Throughout the months of June and July I have been known to pair some house hunting in St. Catharines with some award winning wine tastings at a number of nearby local Niagara-on-the-Lake wineries with some of my good friends and clients.
Can you tell I love my job?
My family’s first ever camping trip last weekend at Turkey Point with several friends was an absolute blast and to top it off, earlier this week Corinne and I celebrated our 12 year anniversary chilling out to some cool sounds of Soul in the City at Casa Loma gardens.
I hope you are enjoying and taking advantage of this awesome summer weather as well.
But the weather is not the only thing hot these days. GTA real estate market continues to be on fire!
If you already are a Toronto real estate investor or are considering dipping your toes into this very hot real estate market, you should know that not all Toronto real estate is created equal. A wrong move can cost you tens or even hundreds of thousands of dollars and the assumption of substantial risk.
Here is what you need to know to protect your hard earned money before you take the plunge into this crazy market.
HERE is a link to an article from REP that offers a very rare reality check from the media to those who still invest in pre-construction condos with the goal of price appreciation.
What the article fails to say is that although average new condo prices did go up in the first few years of the last decade, they have gone absolutely no where in the past 5 years.
Reality check for all Toronto condo investors and would be investors thinking of buying a pre-construction condo with the hopes that it will be worth substantially more when completed than what they are willing to pay for it today.
While, average low rise new home prices have gone up by more than 50% over the past 5 years, their new high rise condo cousins’ average prices increased have been nearly $0 over the same time period.
Yet many, many so-called “high rise condo investment” specialists/pushers have been very successful at convincing would be condo investors that these are great investments.
Sure, we all remember the line ups in 2006 and 2007, just before the financial crises and resulting “The Great Recession”, where condo unit builders seemingly increased prices on a daily basis by $5-10k+ and those lucky few very first in line that were able to obtain a unit at the initial teaser price doing very well.
Here’s the problem. THAT HAS NOT WORKED IN WELL OVER 7 YEARS!
Yet for some bizarro reason high rise condo investors still believe it does.
In reality, most investors who bought preconstruction high rise condos over the past 5 years, with the goal of cashing in on the supposed imminent price appreciation that the “pushers” were peddling have been grossly disappointed.
Not only did this appreciation not materialize, but they were forced to tie-up up to 20% of the purchase price, tens of thousands of their hard earned dollars for 2, 3, 4 or even more years without any cash flow or mortgage pay down, WITHOUT ANY RETURN ON THEIR INVESTMENT WHATSOEVER!
In fact, if the market were to have crashed while they waited for their pre-construction units to be built they would have been caught with their pants down, while potentially losing tens of thousands of their hard earned dollars invested. So in effect these so-called investors accepted no return combined with substantial market risk.
As crazy as this sounds, they would have been better off keeping their money in the bank earning less than 1% interest, but even then still losing their money to inflation.
Alternatively, they could have purchased an already built condo unit and either moved in or rented it out from day one since there was no benefit of buying pre-construction. At least then they could have benefited from their tenants paying down their mortgage over the same time period to realize some return.
The only shining light in 2016 is that I suspect that high rise prices will finally start moving up again, albeit still at a much lower pace than their low rise cousins, after going nearly nowhere over the past half decade.
Unfortunately, I expect the high rise condo price increase resumption to be more the result of gross lack of supply and lack of affordable low rise units where the average price of a fully detached home on Toronto is now approximately $1.3 million in Toronto, making these out of reach for most first time buyer.
Toronto real estate, both low and high rise, also makes no sense at all to true real estate investors. Yet this has not stopped speculators and flippers – both domestic and foreign- hoping for further price appreciation to continue pouring hundreds of millions of dollars into the Toronto market, driving prices even higher.
Will there be a market correction. Absolutely! Problem is, no one knows when it will happen and those same speculators risk the very real possibility of being caught with their pants down.
Unfortunately, this leaves high rise condos as the only remaining affordable choice for those wishing to get into Toronto’s red hot real estate market. These units are not based on what buyers may actually want or need necessarily. Rather it is the only Toronto real estate they are able to afford.
Moreover, purely from a real estate investment perspective, high rise Toronto condos remain mediocre at best, as few will be cash flow positive at 20% down. That’s right. Most new condo investors would actually need to pay money out of pocket monthly to carry their investment since the rent they would receive from their tenants would be insufficient to cover all their mortgage, property tax, repairs and maintenance costs.
Worse, without meaningful price appreciation the only return these investors can hope for realistically is mortgage pay down.
Does that seem like a great real estate investment to you?
The good news is that I am still able to source great real estate investments for my “true real estate investor” clients for less than the average cost of a Toronto condo.
The best part is that they generate positive cash flow monthly and mortgages paid down by tenants while offering significantly better appreciation prospects and superior returns with lower risk than the vast majority of any, if not all, pre-construction or resale condos in Toronto today.
Former Dragon’s Den co-star Kevin O’Leary likes to refer to Toronto condos as “Glass Skin Garbage”. It is very apparent why I tend to agree with him on this point.
As far as I am concerned, Toronto pre-construction condo pushers can keep their glass-skin-garbage-snake-oil type investments.
Now that you know the truth, you need not believe their hype!
Wishing you an awesome weekend!
Until next time…
Your Chief Millionaire Maker & Real Estate CFO
