How to Be Sure Your Condo Investment Will Appreciate in Value

Andrew la Fleur:
How do you make sure that your next condo investment appreciates in value? Find out on today’s episode.

Speaker 2:
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:
Hey there and welcome back to the show. Thanks for tuning in. As always, Andrew la Fleur here, your host from the True Condos Podcast, and I want to just put a plug-in here, make sure you are receiving my weekly email updates. If you’re not already, just go to truecondos.com, sign up anywhere there. I know a lot of people message me, contact me, email me, and you can do that. By the way, andrew@truecondos.com, 416 371 2333, but what I’m saying is, a lot of people do get in touch with me because they’re listening to this podcast, and I find out that they’re not receiving my weekly email updates, and I’m quite surprised. That is the best way to keep on top of the condo market and all the latest and greatest and best and approved by me, investment opportunities that are out there in the market, as well as getting access to more exclusive content like this podcast. Make sure you do sign up and are receiving those emails.

Andrew la Fleur:
Now, onto today’s episode. As I said in the intro, I want to talk about this question of, how do you make sure that your next condo investment is going to appreciate, is going to go up in value? It’s a common question that I get a lot, and it’s one of the fundamental cores of my investment philosophies that, if you’ve been a long time listener, a long time reader of my emails and watcher of videos and listener of podcasts, you probably have heard this before, but if not, it might be new to you. I want to talk about this concept that I call UP investing, UP investing. Yeah, again, the questions that are often asked of me is, “Andrew, is this a good buy? Should I buy this? Is this a good price? What do you think this condo’s going to be worth in a few years? How much do you think this condo … if I buy this one pre-construction, Andrew, what do you think it’s going to be worth when it’s finished?”

Andrew la Fleur:
That’s a very common one, and so all these questions obviously around how can you best ensure you as the investor are going to buy an asset, a piece of real estate that is going to increase in value, that’s going to appreciate in value? How do you make sure that it goes up? Well, that’s where UP investing comes in, and I came up with this term a number of years ago. Quite simply, UP investing, it stands for … The U stands for under market value and the P stands for positive cash flow. Anytime that you can purchase real estate, particularly talking about pre-construction condos, if you can buy something that is under current market value, under the current resale market value, and if it’s projected to give you a positive cash flow, then those two factors are a very strong indicator. There’s a very strong correlation we found between that and a higher appreciation rate over the term of owning that, of buying that and owning that pre-construction condo over, say, a five to 10-year period.

Andrew la Fleur:
Yeah, if you can get something that is … If you can get something pre-construction, not built yet, it’s not going to be ready for three, four, five years, you’re buying pre-construction. It doesn’t exist. You’re buying a piece of paper, a contract, and you’re paying an equivalent or slightly below value or price compared to if you have a brand new just-finished condo across the street of a similar type caliber, similar fit and finish, similar level of builder who’s built the thing, it’s not always easy to get that exact comparison, but if you are able to do that and able to say, “You know what? I can buy this one bedroom here for X-dollars pre-construction across the street. I see that they’re selling for X-plus-one.” If they’re selling for a dollar more, then you’re buying it under the market value. That’s a very good thing to do.

Andrew la Fleur:
The second part is positive cash flow. If you can find a condo that is going to, after you pay all of your expenses, property taxes, mortgage and maintenance fee, and the rent that it generates with a 20% down payment, if it’s giving you a positive cash flow or breakeven or positive cash flow and it also is under the market value, then that is an investment that is very likely, not guaranteed, but extremely high probability that, that investment’s going to appreciate in value. A lot of people, obviously, want to know where they can find those sorts of investments. I always say, “Look, just because this is my rule and this is what I tell you, you should do, it doesn’t mean it’s easy to find.” This is not something that has ever been easy to find it’s never, never been easy, especially in the city of Toronto, especially Downtown Toronto. It’s never been easy to find.

Andrew la Fleur:
This is why another thing that I’ve commonly told people over the years is, “Look, 95% of condos that are out there that are available for you to invest in today, 95% of them, I would say, most of the time, 95% of those condos are not worth investing in.” There’s only a few. There’s only about 5% of the overall total market that are really a great investment that really out-perform everything else. Just go out there and buy anything. You need to be very selective. Pre-construction condos have always been priced more than resale, by the way. Some people like to also … There’s a myth out there. People say, “Well, back in the day, pre-construction used to be cheaper than resale. It was always like that back in the day because you should get a discount for buying something that is not going to be built for a few years.” That’s completely false. It’s never been true.

Andrew la Fleur:
You can look at any basic chart from Urbanation or Alto’s Group or anybody else who tracks these things and just look at the pre-construction prices and the resale prices over time. Pre-construction prices has always, always, always been above resale pricing. That is certainly a myth that has never been true, but there are, from time to time, on occasion, if you know where to look, if you are good at this thing called condo investing and if you do your homework and you’re diligent, and if you’re working with somebody like me who does this day-in, day-out, every single day for years and years and years, that’s my job. My job is to find these opportunities for you that are the top 5% that are bidding the market, that are better than everything else that is out there. That’s, again, if you’re new to me, if you’re new to the podcast, if you’re new to my emails, that’s what I do. That’s what I’m searching for, and that’s what I’m constantly trying to invest in myself. Find those 5% cream of the crop opportunities as well as present them to you, my client.

