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(Updated: January 2020)
There isn’t a one-size-fits-all answer. If you own a condo and are wondering what to do, you’ll need to consider:
1. Your Investment Goals
What is your primary investment objective? If it’s appreciation in the value of the property (selling it for more than you paid) then you need to consider how your property will appreciate over time. If your goal is cash flow in your retirement years and you decide to sell, how will that impact how you spend your retirement?
2. Cash Flow
Does your investment generate positive cash flow – in other words, is your condo income higher than your expenses? It’s not always easy to be cash positive with a Toronto condo, but it can be done. What are your predicted future rent levels and expenses? Are you applying the monthly rent to the mortgage to reduce the principal and eventually have it paid off?
3: Your Investment Time Horizon
Do you need the money in X years? If Toronto condo prices fall, can you hold onto the property and wait for prices to rise again? Buying a condo with the expectation of flipping it in a year or two is risky, as it puts you at the mercy of the market. As with all investments, buy-and-hold is a safer strategy.
4: The Costs to Sell
Selling costs money – from real estate commissions to lawyer fees to bank mortgage penalties and more. And don’t forget about taxes! When you sell an investment property in Canada, you have to pay taxes. If you decide to sell it now, how much money will you be left with?
Related: Costs to Sell
There aren’t a lot of great places to park your money these days: interest rates are low and the stock market is unpredictable. If you sell your condo, where will you invest the equity and will it give you a higher rate of return than what you’d expect to make by holding on to your condo? The last thing you want to do is park it in a low-to-no-interest savings account.
6. What is Everybody Else in Your Condo Building Doing and Why?
If a lot of people in your condominium building have decided to sell at the same time, it might be time to hold: higher supply, same (or lower) demand = less money. Of course, the increase in listings might be due to a new condo tower going up that will block everybody’s view or a significant (negative) change in your neighbourhood, which might mean it’s better to sell now vs. risk bigger price declines later. The value of your condo is directly related to how much your neighbours are selling for.
- The condo is cash-flow positive, not just covering the costs, but generating income too.
- You’re building equity by having part of your mortgage principal paid off each month by the rent you collect from tenants.
- You’re betting on price appreciation. Toronto condos have historically been lucrative investments, appreciating between 4-10% per year.
- Your condo investment is part of your long-term financial and retirement planning strategy and you aren’t likely to need the equity from it anytime soon.
- Avoid the selling costs (commission, lawyer fees, mortgage penalties, etc.) – especially important if your condo has gone down in value and you don’t have enough equity.
- There’s nowhere better to park your money. Stocks? GIC’s?
- You need the money for something else: a bigger home for yourself, a vacation property, university tuition, etc.
- Your life circumstances have changed: divorce, marriage, babies, death (and an inheritance or new debt)
- Your risk tolerance has decreased: like stocks and bonds, investment properties inherently come with risk.
- You hate being a landlord: it’s not easy being a landlord in Ontario – it’s a job and one where the provincial laws often work against you.
- You were an Airbnb host but now have to comply with the city of Toronto’s new Airbnb rules. Being an Airbnb host is completely different than being a landlord – and if you were relying on that cash flow, you may not enjoy converting it into a regular rental.
- You’re moving out of the city. Sure, you can hire a property management company – but that will eat into your profits. Managing a property from afar isn’t easy, and if you’re leaving the city, it just might make sense to cash in and cash out.