Top Mistakes To Avoid When Investing In Toronto Condos

Investing in Toronto condos or properties can be a lucrative venture, given the city’s booming real estate market. However, navigating this competitive market comes with its fair share of challenges, and making mistakes when buying a condo can be costly. To ensure a successful investment, it’s essential to steer clear of common pitfalls. In this article we’ll discuss some crucial mistakes to avoid when investing in Toronto condos.

Most Profitable Sections of the Condo Market in Toronto

Condo Investors made huge chunks or profits in two separate sections of the market. First is the resale condo market in Toronto, and then the pre-construction real estate market in Toronto.

Each type of investment has their pros and cons. Also it gets back to the type of investor you are. In resale, almost everything is clear and you have a more clear idea of what to expect. However in pre-construction condo investments, there are uncertainties involved and many factors play a role in it. Thus we are going to make it more clear for you to avoid all the common mistakes when it comes to investing in new condos.

To get the most out of your condo investment, there are mistakes that you need to avoid. So let’s discuss a thorough list of the top mistakes that a successful Condo investor avoids when it gets to Condo investments.

10. Neglecting Research

One of the most significant mistakes investors make is failing to conduct thorough research. Toronto is a diverse city with various neighborhoods, each offering different amenities, price ranges, and potential for growth. Neglecting research could lead you to invest in an area that doesn’t align with your goals or may not yield the returns you expect. Take the time to study market trends, neighborhood demographics, and potential for development.

9. Ignoring the Condo Association

When buying a condo, you’re not only investing in the unit itself but also becoming a part of a condominium association. Ignoring the rules and regulations set by the condo association is one of the mistakes you need to avoid when investing in a condo. This mistake can lead to headaches down the road. Make sure to review the association’s bylaws, fees, and any restrictions before making a purchase. Failure to do so could result in unexpected costs and limitations on how you can use your property.

8. Not Hiring a Realtor

Many investors think they can handle the condo-buying process on their own to save money on realtor fees. However, working with an experienced real estate agent who specializes in Toronto condos like Ari Armani can be invaluable. He and his experienced team have insider knowledge, negotiation skills, and access to off-market listings that can help you find the right investment property.

7. Emotional Decision-Making

One of mistakes to avoid when investing in a condo is emotional decision-making. Buying a condo is a significant financial decision, and emotions can cloud your judgment. Avoid getting attached to a property based on personal preferences alone. Always evaluate properties objectively and base your decisions on financial and investment goals rather than emotions.

6. Expecting to get rich quickly

Real Estate, if not the oldest, is among the oldest investments that people have ever done in history. There was a reason for it, right? Whatever the reason was, I, as a Toronto Real Estate Agent and investor who is working in front lines of Toronto’s real estate market on a daily basis, can tell you it wasn’t a get rich quick strategy.

Expecting to get rich quickly is one of the mistakes to avoid when investing in a condo. Although some speculators made lots of profits within the past five years in condo investments in Toronto or Vancouver, that does not always happen. Literally, you can not treat real estate as some sort of stock. It’s for those who are looking to gain capital gradually but surely.

To get a better understanding about the past performance of the condo investments you can view this article about Are Condos A Good Investment? . From that article we can read: “ The average price of a condo in Toronto in January 1996 has been $133,602. The beginning of January 2022 also the average price of a condo in Toronto was $656,232. The Appreciation is OVER 391% which is equal to 16% Gain a year since 1996. “

5. Too much reliance on the floor plans and brochures

When you invest in new condos, you’re buying a future product off of a plan. One of the big mistakes early investors make is that they rely too much on floor plans and brochures. The end product most likely will be a bit different from the pictures you see in the brochures and or the floor plans might be a bit different.

The depth of the problem is to that extent that one of the most famous and biggest Canadian players in the condo market, uses that as a top marketing strategy, that they deliver their condo lobbies very close to the Renderings. Even that big developer mentions that drawings and features are subject to change with or without notice, E.&O.E.

When you purchase an investment pre construction condo, you’ll have to purchase TARION insurance as well. TARION covers some minor variances, however the coverage is very limited and literally you can not rely too much on that to be fair.

Why is That So?

I’ve seen some advice that you can get back to developers and ask them to sign this or that so if they give you a product with variance from the initial floor plans you can back off the deal. For that to be practical, based on my experiences, that can be a good idea in markets that are buyers markets, outside of GTA for example. But reality is that Toronto’s market is a high sellers market, and some people would be lucky if they can get a unit close to what they want.

Imagine a condo building launches in downtown, with 400 units, and the developer receives 900 worksheets from investors that are interested in the building. Reality is that in these types of markets, the best way to deal with that risk is to Adjust your expectations, and consider that risk as part of your investment risk!! If that is still worth it for you, invest in pre construction condos, if not, invest in a resale property.

