Build your condo portfolio after the pandemic
Photo: James Bombales
With reopening plans in motion and vaccines rolling out across the province, post-pandemic life is on the horizon for Ontarians. Some novice and first-time investors will likely take these signs as an opportunity to jump into the pre-construction market ahead of returning post-secondary students, immigrants and office workers who will all be looking for rental apartments in re-energized urban centres.
Before deciding on a new development, location or a floorplan, some novice investors may wonder how many new construction condo units they should start off with in their portfolio. Inventory in the Greater Toronto Area has been on the rise thanks to a number of project launches in April, giving investors plenty of choice this spring. Last month, remaining inventory increased to 12,571 units across all phases of construction according to the latest data from the Building Industry and Land Development Association (BILD) and Altus Group.
Simon S. Mass, CEO of The Condo Store (TCS), explains that the ideal number of investment units to purchase depends on the individual and their financial situation. While it’s important to understand your threshold, however, it’s also worth assessing if you’re able to make room for more investment units if you can, he said.
“Having been investing for [over] 25 years and amassing many units annually, I still regret not taking on more. But that is a limit that each person or family must evaluate and understand on their own,” said Mass.
“You can create wealth through investing correctly with the right firm [and] using the fundamentals, but the pace and amount to get you there differs from person to person.”
Be strategic with your location and floorplan choices
Opting to purchase an investment property in an up-and-coming neighbourhood, Mass says, has become a tried and true way for investor clients to be successful at TCS. It’s also important to only work with reputable industry developers who can provide a level of certainty about their projects.
When picking pre-construction investment units, Mass explains that some clients and investors like to purchase multiple suites within the same building. This provides some flexibility upon closing the transaction, and allows you to focus your property owner activities on multiple units that are very close to one another, as opposed to being spread out in several different buildings.
Picking the type of unit for your investment comes down to personal preference, your time availability and the type of market you’re looking to get into, Mass explains. For example, you may want to opt for a bachelor unit if you’re investing in a project that will be located close to a university or college campus. However, a three-bedroom unit in the same neighbourhood could provide more passive income with multiple tenants in the same suite.
“Personally, I’ve never been a fan of bachelor units and always tend to try to purchase larger, more livable units as it’s important to try to keep a rental unit with the same tenant as long as possible,” said Mass. “[This provides] less turnover and lower management costs.”
Plan ahead for taxes and cash flow
If you decide to have multiple units, Mass said that novice investors should manage their portfolio as a group of investments. However, each asset should still be analyzed individually with regard to its own costs and cash flow implications. It’s also crucial to have a plan in place for your taxes, whether you’re planning to buy, sell or rent out, said Mass, who advises that new investors should obtain tax support from a third party if they don’t already have an advisor or accountant.
Compared to their resale counterparts, GTA pre-sale investors were more likely to be cash flow positive in 2020, according to a GTA Condo Investment research report published by CIBC Economics and Urbanation in March. To be in the best cash flow position possible, Mass explains that it’s optimal to put as little funds down as a deposit in order to reap the benefits of capital appreciation on the full price of your investment unit. Studying market patterns and rental trends will also give you an indication of your cash flow situation when buying an investment property.
“There are a lot of planning tools and processes you can use, but studying the trends and understanding where rental prices are going based on the amount of increase over the past five years will give you a good indication of how to plan,” said Mass.
Be flexible when building your portfolio
Once you’ve gotten comfortable with your investment units, small investors may decide to add more properties to their portfolio. In general, Mass explains when to make another investment depends on your ability and the opportunities that are out there.
“In general, you need to take on what is comfortable and not over-extend yourself. However, when faced with a great opportunity, you may need to push a bit harder than you normally would. It’s all about access to deals,” said Mass.
“You can plan and create a strategy and financial models all you want, but you’ll need the flexibility to act when those truly special deals come across your desk,” he added.