Is now the time to cash out? Part 1: Should you sell your Toronto condo?
In part 1 of this special 2-part podcast, Andrew la Fleur does a case study analysis of one client’s portfolio and answers the question is now the time to cash out – should you sell your toronto condo now? He has a unit downtown and he bought a pre-construction condo. He’s thinking about selling now and renting for a few years until his other unit is ready. Find out Andrew’s advice to this client.
4:40 Maximize equity.
5:10 Concerned about the maintenance fee going to become an issue.
5:32 Advice based on the current market, and what we know.
5:40 Reasons to sell and reasons to not sell.
8:25 Can prices really get any higher than they are now?
10:43 Size of the unit being 1,080 square feet.
12:18 Value in having a unique property.
12:40 Prices are currently rising downtown at about 30 to 35% annual rate.
Andrew : Is now the time to cashout if you own a Toronto condo? Find out on today’s episode. This is part one of a two part 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 : Hello and welcome back to the show, thank you for listening, thank you for your support. Just getting so much positive feedback on the podcast lately, I really, really do appreciate you listening and spending the time to hear what I have to say every week, hopefully multiple times a week as we move forward. It is the spring market now, and things are getting quite hectic in the market as they always do at this time of year. If my podcasts are not coming as frequently as you would like, my apologies. Please, do send me an email, let me know, and that does help to encourage me.
If you have ideas for the show, if you have questions, if you’re wondering about investing in condos, of course send me questions anytime. Loved to hear direct feedback. That’s one of the biggest things I like to do with this podcast, is just answer your questions directly in a longer format sort of way, as opposed to a tweet, or a Facebook update, or a blog post, which are okay. I just find that the podcast format is fantastic for just giving longer, more in depth, more real, more substantial, more valuable, hopefully more valuable answers to your condo investing questions.
With that in mind, on today’s episode, we’re talking about is now the time to cashout? Is this the moment, is it a good moment to sell if you have condos in Toronto? This came about because a past client of mine referred to me one of his colleagues who owns a condo downtown, and they are thinking about selling. I had a conversation with that person this morning, and just wanted to share with you some of the things that we talked about in that conversation, and some of the advice that I gave this gentleman.
Here’s the situation, this guy has a condo downtown, it is in an, the building is 95 Lombard, 95 Lombard Street. It is a smaller condo building, built around 1990. It’s not one of the more well known buildings downtown, but the location is basically Church and Adelaide, Church and Adelaide, so very close to Young Street, Financial District, Saint Lards Market, Dundas Square is not too far away. That is where the condo is.
The condo is just over 1,000 square feet, is around 1080 square feet apparently. I haven’t seen this condo, but just telling you what information I do have on it so we can set the context. It is one and a half bathrooms, it is a one bedroom and den, if you can believe. One bedroom and den, 1,080 square feet, and he told me that he bought the condo about five years ago or so. He’s been living in the condo there, and he’s a guy who works in the Financial District, he’s in the finance kind of world. This is my first conversation that I’m having with him.
His situation, he said he’s recently bought a pre-construction unit at Home Condos, Home Condos by Great Gulf Homes at Adelaide and Parliament, Adelaide and Parliament, which was one of my top recommended projects for investment over the past few months. We sold a lot of units there to our investors, it’s a great, great building. Great Gulf is a fantastic builder, it’s in an up and coming area, the value there was very, very good. When we launched that building a couple months back, and so good for him. He’s bought a unit there, and he’s planning on moving into that unit when it’s ready in a few years. He’s thinking he wants to, basically in his words, he wants to maximize his equity. He’s seeing a lot of condos going, he also says he’s seeing a lot of condos going up all over the place, he says, and he’s wondering if there will still be demand there in the future. He’s wondering if maybe now is a good time to sell his unit there, and maybe rent for a few years until his other pre-construction unit is ready.
He also talked about the fact that he’s concerned that his maintenance fees are going to become an issue, hurting his value because the maintenance fees there are approaching $1,000 per month for his unit. That is the context, that’s the information that we have, that’s what he gave to me. Let’s get into my advice to him based on the current market, and what we know.
I mean, you can look at it two ways. You could look at it as reasons to sell, and reasons to not sell. On the pro selling side, the yes you should sell side, you could look at it like a lot of realtors are talking right now. Maybe you’re getting fliers in the mail from realtors, a common headline, “Never been a better time to sell. Prices are on your street are at an all time high.” Classic line that you see on these fliers. It’s true, prices are at all time highs, the demand and supply equation is never been more in favor of you as a seller if you’re selling. In his particular building, there’s zero listings on the market. That’s always a huge thing by the way, if you are selling a condo. If there are no listings available in your building, you’re really in the drivers seat. Versus if there are many listings in your building, that does make a huge difference.
Even in a slow market, if you’re able to get on the market with no other competing listings in your same building, especially with the same unit type. You got a one bed, or a one plus den, or a two bed, whatever your unit type is. If there are no other competing listings in your building, that’s a huge advantage to you and you’re going to have a very different strategy for selling if you’re alone on the market, versus if you are facing many other units in the building also on the market at the same time, very different strategies. No listings in his building on the market at all right now.
