The allure of condo living is strong: No driveway to shovel, no long work commute, a concierge, a pool and, best of all, a beautiful view.
But buyers who don't do their homework could quickly find themselves stuck with a volatile investment and buried under a mountain of rising costs, says Kurt Rosentreter, a certified financial adviser at Manulife Securities Inc. in Toronto.
"Too many Canadians are being seduced by the pretty pictures and stories of easy lifestyle and they end up buying into a building that is a time bomb of costs," he says.
Far from being cheaper than a house, he says big-city condos with high property taxes and steep monthly maintenance costs - not to mention unforeseen expenses, such as fixing a broken pool valve - can carve a surprisingly big chunk from a person's budget. He also believes that over time, a standard bricks-and-mortar house will hold its value with less variability than a condo.
His advice? Whether you are looking for a home or an investment, do your research, put together an overall plan and make sure that buying a condo makes good financial sense.
Mr. Rosentreter has provided these five tips for prospective condo buyers.
1 Interview three to five condo owners. Ask them what the history of fee increases has been in their building, how effective the condo board has been, whether there have been special assessments, and how they have enjoyed living in the building. Interview residents who have lived in the building for at least five years.
2 Engage a lawyer and an accountant to do some research into the condo building from a legal, tax and financial point of view. Before you fork over hundreds of thousands of dollars, engage some professional help to examine the books and legal structure.
3 Ask yourself why you are buying a condo and get a second opinion on your reasoning. Because a home is likely one of the largest purchases of your life, it should be done only after careful consideration of your broader financial plan.
4 Save no less than 10 per cent of the purchase cost as your deposit - the more the better. The larger the deposit you make, the smaller the mortgage and the more wiggle room you will have in future years for the rest of your lifestyle costs. Locking yourself in too tight to a 20-year mortgage is a long time to live with limited cash flow.
5 For investors seeking a rental property, look for a return on investment of 10 per cent or more. Divide your annual profit on the property by the money you invested - if you aren't making 10 per cent or more, you may be better off buying other forms of real estate investments.Report Typo/Error