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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.

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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.

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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.

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Newer is Better, Right?

With several dozen new condos expected to launch over the next 60-90 days in Toronto, the question for investors is quickly becoming: Which one(s) do I invest in? If you believe the prevailing message of the condo marketing machine, newer is always better. That is, getting into a condo at the earliest stage is always better than buying at a condo whose launch period has passed. I have to disagree.

The condo industry is driven by hype, and when something is shiny and new, and relatively unknown, hype is never in short supply. And of course, once something is a known commodity and the ‘newness’ of it starts to fade. Developers know this and many have taken to the practice of multiple launches in the form of VIP launches, preview openings, grand openings, etc. However, just because a project is no longer the latest and greatest, doesn’t mean investors should write it off as an investment opportunity.

This week this point was illustrated perfectly when I observed a new condo being launched to much fanfare and excitement while another existing project quietly released some new units. In my analysis, the new project is not worth investing in while the old one provided an excellent buying opportunity.   In fact, two of the best buying opportunities in my opinion so far in 2011 for downtown condos have been from “old” projects who have offered a “new” promotion. One was at 12 Degrees, and the other was just this past week at DNA3 when they released 2 additional floors of suites.

So what is the best condo to invest in? The answer is the one that offers the best value compared to everything else on the market. I measure value by comparing the location, price, and features of one project vs. the next. Sometimes the newest condos offer the best value, because prices are often lowest at initial launch, but often times these new launches only serve to further highlight that existing projects offer better prospects for return on investment.

Questions or comments? Ready to buy a condo this fall? Contact me.

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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.

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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.

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How to make $100K in 3 Months

There are dozens and dozens of units available for sale at Festival Tower. Most have been sitting on MLS for months as assignments (tricky to sell at the best of times), but now that the building is registering in a matter of days I expect these units will start moving quickly. I noticed something quite interesting looking through the sales data for a client – one of the bigger 2 bedroom units on a high floor sold in March as an assignment for $945K. Another one of the same floor plan also sold around the same time for about $1.03M, and just this week another one of this floor plan came up as sold for $1.05M (interestingly as I am writing this blog post I noticed the sales price has been removed and it now says ‘sold conditionally’).

So what happened? Seems to me the person who bought for $945K in March is up at least $100K in just 3 months time. Also it occurs to me that selling by assignment is a crap shoot at best – buyers and sellers alike are dealing with very limited an imperfect information and ‘fair market value’ is a very hard thing to determine.

This blog post is really designed as an illustration to show why I preach to my investor clients that the best time to sell your pre-construction purchased condo is 6-12 months after registration.

Reasons:

1. 1 year is the length of a typical lease. Assuming a 3-6 month occupancy period for most condos, selling 6-12 months after building registration will align perfectly with the end of that lease.
2. 6-12 months gives time for the dust to settle in the building (literally), and for the common areas to be completed. Common areas do add value to your property, make no mistake!
3. Allows time for the resale values of a building to get established. Much of this is driven by supply and demand principles – many investors selling at first, and few buyers aware of the building because it’s brand new.
4. To qualify for the HST/GST rebate as an investor, most lawyers will tell you you need a 12 month lease signed.

We see this pattern time and time again with new buildings when they first are finished – those who sell first tend to undersell. Those who are patient and wait reap the rewards.

Questions or comments? Thinking about selling your investment condo this year? Contact me.

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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.

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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.

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Top-5 Things to Know about Buyer’s Remorse

So you bought your significant other a sweater the week before Christmas to give as a gift on December 25th. Then while you were out at the same store this week you noticed that same sweater is now 50% less than what you paid for it! This is a perfect time of year to talk about buyer’s remorse!

Here are the top-5 things every buyer, seller, or investor should know about buyer’s remorse:

1. Everyone gets it. It does not matter if you are buying your first property for $200K, or your 10th property for $2M, everyone experiences buyer’s remorse when purchasing real estate. It’s a perfectly normal emotional state to be in, so if you are feeling it, relax! You’re normal.
2. It comes in waves. Buyer’s remorse usually isn’t just a one-time feeling the morning after you signed an agreement of purchase and sale. It comes in waves and hits you at different times and with different negative thoughts.
3. It goes away. Yes, it goes away in almost 100% of all cases! When buying for yourself, the simple act of moving into a property and making it your home is the most effective antidote to buyer’s remorse. When buying for investment, as time passes by and the property appreciates or the cash flow starts to come in, soon you will be looking for your next investment property to purchase.
4. Seller’s get it too! Yes, you are not alone in this weird mental state known as buyer’s remorse. You are thinking you bought the wrong property, or you are worried you overpaid for it, while the seller is worried they sold it to the wrong person or they didn’t get enough for it. Seller’s are not immune to this feeling, and the sheer amount of money involved in most real estate deals makes everyone involved lose a little sleep from time to time.
5. It’s almost always irrational and emotionally based. Buyer’s remorse is an instinctual process our minds take us through as a means of self-preservation when we make large (or sometimes very small) purchases. But almost always the thoughts our minds have are irrational and we try to illicit an internal emotional response to solidify the purchase as ‘good’.

The best advice I have for my buyer clients who are going through the ups and downs of buyer’s remorse is to trust their initial gut feeling. In my experience, your initial gut feel for a property (once you have been educated on the market in general and are ready to make a decision) is the most accurate measure of how you really feel about a property. As much as we try to rationalize the buying and selling of real estate, it will always be an emotional process to some extent! Questions or comments? Contact me or leave a comment below.

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