Where to invest in dt toronto?

[kkgg7]

kk, rental yields in Toronto are low because there is enormous demand to live, work & play in Toronto. It's a large, growing & safe city. Why is that so tough to comprehend?

Chicago is a weak market and I believe the area is shrinking and 'The Bay Area' probably includes Oakland so you might as well throw Hamilton in with Toronto.

why do you care if it is a weak or strong market, since you get the same rent return every month? So in order to get $1500 cash flow, you'd rather pay $350K rather than $225K?
plus nobody guarantees the Toronto market will remain strong. Vancouver is even "stronger" why not invest there.

 

[CN Tower]

why do you care if it is a weak or strong market, since you get the same rent return every month? So in order to get $1500 cash flow, you'd rather pay $350K rather than $225K?
plus nobody guarantees the Toronto market will remain strong. Vancouver is even "stronger" why not invest there.

Good question. Let me enlighten you how real estate investment works.

You are taking for granted that your $1500 revenue stream (not cash flow) is guaranteed. It's not. It never is. However, the assumption is that in a strong, stable and growing market like Toronto it's a good bet that:

-the vacancy rate will stay low and you'll be able to consistently maintain full occupancy
-rents should keep pace with inflation using historical patterns
-turnover will remain relatively low compared to other more transient US cities
-core urban areas in close proximity to amenities will over time maintain or perhaps increase rental demand for your unit
-management and maintenance costs should probably be lower in a safer more desirable market

In other words the RISK PREMIUM for prime property is lower because the risk of achieving your projected return is much lower. Same logic applies to a government bond, though ironically there was a fair but of mispricing in Greece recently!

So I'm not suggesting that Toronto property values cannot drop but just trying to explain why they're legitimately a lot higher than a place like Chicago.

 

[interested]

^^^
To second CNTower's explanation, one needs also to ask what is the object of the investment.

If you seek rental revenue only and ignore capital appreciation, then from a cash flor viewpoint it may make sense to invest in Chicago or "wherever else".

One could also argue that since prices have been hurt in Chicago there may be more upward potential on capital appreciation there than here (since we are starting from a relative low point). Again, this has to be balanced by all the cogent argunets that CN Tower put forth for why TO may be a stronger market.

Investing abroad is not so easy. Alot of tax rules. Difficulty to manage etc. This must also be factored into the equation.

Personally, I would not be "investing" in dt Toronto condos (Precon) at this time.

 

[kEiThZ]

I'm not only considerring rental income here since long run asset appreciation is another important factor to think of. My question is if consider rental income and asset appreciation together, where is the better choice?

I have some savings and wanna make a condo investment in dt toronto. I can either use my money to invest in a 1+1 unit at yonge and bloor area (or may be other similar dt core area such as bay and collge etc.), or I can buy a 2+1 unit at medium level dt areas such as city place or king west. The price for both type of units with parking and locker is around $500,000. I know in term of location, dt core is better. However, when thinking of rental income, a 2+1 suite at city place can be rented out from $2,500 to $3,000 per month, but a 1+1 suite at yonge and bloor is usually rented out at $1,800 to $2,200 nowadays. The above rental income datas are based upon my experience or my friends' experience.

So folks, can you guys give me some suggestions on where I should make potential investment in dt toronto area? Many thanks~~

The return here really depends on how much you are putting in, how much you are willing to risk and what your timeframe is.

For discussion sake, I plugged in 500 000 at 3%, 5 year fixed, 30 year amortization into the mortgage calculator. The mortgage payment was about $2100 per month. Add in property taxes, income taxes and condo fees and your return is negative (based on the rents you gave).

So the question now becomes, what's your motivation to invest. Are you speculating and banking on capital gains? Or are you investing to generate income/cash flow? If the former, then you surely have to take into account the risk of a price drop that would wipeout any gains and your capital itself. And you really should consider market timing. If the latter, then you really should think of whether getting just 6-7% back in rents (before all your taxes, fees and expenses) is worthwhile. Surely, there's a better place to put half a million dollars than a frothy real estate market.

Even if all you have is $100 000 and you are borrowing the rest, I'd question the wisdom of putting it all in real estate. If you have enough capital, you have the illusion of good return because you don't have negative carry. But does that mean this is the best place to park your cash?

Add to that, what everybody else has said. Location, location, location. You should be looking to find undervalued gems. Cityplace is not an undervalued gem from an investment perspective. Nice place to live. Dunno if I'd want to be a landlord there though.

