Are you thinking about selling your condo? Now might be the right market-but does that mean it’s the right time for you to sell?
If you bought a condo in Toronto between four and five years ago, you may be thinking it’s a good time to sell. Toronto condo prices, according to the Condos.ca PSF Index, are on the rise: since February of 2017, the average 800-square-foot condo has appreciated by approximately $78,000, and condos that were purchased in 2012 have increased in value by close to $130,000. But does this increasing market mean condo owners should wait until prices climb even higher or sell now?
To Sell or Not to Sell…
As the PSF Index indicates, it’s a good time to sell. The increase in value of your condo means that, if you sell now, you can invest those higher profits into purchasing a new property, allowing you to continue to grow your equity. If that’s your plan, then selling now is smart because it will allow you to enjoy the climbing value of your new property as well. A lot of condo owners are hesitating to sell right now because those values do continue to rise-they could earn a higher resale value by waiting another year to sell-however, it’s important to remember that the rest of the condo market is appreciating in value, too. A year from now, you’ll be facing higher asking prices than you’d be facing today, and that may make your investment less profitable in the long run.
Then, of course, there are those looming price corrections. If the real estate market is experiencing tremendous growth now, is that simply leading to a drop? Price drops are difficult to predict; however, it is also important to remember that high growth leading up to a decrease softens the impact of the decrease (if you earn 15 per cent in market increases leading up to a 10 per cent decrease, you’re still up 5%), which means that, based on Toronto’s high rate of condo market growth (particularly in Toronto’s core), it isn’t very likely for prices to fall below what you initially pay.
The Pros and Cons of Choosing a New Condo
We’ve established that now is a good time to buy, but that doesn’t help you figure out what you should buy. New condo or resale condominium-which is the better investment for you? Here are a few pros and cons of each option.
Pros of Buying a New Condominium:
· Lower purchase price (depending upon market conditions).
· Better choice of locations within the building (if applicable).
· Broader range of options and/or upgrades.
· Less risk of having to undergo costly and intrusive repairs and renovations.
· New home warranty protection.
Cons of Buying a New Condominium:
· You may have to rely on artist sketches and floor plans to get an idea of the finished product before you buy. If this is the case, make sure the unit’s boundaries, location, finishes, materials, chattels, etc. are clearly specified in the purchase agreement.
· You pay your deposit before you move in, which means it may be tied up throughout the duration of construction.
· It may be harder to get a mortgage from a financial institution for an unregistered condominium.
· Construction delays could mean your unit doesn’t get finished on time, leaving you scrambling for short-term lodging.
· If your unit is finished first, you may move in while construction continues in other units, exposing you to noise and disruption.
Buy Before You Sell and Grow Your Investments
It’s important to remember that, just because it’s a good time to sell a condo right now, it doesn’t mean you have to or necessarily should sell. It’s a good opportunity if it’s something you’ve been thinking of doing already, but you also shouldn’t feel like you need to rush to sell your condo in Toronto. In fact, if you are thinking of selling, today’s market provides you with a good opportunity to grow your equity and investments by buying a new property before you sell your old one.
Why is it a good idea to buy before you sell right now? Because today’s market is a strong seller’s market: the low inventory and high demand combine to make selling times quick. For instance, for a condo valued at between $500,000 and $1 million, the average number of days it’ll sit on the market before it sells is 29-and most don’t last that long. All you need to do is use your current property equity to open a line of credit and secure the down payment and purchasing costs into a new mortgage. Once you secure your new purchase, you can easily sell your old condo.
If you buy before you sell, you can take advantage of the increasing condo values by buying your new condo at a lower price and selling your old condo at a higher price. The difference could make an impact on your ability to grow your equity.
What does it mean to grow your equity? It means investing in a higher-value property, so your investment can continue to grow. If you are currently in a one-bedroom condo, look for a larger unit or a two-bedroom for your next investment. You don’t want to move laterally through the condo market, even if the increase in condo value makes it look like a good investment, since the land transfer tax, REALTOR® fees, and legal fees may cut into those profits. Climb the condo market by investing in something with more value to make your investment work harder and more effectively for you.
Alternatively, you could grow your investment by keeping your old unit and renting it out: the current average rental price in most neighbourhoods in Toronto can actually cover the monthly costs of ownership, including your mortgage payment, maintenance fees, and property tax, often with a small margin of profit (which you want to keep to a minimum to minimize taxable income anyways).
In short, it’s a good time to own a condo right now, especially if you are looking to invest in financial growth, whether you are hoping to grow your equity by selling or by renting your current unit.
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