New Condo Purchase: Pre Construction or Resale?

Toronto Condos are quickly becoming one of the cities hottest commodities. It seems every month there are plans laid out for a new project in or around the city. With real estate pricing continuing its seemingly an unstoppable upward trend, many first-time buyers and investors alike are turning to Condos as an entry point into the GTA market. When exploring a new condo purchase, there are two options to consider: Pre construction or Re-sale. A pre construction condo is a brand-new unit with no previous owners or tenants. A resale property has a history of past owners or inhabitants. Upon initial consideration, it may seem like pre construction is the obvious choice; why would you want to purchase an old unit when you can buy a brand-new unit? Unfortunately, it’s far from being this simple. Both options provide clear-cut advantages and disadvantages. The right choice would depend entirely on the individual purchasing and their circumstance.  Here are some important factors to keep in mind:

Resale Value is one of the most important factors to consider when making your choice. Nobody wants to come out in the hole, and ideally, you’ll want to treat this purchase as an investment. That is the “American dream” after all. Generally, pre construction units are a better choice when it comes to resale value. With that said, nobody can predict the future of the market. If there is a crash, or a downwards trajectory, you may see that resale value disappear regardless. But pre construction projects are typically priced lower than the average resale unit, and will usually see an immediate increase in equity once the unit is finished and ready for occupancy. So, you’ll spend a little less in total, and may see an almost immediate rise in equity if all goes according to plan. However, price point and immediate equity are not the only factors to consider. You must look at overall value. Is the unit in a good neighborhood that has seen strong growth? Is the builder reputable? You’ll also need a realtor with a background in pre construction to determine if you’ve negotiated beyond just the price point: Did you negotiate a cap on builder’s fees? Did you negotiate upgrades to the unit? If you’re an investor whose main goal is a quick  turnaround, then pre construction is typically a better option. But it’s easy to make bad decisions in relation to pre construction; if you haven’t done your research and negotiated strongly, you can be left with the short end of the stick. Pre construction is a better choice only for a seasoned veteran who understands the ins and outs.

Down Payment is another important factor.  A pre construction unit will require a full 20% down payment, whereas resale units may require less upfront; some resale units can have you paying as little as 5% upfront. With that said, the 20% down payment on pre construction is broken into a series of smaller payments between the time of signing the deal and the day you move in (occupancy). So, you won’t be required to pay the full 20% in one shot, but rather over the course of a few months. If starting funds are an issue, you may need to consider resale.

Time Frame is arguably the biggest factor. If you need a place to live now, forget pre construction. Pre construction condos need to be built, and there are often time delays ranging anywhere from 6 months to a few years after the projected finish date; builders can delay for a plethora of reasons, and unfortunately, you move at their schedule. Resale will have concrete move in dates and you’ll typically be able to move in immediately after signing a deal.

Knowing Exactly What You’re Buying is the big one. With re-sale, you can see the unit before you buy it. You can inspect it, analyze it, envision how you’ll stylize and furnish it. It’s more of a “try before you buy” process, so to speak. Pre construction comes with the risk of not actually seeing the unit before you buy it. You are essentially buying based off floor plans. With that said, a smart buyer may be able to make small tweaks and additions to a pre construction unit’s floor plans, thus setting it apart from other units in the building and creating a potentially higher resale value. Moreover, there is no risk of wear and tear on a brand-new unit. With resale, you will have a better idea of what the space will look and feel like.

So, What is the Better Option? As I’m sure you’ve gathered at this point, there is no clear cut “better option”. This depends entirely on the individual and their needs. An investor looking for a quick return will likely consider pre construction. But they will need to be well versed leading up to the negotiations as to avoid being left with a dud of a unit. If you need a living space for yourself, however, resale is a much more straight-forward and reliable option. Ideally, you’ll see a nice return if you plan to live in the space for an extended period in any case.

 

Renting out a Toronto Condo: What to Know

Renting out a Toronto Condo can be an incredibly lucrative endeavour, but it’s no walk in the park. Make no mistake, being a landlord is a full-time job. Like any job, there are certain factors that you’ll need to consider prior to jumping into the position of landlord. Preparation is the only way to ensure a successful and stress-free investment that is both lucrative, as well as, manageable. Here’s what you should know.

The RTA and Condominium Act

There are two major pieces of documentation that essentially act as the “rule books” to renting out your condo: the Residential Tenancy Act (RTA), and the Condominium Act. As a condominium landlord, you have responsibilities under both pieces of legislation. For starters, you’ll need to familiarize yourself with the rules that apply to the rental of condominiums in accordance with the corporation guidelines outlined in the Condominium Act. The RTA, however, is not specific to condos; it outlines laws related to most landlord and tenant situations. Like any legal arrangement, responsibilities and expectations land on both sides of the arrangement; landlord as well as tenant. Understanding what is required essential to a smooth tenancy. Here are some highlighting points:

Keeping your Condominium Corporation Informed – The corporation needs to be informed if you intend to rent out your unit. You are required to notify them within 20 days of the tenancy starting. You’ll need to provide the tenant’s full legal name(s), your full legal name, your current residing address, and the amount that you will be charging the tenant monthly. Once you’ve determined a tenancy end date, you are required to provide the corporation with a notification of the tenancy ending as well. This notification must be provided within 20 days of the end date.

