Investing can be done in different ways: stocks, bonds, collectibles, etc. Real estate has become a very lucrative business strategy for those who do their due diligence, research and observation. Whether it’s a small investment, such as a quick flip, or a large DIY project, the real estate market has a lot to offer. The focus of this piece is around a condo investment.
Condominium constructions are growing in the city of Toronto, and with that comes the opportunity to make sound real estate investment decisions. Condo investment in Toronto can be done at many stages: after a property has been constructed, during the construction phase or during a project’s announcement phase. We shall be focusing on what is called a property’s VIP Phase. There is no set definition for this but it is generally a period of time when a builder provides select brokerages early access to a project a-head of its public launch.
In this article, we provide a detailed guide to condo investment strategies, focusing on how the VIP phase can provide an opportunity for the best investments and create long-term positive results. Some of the topics we cover include:
- The pros & cons of VIP Real Estate Investments
- Due diligence to be done prior to committing to a real estate investment.
- Evaluating your potential investment
- Post-investment decisions
VIP Condo Investment: The Positives and Negatives
Simply having the word “VIP” in the phrase makes a VIP real estate investment a cool thing. However, like any investment, it has its positives and negatives. It is important for enthusiastic new real estate investors to understands these pros and cons before jumping in to make a condo investment.
Great Prices and Options
The one major incentive for any investor to consider a real estate property during a VIP phase is the price of the property. Individuals who buy during the VIP phase usually get the best prices, significantly lower that the prices made available to the general public when the project publicly launches. In addition, during the VIP phase the builders provide access to a larger variety of floor plans and options. By the time a project gets to a public launch, most of the better floor plans are accounted for.
It’s important to also note that prices during the VIP phase let you manage future expectations from the project. You are paying significantly lower than what you would pay after the project launches, providing a wider range for value growth.
Interior Design Planning
The one beauty of purchasing during a VIP is the customization possibilities. For most new projects, irrelevant of the phase, customization is possible. However, by purchasing during a VIP, you may have more options to choose from when it comes to customizing your space. Also, with how early you are buying, you have enough time to plan and create a suitable interior design, something you can implement as soon as the project opens and rent/flip right away.
A major factor investors need to keep in mind is where the suite they are investing in is located, when dealing with a condominium tower particularly. By purchasing a lower floor, you are likely to hear street noise, have bad views, be exposed to pollution, etc. If you were to invest in a higher floor, you are likely going to pay a premium on the suite for its great views and location. Both options put investors in a bit of a tough spot to either get their money back or rent it out to potential tenants.
A VIP phase of a project gives you that early access needed to ensure you have access to the majority of suites – and location of suites – to make sure you are making a sound investment decision. At TheRedPin.com, our focus is to ensure interested buyers, especially investors, are made aware of the best suites in the tower, appropriate for long-term investments.
The phrase maybe stretching its definition, but you are essentially buying a property blind when purchasing during a VIP. At this point, the only reference of space and concept an investor has is on paper, in the form of floor plans. There are too many variables one cannot predict with certainty including how an interior plan will look like, how interior design can come into play, what the suite will be facing when the project is actually done, etc.
In addition, even though a space will have dimensions and square footage outlined, visualizing the space would be hard without actually seeing it. The classic mistake most buyers, especially investors make, is not looking at the numbers. Sometimes, suites with a “Den” end up just having a nook or hallway that acts as a den, which defeats the whole purpose of advertising the space as a 1+ or 2+.
Delays & Cancellations
With new projects, there are always delays and cancellations. When purchasing VIP, as mentioned above, there is a hefty wait time between investment and opportunity to gather returns. Delays add to the wait time, while cancellations don’t give you any return whatsoever, wasting precious time for no reason.
However, when there is a bad there is a good. As an investor, delays can prove to be quite good. If the property is in an area of appreciation or growing demand, investors maybe able to appreciate the value of their unit further than expected.
Condo Investment Due Diligence
Before you decide to make an investment into a new property, it is important for an investor to do their due diligence on a property and the search involved. It’s a common mistake seen in real estate investing when investors jump into a property without really doing any sort of research beforehand. Below are a couple of important elements that investors should take into account both during their search and their decision:
When you buy a chocolate bar, the first thing you think about is what brand you want to buy. Similar concept with real estate investments. You want to know who the builder is and what their history is like. Tarion is a recognized source for builder history, including their projects and their overall quality of work.
Builder history is vital when making investment decisions. Processing purchases, construction time, making sure they open the property on scheduled date, etc. These may sound somewhat simple but affect your bottom line the end of the day. Last thing you want is invest 20% down on a property and find out that its 6 months delayed. That’s 6 months more that your money is tied down. Investing in a builder that has a good history may not be a 100% guarantee, but it sure will mitigate much of the risk.
Understand the Neighbourhood You Want To Invest In
A successful investment is going to be one that can hold up to its demand. However, demand is not just dependent on the project but is also dependent on the factors surrounding the project; Transportation routes, upcoming developments, walk score, bike paths, shopping options, amenities, resources, etc. The list is pretty long.
The neighbourhood is a major factor in evaluating a property’s long-term potential. Investors should look out for future planned developments in the area, BIA information, recent real estate changes such as new buildings or commercial properties, etc. All these factors help determine if a property will be an easy sell or attractive to potential rental clients.
As shall be explained later on, it is important to keep your end user in mind. For a condo investment to be successful, the property must be able to meet the requirements of your end user. The neighbourhood is something you can’t change once you get a property. If you are targeting the everyday working commuter, you must ensure there are transit links available close by, convenient shopping options and easy access to every essentials such as banks and coffee shops.
