Discussing The Downtown Toronto Condo Market With Jamie Johnston of Remax Condos Plus
Andrew la Fleur talks to Jamie Johnston, the Broker of Record and Owner of Remax Condos Plus, on his history in the Toronto Condo Market, the “Toronto condo bubble myth”, the disconnect between what the media reports and what is actually happening in the market, and his own personal condo investing experiences.
Jamie Johnston Interview Highlights
2:03 – How Did Jamie Johnston Get Started in the Condo Market?
6:01 – How Remax Condos Plus Came to Be
8:13 – Is There a Condo Bubble in Toronto?
13:03 – The Disconnect Between the Media and Reality on the Condo Market
18:18 Jamie Johnston’s Personal Condo Investments
21:38 First Time Buyers and Interest Rates
How to Leave a Review for The True Condos Podcast on iTunes
Jamie Johnston Interview Transcript
Andrew la Fleur: Hello and welcome to the True Condos podcast. I’m your host, Andrew la Fleur, and I’m a realtor here in Toronto. If you’re interested in making money by investing in the Toronto condo market, then you’ve come to the right spot and you’re listening to the right show.
The whole point of the show is to speak to experts and industry insiders so that we can leverage their knowledge and experience in order to help us as condo investors to make better decisions. When we make better decisions we’re going to make better returns on our condo investments.
If you like my podcast please leave me a review on iTunes and if you want I’ve even made a little video which shows you exactly how to leave a review and you find this video on the show notes for this episode over at truecondos.com/jaime.
With that in mind, today on the show I’m interviewing Jamie Johnston. Jamie Johnston is the broker/owner of Re/Max Condos Plus, which just so happens to be the real estate brokerage that I worked from as a realtor here in downtown Toronto.
Way back in the late ’90s, Jamie had the foresight to see that condos were the future of real estate in Toronto and he did something that many people at the time told him he was crazy for doing. He branded his brokerage as a condo specific brokerage by calling it Re/Max Condos Plus. Now, we are nearly 20 years later and the condo market basically is the downtown real estate market and Jaime’s brokerage is the top company for condo sales downtown.
For all the show notes on this episode, once again just head on over to truecondos.com/jamie. Now without anymore delay here is my interview with Jamie Johnston.
How did they get started in the condo market?
Jamie Johnston: I can trace my start back to Harry Stinson, probably the original condo guy, condo king or whatever you want to call him. He had a brokerage called Stinson Realty on the Waterfront. Now they’re only getting Harry sell condos. He wanted to market new condos and he really wanted to be a condo developer. I ran across with him because I sold out my business with Family Realty, owned a lot of internet assets in terms of server’s software and I was selling websites to a variety of medium-sized companies.
Andrew la Fleur: When was this? What year are we talking about here?
Jamie Johnston: With Harry it would be 1998 that I first met him and started to build website.
Andrew la Fleur: What were you doing in the ’90s before ’98? You mentioned another real estate company.
Jamie Johnston: Family Realty. I was the president and a major share holder of a company called Family Realty and Family Mortgage in the early ’90s. Family Realty could trace its roots back to Family Trust and Tom Shay.
I’ve always been in the real estate business and we sold out those businesses. I had two partners, they wanted to sell, I didn’t. That’s one of the side stories to having partnerships. You sometimes go in different directions. Anyway, I met Harry.
Andrew la Fleur: Harry Stinson, 1998.
Jamie Johnston: Yeah. Harry asked me to look at his business. I looked at his businesses and I was very intrigued by his brokerage business in terms of condos. I found two things: it wasn’t cyclical like most real estate businesses and it wasn’t seasonal either. Harry had some big years when the real estate market was really down in ’93 and ’94. I was intrigued by that.
Andrew la Fleur: How can you describe the condo market in 1998? What did you see there? What was going on in the condo market? What was the talk in the condo market? What was it like?
Jamie Johnston: Well, right there that was the start of City Place, 1997, ’98. The first building is Front Street. There was 4 of them.
Andrew la Fleur: Concord CityPlace, [crosstalk 00:04:23], which is now about 15, 20 buildings. In 1998 there was no development there at all.
