Should You Only Invest in a New Condo at the Initial Launch?

Andrew la Fleur: Should you only invest into a new condo if you buy at the initial launch? Find out on today’s episode.

Speaker 2: Welcome to the True Condos Podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Hi, welcome back to the show. Thanks for listening, thanks for your support, I love doing these podcasts and I love hearing all the positive feedback that I’m getting each and every week with every episode that I put out. Thank you, couldn’t do it without you, the listener, and the many, many people around Canada, around the world who are listening to the show every week. Again, want to go back to answering your questions on the show and one of the big questions that people ask and that comes up a lot is should you only buy into a new condo at the initial launch stage? Does it make sense or does it not make sense to buy because the project is past the initial launch stage. It’s a comment that I often hear, I will be talking to someone about a particular opportunity and someone might say, “Well, hold on, wait a minute Andrew, isn’t that project old? Hasn’t that project launched a long time ago? Isn’t it past the launch, the VIP, the platinum release stage?” My answers sometimes will surprise you or them if they’re asking.

I’m going to get into my answer here on this episode and the reasons why. Let’s jump right in and we’re going to talk about something also called SVPs, SVPs, and I’ll explain what that is in a moment. The background here, the background on this question is that in case you aren’t aware when a new condo launches how does it go? It’s like a condo IPO initial public offerings or like when a stock is launched on the stock market for the first time and people are clamoring to get in and they’re trying to get in at that first price before what often happens is the prices go up if you miss that first offering. Think about Facebook, Google, and many other IPOs, high profile IPOs that have happened over the years.

It’s somewhat of a similar concept with a condo where usually it goes something like this, the first launch will released to friends and family of the builder. That’s usually a very small group that buys just a handful of units in the building, but they usually get some sort of preferential pricing. The next group that usually opens up to are the platinum real estate agents, and that would be me. We are a small group, there’s maybe a couple hundred of us or so in the entire GTA that are legitimate platinum agents that get first access to the new buildings when they come out. In any given building there might be 20, 30 true platinum agents who get that first access to the project with the best possible pricing. Usually the same pricing level as friends and family. There might be minor differences, but it’s usually the same sort of level. Then from there it usually goes to a wider group of agents known as the VIP agents, maybe a few hundred agents.

Then from there it might go to even more agents, or it might jump straight into some kind of a public, opening public release from there. Anyways you get the idea without going into too much detail that as it moves along each stage and opens up to more people, more and more units are being sold, prices tend to go up at each stage, incentives tend to go down. Therefore, the general idea that a lot of people think, and you’re not totally wrong if you’re thinking this way, that if you’re going to buy a new condo you want to buy at the earliest stage, ideally friends and family or the platinum stage. Otherwise it’s not worth it is the thinking, but I would disagree with that. Generally speaking, yes, it is a good idea to follow that principle, but it’s not always the case. There are certainly exceptions to that rule of thumb. If you only ever go by that rule and only ever buy at the platinum stages you’re probably going to do okay and it’s not to say that you shouldn’t do that, but if that’s the only thing you’re buying you’re potentially missing out.

The problem arises when you’re thinking along the lines of that just because a project is brand new and you’re getting in at an early stage then it must be a good investment. Conversely, just because a project is old or it’s not at the launch stage, then it must be a bad investment. If you’re thinking like that, and many people do, that’s where you run into a problem and you get tunnel vision on new projects and you might be missing out on some very good opportunities in the market. This is where I want to introduce something that I sometimes refer to as SVPs or secret value projects. Secret value projects, SVPs, what are they, why do they exist, and how do you find them? Let’s talk about that. What do I mean by secret value project? Secret value project, what I’m referring to are older projects that are past the launch stage that have been selling maybe for six months, a year, maybe even two years, and they might be …

Construction might’ve already started, you’re well past the initial offering, initial platinum release stage of the project, but these are projects that still are offering tremendous value and they’re still a great investment. You should definitely look at purchasing a unit in these projects. Why do these projects exist? This projects exist and these opportunities exist because of a few different things. How’d these opportunities come up? Why would an older project be a better value proposition than a brand new one in some cases? Again, this is all case by case, this is not across the board, but these are opportunities to look for. Why they exist, the number one thing really is just the natural sales cycle of any new condo and the nature of selling real estate in high rise condominiums in particular, it goes through cycles. Basically when a new project comes out there’s all kinds of marketing dollars and money spent into promoting that project and getting the buzz of the real estate community and of the city and that usually generates a lot of sales at the very beginning.

