Investing in Toronto Condos

[Billoaji]

Can someone put my mind at rest. I would like to invest in the Toronto condo market and wold like some opinions from investors who have done so, whether they have succeeded or not. Cash flow is positive with the properties ive choosen and renting them appears to be fairly easy but I heard on the news that people are trying to leave Toronto, Can anyone touch on this?

Thanks

 

[invst4profit]

The T.O. condo market is difficult to get cash flow according to the LLs I have spoken with. Prices are dropping, rents may be declining, market may become flooded with condos purchased with the intent to flip and are now being rented. Not a positive picture in my opinion.

If you have actual numbers on perspective properties post them so we can better assess your situation.

 

[Thomas Beyer]

QUOTE (Billoaji @ Apr 21 2009, 07:18 AM) Can someone put my mind at rest. I would like to invest in the Toronto condo market and wold like some opinions from investors who have done so, whether they have succeeded or not. Cash flow is positive with the properties ive choosen and renting them appears to be fairly easy but I heard on the news that people are trying to leave Toronto, Can anyone touch on this?

Thanks

OF COURSE it makes sense to buy stocks or real estate .. the question is: at what price ! Can the rent (that is dropping) sustain the value (that is dropping in short term but will go up eventually).

Please define "Toronto" !

Please define "Condo"

"condo in Toronto" is too broad a range .. GTA with 5M people all the way from Hamilton to Ajax .. or just downtown Toronto waterfront ?

high end new condos or old ones too ?

So the question should be: "Where in Toronto at what price ranges does it make sense .. and where does it not" ?

btw: I almost bought a condo in Toronto, 2BR 1000 sq ft, water front, island/water view for about $400,000 4 years ago .. and then did not .. and today that complex is about the same price, slightly higher .. maybe $425,000 to $440,000 or so. So, can you get $2500/month in rent to cover mortgage and condo fees for a long term hold ? Hard .. but not impossible ..

My rule of thumb for apartments and houses is:
apartments over $80,000/door are suspect .. and condos/houses over $300,000 are suspect as the rent usually is not high enough to cover holding costs .. but that is just me and should not sway you from buying high-end properties with potentially more equity upside but likely negative cash-flow while holding ..

 

[housingrental]

I like Thomas`s post
I`d add though - condo fees can be a killer and beyond your control - are your estimated expenses correct five years out ?
Lots of pre-sales were purchased by investors... Lots of new product still coming online...
After you factor in % collected, vacancy, and the once every four years someone trashes your place and your in for an extra $8000 on aesthetics beyond what you budgeted I`ve not seen anything interesting....
Even some of the north west condo`s for closer to 100k you`ll likely loose money

 

[Nir]

A condo in Toronto will not cash flow! therefore all is left to hope for is appreciation. Are you into stocks/speculation?
To escape the rat race you need a nice positive cash flow = passive income. A condo in Toronto will not generate that for you.
Good luck.

 

[Thomas Beyer]

QUOTE (investmart @ Apr 21 2009, 11:35 AM) A condo in Toronto will not cash flow! therefore all is left to hope for is appreciation. Are you into stocks/speculation?
To escape the rat race you need a nice positive cash flow = passive income. A condo in Toronto will not generate that for you.
Good luck.
depends on leverage .. age and location .. OF COURSE it will cash-flow with 50% down !!

but: there are likely better location on the edge of GTA or smaller ON towns or AB,BC or SK towns where condos can be had for 120-160 per !

some stocks are far better investments than some real estate ... it all depends on price and upside and dividends/yield/income !!

 

[zimnicki]

QUOTE (thomasbeyer2000 @ Apr 21 2009, 09:59 AM) OF COURSE it makes sense to buy stocks or real estate .. the question is: at what price ! Can the rent (that is dropping) sustain the value (that is dropping in short term but will go up eventually).

Please define "Toronto" !

Please define "Condo"

"condo in Toronto" is too broad a range .. GTA with 5M people all the way from Hamilton to Ajax .. or just downtown Toronto waterfront ?

high end new condos or old ones too ?

So the question should be: "Where in Toronto at what price ranges does it make sense .. and where does it not" ?

btw: I almost bought a condo in Toronto, 2BR 1000 sq ft, water front, island/water view for about $400,000 4 years ago .. and then did not .. and today that complex is about the same price, slightly higher .. maybe $425,000 to $440,000 or so. So, can you get $2500/month in rent to cover mortgage and condo fees for a long term hold ? Hard .. but not impossible ..

My rule of thumb for apartments and houses is:
apartments over $80,000/door are suspect .. and condos/houses over $300,000 are suspect as the rent usually is not high enough to cover holding costs .. but that is just me and should not sway you from buying high-end properties with potentially more equity upside but likely negative cash-flow while holding ..

when you guys buy apartments, whats the average you pay per door?... if 80k is for high end? I know it all depends on location, building and etc. but just wondering whats an average or going rate per door!

