I had a client ask me a question a week ago…
“Should I invest in a new condo in Milton? Is condo buying similar to house buying in terms of closing costs? Are there hidden costs? How about flipping these units? I’ve heard that you cannot sell them until they incorporate which could be a year or two… how does this work?”
Here’s my reply…
I can’t stand pre-construction and newly built condos. Stay away!
I’m not a big fan of new construction at all (perhaps a future blog topic)… but condos are the worst culprit.
Closing costs are much higher on new development. Usually add $3,000-5,000 to the typical resale closing costs.
And on a “per square foot” basis, at least in most other parts of the GTA, condo developers are usually asking $50-100 more per square foot. On a 700 square foot condo, you can generally find a resale condo for $35,000 to $70,000 less. And it’s ready NOW, versus later.
Plus, the date they say it will be ready is never reality. Bank on at least 1-3 additional years, likely two or more. And 5 years from now, I don’t think the market will have as much legs as it does today. So buying at the peak of the market, and selling for less isn’t a great formula for success.
Buy high, sell low… something seems off.
You are correct… there’s two dates that are important – one is called the occupancy date, and that’s when they’re actually done your unit but the condo hasn’t been legally registered as a Condominium Corporation. You are forced to pay the cost of the expected condo fees, plus estimated property taxes and financing the outstanding balance remaining after your deposit(s).
Basically you’re paying rent to live in (or keep) your unit until it’s registered. I’ve seen this last as long as 2 years. That’s a significant out-of-pocket hit. On a $250,000 condo, it’s not unusual to see $1,400-$1,600 per month occupancy fee. Then once the building is registered, you can officially close and sell your unit on the closing date.
You can sometimes sell the interest in the agreement before closing, but they can be tricky to sell.
Basically in my personal opinion, EVERY other investment in the world is better than a new condo at this point in time. 🙂
The only time they’re good is when the market has some legs and is increasing (and will continue to increase for years). But not now. The future just isn’t clear enough.
A few more thoughts…
If you end up buying a condo in Milton, buy a larger 2-bedroom. There are a lot of “empty nesters” in town (or if you think about it, parents who want to move close to their younger kids, who just bought a house here)… and a 2-bedroom gives them much more comfort moving from their larger home. I believe there’s more of a market for these, versus a 1-bedroom condo.
Keep in mind that most condos appreciate less aggressively than their freehold counterparts too. So 10 or 20 years down the line, you wouldn’t have made as much money as if you bought a freehold, in almost every case.
There are MUCH better investments, in my opinion. For more thoughts about these other options, give me a call at 905-693-9346.