Priced Out of Toronto? Do This.
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Are you priced out of the Toronto condo market? Are you ready to invest but the prices of condos in Toronto have shocked you? Are you an existing investor and you are finding it hard to add more units to your portfolio in Toronto? Find out what you can and should do if you are finding yourself priced out of Toronto.
Andrew la Fleur: The Toronto condo market has changed so much in the last couple years. Prices have risen dramatically and a lot of people are feeling priced out of market. So I wanted to create this video for you specifically if you feel that way, if you feel like you want to invest in the Toronto condo market, but you feel like prices have just gotten way beyond what you’re able to afford. And so I wanna give you a couple real strategies that you can actually use to get into the Toronto condo market, and how, as I said, you can actually be a massively successful investor in Toronto, even if you feel like you can’t. So sound good, let’s jump into it.
Here’s the situation. You have around $40,000 to $60,000 available to invest in a property. However, the average entry-level condo downtown now is about $500,000. So with 15 to 20% deposits required, you need about $80,000 to $100,000 to invest in the Toronto condo right now. Something you don’t have, it’s a very frustrating situation, and I again I wanna give you a couple of strategies to take your frustration to state of feeling good about yourself and feeling that you can actually participate in this market. So it makes sense, all right, let’s jump into it.
You might have some objections to this whole concept before we even get into it. And one of the things you might be saying is, “Andrew, I mean there’s gonna be something I can buy under 500,000. Aren’t there studios or something out there we can get into?”
Well, yeah, sort of maybe not really. There’s really nothing available under 500,000. I don’t know how else to say it. There is nothing to buy under 500,000 downtown right now. If anything does come up in the form of a new condo launching coming out, if they have a few studio units in the building, there are 20 buyers waiting and lined up. People just like you who see the value in the downtown core, who wanna invest in the downtown core, they have some money, but they don’t have enough money to get into those $500,000-$600,000 plus units. It’s just very very difficult and not a great strategy to just wait and hope that you can maybe get one of these units, when as I said, there’s 20 buyers for every one of these units, even if you can find them, right now there is absolutely nothing.
Another objection you might have is can’t I just buy in the suburbs? Can’t I just go outside the city into the 905 areas around Toronto, buy something there for under 500,000?
What you find in those markets is while the price per square foot is less, the unit sizes are lager, you have to buy parking often, and you have to buy lockers often, or often they just … It’s included in the price. And the entry level price in these markets is actually not that different from what we’re seeing downtown. You’re still pushing that 500,000 mark as an entry-level point in the suburbs.
Bottom line of investing in the suburbs I would say is be very careful if you do decide to do that strategy. A lot of people who’ve invested in the 905 in the last 10 years have regretted that decision, they haven’t done as well as if they had put that same money into the downtown core, or into other options which we’ll get into.
Another objection you might have is can’t I just buy something resale? Okay, pre-construction is expensive, I get it, there’s nothing to buy under 500,000 but I’m looking at REALTOR.ca and I see here’s some condos that are out there for less than 500,000. Can’t I just buy something like that?
Well, a few things. One is it’s very hard to find anything good under $500,000. You might be able to find something crappy, something that I would not recommend as an investment, but I don’t think that’s something that you should invest in. The other thing is even if you do find something under 500, it’s bidding wards galore. Everything under 500,000, multiple offers, sold prices way over asking. Remember, as an investor, you come in and you try to buy one of these properties, you are competing against a lot of first time buyers, people buying for themselves, people who have mom and dad’s money behind them in a lot of cases. These are emotional buyers, and you’re competing against that. Somebody throw an extra $20,000 to $30,000 on top of what you offered is nothing to folks like that. So keep that in mind.
Cash flow, you’re not gonna get cash flow. So you have to put 30-35% down to get cash flow based on today’s resell prices and today’s existing rents. So again you’re back in that situation where if you need 30-35 down, again, you need now a $100,000 just to get that same property, which you don’t have.
If you can somehow make the numbers work and buy that property if you find something cheaper, you’re gonna be negative cash flow every month. Do you wanna have that? Probably not.
And finally the stress test. It’s very difficult to get a mortgage right now in the resale market versus buying pre-construction, you have three, four, five years, before you need to get that mortgage.
So my advice, what you should do, that’s what this video is about. I wanna give you a couple of strategies, do these things if you’re in this situation.
Preamble before I get to those two things is if you’re close, if you’re sort of almost at that point where you have that 80 to $100,000, if you’re a few months away, then just keep saving until you get there and invest downtown. But for most people watching this video, you’re probably thinking I’m years away from being able to have that 80 to $100,000 to invest sort of range. So what should you do?
