Property Virgin and Don Campell`s book

[lakeheadteacher]

I`m new to the property investment world. I live overseas and wanted to invest my money in real estate. I choose a pre-construction condo in the downtown core of Toronto. I think that I paid a fair price at 665 square feet for a 1 and 1/2 bath, balcony, walk-in closet etc. in a building that has all the bells and whistles for renters. FYI I paid 298K making it $448 per square feet. All of the `homework` that I did around the area had nothing below $500 per s/f and the area is rapidly improving...i.e. just by the market, East of Younge for those of you from T.O.. Rent in the area is averaging 1600 without a half bath or parking. As I said, I live over sees and don`t have a lot of time...no time in fact to be `Johnny on the spot` if something goes wrong. So I went with a new build, with a well known company, so that the flat would be somewhat trouble free and a property manager wouldn`t have a lot of trouble. Also, I don`t need the place to live in so delays in construction don`t eat at me too much.

This was my first move and I thought I had done well until reading Don Campell`s book `Real Estate Investing in Canada`!!! Don`t get me wrong it`s a decent read (if you like RE books) and the formula makes sense. Also, Don clearly has Billion times more experience than I do so I do respect his opinion...plus I liked his spot on `The Hour`...and even wish I had the `Richard experience`.

However, I ran the numbers for almost every single pre-construction condo in the Toronto core and none came even close to being able to operate in the black or score an 8+ with Don`s initial formulas.

Can anyone put my mind at ease and tell me there is something different for pre-construction or new condos, and that you don`t have to operate at a profit at the start for it to be successful!!!

Kind regards,
C

 

[lakeheadteacher]

QUOTE (lakeheadteacher @ Feb 13 2010, 06:14 AM) I`m new to the property investment world. I live overseas and wanted to invest my money in real estate. I chose a pre-construction condo in the downtown core of Toronto. I think that I paid a fair price at 665 square feet for a 1 and 1/2 bath, balcony, walk-in closet etc. in a building that has all the bells and whistles for renters. FYI I paid 298K making it $448 per square feet. All of the `homework` that I did around the area had nothing below $500 per s/f and the area is rapidly improving...i.e. just by the market, East of Younge for those of you from T.O.. Rent in the area is averaging 1600 without a half bath or parking. As I said, I live overseas and don`t have a lot of time...no time in fact to be `Johnny on the spot` if something goes wrong. So I went with a new build, with a well known company, so that the flat would be somewhat trouble free and a property manager wouldn`t have a lot of trouble. Also, I don`t need the place to live in so delays in construction don`t eat at me too much.

This was my first move and I thought I had done well until reading Don Campell`s book `Real Estate Investing in Canada`!!! Don`t get me wrong it`s a decent read (if you like RE books) and the formula makes sense. Also, Don clearly has Billion times more experience than I do so I do respect his opinion...plus I liked his spot on `The Hour`...and even wish I had the `Richard experience`.

However, I ran the numbers for almost every single pre-construction condo in the Toronto core and none came even close to being able to operate in the black or score an 8+ with Don`s initial formulas.

Can anyone put my mind at ease and tell me there is something different for pre-construction or new condos, and that you don`t have to operate at a profit at the start for it to be successful!!!

Kind regards,
C

Sorry about the spelling and grammar and such. I just got off a 24 hour flight and I`m a little behind in the sleep/patience category

 

[OntarioInvestor]

QUOTE (lakeheadteacher @ Feb 12 2010, 10:18 PM)
Sorry about the spelling and grammar and such. I just got off a 24 hour flight and I'm a little behind in the sleep/patience category

I'm sure many will disagree with me and tell you there are better ways to make your money work harder (which may be the case), but if your condo is in the downtown core at that square footage it was a good price for purchase.



You get a lot of property appreciation downtown and don't have to worry about your pool of renters drying up. Not sure if your condo will rent today for $1600 but it very well might when it is completed. When is it scheduled to be completed? What is the name of the building?

 

[GaryMcGowan]

There are very few people here on the forum that invest (speculate) with pre-construction condos. Can you make them cash flow? 9 times out of 10, no.
The Toronto condo market is very hard to invest in when you are not spending countless hours researching. You will always get better bang for your buck on resale condos.
Now and into the next couple of years there is a massive oversupply of inventory. I unfortunately do not see prices for condos moving up but actually coming down in price. There are 1000`s now that are unsold and many more 1000`s to be completed that are unsold. Maybe in a couple of years it will be a good time to buy as there will be a lot of motivated builders and sellers.

I stay away from the Toronto market of condos as it not my area of expertise and as you have pointed out it is really hard to fit into the REIN model. This is the reality of it. Tough market to be in.

 

[OntarioInvestor]

QUOTE (GaryMcGowan @ Feb 13 2010, 01:18 AM)
There are very few people here on the forum that invest (speculate) with pre-construction condos. Can you make them cash flow? 9 times out of 10, no.

