What to know about condos as investment properties
There are a few different ways you can use an investment property to generate recurring income and maximize your profits.
In this post we’ll look at what you can with a condo as an investment, whether you approach things from the pre-construction or resale perspective.
You’ve got options
One of the most common ways to use a condo as an investment property is to purchase one, either during pre-construction or resale, and rent it out for a length of time. Hopefully, over that length of time, the unit will appreciate in value while its basic costs are being met by the tenant, so the buyer can sell it at a profit and move on to another investment property.
Buying during the pre-construction phase is key to bringing in the most profit, because you’re already getting an early-bird price on the unit itself. Pre-construction requires buyers to have upfront capital and patience.
Resale vs rental?
If you’re able to wait out the time involved in a pre-construction purchase, you’re going to have to decide if you want to sell the unit once the building finishes and opens up for dwelling, or if you’d like to hold on to the unit, and get some rental income out of it first.
Selling right when the building closes and owners are allowed to move in is generally profitable during the first year of the building’s operation. This is because property appreciates, and there are likely some new commercial neighbours on your block looking to take advantage of the new customer base. Depending on your building's nearby amenities, your unit may have increased in value right under your nose once it opens. Make sure to pay attention to the neighbourhood's improvements during the construction phase and adjust your sale price accordingly!
If you can play the waiting came, your profit will likely be greater if you hold onto the unit, rent it out for as long as 5 years, and see what the going price is for your unit after all that time. A quick $20,000 to $25,000 profit the year the building opens could turn into an $100,000 profit if you wait a few years for the neighbourhood and building’s demand to rise even higher.
Make sure to talk to your accountant about which expenses you’re able to deduct from your income as a landlord or pre-construction owner. You may be able to deduct: mortgage interest, property taxes, insurance costs, maintenance or upgrade fees, property management fees and cost of utilities if your rental is inclusive.
Note all living spaces
If you’re looking into the purchase of a pre-construction unit, you should always ask if the listed square footage includes or omits balcony and/or bathroom space. If you buy a unit that advertises itself as 750 square feet, and visit the site once its built and only measure 550 square feet of living space, you can almost be certain the initial measurements included the balcony and other, generally non-liveable spaces.
When you’re buying a resale unit, the listing cannot include exterior spaces or bathrooms in the measurements, while a pre-construction unit can. You can expect the measurements of a resale unit to be accurate and specify how large other spaces are, like the balcony.
Remember that buying a condo unit means it’s yours to customize! Renovations can often increase the value on the unit and elevate interest and rental prices. Having your unit stand out from many of the cookie-cutter rental opportunities in your building or neighbourhood is a good way of snagging a long-term tenant.
Make it yours!
Another way to approach the investment is to continue renting out the unit for an indefinite period of time. Once someone moves out, you can invest in it again by renovating and upgrading, helping you charge more in rent and continuing the rental process.