TrueCondos.com – The Best Source for Toronto Condos

It’s Good to be a Landlord Right Now

[Renters are lining up to pay $2700/month for a view like this.]

Landlords and would-be landlords take note: the sky is not falling and it is not a bad time to be a landlord in this city. I’ve been watching the rental market more closely than ever these past few months and I’ve noticed some very surprising trends. Rents are going up, and going up much faster than anyone in the mainstream media (those who are trumpeting an impending market crash) would like to admit.

Here are two recent case studies that illustrate the current rental market environment:

1. Some clients of mine who are currently living and working in the U.K. but want to move back to Toronto in a year bought a 2 bedroom semi in Cabbagetown for around $600K. Their plan is to keep their foot in the Toronto real estate market and when they move back, renovate and move into the property. When they took possession of the property, they inherited the tenants who were paying $1900/month. The tenants are set to move out next month. They advertised the property for rent and after the first two showings they had two offers to rent from highly qualified and professional tenants. They ended up taking slightly less than they could have in order to get the tenants they wanted. The property will be rented at $2450/month with the tenant paying the gas and hydro bills. That’s an increase of 28% in rent from the previous tenant! The owners are enjoying break even cash flow with just 20% down.
2. New condo buildings are especially interesting. They are commanding rents never imagined just a year ago. For example, at M5V (375 King), you can get a great example of how rents have been creeping up significantly over just the last few months! If you take the example of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December! An astonishing increase of 8% in less than 3 months. $2700/month works out to $3.16 per square foot. The $3PSF barrier was until recently usually reserved for Yorkville properties and a few other select buildings downtown only. A studio just rented out at M5V for $1500/month and it was only on the market for 2 days! Prime downtown studios were fetching a max of about $1300/month just a year ago.

The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?

If you are ready to take the plunge and become a landlord, or if you are a landlord but would like to learn about how you can maximize your returns in the current market, please contact me.

Toronto Condo Bubble About to Burst?

There seems to be a growing segment of the population and the media that feel that the condo market is about to see declining prices. I am getting more and more comments like, “I heard that prices are going to come down this year, so I’m going to wait until that happens then buy”. Based on this, I thought it was time for an update on the ever popular question of “How is the condo market doing?”.

I would like to specifically break down this quote from Benjamin Tal, Deputy Chief Economist for CIBC and resident MSM go-to guy for quotes on the real estate market in Canada. Tal is quoted as saying, “Prices are already softening, housing starts aren’t in the sky, MLS [multiple listing service] activity is starting to soften, so it suggests the market is already starting to level off”.

1. Prices are already softening. Really? Where exactly is this occurring? All I see are prices going up in the resale and pre-construction segments. There are far more buyers than sellers and average DOM (days on market) is still less than 30. Definite sellers market territory.
2. Housing starts aren’t in the sky. I’ve never understood why anyone bothers to look at housing starts as an indicator, other than on a year over year macro level. Housing starts go up and down with great volatility every month. Two new condo developments start selling today, one might break ground in 9 months, another in 19 months. One might take 18 months to build, another might be 26 months. Starting and selling and completing are three very different things. If someone can enlighten me on this metric I’d be much obliged.
3. MLS activity is starting to soften. I’m looking for a resale buyer who thinks this is true. Please contact me immediately if you feel that you have more than enough choices of quality, well priced listings fitting your search criteria! All I see when I’m on the ground every day with buyers is a shortage of listings and anything that hits the market with any sort of quality will sell over asking in multiple offers.

I would love to take Tal along with me as I search for properties (both condos and freeholds, pre-construction and resale, investors and end-users) for my buyer clients. I’m quite sure that after a day or two his opinion on the Toronto real estate market would change dramatically.

Please don’t get me wrong though-a slow down in our market would probably be a good thing after the run we’ve been on since March 2008. It would breathe some much needed life into the entire industry, however, I just don’t see it happening any time soon unless there is some dramatic shift in the market. I still stand by my comments I made in July 2011 on the market. Unless there is a rapid change in interest rates and/or a major economic catastrophe, the Toronto real estate market and the condo market in particular will continue on its current path which is presently appreciating at about 8% per year.

Those are my thoughts. What about you? Contact me or leave a comment.

