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Debunking the “Buy, Hold, Sell” Condo Investment Approach

 

Nick (not his real name) plans to invest in a Toronto condo and so he makes a date with his trusted real estate agent and explains his interests. He intends to buy, hold and sell his condo in 10 months.  Obviously, Nick wants to have a minimum risk on his new investment and to make profit on some 10 months or so condo appreciation. The truth is, there’s a problem with his thinking and the sad part is he’s not alone. The short-term investment mindset is the current trend in Toronto real estate market that we would highly advise against because it is simply unrealistic and is a sure fire way to get you into a big disappointment.

Nick and many buyers in Toronto are still trapped in last year’s whirlwind. In 2017, the GTA’s Condo market had unparalleled price leaps and a huge buyer competition. From January to around May of last year, Toronto Condo prices rose suddenly, leading many investors into the short-term investment mindset trap.  This was a period when everyone you met had become to a seasoned investor.  The strategy was simple! Buy, hold and sell as soon as there was a leap in market prices. While this strategy worked magic for some, it won’t work today. Why you ask?  The market isn’t the same anymore. Investors buying Condos aiming for a super quick flip while basing it entirely on the prevailing market conditions are exposing themselves to more risk and disappointment

The “buy, hold little, sell fast” strategy won’t work in 2018 because the GTA real estate is already leveling out in part to the intervention by the government. Toronto Condos are still enjoying a skyward trend. However the 30-40% annual appreciation has been overtaken by time. We are looking at an appreciation rate of say 6-10 % by December 2018. Here we rule out the possibility of investing in a condo while expecting to make huge cash from it quickly.

Buyers have become “microwave investors” as a result of the lurking fear of a market crush. Which we find unreasonable.

When our zealous investor, Nick meets with his real estate agent, he describes the market as having been too good for a long period. He predicts that something has to give. So he wants to invest in a condo, make as much money as he can, but he also wants to sell it before the so called "crash strikes"!

Now let’s examine three facts that Nick is overlooking. To begin with, Canada’s economic growth is going to remain positive at 2.2% in 2018. And despite it having dropped down from 3.1% during 2017, the growth isn’t bad at all. From this economic growth, we expect to have a surge in immigration, increased job growth especially in the Golden Horseshoe areas of Ontario

Secondly, with the Bank of Canada hiking the interest rates, many people have been put on guard especially buyers who are faced with higher borrowing costs. From a realtor’s point of view, hiking the interest rates and making the mortgage approval rules tighter have helped to cool Canada’s real estate market.

Lastly, truth is Toronto’s housing market is critically undersupplied. There are no freehold houses being built quickly to meet the high demand and priority is given to more profitable condominiums while purpose-built rental properties are overlooked. This means that Toronto’s current housing crisis can only be solved by Condos.

Condo investment in Canada should not be approached with a “buy, hold little, sell quick” mindset. As a matter of fact, our friend Nick should go back to the drawing board and re-strategize. What he needs is an investment that will be able to survive the economic tides of the next five years. And this is because, without a doubt, interest rates will hike again and the only viable strategy for real estate in Canada will be and still is the long-term investment mindset. If you are planning to get into this game, work closely with a qualified realtor, seasoned in matters of condo sales to help you have a clear understanding of the market trends and sales activity.



 

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Toronto Real Estate Board - IDX Last Updated: 8/16/2018 6:32:46 AM