CONDO PRO - Real Estate Investment 101

By Barbara Lawlor

Across the decades in Canada, time and again, real estate has proven to be a wise investment. The economy fluctuates, sometimes greatly, but those who persevere and ride out the dips typically make money on their home purchases. First-time buyers are wise to take the initial step toward ownership. In addition to being the largest financial investment you will likely ever make, a home purchase is also one of the most useful. A home provides you with a place to live, and offers you the opportunity to gain equity that you can someday leverage for other major life expenses.

If you are a first-time buyer interested in getting your foot in the door of homeownership in the Greater Toronto Area, a new condominium is a perfect place to start. In general, first-time buyers find they can afford a condominium more easily than a low-rise home. When you buy a condo suite from plans and have an occupancy date in two or three years, that is time that you can spend saving money toward your deposit. It’s like a structured savings plan that will make you ready for move-in. I often suggest that first-time buyers save the equivalent of their maintenance fee every month to use toward the deposit. This has the added benefit of helping you work out a budget for when you start paying your monthly carrying costs.

Be sure to do your homework. Ask questions and understand the deposit structure the builder requires. And don’t make assumptions that may harm your chances. Even if you do not have a lot saved, check as to whether the developer is working with a financial institution to offer deposit loan insurance that is 1 per cent above prime. This involves a loan that requires you to take only the interest portion back on, so you can roll the rest into the mortgage. Remember that closing costs are separate, so save money toward those as well.

Remember, too, that when you buy new, you can use your RRSP funds toward your down payment under the Home Buyers’ Plan through CMHC. In 2009, the Government of Canada increased the withdrawal limit to $25,000 from $20,000 per person. This is essentially a loan you make to yourself and promise to pay back within 15 years. As long as you keep that promise, the money remains tax free! And someday when you sell your principal residence, the profit you make is tax free.

Be an educated purchaser and use your real estate financing to your advantage. Figure out how the various components of your loan, the condo you have chosen and your financial resources work together. Think of this as a game plan for purchasing your first piece of real estate – probably the best investment you will ever make. When you purchase a condominium suite early in the building’s development, chances are that the price will go up before you even move in! Even in years when the economy suffers, there is usually a 5 per cent increase, and in good years, that percentage can go into double digits! Recent statistics from BILD report that the typical high-rise condo suite price was up $25,108 in April, or 6.3 per cent compared with April 2009. Where else can you get that kind of return-on-investment in this day and age?

Look at all the reasons why NOW is a great time to buy a new condominium suite. Mortgage interest rates are still incredibly low, and when you buy new, you enjoy protection under the Tarion Warranty Corporation. Everything is new, so you won’tbe hit with the cost of unexpected repairs after you move in.

At the end of the day, you can buy stocks or bonds and get a piece of paper, but real estate is a tangible asset that has proven long-range investment potential. In fact, it’s an investment you actually live in!

Barbara Lawlor is president of Baker Real Estate Incorporated and an in-demand columnist and speaker. A member of the Baker team since 1993, she oversees the marketing and sales of condominium developments in the GTA and overseas.