians fled large urban areas to ride out the pandemic. But as COVID-19 vaccines continue to rollout, infection control measures ease, and the return to “normal” routine nears, it is clear that property buyers are once again interested in condo living.
During the early months of the pandemic, condo sales in GTA plummeted by 71.6 percent in April 2020 and prices by 1.7 percent. Unlike single-family units, which rebounded back throughout the lockdown period, condo investment sales and price growth lagged for a little longer.
Thankfully, this is no longer the case in 2021. Condo unit sales led the property market in terms of growth in May 2021, up 170 percent year-over-year. This is approximately 20 percent higher than single-family properties. Also, condo units are providing to be one of the excellent alternatives (in terms of affordability) for investors priced out of the GTA’s ground-level residential property segment. Just think about it; the average price for a condo investment now stands at $682,820, while a detached home costs $1,415,698.
Generally, the demand for condo units has returned. However, activity varies significantly throughout the GTA. In fact, property markets beyond big city limits are witnessing the most action in the condo market.
Reopening of Canada’s borders: what does it mean for the property market?
The reopening of Canada’s borders will significantly improve the flow of immigration, which dropped sharply throughout the pandemic. The federal government has been boosting immigration targets to offset the country’s aging population and boost its economy. Currently, Canada is targeting approximately 401,000 new permanent residents in 2022 and about 421,000 in 2023. This is equivalent to 1 percent of the country’s population in each of the two years.
This increase in immigration will undoubtedly fuel demand in the housing market, which is already high because of a lack of inventory and seemingly rock-bottom interest rates. If you have been following real estate market analysis, you must have realized that mortgage rates plummeted amid the global health crisis, and housing became relatively affordable. This allowed more people to enter the property market.
Simultaneously, the federal government enforced strict lockdowns and extended stay-at-home regulations, which forced residents to look for larger homes with more space. This pushed homebuyers further away from big cities into suburban areas. The low borrowing cost and the need for spacious residential units ignited demand, and many Canadians were finally able to enter the property markets due to the same conditions created by the global health crisis.
Between the new international students and immigrants expected to move to Canada and Canadians who intend to relocate in search of affordability, most urban centers will see population growth, which will increase the demand for condos and other local housing units. Real estate analysts, agents, and condo investors are already beginning to see housing demand pick up in the leasing market in Toronto. Beyond renting, Toronto’s property market will also see an increasing demand on the sale and purchase side.
Both property sellers and buyers will benefit during the fall market. It’s beyond any reasonable doubt that property sellers will see higher competition for their homes and probably achieve more than they would have expected, while property buyers are likely to see more options in the market. Immigrants are also walking into strong leasing and purchase markets. Homeowners are likely to see further asset appreciation.
Condo investment example
An investor can buy a condo investment unit with as low as 20 percent down payment (after mortgage approval). A condo (average) bought with $380,000 (which was the average cost of a condo unit five years) with 20 percent down payment means the equity invested as 20 percent down payment was $76,000 plus land transfer taxes and legal costs (estimated total $6,000).
After five years (today), the average price of a condo unit is $658,000. That means the appreciation value of your asset is approximately $285,000. And how much cash did you pay for your condo investment down payment? $76,000 plus $6,000 which equals $82,000.
Within a period of five years, you will have gained $198,000 in the price appreciation of your $82,000 down payment on a condo investment. Do you know what that means? 241%, which equals 48% percent growth every year.
Note that I didn’t count the rental income that will be paying your mortgage and the mortgage principal payoff that’s more than maintenance fees and taxes for easy calculations and better understanding.
Is condo investment a good choice?
Condos in GTA are being derived by three different categories of buyers, which is why the demand in the condo investment market is high. There is also a good chance the demand for condos will remain higher than other property types.
First-time property buyers
Condos are the most affordable property option for most first-time home buyers. With the average price for a condo investment now stands at $682,820 while a detached home costs $1,415,698, condos remain to be an attractive option for starters.
For many first-time property buyers who are young couples and young individuals, the lifestyle associated with condos is attractive. Living near your workplace or having access to different kinds of amenities such as a pool, gym, and more plus housekeeping routines such as landscaping and shoveling the snow can be taken care of by another person (because you pay condo fees). So, in addition to affordability, lifestyle is also a factor that makes condo developments attractive to first-time buyers.
Real estate investors
Investors are also driving the condo market. They are more likely to purchase more than one condo unit and usually aware of the property market trends. Given that a condo investment is linked to a higher rate of return (as illustrated earlier), condo investors are likely to find such an investment option very attractive.
Besides, it is easy to manage a condo investment. Suppose you own a house as an investment property. In that case, you will have to take care of snow removal, landscaping, and other maintenance tasks. But with condo units, the property manager will take care of most of the repairs and maintenance related to the property. This is one of the main reasons busy real estate investors choose condos as part of their real estate portfolio.
Luxury real estate buyers
For some Canadians living specific lifestyles dictate living in a condo unit. And what’s better than acquiring a luxury condo investment? Condo units in central Toronto and various areas in Downtown Toronto can help you get that lifestyle and social status you crave. Some areas like Yorkville are known for such lifestyles.
It’s up to you
Is a condo a good investment?
It depends on what you need. Suppose you purchase a condo unit with the intent to live in it sometime down the road. In that case, you may want to choose an option that fulfills your personal needs. For instance, if you are a swimmer, it is recommended to look for a condo apartment with a swimming pool.
However, for those looking for condo units purely for investment purposes (rental property), try to find an option with a high expected rate of return. Consult with Kean Real Estate Group to learn more about condo investments and how you can maximize your condo investment ROI.