Once the hype fades away and the next new shiny thing has come up attention is moved on. When you’ve lost attention in the real estate game, it’s very, very difficult to get that attention back. For that reason many builders favor the approach of trying to essentially sell out their whole building or come very close to selling out their whole building as quickly as possible at the very, very beginning stages of their launch. That’s what we see time and time again, so there might be something that is a great value and a great opportunity but for whatever reason they don’t sell out. The attention of the market and the attention of the industry has moved on to other projects. Nothing has changed, they’re still a great value, there’s still a great opportunity, it’s just nobody’s talking about them. Again don’t judge a book by its cover. You got to look at the facts, do your analysis on the project and see if it still is a good value even though it’s not at the very beginning launch stage there.

The other thing is just that in terms of why these projects exist it’s just the nature of the beast and of condo sales. That is whenever a new condo launches, if a new condo launches in a given area they’re always going to look at what their neighbor launched at a month ago, six months ago, a year ago, whatever that guy did before me, beside me. Whether it’s because the market has actually moved or whether it’s just because of ego or whether it’s just psychological, they’re going to say, “I need to sell higher than he sold for” regardless of other factors. They’re going to say, “That’s an older project there, I’m brand new” new will always command a premium over old when it comes to condos. That’s another reason why … There could be no differences at all between the two projects, they could actually be finishing at the same time, but just because one launched after the other they’re going to command a higher price.

People will tend to pay it just because it is newer, that’s again an opportunity potentially to look at the other project, the older project beside the new project, which might actually be a better investment. Also we tend to in the current market right now which is a very fast moving market, prices are accelerating very quickly, these SVPs, these secret value projects, they tend to pop up a little bit more because the momentum of the market, the speed of the market, prices are moving so quickly in the market, especially in the resale market. Which is as I like to refer to as the real real estate market, which is the resale market because these are real people transacting real properties in real time versus the pre construction which are we’re buying contracts which is different. In a fast moving market where resale prices are rising rapidly, individual sellers and buyers can react very quickly to changes in the market. Large builders selling an entire building, hundreds of units, they tend to not react as quickly to changes in the market.

In other words when prices are rising say $10,000 a month, you’re not seeing a builder changing their price everyday by $300 or changing it every week by $2500. Builders tend to be a little bit slower to react. It’s sort of like a large ship in the ocean, it’s hard to change the course of a large ship with a small rudder, that kind of idea where builders are not evaluating their prices on a daily basis in most cases. You can often in a fast moving market like we have right now swoop in as a buyer and grab up some of these units where basically the builder just has neglected to raise price in line with where the market is just because they haven’t done anything on pricing in say a month or two, or three or four month period of time. When maybe the market has moved up 15 or $20,000, but they’re still at the prices from three or four months ago. That is another reason why right now I wanted to talk about this topic because the market is moving very quickly.

We talked about what these SVPs are, why they exist, let’s talk about how do you find them? How do you find these opportunities for great value in older projects that are not necessarily at the launch stage? Obviously the number one is you want to ask me because this is exactly what I do every day is I am out there in the market looking for opportunities to bring to my investor clients. Opportunities that make sense, opportunities that are great investments, opportunities that are maybe under the radar in many cases that are unadvertised. Looking for hidden value in the market where again it is becoming harder and harder to find that value as prices are rising rapidly across the board. Obviously that’s the number one thing, you want to make sure you are speaking to me or other people in the industry like me who are constantly on top of things. The best way to make sure you’re not missing anything out from my end of course, most of you already know who are listening, but some of you listening may not, and that is to make sure that you are receiving my weekly email updates.

