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Stay small: a guide to buying an investment condo in Victoria

A aerial of downtown Victoria and Vic West, where investment condo opportunities abound in a market starved for quality rentals.

Stay small: a guide to buying an investment condo in Victoria

Marko Juras is a Realtor® with Fair Realty in Victoria. Mentions of projects by name are not endorsements and all content herein is intended for informational purposes only.

An investment condo can be a rewarding opportunity provided investors follow a basic rule that helps ensure the purchase is cash positive and not a drain on personal finances.

Despite the emotional urge to buy a larger unit with better views and a prime layout, in terms of an investment I practice and preach this single most important rule: buy a small, lower priced unit in a quality concrete building within walking distance of downtown Victoria.

As an investor with multiple units purchased for investment purposes and as a Realtor having represented a multitude of clients purchasing pre-sale and new-build condos both as primary residences and as investment properties, I've had the opportunity to see the good, the bad and the ugly as far as investment condos are concerned. If you're thinking of making that leap into the real-estate investment world and a condo is on your list, the following five points relating to my single most important rule noted above will help ensure you make the right decision at the right price and add an income generating asset to your portfolio instead of a financial burden.

First, I'd like to note the units I've purchased as pre-sales to give you an idea of how much money I've invested and where:

  • 2009 – 834 Johnson by Chard Development – 533 square foot one bedroom (approximately $200,000)
  • 2011 – Promontory by Bosa Properties – 440 square foot one bedroom (approximately $195,000)
  • 2014 – Era by Concert Properties – 508 square foot one bedroom (approximately $215,000)

1) The purchase price-to-rent ratio

This ratio will determine whether your investment is likely to be income positive or income negative. The rental market in Victoria is price sensitive, meaning renters are cognizant of competing rates and rarely splurge for the sake of securing a dream apartment for the sake of opulence. However, there is a threshold that the market supports so the lower your monthly costs, the better chance you, as an investor, have at ensuring that your monthly income covers your monthly expenses while allowing you to offer your unit for rent in a sweet spot (that threshold I mention above) the market will respond to.

Let's examine this with real-world examples. My personal 440 square foot unit, purchased for $195,000 at the Promontory condo development in Vic West, is currently rented for $1,150. My investor client's 440 square foot unit, also purchased for $195,000 at the Promontory, is currently rented for $1,175. The “A” floor plans at the Promontory (units of 1,160 square feet featuring two bedrooms, a den and views overlooking the Inner Harbour) were sold in the range of $600,000 to $750,000 (depending on the floor) and are consistently advertised on local rental listings in the range of $2,200 to $2,500 per month.

Even if one assumes that a $600,000 unit can be rented for top dollar at $2,500 per month the rent derived falls well short of the income an investor could generate from the purchase of three separate smaller units equaling the same capital investment while generating an income at least $900 higher per month. This is where Victoria's price sensitivity comes into play, where an investor may have a difficult time convincing a renter to pay even twice the rent for a unit worth three times it's smaller variant's value, let alone attempting to match the income, per square foot, of a $200,000 unit.

Of course if you're able to secure a higher down payment on your investment condo the better positioned you are to absorb these inconsistencies, however, most investors will put down a 20% mandatory down payment and mortgage the rest.

2) Property transfer tax (PTT) advantage

The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000. Below are examples identifying the PPT one would pay based on the value of the purchase:

  • $200,000 investment condo = $2,000 in tax or a 1% absolute PTT cost
  • $300,000 investment condo = $4,000 in tax or a 1.33% absolute PPT cost
  • $400,000 investment condo = $6,000 in tax or a 1.5% absolute PPT cost
  • $500,000 investment condo = $8,000 in tax or a 1.6% absolute PTT cost

As the examples show, the higher you go in terms of the initial purchase price, the higher your percentage of property transfer tax payable on your investment.  At $200,000 or below you pay the lowest percentage of PTT tax and keep more money in your pocket.

3) GST advantage

The majority of developers are now selling their product without lumping in the 5% GST into the purchase price. However, there is a GST rebate available for investors that are renting out their condos called GST New Residential Rental Rebate.  The GST rebate maxes out at 36% of the 5% GST and eventually goes down to zero on a purchase above $450,000. So once again, the less costlier your investment condo, the less GST you'll pay on that purchase. Here are some examples:

  • On a $200,000 investment condo you'll save $3,600 off the $10,000 GST
  • On a $300,000 investment condo you'll save $5,400 off the $15,000 GST
  • On a $400,000 investment condo you'll save $3,150 off the $20,000 GST
  • On a $500,000 investment condo you'll save $0 and pay $25,000 in GST

As the examples show, the higher you go, much like with the PPT, the higher the percentage of net GST is payable on your investment purchase. With a $500,000 condo you are paying the full 5% GST whereas on a $200,000 condo you are receiving a 36% reduction in the tax and effectively paying a tax of only 3.2%.

4) Municipal property tax and strata fee expense-to-gross rent ratio

Going back to the Promontory examples, the 440 square foot units have strata fees in the neighbourhood of $150 per month or 13% of the gross rent collected. Whereas the 1,160 square foot units have strata fees of approximately $400 per month or 16% of the gross rent if, and that's a big if, you are able to rent that unit out for $2,500 per month.  Use the same principle to calculate your annual property tax bill relative to the rent you'll collect.

5) Liquidity and cash flow advantage

Owning three condos each valued at $200,000 versus one valued at $600,000 offers more liquidity and comes with a safety net of sorts. If the going gets tough you can sell one of your units, two even, and still remain in the game. And of course with more units if one doesn't rent in a given month the others continue to generate cash.


Keep it small, keep it low cost. An investment isn't about frills, it's about maximizing your profit from the risk you're taking as a landlord. If you're banking on that investment condo to generate positive cash flow every month keep in mind that real-estate investing is not a get-rich-quick scheme. There will be times when unit repairs and maintenance eat up months of net revenues. There will be times when your unit may sit empty for a month, even longer, while you continue to carry ownership expenses. This is a long-term investment that will eventually pay off, so the more prepared you are from the beginning the more success you're likely to have as time goes on.

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