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My Experience With the New Residential Rental Property Rebate (HST Rebate)

I wrote about the HST issue a couple months ago, calling it the “Elephant in the Room” with respect to the pre-construction condo market. I wanted to follow up this post with my own personal experience with dealing with the HST rebates (New Residential Rental Property Rebate-NRRP) when buying a new condo for investment. In short, it was a surprisingly quick and painless process to get back my rebate money once I figured out all the forms and the calculations.

The photo above is of One Park West, or 260 Sackville Street. The building was recently registered and I own a unit in the building which happens to be the Smallest Condo in Toronto. I recently closed on the unit and as an investor-owner had to pay an additional amount for HST on final closing. Here is my story for getting that money back from Revenue Canada:

In order to qualify for the rebate, I had to have a tenant in the property and a signed lease for a minimum 1 year (which I did). All in all it only took just 40 days from the time I sent in my application to the time I received my rebate monies back in full. Quite contrary to some of the reports I have heard of it taking as long as a year to get your money back. If you have your paperwork in order and you complete the forms properly this seems to be the result you get. I even was paid some interest on my rebate amount (presumably taking into the account the time I paid it until the time I was paid it back).

Some additional things that I learned when going through this process:

• Provincial tax (PST) is the biggest portion of the rebate by far
• Federal tax (GST) is the smaller one
• Provincial rebate is 100% until Fair Market Value (FMV) hits $450K, then is zero after that
• Federal rebate is 100% until FMV hits 350K, then reduces down to zero when you hit $450K
• Therefore if your FMV is less than $350K you should receive 100% of your HST monies back. If your FMV is between $350K-$450K you will receive most of it back. If your FMV is greater than $450K you will receive zero back.

The Problems I see with the New Residential Rental Property Rebate:

• If the FMV of your condo is $450K you will receive back more than $20K. If the FMV is $451K you will receive zero. What policy maker in Ottawa came up with this scheme??
• FMV is still a conundrum to me. Who determines it? How is it determined? What happens if the government doesn’t agree with your FMV number?
• FMV of  your unit does not take into account what you will actually ‘net’ on your unit if you sold it at FMV (it does not take into account selling costs).
• A better system might be to simply add an additional tax on investors who flip their unit after final closing as a percentage of their actual profit. Under the current system, you might both lose money on your sale (due to closing costs when buying and selling), and also have to pay tens of thousands extra in HST just for the ‘right’ to lose money on the transaction. Doesn’t make sense.
• Is the government in the business of discouraging people from investing in real estate unless that real estate is priced below an arbitrary figure of $450K??
• FMV is the crux of the calculations used to figure out if you qualify for the rebate. FMV is determined at the time that the HST is paid (at final closing in Ontario). The higher the FMV, the lower the rebate amount. Therefore I observed that it might be better for investors to actually pay the HST amount UP FRONT when buying a pre-construction condo, because this will result in a lower FMV and therefore a higher rebate amount!

Questions about the New Residential Rental Property Rebate (HST rebate)? Wondering if you qualify for the rebate or need help completing the application process with Revenue Canada? Contact me or leave a comment.

What Makes a Good Location Good?

Location is the most important factor when considering any real estate investment. You can change many things about a property, but you can’t change its location, therefore it’s vitally important for any condo buyer to understand exactly what makes a good location good. Why do some condos appreciate at higher rates and command higher resale prices compared to others that are often located just steps away?

Just being downtown is not enough with today’s buyers. Buyers want to experience the best of urban living.  Today’s urbanites are more sophisticated than ever. They know the difference one block in the wrong direction can make on quality of life and resale-ability down the road. They know the impact of having a Starbucks in your building can make versus having a Coffee Time.

The best locations are those that combine two key factors:

1) Highly visible. Being in a highly visible location is critical to attracting people, businesses, services, and even government dollars to fund things like transit and infrastructure. You need to be seen from the street by pedestrians, people in their cars and on transit. You need to be in a spot that is well-known and familiar with the average person in Toronto. This is why condos located immediately on the crossroads of two major streets are always tremendously popular with buyers (One Bloor at Bloor and Yonge, The Hudson at King and Spadina, L Tower at Front and Yonge, etc.). This is also why condos located busy pedestrian and transit-friendly streets like King or Queen tend to out perform those located on one-way, transit-less streets like Richmond or Adelaide.

