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.

When selecting a condo to purchase, there are some key factors you need to consider in your selection. This is Part II of a two part article. Click here to read Part I

When selecting a condo to purchase, there are some key factors you need to consider in your selection. Certain factors may be more or less important, depending on whether you are buying a condo as a principal residence, or for recreational use, or as a real estate investment. Here are some of the most common criteria to consider. When buying a condo, you are also putting your mind to the attractive resale features in the future.

Management
Enquire as to whether the condo building is being operated by a professional management company, operated by a resident manager, or is self-managed. Ideally, you should check out the condominium unit or property that you are interested in at three different times before you decide to purchase: during the day, in the evening, and on a weekend. That should give you a better profile of noise factors, children, or parties, and the effectiveness of the management control.

Property Taxes
Compare the costs of taxes in the area that you are considering with those of other areas equally attractive to you. Different municipalities have different tax rates and there could be a considerable cost saving or expense. Also enquire as to whether there is any anticipated tax increases and why.

Rental Situation in Area
Look for an area that enjoys a high rental demand, if you are considering a condominium purchase as a revenue property. You want to minimize the risk of having a vacancy. Check with your realtor and various ongoing surveys to obtain average house and condominium rentals in the area. For example, many real estate companies and CMHC have free surveys on a quarterly or monthly basis, giving average rental prices in specific areas for specific types of properties. You don’t want too high a number of rental houses or condos, as that will increase competition and possibly reduce the overall desirability of the neighbourhood.

Local Restrictions and Opportunities

What essential factors to I need to consider when selecting a condo?

Certain factors may be more or less important, depending on whether you are buying a condo for personal use (principal residence) or for revenue real estate investment.

Location
One of the prime considerations is the location. How close is the property to schools, cultural attractions, shopping centres, recreational facilities, work, and transportation? How attractive is the present and future development of the area surrounding the property? You could buy a condo and six months later a shopping complex could be built across the street, blocking your view and therefore decreasing the resale value of your property. The location should have ample access to parking and other attractive features. Check on the amount of traffic on the streets in your area. Heavy traffic can be a noise nuisance as well as a hazard for young children.

Noise
Thoroughly check the level of noise. Consider such factors as location of highways, driveways, parking lots, playgrounds, and businesses. When buying a condominium, it is particularly important to consider the location of the garage doors, elevators, garbage chutes, and the heating and air-conditioning plant or equipment.

Privacy
Privacy is an important consideration and has to be thoroughly explored. For example, you want to make sure that the sound insulation between the walls, floors, and ceilings of your property is sufficient to enable you to live comfortably without annoying your neighbours or having your neighbours annoy you. Such factors as the distance between your unit and other common areas, including walkways, roads, and fences, are important.

Pricing
The pricing of the property you are considering should be competitive with that of other, similar offerings. On the other hand, when purchasing a condominium unit, it is sometimes difficult to compare prices accurately without taking into account the different amenities that may be available in one condominium that are not available in the other – for example, tennis courts, swimming pool, recreation centre, etc. You may decide that you do not want these extra facilities in view of your lifestyle needs, in which case paying an extra price for the unit because of these features would not be economical. On the other hand, you have to look at the resale potential, so check with your realtor. He or she can obtain accurate information on comparative pricing and cost per square foot for similar properties in the same condo building or complex.

Common Elements and Facilities
When buying a condominium unit, review all the common elements that make up the condominium development. Consider these from the perspective of the relevance to your needs as well as the maintenance or operational costs that might be required to service these features.

Condominiums are a popular form of shared home ownership in Canada. Almost 20% to 25% of housing in major Canadian cities are condominium apartments or townhouses. They are also the majority of the sales in many metropolitan areas. Condominiums in resort areas are also very common.

The word condominium does not imply a specific structural form, but a legal form. Condominiums may be detached, semi-detached, row-houses, stack townhouses, duplexes, or apartments. They can even be building lots, subdivisions, or mobile home parks. Whatever the style, a residential unit is specified and is owned outright by the individual owner in fee simple. The rest of the property including land, which is called the common elements (or common property) in most provinces, is owned in common with the other owners. For example, an owner would own a fractional share of the common elements in the development. If there are 50 condominium owners, then each individual owner would own 1/50 as tenants-in-common of the common elements. The legislation of each province can vary, but it is always designed to provide the legal and structural framework for the efficient management and administration of each condominium project. Once the project documents are registered, the project is brought into legal being as a form of tenure.

Common elements generally include walkways, driveways, lawns and gardens, lobbies, elevators, parking areas, recreational facilities, storage areas, laundry rooms, stairways, plumbing, electrical systems and portions of walls, ceilings and floors, and other items. Parts of the common elements may be designated for the exclusive use of one or more of the individual unit owners, in which case these are called limited common elements (or limited common property). In other words, they are limited for the use only of specific owners. Examples would include parking spaces, roof gardens, balconies, storage lockers, and front and back yards.

There are many reasons why the condominium concept has been economically very attractive for purchasers: better land utilization, price competitiveness, built-in amenities, and convenient locations and designs. There is also a wide price range, from $50,000 to well over a million dollars depending on the features, level of luxury, and location.

Large segments of the market find the multi-family residential development concept an attractive alternative for their lifestyles, due to the low maintenance required and the opportunity for equity appreciation. Condominium ownership appeals to active young singles, couples without children, couples with children, and pre-retirement and retired couples or singles. Many developments are geared specifically to these segments or to a mixture of these segments.

The concept of condominium living is not right for everyone, as it involves not only individual ownership in the unit and shared ownership in other property, but also adherence to rules and regulations, and shared ruler-ship.

