Toronto Residential Income Property Blog

2012-01-05T11:13:00.000-08:00

Toronto Income Property Newsletter - January 2012

HappyNew Year everyone! I’d like to personally wish you and your family all the best. May all your hopes and dreams cometrue in 2012 and may you have a trulyfunand memorable year. I look forward to seeing many of you in theupcoming months. I will continue to beyour eyes and ears for the residential income property market in the Torontodowntown core. As always, if any of youhave any landlord or income property market questions, please feel free toshoot me an e-mail at any time.

As is customary at this time of year, I’d like to look ahead totry get and get a fix on what we might expect over the next few months. Many of you know that the real estate marketin Central Toronto has been a very robust sellers’ market, characterized bymultiple offers and prices reaching all-time high levels in top areas. In fact, recently the Economist Magazinebranded Canada one of the nine countries where “home prices are overvalued byabout 25 per cent or more,” and among the four where prices are in line withthose in the United States "at the peak of its bubble." This has manypeople concerned that real estate in Toronto is over-valued and that theyshould avoid the market.

Should this give those of you thinking about a real estatepurchase in 2012 a real cause for concern? I don’t really think so. I don’tbelieve that we are in a traditional bubble and heading for a suddencrash. While prices are still high, Istill anticipate strong demand since interest rates are still quite low and wedon’t have the same kind of subprime mortgage crisis as they do in theU.S. Some thought that prices werestarting to soften a little at the end of last year anyway, so perhaps theremay be a little leveling off. I predict that the income property market inToronto will look very similar to the past six months – the best propertieswill continue to be popular since they still make a lot of sense to own longterm. I still believe that if you canobtain real estate with 20% down and have your tenants completely cover all ofyour costs, then it makes sense to pursue if you can handle theresponsibilities of being a landlord.

The duplex and triplex market will still see cap rates dip under5% in the prime neighbourhoods, since the rental market continues to be verystrong. Being a landlord is still a verygood way of acquiring passive income. Prices will continue to be expensive in the downtown areas close to thesubway stops. Overall prices dropping by 10 to 20 % seems like a real stretchto me, especially on income properties, so I just don’t see it happening. Onthe other hand, I don’t expect prices to go up too much more either. Let’s see what the next six monthsbring. Keep an eye on the resale condomarket. So long as that market is stillmoving along at top speed, then I think the income property market is safe.Keep checking back in with me and I will continue to update you with Torontoincome property sales activity.

I have found in my travels that there a good landlords and thenthere a great landlords. Great landlordsgo that extra step to make sure that their tenants are comfortable and theirlive-in experience is as enjoyable as possible.

Once you have chosen a tenant and signed a lease, here are tenthings that you should do as a landlord prior to renting out your suite:

1. Makesure that the suite is clean and free of all debris. If need be, give the suitea fresh coat of paint. Ensure that all light fixtures are operational. Itdoesn’t hurt to leave a few extra light bulbs in the suite.

2. Put together an inventory of allfurniture and fittings, and make sure the tenant agrees and signs it beforethey move in.

3. Leave instructions/manuals for all appliances that will be left atthe property, including cookers, washing machines, fridges and freezers. Notonly is this helpful for the tenant, it'll save you having to answer phone callsabout how to turn the dishwasher on! "

4. Make sure that everythingmeets fire code and that your extinguishers, carbon monoxide detectors andsmoke alarms are all in good working order.

5. Compile a list of emergencycontact numbers for your tenant, including your own. It is also wise to put together atrouble-shooting sheet so tenants know how to react in an emergency.

6. Before a tenancy, take meterreadings and transfer all utilities to the new tenant.

7. Explain to your new tenant how touse any safety equipment, such as fire extinguishers and alarms, plus point outany fire doors or window locks and show the tenant how to work the burglaralarm, if you have one. Also, show thetenant how to use the laundry machines (if necessary).

8. For that added personal touch,put together a useful welcome pack for your tenant. This could include information such as how to use certainitems and when the bins are collected etc. It usually gets the relationshipbetween the landlord and tenant off to a great start and, unfortunately, notenough people do this.

9. Establish good lines ofcommunication with your tenants. Ensure that the tenant knows what is expectedof them during the tenancy and make sure you know what they expect from youtoo.

1.If possible, introduce yourtenants to everyone else in your building and the neighbours. This will make everyone feel more comfortableand safer.

2011-12-01T11:31:00.001-08:00

Toronto Income Property Newsletter - December 2011

Season’s Greetings everyone! Iwould like to wish you, your family and all your friends the warmest wishes fora safe and happy holiday season. I'm looking forward to taking some much neededdown time over the upcoming break. For those of you who don't know, I built anaudio recording studio in my basement this year, so I look forward tohanging out with some of my musician friends to make some noise. I'll be backin January with a detailed look back at the income property market in 2011 aswell as predictions for what we can expect in 2012. Take care and all the best.

As many of you who follow my postings are aware, theToronto income property market has essentially been hot all year long. At atime when the overall economy is still suffering, unemployment in the US is atall time highs and Europe is on the brink of a financial collapse, it is quiteparadoxical that our market continues to be so hot. Interest rates are loweverywhere so that doesn't fully explain why the Toronto market has been sorobust. I still believe that Toronto is a magnet for new immigrants and thelack of quality rental inventory has made the existing stock more desirable. Ican verify first hand since I am in the field daily that there have been fewerduplexes and triplexes for sale over the past three months than I would haveexpected.

October existing home sales in the greaterToronto area market soared 17.5% from a year ago, the Toronto Real Estate Boardsays. The Toronto market numbers have been credited with boosting the nationalaverage price at a time when the Vancouver market has slowed. Jason Mercer, theToronto Real Estate Board's senior manager of market analysis, says"seller's conditions" are in place throughout many parts of theGTA. "Thanks to low interest rates, strong price growth has notsubstantially changed the positive affordability picture in the city of Torontoand surrounding places," said Mr. Mercer.

We all know about Riverdale,the Annex, Little Italy, Bloor West Village and all the other tier one rentalneighbourhoods in central Toronto. But have you tried to buy a duplex or triplexin one of these areas lately? It is almost impossible to find anything decentin the $500K range. It is still even
tricky in the $600 range. If the rents in these areas don't increase proportionatelyto the sale prices (which they often don't) then as the prices increases theinvestment value decreases. It is ideal to buy something for under a half amillion since these properties usually provide better bottom line returns.

So where are all the plexesfor under $500K?

If you work hard and put yourself at the forefront of all buyers by staying ontop of the market, you can still find properties in the $400K range, I willlook at three areas that may be particularly interesting to the income propertyinvestor. I have mentioned these neighbourhoods before in past newslettersand I still believe very strongly in them. These are neighbourhoods that I havespent lots of time over the last few years getting to know better, surveyingthe rental market and their demographics.

These are areas to keep zero in on if you are looking to land between$350K & $500K.

i. Leslieville

This is the area in betweenCarlaw and Coxwell, from the railway tracks just north of Gerrard down toEastern Avenue. Leslieville is situated around three of the more populareast districts, namely the Beaches, the Danforth and Riverdale, which areall popular rental destinations. The Toronto Film Studios on Eastern willbe transformed into retail in the future. Little India on Gerrard has become avery popular spot. Given the proximity of Leslieville to downtown,the Gardiner & DVP and all of the amenities that the East side offers,many new owners have been renting out their properties. Leslieville iswell served by the public transit system which operates buses andstreetcars on Carlaw, Jones, Greenwood, Eastern as well as Gerrardand Queen Streets. Most of these bus routes link up with stations onthe Bloor-Danforth subway line, which is of great benefit to renters.

ii. The Junction

The Junction Trianglelocated just northeast of the Annex is bounded on three sides by railwaylines that enclose the entire neighbourhood in the shape of a triangle.The key boundaries are Dupont and Bloor to the north and south, and justwest of Lansdowne over to Dundas Street West (which curves north by thispoint. The main streets are Perth, Symington, Wallace and Campbell. LikeLeslieville, the Junction is ideally situated in between two very popularrental areas, namely the Annex and High Park. Most of the housing in theJunction has already been converted to two and three family dwellings -with numerous choices of inventory relative to other pockets of Toronto. Ihave seen new loft developments in the Junction as well as manynew businesses opening up on Bloor Street West. Given that it's onlyten minutes to downtown and it sits on the Bloor subway line, this hasbecome one of the top areas for renters.

iii. Belgravia & Dufferin/Eglinton

This is thearea just west of the Allen Expressway going north and south of EglintonAvenue West up to Lawrence - the main artery being Marlee Avenue runningnorth to south. The interesting characteristic of this area is that it isadjacent to some of the finest homes in Toronto to the east. The creationof the Forest Hill Lofts and adjoining condo town homes on Castlefieldshows that the development has now moved over to the other side of theAllen. The proximity of the subway going up to Yorkdale and to downtown isquite attractive to renters. There are many income properties already inthe area that can be purchased for lower prices than properties to theEast. I have also seen custom homes starting to be built in this quadrantas well, suggesting the buyers are interested in moving further westheading towards Dufferin. South of Eglinton, going east and west ofDufferin down to Rogers Rd. still offer relatively affordable prices.

For the real estate investor who is looking for a long-term situation and doesnot have an abundance of start-up capital to invest, these areas can providequite a profitable solution. They have become more popular for renters manywith new cafes and they are all fairly close to the downtown and midtown cores.

2011-11-01T12:13:00.000-07:00

Toronto Residential Income Property Newsletter: November 2011

What is the key to success in the real estate investment business? One word: Patience. Many of my clients have endured a rough ride this year with the lack of too many good duplexes and triplexes. The key, quite simply, is to hang in there. I strongly recommend to my purchaser clients that you don’t get frustrated with the market and the poor returns and just stay the course. Eventually, with a lot of hard work and a little bit of luck, your property will turn up. I’ve seen it happen too many times, that just when you think you will never find the right opportunity, that there it comes right around the corner. The old saying “good things come to those who wait” can be very true indeed in the income property business.

This month I’d like to look at a segment of the Toronto real estate market that I often don’t report on too regularly. As you know, at Plex we are very active with duplexes, triplexes and multiplexes as well as “fixer-uppers” that may have profit potential. One other area that can also have good investment potential is with mixed-use buildings – retail storefronts with two or three apartments and/or offices above.

Most of these properties are on popular retail strips like Queen, Bloor, College and obviously Yonge St. There are also little strips like the Forest Hill Village, the shops on Bayview south of Eglinton or at the top of Coxwell in Leslieville. Many neighbourhoods have retail strips that offer every good and service imaginable. Some areas are more known for specialties – for instance restaurants on the Danforth, or on College in Little Italy. Most of the time these buildings fall under the I.C.I. umbrella (commercial rather than residential) even though there may be residential rental apartments above the main floor retail space.

These properties can be quite interesting for someone looking to live-in or for the absentee investor. The market for these mixed-use buildings has been similar to strictly residential properties over the past few years insofar as lower bottom-line returns and negligible cap rates. My advice is to make sure that if you buy a mixed-use building that your main floor retail tenant is on a long lease and that their business is strong, unless of course you have a business to operate out of the main floor yourself. Most of the properties derive the bulk of their income form the main floor lease and it would be difficult to immediately make up that rent if the tenant leaves before the end of their rental term. It is much easier to find a residential tenant than a commercial one. The commercial rental market has softened a little following the recession we just endured. It is not uncommon to see more and more unrented storefronts these days.

Remember too that every new tenant is going to want to build to suit, so that cost is likely going to cost you months of free rent. It is usually the tenant who pays for major modifications to the premises, but you have to be aware of how these changes may affect the value of your building if they suddenly disappear. Also, most of these properties are on busy main streets, so keep that in mind if you intend to live in a property above a store front.

My clients have asked where the mixed-use retail market is going since commercial borrowing rates continue to be very favourable. So far in 2011, the market for these buildings has been strong and the bottom line cap rates are similar to the residential plexes. In other words, they don’t really offer any more investment benefit than apartments in traditional homes.

Experts believe that REITs (real estate investment trusts) are great indicators of where the commercial market is going. A couple of years ago many thought that the overall commercial prices would start to drop, yet that didn’t really happen in Toronto’s core. This is quite interesting because there is no indication that this is happening yet on either the residential or commercial side.

So does that mean that a storefront with two units above it will be a better buy this year than a regular triplex? Quite often I will highlight duplexes or triplexes that trade for over-asking and comment on how the investment value gets thrown out the window.

I’d like to look at some of this year’s activity that may shed light on what’s happening with these kinds of properties:

Here are all the 2011 sales in C01 west of Yonge Street south of Bloor, specifically categorized as stores with apartments or offices above. These include shops on Bathurst, Ossington, Dundas West, Queen West, College St and others.

Field	Count	Mean (Average)	Median	Mode	Low	High
List Price	11	$1,117,173	$999,000	n / a	$439,000	$2,250,000
Original Price	11	$1,120,809	$999,000	n / a	$439,000	$2,250,000
Sold Price	11	$1,080,000	$975,000	n / a	$400,000	$2,130,000
% List	11	96.36	98	98	88	103
Taxes	10	$10,743	$10,156	n / a	2779.2	$22,934.97
Bedrooms	0	n / a	n / a	n / a	n / a	n / a
Washrooms	4	4	4	n / a	2	6
Days On Market	11	93	44	44	13	472

Note that there were only eleven YTD sales in this, the most popular downtown retail area. The largest sale (over $2M) causes the average price to go into the million dollar range. Most sales are in the $700K range but they tend to be further west towards Dufferin. Obviously to closer to Yonge, the more expensive the buildings become.

Here’s the same analysis for mixed-use buildings on the east side of the DVP. These would include sales on the Danforth, Broadview, Gerrard, Pape, Coxwell St. Clair East & many on Queen Street East.