2) Highly visited. Just because a condo is located in a highly visible location, does not mean it will be a highly visited location. A great example of this is Cityplace. Everyone knows where Cityplace is, and the towers dominate the skyline when you are coming in from the west on the Gardiner, however, no one except the people who live in Cityplace ever go to Cityplace. This is one reason why prices in this area continue to lag significantly behind that of other nearby neighbourhoods.

Recently a fairly high profile project launched in the heart of the downtown to much fanfare. Many Realtors were pushing this project as a great investment to their clients, however, I quietly told my clients to ‘pass’ on this project even though the building was located a few minutes walk from the multiple subway stations. Why? It was essentially located on a side street of a side street. Most people including Realtors had to Google the address and still didn’t know where it was! The location of this building is neither highly visible or highly visited, thus I advised my clients to hold out for other projects.

Questions or comments? Thinking about buying a condo this fall and want to be sure you pick one with a great location? Contact me.

Statement of Adjustments from Hell

When buying a new condo, you need to be aware of the costs involved. Buying a new condo is not the same as buying a resale condo, there are additional costs you will incur on closing day. The sales people at the condo sales centres will NEVER bring any of these items to your attention.

A reader of this blog (not my client) recently emailed me asking for my advice/help after they got the shock of a lifetime when seeing their statement of adjustments on their new condo that they were about to close on. The person in question bought a large unit at Festival Tower a couple years ago when they were offering their 5% deposit program. The price of the unit including some minor upgrades was ~$840K. Imagine how you would feel if your lawyer told you you had to come up with $74K for closing costs (not a cent of which would go towards equity in the unit). The costs that the buyer had to pay on closing included:

• HST of $39K
• Land Transfer taxes of $19K (after the first time buyer rebates were applied)
• Tarion enrollment fee $1250+HST
• Legal fees – for interim closing and for final closing $1300+HST
• Property taxes pre-paid by developer $750
• Development Charges $2900+HST
• Occupancy fee not already paid for $2500
• 3 months common element fees for reserve fund $1800
• Water and gas hook up fees $1000
• Nickel and dime admin fees $550
• Nickel and dime disbursement fees, mortgage registration etc. $1200

Now obviously the BIG expense here is the HST. He purchased the unit shortly after the HST came into effect but shortly before developers universally started to include the HST in the cost of the unit. (If you bought a new condo post June 2009, you better check and see in your contract if HST was included.) Development fees, Tarion enrollment fees, and water/gas hook up fees are all examples of costs that buyers incur when buying pre-construction instead of going resale. This buyer was NOT an investor so this is HST money that he will never get back (see my previous post on the HST debate/question).

The buyer told me he was not expecting these closing costs and had to scramble to get the $74K in funds together just to close on this property and not be in default of his contract. Ouch. How can this happen?

This story once again illustrates what I have been preaching for nearly 4 years on this blog:

1. Never buy a pre-construction condo without using a Realtor who is experienced and competent in handling pre-construction sales and working with developers. Ask them what they can do to minimize or eliminate hidden closing costs.
2. ALWAYS get your contract reviewed by a lawyer who is experienced in dealing with pre-construction condos and dealing with developers. Ask them what closing costs you will incur (according to what the contract says) on closing day. Go into your purchase with your eyes wide open.

Questions or comments? Do you have a story of how you were surprised when you saw your statement of adjustments? I’d love to hear about it. Contact me here.

Summer is a Great Time to Buy

Summer can be a great time to be a buyer in the resale market. There are a few months a year where the market cools down long enough to actually create the right conditions for a deal to be had. The first is obvious to most people: December and January when everyone is distracted by the Holiday season and then the winter hibernation sets in. But I find many buyers are surprised when I tell them that often great deals are had in July and August too.

The reasons are quite simple:

1. Summer Vacation. Many buyers and their Realtors are not working in the summer and buying property gets pushed to the sidelines. Fewer buyers = less competition.
2. Leftovers. Many of the listings on the market in July are those listings that are ‘left over’ from the spring market of April, May, and June. The longer a property is on the market, the more likely the seller will come down from their list price (generally speaking).