Top-5 Disadvantages of Living in a Brand New Condo

When I have my first conversation with a new buyer-client, I often hear them say, “I want something brand new, never lived in!”. While I can definitely resonate with the appeal of moving into a brand new space, there are some notable drawbacks with living in a brand new condo. Here are my top-5 Disadvantages of Living in a Brand New Condo:

1. Property Management Issues. New buildings have plenty of ‘kinks’ that need to be worked out. Property management can be stretched pretty thin and your individual needs may not be a priority if there are significant building issues going on. Also, the property management company in a brand new condo is one hired by the developer. Many condo boards feel the need to fire their property management group and hire their own independent third party to manage the building.
2. Incomplete common areas. This is big one especilaly if you are on a lower floor and you are facing a long occupancy period. The common areas and the amenities are the last thing the developer will complete. Worst case scenario: it could be months or even a year before you can use your gym, party room etc.
3. Tarion warranty visits. You do your PDI (pre-delivery-inspection) and you find all your unit’s deficiencies, then you move in a couple days later. Chances are there is a long list of items that will need to be remedied. These will be done piece-meal over several weeks or possibly months. You will have painters and plumbers and handymen of all kinds entering your unit on a regular basis until this work is done.
4. Maintenance fees have nowhere to go but up. The initial maintenance fees are set by teh developer, and almost universally they are set far too low. After the first year of a new building it’s quite common for fees to go up 10-15%, but it can be much higher. Moving into a brand new building means uncertainty of what the maintenance fees will be in the near future. Established buildings are generally more predictable when it comes to maintenance fee increases.
5. Hidden expenses. Buying a brand new condo means you will have to buy some things that most resale buyers take for granted. Things like window coverings and light fixtures are not included when buying from a builder, but they are essentially ‘must haves’ in any apartment. Depending on your preferences these can cost a few hundred dollars to tens of thousands of dollars; money that you will not necessarily get back when you resell your unit.

Questions or comments about living in a new condo? Debating between going with a resale unit or buying new? Please contact me.

Warning Signs in the Ultra-Luxury Market

There are some signs of cracks forming in the foundation of the ultra-luxury condo market in Toronto.

Two months ago I wrote a blog post about the Absorption Rates at some downtown condos, and how units at brand new, high-end buildings are not selling. At that time, there was a 30 month supply of inventory on the MLS for the Ritz Carlton. Today, the situation at the Ritz is actually slightly worse. There have been 2 sales in the last 60 days and there are 33 units available for sale meaning there is 33-months’ worth of inventory.

This statistic alone would not be comforting for anyone watching the luxury condo market closely, however, it gets worse. There have been 5 sales at the Ritz Carlton registered on the MLS since the building registered in the summer. The first 3 sales were in the summer and they averaged around $914 per square foot. Then a unit sold in September for $865PSF. Now just last week a unit sold for…wait for it…$728PSF! An incredible number when you consider the developer was marketing units there at $1200+PSF just 1 year ago. Also incredible when you consider ordinary buildings that do not have a 5-star International Hotel chain in them are selling for close to the same price per square foot.

Why is this happening? A few theories I have heard:

1. Toronto is fundamentally not a high-rise city, at least not yet. Those with $5M+ in assets still prefer good old Rosedale or Forest Hill over downtown. Eventually this may change, but right now it looks like it has not.
2. There is just not enough money in Toronto. All these suites at the Big-4 (Ritz, Trump, Shangri-La, Four Seasons) were sold to speculators thinking they could flip them to local buyers after completion, but there just aren’t enough buyers to go around for all 4 of these projects finishing around the same time (2o11-2012).
3. Toronto is not New York or Hong Kong. Brands like Ritz, Trump, Shangri-La have no cachet here (what about the made-in-Canada Four Seasons brand?). Hat tip to @BrianPersaud for this point.

Implications:

1. If you bought a condo at $1000+ per square foot and it is not located in Yorkville, you should be worried. If you bought a condo at $1500+ per square foot I honestly think you are in serious trouble.
2. It’s still better to buy 3 condos at $300K each for investment than it is to buy 1 at $1M.
3. If you are trying to sell a unit in one of the Big-4 this year or next year, be patient! You may be better off renting out your property for a few years until the dust settles and all 4 of the Big-4 are completed and registered. This will also allow time for the buildings to distinguish themselves from the average Toronto condo in the minds of condo buyers.
4. If you are a buyer looking in the luxury market, especially an international buyer, you this is a great time. You can pick up one of the nicest properties in Toronto for only slightly more per square foot than the average middle of the road stuff! Time to go shopping! (contact me

Questions or comments? What do you think is going on in the luxury market in Toronto? Please contact me or leave your thoughts in the comments section below.

Cap Rates and Condos

I had a condo buyer email me recently and tell me they were looking to buy a resale condo with a 6-7% cap rate. This would be a somewhat rare but achievable cap rate if you were buying a multi-unit freehold property in the core of Toronto, however, for a condo, this kind of cap rate is unheard of. Cap rates for condos downtown would be something more like 3%.

