Hey Andrew, Are You Still Buying Properties in 2020?

Hey Andrew, are you still investing in condos in 2020? Find out my answer to that on today's episode.

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.

Hey there. Welcome back to the show. Thanks again for tuning in. As always, your host here, Andrew la Fleur from TrueCondos.com. And we've been doing this podcast now for about six years, over 250 episodes. Thank you so much for tuning in and thank you for your support for the show.

If you ever want to get a hold of me, you can do so by sending me an email, andrew@truecondos.com. You can reach me directly at 416-371-2333. Now in today's Episode One, to answer the question that I got recently by email from one of my longtime clients who is a heavy real estate investor, owns a lot of properties and bought a lot of condos over the years with me. And he asked me simply, "Hey Andrew, are you still buying properties now in 2020?"

And he prefaced that with just basically talking about some of the concerns that he has as he looks at the market and especially as he looks at the rental market, the condo rental market, obviously, as we've talked about a lot this year is suffering. And is no surprise I don't think, to anybody listening, that the condo rental market right now is pretty bad if you are a landlord from a landlord's perspective, compared to what it was at least, say a year ago at this time.

Rental prices are down. The supply of condos available for rent has absolutely turned around completely and there's just tons of choices for renters out there now, as opposed to a year ago where there was very little supply and rental prices were rising. Now rental prices have come down significantly, especially from before the great pandemic started. The great pandemic of 2020 that we're all in at the moment, depending on when you're listening to this podcast, of course, but that's where we're at right now in 2020, still in pandemic mode.

Can we all just stop and acknowledge it? This is just a weird year. It's a really weird time and we need to keep reminding ourselves of that. It's just a strange time to be alive and to be a real estate investor, not just in Toronto but really anywhere. To be human, I guess, is weird right now.

So we just need to think, continually remind ourselves of that fact and just roll with it. And to some extent, we don't know where this situation's going to go and where things are going, but we're doing the best we can and we're taking things day by day often and that's okay. That is how life goes sometimes and that's how life is going right now.

But I found it interesting, I just did a quick search in my email and this same investor client, the last email he had sent me actually, what's funny because the last email he sent me before this email, basically this email saying, "Hey Andrew, are you still buying? I got kind of concerned about the market. What's happening right now? What's going on?" Getting a lot of emails obviously like that from people and messages from people.

The last email that this same person sent me, it's funny, was in February. And basically the message in February was, "The condo market is on fire. What is going on? There seems to be no limit to the prices." In this case, he was saying, "The prices of one bedroom units in particular, were absolutely on fire." And so just such a contrast, remind me again, it's hard to remember the pre-COVID world but that was just six months, seven months ago the world was a very different place and the condo market was a very different place with the condo market was absolutely on fire.

And actually, yeah, I got an email from a Globe And Mail reporter today asking me about some thoughts on the condo market. and I was just commenting to him about that as well, just how we forget how hot the condo market was in January and February of this year, right before COVID hit. Everything was going bananas and prices in February were up and for many buildings downtown, condo prices, people were paying $100,000 more for a condo in February of this year, than people paid for that same condo around October just a few months before.

We were seeing massive price escalation in the condo segment in particular. In particular the entry level, the floor of the condo market, the one-bedroom market, call it, the entry level market was flying towards 700,000 as an entry-level, one bedroom price it seemed. Versus six months before that we were talking about somewhere around 550, 600K you could still get a nice place.

Suddenly February of this year, it was just bananas. Everything was getting 10 offers. The resale was going crazy. That being said, we could already see the cracks starting to show in the rental market and I did a podcast on that before the pandemic hit. You can go back and see, just talking about how 2020 was looking like it was going to be a slow year for the rental market. And of course it turned out to be much, much slower and rents have come down significantly during the COVID era.

Anyways, funny. Funny looking at the question from this client today versus the last email he sent me, talking about how crazy and hot everything was. And I replied back to him, interesting, that there were one bedroom and den units, one bedroom units selling downtown for $925,000. There was one at 88 Scott, I think, that went for 925, one bedroom and den. A lot of stuff was going in the 700s. It was just wow, crazy, crazy and that was just a few months ago.

So things can change quickly in this game of real estate. That's okay. Again, the fundamental thing I would hammer home with any real estate investor is stay focused on the long-term. Stay focused on thinking in terms of years and in terms of decades. And don't be worried too much about short-term fluctuations in the market up and down because things can and they do tend to change very quickly up and they tend to change very quickly down. That's just how the market goes, but overall real estate, again, you need to have a long-term perspective, otherwise it's going to drive you a little bit crazy if you're stuck worrying about short-term fluctuations or ups and downs.

So what did I respond to this client when he's asking me? And that's what I want to basically record this podcast is my response to this client. And maybe you're in the same shoes wondering, hey, got some concerns about the market, but you want to invest. So you're looking at a guy me or somebody that you trust as a seasoned and experienced real estate investor and you're saying, "Are you buying this year? What are you buying? What are your thoughts on the market right now?"

Short answer is yes. Yes. Yes, Absolutely. I am still buying in 2020. Still actively looking to add to my portfolio. Definitely not sitting on the sidelines or anything of that nature. Always buying, always active, always looking for opportunities.