Field	Count	Mean (Average)	Median	Mode	Low	High
List Price	30	$632,010	$558,500	n / a	$289,000	$1,690,000
Original Price	30	$635,177	$568,500	n / a	$289,000	$1,690,000
Sold Price	27	$585,333	$539,000	$825,000	$329,000	$1,590,000
% List	27	98.07	97	97	81	181
Taxes	28	$9,399	$8,397	n / a	$2,358.62	$29,245.12
Bedrooms	0	n / a	n / a	n / a	n / a	n / a
Washrooms	16	3.3	3	3	2	7
Days On Market	30	65	52.5	9	3	24

The average sales prices are lower than on the west side. The highest sales here are Queen St in the Beach and prime larger buildings on the Danforth. The average for a small building with one apartment above seems to around $600K.

I think that the bottom line is if a mixed-use building is throwing off better numbers than a completely residential multiplex and has good lease(s) in place, then it should be considered seriously. I prefer all residential just from a rentability point of view but remember that investment real estate is all about the returns. If cap rates start to get noticeably stronger on mixed-use buildings, I will start steering more of my clients in that direction. It hasn’t happened yet, but as I pointed out earlier, it may.

2011-10-03T11:31:00.000-07:00

Toronto Income Property Newsletter:October 2011

Thefall real estate market is underway and now in full swing. I have been quite disappointed with theincome property inventory over the past few weeks. Usually after Labour Day the number oflistings increases from the previous summer months. While there have been more listings asexpected, unfortunately very few of them have been income generating. I have seen only a handful of qualitytriplexes and in all cases the prices were too high to justify any sort ofprudent fiscal return. Since I have anon-going demand for these kinds of properties, I fear that when a good oneturns up there are going to be a lot of people trying to buy it. This will mean multiple offers on anyinvestment property that even comes close to making sense. This will continue to drive cap rates andinvestment values down. I think thesecret to success will be to stay on top of the market and to strike fast withany plexes that aren’t holding back offers.

Enjoythe turning of the leaves and to all my clients and friends out there, I’d liketo wish you and your family a very Happy Thanksgiving.

Oneof our mayor’s campaign promises was to get rid of the second land transfer taxthat we have to pay in Toronto. Forthose of you who don’t know, we have to pay an additional land transfer tax tothe city as well as the province. Thisadds thousands of dollars to the cost of your real estate purchase. The Toronto Land Transfer Tax costs theaverage Toronto home buyer about $6,000, up front. When added to the provincialversion of this tax, average Toronto home buyers face over $12,000 in landtransfer taxes. We are the only city in North America to suffer this cash grab.

TheToronto Real Estate Board is calling for the mayor to rescind this very unfairtax. Unfortunately, this additionalrevenue to the city is now very much needed in light of all the cutbacks thatare being contemplated by City Council.

“Thetime has come for City Council to make the tough decisions so that City Halllives within its means. City Hall can’t continue to saddle future generationswith insurmountable debt and unfair taxes, like the Toronto Land Transfer Tax.The status quo is not an option,” said Richard Silver, President of the TorontoReal Estate Board.

Torontoreal estate agents will be making a deputation to the City’s ExecutiveCommittee and have been rallying the public, through www.NoHomeBuyingTax.com,to send in their comments to City Council. Please take a moment to visit this site and support the movement torepeal this tax.

Asanticipated by most analysts, the Bank of Canada decided to not increase theprime rate this past month. It was predicted to rise in September as recentlyas a few months ago. However, the recent nasty economic news from almost allfronts helped convince the Bank of Canada to hold the Canada prime rate at thecurrent level for the time being. Canadian mortgage rates have alreadyincreased slightly due to the economic outlook. RBC and other banks haverecently raised variable rate mortgage rates. Barring any unforeseen global changes (political or climatical), theinterest rates will stay relatively low. Many people believe that the current strong demand for houses has beenlargely fueled by low borrowing rates. Once rates start to seriously increasethen the housing market may finally start to cool down. Given the low inventory of investmentproperties for sale I don’t see the demand for these properties to drop much atall.

2011-08-31T14:56:00.001-07:00

Toronto Income Property Newsletter: September 2011

As we head into the Labour Day weekend, many of us are saying good-bye to summer and are getting ready to get back into our full-time grooves. There have been very few decent duplexes or triplexes over the past month, so I look forward to the new inventory that will hit the market in the next few weeks. To all of you who have been patiently waiting with me, our time will come soon. How will the market be? Interest rates aren’t moving yet and there is talk of yet another recession in the U.S., yet our local real estate market continues to thrive. Resale condos are still strong and I am still encountering multiple offers on a regular basis. All this will make for a challenging fall season for plexes, but we’ll be out there jumping on the best ones as they come up.

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I am pleased to announce a small change to the Plex website. Up until now our “featured properties” section would list several income properties that were available for sale in and around the GTA. I would select several of the better properties that I had been through that I liked. Quite often these properties would sell very quickly so the information would become outdated very quickly. I often would update the listings every two or three weeks, but many of the best properties were hitting the market and selling in between my updates.

After feedback from many of our clients, we have changed this section to reflect duplexes and triplexes that have recently sold. Each month I will pick a handful of sales from the prior month. You will now be able to get a sense of what the income market is doing based on some of the properties I select. I think it is very important that if you are in the market for an investment property that you stay on top of what other similar properties are trading for in your desired area. It is good too for existing landlords to stay on top of the market as well.

If any of you would like more detailed income property sales statistics covering larger areas or longer time frames, please send me an email to paul@plex.ca and I will happily send you a customized report. Naturally, for all of you who aren’t getting automatic daily updates of new income property listings as they hit the market, let me know and I will make sure that you get them right away.

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With all the heavy rain that we have been getting, I have had many clients experience water in their basement. This problem can be compounded when your lower level is tenanted. Water can enter your basement for a number of reasons. The good news is that you can prevent or at least reduce the chance of this happening. Water in your basement is most likely to occur when there’s been a heavy rainfall, snow is melting or we’re experiencing a spring thaw.

Causes of basement flooding include:• A leak in your home’s foundation, basement walls, or basement windows or door• Poor lot drainage• Failure of the weeping tile system (foundation drains)• Overflowing eaves troughs• Leaking/plugged downspouts• A blocked connection between your home and the main sewer in the street• A back-up of wastewater in the sewer system (or a combination of wastewater and rainwater from the sanitary or combined sewer system)• Failure of a sump pump (in some areas) used to pump weeping tile water

There are three types of sewers in Toronto. The sanitary sewer, which carries wastewater (sewage), is connected to your home’s plumbing (toilets, sinks, laundry, etc.) and leads to a sewage treatment plant. The storm sewer collects stormwater from catch basins (street drains), eaves troughs, weeping tiles (in many areas of the city) and carries these flows into nearby streams or Lake Ontario. In older parts of the city, stormwater and sewage are collected in the same pipe known as a combined sewer. During normal weather conditions, all the wastewater in the combined sewer is treated at the sewage treatment plant. However, in a heavy rainfall or spring thaw, the combined volume of stormwater and sewage may exceed the treatment plant’s capacity and some of the water may overflow untreated into a watercourse or the lake. Basement flooding may occur when the local sanitary or combined sewer receives more flow than it can carry. The overloaded sewer forces wastewater back through the sewer pipes where it will escape through floor drains or other low-lying plumbing fixtures in the basement.

The City of Toronto has taken steps to stop the overloading of the sewers and basement flooding. Action taken includes:• A new by-law requiring homeowners to disconnect their home’s downspout from the City’s sewer system, where feasible.• Basement Flooding Protection Subsidy Program— offered to help homeowners with costs to implement flood prevention measures or install devices (such as sump pumps and back-water valves).• Work underway across the City to make improvements to local sewer systems and overland drainage.• Regular inspection, cleaning and maintenance of the City’s sewer system.• Water efficiency programs to reduce wastewater volumes.There are some simple steps you can take to reduce the likelihood of basement flooding. If the problem is persistent, further solutions are available.• Check for and fix leaks in walls, floors, windows and foundations.• Clear overflowing eaves troughs and downspouts of leaves and other debris preventing proper drainage.• Disconnect your downspouts from the sewer system• Make sure your disconnected downspouts are draining properly, ideally 1.8 meters (six feet) from your basement walls.• Be sure the grading around your home drains water away from all exterior walls and does not impact neighbouring properties.• Have a plumber/drain specialist inspect your home’s flood-proofing devices, such as back-water values, sump pumps, floor drains or caps, to ensure they’re working properly.• Consider soft-surface landscaping that allows stormwater to soak into the ground rather than run directly into the local sewer systems (i.e. increased sodded areas, porous pavement).• Be sure your flood insurance is up to date.• Do not block the sewer connection by pouring grease down the drain or flushing objects down the toilet.• Repair/replace damaged weeping tile systems.

In my experience, exterior damp proofing is the only long-term effective remedy for water penetration problems. There are temporary internal solutions but be weary of these quick fixes. It is always best to deal with the problem at its source and implement a permanent solution to draw water away from your perimeter walls.

2011-08-02T07:37:00.000-07:00

Toronto Income Property Newsletter - August 2011

Wow – it has been hot! This past month of July saw some really scorchers. I’m not so sure which is worse – showing income properties in the dead of winter or dealing with this 30+ degree heat. For all of you that find yourself working outside this summer, please take precautions. There have been a number of heat advisories so far, and I expect that there will be more to come. It’s all part of these ever-changing weather patterns. Just please do your best to keep yourself as cool as possible.

One of the areas that we are most active in is owner-occupied income properties. Many of our clients realize that it makes sense to rent out a portion of their homes to help pay down their mortgage. That’s why duplexes, triplexes and even houses with basement apartments are always popular. When we search for these types of properties, there are two things that I focus on. The first (and most important in my opinion) is the comfort of the owner’s suite. The amount of money that is generated from the other units (and the overall fiscal attractiveness of the property) comes second. If you are living in a suite that doesn’t suit you then it doesn’t really matter how much money you are saving. It is important that an owner’s suite have all the minimum features that make you happy to live in that unit. If you need two or three bedrooms, parking, ensuite laundry etc. and these are things that you absolutely can’t do without, then you shouldn’t sacrifice them. There are many beautiful suites in some of the income properties that I have come across. In some cases some suites in higher-end income properties are like opulent hotel rooms. Some offer more living space than complete homes. I often get asked where you find these “over-the-top” buildings in Toronto with great rental units.

From a rental property perspective, a property close to the subway line, restaurants and shopping tend to be more desirable to both to owners and renters. Other factors that high-end renters tend to look for are proximity to the more prestigious schools, sports clubs, etc. Properties close to the middle of the city – Yonge Street from Bloor Street all the way up to York Mills – get the highest rents. Other areas like the Beaches, Riverdale or High Park that have strong locational benefits are also very attractive to renters who are looking to pay a little more.

Where are the nicest income properties in town? Almost every exclusive neighbourhood in Toronto has duplexes and multiplexes mixed amongst the single-family homes. There is always activity in the high end income property market. You may not think about spending over a million dollars in Rosedale or Forest Hill but there are many homes in these areas that have fantastic rental suites in them. Key streets include Madison, Lowther, and Admiral in the Annex and streets like Maple & South in Rosedale. Sometimes suites can rent for as high as $5000 a month in these properties. That may seem like a ridiculous amount of money to pay on rent, but believe me, there is a market for these kinds of rentals.

Here are the neighbourhoods that are generally considered to be the most exclusive areas of our city and often generate the higher rents:

C01 – includes the Lower Annex, College Street, Chinatown & the downtown core
C02 – includes Upper Annex, Yorkville, Rathnelly & Deer Park (Yonge & St. Clair)
C03 – includes Chaplin Estates & Forest Hill
C04 – includes Cedarvale, Allenby, & Lytton Park
C09 – includes Moore Park & Rosedale
C10 – Includes Lawrence Park, Leaside & Midtown (Yonge & Eglinton)
E01 – Includes Riverdale & Leslieville
E02 – Includes The Beaches
E03 – Includes Playter Estates & Danforth Village
W01 – Includes High Park, Bloor West Village & The Kingsway

Market statistics show us that live-in owners and investors are comfortable paying big dollars for upper-end investment properties. Since most of them will not yield a strong cash-on-cash return, I’m sure they’re being bought based on location and the hope of eventual capital appreciation. Cap rates don’t generally apply as much to high end rental properties.

One other area that we haven’t included in the above districts is prime Cabbagetown which occupies a small portion of C08. There have been some very nice duplexes and triplexes that have sold, particularly east of Parliament close to the Riverdale Farm. It seems like this section of town is beginning to closely mirror Riverdale on the east side of the valley.

One final note: I mentioned about the rental guidelines increase last month and the news just came down Friday that the allowable increase each year for landlords to charge their tenants will in fact be 3.1%. That is quite a jump from where it is presently so it seems like landlords with a lot of suites will be able to hedge somewhat against increased

2011-07-07T10:47:00.000-07:00

Toronto Income Property Newsletter: July 2011

Happy Canada Day everybody. July 1st marks our full jump into summer and the start of the second half of the year. We certainly saw a very strong market for income properties over the past six months. If you haven’t purchased your property yet this year, it will be trickier over the next couple of months. The inventory for quality duplexes and triplexes continues to be scarce. I expect a good fall market though with plenty of new product, provided that rates stay relatively low.

Rental Increase Guideline to Quadruple?

The maximum allowable increase that you are permitted to charge your tenants for this year is 0.7%. That’s seven bucks if you are letting your suite for $1000 a month. This number fluctuates from year to year and can obviously make a big difference to institutional landlords with thousands of units.

I read an article this morning that the Ontario Federation of Rental Housing providers are expecting this to increase to 3.1% in 2012. They cite HST as an increased cost as well as increasing inflation. Landlords also claim that their costs have risen as high as 7% and they can only charge a small fraction back to the tenants.

