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Condo Investors: Please STOP Doing This!

Andrew is getting really annoyed with condo investors who keep making this silly mistake and he’s pleading with investors to stop. Find out what he’s so fired up about on this episode and what you should do instead

Related Links

3 part podcast series on assignments – part 1, part 2, part 3

Click Here for Episode Transcript

Andrew la Fleur: Condo investors, please stop doing this thing. Please, I beg of you. Find out what I’m talking about on today’s episode.
Announcer: 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 this show. Thank you again for listening and tuning in. Really appreciate your time, taking your time today out of whatever it is you’re doing and listening to what I have to say. So I want to talk about this annoying thing that is driving me crazy. And from time to time, I get talking to condo investors who are doing this, and it’s gotta stop. Stop doing this. Listen to my advice. Please, condo investors, and stop doing this thing. And that thing is selling or looking to buy something that you already have or getting rid of something to find the thing that you just got rid of.
Let me break it down what I mean by that. So I was talking to one condo investor this week and we were looking at a particular opportunity, they were considering it. They’re going back and forth and at the end they decided, you know what Andrew, this investment opportunity is not for me. Reason being, I’m looking for something with better cash flow. So I said, “Okay, you know, that’s fine.” Everybody has different sort of standards or criteria of what they’re looking for in terms of an investment or what kind of cash flow they are willing to accept or not. Fine.
But then they went on to say something, which, this is the thing where my eyeballs like jumped out of my head and I’m like, what is going on here? They told me they’re actively looking to invest, they’re looking for something with a good cash flow. Why? Because they have some money to invest that they just acquired from assigning another condo. I’m going, hold on a second. You assigned another condo.
I wasn’t able to get the specific details on the condo. They didn’t respond back, but I have to assume that they assigned a condo that they bought a few years ago, and if they bought a condo a few years ago, as anybody knows, that condo if they had not assigned it, if they just close on it, would give them amazing cashflow because anything you bought a few years ago at the prices which were much, much lower than today, and the rental rates are much, much higher today than they were a few years ago, it’s a perfect storm. Anything you’re closing on in 2018 that you bought in 2014 is going to give you amazing cashflow.
So this person just assigned that thing that would’ve given them amazing cashflow and now they’re taking the profit and they’re looking to find something that’s giving them amazing cashflow. Hold on. What is going on here? Why are you assigning a condo that is an amazing investment to look for something that is an amazing investment? You’re not gonna find it. Anything that you’re buying pre-construction on paper today is not gonna look as good as something you bought three or four years ago. That’s just a fact. That’s how condo investing works.
You’ve gone through the incubation period. If you’re at the point where your condo is almost done, you’ve gone through that incubation waiting period, that pre-construction period, the three, four, five years, whatever it is you’ve been waiting. You made a great decision when you bought it. The risk period is over. The uncertainty period is over. The market has gone up tremendously. The rental market has gone up tremendously. It’s a no brainer.
When you bought it, there was no guarantees, but now there is pretty much a guarantee. You just have to close on the thing and get your check, so to speak, in the mail every month by renting the property out and enjoying that positive cashflow and also enjoying the massive appreciation that you have on the asset because you officially now own it once you’ve closed on it.
You’ve got that in your hand, and now you’re giving that up, and you’re now looking out in the marketplace to try to find something else pre-construction that’s going to give you what you already had. Like what? What is going on here? Condo investors, stop assigning your condos. That’s my main message to you out there. If you’re new to the show, if you don’t understand my philosophy and what I always teach, don’t assign your condos.
Assignment just does not make sense. It’s not how you’re going to grow your wealth in real estate and with condo investing. Buy and hold is what you want to do. Buy and hold. Every week I get people, almost every day now, I’m getting people contacting me and saying, “I have this condo. I want to sell it by assignment. Do you want to help me out?” I always ask them, I start with, “Why are you looking to sell? What is the reason?”
And if the reason is anything other than, I am desperate to sell, I am desperate need of this money, and there’s no way I can close on this property, then if it’s anything other than that, I always tell people, don’t sell. Close on the property. Find a way, figure out a way, get it done. In most cases, it’s not an issue at all. With most people, get it closed and enjoy the benefits of the decision you made years ago.
Assigning your property, the CRA is licking their chops and they’re hoping that you assign the property because they’re going to extract more money from you, more of your profit they’re going to take. You’re going to have to give that up to them. The CRA does not like assignments. I did a three part podcast series on assignments. If you’re interested, I’ll include a link to the show notes in that. If you haven’t listened to that already, the whole three part series is basically why you don’t want to assign and why there’s very few cases where it does make sense to sell your condo by assignment.
But assignment, selling by assignment is a good way to make a little bit of income, a little bit of spending money here, and a little bit cash on the side, but if you truly want to generate wealth through real estate, don’t assign. Buy and hold, buy and hold, and take it one step further. Buy and hold, refinance every few years. Pull that capital and the equity out of that property and use that to reinvest in a second or a third or fourth condo and still maintain ownership of the first asset.
So keep building your portfolio out, grow your portfolio. Don’t just turn money over and flip money over. Again, it’s a way to make a little bit of income, but it’s not a way, it’s not how you’re going to generate true wealth through real estate, if that is the thinking that you’re under and if that’s the strategy that you’re using.
So yeah, again, this is something that’s been on my mind and it’s something that I occasionally hear from time to time. It drives me crazy. Please, condo investors, I beg of you, stop doing this. Stop thinking like this and start understanding that assignments are not the way to go. You’re never going to be able to find something as good as what you already have. There’s great opportunities to invest out there, but they have a tremendous amount of risk compared to just keeping the thing that you already bought four years ago that has already gone up in value, that has already seen massive rental appreciation as well, that will provide you with amazing cashflow and amazing refinance opportunity, if you just hold onto it and close on it, and are patient, and take that money a year and a half, two years from now, reinvest it then.