Also, understand that the various elements relating to commuting add value to the property in the long run, sustaining its demand. If a rental is what you are aiming for with a condo investment, having elements such as the TTC and shopping close by will always keep the property in demand.
Identify Your End User
An investment is not just taking a sack of cash and exchanging it for some organized concrete and wood. You are making an investment to hopefully achieve positive gains, in the form of either profit on top of what you paid or rental income.
This is the question you must ask: Who is my targeted end user? a person looking for a rental property or an individual or family looking for a permanent home? This decision will affect how and what you buy. If you invested with the intention to gain rental income, and your building turns into a rental building, you have a boat load of competition to handle.
Your end user is what will determine the requirements of your condo investment, as mentioned above. If you are targeting a rental clientele, then you must ensure the property has that appeal in the long-run. If you are simply planning to flip the property, make sure you have a condo investment within a neighbourhood with great appeal or an area that is up and coming.
Understand Your Financial Position
You need to write this point down in red ink and bold letters. Many new investors don’t truly understand their financial position before embarking on their house hunt. It is necessary that you get pre-approvals well before you even contemplate moving in the direction of a potential project, especially for a condo investment.
It is also important to note that generally, on average, you have to put 20% down. This differs very much from resale home and new condo status projects where you can pay between 5-20% but opting in for mortgage insurance. There are always incentives provided by the builder but these are usually after the VIP phase and after all the major, good units are sold out. Other costs to look out for include:
- Closing costs such as legal fees
- Phantom mortgage – a rent like figure you have to pay until the building registers
- Interior design and decorations
- Moving costs (if you intend to live on the property)
- Marketing – to advertise a rental
Evaluating Your Investment
Due diligence does involve studying your potential real estate investment. However, there are details in the evaluation process that an investor should keep in mind when investing in a property. What makes a good real estate investment is the due diligence involved. What makes a great investment is how far an investor is willing to go to ensure all the other details are in sync as well.
It is important to put into perspective what kind of suite you want to put your money towards. A condo investment is not just about making an investment, but also ensuring that its demand lives as long as possible. Location of course has its importance in this, but so does the unit type. It’s simple decision of what kind of unit you want and its overall layout.
Functionality is key. If a layout does not provide maximum use of space, then it will appeal to very few people. You don’t want to have a beautiful dining and living room and end up with bedrooms that are like linen closets because they are wide on one side. We at TheRedPin ensure clients get the best suite that will sustain its demand and value.
Also, deciding how many bedrooms and baths is also another dilemma. Generally speaking, a 1 bedroom plus den is in great demand; offering both the living and work space needed for professionals and new families. However, it all comes down to who your end user is. If you are targeting working professionals, then a 1 bedroom plus den would suffice. However, if you are catering to first time home buyers with families, they will want extra spaces for their children. This is something you should consult with real estate agents before investing.
Investment Location within a Building
When you are investing in a condominium project, floor level is extremely important. As an investor for instance, investing in a high floor is hard to justify because you will likely pay a premium for the unit and would have to charge higher rents in order to justify the investments.
The beauty of investing during a VIP phase is that you have access to the best floor plans at the best prices. You should sit down with your real estate professionals and thoroughly go through all the plans and availabilities and ensure you put your money towards a sound unit.
Your unit has its own checklist while the building it’s within has another. The amenities and conveniences that come with a building create great selling tools when you are promoting an investment, whether it be for resale purposes or rental purposes.
Having a pool, a gym, recreation centre, etc are all great things to have on a projects list. However, by having many more conveniences, maintenance maybe high, with the possibility of maintenance increasing over time. If you are planning to rent a property, this could hurt the bottom line and potential gains to be made from a property. Other important factors are sometimes overlooked. Building lockers are a good example. They provide additional storage, from being a safe space for valuables to storing a bike. It’s important you find out what type of locker is being offered, if you have options and invest in one according to the type of clientele you want to attract.
Another important factor is parking. Parking is very scarce in certain places, especially downtown Toronto, where parking spaces are the ones being turned into condominiums. For 2+ bedroom condominiums, it’s very important to purchase parking as you will likely sell/rent that space to a larger family or a couple wanting to have a family. Also keep in mind that parking itself will likely go up in value overtime and that when it comes to selling your property, having a parking will help sell it faster.
Post Investment Decisions
You’ve now invested in a property. Now what? Post-investment decisions make or break the profitability of a real estate investment. A condo investment can only be successful if it is marketed properly, with time taken very seriously.
Whether you have invested in a suite to become an executive rental, a quick flip or simply a standard rental to residents in the city, you need to get moving to make sure the property is ready to start deriving the positive cash flow investors look for. When investing in a VIP property, there is a significant amount of time between purchase and the property opening its doors. Ensure all the time you have is used wisely, such as planning the interior, creating a financial plan, etc.
Ensure Finances Are In Order
Depending on the arrangement of the deal, there may be financial implications involved in the near future, something that should be considered and planned. This could be additional payments, banks transactions etc. Ensure all these financial implications are taken into account and planned for, so you do not have financial responsibilities out of the blue.
A condo investment has its goods and bads, and with a condo investment especially, a VIP property can be highly profitable if done right. It is important for investors to do their due diligence when it comes to searching for a potential investment, ensure they have evaluated the purpose of the property and have understood all the elements that affect the property and its long-term demand. By doing research, an investor can make a sound investment that will not only generate positive cash-flow but also a reputation in the field as a knowledgeable investor.