When is Buying a Condo in the Canadian Real Estate Market a Good Investment?

Posted by Rick Clarke on Monday, July 25th, 2011 at 7:24pm.

Condos are sold on the specific attraction of the three major demographics in that market: 

  • Young professionals looking for short commutes
  • Empty nesters looking to downsize
  • Investors looking for rental property as an investment

Many real estate experts caution that in none of these cases is the condo a good investment, and many would go further to say that there is no time that a condo would fare better than a single home investment. 

The problems in condo investment come from the very “no maintenance” sales pitch that may have lured a buyer in the first place.  The ambitious worker, who has little time for lawn care may see the location, often close to the working districts and city centers with shops and restaurants as being a strong driver for their decision.  Empty nesters may see the landscape freedom as very appealing.  The investor may be looking largely at location, and the ability to invest without being geographically close.  But in all of this the costs can be both outside the mortgage and disproportional. 

The famous condominium association fees or homeowner’s association fee as it is called in some developments can be high and rise frequently.  As operating costs including the landscaping and lawn care prices rise, so will the condo fees.  While the condo owner owns from the wall in, the maintenance charges for common areas may be passed forward to the owner.  Broken pool fixtures or playground equipment may lead to assessed charges.  That same association often can change leadership and can move from laid back and maintenance driven, to rule driven with a frequent assessment practice. 

Equity building in condo property seems to fair far worse than single-family homes.  Unless the location has suddenly become more desirable than previously (new attractions or jobs markets added to the neighborhood), the value is usually below the market comparables for the single home. 

There are as in all real estate exceptions to the rule.  There are locations so desirable that it is hard to lose money on an investment in that location.  There are condos that are more desirable from celebrity tenants or high-end concierge level treatment.  Condos that are planning upgrades in amenities can sometimes surpass the comparable index in equity development.

Retain a broker that understands the condo market, and can provide you with trend information on the condo value to market ratios over the last several years.  Retain professional services (attorneys, financial managers or accountants) that can provide you with industry trends in that market and in the condo segment over time.  Talk to the existing tenants to find out the role of the condo association historically and currently.  Get the association to provide fee structure for the last 3 years to see how frequently it was increased.  Research local newspapers for articles about the development, often a great way to determine problem clients, crime issues and significant deviations from the standard market.

There may be times and places where the exception makes the rule, but real estate experts seem to be in consensus that a single family home is usually a better bet than a condo.

Leave a Comment