Whilst an official announcement hasn’t been made yet, I can’t see the increase jumping that high. I usually deal with landlords that have only a few suites, and I usually advice them to skip the rental increase altogether as a nice gesture to good tenants. If the increase goes up to 3%, and you own a few suites that could be upwards of an extra $100 a month. Let’s see what happens.

I believe in the old saying: “There are no such things as bad tenants - only bad landlords.” If you treat your tenants really well, it will pay back in less hassle throughout your journey as a landlord. I know hundreds of landlords in town from my years of selling plexes and can happily state that most of them have had very little problems with their tenants. I think that is because most of my clients understand how to treat their tenants properly.

Rental Transactions up 18 Per Cent

The recently released TREB Rental Market Report stated that there were 5079 lease transactions for condos and townhomes for the January to April 2011 period. This result was up 18% from 4319 lease transactions reported during the same time period in 2010. The number of rental units listed on Toronto MLS rose 10% to 9374 units. The increase in listings reflects the high level of condominium completions over the past year. Many investors chose to lease their units upon completion.

Bear in mind that these numbers do not reflect the rental figures for duplexes, triplexes or multiplexes in the GTA. More importantly they don’t cover the many more transactions that take place on Craigslists, Kijiji and viewit.ca. This does provide some valuable insight into rental trends however. The report stated that a one bedroom apartment rented for an average of $1485 per month. While this may be true for condos, the average price would be more like $1000 - $1200 in most self-contained units in houses. The rental market remains strong across the board so investing in good income-generating properties continues to make a lot of fiscal sense.

2011-06-02T07:37:00.000-07:00

Toronto Income Property Newsletter - June 2011

As we head into June we can hopefully look forward to some nicer weather and a little less of the rain we’ve been experiencing. The housing market often slows down a touch at this time of year and then comes charging back after Labour Day.

I’d like to wish the best of luck to the Vancouver Canucks in the Cup finals (I know some die-hard Leaf fans cringe at the thought of cheering for the Canucks) and also a shout out to all the dads out there for Father’s Day.

The following is an article that I wrote a couple of years ago when the market was exceptionally hot and cap rates and investment value were hardly considered when purchasing a duplex or triplex. Since that time we have gone through some ups and downs but the income property market has remained consistently strong. I want to ask the same question that I posed back in 2009. Given the accepted lower rates of returns, does it still make sense to invest in income properties in the Central Toronto core?

As many of you know, I spend most of my days tripping around town with investors looking to buy quality duplexes and triplexes. Yet over the past couple of years the anticipated rates of return have dropped significantly. Is the small-scale real estate investment market dead in Toronto? In these days of properties being sold at 4 or 5 caps, one has to wonder what the motivation is to pay these kinds of prices. If you are going to buy a triplex in Toronto for investment, what kind of reasonable yearly return should you expect? If your ROI is under 5%, does it really make sense to assume the business risk? Properties require hands-on management, have frequent maintenance issues and are often difficult to dispose of quickly. In that sense, real estate is not a very liquid investment relative to stock or other paper-based vehicles. REITs often offer similar returns with a lot less hassle than owning a building. They also can be cashed in quickly if need be. It always makes sense to live in your income property when possible, but does it make sense to become an absentee landlord in today’s market?

At Plex Realty, we pride ourselves on staying on top of this market and knowing when are the right times to get in and get out. It would be a very self-serving statement to say that you should always buy income properties because that’s our stock and trade. But is this true? If returns in Toronto are lower than in the past markets and rents are stabilized, what’s the prognosis for bottom-line returns to increase? Should you buy today or wait and see what the next cycle may bring? There are two very legitimate sides to this argument. I’ll let you decide for yourself.

It can be argued that the income property market in Toronto does not provide as much as could be expected from other types of investments, such as the stock market or mutual funds. If so, is the return high enough to be worth the extra risk involved and the fact that the money may be tied up for an extended period of time? What are the local market conditions, and how are they likely to change over the course of two, five or ten years? A purchase in the Annex may be significantly different to one in Markham long-term. It is certainly easier, and in many ways safer, to rely instead on other types of investments. For instance, investing in mutual funds requires little work, is easy to understand, and historically has provided a very reasonable return. Investing in real estate presents both unique problems and opportunities. Real estate is a non-liquid, localized investment vehicle. It is immobile, of limited supply, indestructible, and physically real. It is difficult to own buildings - they require maintenance, tenants, and regular updating.

Many investors feel that it is illogical to purchase property that might have yielded a higher return five or even two years ago. From a practical standpoint, traditional measuring sticks are being redefined. If you’re looking for 10 to 12 times your gross rents to determine market value, you’re going to have a hard time finding a suitable property, at least in the central part of the city. As I said at the outset cap rates have come down. The only way to determine if they are too low is to consider alternative investment strategies and see what kinds of returns you can achieve elsewhere. Since there’s a lot of risk associated with real estate, you have to decide what minimum percentage return justifies an income property purchase.
The most successful businesspeople (not just in real estate mind you) are those who often go against the grain. They see opportunities where others see nothing. I enjoyed a biography that I saw recently on the Reichmanns. When downtown Manhattan real estate hit all time lows in the 1980s, Paul Reichmann swooped in a bought and redeveloped many key locations that local players had passed on. A couple of years later things turn around and those purchases tripled in value. It actually paved the way for guys like Trump to start redeveloping. The point is that if everyone thinks a property is too expensive, there may be hidden opportunities.

This point ties into the other side of our argument. There is still one primary reason for investing in Toronto real estate even in a lower market --in a word, profit! Owning real estate can often lead to returns that are double those of more conservative strategies. This is based on the fact that in real estate there are actually three ways to make a return on the initial investment. There are the monthly cash-on-cash returns that we have discussed thus far. There is also the yearly reduction on your principle invested and there are the possible capital gains upon disposition. Added together, these three types of Return on Investment can add up to a significant total return--one that justifies the greater risk and involvement. This is what makes the risk and bother worth it.

Many realtors believe that the Toronto market still has room to move up in prices. Our home prices are still low compared to some other large cities in North America. They also think that rents will increase again to levels we saw a few years back. I think the condo market has bitten into the rental market for sure, but I don’t think current rent levels are going to go down. If rents are going to hold and possibly increase then over the long-term, buying an income property today in a secure location starts to make sense again.

You also have to remember that your returns get better each year. If you intend to buy a multiplex and hold it for a decade, then it won’t make too much of a difference to you if you made 5% in year one instead of 8%. If the market has improved at that time and you have renovated the property over the years, I’m sure that your investment will have paid off handsomely. Many of my clients who have owned income properties for several years are pleased with the continual passive income.

Let’s take a hypothetical situation of a multi-unit building that only returns 4 or 5% today. An investor upon seeing it decides the price is too high relative to the rents and decides to wait for something better to come along. A second investor decides to buy it and start slowly cleaning up the suites to try and make modest gains in rent. Investor #1 a year later is still waiting and has determined, if anything, that the market has actually gotten worse. He continues to wait. Meanwhile Investor #2 has been able to increase his rents a bit and going into year 3his return is starting to approach double digits. Moreover, the value of his building has increased from the capital improvements. Naturally he can’t cash in on this gain, but he will at some point. The point is that waiting isn’t always the smartest move. We only have a finite number of above-average income properties in Toronto, and they don’t come up for sale that often. If one does and the returns are marginal but it is a great building or in a great spot, one could make a case for it.

So to summarize: the reasons to buy an income property today would be capital appreciation (particularly if you renovate your property over time) and the chance of improved returns over the long term. The reasons not to buy would be that the returns are too low relative to other “safer” investments. As always I suggest that you learn and study the income property market, set reasonable investment goals, and stick to your guns. If you’d like to discuss this in more detail, please drop me a line at paul@plex.ca. As always, I’m available to discuss the income property market with you at any time.

2011-05-02T07:54:00.000-07:00

Toronto Income Property Newsletter: May 2011

First off, I’d like to wish a Happy Mother’s Day to all our moms out there.

The Toronto income property market continues to roll along in full swing. Sales of duplexes and triplexes have been brisk, especially the properties in key areas close to the subway lines and prominent retail strips. Cap rates are still hovering in the low to mid five range and properties in many cases are still holding back offers and often selling for over the asking price. Expect this to continue throughout May and potentially into the summer months.

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With the weather getting nicer, many of us undertake spring cleaning and small renovation projects at this time of year. As a landlord you are always responsible for keeping your rental suites in a state of good repair. This is often the time to make cosmetic interior improvements (paint, replace light fixtures, etc.) and do a general clean-up of any lingering maintenance items. I personally am finally embarking on cleaning up and refinishing my basement.

A lot of times my clients ask how much kitchen and bathroom renovations may run. Obviously, there is no definitive answer as the price will vary based on the quality of the finishings and individual room components. I recently found this chart that listed many common jobs that we often need to get done, courtesy of The Ontario Contractors Database. (www.ontariocontractors.com). This is a great website by the way for general construction tips and information.

Interior Renovations
Remove old plaster & install drywall $2.50 -5.00 sq.ft.
Install drywall over exiting plaster $1.50 - 3.00 (board) sq.ft.
New Plaster $8.00 - 11..00 sq.ft.
Install drywall in an unfinished area -supply and install/no insulation $7.00 - 9.00 sq.ft. floor space/.14 sq.ft. board
Texture spray ceiling $1.00 - up sq.ft.
* New house construction- 080 sq.ft. board -board, mud/tape, labour only.
Suspended Ceiling Tile Installation $2.50 - 6.00 sq.ft.
Acoustic Ceiling Tile Installation $1.50 - 5.00 sq.ft.
Sand & Finish existing wood floors $2.00 - 4.00 sq.ft.
Wood floor installation $5.50 - 12.00 sq.ft.
Ceramic Tile - Supply & install $10.00 - up sq.ft.
Ceramic Tile - labour only $5.50 -8.00 sq.ft.
Underlay - installation only $1.50 -2.00 sq.ft.
Vinyl floor tiles - supply & install $2.00 - up sq.ft.
Vinyl sheet flooring/linoleum $6.00 - up sq.yd.
Carpet - synthetic $15.00 - up sq.yd.
Carpet - natural wool $50.00 - up sq.yd.
Carpet - underpading $5.00 - up sq.yd.
Carpet - cleaning/steam/chemical $30.00 - up per room
Windows-replacement - 1,800 sq.ft. house $10,000.00 approx.
* amount may vary depending upon the situation.
Windows - sliders, casement, awning, doublehung - installed $140.00 - up
Windows - fixed, bay, bow, round - installed $1,200.00- up
Doors - exterior, insulated,metal $750.00 - up
Doors - exterior, solid wood $850.00 - up
Doors - exterior, fibreglass $900.00 - up
Doors - exterior, double, insul., metal $1,200.00 - up
Doors - exterior, double, solid wood $1,500.00 - up
Doors - exterior, double, fibreglass $2,000.00 - up
Replace entrance door latch & lock set $150.00 - up
Install decorative glass in entrance door $500.00 - up
New Storm door $450.00 - up
Install patio doors - brick wall $2,500.00 - up
Install patio doors - wood frame wall $2000.00 - up
Replace existing patio doors $1000.00 - 2000.00
Install basic skylight $1,000.00 - up
Install venting skylight $1,500.00 - up
Fireplace - Masonry $2,500.00 - up
* Note: Ont. Building Code for new house construction may require CO detector & fresh air exchanger ($2,500.00 - up) for wood burning fireplaces-gas does not require this.
Fireplace - Zero clearance $2,000.00 - up
Fireplace - Natural Gas $2,300.00 - up
Glass fireplace doors $250.00 - up
Install Fireplace damper $250.00 - up
Chimney cleaning $200.00 - 375.00
Video Chimney inspection $250.00 - up
Video Plumbing inspection $150.00 - up
* Video inspections start at $110/hr - plumbing, chimney - whatever the case.
Interior door - hollow core, hardware incl $150.00 - up
Interior door - solid core, hardware incl. $400.00 - up
French doors $600.00 - up
Bifold doors $75.00 - up
Louvred Bifold doors $150.00 - up
Sliding closet doors $200.00 - up
Sliding mirror closet doors $350.00 - up
Kitchen renovation - full $7,000.00 - up
Kitchen Cabinets - replace $150.00 - up lin.ft.
Kitchen counter - replace $25.00 - up lin.ft.
Stove fan-venting outside $475.00 - up
Ceiling fan - installed $200.00 - up
Painting - interior - whole house $1,500.00 - up
Wallpaper - hanging $2.00 - up sq.ft.
Central vacuum system $800.00 - up
Security System - you own $600.00 - up

Remember to keep your receipts as any improvement charges are capital items and do go against your capital gains if you were to sell in the future. Also, keep a receipt for all maintenance items as they will be allowable deductions on your income statement for the year.

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The Toronto Real Estate Board reported 9,262 sales of single family homes in March 2011. This sales volume represents a 48 percent increase over the sales volume for February 2011 as well as an 11 percent decline from the record breaking sales volume reported for March 2011.

2011-04-01T07:46:00.000-07:00

Toronto Income Property Newsletter - April 2011

It seems like the all the heated sales in the core that characterized the first quarter of 2011 are starting to slow down a touch. As the weather gets nicer, there is more and more inventory hitting the market, which will give buyers more choice and more time to make informed purchase decisions. On the income property side, most properties in prime spots that have 5.5% returns or better are stilled getting snapped up quickly. It seems like living and investing in duplexes and triplexes is still a valid option for many of the buyers out there. This month I will look at a few of the income property sales from January through March of this year to give you all a sense of what has been going on.

