[scotian]

My situation: Five years ago I bought a condo in a brand new development and my five year mortgage term is coming up, I had originally planned to keep it for five years before deciding my next move, which I did. I'm on the fence as to whether or not I should keep it but two blocks away, another building is nearing completion with 30% of the units unsold and I'm thinking of selling my current condo and buying a new one over there. I just spent an hour at the new place and its pretty nice, I like it better than my current one, both location wise and the condo itself although the two are quite similar (four floors high, wood construction).

What I'd like to know: Does this make sense from an investment/living point of view? I've thought about buying a house in the same area, which would cost about the same as the new condo but houses are a lot more maintenance and since I work out of town and travel often, I think its best that I stay in a condo for the time being. Is it strategic to upgrade condos by moving to a new one after a few years?

Condo specifics: I bought my current place in 2011 for $270,000. Pre-oil crash, it was up to about $330,000 but has since gone down to about $310,000-315,000 according to the prices I've seen for other units for sale online. The new place has units going for $390,000 to $415,000. The current place is 2 bedrooms, 2 baths 980 square feet and the new units are 1117-1184 square feet with 2 bedrooms plus a nice sized den and 2 baths. Condo fees are similar in both units at around $350/month, property taxes in the current unit are $2300/year and likely similar in the new one, maybe a couple of hundred more.

City specifics: The city is located in Edmonton, Canada. Not the nicest city in the country and its recently taken a beating with the oil slump but the fundamentals are solid (lots of industrial work, government jobs, the most diversified city in the province of Alberta). Although its not my favourite city, as a tradesman, its one of the best places in the country for me to live. The area is an established neighbourhood, close to several amenities including a shopping mall, an extension campus of the U of A (one of the best unis in Canada) as well as Whyte Avenue, one of the main entertainment districts in the city.

-One concern I have is buying directly from the developer, they came up with the idea to build the place and started the surveying and initial phases of construction when oil was at $100/barrel, this was before the real estate prices dipped all over the city, although less so in the more desirable areas, like this one. I'm concerned that their costs may be a bit overpriced since I'm sure that they want to sell for the same prices that they originally had in mind. Obviously, I don't want to buy into a place that isn't worth as much as I buy it for but I am confident that the worst of the oil crash is over and I think housing prices will remain steady even increase incrementally over the next five years.

I had my current condo rented for three years, both are highly rentable given the desirable location, back when oil was up, I had my current place rented for $1550/month but am not sure I could get that now as the downturn in oil has put downward pressure on the rental market. I would be buying the new place to live in part of the year (when I'm not away working or traveling) so won't be renting it out, unless I take on a roommate as I currently have. I'd also have to look into how much equity I can play around with and interest rates, which are quite low now, I"m paying 2.05% on my variable but am thinking of locking in to a 3-5 year fixed rate (2.33%) when my term comes up in a couple of months, whether I buy the new place or not.

Anyway, just wondering if anyone out there has any advice. I'm not a real estate guru by any means so any input is appreciated.

[GlobalMan]

I just bought a condo last month and going to have it fully renovated.

Condo's aren't the best investment in general, compared to a home, they are the first properties to lose value in a downturn. I didn't buy with investment in mind really, I bought because it was a good enough value and the location and amenities fit my lifestyle, the convenience was important to me. It sounds like those things are important to you as well, and thats plenty good enough reason to buy one if you can afford it.

Saying that, it seems like a fairly steep price given the area, but obviously you know best on that front. It doesn't sound like the rent you could get would cover your costs on the new place if I'm reading that correctly. May not be important, but something to consider.

The price I'll pay per month is the same as what I pay for rent now, that was a big part of easing any worries about the economy for me, I know that I won't be stuck paying any more than now.

What about renovating the one you're in? It would be a pain in the ass to be living there during it (I'm glad I'm doing all mine before moving in), but it might possibly get you the things you like about the new place but for a better value, while adding value to your place.

[Sidney Crosby]

I'd probably just stick with what you have, the hassle of moving plus paying 100k more for an extra 100-200 square feet and a bit better area.