Jamie Johnston: It was four buildings.
Andrew la Fleur: That was when they first launched the first two buildings.
Jamie Johnston: Exactly. There was very little other. I’m trying to think back. I can remember the first year in the business. The developer had 700 King. Didn’t make the final payments. We had a little company then. We were owed 30,000 in commissions. I got a call from a receiver telling me that they weren’t making the final payments.
Andrew la Fleur: Why was that?
Jamie Johnston: Because they bankrupted the development company. They had to put enough money in it to pay off secured creditors which were the architects and the builders.
Andrew la Fleur: Not the real estate agents like you sold a unit?
Jamie Johnston: Well yeah, the company I bought. Stinson Realty had sold the units.
Andrew la Fleur: Stinson sold the units.
Jamie Johnston: That’s right. I bought Harry’s company out at the end of 1998.
Andrew la Fleur: You took over Stinson’s real estate’s sales side.
Jamie Johnston: Only his brokerage company.
Andrew la Fleur: Stinson went the way of development.
Jamie Johnston: Correct. The infamous One King Street was Harry’s project. Actually, Harry did the Candy Factory. The original lofts, that was Harry’s idea.
Andrew la Fleur: That was Queen Street West.
Jamie Johnston: Correct.
Andrew la Fleur: Fast forward a bit. 1998 to today, tell us a little bit about Re/Max Condos Plus today and where are things at for the company right now.
Jamie Johnston: How did we progress to Re/Max Condos Plus? After I bought Harry’s business out in terms of brokerage but not the other stuff, we had a non-compete for two years. I was using Stinson Realty and I knew that wasn’t going to last forever. Harry was going to get back in the business and muddy the waters, so I knew I needed a different name. I certainly wasn’t going to put my name on the door.
Andrew la Fleur: Why is that?
Jamie Johnston: I didn’t think it had to do with the public and the other thing is it doesn’t have longevity either. I think if you’re going to build a company or have a company you need a name that isn’t necessarily your own name.
I only really looked at two options which were Royal Page and Re/Max and I chose Re/Max and decided to get started on Queen’s Quay. I can remember the launch date and had a guy from head office went down and I told him we were going to be Re/Max Condos Plus.
He said, “Gee, you’re going to miss out on 80% of the market.” I said, “Well, no brokerage gets a big market share in the other 80.” I said, “The condo market’s going to be at least 30 to 40% long-term and if I could make a major impact in that, that would be a huge market on its own.”
I’ve always been a big believer. One of my favorite saying is that you have to niche to be rich. I think you have to specialize and you can branch out from there.
That’s how we got started. We picked the name and I guess the rest is history. Everybody says we’re pretty smart. At the time, everybody told us we are very stupid to call ourselves Condos Plus. Today people are thinking that we’re fairly smart.
Andrew la Fleur: I want to ask you a question that a lot of people probably ask you in different media, people you talk to everyday. They seek your opinion, I guess, as a leader in the industry, as somebody who’s owning and running a condo-specific brokerage in downtown Toronto. That is, is there a condo bubble? What’s your answer to that question? Is there a condo bubble in Toronto?
Jamie Johnston: Absolutely not. If you really look in terms of real estate terms, the definition of a bubble is a double digit price increase over three consecutive years. We’ve seen that in the States, we’ve seen that in parts of Canada and we’ve never experienced that in the condo market. I would say absolutely not a bubble. I do see …
Andrew la Fleur: If it’s not a bubble, what do you see the health of the market? How is the market?
Jamie Johnston: I would describe the market as very balanced. If you ask me what I thought was a bubble into real estate market I would describe it as houses, I use the term freeholds but definitely houses and raw houses and semis in downtown Toronto.
There are certainly in bubble territory as far as I’m concerned. There’s a lack of inventory and that’s what’s forcing up the prices so much. When you compare the prices of houses to condos, you certainly see a floor price coming for condos in terms of what people can buy.
Andrew la Fleur: What do you mean by that? The floor price for condos. Say that three times fast. I’ve heard you talk about that before. Can you explain what you mean by that?
