Cash Flow Heaven Forming in Queen West
First time investors usually come to me with great expectations. They would like to be able to buy a great condo downtown, close to the subway, and one that will carry itself (rent covering all expenses) with 20-25% down. If such a condo existed, I tell them, I would be first in line to buy one (or two!). The truth is, to get positive or break-even cash flow on a downtown condo today, you need to be prepared to put down at least 30% and for pre-construction, you are probably looking at 35-40%. This reality scares away many would-be buyers and they go back to waiting for the apocalypse to drop Toronto prices by 25%.
Enter: Epic Condos by Urbancorp and Plazacorp. Epic Condos is following fast on the heels of the very successful Edge Condos by the same development team. Urbancorp is engaging in business 101 – look for the gaps in the market and fill them. The massive hole in the Toronto condo market, where demand far outstrips supply is for smaller investor style units at reasonable prices downtown. Every time a new development launches, there are 4 buyers for every 1 suite priced under $300k. Urbancorp decided it would be a great idea to build an entireÃƒâ€šÃ‚Â buildingÃƒâ€šÃ‚Â where nearly every suite is priced under $300k, and the market has responded.
What makes these condos so hot? The numbers speak for themselves. A small 2 bedroom with parking can be bought starting at around $285K.
- With 25% down, mortgage payments would be about $957/month (3.5% @ 30 years),
- maintenance fees about $393/month (including parking and locker maintenance fees)
- Taxes about $233/month
Total = $1583/month
If you don’t think a 2 bed/2 bath condo downtown will rent for at leastÃƒâ€šÃ‚Â $1600/month, you don’t know the Toronto condo market. Try finding another pre-construction condo downtown that will carry itself with only 25% down and you’ll see how special this is.
So what’s the catch? How can these condos sell for $400 per square foot when everything else downtown is selling for $550-$700PSF? The short answer is this is a different product from what most builders are selling and building downtown today. The expectations for what you are getting at $400PSF should not be the same as what you are going to get down the street at $600PSF. All condominiums are not created equally, but the value proposition is undeniable at ~$400PSF and most importantly if you are an investor – POSITIVE CASH FLOWS!
Why is being able to carry a property with a positive cash flow so important if you are an investor? Simply put, it eliminates the need for a property to appreciate in order for it to make sense as an investment. If you are counting solely on appreciation to get money out of an investment, what do you do if you are forced to sell in a down market? If your property carries itself, you can ride out a year or two until the market turns around.
Further reading on the subject: What Ever Happened to Cash Flow?
Contact me for more information on Epic Condos or to discuss the issue of cash-flows more in depth.