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need your advice

M

Markoff

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Dear all,

I am so thankfull finding this forum with tons of useful information. I am a novice in real estate and really need your advice. Here is my situation.
I`d like to invest 300K in real estate, preferably in the Toronto area. Currently I reside in US and plan to return to Ontario in 4-5 years.
I am thinking of buying a condo in Toronto. This seems as the most managable option (if I hire a property management agent) because I live pretty far and can communicate only remotely.

My question is should I buy a single condo without a mortgage or two units with 50% down. On the other hand, there are so many condos in Toronto available now for purchase and for rent that I am not sure if Toronto is a good choice. Also I red that a good investment is if a propery cost = ~100 times a monthly rent. It seems impossible for Toronto.

Thank you
 
It`s very hard to find condo`s in TO that have good rent - condo fees to purchase price.
Why not look into Waterloo?
If you have a good property manager you shouldn`t worry about needing to find a condo either.
As for buying with 100% to 50% down you need to decide what your more comfortable with - More upside, more downside.
 
Toronto is definitely not a good investment, especially for condos.
Yep. Rent should be a minimum of 1% of purchase price especially in Ontario.

Toronto can have a very difficult tenant base. Too many so called "tenant advocate groups" blowing wind up tenants skirts.



http://members7.boardhost.com/Landlordonta...html?1236648478

You may want to check out this site before considering Toronto for investing.
 
There are some small pockets of Toronto with some upside but for the most the condo market is heavily saturated and very hard to cash flow. As Adam says you may want to look outside of TO to areas like Waterloo, Barrie and Hamilton. Your money will work much harder for you there and just by browsing this message board you will get connected with some great Realtors and property management companies.
 
Hi,

If you are a non-resident for tax purposes, you need to be a little careful if you are purchasing a place with the intention of ultimately living in it. You could jeopardize your non-resident status. I`d have a chat with an accountant if this is your intention.

Nicola
 
QUOTE (GaryMcGowan @ Jun 27 2009, 09:59 PM) There are some small pockets of Toronto with some upside but for the most the condo market is heavily saturated and very hard to cash flow. As Adam says you may want to look outside of TO to areas like Waterloo, Barrie and Hamilton. Your money will work much harder for you there and just by browsing this message board you will get connected with some great Realtors and property management companies.

There are significant extra costs that could add up so watch out for things such as city levies for utility hookups for the closing costs..and depending on the price..you may get hit with HST and the city/province land transfer tax...ensure you budget this.


I`d like share some insights with some cold hard facts on pre-construction condos downtown.

So here`s the deal with the pre-construction condo market. According to realnet since 2006 the average south of bloor between dufferin and Yonge pre-construction condos have gone up 27% since 2006.

What performed better at the condo-price point around the GTA...on average, nothing.

According the TREB, the average price for a semi detach (which would have a similar price to a pre-construction condo) in the top 10 areas around the GTA in 2005 (Brampton, Orangeville, Markham, Witchurch-Stouffville, Durham, 404 Corridor, Oshawa) have performed poorly. None have appreciated more than 9% since 2006.

(Barrie-Orillia, KW and Hamilton realtors...please send me some stats on the average semi-detach home prices since 2006..you can email me at [email protected])

It appears saying pre-construction condos in downtown Toronto is bad may be pure conjecture. According to realnet there is about 20,000 pre-construction units ready this year..let`s say 12,000 of those units are investors and 5,000 of them want to sell (these are really conservative because most estimates peg investor owned condos to be around 30%)

so lots of supply means prices fall right?...not according to the stats. What is happening is sellers won`t sell, the rents are high enough downtown they`d be willing to take the slight cashflow.

According to realnet, demand and prices haven`t fallen off that much downtown. The Sales to listing ratio has fallen 3.5% because of the recession and adding 5000 units to today`s numbers would cause the sales to listing ratio to fall 4% (instead of the 3.5%) and prices have fallen 0.91% YOY from april 2008 to April 2009.


