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Should I invest in a condo or a townhouse in 2018?

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Andrew speaks with Florence about her regretting selling a previous investment and whether or not she should invest in a condo or a townhouse this year in 2018.

TRANSCRIPT

Andrew: Welcome to the Ask Andrew Podcast, real questions from real condo investors. You ask, I answer.

Hi, and welcome back to the show. Thanks for listening. I hope you’re enjoying the podcast so far. We’re a number of episodes in, and I’m certainly enjoying making these episodes for you, so I hope you are learning something and getting something out of every episode.

On today’s episode, we have Florence, and Florence’s big question is, should she invest in a condo or should she buy some kind of a house, townhouse, semi-detached, some kind of low-rise house in 2018? We talked about that, and she also talked about something that she feels it was a mistake that she made in her investments in the past, and that’s something I think a lot of us investors can relate to. I certainly could, so you’ll want to hear more about that.

Once again, if you would like to be on this show and you’d like to have your questions asked and answered, just go to askandrewpodcast.com and click on “ask a question,” and I look forward to speaking with you. Also, you’ll notice, hopefully, from here on out, the audio quality will be significantly better. We managed to finally find a solution that I think is going to work moving forward. You might’ve noticed some of the comments I’ve gotten was the audio quality on the early episodes of this show was not the greatest. I do apologize for that, but hopefully, you can still hear the content and get some good value out of it, but moving forward, I can promise you that the audio quality will be much, much better. Here it is, my episode and my conversation with Florence.

How can I help?

Florence: Yes. I’m not sure what I can do with my cash. Do I go with a pre-construction or resale?

Andrew: Right, right. You’re sitting on some cash, and you’re wondering what to do with it. Approximately how much cash are you looking to invest?

Florence: I have the spare 200,000 with me right now, so-

Andrew: Okay, so you got a couple hundred thousand in cash, and you’re looking to invest. What options are you thinking about? What are you considering?

Florence: I’m not sure, because in terms of pre-construction, I’m worried if I buy, it might be too expensive. I’m not sure. I don’t know actually what I should do or where I should go, that’s why I’m looking out to you for help.

Andrew: Right. Have you bought any properties before? Do you have any investment properties?

Florence: Very unconsciously, I sold Harbour Plaza.

Andrew: You sold half of a plaza. What do you mean exactly?

Florence: Harbour, Harbour Plaza, the condo.

Andrew: Oh, Harbour Plaza. Harbour Plaza. Sorry, I thought you said half of a plaza. Apologize. Harbour Plaza. You bought Harbour Plaza, and then you sold it? Is that what you mean?

Florence: Yeah. It was a pre-construction, and I sold it last August? August, September?

Andrew: Okay, so you-

Florence: Yes.

Andrew: … bought, you bought a-

Florence: Yeah.

Andrew: You bought a-

Florence: I did it through assignment.

Andrew: You did an assignment. Right, so you bought pre-construction, and then you sold it by assignment, and I’m guessing you made a pretty good profit?

Florence: Yes, but I regret for selling it.

Andrew: Why is that?

Florence: I don’t know. I was just unconscious. I don’t know what happened.

Andrew: Okay, but why … I mean, you sold it. You made a profit. Why do you look back-

Florence: I didn’t-

Andrew: … now, and you wish you didn’t sell it?

Florence: Yeah.

Andrew: Why do you wish you still had it?

Florence: Because I didn’t need the cash.

Andrew: Right. Okay. Right. Yeah, that’s-

Florence: Right.

Andrew: Yeah, that’s a common thing that I hear from investors all the time is “I wish I didn’t sell” or “I kind of sold too early.” To be honest, it’s something that I’ve even done myself in the past as well, selling a property because it seems like there may be is an opportunity or there’s a willing buyer or maybe the price has gone up, and you think, for whatever reason, you think this is a moment to get rid of that asset. Then you do, and then time goes by, and you say to yourself, “Hmm, maybe I made a mistake,” or, “Maybe I should’ve just held on to it.”

For me, I don’t know about for you, but for me, when I did that in the past, it was, what I realized was I didn’t have a plan for this money, so now, I’m sitting on this cash. I could’ve left it in the property, and it could’ve continue to appreciate and make a return for me, but instead, I got the cash out, and then I didn’t have an immediate plan for what to do with that cash, so it just was sitting there while the market continued to appreciate, and so you’re feeling like you missed out on that opportunity. Is that what you’re feeling?

