It’s easy to find examples of people who’ve made a decent return on their investment in the real estate industry.
But it’s probably just as easy to find someone with a horror story or two to share.
While you’re deciding on whether or not you should buy a home or a condo to renovate, rent out or live in and flip, it’s important to look at both sides of the issue to find out if it’s the right course of action for you.
Here are five things I wish I knew before I started investing in the Canadian condo market.
1. How the Length of the Mortgage Term Would Affect Me
I intended to live in my first condo investment while renovating, but we were actually able to finish early. Nice, right? The problem was that I’d face a penalty if I sold the place prior to the conclusion of my agreed-upon mortgage term of five years.
2. How the Neighbourhood Affects Re-Sale Value
That same investment proved difficult to cash in on because of the neighbourhood. Sure, you pay for your location up front, but it pays to know as much as possible about your audience. As a 21 year-old kid, the busy street and the proximity to restaurants didn’t even register for me, but trying to sell to young families who craved peace and quiet was difficult.
3. The Tenant Reality
My next condo investment? Here’s where the horror stories begin. I bought a beautiful brand new condo in Edmonton. A few years after purchase, I was on the hook for thousands of dollars worth of water damage after my tenant left a window open and a pipe froze as a result. On top of that, there was damage to the kitchen cabinets, the finish in the sink and bathtub - it was a mess. The lesson?
4. References & Due Diligence
You simply don’t know your tenants when they move in. Anyone can act nice and neat and clean and tell you they’ll take care of your condo as if it were their own, but talk is cheap. After my nightmare tenant was finally evicted I was much more diligent in learning about potential tenants. In fact, I turned someone down who had cash in hand because I didn’t get a good vibe from a reference. It took a couple extra weeks to rent, but I was glad I waited because the new tenant got glowing reviews from her boss, her friend and a former co-worker.
5. Insurance is a Necessity
Another lesson I learned from the nightmare tenant was to definitely, absolutely, unequivocally demand tenant insurance. Fortunately all the damage caused was covered either by my insurance or my tenant’s. If it weren’t, I’d still be paying contractors for a condo I’d like to sell at some point.
So make sure you don’t make the mistakes I made. Do your homework, investigate your options inside and out and you’ll have no problem creating a healthy return on your condo investment.