Jamie Johnston: A floor price, what is the lowest the prices can be or level off at. I really think it’s $500 a foot. I think if you look you can buy a semi-detached house that needs a lot of work for 1,500 square feet in downtown Toronto and people are paying $750 to $900,000 for these places and they need to spend another $200,000 to bring them up, I would say, to the same standards and finishes as a condo and you could buy a condo for 750,000 with the same square footing.
You certainly see a floor price there. I think the other thing is you just have to look at what people want. Everybody wants to live downtown. What are people’s options. More and more people will be shut out of the house market downtown. In most big cities, there is no such thing as a house market. In Toronto there is. They’re all going to have to get into condos of various sizes.
Andrew la Fleur: Why do you think there is this crazy obsession with the freehold home in Toronto still even though we have a lot of condo product now available? We still see 20, 30, 40, last week there was 72 bid offer, bidding war on a freehold home and yet condos rarely will get more than 2.
Jamie Johnston: More than two.
Andrew la Fleur: Two or three offers.
Jamie Johnston: Exactly. I think all you got to do is look at the supply side. There are no houses for sale in downtown Toronto. Fewer and fewer. Part of the problem there is I think you can pass the problem back to governments.
In Toronto we have a double land transfer tax and when it first came out everybody said that it was buyers that would be hindered or slowed down with this second land transfer tax and it’s exactly the opposite.
It’s easy to sell a double land transfer tax to buyers. I just tell people that when you look at property taxes, the second land transfer tax is just a pre-payment on your property taxes because on assessment basis property taxes are much lower in Toronto than they are in any of the 905 areas.
What the double land transfer tax has done is it’s deterred sellers from selling and buying bigger properties because they’re saying, “Hey, I’m going to pay $50,000 in taxes then I got legal fees. I got moving fees, I got realtor fees. Wow. I could just take all of that money and just renovate my existing house.”
What’s happened is people with existing properties aren’t selling and that’s why there’s no supply. There’s plenty of supply on the condo market because that’s the only option for new construction. There’s also plenty of buyers and plenty of interest in living downtown.
Andrew la Fleur: One of the common themes in a lot of your blogs and videos and things that you’ve written over the years and commentaries is that you seem to always highlight the disconnect between what the media is reporting about what’s going on in the condo market versus what’s actually happening on the streets, so-to-speak, being a broker of a condo brokerage and seeing hundreds of transactions across your desk every month.
You see this disconnect between the media and the street. Can you talk about that? Why does the media, in your opinion, seem to get the condo market wrong time and time again?
Jamie Johnston: I think there’s two points. First off and a shorter term basis, there’s a lag in information. I think most of the time the people in the media by the time they get the information of what’s happening in the market, they analyze it and they start to see the trend.
That’s usually about three or four months after the market has turned or something’s happened in the market itself that people that are in the market everyday recognize. There’s a lag defect I think with the media.
I think the other challenge is everybody, and particularly the media, all they do is see cranes. All you see is see one side of the equation. They see cranes in the sky all over the place going, “Wow. Look how much is being built. How is that ever going to be absorbed?”
It’s much harder to estimate demand. It’s really easy to estimate supply. They see all of these cranes and say, “Hey, it’s got to come to an end.” My answer usually to that and I challenge the skeptics, I keep saying that the peak of the Toronto real estate market in terms of resales was in 2007.
Here we are in 2014, we’ve got another 700,000 people living in the GTA and they all need some form of housing. If nothing else, you would expect more sales today than in 2007 just because of population growth, yet we have less sales. How do you explain that?
I think part of the frustration for myself and other realtors is that the doom and gloomers have been telling people to rent rather than buy and it certainly had a drag in our market. I think people will realize too late that they should’ve bought and not rented.
Just look at the market. I think we have doubled the amount of renters and buyers that we’re having. It’s not as if people don’t want to live downtown. It’s just that they’d been conditioned to rent rather than buy.
Andrew la Fleur: You did a survey recently with condo renters. Can you tell us about the results of that survey and what you found with what you’re speaking about it?