Florence: Yeah. Big time.

Andrew: Well, I mean, the good news is you’re not alone. A lot of people make a similar mistake, and like I said, I’ve even done that myself so don’t feel too bad. You made profit. You made a good investment. You made profit. Yeah, it probably would’ve been better just to keep it in Harbour Plaza. It’s a fantastic project. It’s going to be a great building for years and years to come, a great place to have a rental property there, obviously, but now, here we are today. Now you’ve got some money, and you’re trying to figure out what to do with it, so you’re looking at … Obviously, that’s the important thing is you know that sitting on cash it not a good idea, and it’s really, your money is actually getting smaller because of inflation when you’re just sitting on cash. Inflation is eating away the value of your money, so you want to get it reinvested.

Do you have anything you’re considering? I mean, in the message before we talked, you mentioned something about should I go pre-construction condo or should I go with a house or something like that? You don’t have anything specific that you’re considering or?

Florence: No. I want to talk to person like you, more like an expert that can guide me.

Andrew: Sure, sure.

Florence: If you tell me pre-construction, then I will focus on pre-construction and revisit the pre-construction market. I don’t want to make the same mistake that I made. That’s why I am so skeptical at this time.

Andrew: Right. Yeah, well, that’s good. I’m glad you reached out. I mean, there’s lots of different opportunities that you can consider. There’s pros and cons to different investments that are out there. What I can tell you is, obviously, I focus on pre-construction condos. That’s my business. That’s what I help people do every day. I’ve been doing this for 10 years, but I’m also an investor myself, and I’ve invested in different types of properties, not just condos, but what I love about condos, and specifically pre-construction condos, is just they’re very low maintenance, they’re very hands-free. It’s a very easy way to invest in real estate without having to do a lot of work. When the condos are actually completed and you’re renting them out, if you’re buying them in good locations, good buildings, something like a Harbour Plaza type of a project, you’re always going to get a high quality tenant. The units are never empty. They’re very easy to rent out. The rental rates are increasing every year. It’s really a great way to invest in the market without doing too much work and getting a good return.

On the other hand, you mentioned townhouses, semi-detached houses, low-rise type properties. Traditionally, in the past, say, five years, those properties have appreciated better than condos in Toronto. A lot of people liked buying low-rising properties because the appreciation rates were better. Typically, the cash flow is better on a condo. Your monthly cash flow is better usually on a condo, but the appreciation usually is better on a freehold home.

With that being said, that has changed in the past year or so because the, you probably are aware that the low-rise housing market, excuse me, is really struggling right now in the GTA. Prices shot up, obviously, in the low-rise market 50% roughly in about a two-year period. The prices just went to the moon, and now, the prices are sort of flat, and there’s a lot of product out there, but the biggest issue, other than the fact that prices are not appreciating anymore in that market is, again, cash flow. The cash flow has gotten very bad because the prices shot up too much and the rents haven’t really gone up too much. If you’re buying a low-rise property for investment purposes, you’re going to get negative cash flow pretty much guaranteed every month, and that’s obviously a turn-off for a lot of investors.

Your chances of getting positive cash flow is much better if you’re buying in a condo, especially if you’re buying downtown in the right building, the right location. Just, from a maintenance perspective, from a property management perspective, condos obviously are a lot less work than owning a house.

All that to say, again, there’s pros and cons to investing in one or the other. I would obviously suggest condos are still, assuming that you want something that’s low maintenance and you don’t want real estate to become your life and a full-time job, condos are definitely the way to go, especially pre-construction. The supply of condos is still very, very low both in resale and in pre-construction, and so that’s one of the factors that’s going to drive prices up this year. From that perspective, if you’re looking for an investment, that’s likely going to increase in price this year, it’s probably going to be condos as opposed to low-rise housing is, as I said, the [inaudible 00:11:20] are sort of going in the opposite direction at the moment. That could change, but at the moment, condos are certainly looking like the clear, better investment at this point in time. Does that make sense? Is that helpful?

Florence: Yes. So wait-

Andrew: Okay, great. What other-

Florence: Wait, where about in downtown?

