Tag Archives: leverage
Why you shouldn’t become a condo speculator
David Kaufman – Financial Post
If you’re considering purchasing a condo for a reasonable price, with a mortgage that you can afford both now and when interest rates rise by a few points, a plan to live in it for at least a few years and are happy with appreciation that more or less matches inflation, you’re nicely set up to own property.
If, however, you’re among the thousands of Canadian purchasers considering buying a condo at a greatly inflated price, with the maximum amount of leverage you can muster, barely enough income to cover your mortgage payments and a “plan” to rent it out for a while and then resell it for an easy gain when prices skyrocket, you’re a speculator.
Comment: Who says prices are inflated? Toronto real estate prices are based on some 100,000 sales every year. Which means a buyer and a seller – plus their agents. That means there are at least 400,000 people (never mind friends and relatives and their opinions) determining property prices. With around half being condos, and only resale condos, that means 200,000+ people set the prices of condos. Add in another 30,000 new condos – and their buyers, some agents and the builders – and you have a good 250,000-300,000 opinions on the price of Toronto condos. That is called Market Value my friends, and it is exactly the right price. Overpriced products do not sell, simple as that. Thus, Toronto condos are priced exactly right for this market, at this time. Talk of “greatly inflated prices” is as useless and baseless as “corrections” and “bubbles”.
You don’t have a plan, you have a dream. And that dream can easily turn into a nightmare before you can do anything about it.
Comment: But he is right, buying and investment condo with 5% you can barely afford is a Bad Idea. Unless you have 20-25% to put down and are willing to lose a couple hundred bucks a month, stay out of it.
There is a long list of reasons why you shouldn’t enter the condo speculation game. Here are just a few:
1. You can’t diversify your asset
Even if condo prices rise, there’s no guarantee that your specific condo will go up in value. Unless William and Kate move in next door, there is very little that can make your condo appreciate faster than the rest of the city’s inventory. Conversely, any number of events can make your condo appreciate slower than others in the area.
Comment: Areas appreciate, some more than others. But it is rare for one building to not rise with the tide. Buy in a good area and you are safe. Look for future value. The east end, for instance. With the West Don Lands and Pan Am Games, that area will be built up in record time. New parks/infrastructre/homes/stores/offices always bring up values. And along Eglinton, where the subway is going. People like transit and a new subway line will increase value. Look at Sheppard Ave for example.
2. Prices do not always go up
Pick up the phone and call anyone who lives in Arizona, California, Nevada or Florida and ask them if real estate prices can go up forever. While you have them on the phone, ask them how much fun it is to be an active real estate speculator when the music stops.
Comment: Around here they do. This is not Arizona, California, Nevada or Florida. This is Toronto. And we have only had 4 down years since 1966. That means prices rose in 43 of the past 47 years. So yeah, prices do always go up in Toronto. Never mind inflation… there is a reason movies don’t cost a nickel anymore.
3. Leverage: Your best friend, your worst enemy
Without leverage, speculating on condos wouldn’t be much fun, since you probably couldn’t even afford to buy one. With leverage, a gain of, say, 10% on the value of the asset will result in a 50% return on equity if you are able to finance 80% of the purchase with a low-cost mortgage. Of course, a 10% decline in value will result in a 50% loss of equity. A 20% decline — really just a correction to where prices were two years ago — would be a total wipe out. Anything beyond that and you would be underwater and sending cheques to the bank long after your condo is owned by someone else.
Comment: Prices have not risen 20% in the past two years! To suggest that is devious at best. And people buy condos to rent out, not to flip. The value year to year is not as important. Buy with 20% down and hold it for 10 years. You pay a bit towards it while having the bills paid by the tenant. Even – though the chance is SO SMALL as to be imossible – if prices are flat after those 10 years, you have paid off most of the mortgage. Thus, the $300,000 condo you bought with $60,000 down is now an asset with $180,000 in liquid value. So you tripled your money in 10 years with 20% down and no price appreciation. Even with slow price growth, less than inflation, you could see your condo rise by $100,000. So now you have made $280,000. Not bad, for two rather conservative scenarios.
