Canada's Condominium Magazine
When you are itching to buy your first home but cannot quite afford the high costs associated with buying a house, purchasing a condo is an attractive option. Increasingly, condos are the “go to” home ownership option for not only first time buyers, but also down-sizers. The pros and cons are fairly straight-forward for both options: condo and detached home.
Even for people willing to move well-outside the hotbed of real estate activity in Toronto, detached homes can still be unaffordable. Condos, on the other hand, remain a generally affordable option (assuming you can adjust to living in a smaller space) with some built-in options: short commute, close amenities, nearby transit (in many cases), and community amenities (usually). [See full pros and cons lists below.]
Averages don’t tell all (especially about size, location and so on), but they paint an overall picture (TREB numbers):
Average home price detached house Toronto April 2017 approximately $1.6 million
Average semi-detached home price Toronto April 2017 approximately $1.08 million
Average condo price Toronto, April 2017 approximately $550,000
Average townhouse price Toronto, April 2017 approximately $761,000
Another comparison can be made:
Average home price outside of Toronto (well outside, mind you) approximately $916,000
Average downtown condo price in Toronto April 2017 approximately $550,000.
Many buyers — especially first-timers — are weighing the option of downtown condo versus house in the “burbs” at roughly double the price.
It may come down to size versus location, depending on buyer choice. A bigger size in the burbs or a smaller size with a better location (depending on your criterion) with a condo.
Obviously, a condo apartment or townhouse is not the equivalent in space to a house in this comparison. What do you give up? Cutting the lawn, raking the leaves, caulking the windows, shovelling the snow and long commutes. But you also have to deal with smaller living spaces — often more difficult for families — less privacy (sometimes), and no garden.
A question of space and…
The most important factor is your reasoning behind this momentous decision. Do you need more space for your growing or extended family? Do you live in an area where rent prices have surpassed mortgages, thus rendering rental properties unaffordable? Or are you simply trying to fast-track the process and buy sooner rather than later? Be sure that you are doing it for the right reasons, as making life-altering decisions for the wrong reasons can have severe consequences and leave you in a sea of debt that you may never escape.
Next, you need to understand the current market in your area. Are trends favourable to sellers or buyers? Currently the market is hot, with high demand resulting in higher prices — making the new condominium an economical choice from the point of view of carrying costs and buy-in (not necessarily overall value, which includes resale value). If the market is cold, then buyers have more options, although we’ve been predicting a cool off for a long time. In the current climate, where detached homes now fetch nearly ten times their 1990s prices — and with demand increasing, supply decreasing (although moderating slightly this mont — again, the condo is the economical choice. The carrying costs of a downtown condo, all things being equal are far lower than a detached home in the burbs.
Pros and cons of condos
Of course, it’s also a question of lifestyle. Condominium downtowners gain
- more money in the bank (typically) — detached home owners tend to be maxing out their budgets more often
- short commutes — saves both time and money
- walking-distance (or biking-distance) to superior amenities
- easy access to transit
- exciting, urban environment
- clean and modern living
- plenty of community facilities (in most condominium communities)
- low maintenance and no handy-skills required
Naturally, there are offsetting cons (which could be considered the “pros” of the detached suburban home):
- no backyard (although typically you have a communal garden, nearby parks)
- less privacy — depending on the comparable home
- less space: all things being equal (for example location) the main tradeoff in condominium living, to keep it affordable, is space — less square footage needed due to shared communal facilities
- less privacy: living in closer-quarters requires neighbours to respect each other in terms of noise, smoke, parties and so on
- probably a lower capital gain when you sell, although that’s offset by the much lower investment up front and lower carrying costs (such as interest, non-recoverable taxes)
Investing versus buying
Although new rules in Ontario are designed to discourage “investing”, condos are always a good investment. Detached homes are certainly a good investment as well, often with higher increases in the market on a percentage basis, but the carrying costs make them prohibitive for all but the wealthy investor.
Flipping a condo is also an attractive option — although again the rules have changed and are continuing to change. Although flipping a new condo — which is, and was a common practice — is still viable if you work around the rules, often buying a “fixer upper” condo can be a better investment. New kitchen counters, paint and bathroom fixtures can raise the asking price by four times the investment in renovations. By the time renovations are completed, you will likely be able to “flip” the property without taxation penalties — but check with experts first.
The live and flip
A good option for the engaged younger investor who wants to build some returns, while having a place to live out of the baby boomer nest, is to a buy “fixer-upper” condo at a relative bargain (very relative, these days), live in it while making improvements and upgrading appliances and other features. Then try to flip for another fixer upper. This assumes a motivated investor buyer (probably not a family person due to all the moving). Younger buyers can get relative bargains, live in it while fixing, flip (without penalty, as it’s a primary residence) then move on up without capital gain penalty. Many younger first-time buyers are taking this approach, often with the help of their boomer parents on the first buy.
Plan on your return on investment
In any case, whether you are flipping or simply buying with plans to sell later and purchase your dream home, you should only do so if there stands to be at least a 15 per cent gain so that the investment is worth the outcome. That should be relatively easy in today’s market, although you are buying in high to begin with, and speculating there won’t be a bubble burst in the market.
Overall, for first time buyers, the condo market is a relative bargain. You can live where you want, with short commutes and urban livability, at a comparatively affordable cost (say, for example, 30% of your disposable income, rather than 50% and up for a detached home today.) The tradeoffs are not really tradeoffs for younger buyers, who actually are seeking out — according to research surveys — the urban lifestyle. Likewise, condos again become very attractive to boomers cashing in on the high values of their detached homes. The condo allows them downsize, live closer to amenities, and relax into coming retirement, without the risk of the kids bouncing back home — no space kids, sorry, buy your own condo!