Last summer was a GREAT buyers market. Right after the HST rush was over, July produced some memorable sales across the city that I still scratch my head at when doing market research for my clients and comparing current listings with past sales. Many people thought the sky was falling last year and many buyers who stuck around after June 30th got some amazing deals by today’s pricing standards.

While your friends are out sipping cold beers on a patio somewhere downtown, keep focused and make sure you have a vigilant Realtor working for you and you just may nab yourself a nice find this summer!  You’ll be glad you did when the fall comes and all your beer drinking friends are fighting for condos in bidding wars once again.

Thinking of buying a condo this summer? Let’s talk.

Sometimes The Best Deals are NOT Advertised

New condos are launching at a rate of about one per week right now in the downtown core. However, don’t be mistaken in thinking this means solid investment opportunities are coming at a rate of one per week! In fact, there is usually a negative correlation between the number of new condo launches and the number of quality investment opportunities available. The opportunities are actually quite rare right now in my opinion. There are only a handful of projects that I am comfortable in recommending to my buyers and investors.

As with any other product or service, the best deals in real estate are often unadvertised. If you see a billboard or glossy ad in a magazine proclaiming the “suite of the month” or “special offers on now”, chances are there is no deal to be had here. You won’t find the best deals on a billboard or in a glossy magazine or taking up a page in the Globe and Mail. As with any other product or service of any value, the best deals in real estate are often the unadvertised ones.

This past weekend, some of my investor clients were able to take advantage of such an opportunity at a A1 condo project downtown. I received nothing more than a good old fashioned phone call from one of the developer’s sales reps informing me that if the developer sold a certain number of units in a certain period of time they would get a better rate on their construction loan. The developer was motivated and thus, offered significant CASH discounts off the list prices of their remaining inventory. Not a dime was spent on marketing or advertising this deal. The only people who heard about it were a handful of Realtors like myself who were called directly. My clients are very happy and the deal is now done. Prices are back up to the list prices.

My reputation and track record as one of the top Realtors downtown for pre-construction means my clients get access to these exclusive, unadvertised deals from time to time. To get on my list for these types of deals in the future, simply contact me and I will be happy to include you on future opportunities.

The Importance of Infrastructure

If you are planning on investing in a condo in 2011, there are many obvious factors to consider: builder track record and reputation, location, price per square foot, building and suite features, layout/floor plan etc. There is one factor that I always consider when buying real estate and that is neighbourhood infrastructure (specifically transportation infrastructure).

This includes roads, transit lines (subways, bus routes, streetcars), access to highways, pedestrian walkways, bike lanes/routes, water access (if near the lake), and any future development plans or potential plans for vacant or underused land. Without solid infrastructure in place, a neighbourhood can stagnate and become segregated from the rest of the city, making it less livable and result in slower appreciation rates compared to other better serviced areas.

Liberty Village is a good case study. Liberty Village is a master-planned community that I believe is in danger of becoming a victim of its own success. There is basically only one way in and one way out of Liberty Village, and that is via Liberty Street. Whether you are walking, driving, biking, or taking transit, you are probably on Liberty Street coming and going from this area. The reason for this is simple: the pie-shaped area is bounded on 2 sides by two rail lines and the Gardiner Expressway. Gridlock and traffic congestion is becoming a real issue in Liberty Village (ask anyone who lives there).

There are now plans underway to add a new road to Liberty Village (when was the last time a new road was built in Toronto?!), as well as a pedestrian/cycling tunnel or bridge across the train tracks. This will be something to watch in the years to come and if I was an investor in the neighbourhood, I would be calling the city councillor to push these projects through.

One of the reasons why I am a big proponent of the Regent Park revitalization is that the neighbourhood infrastructure is so strong already. The neighbourhood has been isolated from the rest of downtown for 50 years not by physical barriers, but by social ones. Think about it: streetcar lines on Dundas, Gerrard and Parliament will connect residents to just about anywhere in the city, east or west. Sackville, Sumach, and River streets will all be through streets that will connect the neighbourhood directly to Cabbagetown, Corktown, The West Don Lands, and the Distillery District. Most people don’t realize just how connected Regent Park actually is to a plethora of excellent Toronto ‘hoods, and soon enough will be an excellent ‘hood in itself!