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The first three months of this year saw quite a few duplexes and triplexes trade for over asking price. It seemed for awhile that the list price was irrelevant. Once a property was holding back the offer date it was almost a given that the list price was just a starting point. Bids would invariably exceed the list price by a fair bit and often have no financing or inspection conditions. I was involved in several multiple offer situations, including one in the College & Dovercourt area that had twenty offers and sold for almost $200K over asking.

There were thirteen sales in the Riverdale/Danforth/Leslieville/Beach neighbourhoods that had three or more kitchens. Of these sales, five of them traded for over asking price, including a triplex in Leslieville that listed at $599K and traded for $702K. There was also a sale of a converted house into five units in the Greenwood & Danforth area that traded for $1.25M. That must be a residential price record for a house in that area.

In the downtown C01 & C02 areas (west Yonge, from St. Clair down to the lake), there were twenty-four sales of properties with three or more kitchens. The average sale price was around $650K and most of these properties got 98% of their asking price.

In midtown (C04, C09 & C10), there were only four sales with three or more kitchens in the first quarter. Two went above the asking price and the other two got very close to the list price. At the moment there are very few midtown duplexes or triplexes for sale, which is quite odd for this time of year. I suppose that’s why we Plex agents have to cover the entire Central core to find opportunities for our buyers.

Coincidentally, there were also twenty-four sales in the west districts of Roncesvalles, High Park and Bloor West Village. Like the downtown sales, quite a few went over list price and the ones that didn’t still often sold very quickly. There was a fourplex in Parkdale listed for $729K (which I admit did strike me as quite low), which ultimately sold for $871K. Even though this property needed significant renovations, the final price really wasn’t that high. Fourplexes on Avenue Road often sell over $1.1M, and the rents there are not really that much higher than what people are paying downtown. The average sale price for these properties on the west side was around $600K, so about $50K less than similar properties downtown.

I expect that these income property stats will be similar for the next few months. There isn’t a ton of quality listings at the moment, although we do expect to see more in April and May.

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I often find myself explaining Toronto’s Second Suite Bylaw to a lot of my newer clients. In the City of Toronto, it is permissible to have a second accessory apartment in your property, provided it meets certain conditions.

Some of the conditions of creating a second suite (which is perfectly legal) include:
• the suite must be self-contained with its own kitchen and bathroom;
• the house, including any additions, must be a least 5 years old;
• the square footage of the second suite must be less than the remaining unit;
• generally, homes with a second suite must have a least 2 parking spaces. In parts of the former City of Toronto - R2, R3 and R4 districts - these suites are exempt and only require 1 parking space;
• any new second suites must comply with the Ontario Building Code and need building permits. Existing suites must comply with the Fire Code and zoning/property standards.

For more information, please go to: www.torontorealestateboard.com/consumer_info/gov_programs/suite_qa.htm

For properties that have three or more suites, we usually have to ensure that the continued use of the third suite is not a problem. If it has been pre-existing for several years and meets fire code requirements, generally there isn’t an issue. It is when you have two suites and you quietly add in a third without permits that things can go wrong. I also always recommend getting legal advice prior to doing any significant changes to the status of your property.

2011-03-01T08:45:00.000-08:00

Toronto Income Property Newsletter - March 2011

The spring market is just around the corner. As we come into March, I can safely say that the severe income property shortage of the past few months is beginning to subside. Over the past week I have seen quite a few decent income-generating properties hit the market. There’s still a strong push on the demand side but as more properties become available, this fervent demand will lessen. Interest rates are still holding but one gets the sense that we can’t be too far away from rates starting to rise again.

When you change your clocks for daylight savings time in a couple of weeks, please don’t forget to check your smoke alarms. Also, I wish you all a Happy St. Patty’s Day.

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At Plex Realty we deal with a large cross-section of the Toronto investment community. Many of you are seasoned investors with lots of years of experience in the landlord business. We also do get a lot of inquiries from folks who are just getting into real estate. Sometimes the topics I talk about are only really relevant to one side of my audience, so this article is going to be split into two parts. First if you are looking to get into the income property market in Central Toronto I will present a series of pointers to help you out in the searching and buying process. The second part is for all you income property owners out there – I have presented a “good landlord” checklist. Most of this information I have pulled from the Plex website which I wrote some years ago. Despite market conditions, the advice is still very relevant today. .

FOR PEOPLE GETTING INTO THE INCOME PROPERTY MARKET:
If you are a first time buyer of a duplex, triplex or multi-unit apartment building in the GTA here are a few steps that you ought to follow to ensure your chances for success:

i. Define Your Investment Goals

Each time you review a listing or visit a property you should ask yourself would this property meet my fiscal objectives? Some of the specific factors that you should consider are: suitability of neighbourhood for renters, the current vacancy rate, economic conditions and your own propensity to stick it out with the property long-term.

ii. Identify Your Needs & Desires

Determine what you’d like to have versus what you must have. These include obvious items like location, type of investment property and whether you have a penchant for doing renovations if necessary.

iii. Know Your Financial Readiness

The financial questions that you have to ask yourself before you get started include:
• How much money can you afford to put towards a deposit on your income property?
• How much of a debt obligation you are prepared to undertake? What is the maximum that you will be able to borrow?
• What is your net monthly payment comfort level? Set a maximum dollar amount and do not exceed this threshold when searching for properties

iv. Establish a Relationship with a Lender

This is very important because there a myriad of financial products on the market today. The mortgage business has become one of Canada’s fastest growing segments. You can get no money down options, 40 year amortizations and there are specific programs for self-employed people that don’t show a lot income on their tax returns. I often say that how we finance a purchase is just as important as how much we pay for the property.

v. Develop a Purchase Strategy

There are many ways to proceed here. I obviously recommend using a realtor like myself for getting into income properties. My knowledge comes from countless hours in the field looking at rental properties, which I think is the best way to truly gain a proper understanding of the market. Once you have found a qualified agent to assist you, then it is important to develop a strong plan of attack. Start by having your agent search your local real estate board's listings as often as possible. There are many different ways in which income properties are listed on the Multiple Listing Service (MLS) so ensure that your agent is are being thorough in conducting searches. Look for listings with multiple kitchens and bathrooms and always check both residential and commercial listings. Challenge your agent to determine an innovative campaign to find you the right income property. If you don't find what you are looking for you may ask them to call income property owners of certain target buildings in your area - you never know when an owner may be thinking of selling. In addition, you may want to place classified ads outlining your specific investment criteria.

FOR LANDLORDS:

Once you have purchased a property and have gotten it all rented out, here a few pointers that may help your continued success with your venture.

i. State of the premises:

This may sound obvious, but under no circumstances should you let your property fall into a state of disrepair. If your tenants are paying each month, on time, then you have an obligation to keep everything in good working order. If something breaks down, fix it. Also, please try and keep up on maintenance items. Make sure the snow gets shoveled, the eaves get cleaned, the grass gets cut, etc. A tidy property is better all around for both you and your tenants.

ii. Rent Increases & the Residential Tenancies Act

You are allowed to raise your tenants rent only 0.7% for the year 2011. Keep up on your allowable limit and try and stay familiar with you rights and obligations under the tenancies Act. If are unfamiliar with this, please take a look at:
http://www.ontariotenants.ca/law/act.phtml

iii. Fire Issues

As a landlord you are obligated to ensure that your rental property meets fire code guidelines. The best way to ensure that your building is compliant is to hire a retrofit consultant who will give you a laundry list of all the things that need to be done. I recommend Paul Schuster at www.pcfirecode.com.

iv. Eliminating Expenses

Sometimes you are limited on how much rent you can get away with, so the best way to improve your profitability is to cut on expenses. Things like separate hydro meters help but ensuring that your building isn’t wasting energy can go a long way to saving you money in the long term.

2011-02-01T07:12:00.001-08:00

Toronto Income Property Newsletter - February 2011

I’d like to welcome Howard Esakov back to the Plex team. Howard has years of experience with all kinds of plexes, commercial buildings and “flip” properties.

Numbers for the first two weeks of January showed an 11% decrease in sales from the same time last year. There is still an overall lack of duplex and triplex inventory in the Central core. If something hits the market that is decent, it will likely sell quite quickly and may see multiple offers. In this past week, I’ve noticed quite a few listing agents starting to “hold back” their offer dates. Some people think that the days of five caps are coming to an end. That’s quite a scary thought for me as I have always espoused the financial benefits of Toronto income properties. Yet we all have to live somewhere, so it is always good to contemplate living in an income property if you can.

I'd like to wish you all a Happy Valentine’s Day. Don’t forget to give your sweetie a big hug and a kiss on the 14th.

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Last week, Federal Finance Minister Jim Flaherty announced three main changes to mortgage rules in order to combat concerns over high Canadian household debt. The maximum number of years the government will back a mortgage was lowered from 35 to 30. The upper limit that Canadians can borrow against their home equity was lowered to 85 per cent from 90 per cent. Thirdly, government insurance backing on home equity lines of credit, or HELOCs, has been removed.

The first change is likely to have the largest impact. Buyers who purchase a home with less than 20% of the value of the home are required to purchase government-backed mortgage insurance through Canada Mortgage and Housing Corporation (CMHC). Under the new rules, mortgages amortized over longer than 30 years will no longer qualify for that insurance, making it effectively impossible to get a highly leveraged mortgage of more than 30 years in Canada. Flaherty is simply lowering the amount that can be borrowed against home equity to 85% to ensure Canadians retain some equity in their homes. The final change, to remove government insurance on HELOCs, came as a result of Ottawa's concern that certain financial institutions were allowing homeowners to roll too many consumer purchases into CMHC-insured mortgages.

While Flaherty called the changes "moderate," they did not include an increase to the 5% minimum down payment Ottawa requires for a home purchase. They also stopped short of a proposal that surfaced last week which would have required 100% of condo fees to be included in the list of expenses that are measured against income when financial firms are considering a mortgage candidate. Currently, only 50% must be included.

The changes also come following recent warnings from the Bank of Canada on household debt levels. In December, Bank of Canada Governor Mark Carney cautioned Canadian households and businesses not to be lulled by current low interest rates, because repercussions from a hike could be swift. Flaherty's announcement is the second time in three years that the government has clamped down on mortgage rules.
This is why we continue to advocate buying income-generating properties as a means of lessening the costs of home ownership. When (not if) the interest rates rise, many of our buyers will be somewhat buffered by their income streams. Even if it is simply a basement apartment, any revenue that can be generated from the property you live in will be advantageous to your cash flow and overall indebtedness over the long term.

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We always recommend to our buyers to get tenant legal liability insurance for your income property purchase. There are certain occasions where a landlord may be held liable for damages in the rental suite.

To be held responsible for an injury on the premises, the landlord or property manager must have been negligent in maintaining the property, and that negligence must have caused the injury. All of the following must be proven for a landlord to be held liable:

• It was the landlord's responsibility to maintain the portion of premises that caused the accident.
• The landlord failed to take reasonable steps to avert the accident.
• Fixing the problem (or at least giving adequate warnings) would not have been unreasonably expensive or difficult.
• A serious injury was the probable consequence of not fixing the problem (the accident was foreseeable).
• The landlord's failure -- his negligence -- caused the tenant's accident.
• The tenant was genuinely hurt.

For example, if a tenant (or one of their guests) falls and breaks his ankle on a broken front door step, the landlord will be liable if the tenant can show all of the following:

• It was the landlord's responsibility to maintain the steps (this would usually be the case, because the steps are part of the common area, which is the landlord's responsibility).
• The landlord failed to take reasonable measures to maintain the steps (for days or weeks, not if it had only been broken for minutes).
• A repair would have been easy or inexpensive (fixing a broken step is a minor job).
• The probable result of a broken step is a serious injury, and it was foreseeable (falling on a broken step is highly likely).
• The broken step caused the injury (the tenant must be able to prove that he fell on the step and that the step is where he broke his ankle).
• The tenant is really hurt (the tenant isn't faking it).

A tenant can file a personal injury lawsuit or claim against the landlord's insurance company for medical bills, lost earnings, pain and other physical suffering, permanent physical disability and disfigurement, and emotional distress. A tenant can also sue for damage to personal property, such as a stereo or car, that results from faulty maintenance or unsafe conditions. This is why having tenant insurance for these potential scenarios is a must have.

2011-01-03T07:20:00.000-08:00

Toronto Income Property Newsletter - January 2011

Happy New Year! I’d like to wish everyone a very safe and prosperous 2011. May you realize all your goals and dreams in this year ahead. I’d also like to thank my existing buyer clients for their patience over the past few months. Many of you suffered through a pretty dry spate of inventory last fall. Let’s hope with the turning of the calendar, more quality income properties hit the market and we get you all sorted out soon. Lastly, I’d like to remind all of you that I am available 24/7 to help you or any of your associates with any of your real estate needs. Please feel free to call or e-mail me anytime.

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It has never been a better time to be a landlord in Toronto.

A recent report released by CMHC reports that the vacancy rate in Toronto has dropped to 2.1%, almost a full point down from the previous year. Some believe that in the downtown core the vacancy rate is in fact even lower. This means that almost 98% of the available apartments are rented. When the housing market starts to slow a little, potential purchasers often turn into renters.

This statistic covers the entire GTA and primarily focuses on rental apartment buildings. If you consider how many rental apartment buildings there are in the suburbs, one would expect that there are even fewer available suites in higher-end downtown multiplexes.

We are in the business of renting out apartments in duplexes, triplexes, multiplexes as well as
detached/semis with accessory apartments. This segment of the market is lumped in with everything else so it is impossible to know how this compares to traditional apartment buildings. It is estimated that this segment may represent up to 25% of the total rental stock out there. Since many of these rentals are houses with basement apartments, we can’t really be sure how many suites are really out there. They do separate condominium rentals and this vacancy rate is around 1.5%, so clearly nicer quality rental suites are in even higher demand.