Andrew: Well, yeah, in terms of where to invest if you’re looking at condos, the downtown core, as a rule of thumb, the downtown core is always going to be the best place to invest. That’s where the bulk of your portfolio, if you’re building a portfolio of units over time, you want to have most of your properties, I believe, in the downtown core. That’s where you’re always going to have the most demand. That’s where you’re always going to have the highest growth over the long term, and that’s where the rental rates are also, I believe, going to perform the best over the long term.

That doesn’t mean you should never invest outside the downtown core. There’s obviously a lot of condo developments now coming up in the 905 areas, in Mississauga, in Vaughan, in Scarborough, even in Hamilton. There’s certainly a case to be made for investing in other areas as well, but if you’re just picking one condo out of the air, so to speak, then you want to probably have that condo in downtown Toronto. If you’re building a portfolio of many units over time, probably you want to have most of those units in downtown Toronto.

In terms of specifics, it is a challenge right now. There’s not a lot of product out there to buy, as I mention. There are opportunities that come, and they’re gone very, very quickly, so if you’re looking to invest, you do need to be prepared to make a quick decision when the opportunity is available.

Florence: Okay. How do I start? Do I focus on a particular area or?

Andrew: Well, I think you start by doing what you’ve already done, which is making a decision that this is something that you want to do. It sounds like you’re pretty much at that point where you are deciding you do want to buy pre-construction condos this year. That’s the first step is making that decision. The second step is obviously working with somebody like myself, somebody who is a Platinum agent who’s able to get you access to the new launches as soon as the moment they are coming out at the earliest possible stage. You are, I believe, getting my, I believe you are getting my weekly email updates, is that correct?

Florence: Yes.

Andrew: Yeah, so as you’re getting my updates, that’s the best way to keep on top of the opportunities that are coming out in the market. As those opportunities emerge in the weeks and the months ahead as we’re heading to 2018, it’s a matter of looking at those opportunities as they come to you in the email each week, and deciding which one makes sense for you and which one you’re interested in investing in, and again, being ready to make a relatively quick decision when those opportunities come up.

We’ve just been launching a new building this week, King and Spadina area, and it’s a very limited release, and the suites go very quickly. If you wait a week, or sometimes less, then often, the opportunity is already gone, or the prices have been increased, and you miss out on that first initial batch of pricing. Maybe you can get in still, but the prices maybe go up a little bit. It’s sort of the early bird gets the worm and being ready to make a quick decision when these new projects come out and just making sure that you are keeping in touch with me regularly to … If you’re interested in any particular new launches that are coming out, letting me ahead of time, “I’m interested in this building or that building,” or, “I heard about this one or that one,” then I’m happy to guide you and let you know which is the better ones to consider and to get into.

Florence: Okay. What about the price, in terms of price?

Andrew: Yeah, what’s your question exactly in terms of price?

Florence: Because I see they’re going for around about 900 square feet now?

Andrew: $900 per square foot?

Florence: Roughly, yeah.

Andrew: Yeah, sort $900-1,000 per square foot is a-

Florence: Wow.

Andrew: … typical downtown average price right now, yes. Yup.

Florence: I … What’s the probability of appreciating?

Andrew: What’s the probability of appreciating, great question. I’ve been saying for the past several months that the, I mean, the prices have been appreciating very well obviously over the last year, but I’ve been saying that I believe the prices are going to continue to appreciate very well moving forward in 2018, and the biggest reason for that as I said earlier was there’s no supply. There’s no inventory, there’s no … If we had a large amount of new supply on the market, that would be a sort of release valve to the market, if you will, to relieve some of the pressure on pricing, but we’re not seeing that.

If we were having this conversation two years ago, you called me and said, “I’m interested in investing in pre-construction condo downtown. I’ve got a couple hundred thousand to invest,” I’d say, “Great. Here are three or four excellent options that you can buy right now,” but it’s not the case right now. There’s literally nothing to buy. Every new project that comes out is selling out within a week or two. Everything is gone, gone, gone. The projects that launched a few months ago, six months ago, a year ago, they’re sold out. There’s nothing to buy in those projects. It’s not like it was a couple of years ago where a project would launch, and they would sell maybe 30, 40, 50% of the building, and then over the next six months or a year, they would slowly sell the rest of the building, and that opportunity would still be there, and there was inventory, there was supply out in the marketplace.

It’s not like that. You go around to all the sales centers, everything is sold out, sold out, sold out, or if they have units, they won’t even sell them to you. They’re saying, “No. We’re holding these units for a future release, future release, future release.” It’s definitely a seller’s market. Any time you have conditions like this, this tells you that prices are going to keep rising.

