Reactioncast: 3 Questions with Brad Lamb
On this first ever “Reactioncast” Andrew la Fleur reacts to Brad Lamb’s answers to 3 questions from a recent True Condos Free Live Event. What does Brad think about “the condo bubble”? Why should investors be buying in Hamilton today? What is Brad’s #1 piece of advice about condo investing?
Introduction: 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: Well, hey there. Welcome back to the show once again, True Condos podcast, with your host here, Andrew la Fleur. Thanks for listening in.
Andrew la Fleur: This is … I don’t know if I’ve done this before. I’m calling it a reaction cast. This is me reacting to some audio clips that you’re going to hear. In this case, the clips are from Brad Lamb. Brad Lamb’s been a guest on the show a few times. He’s obviously one of the top figures in the Toronto condominium market for many, many years. And just, generally, a very smart guy to listen to. If you’re interested in condo investing, you definitely want to follow Brad Lamb. Follow his advice. Follow his example, and learn to do what he has done, which is made a massive fortune through investing in, mostly in, Toronto condos but other cities, as well.
Andrew la Fleur: We recently had one of our free live events, and Brad Lamb was a speaker at this event. We posed to Brad three questions. We called it Three Questions with Brad, where we posed to him a question, and he answered those questions. In this reaction cast, you’re going to hear the question and the answer from Brad, and then you’re going to hear my reactions. I’m going react to it, to Brad’s answers, and I’ll throw in my take on what Brad is saying. That is the concept. That’s what we’re doing here, hope that all makes sense. Sit back. Kick back and relax. I hope you enjoy this episode.
Andrew la Fleur: We’ll jump right in. Before we got to the first point, there was actually, at the presentation, there was a bit of a preamble, an intro if you will, where somebody was asking Brad about some of the rules and regulations, the new stuff that’s coming in, around development and downtown core, and so Brad addressed that before we got into the first few points. I’ll let you listen to this preamble bit, and then we’ll jump back in, in just a moment. Here it is.
Brad Lamb: One of the things that has changed is you were talking about levys. So development levys, right now, well previous to now, a one bedroom was $20,000. Just the development levy alone. A two bedroom was a little more than that. They’re going up 70% as passed by council. Meaning that a one bedroom levy, the tax paid to the city is now $34,000 for a one bedroom and $40,000 for a two bedroom. That’s just the start of it. Anyway, correcting what someone told me you were talking about.
Speaker 3: Oh no, actually what my question was, what was passed in the city plan. And this is the city looking to push developers to build more, larger units in the building.
Brad Lamb: Yeah, that’s called TO Core. On top of that, they’re insisting developers build commercial in condominiums. So in a building like this, which is 80,000 square feet, it’s a tiny building. It’s an incredible building which you see in places like New York, Hong Kong, places where real estate is very scarce, this kind of building happens.
Brad Lamb: If I did this building, it’s all approved now, but if I did this building now, they would make me do 20% of it as office. The problem is that office I can sell for 700 a square foot and the residential we can get 1,100 or 1,200 a square foot. So that would mean we couldn’t build this building. What the city is doing is they’re shutting down… I could give you 20 reasons, 20 things that are happening on the federal provincial municipal level that’s shutting down development. But it’s over.
Brad Lamb: We have a bunch of stuff in the pipeline which we’ve been bringing out over years, but after this, we’re done. I’m moving to, I don’t know, Cayman Islands maybe.
Brad Lamb: I know it sounds like I’m joking, but I’m not joking. As a development company, we’re under siege with the city. For instance, I own a lot of real estate in this west precinct. I’ve been buying it for 10 years. Every time I did a building, or I made some money, or I sold some condos, I’d buy a building. And I’d try to accumulate them all together, because that becomes a development center.
Brad Lamb: So what the city did two years ago is they made every single building built before 1950 historic. This building would be historic. There’s nothing historic about this building. By making it historic, they enact draconian regulations to prevent us from building on it. They make the site so small, they make the regulations so onerous that we can’t build on it. That’s what’s happening.
Brad Lamb: Right now you probably see a lot of cranes and you think, yeah, there’s lots going on and there’s lots of new condos and the city is growing by an alarming clip. The truth is actually it’s shrinking. There were 130 cranes in Toronto a year ago. There are 70 cranes today. A year from now they’ll be 50, two years from now they’ll be 30, four years from now they’ll be zero, it’s over. The development of this city is now over. Unless, of course, we change government.
Andrew la Fleur: There you have the intro there from Brad. Again, he’s talking about all the red tape regulations, the layers that have been placed on development by the various levels of government; municipal, provincial, federal. Basically Brad is telling us that, in his words, it’s over. The downtown development is over. You might think that’s hyperbole. You might think he must be just joking. But as he said, he’s not joking. He’s being serious. He really believes that unless there’s a change in government, unless there’s a change in the track that we’re on as a city, that development is pretty much going to grind to a halt in the city. Especially when it comes to residential development, at least.
