Dear Urbaneer – Do I Buy A House Or A Condo?

Dear Urbaneer

At the start of my real estate career over two decades ago, I found Buyers quite clearly had a preference to purchasing either a freehold dwelling or a condominium. Back then the price gap between the two housing types weren’t as dramatic as they are today, in part because there were several inner city neighbourhoods located south of Bloor Street which had yet to gentrify into the hip highly-coveted locations they are today. For example, in the 1990s you could buy an updated vintage house in South Riverdale or Queen West Village for less than $200,000 or alternatively, you could buy a new two bedroom two bath condominium along Bay Street for $180,000.

Today, it’s a different story. The acquisition of an updated vintage house in the central core is easily in the $600,000 range, making it prohibitively expensive for most first time buyers while a new, albeit smaller (around 600 square foot) condominium with parking and locker can be purchased for just under $400,000. For many buyers they don’t have the option of choice.

However, if your budget allowed you to buy either, which would you choose?

Sorry, I couldn’t resist!

Which brings us to this month’s ‘Dear Urbaneer’ post, which answers a question posed by one of our clients:

“Dear Urbaneer,

We’re receiving a lot of conflicting opinions from our friends and family as to what type of real estate we should purchase. We like the ease and convenience of downtown condominium living, but we also like the idea of buying a house with a garden in a city neighbourhood. Can you offer us some insight on how to weigh out the advantages and disadvantages of both types of housing?


Torn Between Two Dwellings”


Here’s our response:


“Dear Torn

In the city of Toronto, there are a myriad of different housing types available for purchase. Beyond the traditional row, semi and detached houses one can buy throughout the city proper, the growth of the condominium has blossomed to now account for one of the largest and fastest growing segments of the market. Mid-rise and high-rise condominiums are sprouting up at an unprecedented rate, with stacked and attached townhomes becoming equally as ubiquitous. How do you decide what makes sense for you?

Here’s a breakdown on the different factors which may influence your decision:

The Freehold Housing Market.

A freehold property is what a traditional house essentially is. You own the parcel of land in its entirety as well as all the structures on it, with no other party accorded any rights with the exception of municipal, provincial and federal bodies who may, if required, access your property for the purposes of running services like water, gas, electrical or cable lines under or over your property, or take portions of your property (or all of it, at fair market value) for the purpose of road widening or creating spaces for a larger public use.

In some instances your neighbours may also have rights, including a right to access their property by passing over yours (most often in the form of a driveway or laneway), or the ability to have their services cross your property to serve their dwelling. These particulars are contained in the legal description of the specific property in question registered with the City, as well as outlined in broader municipal and provincial urban planning and zoning guidelines that are publicly available.

Depending on where your property is, restrictions will regulate how large a building might be constructed, its purpose and use, where it can or cannot be located on the parcel of land, how high it can be, and how many units it can contain. Other policies or design guidelines may stipulate the rooflines as it impacts shadowing, what materials it should be constructed with, and even what colours the property might be.

For all the restrictions that might run with the land of a freehold property, this form of ownership is usually the most coveted and desired. As a property owner you have more opportunity to build, renovate or upgrade a property that suits your particular tastes with less interference by others. But did you know that when you purchase an original house in the city of Toronto, the bulk of the value of the property is actually for the land the building sits on? In fact, the sale price of an older city home usually accords about 85 percent of its value in the land itself, with the building being valued at, or less than, 15 percent depending on its condition.

For example, on a desirable street where well-kept post-war detached bungalows might command $850,000, an original house in a state of disrepair might sell for $750,000 and be knocked down with a new property constructed in its place, and subsequently sold for a price around or exceeding $1.3 million. This is not uncommon in demand central neighbourhoods.

Much like other commodities, such as an automobile or an appliance, a building is constructed and designed with obsolescence in mind. From the moment you build a new property, it quickly requires capital investment to maintain and repair, otherwise it slowly begins to deteriorate with use. Whereas one hundred years ago houses were built of solid brick, slate roofs, and handcrafted fittings solid enough to withstand several decades, nearly every component for building today is constructed with a life expectancy of less than thirty years. Windows, wiring, plumbing, roofing, heating, cooling, siding and framing are all made with the intent of being replaced anywhere from ten to thirty years. So from the moment a new house is built, it becomes a depreciating asset that requires on-going investment in order to retain its value. This is something many buyers don’t identify when making a house purchase, nor entirely calculate as an expense when selling.

