Written by Jason Lau Thursday, 23 May 2013 14:38
Buying a condo is an important decision that will affect your lifestyle, so you should always approach this decision with great care. Owning a condo offers many attractive features, such as various amenities, freedom from yard and exterior maintenance, making a vacation home more affordable, and the ability to live in your desired location. However, finding the right condo that suits your lifestyle and budget is a daunting task — especially in Toronto, where there are more than 55,000 condo units under construction and an additional 32,000 units are at the pre-construction stage. There are many more aspects than the purchase price that you should consider when buying a Toronto condo. Here are some basic rules.
Financing — Closing Costs, Down Payment, Land Transfer Tax, and Condo Fees
Usually the price of your condo should not exceed more than three times your gross domestic income. The average price for condominiums in the GTA during the first three months of this year was $332,846. In addition, the number of new listings was also down in the first quarter of 2013 on a year-over-year basis. According to Ann Hannah, Toronto Real Estate Board president,
Buyers benefited from a substantial amount of choice in the condo market in the first quarter especially in comparison to low-rise home types. This being said, the fact that new condo listings were down in the first quarter suggests that the market may become tighter moving forward.
Don’t forget to consider closing costs, which include a list of charges your lawyer presents to you on the closing date of your home. Total closing costs can increase the cost of the new condo substantially, and many people are surprised when they have to pay these additional costs. According to the CMHC and GE Capital, you should be prepared to pay at least 1.5 per cent of the buying price for closing costs in addition to the down payment. Overall, you can expect closing costs together with other essential fees to comprise 2 to 7 per cent of the sale price.
All provinces except Alberta and Saskatchewan impose a land transfer tax, which is calculated as a percentage of property value. Many buyers often forget to add this tax when calculating the total cost of purchasing a home. Home buyers in Toronto also have to pay an additional municipal land transfer tax, which applies within Steeles Avenue as the north border, Etobicoke as the west border, Scarborough as the east border, and Lake Ontario as the south border. On the other hand, first-time homebuyers in Toronto of new and resale homes are able to receive a rebate up to a maximum of $3,725.
Moreover, condo buyers should take into account condo fees through proper research, as these monthly payments can increase at any time. Condo fees usually cover payments for amenities, a reserve fund for repairs and improvements, a master insurance policy, maintenance, trash removal, and utilities like water, hydro, and cable. Farhaneh Haque, director of mortgage advice at TD Canada Trust, suggests,
Purchasing a condo may help you build equity, but the financial commitment of owning a condo may be larger and more complex than many buyers may realize. It’s important to do your research before you hit the open houses to understand the true costs of condo ownership. Keeping a pulse on the health of your condominium’s finances such as its reserve fund, can help you to create a realistic annual budget that anticipates condo fee increases and special assessments.
Maintenance fees in Toronto cost on average about 70 cents per square foot. Be prepared to pay condo fees even for the amenities you do not use.
Find out how much you can lend from your bank. Pre-qualifying for a mortgage is an important step before buying a condo in Toronto. The bank will assess your income, your debts, your down payment, and your credit history. Knowing how much you can get from your bank will help you determine the price range of your new property as well as eliminate the risk of financing once you find the right condo.
Choosing the right neighbourhood is important, as it will determine the way you live as well as define the resale value of the property. Research the school districts in the neighbourhoods you choose, their proximity to work, recreational, and free-time activities, and expansion plans. Condos in the busy downtown business districts are more expensive; however, their value tends to increase. The ideal condo will be close to the subway or train stations and main highways. Moreover, if your condo is located near a gas station or a cemetery, its price might drag down in the future. A good location will help increase the value of your property, whereas a poor location or an unsafe neighbourhood will bring the value of your condo down. Find out whether the building stands on pipelines, as they could leak, which would affect the residents of the building.
Apart from the building’s location, it’s crucial to consider the location of the unit itself. Location determines a unit’s advantages and disadvantages. For example, units located on higher floors have higher prices than those on mid-level or lower floors, but the higher units offer better views. There’s a huge difference between a unit that faces the street or another building’s wall and a condo that faces the skyline or a lake. End or corner units usually include more windows, which can increase their resale value.
Review the Condo Corporation Rules
The association bylaws can significantly restrict your ownership, so you should contact a lawyer and go through the bylaws with legal counsel before buying a condo. The condo corporation has a right to obtain a court order to ensure that you comply with the rules. Make sure that you know whether there are any restrictions about the number of people who can live in the unit, whether you can rent it, whether you can have pets, operate your own business from it, paint your front door or make other renovations, or barbecue on your patio or balcony. Determine the rules concerning use of common features like pools and gyms, and find out what your condo corporation insurance covers and other important considerations. Not reviewing the rules before buying a unit can lead to serious problems and inconveniences.
In addition, you might go through the delinquency rates of present owners, as the association could be underfunded if they’re not paying on time. It’s important that the condo community sustains a reserve fund that’s reviewed on a regular basis. Low maintenance fees could indicate that the building is either poorly maintained or that the maintenance fees will rise in case of any repairs or improvements.
Pay special attention to the certificate of insurance that provides a summary of the association’s policy, and make sure that you understand it. Check whether the replacement costs covered by the policy are an accurate estimate of the cost of rebuilding. Ensure that the policy has a building-ordinance clause, which basically means that the cost of repairing and rebuilding the building will be paid from the insurance.
Amenities and the Condition of the Building
It’s no surprise that an exclusive and well-maintained garden, pool, Jacuzzi, or modern gym will add value to the property. However, you should consider both features that you desire as well as those that you don’t need, since you have to pay for all of them. Apart from the luxurious, desirable amenities, examine all the basic features that you will use on a daily basis. For example, convenient parking is crucial when trying to find a condo — especially for families with more cars. Most condo buildings feature onsite parking areas in a garage below the building or adjacent to it. Some condominiums also offer gated parking areas — sometimes even guarded by security personnel.
A very important feature of the development is security. Security measures can encompass 24-hour security guards, cameras, and video surveillance, special safety doors and locks, community watch programs, or fencing and safe landscaping. Review that your condo building is safe and that it has an emergency plan and systems for dealing with various disasters.
A basic rule in condo development is that every owner must contribute to common expenses like repairs. If the building is in poor condition, you together with other owners will have to pay the cost of repairs. This includes the parts of the development that you don’t use. Furthermore, you may have to pay for special levies that were approved before you bought the unit. Review the condo association meeting minutes to find out if they have planned any repairs or improvements.
Condo developers create hype for their projects through advertisements, signs, and informing agents to attract as many buyers as possible. However, their buildings often lack the promised quality and design. Developers ensure that their projects look great on paper, yet in reality you can run into some major flaws. If you don’t want to end up in a building with leaky walls or broken glass, make sure you deal with a respectable developer who stands behind a portfolio of successful products in the neighbourhood. This precaution is especially important in Toronto. With thousands of new units being built, you need to be careful and check whether the builder has a respectable track record of delivering quality housing.
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