The astounding rate at which Toronto condo prices have risen should have anyone who bought a condo four or five years ago jumping for joy today. Condos.ca PSF Index shows that since February last year an average 800 sqft condo has appreciated roughly $78,000, while condos purchased in 2012 are now worth about $130,000 more than what the owner paid.
For condo owners watching the Toronto market, the temptation to sell grows with each passing day. Of course, the hope for continued growth keeps some people on the fence, as does the worry over potential price corrections. But the truth is, today is a great day to sell your condo.
To Sell or Not to Sell . . .
Why are you selling? For young buyers, you should be thinking about growing your investment equity. The best approach if you are planning to sell, is to use the profits to finance the purchase of a new property. That’s how you grow.
Many homeowners hold the hope that prices will continue to grow and a year from now they’ll have greater resale value. That’s a fine hope, but it comes with a small problem. While you sit back and wait, ideally watching the value of your condo increase month by month, the rest of the condo market is also appreciating in value. So, when you finally do decide to sell and buy something new, you’ll be faced with much higher asking prices than if you chose to buy today.
Another point of worry for buyers and sellers is looming price corrections. The Toronto real estate market is experiencing tremendous growth right now, and some people think it’s unsustainable. While that may be true (it’s nearly impossible to predict a drop), there is a considerably high chance that any decrease in the market will be softened by continued growth up until the moment the drop strikes.
For instance, if there is a 10% decrease in market value next year but until then the market increases 15%, then anyone who buys today is still up 5%. The bottom line is that it’s next to impossible to predict when a price correction may occur, but the high rate of growth we’re seeing in Toronto’s condo market, particularly in Toronto’s Core, means that prices are unlikely to fall below what you initially pay.
Buy Before You Sell and Grow Your Investments
In today’s market, there is little reason to rush to sell your condo in Toronto. The combination of low inventory and high demand has created a solid seller’s market. With the right mix of marketing and exposure, finding a buyer for your condo should be a walk in the park. The average days on market for Toronto condos between $500,000 to $1 million is 29 days, with most staying on the market for a much shorter time. If you are planning to sell your condo and invest in a new property, then you should buy first and sell second.
Thinking about growing means that if you own a one-bedroom condo, you should set your sights on buying a two-bedroom unit or larger. It makes little sense to purchase something the same size as what you currently own, as the buying and selling process is costly. You have to factor in the land transfer tax, REALTOR® fees, and legal fees. Buying a condo of the same or similar value is a lateral move, and it accomplishes little financially. If you’re going to make a move as a young buyer trying to make your way in real estate you should try to move up the ladder, not across it.
To buy another property, you need to cover the down payment plus purchasing costs. Current condo owners can use their property equity to open a line of credit and secure the down payment into a new mortgage. Once the new purchase is secure, you can turn around and sell easily.
Alternatively, you could also keep your unit and rent it out. In many neighbourhoods in Toronto, the current average rental price can cover the monthly costs of ownership: mortgage payment, maintenance fees, and property tax, often with a small margin of profit. In fact, when renting out a property, you want to keep the margin of profit minimal because any gains will be considered taxable income.
Whether you decide to sell your current condo or keep it as a rental property, in the current seller’s market it is a wise strategy to invest in your financial growth and buy first before you sell.