10 first-time condo investor mistakes and how to avoid them

10 first-time condo investor mistakes and how to avoid them

So you're thinking of investing in a condo in Toronto or the GTA! You're not alone: close to 20% of condo owners in the city are investors.

If you've never invested before, it can seem pretty daunting. There's a lot to keep in mind, from finding a place that will give you a good return on investment, to renting it out, to being able to swing a 20% down payment. Julian Kashani, Broker with Property.ca, works with a lot of investors, so we asked him about the most common mistakes investors make, and how to avoid them.

Mistake #1: Not being ready to buy right away.

The slow condo market we saw in late 2020 is gone: buyers who don't move on a great unit quickly will probably lose it. Julian's advice is to have everything in place so you can make quick decisions and move fast. That includes having your down payment liquid and ready to go, having all your finances in order and being prepared to make an offer right away .

“The market has gotten super competitive again,” he says. “Be prepared for same-day visits, making decisions on the spot, offering more than asking and even considering bully offers as a tactic, since condo sellers are going back to using offer dates to drive up price.”

Mistake #2: Assuming buying an investment property is a “now or never” thing.

You see the headlines about the condo market heating up and figure you've missed the boat for a deal. But unlike buyers who plan to live in a unit, investors aren't under pressure to buy by a certain date. So it's OK to take your time: because more inventory will come onto the market.

“Be patient,” he says. “And don't forget we're still in a pandemic. There are still a lot of sellers out there who haven't listed. They may not want people in their unit right now or their tenants are refusing showings. The building may not be allowing showings. Or they simply don't want to ask their tenants to leave right now.”

Plus, according to the Toronto Regional Real Estate Board (TRREB) a significant number of investors are thinking about selling in the face of the upcoming vacant home tax, so that may add even more listings to the inventory.

Mistake #3: Overlooking “stale” listings.

Buyers often assume listings that have been around for 30, 60 or 90 day have something wrong with them. But they usually deserve a closer look: it’s possible that a unit hasn't been staged or the listing photos are terrible. Maybe there are 12 similar units in the building that are all for sale. Maybe it needs work, or the tenants left it in mess and the owner doesn't live locally. It could be anything.

“These places are what I call ‘diamonds in the rough’,” says Julian. “They may not be staged or in the best condition, but that can actually make them a great value. Often the savings you can get are far greater than what you’d spend fixing it up.”

Mistake #4: Not thinking about rent control when buying.

Did you know that any unit that was unoccupied before November 2018 doesn't fall under Ontario rent controls? According to the Ontario Government, “new buildings, additions to existing buildings and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018 are exempt from rent control.” Which means there’s no mandated limit on how much you can raise rents year-to-year.

“That's great for investors who may have to go with a lower rent to attract tenants in a slow rental market,” says Julian. “Once rental rates pick up, you won't be stuck with rents that are below market value. Of course, these are newer buildings, which makes it a lot harder to find ‘diamonds in the rough’.”

Mistake #5: Getting scared off by the upcoming vacancy tax.

Toronto has a new vacancy tax coming in for unoccupied units. Modeled on the Empty Homes Tax in Vancouver, it charges 1% of a home's assessed value annually for properties that are not the owner’s principal residence and are not rented out for at least six months of the year. It might sound scary, but Julian says it is likely to impact only a tiny fraction of Toronto and GTA investors. Most don't need to worry about it.

“The Vancouver tax was designed to prevent ghost condos created by foreign investors parking their money in a stable economy,” he says. “They just sit empty, taking much needed housing off the market. However, I'd say most Toronto investors don’t fall in that category. They want to rent out their units. If you're able to rent it for at least part of the year, you won't have to pay the tax. It’s not meant to penalize investors who are unable to find tenants in a slow rental market.”

Mistake #6: Assuming you have to have 20% to put down.

As an investor buying a resale unit, you do have to put at least 20% down. But buying into a pre-construction project is a whole different story. While the deposit on a pre-con unit is generally around 20%, the upside is you usually have 2,3 or even 4 years to pay it. But even if you do want to buy a resale unit, and you have equity in an existing property, you can borrow your down payment against that equity.

Mistake #7: Expecting to make a lot of money in a short time.

Real estate investing is a long game: it's impossible to time the market in a way that will guarantee you a profit in a few months or a year. That's called speculating and it's a true gamble in a way that long-term investing is not. Despite peaks and valleys, if you look at real estate values over time, they consistently go up. So if you go into an investment knowing you'll be holding on to it for a few years, that's your best bet for solid ROI.

Mistake #8: Charging rent that's too high.

Right now, the amount of rent you can charge may not cover all your costs. With a ton of supply and landlords offering discounted rents and even incentives like free months and free Internet, rents are the lowest they’ve been in years. But remember that even if you have to cover some of the costs yourself, you aren't throwing that money away. You're putting it towards your investment.

“If you can't afford to supplement a tenant’s rent, at least for a little while, this may not be the ideal time to invest,'' says Julian. “Rents will go up again when immigration resumes and students come back to the city, so it’s not something you have to live with forever.”

Mistake #9: Sticking to traditional buying tactics.

Scouring listings isn't the only way to find a great real estate investment unit: a good agent will know how to get creative to find you the property and value you're looking for.

“When my clients are looking for something specific, I don't just look at what's for sale in MLS,” says Julian. “I approach owners of rental units as well, especially those that have been vacant for a while. I put notes in mailboxes to let owners know I have a motivated buyer interested in the building or the neighborhood.”

Assignment sales are another example: if someone is selling a pre-con unit before it’s built, there are restrictive rules about how these properties can be advertised: an well-connected agent will have access to opportunities that aren’t available to the general public.

Read more: Assignment sales 101

Mistake #10: Not working with an agent who specializes in investment properties.

The market feels like it’s changing from week to week right now. Working with a full-time agent who’s in it every single day and really understands how to determine value is the only way to succeed as a first-time investor. You need someone who has their finger on the pulse, and is an area and property type expert. These are the agents who can get you into a great property and get you started as an investor.

Interested in investing in the Toronto or GTA condo market?

Many of our agents regularly work with investors and can help you take your first step up the real estate investment ladder. Ready to start? Contact a Condos.ca agent today.

Join 18,000 subscribers and get market news, insights & expert advice delivered straight to your inbox
Categories