4. Not doing your own due diligence

To give you a simple example, investors might flood a development because they heard from someone that, for example, Amazon is gonna put their Head Quarters in this neighbourhood. Buying based on those rumors is wrong. Remember, at the end of the day, you have to do your own due diligence. Don’t buy on rumors. Do your own due diligence.

Always study the past performance of the market. If you are working with a Toronto REALTOR, ask them to give you the past performance of the market and supporting numbers. Because when it gets to the condo investments, developers (in the past 10 years) sell you the future value. So you need to be educated about the past performance, and literally about what’s going on in Toronto’s real estate market right now.

3. Not having an exit strategy

Not having an exit strategy is another mistake that investors may make when buying a pre construction condo. Two main questions that any condo investor might ask are:

What if my life plan changes between now and the delivery of my condo?

To deal with that, you need to ask for an Assignment clause in your agreement of purchase and sale. Usually if you work with an experienced Toronto Condo Real estate agent, they know that. But if you don’t have an experienced condo Realtor representing you, you need to ask for this.

Assignment right allows you to be able to sell your agreement of purchase and sale to another buyer if anything changes in your life. There are details involved with assignments as they are complicated deals. You need to ask a professional to help you with them.

Read More:What is a Condo Assignment in Toronto?

And what if my condo price is not up enough at the closing date?

If the market goes south and your investment is in Red, what would you do?

Like other investments, a solution can be Keep It till it gets back to the Green. After you get your condo you can keep renting it out for a couple years and when it reaches to the value that you want, you can sell it and make the profit then. If you look at the number 6, you’d know that real estate is a long term game. So expect to hold onto your asset a few more years if that doesn’t give you the initial performance and or ROR that you wanted.

Read More : Benefits of Renting Out Condo

2. Ignoring Hidden Costs on Completion

A mistake that some still make, is that to think the purchase price is everything. However when you buy a pre construction condo, you’ll have to pay other costs on the closing.

Other costs that you should expect are: Land Transfer Tax, Levies and Development Charges, Legal Fees, Utility Hook Up Fees, and HST ( in some cases). Some of the costs you can eliminate or limit.

Land Transfer Tax

Land transfer tax for a pre construction condo investment is the same as it is for an equivalent resale property. However Levies and development charges are usually variable. A Top Realtor might be able to help you negotiate to eliminate a part of that or at least cap those costs to a fixed amount. The same applies for Utility Hook up fees, ( installing a hydro meter for each unit etc.)

HST

HST however is a different story. You can not negotiate that with the Canada Revenue Agency LOL. If you can negotiate with CRA let us know in the comments. Developers usually include a part of Rebatable HST in the contract. When you sign a pre construction condo investment  Agreement, the developers have you sign that the HST rebate will be credited toward the developer because you are gonna be the principal resident in the unit. So they include that in your contract.

However, if you are an investor and don’t want to occupy the unit as your principal residence, you have to pay that portion of HST on closing. There are ways that you can rebate it after a year. For that matter consult with a Tax lawyer, account. HST topic in pre construction condo investments is a bit complicated. We do have companies who can help you with paying it and get it back. For more information you can contact us.

1. Avoiding TAX, Mortgage and Legal advice

This one is the biggest mistake that a condo investor might make. When you purchase a pre construction condo investment, you have 10 calendar days cooling off period.

If you are working with a Top Condo Real Estate Agent, they should tell you about it and what to do in that period.

First thing that you need to do is to take your copy of the Agreement of Purchase and sale to a Preconstruction Condo Lawyer for a review. Usually the review fee is around $400 ( more or less and + taxes). In complicated cases it might be a bit more expensive to review the contract.

The second thing is that you must make sure that you can close the deal. WHether you want to pay off all the costs cash from your pocket, or you want to get a mortgage for it. You must be prepared to close the deal. So if you don’t have enough funds or equity, you need to talk to a mortgage broker to make sure you can get proper financing on the closing. It has to be done during the 10 days cooling off period as well.

The third thing is when you plan to Assign. There are taxes involved in assignments. Assignment deals are complicated, also the taxes related to them are also complicated as well. You need a good Tax Lawyer and a top Toronto Condo real estate agent when it comes to Assignments.

Read More : What are the Best Condos In Toronto

Final Note

Always remember, real estate investing can be very profitable in the long run, but you need to do your own research and get consultation from a professional before doing any investment. All in all, make sure you do your own due diligence before any real estate investment.

Conclusion

In conclusion, investing in Toronto condos can be a lucrative venture, but it requires careful consideration and avoidance of common mistakes. By conducting thorough research, understanding the condo association, budgeting for all expenses, and seeking professional guidance, you can make informed decisions and maximize your returns in this dynamic real estate market. Remember, the key to successful condo investing in Toronto is to be well-informed and strategic in your approach.