[renotime]

If you think buying a new condo will make you happier then go for it. But as an investment you'll likely end up losing money, unless the price of oil shoots the hell up again.

if you want to make money in real estate multifamily properties are they way to go.

This thread has some of the best stuff I've ever read on RE.

http://forumserver.twoplustwo.com/30/bus...ing-99351/

[Kona]

(06-07-2016 03:57 PM)scotian Wrote:  

-One concern I have is buying directly from the developer, they came up with the idea to build the place and started the surveying and initial phases of construction when oil was at $100/barrel, this was before the real estate prices dipped all over the city, although less so in the more desirable areas, like this one. I'm concerned that their costs may be a bit overpriced since I'm sure that they want to sell for the same prices that they originally had in mind. Obviously, I don't want to buy into a place that isn't worth as much as I buy it for but I am confident that the worst of the oil crash is over and I think housing prices will remain steady even increase incrementally over the next five years.

Those sound like solid negotiating points to me.Especially since they are only 30% sold out.

If you buy straight from the developer can you negotiate some lower association fees?

It sounds to me like your current condo is in the same area, so a volume of newer units would push your value down.

Aloha!

[Northwest]

Scotian, I work in RE in your market, feel free to PM I may be able to give you more specific advice.

You've absolutely nailed in on the head where builders are grasping at straws to try and make the profits they thought they would when the zoned and designed the projects when oil's price was double. That being said, this gives a bit of opportunity for a deal to be made.

At the end of the day I'd say the biggest thing to look at are your life goals and how much a larger/newer condo would benefit you. From reading previous posts it sounds like you like to travel a lot, I don't think further attaching yourself to our real estate market will help you to be honest.

The article posted by renotime is pretty solid advice if you're looking at actually using real estate as an investment tool. The days of buying a condo and selling for a profit down the road in Edmonton are gone for the foreseeable future.

Being located close to Whyte, you can probably find a tenant regardless of the market. Granted not always making a huge profit, but at least stop the bleeding. You may want to consider building equity for now, which will allow for more cashflow down the road.

Edmonton's market will likely go psychotic again eventually (real estate happens in cycles) and you might be able to cash out down the road with a centrally located condo.

[Renton1875]

Agreed Northwest. I'm sure scotian will take you up on your kind offer.

But on the other hand......

Say a guy buy's a.condo in 2011 for $270,000, he puts down 10% (27k), then gets a 5 year variable mortgage for the other $243,000 at maybe an average interest of around 2.5%. His monthly payments should be around the $950 mark.

Say the same guy (mostly) rents out the condo for $1500 a month (although he could probably get a bit more if he never rented to the degenerates he hangs out with ). Therefore his surplus per month is now $650, $7,800 per year. Profit being dependent on whether fees/taxes are built into rent or not.

Fast forward five years, Armageddon has visited the oil markets, towns have burnt down, LINUX and Atlantic have finally met. The property prices had initially rocketed(potentially could now have been around $350,000), then fell back. The guy though, his property has faired pretty well, value is around $315,000 with a mortgage of $243,000. Equity now sits around the $70,000 mark.

Wait a minute, a guy puts his name on a piece of paper, hands over a wedge of his stack, hardly spends any of his own cash on the mortgage for five years and then even after the shit hits the fan, stands at the end of it with a $70,000 profit(minus initial wedge). That's cool.

It should be said our subject matter could be young guy in his 30's, good job, disposable income around 30, 40 maybe $50,000 a year(dependant on travel plans). Has extensive knowledge of local area, has unlimited network of friends, workmates, potential tenants. Has proven track record of being a remote landlord, a good one, which makes all the difference.

He could have possibly seen, and liked, a new condo development that had two beds and a den. The property could have been around 10% larger than his current one, and the price if things had kept going, were matched around 10% higher than his own. As his own never quite reached that projected value of $350,000, the developers should be careful! they might end up with 30% unsold if they try and charge top dollar prices as they would have got pre SHTF. Maybe there would be room to push them for towards a 10% discount in this market.

Anyway say the guy could get 10%ish discount for the new condo, had a stack of cash lying about not doing much. Could he not double down, get the second condo, following same process as first time. This time with added bonus of a den to crash in when he's back in town. Therefore not disturbing the steady room rentals. So now he has two properties, his names on the paper, he's stuck in a couple of his wedges.