How do you get my weekly email updates? Just go to TrueCondos.com and signup anywhere on the site on any form and you will be kept in the loop of what is happening in the market. That’s number one, but what am I looking for when I’m out looking for these SVPs in the market? A couple of factors that tend to be commonalities between these opportunities, one is they tend to be in larger projects. Projects with a large number of units to sell, they tend to raise prices slower. They tend to sell percentage wise their buildings slower so therefore they are less inclined to raise their prices until they’ve reached certain price thresholds percentage wise. The more units a project has, the slower the ship moves so to speak going back to the ship analogy. When I say larger projects I mean projects with generally five, 600 units or more. They tend to be the projects where you’re going to find more inventory and where there’s more inventory there’s generally more value.

The less and less inventory that’s available, the more likely the prices have risen at or beyond the current threshold where it makes sense for an investment. The other thing is larger builders, so larger, more established builders, builders who build many buildings a year, not just one building every few years. There’s so many of them out there, don’t really need to mention them by name, but the larger builders tend to also be more conservative in their approach. They tend to favor a slow and steady approach as opposed to the smaller builders who, due to financial necessities they need to sell those buildings out quickly in order to get their financing to work. The larger, more established builders, they can afford to take things slower and sit and they’re not sweating bullets if they haven’t sold 80% in a month. They’re happy to sell 80% over two year period in many cases. Those are the general tips of where to find them and where I often will find these hidden pockets of value in the market. I just wanted to give one real example from lately and that certainly has been Minto West Side.

Minto West Side launched, the first tower launched actually over two years ago now. Over two years many, many projects in the marketplace have come and gone in the downtown market over the last two years since there, but my investor clients have been taking advantage of the great value there at Minto West Side right up until this week pretty much. Anybody who bought at Minto West Side three, four, five, six months ago, which was long after the initial launch has seen their units appreciate as much as $80,000 just over that time period. They’ve done very, very well there. The value there compared to anything else downtown as I’ve been saying, many, many times on this podcast, in my emails, and everywhere else has been very, very good. Many investors have taken advantage and done very well.

The skeptics of course, the skeptics who looked at that project four, five, six months ago when I said, “You should buy here” they look at it and they say “No, it’s not a new project, Andrew. That doesn’t make sense. Why would buy in this old, stale project that’s been sitting around? Give me something new, give me something new.” Which again is not necessarily a bad thing, but again just to prove the point, they’ve looked back in shock at the price increases and the appreciation that has taken place there at an old project. Even people who bought in Minto West Side as recently as two weeks ago have seen tremendous increases up to probably $50,000 on some units just in the past two weeks. People who were able to jump in on that last opportunity that I sent out to my email subscribers just a couple weeks ago. Yeah, so that’s just one example from the past six months.

If you’re looking at what is an example right now, probably the best example right now in my opinion of a SVP secret value project would be probably Daniels Waterfront. If you look at Daniels Waterfront again similar characteristics. We’re talking about big builders, established builders with big projects, a lot of units. Daniels Waterfront has some units called The Alumni Collection which in my opinion again are just fantastic value. They launched a few months ago and other projects have launched since then in the market, but they still have a handful of these units still available. They are junior one bedrooms priced around the $300,000 mark. AAA building, AAA location, AAA builder, excellent, excellent quality product and location. Basically now if you look around the market the market’s moved again, the market has moved a lot over the past few months, prices have risen a lot.

If you look around anywhere downtown where can you find anything in pre construction that is the $300,000 mark? Pretty much nonexistent. There’s pretty much nothing anywhere downtown for $300,000, except Daniels Waterfront Alumni Collection which does have, like I said, a handful of units left. What can I say? Get them while they’re hot, they’re going to go quickly. That’s another great example there of excellent value and excellent offering, something right now. There you have it, that I think pretty much wraps up everything that I wanted to say on this topic. Hopefully that was helpful to you. As always appreciate your feedback if you want to leave a review for the show on iTunes that would be great. Even if you just hit some stars or if you want to leave a comment on what you like, or heck what you don’t like about the show. I appreciate all the feedback from you that I can get. It really helps to get the word out about the show.

Again, if you want to know more about these types of opportunities, if you’ve been a listener to this show but you haven’t subscribed yet, please go ahead and subscribe right away. Just go on over to TrueCondos.com and again signup on anywhere on the site, any form, and you will be looped in to receiving the weekly email updates with opportunities like this which will help you make more money and live a better quality of life as you do so. Thanks for listening and until next time, we’ll talk to you soon.

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