The Toronto condo market is very hard to invest in when you are not spending countless hours researching. You will always get better bang for your buck on resale condos.

Now and into the next couple of years there is a massive oversupply of inventory. I unfortunately do not see prices for condos moving up but actually coming down in price. There are 1000's now that are unsold and many more 1000's to be completed that are unsold. Maybe in a couple of years it will be a good time to buy as there will be a lot of motivated builders and sellers.



I stay away from the Toronto market of condos as it not my area of expertise and as you have pointed out it is really hard to fit into the REIN model. This is the reality of it. Tough market to be in.




Gary a lot of what you said is simply not true. However, it is true that the Toronto condo market is very hard to invest in if you aren't spending countless hours on research.



You will not always get better bang for your buck in resale as opposed to pre-construction in Toronto. The resale market has been so hot in Toronto that prices have gone up dramatically. Resale condos, properly priced, sell within a day or two right now. The pre-construction prices have thus far lagged behind. I've seen the spread between the two at $50/sq ft.



There is not an oversupply of inventory, certainly not in C1, the downtown core. Chicken littles have been preaching oversupply in Toronto for years now. This is probably based on the fact that they simply look at all the new buildings going up and think "wow that's a lot of units". I don't think these same people realize the population growth. 30% of all recent immigrants to Canada come to Toronto. If there was an oversupply prices would not be rising and units would not be selling so quickly, year after year. Even in the worst of the recession prices simply flatlined and condos took longer to sell... and this only lasted for about 4 - 6 months. 2000 units are set to be completed in Toronto this year, so we're going to find out shortly if there is in fact an over supply or not. I don't think that there will be.



Another benefit to buying pre-construction is the appreciation between purchase and registration. This not only puts equity in your pocket but also gives you an advantage as a landlord. For example, pre-construction purchasers of City Place condos probably paid around $170,000 for their units. Those same units are worth about $250,000 today. The pre-construction purchasers obviously can flow cash much easier and if the rental market gets tight will be able to price their unit more competitively and still be able to flow cash.



Pre-construction is not without its risks, and it is not a "sure thing". You've got to do your homework when making the purchase and you have to be ready to weather the initial storm when the building opens (i.e. tons of other owners listing for sale to generate a quick flip profit or tons of other units in your building also being listed for rent)... but in the current market in Toronto it is an option if it suits your portfolio.

 

[invst4profit]

You do not have to operate at a profit at the start but no business that loses money should be considered successful in my opinion.
No one actually goes into business to lose money and although you purchase may have been a good deal it is,as a rental income property, going to bleed cash at a steady rate every month probably for as long as you own it due to the rent to purchase ratio.

Initially you can expect to lose about $450-$600 per month which over time may cancel out any possible speculative appreciation you may experience.

Your best option may be to actually sell following the initial appreciation and before they double the condo fees which often occurs within the first two years.

However, if it is any consolation, since it is extremely rare for condos in Toronto to actually cash flow you are not alone.

 

[Thomas Beyer]

QUOTE (lakeheadteacher @ Feb 12 2010, 09:14 PM) i.e. just by the market, East of Younge for those of you from T.O.. Rent in the area is averaging 1600 without a half bath or parking.
I don`t believe it .. verified ?

QUOTE (lakeheadteacher @ Feb 12 2010, 09:14 PM) I`m new to the property investment world. I live overseas and wanted to invest my money in real estate. I choose a pre-construction condo in the downtown core of Toronto. I think that I paid a fair price at 665 square feet for a 1 and 1/2 bath, balcony, walk-in closet etc. in a building that has all the bells and whistles for renters. FYI I paid 298K making it $448 per square feet. All of the `homework` that I did around the area had nothing below $500 per s/f and the area is rapidly improving...
a good deal .. but consider holding and exit costs:
condos fees @ $200/month
taxes, say $200/month ?
mortgage payments

calculate costs to hold for 6 months .. say 20K ?

realtor fees to sell, say $20K ?

so 40K cost ..

worth a SPECULATIVE BUY / FLIP !?!?!?!?!

you decide !


QUOTE (lakeheadteacher @ Feb 12 2010, 09:14 PM) Can anyone put my mind at ease and tell me there is something different for pre-construction or new condos, and that you don`t have to operate at a profit at the start for it to be successful!!!

this is NOT investing .. it is flipping which is OK but can backfire in a weaker market or with poor absorption .. be crystal clear on holding and sales cost .. and TRUE sale price that maybe well below $500/ft !

Have enough cash to hold for 18 months empty with no income !

 

[housingrental]

I take it your name is a misnomer and your not a teacher at Lakehead?

