Which investment is better, a one or two bedroom condo?
So you’ve made the decision to enter the red-hot Toronto real estate market, great! Now comes a tsunami of other decisions that come with buying homes, starting with one that inexperienced and veteran condo-buyers alike are often plagued by when reviewing potential investments; should I buy a one or two bedroom condo? While there are definitely pros and cons to each type of condo, it’s important to first understand your personal goal with the home, so you can then properly investigate the factors that have the greatest influence on reaching that goal. Luckily, there are a number of standard differences that can sway you either way, which we’ll review in depth below.
YOUR REAL ESTATE'S LOCATION
Whether you’re looking at a condo in the core of downtown Toronto or a family home out West by Mississauga, the location of your condo will play a big role in determining whether a one or two bedroom is better suited for you and your goals. A condo with one room in a prime location, near universities, grocery stores, and public transport will undoubtedly cost you a lot more than a 2 bedroom home that’s further out with less conveniences. However, even without convenience luxuries, the price per square footage of a one bedroom condo in an upscale area can far exceed that of a 2 bedroom condo that’s closer to the city center but located in a lower socioeconomic area. Clearly, a condo's location and its surroundings can strongly impact the price of the unit, maybe even more than whether it has one or two bedrooms in it. With that in mind, it’s important to strike a balance between your needs, wants and budget when it comes to condo hunting.
CO-OP VS. CONDO DEVELOPMENTS
There are 2 kinds of apartments; those constructed in co-operative societies or ones that are built as condominiums. You’ll want to do your due diligence to understand the nature of your apartment, as there are specific rental rules to each. Co-op buildings do not allow for subletting, whereas condos are much more flexible and allow for rental use. Why does this matter? Well, if you're hoping to turn a profit with your real estate investment down the road, it's important to understand the difference between the options. If you plan on buying a home in a condominium building, it might make more sense to purchase a unit with more than 1 bedroom, with the potential to use a spare bedroom for rental purposes. On the flip side, if you’re looking at a co-op building and you’re a single person, a condo with only one room is the way to go, as purchasing a 2-bedroom condo might be money wasted since the extra bedroom can’t be rented out for gains.
If you’re entering the market solely for investment purposes, like many people do, it’s worth understanding how a condo's size and its bedroom count can impact your rental returns. With rental condos being on the rise, both one and 2 bedroom condos are highly popular due to their overall affordability, but the slight differences between each kind can influence your tenancy fill rate and what kind of tenants you end up attracting to your home. A one bedroom condo will typically attract young professionals or couples who prefer a little more space than a studio unit. The good thing is that densely populated cities like Toronto are full of these potential tenants, which makes filling one of these homes relatively easy. However, these tenants may leave after a year or two to chase new jobs, dreams or loves, leaving you with the task of finding a replacement tenant every couple of years. On the other hand, a larger unit with more than 1 bedroom can be very popular with families, especially if it's close to schools, childcare and community parks, as families typically require condos with more child-friendly conveniences. With families, you can expect a longer tenancy and consistent returns on your investment property.
Though, it’s important to note that while one and 2 bedroom units are in high demand, ultimately the condo’s location will play a pivotal role in your ability to fill the space. If your place is located far from the city center or desired conveniences, it won't matter if you have a one or two bedroom unit, the chances of getting tenants are lower.
No matter what types of homes you’re looking at, maintenance costs are a vital consideration when reviewing potential investments. You can expect wear and tear, plumbing, property taxes, utility bills and the like to be more costly when it comes to larger condos, whereas a smaller, one bedroom benefits from a smaller square footage. With extra space comes extra opportunities to pay.
While some of the costs can be passed on to your tenants to lessen your load as the landlord, be prepared for more push back from your family-oriented tenants in a larger 2-bedroom unit. Negotiations are harder when each penny saved goes towards a child’s future, so you may have to give a little when it comes to eating some costs with larger condos.
It’s obvious that a condo with more than 1 bedroom will demand a higher rental price than that with less, as any extra space commands a price premium in any over-crowded city. However, as mentioned before, the larger the space, the more the potential costs. Once those fees are factored in, along with taxes, you’ll see that the rental income difference between a one and 2 bedroom unit are actually quite small.
Likewise, location will also play a large factor here; an investment property in a prime area will fetch a much higher price, regardless of the number of bedrooms, than a condo unit in a less attractive location.
THE BOTTOM LINE
Purchasing a home is a milestone in life that should definitely be celebrated, but just make sure to keep some of these considerations in mind before jumping the gun on an investment. At the end of the day, you have to understand what kind of condos you’re looking for and figure out what works best for your living situation, financial goals and future plans.