Investment Condos

Q: I’m considering buying a condo as an investment. What factors should I consider to make sure I get top dollar for my rental and/or resale?

A: When you're looking to purchase a condo mainly for investment the most important thing to understand is that the best investment condo and the condo you'd most like to live in will almost never be the same.

The most important factor in purchasing an investment condo used to be how significant the monthly surplus of cash flow was. In other words, the difference between your monthly carrying costs (mortgage, condo fees and property taxes) and the rent you were receiving. Today this difference is still important but almost always works out to a negative number. Therefore, today, the most significant factor when looking at an investment condo is the appreciation factor.

The first rule of thumb is that the safest place to invest in a condo is in the downtown core. If you're renting to just one person your goal is to find the cheapest unit available in the best location and building possible. The reason for this is that, despite small variances in purchase price due to age, finishes and amenities, the difference in rent can be zilch. There are units that will sell for $200,000 and those that will sell for $250,000 but yield the same rent.

The other option is purchasing a larger two bedroom plus den, near one of downtown's fine learning institutions, and then renting to three separate students. In many cases this way turns out to be more profitable because your negative monthly cash flow is about the same, when compared to the single rental unit, but 4% annual appreciation (the rise between 2007 and 2008 so far) on $400,000 versus $200,000 is double.

Therefore sometimes the most important factor becomes the amount of money you have for down payment. If you can swing 5% on $400,000, and if you don't invest it that money is just going to collect dust in the bank, you may as well go for the larger payout. On the other hand if you can comfortably do only the 5% on $200,000 then that may be your best bet. Always remember to do your homework on rental prices and appreciation factors ? that's the first step towards making the best investment.

Amit Paul is a realtor, owner and partner with two Toronto real estate firms. He can always be reached at ap.1@rogers.com.