How to buy an investment condo
By Wayne Karl
September 30, 2014
September 30, 2014
Are you wondering how to buy an investment condo and aren't sure where to begin? You may think Toronto, Vancouver and other large Canadian markets offer the only opportunities to buy an investment condo. But you'd be wrong.Smaller cities also make great target markets to buy an investment condo. The key things to look for are a solid local economy, stable employment conditions and minimal new apartment construction. These combine to produce a tight rental environment, which is what you want.As an investor-landlord, you'll need to learn about vacancy rates. Canada Mortgage and Housing Corp. (CMHC) summarizes these, along with average rents, in twice-annual rental market reports. An increasing rate means rental supply is growing, and renters have more units from which to choose. For landlords, this means more competition. Therefore, you may have trouble renting a property or increasing the rent. Declining vacancy rates mean supply is tightening and your property may be in higher demand. This could lead to you being able to charge more rent.A vacancy rate between two and three per cent is considered a balanced market, meaning supply is appropriate for demand. Anything below that is ideal.Investment strategyAcquiring and operating an investment condo is very different than buying a primary residence. Your strategy should be to buy, hold and rent to generate income over and above your mortgage costs, while building equity over time.Rule number one for new investors, experts agree, is to take a long-term view – five to seven years – while generating positive cash flow.“There is nothing more challenging than buying an investment that does not cash-flow,” says Mike Cunning, an investor based in Vancouver.Achieving positive cash flow means renting out your investment condo for more than your monthly mortgage payment and other costs. Once you include condo fees, taxes, insurance, property management fees, maintenance and advertising, the financial picture can look much different.If you can generate positive cash flow, the benefits are three-fold:
- You pocket the monthly surplus
- You build equity over the long term while someone else pays down your mortgage
- And eventually, when you sell, you gain from any value appreciation in the property
About Wayne Karl
Wayne Karl is an award-winning writer and editor with experience in real estate and business. Wayne explores the basics – such as economic fundamentals – you need to examine when buying property. wayne.karl@nexthome.ca