While there are many advantages of buying condos as an investment in Montreal there are also some disadvantages, all of which only come from incorrect selection of a condo.
What are the disadvantages?
- Poorly chosen location: There are some great locations where a condo can be purchased and will continue to grow in value, then there are other areas which might come at a risk. The right location can make a massive difference in not only your re-sale value, but also potential rental return. A good example of higher risk would be buying a condo 20km from the closest business district in an area with low growth or only predicted growth.
- Choosing a very basic condo: This is what we refer to as a "cookie cutter" condo. Straight out off the box with no unique features that set it apart from the other 50 condos in the same building. If the rental market slows, you want to ensure that your condo has some unique features setting it apart from the rest (larger balcony, extra bedroom, view of the river, etc). The same can be said for when re-selling a condo, if there are multiple condos which all look the same up for sale, it can quickly dilute your investment.
- Waterfall effect: This also goes back to the point mentioned above. You can image if you and 5 other people list similar condos to yours at the same time. Chances are the first person to list will set their starting price to $300,000, then the next person will set theirs a bit lower to $295,000, and so on. Prices continue to drop as people set their prices lower to sell their condo before the rest. This can be prevented by choosing a condo which has unique features and can be marketed as so to ensure you maintain a higher re-sale value.
- Oversupply: This is a problem for both developers and the re-sale market. When there is too much of any product without enough people to buy it, you get oversupply. In this case people, starting with developers, drop their price to sell the asset. In Montreal, oversupply started to become a problem, so developers slowed the rate at which they were building projects. This is the same in any real estate market around the world and is almost impossible to predict. Provided the location has strong economic growth, oversupply isn't going to be an impending threat.
As you can see there are some disadvantages, most of which can be controlled simply by the selection of condo chosen. There will always be outside variables which impact pricing, but a well chosen condo as an investment will help mitigate against the bulk of these variables.
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