So far the value of real estate in Liberty Village has not been hurt at all by the massive influx of condos (and people, and cars etc), but that is not to say that as thousands more move into this area the ensuing gridlock will not start to affect real estate values in the future.

Questions or comments? Please contact me.

One Came by Fax

The spring market doesn’t officially start until, well, spring. But anyone who is shopping for a condo (or a house) in Toronto knows that the market is H-O-T right now, and multiple offers are not the exception, but the norm. Over the years of working with buyers and sellers in multiple offer situations, you learn a few tricks. If you are a buyer in a multiple offer situation, there are four sweet words you should love to hear:

“One came by fax”

Sending an offer by fax in a multiple offer situation is the real estate equivalent of ‘mailing it in’. The agent is essentially saying, my clients’ offer is not strong enough to stand a chance of actually being the winning offer, so I’m not going to waste my time by actually showing up for the offer presentation.

At the precise time of bidding, make sure you find out a) how many offers there are on the property and, b) how many are being presented in person vs. by fax/email. If you hear some or all of your competing buyers are submitting their offers by fax, consider your own offer carefully before submitting! You don’t want to be the offer that makes the seller’s say “One offer came in and blew us all away!” (Side note: Sellers-NEVER say this in front of a buyer or buyer’s agent). For example, if there are 3 offers, and you are the only one who shows up in person to present your offer, there is a good chance the other two offers are going to be weak ones, so consider your offer price accordingly. An in-person buyer is a much more motivated and serious buyer than one who is not present (as a general rule).

When I hear an offer was faxed in, I will automatically discount that offer when advising my buyer-clients on an appropriate ‘winning’ offer price. This is more relevant when in an offer situation with 2-4 offers, but it becomes less relevant when there are 5+ offers.

Questions or comments? Please contact me.

Myth Busters: Maintenance Fees Edition

In this episode of Myth Busters, we’ll tackle the “Maintenance Fee Myth”.

When I meet with first time buyers, there are certain things that I hear almost every time when I ask them, “What are you looking for?” The most common responses are usually

1. Newer building in a great location
2. Lots of light / Big windows
3. Low price per square foot
4. Low maintenance fees

The add-on to the maintenance comment is very often, “I wouldn’t mind living in a building with less amenities because that will mean lower maintenance fees”. When I hear this, little orange flags start going off in my mind as it’s time to bust up another condo myth.

There is a pervasive belief that if you buy at a building with little or no amenities, you will pay significantly less maintenance fees compared to a building that has a pool, sauna, gym, bowling alley, roof top terrace etc. This is simply not true. Maintenance fees at most condo buildings in Toronto, whether they are loaded with amenities or have none at all, tend to settle around 50-60 cents per square foot.

For example, let’s take a look at a couple of listings out on the market today*,

Category 1 – Full Amenities: Pool, gym, party room, 24 hour concierge

• 80 Western Battery Road (Vibe Condos in Liberty Village) – ~55 cents PSF (Hydro NOT included)
• 35 Mariner Terrace (Cityplace) – ~55 cents PSF (Heat and Hydro included)

Category 2 – Some Amenities: Gym, party room, 24 hour concierge

• 438 King (The Hudson) – ~63 cents PSF (Heat and Hydro included)
• 230 King Street (King’s Court) – ~60 cents PSF (Heat and Hydro included)

Category 3 - No Amenities: No gym, no party room, minimal or no concierge

• 25 Oxley (GLAS) – ~55 cents PSF (Heat and Hydro NOT included)
• 10 Morrison (Freed building, originally marketed as 455 Adelaide) – 48 cents PSF (Heat and Hydro NOT included)

The question then is why are maintenance fees NOT any lower in buildings with fewer amenities? The reasons can vary from building to building, but the best answer is simply economies of scale – that is, the buildings that have a lot of amenities tend to be the largest buildings and therefore have a huge number of suites to spread the cost over (400+ suites), whereas the buildings with no amenities tend to be smaller buildings with very few units (less than 200).

There are always exceptions, but in general, there are 2 things that probably influence maintenance fees the most

1. Size of the building (more suites = lower maintenance fees for a given level of amenities)
2. Age of the building (the older the building the higher the fees)

A third factor which I also refer to is how the building is managed, or more precisely, WHO is managing the building. This factor is far more subjective though and hard to directly correlate with the actual maintenance fee rate.