4. Lack of institutional buy-in
When was the last time that you heard of a condo speculation fund? Never. Why? Because professional investors don’t make unreasonable assumptions about the performance of their assets, and they consider rainy day scenarios when making their investment decisions. Condo speculating is akin to booking tickets on an airline that pilots refuse to fly on because of safety concerns. You probably — and probably is the key word — won’t crash, but why take the risk.
Comment: Huh? There are REITs, Real Estate Investment Trusts. They don’t necessarily specify, but I am sure some of them invest in condos. And offices. And other properties. Are there no Circus Speculation Funds? No? Well does that mean circuses are a bad idea? It is a strange and not useful line of thinking.
There is nothing wrong with buying condos. I’ve lived in condos for more than 20 years. I’ve even made some money on the way out on a couple of occasions. But I would never buy a condo as a speculative investment. It’s gambling, pure and simple. And the odds are not always in your favour.
Comment: Buying to rent out is never a bad idea, as long as you have a decent down payment and you do your homework. Buying to flip, true speculation, is totally fraught with danger. This article seems to be missing the point and directing all the cautions and warnings to the wrong type of condo investor. Flipping anything is hard to do well and can be very dangerous. Buying an investment property is much easier and just takes some patience, brains and money.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Front Street site shaping up to be Build Toronto’s first sale
By – Anna Mehler Paperny – Globe and Mail
The city has a buyer for the first property to sell after it set up an arms-length body 19 months ago to deal with lucrative sites it can no longer use.
Build Toronto is in final negotiations with Cityzen Development over 154 Front St. E., the former Greyhound parcel office that went up for sale this spring.
The Toronto Transit Commission has also signed an offer to lease a site near Yonge and York Mills and bidding has closed for two other residential developments in the city’s downtown and west end. The offers come as Build Toronto prepares to get its marching orders from a new council and a mayor who has announced his intention to capitalize on unused municipal land and leverage private-sector cash as much as possible.
Build Toronto CEO Lorne Braithwaite said the organization is preparing to move forward on the other 35 properties it has on its plate, and adding several more.
“I think there may be some thought put into the idea of speeding up the amount of properties that we attempt to monetize. … There’s a certain probability that we’ll be asked that question,” he said, adding that he doesn’t think the group has been slow to move forward.
“It’s gone by like a flash. … It’s way beyond my initial expectations in terms of what I thought we could accomplish in the short term.”
It’s still early days, said Cityzen’s Joe Cordiano, and neither party would say how much the Front Street property is selling for as financing and density are still being negotiated.
“I can tell you this,” Mr. Cordiano said, “it’ll be exciting.”
The plan is for a multistorey condominium tower, likely with retail on ground level. Others who bid on the project said their impression was that Cityzen’s winning bid was more aggressive in the density it proposed.
But “it’s just all premature right now,” Mr. Cordiano noted. “It all depends on approvals . … Right now everything’s stalled. Lots of people are complaining that approval’s not happening fast enough.”
Cityzen has been working with Castlepoint Realty and Continental Ventures on developing some of the city’s waterfront property, as well as the curvaceous “Marilyn Monroe” condominium towers in Mississauga.
Build Toronto has also reached an agreement to lease with the TTC, which came under fire earlier this year for its plans to build a fancy new headquarters and transit museum at 4050 Yonge St., which is now a parking lot at York Mills station. Build Toronto and the TTC said details of the lease can’t yet be released because financing is still being finalized.
Build Toronto has closed bids for two other properties – one at 120 Harbour St., a couple of blocks up from the water; the other in the city’s west end near the Islington subway station. Both are destined for largely residential developments.
In selling off some of the last open sites in a city whose developers are turning increasingly to infill for residential development, Mr. Braithwaite admits the group hit somewhat of a sweet spot in the market – both by luck and by design. Both their downtown properties were actually supposed to go to market next year, he said.
“We moved both of them into 2010 because market conditions changed so quickly.”
Build Toronto faces somewhat more of a challenge when it comes to selling properties farther from the city’s core that are zoned either commercial or industrial: Four of the seven sites now on the market are either for industrial, retail or other commercial purposes. While it’s part of the city’s prerogative to preserve so-called “employment areas” from the encroachment of omnipresent condo towers, it can be harder to make the real-estate case.