And we'll get more to that later, but let's talk about the market right now, starting with the rental market as the question was focused around that. Is the rental market stabilizing? I hope so. It's hard to say but there might be signs of it stabilizing. In other words, prices are not going down any further.

Are they going up? No, definitely rental prices are not going up but have they stabilized? We've come down 15, 20% probably roughly from 8, 9, 10, 12 months ago on average. Hopefully rents are starting to stabilize now.

A big thing that I'm wondering about is as we're about to embark into the long, cold, Canadian winter, a lot of the reason why the rental prices came down was just so many young people, young, single, professional type people left their condos and literally moved back in with their parents across the GTA. They left King West. They left Yong and Bloor and the various places they were and students as well and they just moved back home with mom and dad. Moved back into the basement or the spare room or whatever.

Some people moved into the cottages and friends places and vacation properties and things like that. So there definitely has been a movement away from downtown but what I'm saying is, do you really want to live through the long, cold, lonely six months of Canadian winter in your parents' basements in the burbs? When you could be in a downtown condo in the heart of the city with restaurants and amenities and everything at your fingertips right there?

We'll find out but I'm starting to wonder if we're going to see a movement back downtown from a lot of those folks. Also the CERB party is over. The Emergency Response Benefit, 2,000 bucks a month, that has ended. So again, there's just a lot of shifts and things happening right now and wondering if that's going to add to some stability there.

Yeah. So let's talk about am I still buying? Yes. Still buying. Looking to buy. Open to buying. Looking for opportunities. Jumping on stuff as it presents itself.

Why? Well, nothing has fundamentally changed in the market. Toronto GTA is still a great place to invest, especially for the long-term. You could argue that Toronto and GTA areas are an even better place to invest now, when you look at the longterm perspectives with comparing Toronto to other cities in North America. Especially when you're looking at a global perspective, where are people educated, smart, talented people with money and goals and ambitions and education from around the world?

When they're looking at coming to this part of the world, aka North America and they say, "Where should I go?" You could argue that Toronto and Canada has gone up another few notches. When you look at how Canada has handled the pandemic and COVID crisis, versus how the United States and many cities including New York have handled the same crisis. Obviously we've come out in much better shape and our numbers are a tiny, tiny little fraction of what the numbers are in the US.

And again, it puts a spotlight on our quality of life, our healthcare, and just generally our way of life and way of thinking in this country. And I think it's definitely a net positive for Toronto and Canada, again on the global scale.

Immigration is a big reason why. The immigration numbers are way down. People coming into the country is way down. That's another big reason why the rental market has been suffering this year.

So again, you start to say, "Will there be a bounce back? Will there be a swing back? Will there be a snapback where the numbers, they're under now, will they be over the targets at some point in 2021 or 2022, whenever we're out of this mess, whenever they're out of the woods? Will they overcompensate the Government of Canada to allow even more people in? And will that create a flurry of activity in the real estate markets and the rental markets when that happens? We don't know but that's something to keep an eye on.

So fundamentally nothing has changed. Real estate long-term, again, as I mentioned it's still an amazing investment that I strongly believe in. Those things are the same. They haven't changed. We still need to acknowledge there are some things that have changed of course. It's not life as we knew it. Rents are definitely lower but hey guess what, mortgage rates are lower as well. People are getting crazy, ridiculously low mortgage rates, much lower than they were before the pandemic. So you're losing some money on rents but you're saving some money on mortgages.

Net, net the cashflow overall is definitely lower if you're looking at from a cashflow perspective today versus before, but what do we always say about cashflow when it comes to real estate? Cashflow is nice. Cashflow is great. Cashflow is a good thing to aspire for but cashflow has never made anybody rich or wealthy. Nobody ever gets wealthy from a cashflow. You get wealthy in real estate through capital appreciation over time, equity growth.

As I always said, a lot of people get so focused on cashflow that they lose sight of the big picture. I talk about the ocean of equity versus the river of cashflow. So cashflow is a nice little river if you picture that, it's a nice thing to look at, but how does a river compare to the oceans? It's nothing. Right?

All the money is in the ocean of equity and that's where you're going to make your wealth, but to carry this analogy even further, all rivers lead to the ocean. Right? I always say, if you find positive-cash-flowing real estate, that's generally a sign that that property is actually going to appreciate at a higher clip than average, because money and investment dollars tend to go to where there's cashflow. Money tends to flow into that direction. And when that happens, that lifts those prices and that creates the equity growth there. So use that analogy as you will.

And what else has changed? Well, the other big thing that's changed especially in the pre-construction condo world is that deposits are lower pretty much across the board. You look at all projects that are launching, they're all asking for 15% deposits, as opposed to before the pandemic, pretty much every single project was asking for 20% deposits.

So effectively really in a way, that is a form of prices in a way, the actual price you're paying has not changed. The cost of building a condo certainly has not changed. So builders aren't lowering their prices at all, but they are lowering your risk. They are taking more of the risk and they're allowing you to buy with less risk than before. You only have to put 15% instead of 20. You're 25% less risk exposure. Right? So you might look at that as in a way, prices have come down.

