Small-time investors
“Overseas investors have been a strong foundation for our company originally, but we find that locals right now—especially mom and pop investors—are really looking at condo investments as a new type of investment versus the stock market.”
—Simon Mass, a founding partner of The Rosseau Group LLC.

Condos were conceived as inexpensive housing for people who could not afford to buy a stand-alone house. As primary residences, condos make sense.

Now, condos are sold as "investments" for unsophisticated people who are looking for somewhere safe to park their savings where they can make a profit.

Why condos? Well look at the alternatives:

• bank accounts, saving bonds	rate of return too low
• stock market	too risky, remember Nortel?
• RRSPs	rate of return too low
• gold	price fluctuates, no interest
• bonds	low returns, boring
• currency trading	need to know what you are doing
• lottery tickets	one of these days, it'll be my turn
• Nigerian Prince	last couple of times I lost my shirt
• condos	Perfect. What could go wrong?

A lot of developers and real estate agents are convincing people to buy condominiums as a great way to profit in Toronto's rising condo prices. They are using wildly optimistic figures to make renting condos seem like a risk-free way of making big money.

After all, condos are real estate right and real estate always goes up, right?

Well, no it doesn't. What is worse is when the moms and pops jump into an investment sector, it is a sign that the market may be getting overheated and the wheels may be falling off.

What's more, unlike stocks, gold or savings bonds, condos is not a hands-off investment unless the small-time landlords hire someone to manage their investment for them.

That means that the landlords need to advertise and show their empty unit, interview potential renter's, check their references, negotiate the lease and hope that the rent cheques show up every month.

Then they need to maintain the unit and deal with the condo manager if their renter breaks any of the condo's rules.

They also need to stay informed on the current condition of the condo's management, internal politics and finances. Just as there is a best time to buy, there is also a best time to sell and they don't want to miss that boat.

What can go wrong?
Lots. If the renter stops paying the rent and skips out, the landlord has lost money. However, if the renter trashes the unit, creates a water leak that flooded the lower units or broke the condo rules about noise or pets, the landlord can be on the hook for thousands in unexpected expenses.

If the renter turns the unit into a grow-op or a chemical lab, the owner will be on the hook for tens of thousands in cleanup costs.

The landlords need to know what a special assessment is because if the condo corporation needs an immediate injection of cash, they—not the renters—have to cough up.

Should owner-residents care?
You bet they better care. If the majority of units in a condo corporation are owned by mom and pop investors, then the owner-residents are living in a rental building that has anywhere from a few dozen to a couple hundred amateur landlords filling their units with who knows who? Unlike a specially built rental building, there isn't a single professional management company who screens potential renters, maintains a single set of standards and who cares about the long-term value of the property.

Small-time landlords mainly focus on positive cash flow so they tend to fight any increases in the monthly fees.

If interest rates jump up, expect to see a flood of one-bedroom condos hit the markets as the small-time landlords start to bail out.


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