Buying a Condo

[CrzyCanuck]

I know there have been a multitude of threads about real estate this past month, but what are your thoughts on purchasing a condo in Edmonton for 200K and selling it in 5 months. I hope it to relist at 225.

[SaprykinPWNSjoo]

god id kill for that kinda deal lol mine just cost me 271 in calgary. Do it if it feels right you wiull have to pay capital gains on it though and that will make your profit very thin. If you want to flip a condo like that I suggest renting it out for a year then selling it. But what do I know I just bought my first lol

[Resolute 14]

The only thing I can suggest is that you make sure you don't put yourself in a position where you *have* to sell.

[photon]

Originally Posted by Snakeeye

The only thing I can suggest is that you make sure you don't put yourself in a position where you *have* to sell.

VERY good advice. Make sure you have a backup plan (ie you can keep it and rent it if necessary), but Edmonton is a very good place to put money in Real Estate right now.

EDIT: And remember to factor in all the lawyer fees and realtor fees and such.

[thatguy]

Are you going to buy it and sit on it for 5 months and then sell it or have renters in there for 5 months and then sell it or are you going to renovate it? Buying for 200,000 and then relisted for 225,000 i just don't see it being worth your while doing that.

[CrzyCanuck]

Today 5K down
April 30 Poss Date 195K
Forsale sign May 1
Sell within 2 months.

Cost of Interest 5K - 5 months 250$
Cost of Interest 195K - 6% 2 months $2000
Comfree Fee $600
Legal Fees Buy and Sell $1500
Property Taxes $200 (2 months worth)
Misc Costs I don't know about yet $500
Total Cost $5000.00

Buy 200K gain 4% per month 3-4 months
List 225K
Sell 220K
Total Gain 20K

Gain 20K less Costs 5K = 15K Gain
50% Cap Gains still equals $7500 profit

So for really doing nothing there is a bit of money to make. Wht else could I do to make that kind of money is such little time?

Help/advice is greatly appreciated.

[photon]

You have only 5,000 down, are you using money from an existing line of credit to come up with the 195K?

If not, then you have to either put another $45,000 down or you'll have CHMC fees in there as well. EDIT: And then you have to either get a mortgage, or a line of credit.

If you are going to hold for 3-4 months your cost of interest is going to be $3-4000, not $2000.

So that brings the profit down to $6500 to $5500.

The big issue is you're assuming a 4% gain per month. That was last year, I would NOT count on that repeating. I suspect that we might be at 30-40% increase by year's end and you're in prime buying season then, but you have to ask yourself what's the worst case scenario. What if the price only went up $10,000 in that time, you're down to making $2-3000, plus all the time. That's VERY thin and if for some reason it takes an extra few months to sell you've eaten your profit totally and are now in a loss position.

What area is this condo in? How big, how many bedrooms? If the selling part doesn't pan out, renting it would be a good backup plan, depending on what rent you could get and what the monthly payments are.

[mykalberta]

Originally Posted by CrzyCanuck

Today 5K down
April 30 Poss Date 195K
Forsale sign May 1
Sell within 2 months.

Cost of Interest 5K - 5 months 250$
Cost of Interest 195K - 6% 2 months $2000
Comfree Fee $600
Legal Fees Buy and Sell $1500
Property Taxes $200 (2 months worth)
Misc Costs I don't know about yet $500
Total Cost $5000.00

Buy 200K gain 4% per month 3-4 months
List 225K
Sell 220K
Total Gain 20K

Gain 20K less Costs 5K = 15K Gain
50% Cap Gains still equals $7500 profit

So for really doing nothing there is a bit of money to make. Wht else could I do to make that kind of money is such little time?

Help/advice is greatly appreciated.

Also add in the 2 months codo fees. If the place is skyrocketing in price that quick (12,5k per month) than the taxes should be a bit more than 1.2k per year?

Also, wouldnt there be a mortgage break fee of some sort unless the seller assumed the mortgage?

I think 25K growth for a place, unless its new with ug parking and either downtown or damn close or in Edmonton's case the University area (stay away from mill woods), you arent going to get that kind of upswing IMO - maybe back last Nov-Feb2006 but not now.

MYK

[HelloHockeyFans]

Yeah, the capital gains issue is pretty important. If you can, hang on to the condo for 1+ year, rent it out in the meanwhile, and take a look at selling it then.

[mykalberta]

Originally Posted by photon

You have only 5,000 down, are you using money from an existing line of credit to come up with the 195K?

If not, then you have to either put another $45,000 down or you'll have CHMC fees in there as well. EDIT: And then you have to either get a mortgage, or a line of credit.

If you are going to hold for 3-4 months your cost of interest is going to be $3-4000, not $2000.

So that brings the profit down to $6500 to $5500.

The big issue is you're assuming a 4% gain per month. That was last year, I would NOT count on that repeating. I suspect that we might be at 30-40% increase by year's end and you're in prime buying season then, but you have to ask yourself what's the worst case scenario. What if the price only went up $10,000 in that time, you're down to making $2-3000, plus all the time. That's VERY thin and if for some reason it takes an extra few months to sell you've eaten your profit totally and are now in a loss position.

What area is this condo in? How big, how many bedrooms? If the selling part doesn't pan out, renting it would be a good backup plan, depending on what rent you could get and what the monthly payments are.

Edmonton rental rates are the best in Canada. Rental revenue are currently outpacing cost of financing.

My parents just bought a whack of condos (12) going up by Heritage Mall and they fully own 3 (2h 1c) and have mortgages on 8 (3h 5c) and on the 8 with payments, they are making about 8%/month in straight before tax profit and that includes rental fees etc (all of those places are near the university which is the hottest part in Edmonton).