Fast forward 10-15 years down the line, the good life beckons, the wedge he stuck in initially, now looks chicken feed. He's basically paid fuck all throughout those years, lived in condo when required(rent free), now he has quandary on how much equity to remove before he sets off on another piña slaying adventure. Property rental is a good pension vehicle for a guy in this position.

The important thing with property is buying at the right price, get that right & you'll have a fighting chance.

@Northwest
What is the deal with 'buy to let', rental mortgages in that neck of the woods?



Editent post before finished.

[Tigre]

Scotian, you didn't mention transaction costs. Stamp duties, legal fees, capital gains taxes etc. You would be paying those round trip when you sell and then buy a property.

Northwest could probably give you a good estimate of what that hit would be.

[TheFinalEpic]

Condos in Edmonton are getting hammered, and with everything going up in the arena district and downtown, rents are getting hammered too. You're super lucky to have made money on that price point, because I'm dealing with numerous people that bought in the similar time period that are currently down at minimum 10k on their price from 2011-2012.

[PUA_Rachacha]

Very interesting, I almost have the same situation as you.

Bought a condo three years ago in New York, financed with a 5/1 ARM. Loan's coming due in two years' time. Rate is stupidly low @ 1.9%.

I'm probably going to buy a house since I got married and am planning on having a kid. I figure I'll close on the house when the loan matures.

Prices have appreciated a lot more here than Edmonton, so my view may be skewed, but I'm thinking of holding on to this condo long-term. My overall expenses are around $2,600/mo. on it, and I know I could rent it out for $3,500/mo. The condo's located outside of NYC but right next to a train station with express trains into Grand Central Terminal. There's a ton of demand right now from empty nesters who sold their house looking to downsize, or younger couples who have become bored of the city life but still need easy access to their jobs.

The area that I live in has crazy NIMBYism, so there's not too much supply coming on the market.

I figure I would hold on to this condo, rent it out, and amortize the loan so that eventually it's debt free. It would provide some income, could use it to finance college expenses, or maybe a kid could eventually live there. Prices have appreciated 20% since I bought, but I'm not factoring that into my return.

I don't know about Canada, but there's a lot of costs imbedded with buying and flipping a house/condo in New York, so I don't know if you would recoup all of the fees (attorney/broker/bank) with what you would sell it at. There's also the capital gains' tax that you would have to pay.

So, I guess my question is: could you at least break even if you rented out your condo, assuming that you amortize it pretty heavy? Could you scrape together enough equity to put a down payment on your new place? Do you want to be a landlord, even though it's for one unit, and you'd live around the corner?

[OGNorCal707]

The thought of having to pay monthly condo fees sounds like a nightmare to me, what all amenities are covered by these "fees", is the place stacked with a nice gym, pool, sauna, etc? Think about how much those fees compound after every month and after a few years they add up to a substantial amount of money. Personally I'd look into buying a house or apartment in a building without monthly fees, worst case a minimal yearly fee. If you're doing really well financially, consider buying a triplex, a building where you can live in one unit and rent out the other two, that seems like the best long term financial strategy... Good luck.

[GlobalMan]

(06-08-2016 01:08 PM)OGNorCal707 Wrote:  

The thought of having to pay monthly condo fees sounds like a nightmare to me, what all amenities are covered by these "fees", is the place stacked with a nice gym, pool, sauna, etc? Think about how much those fees compound after every month and after a few years they add up to a substantial amount of money. Personally I'd look into buying a house or apartment in a building without monthly fees, worst case a minimal yearly fee. If you're doing really well financially, consider buying a triplex, a building where you can live in one unit and rent out the other two, that seems like the best long term financial strategy... Good luck.

Regarding association fees, you have to keep in mind what it does cover and what costs there would be with a home which are included in the condo fees. A house has monthly costs as well, they're just separate items and you don't feel "obligated" even though you are.

Water
Hot water
Heat
Garbage
Lawn care
Snow removal
etc

All of those are paid for or not needed by living in a condo in my case, and would need to be paid for with a house. When I did the calculations for home vs condo, there wasn't much difference in monthly costs.