Well, number one is should but outside of the GTA. So look further afield to cheaper markets that are also good markets to invest in. The game plan with this strategy, and it’s a strategy that I personally have used myself, many of my clients have used, both the strategies I’m gonna talk about today, I’ve personally done in the last year, and most of my clients are also doing or in the process of doing as well.
The game plan is to start building equity now and to bring it back into Toronto in a few years. So rather than wait and do nothing, put that money out there, get it invested, start building that equity, and in a few years, you’ll be in a better financial position, you’ll have grown some wealth through doing that, and you’ll be able to bring that money back into downtown Toronto.
Or if you’re an existing condo investor, it’s a way to diversify your portfolio. If you’re feeling like you wanna add more in Toronto but you’re priced out, it’s an opportunity for you to still continue to add to your portfolio in growing markets.
So the markets that you wanna focus on in Ontario have thee factors; strong job growth, major transit investments, and very low vacancy rates. These are the three things that you wanna look for in any market that you’re investing in outside of Toronto. These are the three factors that has made Toronto and downtown Toronto a successful market to invest in for the last x number of years, forever pretty much.
So the three markets that we have focused on this year, and we’ve recommended our clients to focus on that. As I said, myself personally have invested in as well. Ottawa Kitchener, or Hamilton. These three markets are great urban centers, and we’re talking specifically about the downtown cores in these markets, not the outer area, specifically the downtown core where a lot of investment, revitalization, transit, jobs are coming in. This is where you wanna be. These three markets offer tremendous value compared to Toronto.
So what you should buy in these markets is basically focus on smaller cheaper units like studios, one bedrooms, one bedroom+dens, and smaller small two bedroom units.
So this is basically the core key strategy that we have been using in Toronto, again, for the last 10 years and doing very very well with focusing on the smaller investor-friendly sort of units that are gonna give you the best rent, price-to-rent ratios when you’re renting these units out.
You might have some objections to this idea. So the first one might be, “Andrew, it’s too far away, I don’t wanna invest in these places that are so far away from where I live. I live in the GTA.”
Well, here’s the thing, distance is only a problem if your presence is required. Right? And the beauty of buying condos, especially brand new preconstruction condos, they are a very passive type of investment compared to other types of real estate investment. So your presence is not required 99% of the time. I have owned condos as far away as Florida, in a different country, it’s a plane ride away. It’s a totally different country, and the condo I owned in Florida for example, I owned for about five years, I never set foot in the property when I bought it, I never set foot in the property when I sold it. During that five year period, I just set foot in the property once just ’cause honestly I just wanted to see what I had bought, and what I own, and check it out and say hi to the tenant. But I could’ve owned that property for that entire time without ever setting foot in it. And that is the beauty of buying a low-maintenance passive type of investment, like a brand new condo.
If you get a good tenant in place and you do the hard work of getting a screening and vetting a good tenant, that is 95% of the battle when it comes to condo investing. And that’s why condos are such a great investment.
And remember, we have partners in all these markets to take care of that process of finding those tenants and renting them out for you. You don’t have to do anything, you don’t have to physically be there. We can take care of that for you.
Another objection you might have is, “Okay, Andrew, the whole premise of this is downtown Toronto is the place to invest. When you go outside of that, you’re getting slower growth rates, so isn’t that bad? We shouldn’t invest in these other areas, ’cause they’re not as good as downtown, right?”
Well, the concept here is probably yeah, you’re right, that’s absolutely true. But it’s better to do this than it is to continue to wait and do nothing, and you’re just gonna continue to be priced out even more than you are now from the market in Toronto.
And again, the idea is you start building the equity now that if you want to, you can bring that equity back to Toronto and you’re growing your wealth, and you’re using that leverage to grow that capital available to you in the future that you can then bring back into Toronto, if that’s what you decided that you wanna do with that.
Another objection is and these markets outside of Toronto, a lot of people say, “Oh, these are like small cities, it’s not like Toronto, it must be hard to find tenants in these places, right?”
Well, no, that couldn’t be further from the truth. This is why we recommend, we pick specific markets that I mentioned already, your Kitchener or Ottawa-Hamilton, these markets where the rental market is red hot. People are lining up to rent properties in these markets. Landlords have their pick and multiple tenants to choose from. And there’s virtually no new rental supply that’s been added to these markets as well, which is huge.
And remember, we’re doing this for you. We have partners in all these markets that take care of the renting process for you. In some cases, developers even giving rental guarantees where they do everything for you as well.