The green belt and lake are acting like Vancouver`s mountains and Ocean. Huge immigration and our large population lacking affordable housing are the real fundamentals working for the pre-construction market in Toronto


So now that you have some economics behind us what do you do? well it depends on what you want

If I was buying a downtown condo i`d look for a straight ROI and i`d buy a condo at 2007 prices by finding buyers who got caught up and are trying to unload their units before they have to close. at 50% down two units will cashflow and you already have a built in buffer on the upside if prices fall.

It`s a tough question to answer with limited info.


What are you looking to do..is it ROI? cashflow?
Are you prepared to deal with the potential downside risk of more supply on the market?
Is the developer on a solid footing? Is there potential to pay phantom rents?
Are you giving a fair representation of your initial investment including all closing costs?
Have you researched the rents you will receive from the particular city block and building you are buying in?
Do you know your exit strategy? who would buy these units? who wouldn`t not buy the units? is there a market for them in the future?
 
Brian: You say it is possible to cash flow with a condo in TO.
Do you have any actual numbers to support your statement? All reports I get are to the contrary.
Although some condo owners in TO say they cash flow there actual numbers indicate otherwise when they factor in all expenses and a monthly return on there down payment.
Can anyone show some numbers including condo fees, taxes, etc with say a 5% mortgage and include a 5% return on Down Payment monthly.
Real world stuff.
 
QUOTE (invst4profit @ Jun 29 2009, 10:35 AM) Brian: You say it is possible to cash flow with a condo in TO.
Do you have any actual numbers to support your statement? All reports I get are to the contrary.
Although some condo owners in TO say they cash flow there actual numbers indicate otherwise when they factor in all expenses and a monthly return on there down payment.
Can anyone show some numbers including condo fees, taxes, etc with say a 5% mortgage and include a 5% return on Down Payment monthly.
Real world stuff.

Hi Greg,

With 50% down of course they will cashflow. It`s important that Markoff does the numbers himself. Why would you leave the job of running the numbers to me? He has to do them for the particular condo he is choosing. It`s part of the job of being an investor. Knowing the numbers is vitally important to any business.

Markoff, If you have a potential building, post it here and we can help you

I don`t buy pre-construction condo`s in particular neighborhoods in particular buildings in Toronto...I just study the fundamentals
 
You stated it is possible to get positive cash flow from a TO condo and I believe it is not possible in today`s market. I am referring to monthly positive cash flow not ROI.

How do you calculate cash flow?
Does your calculation value the down payment at zero. You expect no monthly return on your cash.
This is a loose business approach to calculating cash flow. ROI on investment but not cash flow.
At a bare minimum cash flow should be calculated based on 100% financing at the present mortgage rate.
I say at a bare minimum because a 2-3% return on your Down payment is not worth my investment.

Logically you can not throw 1/2 a million dollars at a $600,000 property and claim you have positive cash flow with a rent of $1000/month. Or can you? This would indicate that a investor can have positive cash flow on any property in any market at any price.

We do not operate under the same definition of positive cash flow if that is the case. Which is fine but I need to know that if I am to participate in the discussion.
 
QUOTE (invst4profit @ Jun 29 2009, 06:10 PM) You stated it is possible to get positive cash flow from a TO condo and I believe it is not possible in today`s market. I am referring to monthly positive cash flow not ROI.

How do you calculate cash flow?
Does your calculation value the down payment at zero. You expect no monthly return on your cash.
This is a loose business approach to calculating cash flow. ROI on investment but not cash flow.
At a bare minimum cash flow should be calculated based on 100% financing at the present mortgage rate.
I say at a bare minimum because a 2-3% return on your Down payment is not worth my investment.

Logically you can not throw 1/2 a million dollars at a $600,000 property and claim you have positive cash flow with a rent of $1000/month. Or can you? This would indicate that a investor can have positive cash flow on any property in any market at any price.

We do not operate under the same definition of positive cash flow if that is the case. Which is fine but I need to know that if I am to participate in the discussion.

Hi Greg,

I understand that with your numbers this would not make sense. If you find that condo that`s worth $600,000 that rents for $1000 I can find a few people that would be interested in it. A suggestion..go look up some condo listings in one building...say city place see what they are selling for and then go to a few websites to see what the rent is. Report back what you find.

