When Are Condos a Good Investment?

Updated for 2022

Condos have become a go-to property for everyone in the Ottawa market, from first-time buyers to baby boomers looking to downsize.

Several years ago, there were a large number of condos on the market, but not quite enough interested buyers. Back then, the condo market was a little slower.

But, with the mortgage stress test rule still in effect and the unprecedented real estate market we’ve seen recently, we’re left with lower than usual inventory numbers in Ottawa. This means condos remain a hot commodity. In fact, condo sales were responsible for much of the market’s growth these past few years.

So, are condos a good investment? Yes, whether you’re looking for a home of your own or an investment property, purchasing condos can be a very smart move. We work with real buyers and sellers every day and know what’s selling and what’s not. Contact us for condo info and read on to learn some of the secrets to making a condo purchase work in today’s real estate market.

Discuss condo investment options with a Paul Rushforth agent today. 

What Does “Condo” Mean?

Before we get into the details, let’s be clear about what we mean when we say “condo”.

Most people immediately think of a high-rise apartment. But it’s important to remember that a condominium can also be a townhouse or stacked townhouse (one condo on top of another). They can even be in communities with a mix of these home types.

Who Should Be Looking at Condos?

There are a few different buyers that will find condos a worthwhile investment.

1. First Time Home Buyers

A condo townhouse can be much more affordable than a single family home if you’re a first-time buyer.

If you’re new to real estate, it’s important to factor in that you’ll need to do upkeep and make cosmetic improvements to the home, thinking about the future resale value. Buyers are really choosy these days: they want beautiful turnkey properties and are picking units with better finishings, even when they cost more.

Other factors that need to be in place to make condo investments work:

  • The home is in a highly desired location.
  • The home preferably has access to mass transit.
  • Any condo you consider buying must have a good reserve fund. That’s a pool of accumulated funds from monthly fees set aside for larger future expenses. If the reserve fund doesn’t have a lot of money in it when you’re looking at the condo (particularly if it’s an older condo), there may be a jump in condo fees down the line when a major renovation is required.

Along with being a great starter home, investing in a condo now can provide cash flow later; you can start your real estate portfolio with a future rental property. This is especially true if it’s a townhouse, as this type of rental is in high demand right now.

2. Boomers and Seniors

Baby boomers, 55+, seniors, and especially snowbirds are the perfect buyers for condos. Healthy adults whose kids have left the nest are also moving to adult lifestyle condos—if the price is right.

If a senior wants to “age in place” (avoid a retirement home by having a home with a senior-friendly design), a condo community is a great option. 

Senior-oriented properties not only have a great balance between independence and socializing, but many of these communities have features like hair salons, weekly social events and grocery stores right on the site.

Snowbirds love condos because it means they can lock the door and head south for six months with no maintenance worries. Condos are also more affordable investment than single family homes, which means if you own (or are looking to purchase) your sun-soaked paradise property as well, it’s more financially viable.

3. Parents of University Students

Parents who live outside of Ottawa sometimes do the math on residency fees for local universities (or the rental costs to pay down someone else’s mortgage) and decide they would rather not let that much money go out the window.

Instead, they buy a small home for their child to live in, with the plan to either sell it or rent it, for additional cash flow, after graduation.

There are a few things condo buyers have to do to make this work:

  • Buy resales, not new builds.
  • Just like for the first-time homebuyer, you want something with a great location and transit access.

4. Singles

Women over 30 are looking to be part of real estate ownership. They’re actually a significant home buying demographic, and they especially like stack units in the suburbs.

Recent divorces can also mean each member of a couple is left looking for a smaller, more affordable living option with a lower price tag.

5. The Super Wealthy

There are some locations that will always be desirable for those with plenty of disposable income.

Frequently these condos are high rises located in the most desirable central neighbourhoods, have high condo fees of $2,000 or more, but have spared no expense on design and convenience.

With these locations, it’s about the company you keep: the other owners are often one of the main selling features. Executives and the very wealthy want to be part of a community with similar interests and get access to networking opportunities. Security, attractive amenities and cultural experiences are also major concerns for the people who buy luxury condos.