I too was put off by condo fees initially, in fact I was about to build a house before issues with the land. I really disliked the idea of HOA fees, until I realized all the fixed monthly costs I'd be paying with a home, variable and unexpected problems not experienced in a condo, upkeep etc. Financially there is minimal difference depending on individual circumstance.

[TheFinalEpic]

^^ The only downside to a condo is if you are called on for a special assessment to repair a huge issue. I know of many condos in which the owners were cash called in excess of $20k in some instances for foundational issues and flooding.

That being said, I agree that the monthly costs are similar. People should generally budget about 1% of their home's value for maintenance and issues per year. Most of a condos maintenance is taken care of by the board and or property manager.

There are inevitably costs involved with owning property, it's just the route you want to go down.

[scotian]

Thanks for all of the advice guys you brought up some really good points for me to consider, it just so happens that the agent who is representing the builder is married to a local real estate agent and he offered to stop by my place to give me an appraisal. Of course, I won't really trust either of them too much because they obviously won't have my best financial interests in mind. Also, there are currently five other units in my building up for sale and the signs have been out there for a couple of months, so they aren't moving fast and I'm definitely hesitant to carry two mortgages at once.

I must say that buying the condo was a pretty good decision, overall its been very simple and I've never had any issues with it. I'm currently paying $320/month at this place for the monthly fees which cover heat, hot water and outside maintenance. I feel that these fees are reasonable because if I owned a house then I'd have to pay someone to shovel the snow and ice (by law it has to be done on the sidewalk) and cut the grass in the summer. Since I'm away for extended periods, the condo lifestyle suits me the best, for now.

One thing I'd like to know is if there is any psychological barriers that potential buyers have as a building ages past the 5-10 year mark. Similar to a car decreasing in value once it goes past 100,000 kilometer mark, are buyers less prone to buy a condo that's say five years old versus ten? That's one reason why I'm considering the new building. My place is in really great shape and the interior finishings aren't dated at all, they are just as nice as in the new building.

For some context, here's a video of a unit that has the same finishings and dimensions although the layout of the kitchen is a bit different:

This is the website for the new development:
http://lequartiercondos.com/

[GlobalMan]

(06-09-2016 05:39 PM)scotian Wrote:  

One thing I'd like to know is if there is any psychological barriers that potential buyers have as a building ages past the 5-10 year mark. Similar to a car decreasing in value once it goes past 100,000 kilometer mark, are buyers less prone to buy a condo that's say five years old versus ten?

It really depends more on the association itself, not so much on building age, to an extent. That's whats most important. There are plenty of new buildings in my area that have poor management, with low reserves, and having to redo shoddy siding work etc. There are of course new ones with no problems as well.

On the other hand, an older, established building that has a good management company that has track record of good money management, does the proper preventative maintenance etc is a great option.

I live in a high rise condo building built in the late 80's. There are new buildings popping up all over here, but my building is still in demand and commanding top dollar. A lot of that is because of an excellent and responsible HOA.

If they keep up the building from a maintenance standpoint, as well as update the look/features of the common areas then age isn't an issue really. Here, balcony railing is painted every year on units that need it, concrete in the parking structure is being sealed right now and patched where needed, last year they upgraded the electrical in the entire building, lighting and carpet and paint being updated, etc.

When I first started renting in this building, before I bought a unit, I used to hate the idea of strict rules of an HOA, but really it is the difference between a building going to shit quickly and one lasting for decades.

The answer isn't to only own places 5 years old or less, what is important a good HOA company with long track record of responsible management.

Realtors know the scoop on the HOA and inform the people looking at the unit of possible issues normally. I passed on numerous 3-7 y/o buildings because of issues I learned about with either the building or HOA.

If there is poor management, being a new building won't matter, and being an older building won't be a detriment if it's run well.

[TheFinalEpic]

What I can do for you Scotian is if you PM me the address I can pull a history on the property and find comparables not only in the building but also surrounding area and give you a second opinion on pricing if you'd be interested. I can also tell you what the last unit that was similar to yours sold for, giving you a price range that would be around what the unit would sell for today.

