Many people have turned to rental properties, in particular new condominiums, as an investment. In fact, an estimated 35 to 40 per cent of all condominium units in Vancouver and Toronto are investor-owned rental properties. But is purchasing a new condo really a good investment? There are several factors to consider.
First and foremost, you should be aware of the tax implications associated with owning an income property. Unlike owner-occupied suites, when you purchase a condo with the intent of renting it out, non-principal residence will be subject to the capital gains tax at the time of sale.
If you intend to rent the property, be clear about your purchase agreement. Most agreements of purchase and sale come with a restriction regarding renting during occupancy. Occupancy is the time between when you receive your keys to your suite and the date of transfer of ownership from the builder to your name. This could mean your suite would stay vacant for an extended period of time. During this time, you are still responsible for paying all the costs associated with occupancy including taxes and maintenance fees and any utility costs.
Many consider condos when moving to a city and are still looking for ownership without the hassle of a large property to maintain.
Another important consideration is the building’s rental policy. Although rare, some buildings may restrict the length of time a suite can be rented. For example, there are buildings that do not permit any lease to be longer than one year.
With any real estate purchase, location is paramount. Make sure you look at locations that are good investment areas and not necessarily where you would want to live.
Consider the different factors that may effect your investment. Has the market been overally strong and will you be able to sell later. What will increased interest rates do to your carrying costs and/or your value when selling. Is the condo company or coop reliable and what type of unexpected capital repairs may you incur.
In addition to the financial considerations, there are also issues associated with being a landlord. Before making a purchase, you should think about whether you are willing to deal with a difficult tenant or other situations.
Buying a condominium is a huge financial commitment. Before you do anything, educate yourself and speak to your advisors. They can help you understand the financial implications that go along with the purchase and help you view it in the context of your investment portfolio.
Stephen Maltby is an Investment Advisor and Chartered Accountant with CIBC Wood Gundy .He has been in the financial services industry for more then 30 years and has held various accounting, investment and management positions with several accounting and investment firms over the years.He is in addition to his Advisor role a First Vice-President and Executive Director Atlantic Canada,Cibc Wood Gundy.