Condos Don’t Work For…

1. People Who Buy High Rise Condos and Expect to Flip

The Ottawa market may be a lot safer than Toronto or Vancouver, but that doesn’t mean flipping a condo is a piece of cake.

The famous “3-year flip” that builders and their salespeople market to investors may work in some cases, but what happens when everyone in the building tries to do the same thing?

Here are some other key things to be wary of with new builds:

  • The perceived value of a new build condo can be much higher from the builder’s perspective than the Canadian Mortgage and Housing Corporation’s (CMHC). This means you may not be able to get the level of financing you want.
  • A condo’s HOA (homeowners association) fees often jump dramatically about 2 – 3 years after a new build. Builders can be overly optimistic about maintenance costs. Then management gets a surprise once they see what needs to be paid for day to day, thereby encouraging an increase in condo association fees or applying a Special Assessment to owners.

2. People Who Don’t Understand the Rental Market

Ottawa’s rental market is competitive right now because more and more people are choosing to wait to buy, so any well-maintained rental properties will get some interest.

But no matter how high the demand, the key to the rental market is a location that works for your target renter.

For example, lower-income renters need a fair rent value and typically look for utility-inclusive properties, plus transit access.

Also, you must be wary of rental restrictions. Some communities strictly forbid units to be rented out.

What About the Condo Fees?

Condominiums do have levels of shared expenses. Limited condos generally carry lower monthly fees but only address exterior maintenance, like parking lot snow removal and groundskeeping.

Full coverage condo groups can have higher fees but will cover replacement costs, such as the roof, windows and often additional amenities.

Where condos can get unpredictable is the monthly fee. If the condo has unforeseen expenses, fees can go up over time. HOA fees also vary widely: they start from a minimum of $100/month with an average of $250 to $300 for townhomes and stack units to $500 to $1000 for high-rise buildings.

Monthly costs can be even higher for elite locations with full security, attractive amenities and premium finishes on everything.

How to Tell if the Fee is Reasonable

Condo builders and managers often argue that any money a condo owner spends in fees is money a single family detached homeowner would be putting towards maintenance and future repairs.

Be diligent on the math, as condo fees can sometimes add up to much more than you would spend to get things fixed on your own, even when factoring in the big-ticket items like new roofs over time.

Further, as your agent, it is imperative that we enlist a lawyer to look into the status of the condo. When there is a shortfall in the reserve fund budget, condominiums have the right to apply Special Assessments to condo owners in order to bump up the operating costs/maintenance of major items. This can be hundreds of dollars to thousands.

Should I Consider a Pre-Construction Condo?

As we mentioned above, you need to be careful when buying new build condos—but this doesn’t mean you should avoid them completely. 

This type of condo investing begins with identifying and working with reputable builders. Good investors want a builder or developer with a good track record. The great news is that we know the Ottawa builders you can trust. So, before moving forward with a pre-construction purchase, contact a member of the Paul Rushforth team.

Why Else Should I Invest in Condos?
There are many other reasons to consider investing in a condo sooner than later. 

Immigration Targets

In an effort to address an aging population and recover from the pandemic, Canada has established ambitious immigration targets. It plans to add hundreds of thousands of people per year for the foreseeable future,and many will flock to Ottawa to enjoy our high quality of life and lower cost of living.

Low-Interest Rates

Recently, we’ve seen historically low interest rates. We do anticipate rates will rise, but it won’t be a sharp increase in the near term. So it makes sense to take advantage of the buying power and purchase an investment condo now.

Areas Outside Downtown Are Hot

The condo market close to the downtown core was the best option not long ago. Now, people can easily work from home and are looking to live in the outskirts of Ottawa. Rental income for these properties might be a bit less, but your purchase price will be too.

Making a Condo Purchase Work

Buying a condo can be complicated these days. You have to weigh a lot of factors, understand the needs of your target renter or eventual buyer, and make sure you crunch the numbers. Most importantly, you have to know the condo market inside out.

There are a lot of great opportunities out there, but you need a knowledgeable real estate agent to help you find them.

Look no further; contact a Paul Rushforth agent to find your next investment property today.

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