If you’re just dumping it out there as an assignment now and then going out and looking for another pre-construction opportunity, you’re never gonna find something as good as what you already have, and that’s just the nature of the beast. And four years from now, it’s going to be the same pattern. Something that you buy pre-construction today, four years from now is going to look amazing if you have it in your hand because you bought it for years before. You’re going to feel great. If you’re looking at something four years from now in the future to buy as pre-construction, it’s not gonna be as good as something that you can buy pre-construction today, looking back on it four years from now.
Anyways, I’m probably confusing the heck out of you at this point with that kind of talk. But hopefully you get the sort of point of what I’m getting at here. So don’t assign. Refinance and sit. Always close on your properties. Hold them for the longterm. That is the way you generate wealth in real estate and condo investing in particular.
But I also just want to touch a few points on cashflow. Again, this is a subject that comes up a lot with investors. Everybody wants cashflow, everybody loves positive cashflow. We’re all looking for that as investors, but the reality is, in Toronto and the GTA really as a whole, cashflow is very hard to find. It’s just a reality. It’s getting harder and harder to find.
As the city matures, as the real estate market matures, we are finding ourselves going through the same thing that many other large mega cities around the world have gone through before us. The New Yorks, the Londons, the Hong Kong’s of the world, and that is cashflow doesn’t exist. You can’t buy properties with small amount down in most major world cities and expect to get a positive cashflow. It just doesn’t work like that. That’s not how a mega cities work in terms of the real estate markets.
If you’re looking for great cashflow, the crappier the city, the worse the place, the job market, the fewer Starbucks in your town, the better your cashflow is probably gonna be. So think Detroit four or five years ago. That was like the cashflow capital of the world where you could buy a property with $20,000 and get $1,000 a month of positive cashflow or something ridiculous like that. But you might have to put up with the odd murder here and there on your property.
So on the flip side, you want to go to a property in Manhattan next to Central Park and you put 60 percent down and you’re still negative cashflow. This is the spectrum of real estate and Toronto is moving further towards the Manhattan side of things than it is the Detroit circa 2012 side of things, right? So in general, cashflow is becoming harder and harder to find. But again, it’s a reason to buy pre-construction.
When you’re buying pre-construction, it’s not going to be built for four years. You’re enjoying that four years of rental appreciation. So on paper when you’re buying it, your aunt, your uncle, your friend, whatever is telling you oh, that’s a bad investment because it’s not good cashflow. Well guess what? Four years from now they’re going to be saying, “You’re a genius, I should’ve bought what you bought because you’re getting capital appreciation on it, but you’re also seeing rental appreciation.” So by the time the property is finished in four years, the rents are much higher than they were when you bought it, and most likely, you are going to get positive cash flow on a lot of these properties in the future.
That being said, there are better cashflow opportunities, I would say, outside of Toronto and in other markets that are also a great markets and great cities to invest in. Hamilton, Kitchener, Ottawa being three great examples of places to look to invest if you are looking for a better cashflow prospects than Toronto is offering. Those cities are great places to do that. So quite simple, go elsewhere and look elsewhere. And we’ve got great opportunities in those cities right now if you’re looking.
If you’d like to learn more about them, just send me an email, Call me, 416-371-2333. Finally the last point, and again, I’ve done podcasts on this recently, and that is cashflow is overrated. This is somewhat a controversial statement that some people have said, “Andrew, what do you mean by that?” Cashflow is overrated. So while I’ve always preached, yes, you want to get properties with positive cashflow for obvious reasons, you don’t want to be buying things that are costing you money on a month to month basis that are taking money out of your pocket on a month to month basis.
The reality is, and smart experienced longterm condo investors know this better than anyone, that is most of the money you’re ever gonna make in real estate is not from cashflow. It’s from appreciation, right? And you run some quick numbers. You’d be thrilled, most people would be thrilled, excited to get $200 a month of positive cash flow on a condo, even though that’s extremely hard to find anywhere. But if you do, you’re thrilled. If you get that $200 a month, $200 a month is like $2,400 a year, a five year period, around $10,000-$12,000.
Well, over a five year period, chances are whatever property that is, it’s going to appreciate, if you look at historical norms, it’s probably going to appreciate by I would say at least 10 times the amount of your positive cashflow. So you know, like $100,000 versus $12,000. So the money and the wealth that you’re going to generate, the equity that you’re going to generate, is going to far, far outweigh any amount of cashflow that you’re getting.
Unless you’re buying in Detroit in 2012 and you are getting $1,000 a month in cashflow but your property is, five years later, worth the same amount that you paid for it. Okay. Then cashflow is like, yeah, then cashflow is very important if you’re buying in markets that don’t appreciate. But you’re buying in a market like Toronto, like a Hamilton, the Kitchener and Ottawa, where historical longterm appreciation rates are going to be in the five to seven percent per year range and that’s just a normal sort of thing that you can expect over the longterm. You’re gonna make your money off of of appreciation. And that’s the honest truth, and that’s something that a lot of people don’t seem to think about, realize.
A lot of gurus out there, real estate type gurus out there, they seem to gloss over that fact or they don’t seem to emphasize the importance of that fact. And they’re preaching cashflow, which is important. But again, in the longterm, cashflow is pennies compared to the dollars that you’re earning on appreciation. So there you go.
I hope you enjoyed today’s episode, and I hope you found something useful from it. If you did, go ahead and share this episode with somebody that you know, send it to someone. Drop the link in your phone, in your email, text it to somebody, share it on Facebook, whatever it is, Twitter. I’d greatly appreciate that. I’m sure the person who’s receiving it would too, if you found it useful. So thank you again for listening. Until next time, happy investing.
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