Andrew la Fleur: Very interesting. Basically don’t take for granted this development, this boom that we’re having right now. There’s a number of reasons why we’ve gotten to where we are and why we’ve experienced such incredible growth, especially in the downtown core. But as a region, as a megacity and a region as a whole, he’s saying the government has created all these layers and it’s slowing everything down. Unless there’s a change, this whole thing could potentially get shut down. Obviously time will tell how accurate these predictions are. We’ve just had a change in government at the provincial level. We have an election coming up at the municipal level and next year there’s an election at the federal level. All these government turnovers can certainly change things around dramatically. We’ll see how things play out there.
Andrew la Fleur: But, a very interesting and different take on it. You might again think that’s just crazy talk that he’s saying. But a lot of developers are saying very similar things to me lately, that it’s just become so onerous on them to try to purchase a site and turn that site into condos that it’s just gotten absolutely ridiculous. Development, as a result, is starting to slow down. Future development in the pipeline is starting to slow down significantly.
Andrew la Fleur: Let’s jump into the actual first point of the presentation. The first question. Here we go. Sorry, the first question is, to give you a context for it, why does the myth of a condo bubble, why is it so persistent, even though clearly we have a shortage of condos in the city. Why are there still so many people out there that believe that there’s a condo bubble and that we have too many condos. Listen to Brad’s reaction to that.
Brad Lamb: It’s not a myth, because ultimately I lived through ’89, ’90, ’91, which was a disaster. I lived through 2001, 2008, ’09, 2011. You probably don’t even know we had a condo recession in 2011, but we did. It was minor, but we felt it. You know, recessions happen. Some are more silent than others, but recessions happen. The key is that you can’t worry about stuff like this. I can’t predict it. I am very, very plugged in to the economy and to things, and I get information before you do. I don’t know when that’s going to happen. You can’t live your life looking over your shoulder.
Brad Lamb: The key is to buy real estate based on the fundamentals today, that make sense today. You rent it, put it away, and you have a long term plan. If someone comes along, and I’m building a building down the street here called Harlow, and when I sold that building, we were selling it at 540 a foot. People were resistive to 540 a foot. You’re out of your mind, it’s a beautiful building. It’s got my daughter’s name, it’s named after my daughter, a beautiful building. Resistive, and I think, did you sell it? No. Anyway, just hold that building. Anyway it was tough. Today, we’re selling those for 1,150 a foot. I think we started the building 2 1/2 years ago, we started selling it 4 1/2 years ago. People bought something for 250, they put 40 grand down. And that 40 grand, they’ve made 300,000 plus their 40. It’s insane. You can’t make that money with Bitcoin, gambling from day one. It’s crazy.
Brad Lamb: If someone comes along, after you’ve bought something like that, and someone comes along and says, “You paid 260, I’ll pay you 550,” sure, cash out. That’s good. That makes sense. But you can’t live your life as a real estate investor that way. It’s a long term thing. Who cares about bubbles, who cares about recessions, who cares about corrections? You buy, you finance, you rent, and you forget about it.
Brad Lamb: It doesn’t matter. Everyone’s panicking and selling their fucking Tesla stock and Google and so on. It doesn’t matter. You just buy real estate for the long term. Put it away. It doesn’t matter. Bubbles mean nothing to me and they shouldn’t mean anything to you.
Andrew la Fleur: There you have it, that was the first point about the condo bubble. Brad’s reaction, I thought, was very interesting. His answer to that was basically, you gotta forget about this bubble nonsense. You gotta ignore it. As a real estate investor, be much more strategic than that. You have to have a much bigger picture thinking than that. If you do what he’s done, which is buy for the long term, buy and hold, buy properties, rent them out, set it and forget it, this kind of mentality.
Andrew la Fleur: Brad is very much against flipping condos as well. He touched on it a little bit. He gave an example of the Harlow development, which people were resistant to the prices at first. Now the prices people paid four years ago just look laughable compared to what prices they’re getting now today. He’s saying you can do that, you can buy a property, you can sell it in three or four years later and make a little bit of money.
Andrew la Fleur: Again, it’s something we talk about in this podcast all the time. The way that you truly grow your wealth in real estate investing is through buying and holding. Buying and holding, refinancing every few years, continuing to grow your portfolio, continuing to add to your portfolio and basically never sell. Never sell unless you have another asset to purchase with those funds that is going to perform better than the asset that you already have. Which in most cases is very hard to find, because you’ve got so much equity and mortgage paydown already built up. Your cash flow situation, over time, just gets better and better. Your incentive to sell becomes generally less and less over time. Buy and hold, is the lesson here. Forget about the condo bubble.