“Secondary suites offer a valuable opportunity to create a new supply of affordable housing in both new and existing communities for seniors, students and families” states OHBA president Bob Finnegan. He also acknowledges that these secondary suites provide an important source of income for younger families and first time home buyers struggling to make mortgage payments. This is something I have been talking about for many years. If we didn’t have these available suites in duplexes and triplexes, then in fact with less stock, the vacancy rate would be even lower.

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Sales last year were much more robust in the first six months of the year. After the summer break the number of quality income properties that hit the market declined. As you can see it has become very difficult to purchase under $500K. Granted the return on lower priced properties tends to be higher, but they are just getting harder and harder to find.

Here are the statistics for income property (houses w 3 or more kitchens) sales as posted on TREB MLS:

C01 – Downtown west of Yonge to Dufferin
# of Sales: 97 Avg Price: $685000 Days on Market: 16
C02 – Annex, Hillcrest, Yorkville (north of Bloor)
# of Sales: 46 Avg Price: $694000 Days on Market: 12
C03,C04 – Chaplin Estates, Midtown (west of Yonge)
# of Sales: 42 Avg Price: $675000 Days on Market: 19½
C09,C10,C10 – Rosedale, Midtown (east of Yonge)
# of Sales: 66 Avg Price: $877900 Days on Market: 13½
W01 – Roncesvalles, High Park, Junction
# of Sales: 52 Avg Price: $620000 Days on Market: 13
E01,E02,E03 – Riverdale, Leslieville, The Beach
# of Sales: 70 Avg Price: $558200 Days on Market: 16

NOTE: I don’t count sales with only two kitchens since it is not possible to verify if the sale was a proper duplex or simply a house with a basement apartment.

2010-12-06T06:51:00.000-08:00

Toronto Income Property Newsletter

Happy Holidays everyone. I would like to wish all of you, your friends and family a very merry Christmas, Hanukkah, Kwaanza, Festivus (or whatever you celebrate) and a happy and prosperous new year. May all your hopes and dreams come to fruition in 2011. If you are travelling over the holidays, please be safe. Try not to eat too much holiday junk food and enjoy this time of year where we all get to see those who we care most about. I’ll be back to you on New Year’s Day where I’ll give you my forecasts for the Toronto residential income property market in 2011. All the best!

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In last month’s newsletter I talked about the new CREA agreement with the Canadian Competition Bureau and how this was going to open the door to more diversified buyers’ and sellers’ services in our industry. The time has come to re-examine commission based structures for those sellers who feel that they do not need the full-service approach that we all offer. These new MLS rules allow do-it-yourself sellers the opportunity to put their own contact information on their property listing and be contacted directly by interested parties as in a traditional “for sale by owner” model. The general public will not be granted access to MLS for the time being. All postings to the MLS system will still have to be entered by a licensed realtor.

I am pleased to announce that today we are launching a new flat fee $999 listing service. We will list your property on MLS, ensuring its accuracy and integrity and then you take care of everything else from that point on. You show your property, deal with potential buyers (and their agents) directly and ultimately negotiate and execute a contract.

A flat fee listing is ideally intended for those who have had some direct selling experience. Do-it-yourself sellers often have flexible schedules and ultimately feel that they can do honestly do the same (or better) job than a realtor who is going to charge them 2 or 2 ½ % of the sale price. My investor clients are always financially oriented and many tend to possess business and marketing backgrounds, so it will be a natural fit for some of them.

This service isn’t going to be the best selling alternative for everyone. Many sellers (especially of tenanted properties) will continue to need the full service approach, having all duties professionally performed from beginning to end by an experienced real estate professional.

For more information, please visit www.999dollarlisting.com. If you or any of any associates would like to chat more about how this service works in more detail, please feel free to send me an e-mail and I’ll be back in touch with you soon.

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The Toronto Real Estate Board reported 3,076 sales through the Multiple Listing Service during the first two weeks of November 2010. This represented a 16 per cent decrease compared to the 3,666 sales recorded during the same period in November 2009. Year-to-date sales amounted to 78,526 – up slightly from the 2009 total.

It is interesting that even though the number of sales declined, prices didn’t drop. In fact, they went up slightly. In the downtown core it seems like there is hardly any investment inventory at the moment, but that’s only because a year ago we were at the top of the market. When you have record breaking months, as we saw a year ago, where everyone is selling because the market is strong, eventually this has to subside. There are only so many people out there with duplexes to sell. Now a lot of sellers are being cautious and are waiting. There are still plenty of buyers out there though. When I start seeing cap rates that aren’t five point something, then I’ll believe that the demand has started to drop off. In the mean time, many buyers will still have to be patient for the right opportunity.

2010-11-01T06:09:00.000-07:00

Toronto Income Property Newsletter - November 2010

Is it just me or does it seem like this year is just whipping by? It’s already November, the clocks get turned back soon, and the leaves are almost all gone. We’re just around the corner from X-mas and then into yet another new year. The Toronto income property market continues to challenge as there has been very little quality inventory around town with high enough rents to justify the sale prices. The ones that are decent do sell almost immediately and often for over-asking price. I fear that the days of good income properties in the core of the city for under half a million dollars may be behind us.

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Members of the Canadian Real Estate Association approved CREA’s agreement with the competition regulator over access to the Multiple Listing Service last week.
“This 10-year agreement brings a close to a long process of negotiation with the Competition Bureau and will allow CREA and realtors to do what they do best – help people with the biggest financial decision of their lives, buying and selling a home in these challenging economic times,” CREA president Georges Pahud said in a release.

The Competition Bureau was concerned that the MLS system unfairly restricts competition and restricts the freedom of choice for consumers, pushing up costs as a result. That’s because to list a property through MLS the consumer also had to accept and pay for a broad range of services from a real estate agent even if they don’t want them. The current system also does not allow us to put the Sellers contact information on the listing so that they may be contacted by buyers (or their agents) directly. In the upcoming weeks, this is all going to change.

So what does this mean for our business? Do-it-yourself sellers who list their property on the MLS will still have to offer buying agents a typical 2.5% commission if they want to sell their home at a good price. The majority of serious buyers will still be represented by their own agents, who will still need to be compensated. In essence these sellers realistically stand to save only on the listing portion of the commission. The media normally states this is 2.5%, but there are plenty of discount brokerages and agents that are listing homes for 1%. This means a total of 1% if the listing agent finds the buyer and 3.5% if another agent brings the buyer.

I believe that the hardest hit agents are going to be those that offer a minimal level of service to their clients, but still charge a full 5% to list properties on the MLS. Quite often it is the MLS that sells the property and not the listing agent. Further to my personal frustration, some listing agents make the same amount of money on a transaction as I do for only a few hours work where I have often spent many months with my buyers. These agents need to be forced to change how they do business.

Regardless of what option they choose private sellers with MLS access will need to demonstrate that they can price their home effectively, disclose all necessary issues and negotiate in good faith. More importantly, all the information that they enter onto the MLS system will have to be vetted by a licensed real estate practitioner to ensure the accuracy of listings and the integrity of the system.

Discount brokerages have existed in the Toronto marketplace before but haven’t fared too well. Yet the landscape is obviously changing. Under these new CREA guidelines, expect a proliferation of “flat fee” or “a la carte” services to be offered. I think that skilled agents will be able to their tailor their services to best fit the marketplace. Stay tuned to this folks as it will be very interesting to see how all of this impacts commissions over the long run.

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I’d like to congratulate our new mayor-elect Rob Ford. This past election polarized a lot of folks in town, but I believe we have to support the people’s choice and wish him our best. If he is successful in repealing the municipal land transfer tax, I think that will be a very positive step forward for our business.

2010-10-01T08:22:00.000-07:00

Toronto Income Property Newsletter - October 2010

Happy Thanksgiving everyone. The leaves are starting to turn into their fall colours and it’s getting close to that time to fire up your furnace. Please remember to change the filter on your furnace before you turn on the heat for the first time. This little preventative move will often improve the efficiency of your air flow. Also, it’s a good idea to turn off any exterior water taps, so that the pipes don’t freeze if it gets too cold. Since last winter was fairly tame, I expect a lot more snow and severe cold weather this year. Also, the municipal election is this month (October 25th), so try and get out there to cast your vote. I think this election is very important to the future direction of our city. Regardless of who you vote for, I think the political landscape in Toronto is going to get a whole lot more interesting. I won’t state who my personal choice is, but let’s just say I hate getting stuck behind streetcars.

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As suspected, the market is back in full speed. Now mind you it’s not the same craziness as last September but I don’t think anyone really expected that we’d exceed last year’s numbers. When the overall sales figures for September are released, there should be quite a drop from September 2009. Remember that the market last fall was one of the busiest times in recent memory. It was a real sellers’ market. I’d like to see how 2010 compares to 2008 & 2007 – that should give us a much more viable sense of what is going on.

In all the central MLS districts there were 15 sales of properties with three or more kitchens this past month. The average sale price was around $675K and the days on the market was approximately one month. Only one of these properties traded for over the asking price. Contrast this with September 2009, where there were 24 sales of income properties, the average price was closer to $750K and the average days on market was only 17 days. There were seven properties (as opposed to one this year) that traded for over asking price.

I think that in many cases, a lot of the existing unsold inventory is still a little bit over-priced. Whereas a year ago these overpriced properties may have traded, there seems to be a bit more reasonableness to the market this year. I believe that if quality income properties are priced correctly, they will trade fairly quickly in almost any market, since at any given time there are so few good ones to choose from.

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The following article was sent to me this month by a mortgage broker who recommends that you stay on top of your credit history if you are contemplating a real estate purchase. I think it originally appeared in the personal finance section of one of our daily newspapers:

Who checks your credit report and credit score?

Big companies – banks, utilities and telecom firms – do so when you apply for credit. Some property insurance companies use creditworthiness as a factor in setting rates. So, why aren’t you checking your credit report and credit score to make sure they’re accurate and up to date?

No one else but you can find errors and correct them. It’s your duty to do it, despite the roadblocks you may encounter.

Canada has two credit reporting agencies, Equifax and TransUnion, which gather and store information about credit transactions in your name. Once you get a free copy of your credit report in the mail, look for any outdated information. Then, call your credit granters to ask them to update the credit bureaus on your status.
Consider the following thoughts:

“Credit reports do a great job of recording any loans or car leases you might take on, but are poor at removing them once paid or expired.”

“I had outdated loans and leases for cars I no longer possessed and on which I owed no money. The credit bureaus wanted a lot of documentation, which I didn’t have readily available, to remove these loans/leases.”

“I suspect most people don’t understand it’s their responsibility to provide evidence of paid off loans.”

LM and her husband discharged their mortgage two years ago and have no outstanding loans. They recently went to the Equifax website to check their credit reports and credit scores (for a $23.95 fee).

“Our scores weren’t bad, but should have been better,” LM says.

“Here’s why: We changed our credit cards quite a few times, chasing better air miles deals or in-store promotions. Many of these old cards remained on our reports, even though we cancelled them by phone years ago.

“Also, we foolishly allowed the three cards we do use to keep bumping up our credit limits, way beyond what we needed or would ever use.

“Having too much available credit can hurt you. Lenders may worry that you have the ability to spend more than you can possibly pay back.

“You might want to consider closing a few accounts or asking to have your credit limits reduced,” TransUnion says on its credit score report.

Take care, however, because closing too many accounts – especially the oldest accounts on your credit report – can also hurt your credit score.
Suppose you have three credit cards with total available credit of $20,000. Your balances never exceed more than $6,000, which means you’re using less than a third of your available credit.

“Since creditors like to see a credit utilization ratio of 30 to 35 per cent or less, you’re in good shape,” says Bankrate.com, a consumer advisory source.
Now, assume you cancel a card with a zero balance and a $10,000 limit. Suddenly, your utilization ratio jumps to 60 per cent and your credit score drops.

Impersonal credit scoring systems aren’t concerned so much with how much available credit you have, but with how you manage that credit. To them, a 30 per cent utilization rate is better than a 60 per cent one.

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On a sadder note, my condolences to Toronto FC who had one of the worst seasons in our four year history. Five head coaches in four years – OUCH! I don’t know what it is with our Toronto sports teams, but we really do need one of them to step it up a notch.

2010-09-02T07:07:00.000-07:00

Toronto Income Property Newsletter: September 2010

Back to work, back to school and back to showing income properties seven days a week. OK, maybe six days a week. I hope you all enjoyed your summer. I know many of my friends (and readers) traveled this summer. Lots of you enjoyed your cottages (and farms). We just came back from a driving trip from NYC, through Philadelphia down to Washington DC. Although it was non-stop, it was lots of fun. Philly, by the way, is a great town. The “City of Brotherly Love” reputation is indeed well-named.

I would also like to mention that my friend, real estate lawyer and musician extraordinaire, Martin Gladstone, is running for City Council in Ward 32 (the Beach riding) in the upcoming civic election. One of his platforms is repealing the second, municipal land transfer tax. We wish him all the best.

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Is it safe for the small-scale investors to come back out and play? We all know that June, July and August were down months. Will this fall let the non-occupiers
back into the duplex and triplex market without fears of multiple offers and $100K price escalations, like back in February? I think that you might have to wait just a little bit longer. The buyers of income properties that intend to live in the property are often able to justify paying a higher price. And I’ve come to the startling conclusion (it only took me ten years to figure this out), that this market never dries up. I always have someone in rotation looking to live in their income property. There is always more of a sense of urgency since everyone’s excited to get moving. So if the market continues to lull along, then the investors can get ready but I think that as soon as any quality income-generating inventory hits, provided it is priced right, it will get snapped up. I can’t speak about the 905 or outside of the city core, but in downtown Toronto there is still plenty of demand for quality income properties and nice houses in general. Interest rates are still quite low, so it seems to me like the Sellers will alright through to the end of the year.