Jamie Johnston: I always thought the biggest problem was going to be the lack of a 5% down payment.
Andrew la Fleur: Sorry. The survey question you asked the renters was, “Why are you renting instead of purchasing?”
Jamie Johnston: Exactly. We give them a number of options. When we started it I thought it was going to be the 5% down was the problem and renting is cheaper than buying. None of those. The number one reason was that people felt that this wasn’t a good time to buy and that there was going to be some sort of a market correction, which has never happened.
Historically, if you look at the real estate market over long periods of time, what happens is that the prices rise and if they rise too quickly vis-a-vis incomes, the real estate market tends to flatten out. Historically, you’re going to have an increase of anywhere to 3% to 4% plus some factor for inflation. In most times, wages rise at about the same rate.
If you have 10% increase in real estate for a couple of years, you’re going to have a couple of years where the prices go flat. The only time where prices drop, and I keep emphasizing this, is when people can’t afford to make the payments on their property or there’s foreclosures or whatever and too much product gets dumped in the market.
By and large, for people that are in the market for years they know exactly what happens. People don’t get their price. They don’t keep dropping their price ’til it sells. They just take their property off the market and honker down. That’s why prices never drop.
You just look historically over the years we’ve had maybe two price corrections, one around ’89-’90, one around ’81-’82. That’s been about it in 30 or 40 years where you’ve had any sort of price decline and it certainly hasn’t been the 25% that some [inaudible 00:18:07] have been forecasting.
Andrew la Fleur: The theme is 25% drop that so many people seem to be waiting for. Switching gears to investing, investing in the condo market now. Are you a condo investor yourself?
Jamie Johnston: Absolutely.
Andrew la Fleur: Can you tell us about what … ?
Jamie Johnston: Criteria or what do I look for?
Andrew la Fleur: People are curious to know what Jamie Johnston owns.
Jamie Johnston: What I try to do is when I look at a project or I look at resale I look at what I call the price gap between the resale market and the pre-construction market. Obviously, there’s some sort of a premium because people prefer new over used and particularly some nationalities, like Asians, always want to buy new. You have to take that into account.
There always will be some premium. The real challenge is how big is the premium because when you buy, one of the things that you’re banking on, what you paid, the market itself will catch up to what you paid by the time the new condo is delivered in three, four, five years time. You have to look at what the gap is.
For myself, I usually try to buy gaps that are about 25 bucks a square foot. I think if you buy bigger gaps than that you’re taking a huge risk.
The second question I always ask myself when I buy is how much money do I have to put down before I have to, as I say, feed the fire. That means there’s a negative cash flow on a property.
If you have negative cash flow on a property you own, then you’re going to be forced to sell it the wrong time and that’s the risk you make on not making money. If you can buy a property and hold it with no urgency to sell, you sell it whenever you want to, you’ll always make money in real estate. That’s the second thing I ask. How much do I have to put down?
Given the way the government is in terms of insurance, you need at least 20% down. I’m usually looking for properties where I can buy for 25% or 30% at max, but preferably 20 to 25% down and it has a positive cash flow from day one.
Those are my two criteria for buying new. I don’t often buy resale because I don’t really see the opportunities there. You’re buying an existing property. As an investor you’re going to pay it less than what an investor always does. If the resale market is pretty strong, seller can always sell it to an end-user and probably that person would pay more that I would pay for a property.
There are the property. I usually find that, for the most part, power of sales aren’t as good as people think they are. You’re buying it as is, no warranties and there’s usually work to be done to put it back in the market.
Andrew la Fleur: Right. Power sales are extremely rare, anyways.
Jamie Johnston: Absolutely. When they do come up, if it’s priced right, you usually get three or four buyers right there.
Andrew la Fleur: Right. Thanks Jamie. Just to wrap things up, the last question I want to ask you is as somebody who’s been interviewed a lot by different media outlets and people about the condo market over the years, is there some question that you have not been asked about the condo market or about investing in condos that you wish that somebody would ask you and what would that be?