Cap rate, or capitalization rate, is basically a measure of return on an investment property you would get if you bought the property with all cash (no debt/no mortgage). It is calculated by dividing the annual income a property generates AFTER expenses by the purchase price of the property. So if a property that costs $300,000 generates $2000/month after expenses, then the cap rate would be 8%.

What are cap rates like for Toronto condos? Take for example the listing that I have at 16 Yonge Street right now. The numbers break down like this

• Asking Price $329,900
• Current tenant pays $1575/month
• Expenses: Maintenance fee $327/month, taxes approximately $167/month, insurance approximately $20/month = $514/month

So if you do the math it works out to ($1575 – $514)*12 / $329,900 = 3.8% cap rate. This is actually a very good cap rate as the rent:price ratio for this unit is quite high compared to most downtown condos, and the maintenance fees and taxes are relatively low. To acheive a cap rate of 6%, the rent would have to be increased to about $2200/month if the expenses stayed the same. Finding a condo that you can buy for $329,900 that will rent out for $2200/month is basically impossible in Toronto.

So why are cap rates typically much lower for condos than for multi-unit properties (i.e. duplexes and triplexes in the core of Toronto)? One simple reason is that with condos, there is almost zero maintenance a landlord has to do. You can very realistically own a rental condo for 5-7 years and spend literally nothing on maintenance and repairs. Try doing that with a freehold property! Low cap rates is one trade off for the relative convenience and simplicity of condo ownership.

But the fundamental reason behind the low cap rates is that condo investment in Toronto is driven by an expectation that prices will increase (appreciation) versus a desire for cash-flow (income). Prices have kept appreciating over the last 15 years in Toronto and thus cap rates have pretty much always been quite low for condos. If prices start to decrease, or rents go up faster than prices, cap rates will start to rise.

Questions or comments about investing in resale condos? Please contact me.

Time to Give Resale Another Look?

With the pre-construction condo market setting all kinds of sales records this year, and prices for quality product averaging well over $650 per square foot and higher downtown, I’m encouraging my investor clients to once again consider looking at resale properties.

Top-notch resale properties in excellent locations can be had for $600 per square foot or less. Interest rates are still at historical lows and all current signs point to them staying there probably for years to come.

For example, I just listed a 1 bedroom unit at 16 Yonge street with parking and locker on the 24th floor for $329,900. This unit already has a tenant in there and is ready to go for an investor! At this price, and given the rent you can collect on it, this property will actually be cash-flow positive with only 20% down! Try finding something like that in pre-construction these days!

If you are an investor and you’d like to learn more about the resale market, please contact me.

Festival Tower Update: Units Starting to Move

My last blog post I wrote about the Absorption Rates of various downtown condos got a lot of attention and even inspired my friend John Pasalis from MoveSmartly.com to write a great post about the condo market. The issue I wrote about was the fact that some condos, like Festival Tower for example, are loaded with listings for sale but units are not actually selling. It’s been nearly 2 months since then and I thought it was time for an update.

The good news is that after nearly 3 months of no sales, there have been a couple sales at Festival Tower in the last week. A 1 bedroom + den with no parking sold for $435K (approximately $693 per square foot), but the sale that really got my attention was a studio that just went for $365K. To my knowledge, this represents the highest selling price for a studio apartment in the city over the past year, and possibly EVER (for resales, not pre-construction). At this price the buyer paid approximately $750 per square foot. Very impressive and shows that studio apartments can sometimes be fantastic investments as these units were originally selling in the mid $500s per square foot.

In addition, there are currently 3 units that are all sold conditionally (meaning they will likely be sold firm soon). All 3 are in the $414K-$452K range and all are 1 bed/1 bath units. Once these sales start to go through, values will pretty much be set in the building and the dominoes should start to fall. I will continue to watch with intrigue to see where values go in this building over the 6 months.

The big question is still this: will Festival Tower command a premium over other newly completed (or about to be completed) buildings in the area? The few sales we have seen so far seem to indicate that there will be a premium, but how much will that premium be exactly is still unknown.

Questions or comments? Please contact me any time.

Zoocasa Launches Zoopraisals: The End of Realtors is Nigh?

Rogers-owned real estate  portal Zoocasa launched a new service this week called “Zoopraisals“. CTV News quoted me in a story they posted on their website which you can read here if you like. They offer anyone a free home appraisal instantly over the internet without any strings attached. This brings Zoocasa one step closer to becoming Canada’s version of Zillow.com which is an extremely powerful real estate search engine in the U.S. and they have been providing property owners “Zestimates” for several years now.

The big question always is, do services and innovations like this mean the end of Realtors as we know it? Will technology and the internet ultimately replace the traditional real estate agent model of buying and selling real estate? Will commissions soon be a thing of the past?