 

[invst4profit]

Novice investors must be careful when analyzing deals. As Thomas states you can have "cash flow" (forced) by paying down however this can not strictly be call "positive cash flow".
When investing cash in a deal some of your return is from the deal itself the remainder from your invested cash.
Any property can "cash flow", if for example you paid all cash, but that by no means makes it a good deal.
In my opinion any deal that requires cash down to produce "cash flow" is on the surface not a good deal but may have some potential, long term, assuming cash is readily available to cover shortfalls.
When analyzing a deal one must have a method of evaluating it`s potential independently of financing put in place to acquire that deal.
For this reason, when evaluating a potential property, I calculate debt payment based on 100% financing.
Others may prefer to use ROI.

 

[invst4profit]

QUOTE (zimnicki @ Apr 21 2009, 03:00 PM) when you guys buy apartments, whats the average you pay per door?... if 80k is for high end? I know it all depends on location, building and etc. but just wondering whats an average or going rate per door!

I do not have a value l prefer a simple (rough) formula:

RENT - $100 = XXX
2

50% of rent is my anticipated monthly expenses (long term).

$100 is the minimum monthly positive cash flow I expect to receive.

XXX = the monthly mortgage payment. This determines the ball park figure I will pay based on the going rate for a 5year mortgage (30 yr amt.).

 

[Billoaji]

The condo has a low cash flow but seemed to be a very safe and comfortable investment with increases of only 3 percent a year but thats my speculating and thats bad. After researching costs as well as money down I think ill head somewhere else to invest, maybe a multi tenant complex in the Waterloo area?

Thanks for all the opinions, its greatly appreciated.

 

[Nir]

Zimnicki,



Please note that in Greg's response he did not provide the price per door that you asked about. The reason is if you look at the formula he is using, it does not depend on price per door, just passive income. I agree with and like Greg's approach. In other words, it might be a duplex, 4-plex or 10-plex but the price per door is not even calculated(!) as the focus is on 1. Total Rent (whether it comes from one unit or 10) and 2. the property price.



I think it is the right approach especially if you assume 50% expense regardless of number of units (which is not accurate due to economies of scale but still a good estimate I learned from Thomas and Greg long time ago).



Regards,

Neil



PS. Depending on the property and who pays for utilities estimating the expense to be 40% of the rent instead of 50% might be more accurate but not critical at all in my opinion as explained here:

http://myreinspace.com/public_forums/General_Discussion/61-10536-Property_expenses.html

 

[Thomas Beyer]

QUOTE (zimnicki @ Apr 21 2009, 01:00 PM) when you guys buy apartments, whats the average you pay per door?... if 80k is for high end? I know it all depends on location, building and etc. but just wondering whats an average or going rate per door!
how much for an average car ?

it depends .. 3000 to 120,000 .. same with an average "door" !!

100 times monthly rent is a good figure to ball park .. VERY roughly ..

 

[kreezo]

Taking a look at a condo thats for sale in my building now which is a one bedroom harbourfront condo downtown toronto:

Price: $318K
Mortgage Payment: (4%, 35 years, 20% down): $1126/MO
Insurance: $25/MO
Maintenance/utiltiies: $418/MO
Prop tax: $172/MO
Avg rent: $1450/MO
CF: -$291

This is a clear cut negative cash flow property then?

My questions would be:
- WHY would people buy this property then? Simply for home ownership or capital gain? Given the saturation of the condo market in Toronto (is cap gain slim to none?)
- Is it likely that the original owner, say if they bought it 15 years ago, they`d probably be making +ve cash flow then?
- Why is there such a big discrepancy between the drivers of rent vs market price - how can the prices be so "inflated" but rent move at a slower speed. What are the economics behind these two? In comparison, say a small town REIN recommended property for $250K can say generate $2700/MO in rent - how come there`s such a big difference in the two?

Chris

 

[housingrental]

"- WHY would people buy this property then? Simply for home ownership or capital gain? Given the saturation of the condo market in Toronto (is cap gain slim to none?)" Homeowner: They like the location, view, etc.. Investor: They think they`ll be higher rent, lower maintenance, and betting on appreciation.

"- Is it likely that the original owner, say if they bought it 15 years ago, they`d probably be making +ve cash flow then?" Sure but if your making a 3% return on your equity your still cash flow positive.. and it`s still a waste to have your money sitting there.

"Why is there such a big discrepancy between the drivers of rent vs market price - how can the prices be so "inflated" but rent move at a slower speed. What are the economics behind these two? In comparison, say a small town REIN recommended property for $250K can say generate $2700/MO in rent - how come there`s such a big difference in the two? " Increased homeowner demand, limited rental market on higher end (above standard rental apartment) properties.