Andrew la Fleur:
It’s harder and harder to find these opportunities. I will admit, it was easier in 2014, 2015, the first part of 2016, but as the market took off like a rocket in the past couple of years and until this day, it has become a lot harder to find these opportunities as construction costs for building high rise condominiums in particular, input costs across the board, land costs, everything else. It’s basically impossible to build a pre-construction condo in Toronto for less than $1,100 a square foot. Things have changed, but the reality remains the same, that we still are looking for these opportunities. We should still seek them out as investors if we’re looking for the greatest returns. If we’re okay with average returns, if we’re okay with below average returns, then it really doesn’t matter, but if you are looking for the best returns, which I certainly am, then it does matter which investment you are choosing.

Andrew la Fleur:
As I’ve been saying to a lot of investors lately, one example, specific concrete example of this right now is Minto Oakvillage in Oakville. There’s some great units available in the project there. Not every single unit, mind you again. This is where the 95% comes in. I might recommend a certain project, but I don’t recommend every single unit in that project for investment. Not every single unit in a project is going to give you cash flow, is going to be priced below market value. There are certain units that you obviously want to focus on and certain units that you may not want to focus on as much if you are buying for an investment, but Minto Oakvillage is one of these opportunities. If you’ve been receiving my emails, you might have already seen that email about Oakvillage and why I personally invested there and why so many of my clients have invested there.

Andrew la Fleur:
Oakville is not traditionally somewhere where we’re looking to invest as myself as an investor and my core clientele who have been with me for many years. You know that Oakville is not something I’ve really ever talked about before, so why now? What about Toronto, Andrew? Well, again, I’d love to continue to invest Downtown Toronto and certainly, that long-term is going to be the best place to invest in a condominium if you can find the right opportunities, but if you’re paying massive premiums over resale values, then it doesn’t really make as much sense. If you can go half an hour away to Oakville, which by the way is an amazing place to live and thousands and thousands of people wish and desire to live there, but they can’t, if you can go to Oakville and you can buy a pre-construction condo from a great builder and a great location that’s not going to be built for three or four years and you’re paying a price that’s basically resale pricing, and it’s projected to give you positive cash flow, well, that’s a no-brainer. You should do that.

Andrew la Fleur:
That’s exactly why I did that myself and why so many of my clients have too, but I understand that it’s a little bit perplexing, and some people just can’t wrap their heads around buying condos outside of the Downtown Core, and I get that. For the majority of my 12 years in real estate, most of my business has been in the Downtown Core because it was, as I said, a lot easier to find these opportunities there for most of my career, but in the past couple of years, it’s becoming harder and harder and harder to do. Not impossible, but I would say nearly impossible to find such an investment there, so we look further afield. We look elsewhere, and we follow the same principles and rules that have served us well. We expect that they will continue to serve us well and yield great results and great returns in the future.

Andrew la Fleur:
Final thought as we wrap this one up. It doesn’t mean that you should never then buy pre-construction. Am I saying you should never buy pre-construction if you’re paying more than resale value? No. No, I’m certainly not saying that. I mean again, if that was the case, it would be very hard for anybody to buy any pre-construction because these opportunities are quite rare. There are exceptions. If you’re paying … There are exceptions where it does make sense to pay more than resale. If something is especially unique, especially different, if the gap between the resale and the pre-construction product that you’re looking at buying is a relatively small one, if there’s other incentives other than price that are at place such as rental guarantees and other things that make the investment more appealing, it can depend on specific locations and the market that you’re in.

Andrew la Fleur:
If you’re in Toronto versus other cities if you’re in this neighbourhood versus that, that neighbourhood. What resale are you comparing it to, is very important. Do you have a brand new directly across the street, very similar type of a building to compare it to or not? If you’re comparing it to older buildings or different type of a building with different types of units in the building, that’s not a fair apples-to-apples comparison. It’s a rule of thumb. It’s something that served us very well, this concept of UP investing. It’s certainly something that you can say, if you find it, it’s a no-brainer, but again, it’s very hard to find, but it’s not a black and white, this or nothing thing, but it is a tried and true rule of thumb, as I said, that have served us well and served my clients very well over the years, so it’s something to think about as investors.

Andrew la Fleur:
You’re evaluating various investment opportunities. You’re wondering if one versus the next, or if you’re sitting there and you’re receiving my emails, and you’re wondering why I invested in certain ones and why I recommend certain ones, and certain ones I do not recommend as much. There you have it. That is today’s podcast. I hope you got some value from this episode. I hope you pulled something from it, and I look forward to joining you again on the next episode. Once again, if you want to reach me, andrew@truecondos.com or 416 371 2333 is how you can do that. Until next time, happy investing.

Speaker 2:
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