My answer to all these questions is obviously ‘no’. While I give kudos to Zoocasa for creating great tools for the consumer, these tools only serve to highlight the fact that any service professional who can’t prove themselves more useful than a computer model or add any more value to a transaction than an online classified ad will soon be out of business. However, those professionals who are experts in their market niches and understand the many complex variables to go into every single real estate transaction will continue to thrive for many many years. I think you know which group I plan on being a part of!

This is also a great time to plug my own condo evaluation service, which like Zoocasa’s is also free, however unlike Zoocasa it actually contains more than just a single number on a screen as it takes into account my extensive knowledge and experience working in the downtown condo market! If you’d like to know what your condo is worth, please contact me.

Maple Leaf Square: Highest Proportion of Out to Lunch Sellers in Toronto?

Some buildings downtown you will almost never see a listing in them. Why? Because units come on the market and sell so quickly that at any given time there is nothing available. On the other hand, there are some buildings where ‘insane seller syndrome’ runs rampant. These are the buildings where there are always dozens of units available, and many of these listings sit on the market for months and months at a time with no buyers. The key reason: they are over priced.

One building in particular always seems to have an abundance of ‘out to lunch’ sellers trying to pawn their listings off on an unsuspecting buyer at outrageously inflated prices. That building is Maple Leaf Square (55 and 65 Bremner).

Exhibit A: a small 2 bedroom unit is on the market at $469K with no parking, or $499K if parking is included. The listing has been on the market for almost 3 months. Several of the same floor plan have sold in the past year. Average selling price including parking was $465K (6 sold units). This seller is approximately $35K over market value or 7.5% over market value.

Exhibit B: a small 1+Den with no parking is on the market at $429K. The listing has been on the market for a total of about 300 days at various different price points. Average selling price of the exact same unit over the last year is $353K (4 sold units). This seller is approximately $76K or 21% over market value. One listing of the same floor plan was priced as high as $455K this year!

These are just a couple of examples. Having been working with a buyer-client who is trying to get a unit in this building it’s very frustrating and a serious time waster for all trying to negotiate with someone who is completely out of touch with reality. In the summer I submitted an offer for this buyer-client on a unit that was listed at $399K. The offer was for $355K. The seller acted like he was insulted and his agent was just as incredulous. Several months later and 100+ days on the market that unit never sold. Meanwhile 2 other units of the same floor plan and very similar floor level sold for $349K and $357K respectively.

What is it about Maple Leaf Square that seems to foster this insanity among sellers? I don’t know but I suspect there are a lot of investors who paid all cash for their units who really don’t care if they sell them at all, however, if someone wants to offer them an outrageous price above what all other units are selling for they will gladly take it!

Questions or comments? Please contact me.

Absorption Rates

I wanted to dig a little deeper for today’s blog post and take a look at absorption rates in various condos. Looking at Festival Tower got me thinking about this subject. Festival Tower has a plethora of units available for sale, but hardly anything is actually selling. The building is stunning. The amenities are amazing, and the film festival that just finished put this tower in the international spotlight for a full 2 weeks. The building has been fully registered and finished for a few months now. I am at a loss as to why units are not moving here. There was so much hype about this building for the last 5 years, and now that it is finally finished, no one is buying?

Let’s compare Festival Tower with other buildings downtown. I took a random sample of various buildings, all completed in the last 12 months. I tried to pick a few buildings to somewhat represent the whole spectrum of the downtown market from the lowest end to the highest end. Take a look at what I found:

Only 3 units have sold in the last 60 days at Festival Tower, and there are currently 42 units available for sale. At this rate, it would take 28 months to sell all available units! Similar story at The Ritz Carlton, where only 2 units have sold in the last 60 days and there are 30 units on the market (actually more since the developer has a few unsold that are not on MLS).

Compare this to a building like Parade in Cityplace, a known area for heavily investor-owned buildings. While there are a lot of units on the market in the building (36 currently), they are moving fast (18 sold in last 60 days)!

Obviously price point has a lot to do with this. There are far more buyers looking for condos in the $300K range than the $800K range. However, I am really starting to rethink the high-end of the market and wondering if there really is a market in this town for condos in the $800 per square foot and above price point.

You could possibly point to a building like Crystal Blu where the absorption rate is quite good and say there is a market but only in one area: Yorkville. One theory I have is people with money to burn on a condo will live in Yorkville, but anywhere else it’s not worth the premium to get a high-end unit.

The point of this blog post is really not to say I have an answer to this question about where are all the high-end buyers, but rather I would like to start a conversation with my readers and clients on the matter. So let me know your thoughts. Contact me or leave a comment.