If you read a post that stated:

I`m purchasing a business that I know will lose money each month that I have to pay for out of pocket. I hope at some future date to sell the business at a higher amount than I paid. I`ve read real estate investing information that seems to be true but I`m choosing not to follow it. Is this okay? Should I expect to make a lot of money?

What would you think?

 

[OntarioInvestor]

Thomas.

Hard to verify because "East of Yonge" could mean a lot of places. "East of Yonge" generally is the more run down part of the city, but many feel that this is the next up and coming part of the city.

I have a 540 square foot condo just West of Yonge, no parking, that I rent out for $1350 per month. From my research I`m pretty sure that I will be able to rent that same unit for $1400 - $1450 when I get new tenants.

That`s a long way of me saying that based on the size of the unit that our friend is talking about, depending on where it is, it could certainly get $1600 without parking (which generally goes for an additional $140 - $190 a month depending on location)


It is pretty common for new "one bedroom" condos going up in the downtown core to be 450 square feet or less. 665 square feet is pretty large by comparison.

http://www.realtor.ca/propertyDetails.aspx...pertyId=8992486

 

[BrianPersaud]

QUOTE (ThomasBeyer @ Feb 13 2010, 03:30 PM) I don`t believe it .. verified ?


a good deal .. but consider holding and exit costs:
condos fees @ $200/month
taxes, say $200/month ?
mortgage payments

calculate costs to hold for 6 months .. say 20K ?

realtor fees to sell, say $20K ?

so 40K cost ..

worth a SPECULATIVE BUY / FLIP !?!?!?!?!

you decide !




this is NOT investing .. it is flipping which is OK but can backfire in a weaker market or with poor absorption .. be crystal clear on holding and sales cost .. and TRUE sale price that maybe well below $500/ft !

Have enough cash to hold for 18 months empty with no income !



One City Hall (1+1) rents for $1700 with parking 1 year lease
Pantages Yonge/Dundas (Studios) $1800 furnished no parking 3 mos lease (short term)
Freed in King W $1500-$1600 (1+1) without parking 1 year lease (I was told by owner but I haven`t seen the unit)
CityPlace (Spadina.Front) $1450-$1500 (1`s and 1+1`s) without parking 1 year lease


Latest Research from Urbanation on buildings that were registered:

- London at the Esplanade west tower
2005: $330 psf
2009: $661 psf

on the 530 sq ft one bedrooms you would have made a profit of


$175,430 profits
23,000 - closing costs and fees (including school levies, utility hookups and commissions)

Profit $152,430

Investment: $26,235 spread over 2 years

EQ1 at Scarborough Town Centre
- 2005: $267 psf
- 2009: $360 psft


Equity Growth on a 1+1 49,290 Investment $10k (they were doing only $10,000 deposits back in 2005)


Contracts that I have seen for myself of buildings going through occupancy but cant sell until registration.

- Casa (Yonge and Charles)
-2005: $300 psf
-2009: $600+ psf in area

Equity growth of $159,000 on $31,800 for a 1+1 at 530 sq ft (spread over 2 years)


550 Wellington
-2006: $377 psf
-2010: $585-$600 psf (non have closed yet because building is going through registration)

Equity Growth $130,000+ on a $20,000 investment

 

[BrianPersaud]

QUOTE (housingrental @ Feb 13 2010, 03:47 PM) I take it your name is a misnomer and your not a teacher at Lakehead?

If you read a post that stated:

I`m purchasing a business that I know will lose money each month that I have to pay for out of pocket. I hope at some future date to sell the business at a higher amount than I paid. I`ve read real estate investing information that seems to be true but I`m choosing not to follow it. Is this okay? Should I expect to make a lot of money?

What would you think?

sounds like buying the Phoenix Coyotes and keeping them in Phoenix

 

[BrianPersaud]

QUOTE (OntarioInvestor @ Feb 13 2010, 11:44 AM)
Gary a lot of what you said is simply not true. However, it is true that the Toronto condo market is very hard to invest in if you aren't spending countless hours on research.



You will not always get better bang for your buck in resale as opposed to pre-construction in Toronto. The resale market has been so hot in Toronto that prices have gone up dramatically. Resale condos, properly priced, sell within a day or two right now. The pre-construction prices have thus far lagged behind. I've seen the spread between the two at $50/sq ft.



There is not an oversupply of inventory, certainly not in C1, the downtown core. Chicken littles have been preaching oversupply in Toronto for years now. This is probably based on the fact that they simply look at all the new buildings going up and think "wow that's a lot of units". I don't think these same people realize the population growth. 30% of all recent immigrants to Canada come to Toronto. If there was an oversupply prices would not be rising and units would not be selling so quickly, year after year. Even in the worst of the recession prices simply flatlined and condos took longer to sell... and this only lasted for about 4 - 6 months. 2000 units are set to be completed in Toronto this year, so we're going to find out shortly if there is in fact an over supply or not. I don't think that there will be.