Jamie Johnston: That’s a great question. I’ve talked about it but no one ever wants to talk about it. We always worry about the first time buyer who they can buy the house today with low interest rates and everyone says, “They’ll be in big trouble when rates rise.”
I always say, and I’ve written on it but no one’s ever talked to me about it, is that with 5% down, with rates at 3%, all the first time buyers take straight mortgages. They just do. They’re not taking the risk.
They’re locked in for a term of 5 years at 3%. After the 5 years, even if the property has never gone up by $1, the equity in their property is 20%, not 5.
The reason …
Andrew la Fleur: That’s just basic math.
Jamie Johnston: That’s just basic math and the reason why people don’t do that is most of the people in the media hate to say it and the interviewers tend to be older people and they all remember, and I do to, mortgages of 9, 10, 11% and you made very little impact on your principal repayments in the first five years. Because they never paid down very rapidly, they just assumed that it’s the same today and it’s radically different.
The big thing about low mortgage rates is it’s a rapid repayment of principal which is totally overlooked by the market. No one wants to talk about that. It’s always, “You can afford a bigger mortgage,” and then they’ll be in trouble down the road.
Andrew la Fleur: That’s a great insight there. Thank you very much Jamie for your time. If people want to find you or get a hold of you online, where is a good place to find you?
Jamie Johnston: Certainly on our website.
Andrew la Fleur: Which is?
Jamie Johnston: www.remaxcondosplus.com. We have a couple of things. We have a blog.
Andrew la Fleur: If people want to find you, you’re on Twitter too.
Jamie Johnston: Yes. Twitter. Re/Max Condos Plus and yeah, we’re just launching a video series where I’m commenting on the market each week for 60 seconds. Not too long myself. I get pretty bored if the video stretches to 10 or 15 minutes.
Andrew la Fleur: That’s great. If you want to check out those videos or check out more about Jamie Johnston and what he’s up to and what’s happening at Re/Max Condos Plus, you can go to, like he said, remaxcondosplus.com and you can see all the information there.
Thanks a lot Jamie. Hopefully, we can have you again on a future episode.
Jamie Johnston: Love to do it. Thank you so much Andrew. It’s always a pleasure talking to one of my top agents who is really, really knowledgeable about the marketplace and all the stuff he does for condos.
Andrew la Fleur: Great. Thanks again Jamie.
Okay, there we go. That was my interview with Jamie Johnston, broker/owner of Re/Max Condos Plus. I hope you enjoyed that.
Jamie always says unique perspective on the marketplace because his company is not only the top condo brokerage downtown for sales, it’s also the top brokerage for rentals. He sees that there’s this massage shift towards renting that’s taking place in the condo market over the last couple of years. He always says some interesting comment about that.
As a condo investor you really don’t care if more people are renting rather than buying. It just means that rental rates will continue to be strong and if people go back, the pendulum shifts back to buying, then appreciation rates will benefit. As an investor you win either way.
The main thing you need to ask yourself as you’re contemplating getting into the market or buying additional units for your portfolio is, are more people moving downtown each year? If so, where are they going to live? The answer is definitely yes.
As the number of condos rented out this year we’ve seen month over month, this past year or so we’ve seen that rental numbers are up 20% or more in the market. We’re also seeing condo sales are trending up as well.
If you are renting and you haven’t bought a condo for yourself yet, I think it’s really time to sit down and do some basic math like Jamie said. If you buy with only 5% down at today’s alter low mortgage rates are below 3%, you’re going to have about 20% equity in just 5 years time. That’s even if your condo doesn’t appreciate in value by a single penny over those 5 years, which of course is extremely unlikely.
Check out the show notes for this episode over at truecondos.com/jamie where you can find links to everything that we’re talking. You’re going to find a transcript of our interview and a few more things there.
That’s enough from me. If you like the show go to iTunes on your computer, please, and leave me a review. Once again, if you’re having trouble figuring out how to leave a review, just go to truecondos.com/jamie, the show notes page for this episode, and there’s a little video there that shows you how to leave a review on items.
Thanks for listening and bye for now.
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