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We realtors we are always looking for new market opportunities and signs of up- and-coming areas. The core of Toronto is pretty much defined and has been for several years now. Yet it is still important to try and figure out which neighbourhoods are on the rise and where are property values are likely to see the sharpest increases? The three neighbourhoods of Toronto that were spoken about throughout the 2000s most often were Leslieville, Parkdale and the Junction. Today, we chat about Corktown, the Distillery and the Lansdowne corridor. There is still plenty to be optimistic about with Leslieville and Parkdale too. Dufferin being opened through to Queen will clean up that little stretch of Parkdale. The eventual Pan-Am games will and Smart Centre shopping area will be ultimately be a boon to lower Leslieville.

New businesses are moving into these areas and there has been a significant increase in the number of new real estate developments. Many streets in these neighbourhoods see homes being renovated and household values increase. The Drake, The Gladstone and The Beaconsfield taverns on Queen West are an obvious sign of older businesses cleaning themselves up and attracting new folks to come into the area. The question becomes are these areas over-done. Once an area has opportunity and everyone finds out about it, is it still an opportunity?

The dictionary defines “gentrification” as the restoration and upgrading of deteriorated urban property by middle-class or affluent people, often resulting in displacement of lower-income people. The term was coined in 1964 by a left-wing British sociologist named Ruth Glass. She used the word to refer to what was then taking place in a part of London called Islington. Islington originated as an affluent place, but had become a rough, working-class area. In the sixties, it experienced gentrification insofar as both the businesses and community began an intense “clean-up” process. The word "gentrification” first appeared in the New York Times in 1972, in reference to London. The article appeared on July of that year, explaining the intense boom in real estate values within the inflation driven economy of those years.

How can you tell when an area is starting to improve? Certainly higher real estate prices are an immediate indicator. For me the one sure-fire sign that an area is on the rise is that Starbucks opens in it. Real estate folks are happy when Starbucks decides to open a new location in a neighbourhood in which we work.

Market experts say the upscale coffee chain's choice of where to open its new stores is usually a harbinger of bidding wars to come. "When I see a Starbucks going in, I rub my hands together because I know property values are going up," an agent once said to me. In what could be called the "Venti Indicator" (named for what Starbucks calls a large coffee), it is even more effective if one can anticipate well in advance where the company will go next. Housing prices in Leslieville have nearly doubled in the past three years, and not surprisingly one of the first signs was the Starbucks going in at Logan & Queen. Starbucks is never on the leading edge of a dodgy neighbourhood turning the corner, but the company has the ability to solidify the process once it is under way. Starbucks first lets smaller, independent stores drive foot traffic to a future area, and when they feel that the area will support their demographic, they can build a store virtually overnight.

The opposite of all this is a process that can be described as degentrification. When I was growing up there, Scarborough was predominantly a white middle working class family neighbourhood, but with the influx of immigration certain neighbourhoods have changed considerably – some would even say for the worst. Today some of these neighbourhoods experience higher crime as a result of lower-class families coming into the area. If you compare the increase in house values at Kennedy & Eglinton, vs. say Yonge & Eglinton over the past ten years, you’ll see that the midtown area has seen much sharper price increases. There are quite a few areas in the GTA, predominantly in the suburbs that has seen this sort of decline.

Leslieville, Parkdale and the Junction are no longer a secret. The cat’s out of the bag. We can all see the cranes moving to the east side of the city. The question is what’s next? Astute investors will always be looking for neighbourhoods that are trending upwards. The secret in the future will be keeping an eye on the new condo developments, businesses cleaning themselves up and yes, Starbucks opening up cafes.

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Term Bank Rate Plex Client Rate
Variable 3.75 1.95
1 Year 6.95 2.50
2 Year 4.15 3.15
3 Year 4.65 2.90
4 Year 5.64 3.69
5 Year 5.49 3.59
7 Year 6.95 4.65
10 Year 7.10 5.00

2010-08-02T06:43:00.001-07:00

Toronto Income Property Newsletter - August 2010

I hope everyone is enjoying this very warm summer. Congratulations to Spain on winning their first World Cup. I hope all of you soccer fans enjoyed the tournament. Now we can turn our attention to TFC and their quest for a first-time playoff birth. With the dismal performance of the Maple Leafs, Raptors & Blue Jays over the past years, this town needs a winner. Hopefully our boys in red will get it done!

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For the first time this year, June sales fell below 2009 numbers. This isn’t surprising given the spike that happened last year leading into the very robust fall sellers’ market. The Toronto Real Estate Board reported 8,442 sales of single family homes in June 2010. This sales volume represents an 11 percent decline from the sales volume for May 2010 as well as a 23 percent decline from the sales volume reported for June 2009. Declining sales volumes at this time of year are not unusual as they typically signal the end of the spring market and the onset of the summer slowdown. Some are saying that this slowdown will continue into September and prices may start to drop. I don’t think this will be the case at all. While I don’t expect the same number of trades as last year, I don’t think there will be any significant price decreases. At the moment, we are suffering a quality inventory shortage so I will be surprised if when more houses come up for sale, the prices don’t stay in line.

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At Plex Realty, as many of you are aware, we are very active with duplexes, triplexes and multiplexes as well as “fixer-uppers” that may have profit potential. One other area that I have also done a lot of business in the past is with mixed-use buildings – retail storefronts with two or three apartments and/or offices above.

Most of these properties are on popular retail strips like Queen, Bloor, College and obviously Yonge St. There are also little strips like the Forest Hill Village, the shops on Bayview south of Eglinton or at the top of Coxwell in Leslieville. Many neighbourhoods have retail strips that offer every good and service imaginable. Some areas are more known for specialties – for instance restaurants on the Danforth, or on College in Little Italy. Most of the time these buildings fall under the I.C.I. umbrella (commercial rather than residential) even though there may be residential rental apartments above the main floor retail space.

These properties can be quite a decent for someone looking to live-in or for the absentee investor. These mixed-use buildings have been similar to strictly residential properties over the past few years insofar as lower bottom-line returns and lesser cap rates. My advice is to make sure that if you buy a mixed-use building that your main floor retail tenant is on a long lease and that their business is strong, unless of course you have a business to operate out of the main floor yourself. Most of the properties derive the bulk of their income form the main floor lease and it would be difficult to immediately make up that rent if your anchor tenant splits. It is much easier to find a residential tenant than a commercial one. Remember too that every user is going to want to build to suit, so that cost is likely cost you months of free rent. Also, most of these properties are on busy main streets, so keep that in mind if you intend to live in it.

Some of my clients have recently asked where the commercial market is going since each month my comments seem to be more focused on the residential resale side of the equation. Unlike houses in the prime areas of the core, I think that the prices of commercial properties and specific mixed-use retail storefronts may start to come down a little. It is believed that REITs (real estate investment trusts) are great indicators of where the commercial market is going. Experts say that the overall commercial prices have already started to drop and there may be a further decline to follow. This is quite interesting because there is no indication that this price “correction” is happening yet on the residential side.

Does that mean that a storefront with two units above it will be a better buy this year than a regular triplex? Quite often I will highlight duplexes or triplexes that trade for over-asking and comment on how the investment value gets thrown out the window. I think that the bottom line is if a mixed-use building is throwing off better numbers than a completely residential multiplex and has good lease(s) in place, then it should be considered seriously. I prefer all residential income properties just from a rentability point of view but remember that investment real estate is all about the returns. If cap rates start to get noticeably stronger on mixed-use buildings, I will start steering more of my clients in that direction. It hasn’t happened yet, but as I pointed out earlier, it may. So if you if you’ve been thinking about opening another up-scale coffee bar in your neighbourhood in your own building, then the time may be right.

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(Q) There is a Used Car Salesman, a Realtor and a Lawyer. And you have a gun with two bullets… Which should you shoot?
(A) You should shoot the realtor twice… Just to be sure.

2010-06-10T07:56:00.000-07:00

TORONTO INCOME PROPERTY NEWSLETTER - June 2010

The 2010 World Cup in South African starts in less than two weeks. I can’t wait! All of you who know me well know that soccer is my favourite sport and certainly one of my passions. Having been born in the UK I have been a staunch England supporter as far back as I can remember. I also am a card-carrying member of Toronto Football Club (who finally won their first away game this weekend). I know as a good Canadian, hockey should be #1 and I should be lamenting over the last Leaf victory in 1967. But I cry over the England World Cup drought since 1966. So what does soccer have to do with income properties? Nothing really, but since this is what’s on my mind, this is what I’m writing about. I’m also taking a bit of a sabbatical (hey, it’s one in every four years), so that I can watch as many matches as possible. I hope you all get a chance to watch some of the games and get to cheer on your favourite team. It’s surely to be a blast. Happy Father’s Day as well to all of the Dads out there.

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There’s a great saying that I often use with my clients: “There’s no such thing as bad tenants, just bad landlords.” In my experience with landlords and tenants over the past decade, I have found that nine times out of ten that when a tenant is unhappy it is because the landlord has fallen short in their duties. It’s the most simplest of premises – when something breaks down in your rental unit, fix it! Do not expect the tenant to do your job for you.

If a light bulb needs to be changed, then it is reasonable for the tenant to take care of that. But if the light fixture itself breaks, then that is your responsibility. Do exactly as you would do in your own home. Don’t let a problem get worse by not tending to it. Where do you draw the line between landlord and tenants’ obligations? Use common sense folks. If it is a quick, easy and inexpensive fix, see if your tenant can handle it. If not, be at the ready to deal with it yourself. Unless your tenant is a plumber, don’t assume that they will be able to fix a leaky faucet. Unless you have it stipulated in your lease, don’t assume that your tenant will maintain the exterior of your property. It is your responsibility as a landlord to provide “quiet enjoyment”, meaning a clean and hassle-free rental suite for your tenants.

If the tenant sees that you care, then they will too. They will be happier to cut your rent cheque each month and your overall experience of being a landlord will be that much more enjoyable and profitable.

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Is the Toronto real estate market overheated? I’ve read a few American articles lately saying that the Canadian real market can’t sustain itself and is heading for a crash. The market does seem like it is finally slowing down a little – but it always does when we get into June. It has many of you asking if this is the beginning of the end.

My opinion is that there won’t be dramatic price decreases (at least not with quality income properties in the core), but prices should stop going up. We ought to see some sort of leveling off as demand gets a little more in sync with the available inventory of properties. In other words, what your house was worth at the beginning of 2010 was probably the max number that you might see for awhile. Note too how interest rates are rising slowly and in fact some banks are still dropping their mortgage rates. I believe that the even though it hasn’t been reflected in the Toronto housing market, the recession is still on and we’ve got a ways to go yet. There are still a lot of folks out of work. Retail is suffering (unless you are Winners or Wal-Mart). I know this first hand. The personal debt numbers are very high as well, so it only seems logical that the Toronto market would have to calm down sooner or later. Remember that income properties often are less impervious to market swings because they are cash generators.

I also think that real estate markets in Toronto, Vancouver and other large metropolitan areas have seen most of the action. I would bet that smaller towns and rural areas haven’t seen the same level of increased activity over the past year. Thus I don’t really think the traditional “bubble” term applies here just because prices in Toronto may have increased. The summer is usually a little slower and then things heat up for the fall. Last fall, things went through the roof. I certainly don’t expect a repeat of 2009 but I don’t think I’ll be sitting around in September either. Time will tell I suppose.

2010-05-01T07:23:00.000-07:00

TORONTO INCOME PROPERTY NEWSLETTER - May 2010

In last month's newsletter, I addressed the current controversy surrounding opening up the MLS to the public and dissecting what many think are very high realtor commissions. First off thanks to all of you who wrote in supporting me and commenting that I very much earn what I make based on the time and service I offer. I really appreciate it. This month I am going to expand on the story by reprinting an article I orginally wrote in early 2006. I'd also like to mention that it is my ten year anniversary in this business, so thanks to all of you for keeping me at this for so long.

There is an on-going controversy that has been in the news regarding our proprietary rights as Realtors to have exclusive access to MLS data. Some regional consumer and trade boards contend that the national real estate body’s tight and strict control over MLS listings is anti-competitive. The National Association of Realtors in the U.S. and the Canadian Real Estate Association (CREA) in Canada have sole administrative power over the MLS and the Realtor trademarks. They are the ones who through reciprocal agreements with local real estate boards allow only real estate agents sole access to all the listings. While there are consumer sites like www.realtor.com or www.mls.ca, it is widely acknowledged that these sites are watered down versions of the real thing.

I don’t think that this is necessarily a new issue. This has always been a difficult question to answer. When you as a Seller put your house on MLS who owns that data? Is it the seller himself, the listing brokerage, or the real estate regulatory bodies at the provincial or national levels? I am oversimplifying the issue by focusing just on the MLS data. The current debate encompasses a much wider range of concerns but at the heart of it still lays the MLS usage controversy.

The issue came to the forefront some months ago in the U.S. when a private seller was denied the ability to post his FSBO (For sale by Owner) on the MLS. Under the current system, essentially in order to be added to the MLS, a realtor has to be involved. Since we charge for our services and there seems to be a tacit agreement with respect to commissions, this has been deemed unfair and anti-competitive. In a free market with competitive forces at work, supply and demand ought to determine compensation levels. Yet, regardless of economic or market conditions, our commission rates fluctuate very little. Discount brokerages have tried to mess around with this formula but by and large these low-commission business models have failed. Here’s why: I know that when I find a property for my buyer client, I should receive 2.5% of the purchase price. If a private seller decides instead that he only wants to pay me $500, how hard am I going to work to sell his house? Many companies offering lower buyers fees get blackballed by the agents at large because they threaten how much money we can make. I’m not saying that this is right, it just is.