Another benefit to buying pre-construction is the appreciation between purchase and registration. This not only puts equity in your pocket but also gives you an advantage as a landlord. For example, pre-construction purchasers of City Place condos probably paid around $170,000 for their units. Those same units are worth about $250,000 today. The pre-construction purchasers obviously can flow cash much easier and if the rental market gets tight will be able to price their unit more competitively and still be able to flow cash.



Pre-construction is not without its risks, and it is not a "sure thing". You've got to do your homework when making the purchase and you have to be ready to weather the initial storm when the building opens (i.e. tons of other owners listing for sale to generate a quick flip profit or tons of other units in your building also being listed for rent)... but in the current market in Toronto it is an option if it suits your portfolio.






I had George Carras from realnet on the show, he has shown that since the GTA peaked in 2002 the total inventory of new product has gone down.



He noted that its hard for people to believe this when they seen all these new buildings downtown Toronto, but its true. Here's why, because of land costs and the green belt legislation, most new inventory is in the form of hi-rises rather than homes on a subdivision. 2007 being the first year, hi-rises out built low rises.





see the graph here

 

[thejules]

I say you make the best of this. As many the Toronto experts are saying, Toronto Condos are appreciating in the short term. You can get good rents that more than carry your expenses. I personally love the Condos. I find Condos an excellent investment, for me, if I am an out of town investor. And to that end, even if I am in town. Your fees that care of the common elements, like maintaining the hallways, exterior doors & window, snow removal, etc... Stuff I would otherwise have to be a little more involved in organizing. And I sit on most of the condo boards that over see the condo complexes that I am investing in so I can have the inside track as to whats going on.

I would say to you, "Way to get off the fence and get down to some Real Estate Investing!" It`s a start. And it`s the begining your journey into learning all about the real estate investment class.

If I was you, I would ask myself, "Is this investment the best for my long term vision or will it fulfill some short term goals?" Because the answer to that will give yourself some insight into why you`re doing this. I like to think of this as a two step process, Short Term goals for capital gains, and then re-investment into long term cash flowing properties that enhance my own long term vision for my life.


I hope that helps...

 

[GaryMcGowan]

QUOTE (BrianPersaud @ Feb 14 2010, 02:41 PM) I had George Carras from realnet on the show, he has shown that since the GTA peaked in 2002 the total inventory of new product has gone down.

He noted that its hard for people to believe this when they seen all these new buildings downtown Toronto, but its true. Here`s why, because of land costs and the green belt legislation, most new inventory is in the form of hi-rises rather than homes on a subdivision. 2007 being the first year, hi-rises out built low rises.


see the graph here

I hear what your are saying but as Don reported the other night in this article there are 36,000 condos being constructed right now in Toronto. That is a big difference between the two reports.

If someone wants to buy why wouldn`t we wait to buy to when all these come on the market? Also as you pointed out to me the other night, how many investors have bought and now can not close on their 2-5 condos that they have under contract.
I just do not see the Toronto Condo market as a viable investment strategy today. Maybe down the road but not today.

 

[BrianPersaud]

QUOTE (GaryMcGowan @ Feb 15 2010, 10:48 AM)
I hear what your are saying but as Don reported the other night in this article there are 36,000 condos being constructed right now in Toronto. That is a big difference between the two reports.



If someone wants to buy why wouldn't we wait to buy to when all these come on the market? Also as you pointed out to me the other night, how many investors have bought and now can not close on their 2-5 condos that they have under contract.

I just do not see the Toronto Condo market as a viable investment strategy today. Maybe down the road but not today.




Hi Gary,



I had Shaun on the show, off or on the record, doesn't he doesn't see a condo crash.



The reason why there is a difference is because the number you quoted was under construction, and there's a big difference between starts, under construction and completions.



This year completions is expected to be under 20,000 and condo starts is less than 14,000.



As for people who bought 2-5, how many of these people do you think are out there?



Toronto is so under supplied, those investors who are stuck will have more than enough people willing to take them on.



Vacancy in Toronto is about 16,000 units. Net migration into Toronto has dipped because of employment, however it's still expected to be 64,500 people.



According to CMHC of the 20,000+ units that were registered, about 7,000 joined the rental supply.



How many do you expect to hit the housing supply, say over 50% and the number is 10,000... so less than 10,000 coming on the resale side, Toronto can clearly handle it.



and the rental side

Currently the vacancy rate is 3.0% in downtown Toronto, and a bulk of that stock was built from 1960-1974. We had a bigger apartment boom after the war.



What does that mean to condo buyers, well, for affordability and living downtown, no one wants to live in an old apartment building with roaches and mice, and YUPPIES can't afford a $600,000 starting price downtown. Their only option is a condo as rental or a purchase.



( note: The vacancy rate for condos is about 0.8% while rents are 40% higher for condo apartments. It's pretty evident there is demand is there).