Questions or comments? Please contact me.

*calculations for all buildings mentioned here based on MLS listing data and for units with 1 parking spot

Are 8-Foot Ceilings a Deal Breaker?

Ceiling height is usually one of the last things a first time buyer thinks about, and one of the first things a repeat or move-up buyer thinks about. Why? Well, it’s something that makes a huge impact on the ‘feel’ of an apartment, but most people who have never owned a condo or loft take it for granted that their condo/loft will have high ceilings – not necessarily. When it comes to pre-construction or resale, are 8′ ceilings a deal breaker?

I posed this question on Twitter yesterday and got a couple responses from the Toronto real estate community. @symmetrydevelop said low ceilings are a deal breaker because volume of space is vitally important. @buzzbuzzhome made the point that low ceilings can work in a space that is wide and has floor to ceiling windows. I’d have to agree with both comments. Volume of space, not just floor square footage, makes a very big difference in how a suite feels, but at the same time, so does layout and window placement/height.

The reality is that I would wager to say that the vast majority of downtown buildings have 8′ ceilings today. This is mostly because most of the existing stock was built 10+ years ago. It wasn’t until the past 5 years or so that 9′ ceilings and ‘soft loft’ living has really taken off and now buyers basically EXPECT 9′ ceilings (whether they realize it or not). That being said, the buildings that are the best selling buildings today and have the highest appreciation rates tend to be the ones built in the last 5 years and they tend to have 9′ ceilings (or higher). Some A1 buildings that actually do have units with 8′ ceilings include King’s Court (230 King st E), One City Hall (111 Elizabeth), and The Mosaic (736 Spadina).

I suspect that as the condo market continues to evolve and buyers continue to demand more and more for their money, 9′ ceilings will become standard and 10′ ceilings will be the next obvious step (although it may take some time). Buildings like Theatre Park are already lauding that many suites have 10′ ceilings, and many ‘penthouse’ level units in pre-construction are 10′ ceilings.

Quick tip for buyers, don’t assume because a building has some units with 9′ ceilings that all units have 9′ ceilings. Many buildings have lower ceiling heights on the lower levels and as you rise up the building the heights go up too.

Questions or comments? Please contact me.

Top-10 Tips for Doing Your PDI

Congratulations-your condo is ready for occupancy! Now it’s time to do your PDI (pre-delivery inspection). You’ve probably been waiting as long as 4 years for this, and now it’s finally time to take possession of your new home or investment property. Your PDI is your opportunity to see the condo for the very first time and walk through the property with the builder’s representative. The main purpose of the inspection is for you as the purchaser to make a list of all the deficiencies (damaged, incomplete, or missing items, as well as anything not functioning properly) present in the property. Here are some tips to get the most out of your PDI:

1. Don’t rush it. Take your time and go through your unit carefully. It’s likely one of the largest investments you will ever make, so get to the appointment early and be in a good frame of mind to inspect your unit.
2. Be nice. Make friends with the developer’s reps when doing the inspection because you are going to need their help to make sure your requests get addressed after the fact.
3. Focus on the most important rooms. The kitchen is #1 and the bathrooms are #2. Spend most of your time here.
4. Focus on the details. Open every cabinet. Pull every handle. Close every door. Turn on every faucet. Flush every toilet. Anything that moves is most likely to be installed incorrectly or broken.
5. Consider bringing someone with you. It can be helpful to have another set of eyes
6. Don’t hire a home inspector. Home inspectors are not trained to inspect brand new condos, they are trained to find problems in old homes. Save your money.
7. Read through your APS before your PDI. Your agreement of purchase and sale contains a detailed list of all the finishes and features of your suite. Compare what you see with what was promised you and make sure you are getting what you paid for.
8. If you miss something, you have the 30-day form. After you take possession, if you find a ‘deficiency’, you can go through TARION.
9. You don’t want to go through TARION for anything. Just google a few terms like ‘trouble’ or ‘failure’ + ‘Tarion’ and you will see what I mean. Spend your time and energy to get things done through the developer.
10. Pick your battles. If you do have issues with your condo after you take possession (and you most likely will), pick your battles carefully and focus on the most important issues, knowing that you are never going to get a 100% perfect unit.