Short-Term Condo Investment
RI and MF - based Decision
For a better decision regarding your Short-Term Investment, check:
1. The list of Toronto Downtown Condos RI to understand the general opportunities for Rental Income.
2. Choose a minimum desirable RI and Neighbourhood in an appropriate search lines and check the list of the Condos with desirable ROI in your desirable Neighbourhood.
3. Check an average MVG for the last 10 years to make sure you are satisfied with that performance and MF for the last 10 years to understand a historical property management practice. Ask your Realtor / or Seller if you have any questions to make sure you understand a history and a prospective.
Is a Condo a Good Short-Term Investment in Toronto?
If you plan to buy a Condo as a high - liquidity asset while waiting for another alternative like a new business or stock market opportunities, you need to pay more attention to a current RI, DOM and Maintenance Fee, comparison of RI and MF growth, its historical dynamics and financial health of the condominium.
What kind of factors should be considered in a potential investor's decision - making if to buy and what to buy?
1. ROI (Return on Investment) ROI = (Gain from Investment – Cost of Investment) / Cost of Investment. It is a very important indicator to gauge how your investment performs per each invested $ and %
2. RI (Rental Income/or annual Operational Income) = Revenue – Expenses. This is an annual indicator and assumes you own a property free and clear. Expenses include all your operating expenses such as Maintenance Fee, Taxes, Utilities, Insurance, etc, in $ and in % to its current market value.
To understand how mortgage expenses will influence to RI and ROI, we need to multiple a mortgage share of total investment by mortgage rate, for example: The investment combined 40 % our own money and 60 % mortgage (with 3.5 % interest). So, your mortgage expenses will be 60 %*3.5 =2.1 % of the total investment and this amount will decrease an annual RI and ROI by 2.1 % and also, we need to take into account Alternative Cost (a potential benefit that could have been received but wasn't because another course of action was taken). For example, we forfeited 2% bank deposit. We need to take 40% * 2 % = 0.8 % out of the RI and ROI as well. And it would be great to add at least 0.1 % risk premium (for a case of some unpredictable happen, small repairs etc). So, we need to decrease RI and ROI by (2.1 % +0.8 % + 0.1 % = 3.0 %) to understand real Net Rental Operational Income.
3. MVG (average Market Value Growth) is a market price difference year by year. It is an indicator that allow you to assess your investment performance and understand what your property sale price should you expect in the future, $ and %.
4. DOM - Days on Market (average Number of Days to be on the Market to sell a Condo), Days
In the case of Real Property Investment, to measure annual Gain from Investment, we could conditionally use a property (MVG + RI) that is a great tool for calculating how profitable your property will be. If it is a final sale, transactional cost should be added (like realtor’s commission, lawyer’s service, income tax etc).
In spite the fact that last 10 years analysis of Toronto Condos market prices shown the Condo market was very active (with price growth between 1.5 % - 12 % per year) and the last 4 years market was extremely active (with price growth 7 % - 28 % year per). In a short period of time the risk that such tendency change is very high taking into account the government imposed tighter mortgage and foreign ownership rules decreasing mortgage opportunities for potential investors. That influenced the market prices significantly. So, such indicators as a current RI, DOM and Maintenance Fee, comparison of RI and MF growth, its historical dynamics and financial health of the condominium must be considered to make a weighted investment decision.