Purchasing Property: A Long-Term Investment

This week on CIBL’s Les Oranges Pressées, we will shed light on a subject that has a lot of people talking: reselling condos for profit. Our discussion will be based on an article from La Presse titled One in Three Condos are Sold at a Loss. We will qualify certain remarks made in the article, including those based on statistics from the firm JLR.

Market Transitions
The real estate sector used to be idle, but has moved from a seller’s market to a buyer’s market. Consequently, this growing buyer’s market has led to an abundance of condos in Montreal’s central neighborhoods.

Delays Between Purchasing and Reselling
Analyses from the firm JLR found that 33% of condos purchased in 2012–2013 and resold before December 31, 2015, was put up for sale for an equal or inferior price than originally listed. We must interpret these values on the level of the micro real estate market, that is to say, to take into consideration the costs associated to reselling. In reality, a two-year period between purchasing and reselling is too short to be able to get a return. Typically, a minimum period of five years is needed to generate a profit.

When it comes time to resell a property, owners must bear in mind all the associated costs, such as notary fees, welcome taxes, brokerage fees, and transfer taxes. Together, these costs represent an expense of nearly $20,000. Therefore, in order to resell a home without any loss just two years after its purchase, the market would have to increase at a rate of 3.5% per year, which represents a total augmentation of 7% over two years to make a $22,000 profit. In this case, the associated costs at the resale stage would be met and there would be no loss.

Think about property investments the same way you would think about adopting a pet: when you commit yourself to an animal, it’s for the long haul! It’s unrealistic to think that you can make money on a short-term basis by investing in real estate. Purchasing a home is not a magic formula that will automatically generate quick profits. For example, investing in duplexes and triplexes will only become profitable after twenty years or so, once all the debt is taken care of and a revenue is generated. In other words, buying a condo is never so clear-cut; it can take a lot of time and effort before your investment gets profitable.

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