If you didn’t know, the 2020 GTA Home and Reno Show is happening from February 14-17, 2020 at the International Centre in Mississauga. It’s now formally known just as the Home Show and features more than 300 vendors and speakers including investment coach Irene Lee, who has built a significant portfolio for herself and others with pre-construction condo purchases. 

Although I own a condo, I have no interest in being a real estate investor. That said, I realize that this is a topic that many people want to learn more about so I reached out to Irene and she shared some things that potential investors need to consider before they buy.

The current cost of real estate

“The cost of real estate is driven by supply and demand and as long as the market you are investing in still has less supply than demand, it’s still worth investing” says Lee. “If there is an opportunity, I’m open to learning and analyzing.”

This is an interesting point as many people have been hesitant to invest in Toronto since prices are at an all-time high. There are some concerns about a recession or a real estate crash happening, but people have been saying that for years.

I’m not saying one thing will or will not happen, what I’m saying is that you can’t predict the future. According to Lee, Toronto is still a good market for investors.

The most important things when purchasing a condo 

Purchasing a condo for yourself is very different from purchasing a condo for investment purposes. If you’re going to be a condo investor, Lee says the following three things are the most important factors:

  • Location 
  • Rentability
  • Total investment 

If you buy a condo in a good location, you’ll likely have an easier time renting it out which is point #2 (rentability). Of course, you shouldn’t buy a condo just because it’s in a good location. You’ll want to ensure it has a good layout or has amenities that are desirable. 

Total investment is something that people don’t typically think about but it covers things such as closing costs, e.g. development levies and incidentals which can affect your return on investment.

When to say no right away

Many people are excited to become real estate investors, but Lee says there are a few things that should be instant flags. “Bad layouts are a consideration now that the size of units is under 500 sq. ft. The use of space is very important.”

She also says to beware of projects without approvals. “If the development is still seeking approvals from the city, should these permits not get approved or take too long, there is a chance of cancellation.”

In case you didn’t know, cancellations have happened quite a few times over the last few years in Toronto. This has left many people who had invested early empty-handed as they don’t have a unit and if they were to buy now, they’d be paying the current market value. You may want to add “builder reputation” to your list of most important things to consider when purchasing a condo. 

Know your costs

“Some people simply look at the purchase price and forget about the other hard out of pocket costs” says Lee. “Closing costs, including HST, development levies, education and park levies, section 37 costs, other incidental fees are very important to calculate in your analysis.” 

What you’re looking for are investments that are cashflow neutral, however, there are cashflow positive properties out there which is why some people work with a coach that uses the right strategies to find the right investments. 

“If you can find a market that is affordable, with low vacancy and strong rent rates, this is a recipe for success” says Lee. “It may take longer to earn on the appreciation factor, but as long as it is rented and you’re at least cashflow neutral, you’re still making money and can choose when to realize your gains.”

3 Comments

  1. KB on February 6, 2020 at 10:52 am

    Just a quick note. Although HST costs are payable up front at closing (not at the time of purchase or occupation) they are reimbursable from the CRA with proof of a 1 year tenancy agreement. Your lawyer can arrange to file the paperwork. It took me about 2 months to get the money back from the CRA if I recall correctly. Interest you incur during that period can also be deducted.

    • Irene Lee on February 6, 2020 at 4:29 pm

      yes! you’re absolutely right! however – there is a limit of $24,000 in rebates – so please understand your total cost before your purchase.

      • KB on February 6, 2020 at 4:40 pm

        I didn’t know the refund was capped. Thank you for the info! A good lawyer will also be able to give you an estimate of the closing costs you can expect at the time of purchase when you have the purchase agreement reviewed. My lawyer was able to give me a good break down that was almost right on.

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