Studies show that most new entrants into the real estate market do their preliminary research on-line, often spending their initial time on the consumer listings sites. When we list a property, we are given the option to have the listing appear on the Internet or not. This, in effect, limits the usefulness of the consumer site. If I don’t put a listing on the free Internet sites, then the only way it is going to get exposed is through MLS, ultimately from a real estate agent. There is also the lag time between actual market activity and the consumer sites. If I enter a listing as conditionally sold on the MLS, the database is updated within seconds. This information may not get to the consumer site for a day or two, if at all. There is also the fact that only the real MLS list sales data. You can call the consumer site mls.ca, but it is only a fraction of the information on the real MLS. In fact, they are now contemplating changing the name of mls.ca to avoid this confusion. It is all the real data, entered for the most part by agents, that as an industry we are trying to protect. I guess in reality, protect and not willingly share.

Richard Taylor, the deputy commissioner of competition for the Canadian Competition Bureau stated “CREA has the right the right to exclude others from using the MLS trademark, but not to leverage that right into restricting competition in the provision of real estate brokerage services.” In other words, we created this system, but should we should solely be the ones to continue to benefit from it?

Thus far the Toronto Real Estate Board has, not surprisingly, shown widespread support for CREA continuing to administer and protect the trademark and MLS rights. But is this self-serving? On the surface, it may certainly seem like it. Time will tell how widespread the support is on the other side of the real estate business to allow more open access to non-licensed persons.

What does this mean in the larger sense? If a seller is able to post their own listing on MLS and deal directly with buyer agents, they are going to potentially save thousands of dollars by not using a listing broker. This is obviously what Realtors are trying to avoid.

My position, by the way, is that as a Realtor specializing in a niche segment of the business (residential income properties) that the services I provide have value. However, unlike many other agents, I do not mind giving more informational power to the consumer. I earn my pay by offering valuable advice and insight based on years of practical experience in the field. It doesn’t bother me when a client finds a property on the consumer site and sends it to me for my feedback. Some feel that this is our job, whereas I feel that my role is more of an advisor. Anybody can open a lockbox. I advise clients to buy a property, or as is more often the case, to not buy a given property. I also believe that I pay a lot of fees to the local, provincial and federal real estate associations so there should be something to show for these affiliations. If you take away my preferred access to MLS, then I would have to question what purpose they would continue to serve.

This on-going debate is likely to carry on for some time. There’s obviously a lot of money at stake and any changes would have far-reaching consequences to the way organized real estate is handled in North America. It will be interesting to watch and see if any concessions are made to bring the MLS data closer to the hands of the general public. I’ll still be out there selling you income properties regardless of how the flow of property information advances. If you’d like more information or direct links to arguments on both sides of this argument, please drop me a line at paul@plex.ca.

2010-04-01T07:17:00.000-07:00

Toronto Income Property Newsletter - April 2010

Spring is here. This is traditionally our busiest time of the year as folks start making their real estate moves so that they can be situated by the end of the summer. Since the income property market was so robust in the first quarter of 2010, I can only predict that the demand and excitement for these kinds of properties will continue unabated for some months to come. Interest rates will be rising soon, so that ought to eventually slow things down a little. As always, if you have any market or investment questions, please feel free to reach out to me at any time. It would be my pleasure to help you out in any way possible.

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There has been a lot of press lately about current real estate practices and how agents go about servicing the public. In case you haven't heard, the Canadian Competition Bureau is looking into how the Canadian Real Estate Association has a "monopoly" on the MLS data that we use to share information with each other about properties. Critics are crying out that the system should be opened up to the public so that you are not forced to pay high commissions by having to use a realtor. This is a very interesting debate that will rage on for quite some time to come. I'm all for allowing public access to MLS data, provided there are checks and balances in place to ensure the data's accuracy and integrity. It's a problem we face now without opening the data up to an inexperienced public. I don't think the real issue that upsets most folks is about sharing the MLS anyway. I think that it is more so about how certain real estate practices may not always be in the best interest of the general public, and obviously this has to change.

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There has been some confusion with respect to the HST that will arrive in July. Here are the main guidelines:

i. HST will come into effect on July 1st, 2010
ii. HST will not apply on the purchase price of resale homes
ii. HST will apply on services such as moving costs, home inspections, lawyers fees and real estate commissions
iii. HST will apply to the purchase of newly constructed homes. Homes under $400,000 may be eligible for certain rebates from the province

Enjoy the warm weather folks and go TFC go!

P.A.

2010-03-02T07:20:00.000-08:00

Toronto Income Property Newsletter - March 2010

We did it! We won the gold medal in hockey. Wasn't it awesome!! I'd like to congratulate all of our Canadian athletes who I feel did a superb job. There was a lot of chatter about owning the podium ... with 14 gold medals I think we accomplished that goal. Now if only some of that winning spirit could rub off on the Maple Leafs....

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On February 16, Finance Minister Jim Flaherty announced new mortgage rules intended to help ensure homebuyers can handle their debt load when interest rates rise, as well as to slow down real estate speculation.
"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one. Our government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," commented Minister Flaherty.
The new rules take effect April 19, 2010. Here is a quick look at the changes, which apply to government-backed insured mortgages:

1. Borrowers must now qualify based on a five-year fixed rate even if they choose a mortgage with a lower interest rate and shorter term. The government’s rationale for this change is that it will help borrowers prepare for higher rates, although it may squeeze the purchasing power of home buyers. It remains unclear whether borrowers must qualify at the five-year posted rate or the five-year discounted rate.

2. The maximum amount Canadians can withdraw in refinancing their mortgages will be reduced to 90 per cent of the value of their homes, instead of 95 per cent. The government’s rationale for this change is that it will help ensure home ownership is a more effective way to save. The impact of this change is expected to be minimal as relatively few homeowners withdraw equity from their homes to this extent.

3. A minimum down payment of 20 per cent will be needed for government-backed mortgage insurance on non-owner-occupied properties “purchased for speculation,” which realistically means rental properties. While this measure is intended to hamper the speculative buying of properties by reducing the leverage of buyers, it will also impact those buying real estate for general investment purposes.

I have taken a few calls from my investor clients asking how about these rules will affect them. In my opinion, all these moves are positive. The current overwhelming demand for income properties in Toronto needs to subside somewhat. People with only 5% down shouldn’t be buying income properties unless they have other significant assets that improve their mortgage eligibility. There will be ways to get around the 20% minimum but again this will only be for investors that have resources. Be sure to talk to your mortgage professional about how these changes could affect you and for advice on the mortgage strategy that fits your needs.

I have already started to use 20% down instead of 10% down as the expectation for a property to cover itself fully by the rental stream. This will be more reflective of reality and weed out the folks that have been trying to jump in without any cash.

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There has been some confusion with respect to the HST that will arrive in July. Here are the main guidelines:

i. HST will come into effect come into effect on July 1st, 2010
ii. HST will not apply on the purchase price of resale homes
iii. HST will apply on services such as moving costs, home inspections, lawyers fees and real estate commissions
iv. HST will apply to the purchase of newly constructed homes. Homes under $400,000 may be eligible for certain rebates from the province

Spring is coming soon. Let's hope we've seen the last snow from winter 2010.

P.A.

2010-02-01T08:17:00.000-08:00

TORONTO INCOME PROPERTY NEWSLETTER - February 2010

The Toronto duplex and triplex market is off to a strong start in 2010. The demand that we saw last quarter hasn't subsided at all. Multiple offers and sales over asking price are still the norm. Even though it has been cold, there hasn't been a lot of snow. This makes it a lot easier for us realtors to get out there and show properties. Interest rates are also still very low. If you are thinking about getting into the income property market, I'd do so now to take advantage of these attractive borrowing rates. To discuss this further with me, please don't hesitate to get in touch.

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Nowadays, cap rates in between 5 and 5 ½ are quite common. Is it unreasonable to expect such a low rate of return on an income-generating property? For the seasoned investor the answer may be yes, but certainly not for the first time live-in investor. Owner occupiers often get the locational benefits of a great neighbourhood without paying the same net mortgage as their single family neighbours. This is a fantastic way to get into an area inexpensively and still enjoy a potential capital gain sometime in the future.

If you can’t afford the net out-of-pocket costs in an income property where your tenants pay upwards of 60% of your mortgage, then you might want to reconsider living in downtown Toronto. It seems nowadays that any decent duplex or triplex is going to trade for over $500,000. Unfortunately, market rents haven’t risen commensurate with house prices so our overall returns have dropped. It still makes sense for the owner-occupier to look at these income properties, so long as their out-of-pocket each month doesn’t exceed the market value for the suite they are occupying. I suppose the days of live for free are long gone, but living for market rent with only 10% down is indeed still a possibility.

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2009 was a banner year for income property sales in the GTA. Whilst the year got off to a slow start, by May business was booming. As I commented throughout the year, multiple offers and over-asking bids were commonplace. Now obviously not all income properties sold for over-asking price – there were some duss in there. Yet it seemed that all the good ones (great locations not needing a lot of work), always were in high demand.

For my year-end wrap up, I have selected a group of sales from 2009 from four distinct neighbourhoods. Please click the link below each to take a look at ten sales from 2009 that illustrated the intense demand for properties with lat least three kitchens.

E01 - Riverdale & Leslieville
http://www.torontomls.net/PublicWeb/CL_BF.asp?link_no=29130637.002800&t=l&fm=F

C01 - Downtown west of Yonge, South of Bloor
http://www.torontomls.net/PublicWeb/CL_BF.asp?link_no=29130694.002800&t=l&fm=F

C02 - Downtown east of Yonge, North of Bloor
http://www.torontomls.net/PublicWeb/CL_BF.asp?link_no=29130737.002800&t=l&fm=F

W01 - Roncesvalles & High Park
http://www.torontomls.net/PublicWeb/CL_BF.asp?link_no=29130819.002800&t=l&fm=F

2010-01-05T06:29:00.000-08:00

Toronto Income Property Newsletter: January 2010

I'd like to take this opportunity to wish you and your family all my best wishes for a safe and prosperous new year.

As this new decade dawns, the Toronto income property market remains as robust as ever. I anticipate 2010 to be a strong year with sales comparable to 2009.

If you every have any questions about real estate investing in Toronto, or would like general information on the duplex and triplex market, please don't hesitate to get in touch with me.

The following article on interest rate predictions for this coming year is courtesy of mortgage broker Marcus Tzaferis. www.mortgagemarcus.com.

The Bank of Canada must soon decide whether or not to increase interest rates. It is the Canadian Housing Market, the American Dollar and the American Consumer, that will have great influence over this decision in 2010.
This decision will not be easy. We are wedged between a sizzling housing market, being driven by our extremely low borrowing rates on one side and a badly beaten USD, which is affecting our exports to the US.

The stream of rhetoric from the Bank of Canada and our Federal Government over the past several months illustrates that there are few tools left to influence our economy short of increasing interest rates. The Governor of the Bank of Canada and the Minister of Finance are warning of a real estate bubble, we are being told that mortgage rates are too low and perhaps that some of the tools provided to Canadians to buy homes may be taken away but this is far from likely. These attempts to cool an overheating housing market are not working; interest rates will have to be increased, but what about the strength of our dollar? (Have a look at the related interview of Marcus on CBC's, The National, available on our website.)

If the Bank of Canada decides to increase interest rates to slow the Canadian housing market our Canadian Dollar will increase in value relative to the USD. As our currency increases relative to the American Dollar the goods we sell become more expensive in the US. This leads to fewer Canadian goods being purchased south of the border. This decreases our exports and reduces the demand for labor domestically. The only way our Central Bank will be able to increase rates while the Americans keep theirs on hold would be if we see a relative appreciation in the USD.
If the Worlds' economy continues to go over speed bumps, such as the recent problems in Greece, Spain, Italy and Portugal, or the credit problems experienced by Dubai, the quandary that The Governor of the Bank of Canada and the Minister of Finance find themselves in, will likely subside.

If these problems with sovereign debt continue to surface around the world the USD will become the best of the worst options for investors worldwide. Regardless of the extremely low rate of return paid out by its Government on debt, investors will flock to its safety for lack of a better option. This will increase the relative price of the USD and provide the Bank of Canada with the wiggle room it needs to increase interest rates.
If the world begins once again to see the United States of America as a ray or light in a dark and stormy world economy, The Bank of Canada will be able to increase interest rates without worrying about the relative appreciation that this causes in the Canadian Dollar and therefore further erosion to our export numbers and already struggling GDP.

This all rests in the hands of the American Consumer. A lot has been said for the resiliency of the American economy. The American Government has doled out trillions of dollars in the hopes of jumpstarting an economy on the verge of collapse. Now we must see how efficiently this capital was absorbed by the economy.
If 2010 brings us an American economy that continues to fire on all cylinders, as it has been for the last part of 2009, interest rates will go up faster than anticipated.

But wait, don't lock in just yet! It is our belief that this resurgence we are seeing is simply the effect of stimulus plans that will soon run their course. There is an argument to be made that there are only so many clunkers that can be bought for cash, and a person can only take advantage of home buying incentives so many times. Eventually the mounting consumer debt load will have to be addressed and with unemployment at record highs someone will have to pay for the government stimulus. Although the American economy seems to be chugging along right now, as evidenced by the ever increasing stock market and claims that the recession is long gone, the American's have promises to keep, and many miles before they sleep.
We as Canadian mortgage holders must continue to be careful as we always are. Although we are recommending that our clients stick with some of the great variable rate mortgages that are available it is important to be cautious. We do not see interest rates increasing dramatically in 2010, but caution that if some of the events discussed in this newsletter occur we could very well see fixed rates and variable rates move to the upside.

Next month, I will share my annual year-end wrap up of income property sales in 2009broken down by Toronto neighbourhoods.