Andrew la Fleur: Let’s jump into the second point. The question here, for Brad, was, “Why would anyone want to invest in Hamilton?” Talking about Television City, of course, and his development there and many other projects he has coming up soon in Hamilton. Why would anyone want to invest in Hamilton? Let’s hear what Brad has to say about that.
Brad Lamb: Hamilton is great partly because Toronto’s great. I went to Hamilton every year for 10 years. It sounds like “I’m outta here, I’m not interested.” Then two years ago, I noticed a big change. If I was in Hamilton I wouldn’t admit this because they’d throw poo at me. The reality is that Hamilton’s getting better because Toronto is getting better.
Brad Lamb: As Toronto crested to 600, 700, 800 900, so on a foot, certain people were, “I can’t live here. I can’t make things work here. I have kids, I’m a chef, or I’m a tech person or an actor. I need to find a way to live in dignity.” Some people can’t do that anymore in Toronto. Places like the Tri-Cities and the Niagara Peninsula and Hamilton start to make sense.
Brad Lamb: For one thing, it’s because Toronto is more expensive and vibrant and it’s half an hour away. You can take a train, it’s a 52 minute train ride every hour. You can live in Hamilton and work in Toronto. It’s not great, traveling 52 minutes in a train, but it’s livable.
Brad Lamb: Hamilton is benefiting greatly from the massive wealth creation in Toronto, much like Brooklyn benefited from the wealth creation in Manhattan. It’s inevitable. I think Ryan showed me a new approval for two towers. There are probably 15 towers of the nature that we’re doing here approved. They’re going to unfold. They’re not as good as our towers, because our towers are the best. But they’re still towers. What towers do is when you have 800 units on an acre, that’s 1,200 new people descending on the street buying Starbucks, buying food, whatever. That improves the city,
Brad Lamb: There is also an RFP on the waterfront. I’m a mid-size developer. I’m not Tridel, I’m not Great Gulf, I’m not Menkes. These guys have 40 years’ experience and they’re all billionaires. I’m not there yet. These guys are doing this RFP and you’re talking 4,000 units on the waterfront. That’s 6,000 people descending down James Street. You’re going to see huge renovation, huge change. You’re going to see four star hotels, the Ace Hotel, The Nomad Hotel. All these things are going to happen in Hamilton. You can’t see it now but, trust me. In a small city like Hamilton, geographically small, all of this stuff is going to make a big difference. We are the catalyst. We are ground zero. Everything after us is going to be more expensive.
Andrew la Fleur: There’s the second point, why invest in Hamilton? Brad’s main idea was that, look, Hamilton’s a great place to invest. Hamilton’s experiencing success and growth in a large way because it is a recipient or is a spinoff or is a victim of Toronto’s success, you could say. As Toronto flourishes and as wealth and money and GDP growth and jobs are happening, primarily in Toronto as the bulls eye, as the center point of this region, that spinoff effect is happening in other cities around the area. Hamilton is certainly well positioned to take advantage of that and to benefit from that. That’s exactly what’s happening.
Andrew la Fleur: Brad has also said on other occasions that he thinks the long term trajectory path for Hamilton is that ultimately Hamilton is going to become a suburb of Toronto, as the mega region grows and grows and grows. I’ve talked about this as well. Especially if you are looking on the west side of the city, the growth, the growth, the growth is just incredible. Already people are commuting into Toronto from Grimsby and Stony Creek and even as far away as St. Catherine’s and Niagara Falls. To say that Hamilton is in a way a suburb of Toronto, a commuter town to Toronto, that’s already sort of true now. It’s only going to become more and more true.
Andrew la Fleur: The other great thing about Hamilton, of course, is that it is its own city. It does have its own economy. It is unique in that way. In the GTA compared to your Mississauga’s and your Markham’s and those places because it really is its own city with its own industry and its own history.
Andrew la Fleur: He also talked about the fact that there are so many towers coming up in the pipeline over the next few years in Hamilton. It’s a relatively small city compared to Toronto. Ten, 15 towers being added to the downtown core of Hamilton is going to make a massive difference, a massive change in the city compared to, you add 10-15 towers in downtown Toronto, you don’t really even notice they’re there. But 10-15 towers in Hamilton is a huge difference. That is the second part. Now we’ll jump to the third and final question that we posed to Brad. That was, “What is your number one piece of advice to someone thinking about investing in a condo today? What’s your number one piece of advice?” Let’s hear what he has to say to that.
Brad Lamb: When you buy investment real estate, if you go to seminars and you read books, you’re going to hear about cap rate or you want to hear about the rent. Basically, in investment property, the rent needs to exceed the cost. It’s basic moronic math. If I make more money than I spend, I’m at a positive cash [inaudible 00:18:51]
Brad Lamb: Here’s the thing. If you buy a plaza or a duplex or a 10 plex or an office building, you buy that purely on cash flow. That’s how it works. When you go to sell it, it sells on cash flow. If people are buying things based on cash flow and you increase the cash flow, then you make more money. You buy it at a million dollars, you increase the cash flow by 50%, then you can sell it for $2 million, or whatever the cap rate works out to be.