Florence: Okay.

Andrew: For that reason, again, that’s why if you look at it from that perspective and if you understand that it is a great time to buy if you are able to buy something because you know with a high degree, you know nothing is guaranteed, obviously, but you know with a high degree of certainty that prices are going to keep rising next month, next quarter, next year, prices will be higher than they are today because, again, there’s no supply. Everything is being bought up very quickly.

Florence: Is this only for the condo market? What about the semi-detached houses. Are they …

Andrew: Yeah, as I said earlier, it’s the opposite situation. In the condo market, it’s a seller’s market. In the low-rise-

Florence: It’s a buyer market.

Andrew: … housing market, it’s a buyer’s market, but, I mean, there’s a lot of supply, but the problem is, there’s not really any deals to be had or anything. Developers are not lowering their prices at all. Developers, for the most part, if they have anything to sell, which they do, most, in the 905 areas, there are developers with houses to sell, but the prices are very high compared to [crosstalk 00:20:33], for the most part. If you look around, the new product is priced very high compared to the resale product.

Florence: That’s true.

Andrew: It’s the opposite situation, the low-rise market. We’ve seen this switch in the market that we’ve never seen before where the high-rise market is shooting up, and the low-rise market is flat, or in some areas of the Greater Toronto Area, particularly in Richmond Hill, Markham, north of the city, Newmarket, those areas, the market is actually, potentially, it’s declining.

Florence: As an investor, do you think low-rise would be a better option for long-term?

Andrew: Again, it depends on what your objectives are. It depends what your criteria is for a better, what makes a better investment. Potentially, it could be a great investment for the long term. I mean, it’s not the market is going to disappear, or the trend of the market right now is not going to continue forever, of course. At some point in time, that low-rise market will pick up again and will be a seller’s market again, but if you’re asking me today what’s the market today, what’s the best thing to buy today, then it’s definitely the condo side of the market. Six months from now, it could be different, but we don’t know what the future’s going to hold there.

Florence: Okay.

Andrew: But yeah, I mean, the challenge is, if you’re looking on the low-rise side is, like I said, there is inventory, there’s supply out there, a lot of it, but prices are not, it’s not like prices are falling, or developers in particular are not lowering their prices. When the market slows down as it is, developers just tend to just wait and just sit there on their prices. Very, very rarely would prices ever actually decrease. It would have to be extremely bad situation for prices to decrease.

Even if you go back to 2008, the big recession, when the market took a hit, the most we saw prices go down, if anything, was 5-10% kind of a thing. Developers, with developers, the pricing tends to be very sticky, and it tends to, if anything, the prices will just stay flat, and they’ll just wait three months, six months, nine months, and they’ll just, instead of selling a hundred houses in a weekend, they’ll just say, “Well, we’ll sell five houses this weekend, five houses next weekend, and we’ll just slowly get through it.” You’re not, even though it’s on paper, it’s a buyer’s market, you’re not seeing deals. That’s what I’m trying to say. Does that make sense?

Florence: Yes.

Andrew: Yeah.

Florence: What project do you have, what project do you have now? You mentioned about King and Spadina?

Andrew: Yeah, so the project I’m referring to right now that we’ve been working on in the past week is 357 King. 357 King Street, which is right at King and Peter by Great Gulf homes. Did you see the information I sent out about that one?

Florence: Yes, King Street. It’s called King West?

Andrew: King West neighborhood.

Florence: It’s called King West?

Andrew: Yeah. The building is called-

Florence: Oh.

Andrew: … 357 King.

Florence: Okay. Okay. I did see that one.

Andrew: Yeah.

Florence: But I don’t have the pricing. How much is it going for?

Andrew: The pricing averages around $900 a square foot. Some of the larger units are starting as low as $820 a square foot, so the value there is very good. The location obviously is pretty much the best location you can get. Right at King and Peter is just an unbelievable location. It’s a great, great neighborhood. The builder is Great Gulf homes, so one of the best builders in the business. That project has been very well-received. That would be a great project to get into. Again, prices at that level, very likely those prices are going to increase significantly, so if you are able to get into something like that at the initial launch stage, again, you’re probably going to do very, very well with something like that.

Thanks for listening to Ask Andrew Podcast. To get your question answered, just go to askandrewpodcast.com, and click “ask a question.”

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