Have you considered buying a condo as a rental property? If you are considering investing in a condominium, it is important to consider the advantages and disadvantages of the different types of condominiums, for example, apartment, townhouse, conversion, new, re-sale or pre-sale. Check on whether rental units are permitted in the development, and on the current mix of tenants and owner/occupiers.
Benefits:
Here are some of the benefits you may wish to consider:
- Condominiums generally appreciate in value at a rate which is almost consistently higher than the inflation rate.
- Finding an occupant for a condominium apartment is relatively easy in many major Canadian cities because of low vacancy rates.
- There is an increasing demand for the condominium lifestyle and the luxury and convenience that it provides.
- Because a minimal amount of upkeep is involved, the economic benefits are more attractive for the first-time investor.
- There is the convenience of having many of the management and maintenance problems taken care of by the condominium corporation, and the professional management company, if any.
- Facilities such as tennis courts and swimming pools are maintained by the condominium corporation, thereby freeing the new investor from the responsibilities of upkeep.
- The owner is protected by the bylaws and the rules and regulations set by provincial condominium legislation, by the original project documents, and by the bylaws and rules and regulations. For example, many condominiums do not allow pets in the building because of the potential wear and tear on the apartment. This type of rule protects and benefits the investor.
If you are looking for higher appreciation (re-sale value), the purchase of the least expensive unit in a luxury condominium/townhouse complex generally offers a more financially attractive return than the purchase of the largest unit in a modestly priced development, assuming the price is the same. A townhouse condominium generally appreciates faster than an apartment condominium. Your research will provide you with the necessary background statistics in your market interest area.
2. What are the tax, legal, and financing considerations?
If you decide to invest in a condominium rental property, many of your personal expenses may be deducted from income in addition to the normal tax deductions such as mortgage, interest, depreciation, and other condominium-related expenses. For example, you would normally be entitled to set up a small office in your current residence for managing your investments, which would include keeping your records. You could deduct a percentage of all your home-related expenses. The normal formula is to take the square footage of the office area that you are using relative to the total square footage in your home. In general terms, 10% to 15% or more is usually deducted for that portion.
In addition, you would be entitled to deduct a part of the car-related expenses involved in managing your investment portfolio, whether it is one rental property or more than one. The percentage of all your car-related expenses can vary, obviously depending on the usage of the car relating to your investment.
If you are seriously contemplating investing in a condominium, it is important to seek competent tax and accounting from a qualified professional, and legal advice from a lawyer specializing in condominium law.
