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Should You Buy an Old Condo for Investment?

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https://www.theglobeandmail.com/real-estate/toronto/looking-for-the-best-return-in-the-condo-market-buy-old/article37872607/?utm_source=facebook.com&utm_medium=Referrer%3A+Social+Network+%2F+Media&utm_campaign=Shared+Web+Article+Links

SHOULD YOU BUY AN OLD CONDO FOR INVESTMENT?

This article is from The Globe and Mail and the headline is “Looking for the best return in the condo market? Buy old.” Basically, it’s talking about how they did a statistical analysis and the numbers were from Urbanation and they found that the condo buildings with the highest appreciation rate since 2012, some of the top buildings were in fact older buildings built in the ’70s and ’80s.

Now the question is should you buy an older condo for investment? The answer is no. You should not buy an older condo for investment. You should always buy new pre-construction condos when you’re buying for investment. This is something I’ve been teaching for many, many years and this is something that is still true. The reason is condos are commodities. Something as a commodity like a condo, people always want the newest and the latest thing. The newest and the latest buildings will always have the most demand and they’ll always have the highest appreciation rates on average over the long run.

Now, what is going on with this data then exactly because this data seems to contradict that statement? Well, I think there’s a few things to make note of. Number one is it’s a very small sample size, the study that was done here. You don’t have a lot of units that are trading, first of all, so you can’t really make definitive statements like this that you should buy old condo buildings. Number two is that even in the article itself, Shaun Hildebrand from Urbanation even says, “It’s sort of a statistical point of interest where it’s basically starting from a very, very low point.” The older buildings were. Yeah, they showed a higher appreciation rate overall.

I think it’s more than anything just a phenomena of the very hot market that we’ve been through in the condo market over the past couple of years where something that’s starting, as I said, from such a low, low point that is the resell values of these buildings in the ’70s and ’80s was so low compared to the typical building that was built in the last few years that, in that sense, there’s nowhere to go but up. The entire market pulled up so much that it pulled these units up even more because they were starting from an even lower base point. But the other thing it doesn’t take into consideration is that these are older buildings and a lot of these units have undergone tens of thousands of dollars worth of renovations in the kitchens and bathrooms and flooring and other things in the units. That’s obviously over time going to bring up those values significantly in an older building.

All in all, I think that this statistic more than anything just speaks to the overall strength of the condo market in general and, in particular, larger condo units. A lot of units in these older buildings, as the article mentioned, average around 1,000 square feet which is, again, the hottest segment of the condo market currently is the two-bedroom, two-bedroom plus den 800 to 1,100 square foot range. That’s where we’re seeing people who are priced out of houses in the past year have been moving more and more and more towards these larger condos and the older buildings offer those larger condos.

Should you buy an older condo for investment? Generally speaking, no, you should not. You should always buy new, always buy pre-construction. But nevertheless it’s an interesting little factoid and look at the statistics here and teaching us something about where the demand is today for larger units. There you go. I hope you enjoyed this article.

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