Condo Fees – Most people are aware that condos accompany condominium contribution fees, commonly known as Condo Fees. A landlord does have the option of passing these fees off to their tenant, or they can choose to pay the fees themselves. If you plan on passing the fees off to your tenant, you’ll need to clearly outline this in the lease agreement. If these fees go unpaid while renting out your condo, the corporation can enforce the tenant’s rental charges to be paid to the corporation instead of the landlord to cover the lost fees. Failing to pay these fees is a direct breach of your condo agreement.

Know the Condo Bylaws – Condo bylaws are designed to outline codes of behavior that you and your tenant are required to adhere to. A responsible landlord will know the bylaws, provide the tenant with a copy of them, discuss it with them during the agreement process, and include them in the lease agreement.

Length of Tenancy Agreements – Leases are typically based on a 12-month time commitment. With that said, you can specify a shorter or longer arrangement depending. Requesting first and last month’s rent upfront is a standard part of the agreement. Once the initial term is finished, the agreement is typically moved to a “month to month” arrangement. At this stage, the tenant is required to provide you with 60 days’ notice if they intend to end the tenancy.

Pets – This is a topic that comes with many ill-informed opinions. Generally, a “no pets” clause is not enforceable by law. You can include a no pets clause on the agreement, but you have no means of legal counter action if a tenant were to lie on an application. With that said, condos can be the exception. It depends entirely on the specific building, as some corporations allow pets and some do not. If your corporation does not allow pets, then you can enforce the rule. If they do, then your hands are tied.

You’re Condominium Corporation May Ask You for a Security Deposit – The thing to keep in mind here is that a landlord owns the unit, not the building. Your condominium corporation may ask for a security deposit in anticipation of potential damages that may be caused to the common grounds by your tenant. The maximum amount that your corporation can ask of you is the equivalent of one month’s rent.

Reviewing both acts in detail will keep you on your game, and ensure a smooth venture. With that said, there are a ton of details to cover, which is typically why landlords choose to partner with a property management company. A company like CMG Toronto can alleviate much of the headache and stress that comes with renting out your Condominium unit by making sure all guidelines are adhered to, drafting legal documents, posting listings to MLS, and determining the best price point for your property.

 

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Handling a Rental Application

When it comes down to selecting a new tenant, the application process is one that cannot be skimped. The rental application is the first step in weeding out tenants who will cause you grief. Without it, you have very little information at hand to help you make your choice, and you’d be just as well rolling a dice. Think about it this way: if you were an employer looking to make a new hire, you’d require the candidate to fill out and provide an application form along with their resume, yes? Well this is the same thing, or at least should be looked at as such; being a landlord is a business venture in and of itself, making you the head of the company, and giving you the responsibility of selecting candidates to man the front lines. In this analogy, the tenant is that candidate. You wouldn’t want an incompetent employee manning your storefront, would you? So why would you want an unqualified individual running your rental property? By undergoing a thorough application process you’ll be able to collect pertinent information on your prospects, obtain consent to gather and disclose said information, set out terms and conditions of the potential tenancy, and collect a security deposit once an offer of lease is executed. All of this will aid your end goal of a successful tenancy.

Ok, so we’ve established the importance of the rental application process. What kind of information should the application process set out to gather? For starters, you’ll want some proof of identification. This could be a valid driver’s license, a health card, or any other form of government ID. You’ll also want to know if the applicant is currently renting, and if so, who is the current landlord? Furthermore, past landlords will be equally as pertinent. When asking for this information, be sure to request move in and move out dates to judge their moving patterns. If the applicant seems to move every 6 months, meanwhile you’re looking for a long-term tenancy, that should be a sign that this applicant is not the right fit. Collecting employment verification, proof of income and length of employment will also be important as it will directly reflect the applicant’s likelihood of paying rent on time, every month. Requesting the prospects S.I.N is considered an acceptable business practice under Section 21 (3) of the Ontario Human Rights Code.

In addition, credit checks, personal references as well as professional references will be a necessity. In terms of the credit check, you have the choice of requesting the prospect to provide it or obtaining it yourself using the applicant’s S.I.N, as running a credit check does come with a small fee. If the tenant refuses the credit check, there’s a good chance they are trying to cover up a bad credit score. With that said, they may just be worried about an inquiry affecting their credit score. Be prepared to ask the applicant questions in this type of scenario, and to use your best judgement when gauging their answers. Paired with the credit check, you’ll want to run a background check. Typically, you’ll only need the applicants S.I.N for this as well.

Once you’ve gathered all the necessary information, you’ll be at the point in which you’ll need to make some phone calls. For starters, you’ll want to contact the tenant’s employer. Speaking with the employer will give you peace of mind knowing that the prospect has steady work with a consistent flow of income. Moreover, the employer may be able to provide insights into the prospects character and personality. On that note, you’ll also want to reach out to both the personal references as well as the past landlords. I would argue that past landlords are of utmost importance; personal references can easily feel that they must provide a glowing reference in hopes of helping the applicant out. After all, a personal reference is typically a friend or family member who will only want the best for the applicant. Past landlords on the other hand are more likely to give you the type of information you’re looking for, unbiased. One thing to keep in mind, a current landlord may give a glowing reference in hopes of getting the prospect out of their rental space. So be wary when dealing with current landlords, and be sure to match up what they tell you compared to past landlords.

Assuming the applicant has made it this far, it’s this stage where you’ll want to interview the applicant one on one. It’s often one on one meetings in which you gather the most important insights.

By following these guidelines, you’ll greatly reduce the risk of a bad tenancy.