In the freehold housing market what often sustains the value of a property, and in fact causes it to increase, is the parcel of land it sits on. Generally, the older the house the more centrally located it is, such that in some parts of the city the parcel of land becomes so valuable as to no longer warrant just a single family dwelling on it but be combined with other parcels of land in order to accommodate a much higher and better use, like a townhouse or mid-rise condominium project. Whereas a block of ten houses may have once accommodated ten families, those same parcels of land may be combined to accommodate dozens to hundreds of units in the form of a mid-rise tower. Even in an area where the city zoning might not change to allow such a development, a downtown residence within walking distance to the city core commands a premium. Neighbourhoods such as Cabbagetown, Riverdale, Little Italy, The Annex and Roncesvalles Village are testaments to how the demand for centrally located property in any condition has dramatically escalated in value.

So if you’re considering buying a freehold house, you have the reassurance that the land is generally going to increase in value. The downside? It may be prohibitively expensive or beyond your budget to adequately maintain, upgrade or renovate to the standard of living you desire, or are accustomed to.

The Condominium Housing Market.

When it comes to condominium housing, the value of the dwelling is not mostly in the land but in the building, which is pretty much the opposite of a freehold property. In condominium ownership you own the title to the unit your suite’s floor space encompasses, plus a percentage interest in the parcel of land and all the common elements collectively shared with other unit owners. Because you do not own the land yourself, it has more limiting factors and accounts for a smaller percentage in the property’s value. Instead, beyond the convenience and desirability of the condominium’s location, the value of the property is based more on the quality of the building, the finishes in the unit and how well the condominium is operated.

Furthermore, the monthly common fee all unit owners pay includes a portion into a Reserve Fund, which is a fund that provides capital to repair or replace every building component at the end of its life expectancy. What this ensures, theoretically, is the building never fully deteriorates to become obsolete. Unlike freehold properties where a building might become so run down it is better to knock it down and construct a new dwelling, the legally required reserve fund of a condominium provides a futures fund for building component replacement. As a result, the building, under a comprehensive maintenance, upgrade and repair program, should not suffer a dramatic decrease in value.

However, because you collectively own the common elements of the building with other unit owners, you do not have the same opportunity to exercise control in protecting your asset. The board of directors running the condominium corporation may not place as high a priority as you in maintaining quality standards. A luxury building once cutting edge in its aesthetics might replace hallway carpets or wall coverings with an inferior quality material, or a colour selection that doesn’t suit today’s trends. The management or board of directors might cut concierge or building services, reducing hours of operation or even wages and salaries, resulting in less care and attention by employees that ultimately scar a building’s sterling reputation for good service. The board may also defer a major repair for a few years in an attempt to build more capital, in the interim compromising appearance or comfort. If, during that time you elect to sell, you may not capitalize as high a return as you might otherwise because the building’s first impression or financial documents are not as desirable as you would otherwise prefer. For those who are concerned about protecting one’s equity in condominium housing, one must play an active role in influencing the mandate of the building. For others who do not have the time or the inclination, the risks can be greater. And for some, the inability to exert and control one’s asset in a condominium setting makes it an unacceptable housing choice for them.

However, for many it’s a preferred form of ownership as it eliminates having to constantly shell out for the unexpected repairs, problems and maintenance issues associated with freehold housing. Plus a condominium may be more convenient and centrally located to your work or your lifestyle amenities, which make it a better housing match for you.

~ Steven and the urbaneer team

Can we help? With a multi-disciplinary education in housing, over twenty years of real estate sales, marketing and development including a sterling reputation as one of Bosley Real Estate’s Top Ten Producers, my team and I make it our mandate to guide buyers and sellers through all their real estate needs.

Want to receive our FREE monthly update on real estate in Toronto? Just sign-up in the box below for our pressure-free hassle-free newsletter.

Did you read our newsletter on the six layers of Buildings – Site, Structure, Skin, Services, Space Plan, and Stuff (the furnishings)? Click HERE for more insight.

Previous Post
Mid-Month Sales Figures Solid For The Toronto Real Estate Market
Next Post
July 2013 Home Of The Month – South Annex