 

[kEiThZ]

Thank you for your input! The maintenance fee for condos is not that horrible I think. For example, the monthly fee of my friend's 2+1 unit at city place is less than $500. The total cost($300,000 mortgage monthly payment, maintenance fee and property tax) for him per month is around $1850, and he rented out his unit at $2700. His monthly gain is $500 mortgage principal and $850 cash which is total $1350. Plus he got over $70,000 capital gains in around 2 years. His investment is around $150,000. When I figure this out I think dt toronto's condo is still a good investment option, isn't it?

So you are basing your investment decision on the historical returns of your friend? Do you think this is an accurate indicator of the future direction of the housing market? He got solid capital gains to be sure. But are you fairly confident that prices will rise for you like it did for him? And he got great monthly cash flow. But that's mostly because he bought 2 years ago when prices were lower and he put down half the value of the property. Ask your friend, if he still thinks it's a good idea, if he had to pay half a million for the same place and cash flow was 0 or worse.

That...and with Cityplace, you're in competition with every other part of downtown. If you were buying it to live in, no biggie, you ride the market. To invest in? Maybe it's me, but I don't see the point of buying an asset with no cash flow, maybe negative carry, with significant downside risk.

If you want to stick with real estate, I think there's more gains to be made elsewhere in the city. You have to do the math and see if it's worthwhile. And genuinely look at your assumptions and stick to them.

 

[WanderLust]

I have some savings and wanna make a condo investment in dt toronto. I can either use my money to invest in a 1+1 unit at yonge and bloor area (or may be other similar dt core area such as bay and collge etc.), or I can buy a 2+1 unit at medium level dt areas such as city place or king west. The price for both type of units with parking and locker is around $500,000. I know in term of location, dt core is better. However, when thinking of rental income, a 2+1 suite at city place can be rented out from $2,500 to $3,000 per month, but a 1+1 suite at yonge and bloor is usually rented out at $1,800 to $2,200 nowadays. The above rental income datas are based upon my experience or my friends' experience.

So folks, can you guys give me some suggestions on where I should make potential investment in dt toronto area? Many thanks~~

I personally wouldn't want to buy any real estate income properties in Toronto in any of the newer buildings until after the dust from the next correction settles. However, go for the best locations, and focus on the smaller units, i.e., studios, 1, or 1+1 as they're easiest to rent and easiest to sell.

 

[mettle]

REITs? might be easier.

 

[James]

I personally wouldn't want to buy any real estate income properties in Toronto in any of the newer buildings until after the dust from the next correction settles. However, go for the best locations, and focus on the smaller units, i.e., studios, 1, or 1+1 as they're easiest to rent and easiest to sell.

Personally I would agree with WanderLust. New developments have traditionally resulted in good ROIs but I would not be looking at this option until the market stabilizes, which I believe it is in the midst of doing right now. The resale market is still pretty healthy and while the sale prices are still high, many units are selling for less than asking. My biggest issue with resale downtown Toronto condo units is that the rental yield is simply not worth the investment. Opportunity cost. That said, if I had to I would go resale before I go pre-con right now. At least you'll have a steady stream of revenue in the meantime.

ADDENDUM: REITs can be another avenue to explore, however one should absolutely read up and educate themselves on it before making that commitment.

 

[macookie]

Does anyone ever take into consideration the large possibility of a special assessment to pay for major repairs and/or maintenance to a condo, when purchasing one of these "investment condos?" Not saying... it's a bad idea... but you could end up with several bad tenants do you want that kinda problems and stress in your life?

 

[interested]

^^^
There are 2 issues here Macookie.
In Florida, there is a vote every year in older condos whether to have a reserve fund or pay for major repairs via special assessments.
In our building, they always opt for major repairs via assessment. Can be a severe hit. However, a lot of the older people do not want to spend the money or don't have it to make up for the reserve fund. Newer buildings all have reserve funds.

I believe in Toronto most buildings have reserves...certainly all the newer ones and this is one of the things one always reviews when buying a condo...the status certificate to show if there are any outstanding expected problems/lawsuits, etc. Hence presumably there should not likely be any "special assessment for major repairs/maintenance since the reserves updated every 3 years should account for this.

Obviously what you are describing in the second instance is "bad tenant" issues and damage/maintenance caused by the tenant.
First and foremost, personally I do my best to screen tenants, calling their previous landlord and personal references. Still one can end up with problems despite doing one's due diligence. Also, you may have seen the Star article recently about the tenant who goes from landlord to landlord inflicting pain and suffering on the landlords and the act is so skewed that one cannot get the tenants past history with the Board that reviews these issues.

