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Debunking the Short-Term Condo Investment Mindset

Debunking the Short-Term Condo Investment Mindset

There is a current trend in the thinking about Toronto condo real estate. A current mindset, if you will. You’ve probably heard it already. You might even believe it yourself. But it’s a way of thinking that we would highly advise against because it’s simply unrealistic and could lead to big disappointments.

What is this new condo investment mindset?

It goes like this. A new buyer, let’s call him Bill, meets with his real estate agent and says he’s looking to buy into the condo market as soon as possible. He wants to hold his property for 16 months or so, and then sell it off. Bill is thinking to cut his risk quickly and cash in on some short-term appreciation.

But Bill’s thinking is problematic for two reasons.

First, Bill is still caught up in the whirlwind of 2017. Last year, Toronto real estate saw unprecedented price increases and a surge in buyer competition. We wrote about it a lot. If you don’t know what happened last year, check our 2017 Toronto condo market review .

The sudden price increases for condos in Toronto from January to April of 2017 caused a lot of people to shift into short-term thinking. Everyone you talked to had become a savvy investor. The idea was to buy in (if you could), hold for a few months, and then sell as prices continued to rise. And, in 2017, the Toronto real estate market allowed for this strategy to work for many people. But if people are buying any property for a quick flip solely based on market conditions then they are opening themselves up for giant risk and disappointment. The market simply isn’t the same anymore.

The Toronto real estate market has changed

Due in part to the government intervention, GTA real estate prices in 2018 are levelling out. There is still an upward trend among Toronto condos , but the 20-30% year-over-year appreciation is a thing of the past. In 2018, we should be expecting 5-10% appreciation. Buying a condo and turning it around quickly simply isn’t the most intelligent strategy for 2018.

The second reason people are turning to the short-term mindset is the fear of some looming correction or crash. Again, this is unrealistic.

Let’s go back to our eager buyer, Bill. When Bill meets with his real estate agent, he explains his concerns that the market has been too good for too long. It can’t keep being this good. Something has to give. He wants to buy a condo, to get into that money-making market, but he wants to get out before the crash hits.

Here’s what Bill is overlooking.

First off, Canada is expected to have positive economic growth in 2018 of 2.2%. It’s down a bit from 3.1% in 2017, but it’s still good growth. That positive growth will be reflected in increased immigration and increased job growth, largely in the Golden Horseshoe areas of Ontario.

Secondly, the Bank of Canada’s interest rate hikes have put many people on guard, especially buyers faced with higher borrowing costs. But the higher interest rates, along with tighter mortgage approval rules, have actually helped to cool the real estate market, not crash it to the ground. We discussed the impact of these new rules and how to buy a Toronto condo in 2018 in a previous blog post.

Lastly, and specifically from a real estate point of view, the GTA housing market is severely under supplied right now. New freehold houses are not being built fast enough to meet demand, and purpose-built rental properties are overlooked for more profitable condominium projects. What that means is that condos in Toronto are the main answer to our current housing crisis.

Smart condo investment thinking is a long-term plan for 2018

Condo investment should not be approached with a short-term mindset. Our friend Bill needs to re-think his strategy. He needs to be selective, looking for the right condo investment that he will be able to carry for the next five years, at least. Interest rates will likely go up again, and the current best strategy for real estate is the long-term game.

In this type of marketplace, it's very important to work with a professional realtor experienced in condo sales to help you get a better understanding of trends in prices and sales activity.