In any situation of shared ownership and community living there are advantages and disadvantages.

Whether you are a buyer or seller of real estate, it is important to understand the factors that affect the market. This will help you make the right decisions, for the right location, at the right time. (more…)

Group ownership of real estate is not for everyone. Most people do prefer to purchase their own home or investment property, if possible. However, some people prefer to start out by investing with a group, as it can provide mutual support, shared and therefore reduced risk, pooled skills and expertise, greater investment opportunities, and shared responsibility.

On the other hand, if the investment group fails to work towards the same objectives, the result could be a financial and emotional nightmare. The key is to know the benefits and limitations of the various group investment options and the pitfalls to avoid. Never go into a real estate purchase with others without obtaining prior objective advice from your real estate lawyer and professional tax accountant, and always make sure that you have a written agreement with partners in advance.

The statistical odds are high that any real estate group relationship in which you are involved will not necessarily end with harmony and goodwill in abundance, and investment objectives realized. There are a variety of reasons for this. By cautiously assessing the individuals that are potentially in your group, you can minimize the risk immensely. You may conclude that the risk is simply too great for your comfort zone, and therefore consider other options. Here are the key factors to consider:

Goals and objectives
Clearly define your goals and objectives in order to make sure they are consistent with those of the rest of the group. For example, some members may want a long-term investment (five years) with positive cash flow from rents, while others may want a medium-term investment (three years) and be prepared to subsidize the negative cash flow in exchange for expected property appreciation due to rezoning or subdivision potential, and still others may want to do a quick flip within a few months of purchase to take advantage of rapid increases in property values in a hot market.

Control
Certain types of investment groups allow more control than others. Control relates to the influence that you have on the management of the investment and related decision-making. Obviously smaller groups tend to allow more individual control than larger ones. In some instances you do not have any vote–you put your money in and hope for the best. If you are buying into a limited partnership or another form of investment, make sure you thoroughly check out the promoter’s previous history, experience and reputation.

Liquidity
Basically, liquidity refers to how easily and quickly you can get your money out of the investment. Your financial resources and needs will determine your liquidity needs. For example, if you need to get your investment capital back quickly, then you probably won’t want to be involved in a long-term investment. In addition, you should reconsider the investment if you would suffer if your money was tied up or at risk. You should not invest money you cannot afford to lose–be cautious about investing retirement money or contingency reserve funds. In practical terms, most investments are tied up for the duration of the deal. That relates back to the investment group’s goals and objectives. Also, consider having a buy-out clause in the investment group agreement, so that the group could buy you out within a fixed period of time. Usually, to create a disincentive for people who want out early, the buy-out is at a discount price.

Compatibility
Look at the other people in your investment group. Are there similarities in important aspects such as investment objectives and financial status? In general, people you know are safer than people you don’t. Ego, power, greed, ignorance, na’vete, arrogance and unrealistic expectations are common causes of group stress or disintegration. You can’t afford the risk, so be selective with your investment “marriage partners”.

Risk assessment
You have to objectively look at the potential risks: the nature of the investment, the potential for profit, the degree of personal liability, the type of legal structure, the nature and degree of control, the quality of management and the compatibility with other members.

At some time or other you have probably seen the ads: “Luxury Lifestyle at Affordable Prices!”–“Vacation the World!”–“Trade for Exotic Climes!”–“Buy Your Own Vacation Dream Home!” These refer to the concept of timesharing.

Other commonly used terms synonymous with timesharing include: resort timesharing, vacation ownership, multi-ownership, interval ownership and shared vacation plan. The timeshare concept has been applied to numerous other areas such as recreational vehicle and mobile home parks.

The timesharing business originated in Europe in the 1960s. The concept then moved to Florida in the 1970s to facilitate the sale of the sluggish condominium industry. Since then, timeshares have grown rapidly, with thousands of resorts throughout Canada and the United States, and around the world. These resorts range from Ontario cottage country resorts, to Florida condos, to Mexican beach villas.

There are two main categories of timeshares: “right to use” and “fee simple” ownership.

Right to use
This concept is much like having a long-term lease, but with limited use for perhaps one, or maybe two weeks per year. It is similar to prepaying for a hotel room for a fixed period every year, 20 years in advance. In other words, you don’t have any portion of ownership in the property, you only have a right to use it for a fixed or floating time period every year. The “right to use” concept involves condominiums, recreational vehicle parks and other types of properties.

The opportunity for return on your money in a “right to use” timeshare is limited or non-existent. This is because there is generally very little demand in the after-sale market, as well as other restrictions on resale or pricing of the resale. In practical terms, timesharing is primarily a lifestyle choice.

Fee simple ownership
There are different formats. One involves owning a portion of the condominium (for example, one-fiftieth of the property). Each one-fiftieth portion would entitle you to one week’s use of the premises. Other people would also buy into the property. Normally you would be allocated a fixed week every year. In other instances, it could be a floating time, with the exact date to be agreed upon depending on availability. In some cases, you might purchase a one-quarter or one-half interest. If the property is sold, you would receive your proportional share of any increase in net after-sale proceeds. You would also normally be able to rent, sell or give your ownership portion to anyone you wished.

Here are some of the issues to be aware of:

You may tire of going to the same location every year, as your needs may change over time.

The timeshare programs that include an exchange option (i.e., switching for a week in a different location) are not always as anticipated, in terms of availability, flexibility, convenience, or upgrade fee.

Make sure you know what you are getting. Some people who purchase the “right to use” type think they are actually buying a “fee simple ownership” portion.