Edit: Northwest and I are actually biz partners

[scotian]

(06-09-2016 11:41 PM)TheFinalEpic Wrote:  

What I can do for you Scotian is if you PM me the address I can pull a history on the property and find comparables not only in the building but also surrounding area and give you a second opinion on pricing if you'd be interested. I can also tell you what the last unit that was similar to yours sold for, giving you a price range that would be around what the unit would sell for today.

Edit: Northwest and I are actually biz partners

Sweet thanks man, PM sent. Let's go for a beer soon!

Also, what are your guys opinions on condo versus wood condo construction? When I was shopping around for my condo back in 2011, I looked at a couple of condos downtown that were high rise, steel and concrete. I didn't like the idea of living in a tower so went with the four level wood one. The new condo I mentioned in the OP is wood as well but around the corner, there's an empty lot advertising a new building which is steel and concrete. I talked about it to the developer agent who showed me the other place and she said that theya ren't building anytime soon as they've only sold about 20% of the units and they need to sell more to begin construction. She said that the costs are significantly higher, I would consider buying there at an even steeper price (but not too much) because I believe that a steel and concrete building would be more long lasting and probably have a better chance of selling years down the road.

[TheFinalEpic]

Sounds awesome man, next week if you're free!

With regards to the construction, some people will really care about it, and others will only care about the finishings inside the unit, which is why many of these builders cut corners on the construction but go all out on the aesthetics. Guys with backgrounds like yours and mine are going to care far more about the fundamentals of a building and structure, as well as mechanical. The average person and most women couldn't give a damn however. So when we go to resell down the road, it becomes a toss up; I have a client off whyte who said the same thing to me "it's concrete construction!" the people that are looking at the place only care about hardwood floors and cabinetry.

[GlobalMan]

I think the steel/concrete vs wood is not really a huge factor in terms of perceived value for your average joe, I would think most people wouldn't even think of that. Some might. Usually these days only high rises are built using concrete/steel, and it is more the fact it is a high rise that adds desirability than the materials used.

I do think the materials used add some longevity. I do like the fact that mine is concrete/steel, and the facade is brick. As long as this place is taken care of with reasonable maintenance it's going to last a lot longer than me.

I'm about 350 feet up and wouldn't trade it for anything, couldn't imagine not having the view anymore. I think there's something instinctual in humans that makes us feel secure having a high vantage point too.

The units high up will always be the most desirable and hold their value more. Units near mine are already selling for 10-15k more than I paid a couple months previously, before the busy season.

There is a big difference in price between units down in the first third of the building and the ones up where I am in the top third.

I'm happy with my choice.

[Renton1875]

(06-09-2016 11:41 PM)TheFinalEpic Wrote:  

What I can do for you Scotian is if you PM me the address I can pull a history on the property and find comparables not only in the building but also surrounding area and give you a second opinion on pricing if you'd be interested. I can also tell you what the last unit that was similar to yours sold for, giving you a price range that would be around what the unit would sell for today.

Edit: Northwest and I are actually biz partners

RVF delivers once more.

Good luck in your property adventures scotian, looks like a couple of golden geese just landed in your lap. Think you'll get a lot more solid, impartial advice from Northwest and The Final Epic than the developers agent!

[mammal]

If you were moving to another city or got a new job on the other side of town and need to avoid a horriblecommute (maybe not in Edmonton but in NY, LA, Toronto) then it would be one thing.

In your case, what's the point? You travel a lot so you won't be living there much. A new condo in a steady market loses value because in a couple of years the carpeting, appliances etc. will be old. And if you ever try to resell it's easier to sell a $300K condo(the one you have) than a $400K one, especially if the economy goes down. I don't know about Canada but here in the US whwn you sell you're paying 6% commission, about 2% transfer taxes (sometimes split by buyer and seller but often a cash-shortbuyer will expect the seller to pay) plus costs torepaint the old place, new carpet, etc. to make it saleable, plus a couple of months of condo fees and property taxes while the old place is vacant.

As someone who travels a lot you might consider a townhouse. Little maintenance but typically you pay your own utilities so you can turn down the heat hile you're away (not off, pipes willfreeze.)