Cheers
 
Difficult to say how accurate this is:

Did not find any in city place for under $300,000 most were mid $400,000

One site posted the following:

1 Bed - ......................sale price - $230,000 - $280,000 ....................rent $1300 - $1500
1 bed plus den ............sale price - $240,000 - $300,000 .....................rent $1400 - $1600
2 bed ........................sale price - $300,000 - $600,000..................... rent $ 2700 +

The only one that would even come close would be a 2 bed at $300,000 with a rent of $2700. Close but still negative in my opinion.
Condo fees, special assessments, taxes, insurance, etc all to high in T.O.
You need rent to be a minimum 1% of purchase normally and in T.O. probably higher to cash flow.

$300,000 mortgage 30 year at 5% = $1600/ month (35 yr = $1500/ month)
That only leaves $1100/month for all other expenses combined to break even. I do not see that in T.O. with condo fees, taxes, insurance, regular maintenance, vacancies, legal, accounting, evictions, advertising, +++.

How much are condo fees? 50 cents per sq ft. And rising every year I would expect with every thing in T.O. going up plus rising energy, garbage, taxes, government fees etc.
 
Hi all,
Thank you for inputs. Very informative.

When I asked my question about Toronto investement, I used the following numbers:
Condo price 300K
Down: 150K
Mortgage at 4.5% for 15 years with $1150 monthly
Closing cost $7500
Rent $2000/month
taxes, insurance, property managemen etc $570/month

Then Cash flow is $280/month (if no income tax).
This is of course a "bad" investement for cash flow. But if the condo price remains unchaged the investment return in 15 years is ~7% per year (of course should be reduced by income tax).
This looked not so bad because my primary goal was to protect the principal from inflation.
However, looking at the current jump in condo prices it seems that I was too optimistic.

As to loosing non-resident status, US-Canada tax treaty protects us from this (if there is no other significant ties in canada).

thank you.
 
The actual real numbers will show a monthly negative cash flow of about $650/month

mortgage $1150/month
loss if income on $150,000 down payment $700/month
Expences at 40% - 50% $800 - $1000/month

Total $2650 - $2850/month

rental income $2000 - $2650 = -$650/month (negative cash flow)
 
QUOTE (Markoff @ Jul 1 2009, 12:43 AM) Hi all,
Thank you for inputs. Very informative.

When I asked my question about Toronto investement, I used the following numbers:
Condo price 300K
Down: 150K
Mortgage at 4.5% for 15 years with $1150 monthly
Closing cost $7500
Rent $2000/month
taxes, insurance, property managemen etc $570/month

Then Cash flow is $280/month (if no income tax).
This is of course a "bad" investement for cash flow. But if the condo price remains unchaged the investment return in 15 years is ~7% per year (of course should be reduced by income tax).
This looked not so bad because my primary goal was to protect the principal from inflation.
However, looking at the current jump in condo prices it seems that I was too optimistic.

As to loosing non-resident status, US-Canada tax treaty protects us from this (if there is no other significant ties in canada).

thank you.

If you buy it get a deal..approach the developer to see if you can get someone trying to close but having trouble and negotiate with them to get it at the prices they bought at (i.e. 2007)

do your due diligence...i can definitely help you check rents and prices. Email me directly @ [email protected]
 
Why limit yourself to southern Ontario real estate? If you`re far enough away to need a property manager to look after the property for you, why not take a look at Alberta?

There was a lot of info at this past weekend`s event in Edmonton but here`s what I took away from meeting other investors from across the country: Alberta`s a great province in which to be a landlord. It`s my understanding that in Ontario, rents can only be raised a pre-set amount. I was also led to understand that if a tenant wants a pet after they`ve signed a lease (even one that specifically lays out a strict no-pet policy), there`s no recourse for landlords if pets are moved in after the fact. There`s a land transfer tax, often both on a provincial and municipal level. And don`t forget 8% PST. While that`s not to say there aren`t benefits to investing in Toronto (or elsewhere in the province), higher taxes and very tenant friendly legislation would give me pause before investing in Ontario.

