Are thinking about investing in a condominium in Toronto? Not sure if it’s even worth it?
Well, you’re in the right place. Not only do we know the answer to the question of “Is buying a condo worth it?”, but we know about hidden expenses and other important elements of a condo sale that you need to know about.
In this article, we will cover all that and even more.
So if that sounds interesting to you, keep reading to find out more.
Assessing the Investment Opportunity
Is buying a condo worth it? Well, that’s for you to decide. If you treat the opportunity as an investment, it most certainly is, but only if done right. Assessing the property individual is critical to determining its worth.
The most important consideration is cash flow. In premise, the cash flow is the revenue that you might generate from the condo, minus any expenses. If you get more than enough to cover the costs, such as taxes, fees, maintenance—your cash flow is positive (and that’s a good thing).
If a condo cannot have a positive cash flow that does not automatically constitute it as a bad investment, but knowing the difference will ensure that you make an educated decision.
Begin by assessing the potential revenue that you can receive from rent. Many factors will play into this. For instance, you can examine comparable rent in nearby buildings of the neighbourhood, and link it to a ration with the amenities and features that the unit offers, plus any condo fees.
You must also determine the expenses. Starting with regular costs that occur at expected intervals, you should factor in events that might come up irregularly. For instance, a special assessment is levied when a repair cannot be covered by the reserve fund of the condo board.
If you plan to buy the property with cash, you can determine the rate of return of the opportunity by assessing the capitalization rate. In order to calculate it, you need to divide the net operating income (revenue from property – operating expenses) by the purchase price.
In general, the higher the cap rate the better. If you get a number of 4% or above, that’s great. However, the cap rate will not present your return in a realist manner if you go with mortgage financing. In this case, you can examine the return on investment, which will take the financing into account.
Also, if you can be flexible on the neighbourhood in Toronto, that means you might be able to score some better deals. The average condo price in Toronto is continually rising, therefore the demand for sale condos under $550,000 is increasing.
Is Buying A Condo Worth It? It Is, As Long As You Address the Expenses
As mentioned earlier, quantifiable metrics can help you determine the worth of a condo purchase. Intuition is not the greatest way to go about investments. So here are some expenses that you have to consider for all Toronto condo purchases.
When you research information on condo costs in Toronto, it’s important to understand that you need to have deposit funds readily available. When it comes to Toronto condos for sale, typically the deposit is at least 5% of the entire purchase price, and that goes towards the down payment.
If you are buying a $500,000 condo, the deposit has to be $25,000, and it’s usually completed 24 hours after an offer has been accepted or with an offer that was in competition for the property.
The minimum down payment that you can make depends on the purchase price of the condo as well, however, if the payment is less than 20%, you will be required to pay CMHC mortgage insurance to consolidate any issues that might arise in the future.
Land Transfer Tax
The Land Transfer Tax will be charged to any person who is buying real estate. In the city of Toronto, you pay a provincial and municipal LTT. The entire amount that is owed will entirely depend on the total purchase price of the property.
For instance, when buying a condo for $500,000, you will pay $12,950 in LTT, spread equally $6,475 for provincial and $6,475 for municipal. If you are a first-time buyer, you can apply for an LTT Rebate. On a $500,000 condo, that will save you $8,475.
Title Insurance & Lawyers
At closing, these costs are typically lumped in unison. The cost to have a property title change ranges from $250 to $500.
Most real estate attorneys will include the fee itself in their fee, so it’s a good idea to budget at least $2,000 in legal fees to cover your association for the time of sale.
Property Tax Adjustment
Not often has the seller already pay the property taxes beyond the closing date, but it can happen. If they have, the buyer has to reimburse the seller for the difference.
But it can be negated via communication and lawyer negotiation, but the question is whether or not you want to complicate the process.
So is buying a condo worth it? Yes and no. Consider these hidden expenses as well when making your calculations.
You will likely need to hire movers. This can cost upwards of $1,000, depending on the number of items and other factors.
You might have to work with a locksmith. Utilities have to be set up, such as the internet, TV, and other things you think will be advantageous to a renter.
Elevators have to be booked with a refundable deposit. Cleaning services can become a regular aspect of your rental process.
The furniture itself will cost money as well. And possible repairs in the future that are not covered by the building will eat into the finalized price approximations.
Beyond mortgage payments, you will have to cover monthly carrying costs, such as condo fees, property tax for the current year, and property insurance.
Without being mathematical about the process, you are just guessing your way into an investment, and that’s when you can’t really tell if it’s worth it or not. True worth is quantifiable, so determine what it means for a condo investment to be worth it, and see if an opportunity fits your requirements.
Buy A Condo
Now that you know the answer to the question of “Is buying a condo worth it?”, you are well on your way to deciding for yourself.
It can be hard to find properties to invest in, but we make it easy for you. We find the best possible residences that are certainly worth your time and money, so if that sounds interesting to you, get in touch with us and we will happily accommodate your needs.