“Certainly, there’s less demand for commercial and industrial than there is for downtown residential,” said Cushman & Wakefield’s Jamie Ziegel. “That doesn’t mean it’s not an appropriate time to sell some of those assets. … But, yes, it’s a less active market right now.”
Build Toronto – current deals, marketed sites
Thirty-five sites have been transferred to Build Toronto since its original creation in May of 2009, for a total of 4.5 million square feet of retail and commercial space, 8.5 million square feet of residential space and one million square feet of industrial space.
Here’s where they’re at right now:
Agreements signed:
154 Front St. E.
The former Greyhound station is seen as a prime location for the kind of pricey condos that are sweeping the eastern downtown. Cityzen Developments is in final talks with Build Toronto over a price for a condominium tower and ground-floor retail.
4050 Yonge St.
Build Toronto has called the two-acre site, now a commuter parking lot at York Mills station, “one of the most undeveloped and underutilized sites in Toronto.” It’s now slated to become the Toronto Transit Commission’s swanky new headquarters, home to a transit museum that was much derided during the mayoral race. The site is projected for a 450,000-square-foot development. Financing is expected to be completed by the end of year, with community consultation next week and in January.
Marketed sites:
120-130 Harbour St.
This is where you used to go when your car got towed. Now, the city is hoping to sell it for high-rise residential developments, possibly with a retail component. A request for proposals closed this month; Build Toronto is assessing them now.
64-70 Cordova Ave.
Now a parking lot near the Islington subway station, this 3.33-acre site is being sold for residential uses. Bidding closed in August but no successful bidder has been named.
1035 Sheppard Ave. West
Fifty-four-acre site near the Downsview subway station is expected to host a mixed-use community with more than two million square feet of office and retail space and more than 3,000 units of high-rise and low-rise residential units.
260 Eighth St.
Now a mostly empty lot near Islington Avenue and Lakeshore Boulevard; the 24-acre lot is zoned for employment uses.
301 Rockcliffe Blvd.
Now a flat, vacant, 15.54-acre lot near St. Clair Avenue – likely destined either as a sale or joint-venture opportunity for commercial use.
75 Billy Bishop Way
The 4.62-acre site is slated for retail, likely a lease opportunity but with a potential for purchase, as well.
30 Tippett Rd.
The site, 5.5-acres near Wilson Avenue and Allen Road, is designated for industrial use.
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Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they reproduce them here for people who
are interested in Toronto real estate. They do not work for any builders.
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Condo townhomes fuse ground-floor living with high-rise amenities
Combining highrise and homestyle living, condo townhomes offer interesting synergies.
Jack Kohane, National Post
A flourishing trend, condo townhomes are part of the blueprint in about 35 current condo projects in Toronto (out of 265 active projects around the city), according to Pauline Lierman, research analyst with Urbanation, which tracks the Toronto condo market.
“Townhouses (that are part of a bigger development such as a high-rise condo project) account for about 5% of the GTA condominium market,” Ms. Lierman says. By comparison, Ms. Lierman estimates that stand-alone townhouses account for a third of new home sales.
Fuelling most of the sales of ground floor town/condo combos are the low interest rates and demographics, i.e., move-down buyers, new families and empty-nesters.
Barbara Lawlor, president of Baker Real Estate, says that what makes the town/condo so attractive for these buyers is that they’re embracing the condo lifestyle, most for the first time.
“Townhouses draw those buyers looking for lots of the amenities associated with the condominium apartment lifestyle, or looking for a ground-level alternative to the traditional apartment unit,” Ms. Lawlor explains. The town/condo combo option is tailor-made for young couples looking to transition to a starter home, she says. “This may be more affordable than a semi or detached house in the GTA.”
These are the targeted buyers for the architecturally innovative 12° condominium that will rise north of the trendy Queen and Beverley crossroads. Set at the base of this glass-girded, 11-storey building (its façade shifts at a 12-degree angle, hence the name), are six towns that range in size from 900 to about 1,300 square feet. They’ve been designed by Core Architects for Tarek Sobhi and Tyler Hershberg of the start-up development firm BSAR Group of Companies.