And while I understand why you`d like to stay away from a 35 year amortization, you may want to consider pushing that 15yr am out just a little. If you move it out to 20yrs, your mortgage payment drops from $1,150 to $950. Go 25yrs and it drops to $830. That`s an extra $200 or $300 per month in cash flow while maintaining a conservative amortization period.
 
QUOTE (PaulPoulsen @ Jul 1 2009, 03:18 PM) Why limit yourself to southern Ontario real estate? If you`re far enough away to need a property manager to look after the property for you, why not take a look at Alberta?

There was a lot of info at this past weekend`s event in Edmonton but here`s what I took away from meeting other investors from across the country: Alberta`s a great province in which to be a landlord. It`s my understanding that in Ontario, rents can only be raised a pre-set amount. I was also led to understand that if a tenant wants a pet after they`ve signed a lease (even one that specifically lays out a strict no-pet policy), there`s no recourse for landlords if pets are moved in after the fact. There`s a land transfer tax, often both on a provincial and municipal level. And don`t forget 8% PST. While that`s not to say there aren`t benefits to investing in Toronto (or elsewhere in the province), higher taxes and very tenant friendly legislation would give me pause before investing in Ontario.

And while I understand why you`d like to stay away from a 35 year amortization, you may want to consider pushing that 15yr am out just a little. If you move it out to 20yrs, your mortgage payment drops from $1,150 to $950. Go 25yrs and it drops to $830. That`s an extra $200 or $300 per month in cash flow while maintaining a conservative amortization period.


Hi Guys,

I`m going to do a presentation on my findings on buying pre-constructions condos to the Oakville Real Estate club. I`ll keep you posted when I get the date confirmed
 
QUOTE (Markoff @ Jul 1 2009, 12:43 AM) Hi all,
Thank you for inputs. Very informative.

When I asked my question about Toronto investement, I used the following numbers:
Condo price 300K
Down: 150K
Mortgage at 4.5% for 15 years with $1150 monthly
Closing cost $7500
Rent $2000/month
taxes, insurance, property managemen etc $570/month

Then Cash flow is $280/month (if no income tax).
This is of course a "bad" investement for cash flow. But if the condo price remains unchaged the investment return in 15 years is ~7% per year (of course should be reduced by income tax).
This looked not so bad because my primary goal was to protect the principal from inflation.
However, looking at the current jump in condo prices it seems that I was too optimistic.

As to loosing non-resident status, US-Canada tax treaty protects us from this (if there is no other significant ties in canada).

thank you.


Markoff,

My company specializes in consulting for investors that are looking to receive the most from their investment dollars in the GTA including KWC, Hamilton and Barrie. In looking at your financials, I can see many other opportunities that will help you profit more in the long term than if you invested 150K into one property.

Think of it this way, if you invest in one property for 300K and it goes up 10% then you have made 15K once you have paid roughly 5% in real estate fees which is a 10% return on your initial 150K investment.


If you took that same money and leveraged it in a larger property or multiple properties, or worked with a pool of investors you will see a higher return.



This is a simple example, buy four properties for 200K putting down 18% or 150K in total. If they go up the same 10% you have made 40K less 5% realtor fees, you receive almost a 17% return on your initial 150K investment.

Coupled with the right research and investment strategy, you can increase your chances of higher returns significantly.

Something to think about, and good luck.
 
Mr. Carpentier, your example is good but does not explain your other statement regarding making more "with a pool of investors".
Making more with a pool of investment is also true but it is due to:
- either them investing more than you proportional to the profit share OR
- due to advantage to size i.e. if total rent from 800K property is higher than total rent from four 200K properties.
Cheers.
 
QUOTE (investmart @ Jul 8 2009, 09:15 PM) Mr. Carpentier, your example is good but does not explain your other statement regarding making more "with a pool of investors".
Making more with a pool of investment is also true but it is due to:
- either them investing more than you proportional to the profit share OR
- due to advantage to size i.e. if total rent from 800K property is higher than total rent from four 200K properties.
Cheers.

Good point. I meant that your month would go further if you invested with a group or in a JV format as your money can leverage their investment also and thus you can buy more property.

I forgot to put in the increased cash flow point so thanks for adding it!
 
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