- Joined
- Dec 14, 2013
- Messages
- 980
I'm looking at a small value-add apartment in an inner city neighbourhood in Calgary. As part of the exit sensitivity analysis, I am looking at what renovated condo units are selling for on the market. Before considering condo fees, it looks to me that investment properties are pound-for-pound 10-15% more expensive than comparable individual condo units. It is never possible to exactly compare apples to apples, but with experience comes the ability to see nuance and I'm wondering what some experienced investors out there observe.
My thinking for why condo units are relatively cheaper than per-unit investment property prices:
- 40 year CMHC debt is available for apartments whereas 25 year debt max is available for individual condo purchasers (doesn't really matter whether someone buys the condo for investment or to live in)
- condo fees are generally higher and less predictable in small apartment buildings than a professional manager would reserve and be able to efficiently operate to. Condo fees are essentially utilities + reserve fund. Utilities are a pass though, so no effect. But the reserve fund should be the forecast maintenance plan for the building for the next (~10 years). My expectation, which is not confirmed, is that small condo boards are generally less efficient managers and the special assessment "surprise" and general maintenance mismanagement lowers the price paid for the condos.
- control premium for consolidated parcel + ability to make redevelopment decisions.
Do any investors across the country believe the reverse is true: that investment properties can be bought at a discount to an individual condo unit?
Or perhaps you don't agree with my thinking above. I would be very interested to hear!
My thinking for why condo units are relatively cheaper than per-unit investment property prices:
- 40 year CMHC debt is available for apartments whereas 25 year debt max is available for individual condo purchasers (doesn't really matter whether someone buys the condo for investment or to live in)
- condo fees are generally higher and less predictable in small apartment buildings than a professional manager would reserve and be able to efficiently operate to. Condo fees are essentially utilities + reserve fund. Utilities are a pass though, so no effect. But the reserve fund should be the forecast maintenance plan for the building for the next (~10 years). My expectation, which is not confirmed, is that small condo boards are generally less efficient managers and the special assessment "surprise" and general maintenance mismanagement lowers the price paid for the condos.
- control premium for consolidated parcel + ability to make redevelopment decisions.
Do any investors across the country believe the reverse is true: that investment properties can be bought at a discount to an individual condo unit?
Or perhaps you don't agree with my thinking above. I would be very interested to hear!