Currently in preconstruction (occupancy is slated for the spring of 2012), the towns at 12° range from one bedroom to three bedrooms. Starting from the mid-$500,000, these two-storey units have nine-foot ceilings, floor-to-ceiling windows, pre-finished wide plank engineered hardwood floors, porcelain tiled bathrooms, stone kitchen countertops and a front doorway made of Douglas Fir.
“Townhouses at the base of a condo provide actual street addresses with front doors,” says Charles Gane, the project’s architect. “And because this project is located in a zone that’s in transition from a commercial and shopping district to more residential usage, townhomes help increase the ‘eyes on the street’ concept, whereas commercial and office spaces would be dark and unused at night.”
Each townhome has its own separate private entrance at street level off of Beverley. Guests can access the homes from the lobby of the condo building itself.
Mr. Hershberg points out that 12° (12degrees.ca) is big on encouraging families to move in: “To give them the experience of living in a detached home while offering the amenities and conveniences of condo living. Here, they will have access to the rooftop terrace and outdoor swimming pool. The site feels and behaves like a quiet residential street and therefore the townhomes work perfectly.”
At the new Merton Yonge Condominiums (MYC), having your own front door at the podium of a 25-storey edifice is a big part of this town/condo’s allure. Scheduled for occupancy mid-2012, MYC has 16 towns offering two bedrooms and two bedrooms plus den (about 930 to more than 1,400 sq. ft.), ranging from less than $490,000 to more than $760,000.
Built by Cresford Developments, MYC joins the builder’s other projects NXT and NXT2, The Merchandise Building, CASA, and the Bloor Street Neighbourhood. Architect Peter Clewes of architectsAlliance, whose creative stamp is all over MYC and several other Cresford projects, fashioned the two-level townhomes. Some of the units overlook a landscaped courtyard. Townhouse residents can travel along a series of cantilevered walkways leading to the amenity areas such as the rooftop terrace with lounge and barbecue, fitness centre, guest suite and party room. Mr. Clewes describes these towns as a “European-style approach to family housing. He says, “they have become a highly desirable product in MYC’s unit mix.”
Suites feature engineered hardwood floors in the foyer and living and dining, kitchen and den areas, nine-foot ceilings in living areas and floor-to-ceiling windows. The kitchen has granite or Caesar countertops, stainless steel appliances and a ceramic backsplash. Bathroom finishes include marble countertops with an undermount sink, ceramic tile flooring and a glass-framed door in the shower stall.
MYC’s location is the major enticement. It has proximity to the city core via the Yonge subway line, and to the Kay Gardner Belt Line, a mostly treed 4.5-kilometre walking trail that runs through Mount Pleasant Cemetery and connects with parks and green spaces. “These are magnets for first-time, move-up and downsizing buyers,” says Maria Athanasoulis, Cresford’s vice-president of marketing. She expects many of those interested in MYC towns are those from nearby neighbourhoods who want to stay in the area. (For details, go to MYCcondo.com.)
In the city’s west end, a new development leverages on a former landmark’s name and a 5.7-acre parcel of land flanked by Hwy 427 and Bloor Street. When the half-century-old Valhalla Inn, one of the GTA’s first motor inns, closed last year, Edilcan Development drew up plans for One Valhalla Towns & Condos. The project will eventually encompass 68 three-storey townhomes at the base of three glass-clad towers (constructed in three phases). This Etobicoke town/condo combo, designed by Page + Steele/IBI Architects, will surround a landscaped garden courtyard and a children’s playground. Townhome residents will be able to use the tower’s rooftop terrace and its barbecue areas. Other amenities are an indoor swimming pool, concierge service, party room and catering kitchen.
One Valhalla towns, in three- and four-bedroom layouts, will offer 1,250 to 1,450 sq. ft. units starting from about $400,000. Occupancy of Phase One is the late fall of 2011.
This new breed of town/condo combos is a good choice for those who want a home with an upstairs and downstairs, “but don’t want the maintenance headaches of snow removal and lawn care,” says Ms. Lawlor. “All the upkeep is looked after in a condo community.”
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Contact the Jeffrey Team for more information - 416-388-1960
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