As prices appreciate over time, if you're putting less down prices have to appreciate less to get the same return. As if you put more down than prices have to appreciate more to match that return. I may have lost some of you but anyways, the lower deposits is a good thing.

So finally I want to just end with a few principles. Again, principles to follow. Principles of investing to think about. Principles or thoughts on the market in general. First one is this idea of the swinging pendulum versus a stopped pendulum. So the market has not stopped. The pendulum is still in motion. The pendulum swings back and forth. Right now the pendulum has swung strongly in favor of say low-rise, detached housing in the suburban areas especially, there's a lot of price growth and momentum there and it's moved away from downtown condo say. Right?

The pendulum has swung away from rental and it moved towards ownership but as the pendulum moves it creates opportunity. It creates a vacuum. So going back to the start of this conversation, in February the condo prices were really catching up to the low-rise housing prices. The gap was very small in February. Now the gap is very big. Right?

So it's just a matter of time before the pendulum starts to swing back. Why? Because people look around at the marketplace and they say, "Wow. A detached home in the 905 costs this much. I can buy a downtown condo for this much." The price gap right now is growing so the condos are going to become more and more attractive to buy, and so the pendulum will swing back towards condos at some point.

The opportunity is growing in the condo world. Versus before in February, you could make an argument the opposite. You could say, "You should be buying low-rise housing because the gap is very small. Now the gap is very big."

So the pendulum is still in motion. The market never stops. Things always move around. And as things move and shift, new opportunities are created. So we're always looking for those opportunities as real estate investors and that's what I'm looking for every day.

Let's talk about stocks versus real estate. People say, "Well, I don't know Andrew. There's too many storm clouds on the horizon. I want to get out of real estate. I want to do something else with my money." What else are you going to do? You're going to get into stocks? Go for it. Good luck. Real estate is a long-term game. Stocks to me, that type of investing, certainly it's a proven investment class as well but I always say, "I don't have the stomach for it. When friends and people that I see investing and watching the stock market bounce around like a yo-yo over the past few months and you're up 10,000, you're down 10,000. The next day it's ... For me I can't handle that. I don't have the stomach for it.

Real estate long-term, it's very simple. You sit and you wait and you appreciate, and over time you do very, very well and you can sleep at night and it's simple. Love it. Love it. Love it. Going to keep doing it. Going to stick to it. Going to get better and better and better at it.

The other big question is just speaking of the stock analogy, Warren Buffet or whatever, always say, "What companies should you buy today? What stocks should you buy today?" You just simply ask yourself, "Is this going to be a good asset, a good property, a good stock to own, a good company to own in 25 years? Is it still going to exist? Is still going to be a good company?" If you say, "Yes, it probably will," then that's a great thing to buy today.

Same rule's true with real estate. If you have a portfolio right now, if you have condos right now and you're looking at the storm clouds and you're saying, "Ah, what do I do? Should I sell? Should I get out of this asset?"

It's simple. You just say this asset that you own right now, or you think if this asset that you're thinking about buying, this property you're thinking about buying right now, do you think it will be a good thing to have in 10 years time? Do you think it will be a good property in 10 years time? Do you think it would be desirable for people to live in, to rent in 10 years time? Is it in a good location? Is it an area where there's growth? Is it an area where people want to live and will continue to want to live?

Is it the type of property in terms of layout, in terms of functionality that people will likely still be interested in living in in 10 years time? It's very simple. If the answer is yes, then buy that asset, buy that property or if you already own it, keep that property and sit on that property. If it's going to still be good in 10 years, most likely it's going to be worth a lot more in 10 years and mostly it's going to rent and create a lot higher income for you. It's going to rent for more and create a higher income for you in 10 years time than it is right now. Very simple. Keep it simple.

Another principle, every opportunity needs to be evaluated individually. So again, should you invest or not invest right now? That's not really the question. It's should you invest in this opportunity or that opportunity right now? You need to evaluate every opportunity on its own merits.

And it's not a question of is it a good time or a bad time to buy? There's always a good time to buy if you have the right opportunity. You need to know where to look and you need to know where the opportunities are and where they're being created. And again, that's what hopefully I'm here to help you to do and that's the whole purpose of this podcast and the whole purpose of why True Condos and why we exist is we're helping people to do that, find those opportunities always.

And finally, just again, a basic principle is if there's storm clouds on the horizon and things are bumpy at the moment, pre-construction makes a lot of sense because you're buying something today that's not completed for three, four, five, six years. Any short-term bumps in the road, in the market right now, you're soaring over top of that, essentially, when you're buying pre-construction. And you're entering into the market, you're renting out something in the market three, four or five years from now, after specifically this COVID pandemic storm that we're in is long past.

So there you have it, that's some random thoughts and rants and ramblings for today for you. I hope you got some value out of this episode that is all answering this question of, "Are you buying right now, Andrew, in 2020?" Absolutely. Hope you found that useful, encouraging, helpful. If you did, share this with somebody that you know and look forward to catching up with you on the next episode. Until next time, happy investing. Talk soon.

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