Brad Lamb: The beauty of condos, and this is why I love condos, this is why I’ve always invested most of my money in buying individual condos. In fact my first condo building was a result of me selling 10 condos. I bought them much the way you are, from developers like me, when I wasn’t a developer. I raised $2 million and I bought a piece of land for $4 million. I built condo. It’s called Glass.
Brad Lamb: Here’s this beauty of buying a condo. You buy a condo, you rent it out as an investment property, and you have a choice. If you can sell it to an investor, if people are buying investment condos and they’re working on the cap rate. If rents are high and investors are like, “Okay, a one bedroom is now $3,500 a month, I’m going to buy it because I have cash flow,” that’s great. But you can also sell it to someone who wants a home. You can’t sell a plaza to someone who wants a home. You can’t sell an apartment building to someone who wants a home. The beauty of condos; it’s a hybrid investment.
Brad Lamb: The idea that you can buy a condo anywhere in the world, rent it and have a positive cash flow, it doesn’t work in Moscow, it doesn’t work in Hong Kong, it doesn’t work anywhere, but it works in Hamilton.
Brad Lamb: Right now, it works in Hamilton. It won’t work forever. It doesn’t work in Toronto. Nobody can buy a condo in Toronto at 1,100 a foot and rent it out and make money. You’re looking at the possibility of making a capital gain. But in Hamilton, it’s one of those sweet spots right now, and it won’t last forever, you can buy at 580 or 600 a foot, rent for 350 a foot, and make money. That’s rare.
Brad Lamb: I like condos because it’s a hybrid investment. I’m going to buy it as an investment and I’m going to sell it to you as a home. When you buy it as a home, you don’t worry about rent, cash flow, you like the furniture, you like the paint, you like the kitchen, you’re going to buy it because it’s a home. That’s how you make money. You’re buying as a pure investor and you’re selling to emotion. That’s the big difference. That’s why condos make so much sense as an investment.
Speaker 4: I think also, they’re liquid.
Brad Lamb: They’re totally liquid. If the economy is not doing well, all the big investors turtle, but people still move to Toronto, they still need a place to live. We build these condos, we sell these buildings to people like you as investments. If there’s 500 units, we sell 400 to investors. We keep 100. We sell them at the end of the day to end users. As the building matures, all of you end up selling for a profit. Very few hold on for 25 years, despite what we tell you, because you make money. In the end, it’s a very easy thing to sell. You don’t get stuck with this. As you said, it’s a liquid investment. I think that’s the big difference between all other classes of investment in real estate. They are e-liquid and this is liquid.
Andrew la Fleur: There you have it. That was the last point. Talking about what’s the number one piece of advice you have for condo investors. Not so much a piece of advice as it was more of an observation and stating a fact that what makes condominiums such a unique investment compared to other types of property, specifically comparing it to commercial type properties and investments you can get into. He’s bringing in a very interesting point. Condos are like a hybrid investment where you can buy them as an investment, and as an investor and you can sell them to a user. It makes it unique compared to other types of properties in that sense.
Andrew la Fleur: Anytime you can sell something to someone on emotion, or you can also sell it to someone on logic, so to speak, for an investor, you have that hybrid. You have the option to sell to two different audiences, potentially down the road. That makes your investment a lot more of the liquid investment, easier to sell when and if you do need to sell in the future.
Andrew la Fleur: He also talked about cash flow and the fact that it’s very difficult to find cash flow in Toronto. But it’s still very much possible to get cash flow in Hamilton. Similar to what you could ten in Toronto, five, 10, 20 years ago. You can still get that in Hamilton. There will come a time when the Hamilton market matures to the point where you can’t get cash flow in Hamilton either. But we haven’t reached that point certainly yet and that makes Hamilton a great place to invest in now, today. It’s one of the reasons why I personally have invested in Hamilton, adding to my portfolio of mostly Toronto condos. Now I also have a couple of units in Hamilton as well. I’m looking to ride that wave of development there that’s in a much earlier stage compared to where Toronto is at while I continue to also invest in Toronto condos, too.
Andrew la Fleur: There you have it. I hope you enjoyed this first ever reaction cast and I hope you got some value from it. Make sure you do go ahead and subscribe to truecondos.com. Make sure you’re getting our weekly email updates. For everything that’s happening in the condo market, just go to truecondos.com and sign up anywhere there to subscribe. If you enjoyed this show, go ahead and leave a review on Itunes or a rating on Itunes. It just takes 30 seconds and it helps us get the word out about the show. It helps other investors find out about it.
Andrew la Fleur: Thank you so much and until next time, happy investing.
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