They are moving their LRT down to Southgate mall and then to Heritage which is likely where the OP's condo is located near. There might be room for 4% growth in that area but it would be seriously risky. There should be no problem finding renters if you are ok with Uni students.

WestEd area is the next best bet but there is no way there is 4% growth there. NE Edmonton is the second worst only to Mill Woods. NW Edmonton (north West Ed) is mostly industrial and then you hit the satelite leach communities. Centre East likely wont keep up with inflation.

MYK

[mykalberta]

Now that I think of it, you might be better off buying it, getting a long term lease renter, make sure the cost is at least 85% cost of capital and expenses. It might be easier to sell it that way, I know there are a few Realty Trusts that are looking hard at Edmonton in a big way. My parents already have offers on almost all their properties with long term leases (1-2y).

Just a thought if you want to do it since it sounds like you are not going to live there.

Good Luck - MYK

[Flickered Flame]

Without reading all the posts in detail, I will just mention that I bought my condo in Millwoods 2 years and paid 120 000. I sold it last August for 189500.

[photon]

Originally Posted by mykalberta

Also add in the 2 months codo fees. If the place is skyrocketing in price that quick (12,5k per month) than the taxes should be a bit more than 1.2k per year?

Also, wouldnt there be a mortgage break fee of some sort unless the seller assumed the mortgage?

I think 25K growth for a place, unless its new with ug parking and either downtown or damn close or in Edmonton's case the University area (stay away from mill woods), you arent going to get that kind of upswing IMO - maybe back last Nov-Feb2006 but not now.

MYK

Lol wow, yeah I forgot the condo fees and taxes, and the mortgage break fee. Plus insurance too. PLUS some lenders are becoming picky about mortgages on places to flip; some are requiring signing an affidavit that you will move in even to get the lower rates. I did one deal recently where I had to use a private lender at 7.5% because it was a short term thing and banks wouldn't look at it.

[photon]

Yeah, this is Edmonton's year I think in Alberta. Thanks for all the good input, we've been thinking about Edmonton recently to invest, we keep finding deals in the Calgary area though

I know a few people that would disagree with NE Edmonton though, with all the Oil & Gas stuff going in near Ft. Saskatchewan and stuff they think NE Edmonton is a good place as well. I haven't looked at it closely myself though.

Originally Posted by mykalberta

Edmonton rental rates are the best in Canada. Rental revenue are currently outpacing cost of financing.

My parents just bought a whack of condos (12) going up by Heritage Mall and they fully own 3 (2h 1c) and have mortgages on 8 (3h 5c) and on the 8 with payments, they are making about 8%/month in straight before tax profit and that includes rental fees etc (all of those places are near the university which is the hottest part in Edmonton).

They are moving their LRT down to Southgate mall and then to Heritage which is likely where the OP's condo is located near. There might be room for 4% growth in that area but it would be seriously risky. There should be no problem finding renters if you are ok with Uni students.

WestEd area is the next best bet but there is no way there is 4% growth there. NE Edmonton is the second worst only to Mill Woods. NW Edmonton (north West Ed) is mostly industrial and then you hit the satelite leach communities. Centre East likely wont keep up with inflation.

MYK

[CrzyCanuck]

50K deposit would be from heloc, then open morgage on the remaining 150K @ 5.1%. I did forget about the condo fees, so theres an extra few bucks. Banks wants to change me $200 to get this all done.

THis place just shows so well compared to other 180K condo's today that I believe it would sell in the busier months of May June.

I could also rent the place for around 1100 per month, leaving me short about 150$ per month for interest/property tax etc. That was the route I was going to go, but that would put me selling it in the less attractive months of the year.

But so far in Edmonton this year, Jan is up 4%, the inventory on MLS yesterday was around 1280 listings, so there is a demand. Considering this place is in the right price range.... The person who buys this cannot afford the 250K plus for a town house at todays price.

[calf]

Originally Posted by CrzyCanuck

50K deposit would be from heloc, then open morgage on the remaining 150K @ 5.1%. I did forget about the condo fees, so theres an extra few bucks. Banks wants to change me $200 to get this all done.

THis place just shows so well compared to other 180K condo's today that I believe it would sell in the busier months of May June.

I could also rent the place for around 1100 per month, leaving me short about 150$ per month for interest/property tax etc. That was the route I was going to go, but that would put me selling it in the less attractive months of the year.

But so far in Edmonton this year, Jan is up 4%, the inventory on MLS yesterday was around 1280 listings, so there is a demand. Considering this place is in the right price range.... The person who buys this cannot afford the 250K plus for a town house at todays price.

keep in mind, if you're not using the condoas an income producing property, you may not be able to use the 50% capital gain deduction. If you're using the condo to produce income, then it's a capital item being used produce the rental income. But if all you are doing is buying it so you can sell it for a gain, then the CRA could come back and say that your intent was to make money by buying/selling the condo, making it 'active' income, meaning the entire gain might be taxable....unless there's special meaning behind you choosing to sell in 5 months?

[photon]

No question there is demand and you will probably make some money with it, but just trying to point out you have to protect yourself from the other side as well.

But your numbers basically work. I didn't see the interest for the $50k either, but that's probably $500 or so for 2 months..

If you can get a realtor to give you an appraisal of what it should sell for that'd be good.

So it's possible, the biggest factor is the market. If it goes up to $225k you're making some ok money for your investment. But if you list at $225k and all your offers are at $220k, you're suddenly looking at $2500 profit.

As long as you have your backup plan, can handle the deficit position on the cashflow (I personally won't buy a property that goes negative cashflow, but that's a result of my personal situation). Always have a plan B.