January 20, 2023 | Tips for Buyers
When many dreamers first consider purchasing a home in Toronto, long before they take a good, hard look at their mortgage qualification numbers and what is actually within reach, they often fantasize about owning a detached house. In a big, thriving, growing city, the detached house really does put the “dream” in dream home for many of us – even though they are rarer in a big city. No attached neighbours from an attached semi or row house that you can hear moving up and down the stairs. No absent minded condo unit owner above you who forgot they left the water running on the bathtub leaving you with a flooded unit. There are solid perks to having a detached house.
The one perk that doesn’t exist is the price. It’s not surprising that the most coveted property type costs the most money. In fact, owning any Toronto property at all can be a challenge, particularly if you are a first time buyer. So, if you can buy a detached house, it’s a great idea. They are in short supply in a growing city. So, they are undeniably a good investment. If you are not quite at the place to buy a detached house or maybe you are buying your starter home, let me suggest a few property types that are often overlooked but may be good on your budget. It also helps that these could be good suggestions for those who are keen to have a good return when the time comes to sell.
Many bypass the old condo when they begin their buyer’s search. One look at the maintenance fees and terrcotta tiles in the kitchen photos, and any potential buyer will just scoll it away within seconds. But let me tell you, a “done” and brand new unit that does not require any fixes will cost you more money. As you can imagine, a newer condo with a modern kitchen with integrated appliances, undermount sinks and granite or quartz counter will certainly look better in photos. The downside of many of these new condo units – tiny appliances (ovens the size of microwaves), limited sq footage and maintenance fees that will be bargain at first, but that will go up every year as a new condo builds up its reserve fund.
With older condos the maintenance fees are high, but they include a lot. They often include your utility costs and for those who watch TV the old fashion way, it may even include your cable package. If you have an older condo with a good reserve fund that is run well, your yearly increases in fees should not be too dramatic. If it’s not run well, that may not be the case. An older condo should have been around long enough to show us a pattern on how the building is run.
Equally as important, the older condos were built in a Toronto era when there was more space in most older condos than today’s newer condos. They have much lower price/sq ft on average than a new condo. So, this makes these units within reach for more buyers.
Now, I know some of the older units are ugly. Florescent lighting, kitchens likely older than you, and strange design choices, like a sun room or dropped ceilings. So, it could be some work for those who would like to put their mark on an older condo unit that has not been updated. Still, if you buy something that needs work, you can make it your own. If you don’t have the money to update your unit, you can do your best for the short term, and live with it until you do have the renovation budget.
If you don’t like doing any renos and you don’t want to buy an ugly unit, I still think it is very wise to seek out an older condo that has been renovated. It is still much less cost/sq ft, and you have a lot more space. And you’re often in good locations, like St Lawrence Market.
THE 80s RENO
For those of you who want to land a house, even a detached house, you will likely have a lot less competition, if you buy a house that needs work. Now, you need to be very careful here. Some houses will require a lot more work than others. Some will need to be torn down or gutted. You don’t want to buy a fixer upper that you can’t afford to fix up.
For those of you who do not have the budget or stamina to do a gut job, I would encourage you to buy a house that has an 80s reno.
These houses are stylistically considered pretty ugly and not even appealing in a retro way. But to be clear: They are not gut jobs. Chances are you won’t have to update the knob and tube wiring or plumbing. There will be drywall and some insulation already. This house has updates behind the walls. They may have shag carpets, popcorn ceilings, unappealing peach coloured washrooms and wood panelled basements. But this is what will scare off the other buyers who do not have the potential goggles that you do. And because of this, you may land it at a lower price. These properties will require some money, but most of the money will be for aesthetics. And if you don’t have a lot of money left over once you purchase, you just can just live in the less aesthetically pleasing house until you have the money for the reno. Rome wasn’t built in a day.
As I have stated many times before, 90% of buyers are not capable of seeing the potential in a property. They may not have the potential goggles on, and they don’t see what could be. If you could be that 10%, you will be at a great advantage compared to most buyers.
I think microcondos could be a good idea for those struggling to get into the Toronto market. If you are a buyer or an investor, a microcondo may be all that you can afford. To be clear, a microcondo would be considered any thing under 500 sq ft. Once a rare thing in the Toronto condo diaspora a few decades ago, it is now pretty common place to have a condo under 500 sqft. There are even condos under 400 sq ft in some buildings.
The important thing to remember about microcondos has to do with financing: Some lenders are still sticky about financing microcondos. Just make sure you have that figured out before you move ahead.
So should you buy one? Well, depends what you want to do with your microcondo. If you’re happy to live in one, and it’s in your price parameters, then yes, go for it. If you would not be happy living in a condo unit of that size, and it’s all you can afford, then it may not be a good idea. You have to be happy where you buy. But if it’s the only way you can get into the market and you want to rent it out, then it could be a great idea too. You can always rent it out as a landlord and rent a bigger unit you where you would like to live elsewhere. At least you will be building equity. And if you hold it long enough, you can use it as a springboard to buy a property you could live in at a future date. It’s also a good idea for investors. In the right areas, these are easy to rent out. In 2022, rents were rising much faster than sales.
Just keep in mind that you do have to make your decisions on a property by property basis. Some older condo buildings are a much better investment than others. Some houses that have an 80s reno in much better locations than others and will appreciate at a faster rate. Many buyers enter the market with a dreamy idea of what they would like to find. And if you can afford the dream house, then you should buy it. Dare to dream. If you can’t, then the route to getting there may just be a different path that may start with the property types that many buyers may overlook.