Investing in Real Estate can be complicated. Here are 8 things to avoid when investing in pre-construction condos.
Invest in unproven areas.
If you speculate on an up-and-coming neighbourhood, and it turns out to be hip and trendy in a few years, then great! But with unproven neighbourhoods comes risk, and often, it’s unnecessary. Condos in unproven areas might take longer to offload, sell for a lower price than you’d like, rent for a lower price than your carrying costs, or have difficulty holding a tenant. All of these are possibilities in any real estate investment, but choosing an established, proven neighbourhood can help mitigate some of these risks.
When most people think real estate investment, they think house flipping. While it may net some of the folks on HGTV a nice return on investment (in under an hour!), it’s not realistic for most people – the exception, rather than the rule. Flipping is risky, extremely cost-intensive, and takes serious time and know-how to do a good job. For the most part, condo investments are not for those looking to buy and offload a property in the short-term.
There’s a big difference between responsible and risky borrowing practices. If you're pulling out money on credit cards, or borrowing money from friends and family to invest into a condo, then you're toeing a very dangerous line. In most cases, or possibly all, waiting and saving is the most responsible and least risky way to fund your investment.
Listen to the naysayers.
I know people who have been waiting out Toronto’s real estate market for eleven years. Naysayers and negative people are usually misinformed about market conditions and investing in general – but they seem to be the most vocal when it comes to the impending doom of the real estate market. Healthy skepticism and good research can take you far, but negativity won’t help you pick the right investment.
Ask anyone for advice in love or real estate and they’ll be an expert. Except, obviously, very few people are a true expert in either. Condos are a niche market in real estate investment, and there’s a lot to know if you want to be a savvy investor. Learn from those who are true experts in their field, and who know what they’re talking about – and politely ignore everyone else.
Follow the hype.
Hype is intangible, fleeting, and usually created through savvy marketing. But unfortunately, even experienced investors can fall victim to the hoopla of a hot new development. As a rule: solid financial research and planning always trump hype, so stick to the rules and disregard the fluff.
Think too much like an end-user.
While considerations like a unit’s view, ceiling height, amenities and fixtures play a role in your investment decision, they are not the priority – and they don’t make for a good investment. Prioritize good financial sense and stick to the rules so you don’t end up with an underperforming asset. Think like an investor, always.
KICS (Keep It Complicated, Stupid)
Okay, it’s a stretch – the real rule is KISS – but over-complicated investment strategies don’t work. Keeping it simple is the best way to approach condo investing, if not all real estate investments. First, understand what condo investing is: research, talk to trusted experts, and learn from good examples. Don’t listen to naysayers, false experts (everybody is an expert!), and doom forecasters. Keep it simple, ignore everything else, and you’re well on your way!