Number two strategy. So number one was buying outside of GTA, the second strategy I wanna share with you is to double your buying power by buying with a partner. Right? It seems pretty straightforward but a lot of people are not thinking about this or considering this option, I’m telling you, you should.
So the game plan here is to start building equity now in downtown again, rather than be priced forever. It’d be great if you can do everything on your own in life and not have to rely on anybody else, but sometimes two is better than one. When you can partner with someone it gives you new capabilities.
So what you should buy in this case is continue to buy those small units that we talked about that are always the best units for investment. But you wanna also look at buying larger two and three bedroom units in the $800,000 and up sort of a range. And we’ll get into that in a second as to why.
Now, first objection is buying downtown, like I can’t afford that, like why are we talking about this? The whole point is I can’t afford it.
Well, again, it’s a bit of a mental leap, but you need to think about what you would be able to do if you had a partner doing it with you.
Partnering allows you to buy units that you never thought were possible, price points you never thought possible. It also allows you most importantly to buy in locations and buildings that you never thought possible. Whereas if you’re trying to buy on your own, you’re just trying to squeeze into the margins of downtown to the B and C locations, B and C type properties downtown. Suddenly if you have a partner, you’re doubling your buying power, then it now suddenly opens you up to new possibilities where you can buy in the prime prime buildings in the prime areas, that in the long-term are always gonna be of course the best places to invest.
Another objection is who can I trust to partner with? Like sure, this sounds good, but like I don’t … you know it’s money, I don’t wanna get into partnerships, it’s too risky, things can go wrong.
A couple tips whatever you decide. Make sure your goals and values are aligned from the start. And the second tip is … I find that in my experience it tends to works best when one investor is sort of driving the process, and the other investor is more of a passive, more of a background, more of a silent partner type of investor, and sort of just goes along with the recommendations of the other person. So you don’t have two people trying to drive and take in different directions and butting heads. So a couple of tips there.
Another objection around this idea is, you know I talked about bigger units, buying more expensive units. Bigger units, aren’t they bad for investment?
Well, here’s the thing. Some of the best deals that we’re finding in pre-construction right now are the larger, more expensive units. Again, the reason is that it’s very easy for builders to sell units for 500-600-700,000, those things are flying off the charts. But when you start to get above 700-800-900,000, it’s harder to sell, because you need … This is not like the old days where the most expensive unit in a building would be 600,000. No, that’s like now the entry points. So there are fewer and fewer buyers the higher up the price spectrum you go that have the financial capability to do that on preconstruction.
So builders, some builders, not all, but some builders who are fighting in response are lowering their prices. And the best value in some of these buildings is actually the larger units. So there’s a little secret and something to think about.
Also keep in mind the resale market downtown today is almost $800,000, the average resale condo that is sold in downtown Toronto today is about almost $800,000. So there are plenty of units selling for over $1 million now. Like this is again, not like three/four years ago where everything was sort of in the 400 to $600,000 range, there’s plenty of properties that are selling way above this price. So you need to know and understand that about the market.
Talk about the rental market. So rental market, two bedrooms, 3,000 to 3,500, three bedroom units are $4,000 plus. If you’re buying pre-construction, it’s not gonna be ready for five years, just imagine where the rental prices are gonna be on those larger units in four or five years. The cash flow I think is gonna be actually very good on a lot of these units.
Renters are partnering up as well. So a lot of renters, they can’t afford to have their own place, they’re looking for places to share with other people. So two people getting together and renting a two-bedroom or three people renting a three bedroom. Just like we’ve seen forever in cities like Manhattan, we’re starting to see this more and more here in Toronto, it’s become more and more common.
And finally with the units that you’re buying, we’re talking about buying in prime buildings, in prime locations. These properties are always in demand, whether it’s small units, big units, anything, they’re always in demand. Sure, if you’re buying large units in E, C location, then you might run into difficulty in the future with that. You wanna focus more on the smaller units in those crappy outer locations. But if you’re buying in prime downtown, the larger units are always gonna be in demand to buy and to rent.
So there you have it, that is the presentation I have for you if you’re priced out of Toronto, and how you can actually become a successful investor even despite of that fact, the two key strategies again are buying outside of the GTA, and double your buying power with another investor.
I hope you enjoyed this video. If you did like this video, sharing is caring, go ahead and send this out, email this, share this with somebody that you know, post it on social media, I really appreciate that. And again, if you wanna get ahold of me, my contact information is right here, [email protected] 416-371-2333. And until next time, happy investing.