Investing in condos. With and without buying.

Recently I came across a list of world’s fastest growing condo markets and was amazed:

1.       Toronto with 132 new condos currently being built

2.       Mexico City - 88

3.       New York - 86

4.       Chicago - 17

5.       Miami - 16

Huge gap between Toronto and any other city in the world! Of cause, Toronto still has a long way to go from 1875 high-rises to New York’s 6000, but nearly 100 000 people arriving to Toronto every year. Add to this many baby-boomers who prefer "no hassle" condo style of living, mix high-paid young professionals who enjoy being close to work and entertainment and you get yourself a great cocktail named "booming condo market". No wonder everyone if not investing, but at least talking about it! So what are the typical ways to invest? 

Well, first of all you can buy existing condo and rent it. In cities such as Toronto you most probably will get your mortgage and taxes covered by rental income. If you play your cards right, rent might even cover part or all of the condo fees. Though this investment option is very popular, one must remember to cover all payments out of pocket if property is vacant (usually 1 out every 18 months) and budget for repairs and maintenance (few hundreds every year). People who invest in this scenario are not looking for monthly cashflow, they buy for equity (property value) growth. It is profitable in booming market and there is no limit of how long you can hold such condo, as long as you have enough cash to keep it.

What if you want to take advantage of growing condo prices but don't want to be a landlord? Well, buying condo units before they even built might be your choice. This scenario requires significant amount of cash (25-35%) of unit price, but amount is usually paid in 3 stages, all before building is registered. Main advantage is that you don't need to get a mortgage until building is registered. Your goal would be to find a buyer by that time. Usually you invest for 1-3 years and take advantage of increasing property values AND lower purchase price. How much profit you make will depend on how early in the game you get your hands on this development. The earlier - the better. Good agent might be your best ally for this.

For folks who want as little headache as possible syndicate mortgages is probably the best way to go. This is when you will act as a bank and lend money to a builder. Projects may vary from 1 to 5 years. Look for the ones that offer quarterly interest payments and have reserved fund to pay it. This way you get some cashflow and large payment at the end of constructions. Additional bonus often offered by builders is preferred shopping for units in this construction. You will have a chance to buy before general public. That way you can invest $25 000 (usual minimal required) into syndicated mortgage and if you have more - buy some units at low price.

Whichever way you choose to invest, remember to consult with professionals, such as your lawyer. And let me know if you need any contacts ;)