It’s also, it’s an older condo building. It’s 27 years old, so there’s certainly something to be said for the fact that maintenance fees are quite high, maintenance fees are almost $1,000 per month. His unit is 1080 square feet, so you’re approaching a dollar per square foot maintenance fee, which is, the average maintenance fee is about 60 cents per square foot. A dollar per square foot is much, much higher. That’s 50, 60% higher than the average condo maintenance fee, certainly downtown. There’s certainly, you could take that approach and say, “Well, it’s just getting to be a very old building. It’s not going to appreciate as well, and therefore we should look at cashing out for that reason.”
There’s also the sense that can prices, you might be thinking or he might be thinking, I’m not sure. Certainly there are people out there thinking, “Can prices really get any higher than they are now? Has the market peaked? Are we do for a correction in the market?” The governments talking about all these new rules that they’re going to be putting into play supposedly, will that cool the market down, and slow everything down to a crawl, or reverse the market perhaps? Therefore we should get out of the market now if we have something.
That’s sort of the thinking on the one side of the equation. On the flip side, let’s look at reasons to not sell this particular condo. Well the first thing, obviously jumps out to me is it’s in an amazing location. If you look at Church and Adelaide there, you are so close to the Financial District, which makes it very unique. The ability to walk within 10, 15 minutes of the largest employment center in the entire country in terms of number of jobs in one small geographic area, the Financial District, and even the South Core District, which is also increasing in it’s role in the economy here in the GTA. Even Young and Bloor, there’s so many. Even of course the hospitals, and the universities, there are just probably a few hundred thousand jobs within let’s say a 20 minute walk of this unit. Most importantly, the Financial District being about 10, 15 minutes away.
This is an amazing location. It’s always going to be a good location. As the downtown is getting built out, that sort of a location is going to become more and more valuable, rarer and rarer to find new product in these sorts of areas because the entire downtown is just being more and more built out, so it’s becoming harder and harder for developers to find prime sites like that within that 10, 15 minute walking distance of the Financial District. It’s becoming harder and harder to find those types of new condos coming onto the market. That’s one thing.
The size of the unit actually, is another interesting thing. The size of the unit being 1,080 square feet. A couple years ago, maybe two, three years ago, I would say that’s almost a detriment to have a one bedroom unit, one bedroom plus den unit that is so large. In today’s market, the larger units sort of 800 to 1,100 square feet, there’s massive, massive demand for larger units as people are especially moving from smaller condos, to larger condos. People who are not able to purchase a house, or who do not want to buy a house. They want to stay in the downtown core. Finding a larger, if you’re on the market for a larger one bedroom unit, like larger than say, 600 square feet, it is very, very difficult to find.
A unit like his, I haven’t seen the floor plan, but most likely at that size, it’s going to have a massive living area, lots of living space, large kitchen. The communal areas are going to be huge, the master bedroom is probably huge, and then den of course is huge. He even said the den has a door on it, it’s basically like a second bedroom. Even if you call it a two bedroom at 1080 square feet, that is still a massive two bedroom. That type of product is becoming increasingly more and more rare as the market gets built out with smaller, and smaller type units. That type of floor plan is becoming rarer and rarer. There’s certainly some value in having a unique property like that, that is not … There’s not much competition for something like that out there.
What else in favor of thinking about this is an asset you don’t want to sell, that you want to keep? Well, the biggest thing really to hammer home is that prices are currently rising downtown at about 30 to 35% annual rate, 30 to 35%. If you’re selling right now, most likely you could sell for more tomorrow. Most likely you could sell for even more the next week, and the next month, and three months from now. Prices are rising dramatically every week. It doesn’t really, that would be the biggest thing, and really the biggest point that I was trying to drive home with this gentleman is, if you don’t need to sell, don’t sell. This is really, I’m taking the opposite of what you’ll see in the real estate fliers coming to your door, “Now has never been a better time to sell.”
I’m actually saying, “Now has never been a worst time to sell than right now.” Do not sell if you don’t have to. The moment you sell, you’re going to regret it the next day. I’ve seen this time, and time, and time again. People who were in the market a year ago, or six months ago, or even two months ago. People who owned assets, properties in the market. They, for one reason or another, they decided to sell, and they did not reinvest that money into the market. They did something else with that money. All those people regret it, all those people regret that they missed out on massive gains, and their equity would have kept growing.
If you are thinking of selling because the market is so high, my general advice was, “Well at least, at least wait for the market to flatten out.” I mean, it’s my belief that the market is going to, even if it flattens out, it’s of course going to keep going up over the long term. If it flattens out for a short period of time, it’s better to sell in a flat market than it is to sell in a rapidly upward skyrocketing market like we’re in right now, because you’re leaving money on the table. You might as well take it month by month, take it quarter by quarter, and if the market is showing signs of flattening out, or if the market does in fact flatten out for three months, or six months, and it’s just kind of sitting there and we’re not seeing these rapid price increases like we are now. Then that might be a good time to sell, rather than right now. At least you know that a few months after you sell, it’s most likely not going to go up even more.
Again, with that being said, my overall philosophy of investing is to buy and hold for the long term, to not worry about short term blips in the market. But, if you have it in your head and you’re determine to sell a real estate asset, at least look to sell it when the market is slower, or flatter where you’re not immediately giving up gains the next day after you sell. Because right now, that’s exactly what’s happening. The market is rising very, very quickly.
Okay, we’re going to just cut it off there, and stay tuned for part two of this episode where I talk about how the masses think, versus how the wealthy think.
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