Why you shouldn’t become a condo speculator

Kitchener Waterloo Real Estate Round Up – Let’s be engagingThere’s a real estate agent in our office who has speculated in our local condo market with favorable results. She always buys early – as soon as the condominium project is announced and she always buys the top floor (penthouse if they have one). She’s done well.

However, as readers of my blog should know, I’m not a fan of condominiums in general and I’m certainly not a fan of investing in them for easy profit.

I also think that we currently have too many new condos being built in Kitchener Waterloo. Flooding the market with any product is always a fast road to a low price.

If you’re buying a condo to live in for a few years, that’s not such a bad idea. It beats paying rent and you should be able to build up some equity, which will help you buy a real home.

But if you’re buying a condo as a straight investment, a recent article in the Financial Post listed four good reasons why that’s a bad idea. Here they are in my own words.

  1. You can’t diversify your asset. There’s nothing you can do as one unit owner in one condo building in a city with hundreds and hundreds of units and dozens and dozens of buildings to help your condo appreciate any faster than the rest. It might appreciate faster if your lucky or exceptionally shrewd, but it likely won’t.
  2. Prices don’t always go up and condos usually run ahead of the larger housing market. Condos are cheap to buy and easy to own. They are the first to take off in price when the market is hot and the first to crash back to earth.
  3. Leverage. Remember we are all in about the same boat. If you think you can buy a pre-construction condo with 10% down then so can I and every other chucklehead who got burned in the stock market last time it hit the skids. Your investment will not increase in value by 30% before you take occupancy and can sell it off to a hipster who works as a software developer.
  4. What do the pros do? Just like going to Vegas, there are risks and there is sheer craziness (and the house usually wins anyway). Blackjack, they say is the best game to play. Poker might be another. In those games you’re playing against another person or persons. You have some level of control. Roulette by contrast is just a spin of the wheel and a little white marble.

I’ll end this post with a quote from a Tom Waits song.

I always play Russian Roulette in my head. It’s seventeen black and twenty-nine red.

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