I personally allow for about 1 month rent every 3 years to go for some unexpected/unwanted repairs. This will clearly not be enough if someone sets out to do serious damage. Unfortunately one cannot ask for damage deposits and can only hold the last month rent as security so it means small claims court. Even a win here does not guarantee anything and good luck chasing to get your payment. All you can threaten is to ensure you "ruin" the bad tenants credit for not paying but that still does not get you your money back.

Being a landlord is/can be stressful. The best advise is: if you are descent to most people, most people will be descent in return.

 

[James]

To chime in on Interested's comments above, being a landlord is definitely not a hands-off endeavour. On paper it sounds great to buy an investment property, rent it out to cover your mortgage & expenses and Bob's your uncle. In reality it's nowhere near that straight-forward. It's not a matter of if...but of when...you get a bad tenant. If you're in the business long enough you WILL encounter a tenant issue and it's usually nothing you could've forseen or avoided. These matters happen and when it does you're at the mercy of both the condo association (if applicable) or the Landlord Tenant Boardn which are not always favourable to landlords.

In any case, in keeping with the topic, I'd pick a downtown Toronto investment not simply on resale value but on location and the tenant pool for a unit in that particular area. Is the unit near a university? If so, expect students as potential tenants. Near hospitals? Near the financial sector? If so, will that unit cater to individuals working in those sectors looking for a unit close to their work? Just some of the considerations...

 

[interested]

^^^
James is definitely right.
There are good and bad tenants just as there are good and bad landlords.
I have been a landlord for 23 years now. I have had young working people who have been absolutely wonderful, and 1 in particular who could not understand that making sure one could pay the rent was kind of a priority for most people.
I have had an executive in an executive rental home who truly turned out to be the tenant from "Hell". Phone calls at 1 am over non urgent issues and issues clearly not in my control, etc. Finally I had to resort to lawyers and threatening to call the Police for harassment. I am pleased to say that the next 16 years after that tenant in the home the tenants have been wonderful.
Again, as a landlord, I maintain my places, prescreen my tenants, and I try and be reasonable. If I have a good tenant, I accept often slightly less than market rent because a good consistent tenant is worth more than a few dollars more, at least to me.
Most landlords will tell you that you can have 5 tenants, and if 4 are good for 5 years, and 1 is bad, that 1 bad almost makes up for all the good will you feel and certainly can be very frustrating and stressful.

I agree with James about choosing a "rentable" area for your investment. For example, a small 1 bedroom in downtown may make sense where there is a large single/individuals working in the Core. It may make more sense to buy a townhouse to rent out in the suburbs for e.g. Just consider that a lot of product is coming into the downtown core and I suspect the 1% vacancy rates for condos will not be the case in 2-3 years when the additional 48000 condo units I have seen quoted come on line.

 

[v0205w]

Downtown Toronto is still good... I personally would aim for the up and coming area...like The Junction.... Bloor area between Dufferin and Landwdowne....

I have a friend who I met in MBA class, he's really into investment properties in downtown Toronto, and he's very knowledgeable about the different neighbourhood too.

E-mail me for his contact if you are interested.

 

[James]

Downtown Toronto is still good... I personally would aim for the up and coming area...like The Junction.... Bloor area between Dufferin and Landwdowne....

I have a friend who I met in MBA class, he's really into investment properties in downtown Toronto, and he's very knowledgeable about the different neighbourhood too.

E-mail me for his contact if you are interested.

Before jumping into any area, one of the most important exercises that must be done is research. You absolutely need to know how much comparables will go for in rent. Look on Craigslist, Kijiji, Viewit, newspapers, MLS, or drive around that neighborhood and look for "for rent" signs and actually call them. Once you do that, keep record of it and check back periodically. It's no use finding out what one landlord is asking for rent but not realizing that their property has been available for the last 4 months (as that would be a sign the asking rent is too high). Keep tabs on how long some "for rent" postings have been up and how quickly they move. These are all crucial, in my opinion, before one can simply pick an area to invest in.

 

[FutureBuilder]

"TO is in its 17th year of straight gains, it cannot last. How long is long term for you 3,5 7, 10 years? The last downturn took 7 to start to recapture lost value."


That just isn't true. In 2008, after Lehman crashed, there were 2 bedroom bungalows in East York available for 325-330k (on the same street they had sold pre-Lehman for 75-100k more) and now they're close to 600k.

The market ebbs and flows and it is much more complicated than the average person or investor understands. Whether it's up, down, or flat, you should ALWAYS be able to make money.

The market will correct itself, because pricing has gotten insane. But some areas, certain builders, and some condo projects will be hit much harder than others. It's Darwinian, but the weak, stupid, and poorly informed will lose. But other will always win. When the market was super hot a chimp could have made money, anyone could have.