People tend to use these words interchangeably, but often incorrectly. When a developer purchases land with plans to build a multi-family building, they have to decide whether the building is going to be a rental ie. 'Apartment' building or a ‘Condo’ building. Usually the city has a say on what you can build, based on what is most in demand and what makes sense for that area. It also depends what the developer's long term goals are, and whether they want to keep the building or sell it off.
Most developers prefer to withdraw their equity as soon as possible and move on to the next project. This is why the majority of buildings (in Vancouver especially) are condo buildings. By strata-fying a building you are creating separate strata lots (units) that can be individually owned and sold as a 'Freehold Strata' type of ownership. This means that you own the rights to that unit, as well as the collective rights to the rest of the common property and land along with the other strata lot owners. These rights are restricted by the bylaws of the strata, the Strata Property Act and any additional charges on title. The only type of ownership that is cleaner, is a ‘Freehold’ ownership structure. This type is most commonly found in single family (detached) homes.
A lot of first-time buyers are priced out of the detached market in Vancouver, so the next best thing is to purchase a condo or townhouse in order to start building equity. Many buyers see these homes as ‘stepping stones’ until they can afford their dream home. Not diminishing the fact that condo living may actually be more practical and desirable for their particular lifestyle. Many down-sizers and empty-nesters are now selling their detached homes and opting for condo living due to the low-maintenance and proximity to amenities. It also often allows them to ‘cash-out’, meaning they take the large amount of equity in their homes and it allows them to put some in their pocket (possibly for retirement) and use the rest to buy the condo mortgage-free.
It is important to note that even though a lot of people purchase condos for individual use, many people/investors also purchase condos with the intent of renting that condo out to someone else. Many older strata buildings in Vancouver have voted in rental restrictions (by 75% of owners in agreement), meaning that either rentals are not allowed, or they are limited to a certain amount such as 10% out of the total units that are allowed to rent at one time. If rentals are not allowed, many stratas still allow you to rent to an immediate family member or apply for a ‘hardship’ (which may or may not be approved).
Luckily, the Strata Property Act changed in January 1st, 2010 to exempt developers from implementing rental restrictions on all new builds. This means that if you buy a newer condo directly from a developer, you will be allowed to rent this home. Even if 75% of the owners then want to implement rental restrictions, you will be grandfathered in to the original rental bylaw and be able to rent your unit. It is not until you sell your unit that the new owner will have to abide by the current rental bylaws.
Since so many owners now buy for an investment, newer buildings (less than 10 years old) often allow 100% rentals because they would never be able to get 75% of the owners to agree on implementing restrictions. This is one of the reasons that condo pre-sales have become so popular for investors in Vancouver.
When a developer builds an 'Apartment' building, they can either choose to hold on to the entire building by renting out each individual unit, or they can sell the entire building to one buyer. It is very expensive to buy an entire building in Vancouver, so it is harder to find a buyer and therefore could be seen as higher risk for a developer.
Renting can be a great option for some, but home-ownership definitely provides more security over time and allows you to start building equity. With obscenely low interest rates right now it is so much more affordable to borrow money than it was before.
Once you make the big decision to get into the real estate market, it’s important to hire an experienced Realtor, Mortgage Broker, Home Inspector and Lawyer who can advise you in their area of expertise and guide you through the process. For a list of recommended professionals, please click here.
Feel free to call me at 604-346-6920 or email email@example.com if you have any questions or if you are looking to start the buying process!