5 things every condo investor should watch out for

The first step in buying a new condo is to sign the purchase agreement and hand over your cheques. Ensuring that you have a good contract with favourable terms up front can be the one thing that makes or breaks your investment in the long term. Here are five things that every condo investor should watch for in their contract.

1. Capped closing costs

If you don’t have caps in place for things like development levies and utility hook-ups, your closing costs could theoretically be in the tens of thousands (not including land transfer taxes and legal fees). The number one thing you want to make sure your contract includes is a cap on these costs. There is always a concern over rising development charges for condos and you don't want any surprises with those being passed on as they go up. Speak with your lawyer about caps when you have your contract reviewed. Development and utility caps are the maximum amount these charges will be at closing – could be less but will not be more.

2. “Nickel and dime” charges

Most contracts are pretty standard with respect to fees and closing costs, but some developers do try to sneak in charges for all sorts of things related to the purchase; $100 here, $50 there...they can be creative! A good lawyer will probably point out some of them to you and recommend you ask them to be waived. It’s up to the builder’s discretion on what they will waive and what they will not.

3. Renting during occupancy

Most contracts by way of their standard wording forbid the renting of your unit during the occupancy period, however, most developers will grant you permission to rent during the occupancy period if you request this in your contract. Make sure you do request this clause if you are buying for investment.

4. HST rebate

Something you probably won’t find in your agreement is any talk of HST implications if you are buying for investment. The agreement assumes you are buying to live in the unit and therefore all HST is already included in the purchase price. However, if you are planning on renting out the unit, you might have to pay a portion of the HST on final closing and then apply to the government to receive the money back in the form of an HST rebate. Consult a qualified lawyer and understand the implications on your cash flow.

5. Assignment clauses

An assignment clause allows you to sell prior to final closing, usually under some conditions set by the builder and often there is a fee associated with executing the assignment. Hopefully you intend on closing on your unit and holding it for the long term, however, it is always wise to have a back-up plan in case your plans change in the years between purchasing and completion of your unit so make sure you are able to sell by assignment.