We will also look at how the market has started off in January, as well have a look at current fire retrofit laws.

P.A.

2009-12-09T07:57:00.000-08:00

Toronto Income Property Newsletter: December 2009

Happy Holidays everyone! I hope that you and your family enjoy a nice break as we wind down this year and this decade. What a crazy ride this past year has been. In January, the worldwide economy was in a funk and real estate activity had slowed to a crawl. Now it’s December and the Toronto’s market is as robust as ever. In fact, last October and November were probably two of our busiest months ever. And what a ride this past decade has been. Ten years ago as the new century dawned, I had just sold my audio products business and was thinking about the practicality of getting my real estate license. I liked investing in income properties and thought that a more formal real estate education would come in handy. Who knew that ten years later I’d still be into income properties and making a living selling them? It has been a pleasure being in this business and I cherish all the fine people who I have met along the way. To all my clients, to all the other realtors that I have dealt with and all the inspectors, lenders and other associated real estate professionals, I thank you for a great first decade.

As many of you know, I spend most of my days tripping around town with investors looking to buy quality duplexes and triplexes. Yet over the past couple of years the anticipated rates of return have dropped significantly. Is the small-scale real estate investment market dead in Toronto? In these days of properties being sold at 4 or 5 caps, one has to wonder what the motivation is to pay these kinds of prices. If you are going to buy a triplex in Toronto for investment, what kind of reasonable yearly return should you expect? If your ROI is under 5%, does it really make sense to assume the business risk? Properties require hands-on management, have frequent maintenance issues and are often difficult to dispose of quickly. In that sense, real estate is not a very liquid investment relative to stock or other paper-based vehicles. Refits often offer similar returns with a lot less hassle than owning a building. They also can be cashed in quickly if need be. It always makes sense to live in your income property when possible, but does it make sense to become an absentee landlord in today’s market?

At Plex Realty, we pride ourselves on staying on top of this market and knowing when are the right times to get in and get out. It would be a very self-serving statement to say that you should always buy income properties because that’s our stock and trade. But is this true? If returns in Toronto are lower than in the past markets and rents are stabilized, what’s the prognosis for bottom-line returns to increase? Should you buy today or wait and see what the next cycle may bring? There are two very legitimate sides to this argument. I’ll let you decide for yourself.

It can be argued that the income property market in Toronto does not provide as much as could be expected from other types of investments, such as the stock market or mutual funds. If so, is the return high enough to be worth the extra risk involved and the fact that the money may be tied up for an extended period of time? What are the local market conditions, and how are they likely to change over the course of two, five or ten years? A purchase in the Annex may be significantly different to one in Park dale long-term. It is certainly easier, and in many ways safer, to rely instead on other types of investments. For instance, investing in mutual funds requires little work, is easy to understand, and historically has provided a very reasonable return. Investing in real estate presents both unique problems and opportunities. Real estate is a non-liquid, localized investment vehicle. It is immobile, of limited supply, indestructible, and physically real. It is difficult to own buildings - they require maintenance, tenants, and regular updating.
Many investors feel that it is illogical to purchase property that might have yielded a higher return five or even two years ago. From a practical standpoint, traditional measuring sticks are being redefined. If you’re looking for 10 to 12 times your gross rents to determine market value, you’re going to have a hard time finding a suitable property, at least in the central part of the city. As I said at the outset cap rates have come down. The only way to determine if they are too low is to consider alternative investment strategies and see what kinds of returns you can achieve elsewhere. Since there’s a lot of risk associated with real estate, you have to decide what minimum percentage return justifies an income property purchase.
The most successful businesspeople (not just in real estate mind you) are those who often go against the grain. They see opportunities where others see nothing. I enjoyed a biography that I saw recently on the Reichmanns. When downtown Manhattan real estate hit all time lows in the 1980s, Paul Reichmann swooped in a bought and redeveloped many key locations that local players had passed on. A couple of years later things turn around and those purchases tripled in value. It actually paved the way for guys like Trump to start redeveloping. The point is that if everyone thinks a property is too expensive, there may be hidden opportunities.

This point ties into the other side of our argument. There is still one primary reason for investing in Toronto real estate even in a lower market --in a word, profit! Owning real estate can often lead to returns that are double those of more conservative strategies. This is based on the fact that in real estate there are actually three ways to make a return on the initial investment. There are the monthly cash-on-cash returns that we have discussed thus far. There is also the yearly reduction on your principle invested and there are the possible capital gains upon disposition. Added together, these three types of Return on Investment can add up to a significant total return--one that justifies the greater risk and involvement. This is what makes the risk and bother worth it.

Many realtors believe that the Toronto market still has room to move up in prices. Our home prices are still low compared to some other large cities in North America. They also think that rents will increase again to levels we saw a few years back. I think the condo market has bitten into the rental market for sure, but I don’t think current rent levels are going to go down. If rents are going to hold and possibly increase then over the long-term, buying an income property today in a secure location starts to make sense again.

You also have to remember that your returns get better each year. If you intend to buy a multiplex and hold it for a decade, then it won’t make too much of a difference to you if you made 5% in year one instead of 8%. If the market has improved at that time and you have renovated the property over the years, I’m sure that your investment will have paid off handsomely. Many of my clients who have owned income properties for several years are pleased with the continual passive income.

Let’s take a hypothetical situation of a multi-unit building that only returns 4 or 5% today. An investor upon seeing it decides the price is too high relative to the rents and decides to wait for something better to come along. A second investor decides to buy it and start slowly cleaning up the suites to try and make modest gains in rent. Investor #1 a year later is still waiting and has determined, if anything, that the market has actually gotten worse. He continues to wait. Meanwhile Investor #2 has been able to increase his rents a bit and going into year 3 his return is starting to approach double digits. Moreover, the value of his building has increased from the capital improvements. Naturally he can’t cash in on this gain, but he will at some point. The point is that waiting isn’t always the smartest move. We only have a finite number of above-average income properties in Toronto, and they don’t come up for sale that often. If one does and the returns are marginal but it is a great building or in a great spot, one could make a case for it.

So to summarize: the reasons to buy an income property today would be capital appreciation (particularly if you renovate your property over time) and the chance of improved returns over the long term. The reasons not to buy would be that the returns are too low relative to other “safer” investments. As always I suggest that you learn and study the income property market, set reasonable investment goals, and stick to your guns. If you’d like to discuss this in more detail, please drop me a line at paul@plex.ca. I’d love to hear your feedback on this.

2009-10-02T07:12:00.000-07:00

TORONTO INCOME PROPERTY NEWSLETTER - October 2009

Ok, enough with the multiple offers already!

As one of the city’s leading income property agents, I often find myself on the losing end of the multiple offer process these days. I won’t say how many more deals I would have completed this year if I didn’t have to compete, but it’s definitely in the double digits. The reason is that duplexes and triplexes make a lot of fiscal sense and are always in high demand. When the market is hot, these properties make even more sense. My problem is that I set a price ceiling and stick to it. I don’t like my clients to get caught up in the emotion of it all. And invariably when there are a few offers at the table, my number isn’t high enough. Oh, and did I mention you better not even think about having a condition in your offer. No financing, inspections, verification of rents – nothing that muddies up your offer will be tolerated.

Case and point: Last week, there was a lovely triplex in the Beach, right near the water that was listed for $799K. It had six offers on it and ended up trading for $977K – that’s almost $200K over the asking price. Now, I am happy for the winner but I can’t begin to fathom the justification for paying such a high price. This isn’t good for the market, for the winners or the losers. It can just make the entire house-buying process a very trying experience. That is the theme of this month – the long and short of offer competition. I’m hoping that the current demand subsides a little bit so that we can get back to normal, where there is one house for one client.

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In a Sellers market like we are currently experiencing in Toronto there are more buyers than homes for sale. Prices may rise, and the days a home is on the market may shorten to a week or even less than a day. Agents decide to “holdback” the offer date to try and create a feeding frenzy. Some homes will even sell before they hit the computer. That means that sellers can often expect to see multiple offers. How can you position your offer to be the one the seller accepts? The best way is to gain an understanding of how multiple offers work and how they benefit the seller. Multiple offers mean that the seller has his/her pick of offers, but that doesn't necessarily mean a disadvantage for you as a buyer. You just have to determine how badly do you really want this particular home?

There are two things that matter to the seller - price and terms. They want the highest price possible, and the best terms available. Both of these areas leave room for negotiation. Just because a seller is entertaining multiple offers doesn't mean you don't have a chance. You just have to hit the right note with the seller that the other contracts don't.

Just to give you an idea of how important terms are to the seller, let's look at a hypothetical situation. You offer a seller the highest price for their home, but you put in the contract a financing or home inspection condition. It may seem reasonable to you, but these are terms that the seller has no reason to accept.
The seller will only accept terms which meet their own needs, so keep contingencies to a minimum. In a multiple offer situation, the seller is not under any obligation to negotiate with the first buyer who submits an offer. So, if your offer is not the first offer, don't panic. Because the seller has the liberty of choosing the best offer to negotiate, your offer stands a chance of being noticed if it has the most favourable terms. The seller will accept the offer that best reflects his or her needs. They not only consider price, they also look at such things as financing, closing dates and possession dates. That means room to negotiate for you. Believe it or not, the highest price doesn't always buy the home. Sellers have a number of needs aside from price; they want a quick closing, or a delayed possession, or they may wish to exclude items in the home, and so on. Any offer which puts any of these goals at risk will not be accepted.

A buyer may make the highest offer, but perhaps has not been qualified by a lender. A seller who accepts an offer from an unqualified buyer is taking a substantial risk. Should the offer fall through because the buyer fails to qualify for financing, the home will lose valuable marketing exposure and advantage. Also, the seller may have a special need that is more important to them than price. For example, a seller may have a need to sell quickly, but remain in the home for a period of time until school is out or until a transfer takes place. Your ability to negotiate on this point may be more important than coming up with the highest dollar amount. You can offer a short-term lease post-closing or offer to delay possession to accommodate your seller. You can do a number of things to get the seller's attention - offer to pay all closing costs, to pay full price, or a little above the asking price.

How do you know how many other offers there really are? What about the listing agent’s own supposed clients who wish to submit an offer? I've had some of my buyers complain that they believe the listing agent is lying and only trying to push up their offer when they are told there are multiple offers. They assume that the seller is simply trying to push up the price by claiming there are other offers when none actually exist.

Revealing the status of multiple offers is up to the seller. The cold hard facts are that the buyer has to sit and wait for a response from the seller (depending on whether or not he wrote in a deadline for responding). Nevertheless, the buyer has no "rights" to know if there are more offers. It’s not the best circumstances in which to do good business, but that’s just the way it is.

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Fall is here. Happy Thanksgiving everyone.

2009-09-02T06:14:00.000-07:00

Toronto Income Property Newsletter: September 2009

Not surprisingly, the Toronto income property market continued to soar throughout the month of August. With July numbers spiking up, the sales continued well into August and when the warm weather finally broke, even higher price levels were being attained. Contrast this to a year ago, when we were at the crest of what looked like a down market for a long time to come. In the first two weeks of August, The Toronto Real Estate Board reported 3,832 sales – up 27 per cent compared to the first two weeks of August 2008. The average price for these transactions was up three per cent year-over-year to $383,796.
"The results for the first half of August indicate that many households in the GTA remain confident in their ability to purchase and pay for a home over the long term," said TREB President Tom Lebour. I agree that with continued low interest rates, this market (and especially for the demand duplexes and triplexes) will continue to be strong for the rest of the year.

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Why Invest in Income Properties in Toronto?

The fundamental benefit of investing in income producing real estate is the opportunity to own a tangible asset that has the ability to both grow in value and generate income. In addition, consider the advantages of owning an asset where the bank may be willing to finance up to 90% of the purchase, the tenants help pay the monthly mortgage, yet you reap all of the benefits, such as a growing income stream, future appreciation, and potential tax advantages. As for risk, while it is certainly present in the short run, an owner’s risk tends to diminish systematically over time as the mortgage balance is paid down, rents are raised annually, and property values increase over the long term.

Investing in income property also allows you to take full advantage of the extremely powerful investment tool known as "financial leverage". What is financial leverage? It’s simply the ability to purchase an asset of much greater value than the initial amount invested. Why is this so important? Let’s do the math. If you were to invest $250,000 in a stock or mutual fund and that investment appreciated by 10%, your gain would be $25,000. If you were to take that same $250,000, apply it as a down payment on a $1,000,000 apartment building, and it appreciated by the same 10%, your gain would be $100,000, or four times greater! Probably more than any other single factor, the opportunity to apply the fundamentals of financial leverage is why real estate has always been such an attractive investment alternative for investors.

I would suggest that there is never a bad time to invest in real estate for the long term investor and that now is as good a time as any. And, as you should always do before committing your hard earned dollars to anything, we recommend that you do your homework and seek good counsel . . . preferably from a Plex Realty sales agent.

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How do you go about buying a rental property in Toronto? We have many tips and tricks on at www.plex.ca that will enhance your chances for success:

Here’s a list that that I think is a very comprehensive checklist for all buyers.
1.Assess your financial requirements and goals. Do you need a steady stream of income from your rental or do you plan on selling it for a profit in a couple of years? If it's the latter, look for lower priced property that you can fix up as you rent it out.
2. Consider being a resident landlord by purchasing a multiunit property and living in one apartment. In many cases, the income from the other unit(s) will cover your mortgage payment, allowing you to effectively live for free. Being on-site has other advantages, including ensuring that the property is well-maintained.
3. Decide if you want to do maintenance yourself. If you have the skills, equipment and temperament to deal with upset tenants and a backed up toilet at 2 a.m., fine. If you plan on hiring a property manager, add about 5 percent of gross income into your calculations.
4. Choose the kind of property you want. Single-family houses are generally less expensive than multiplexes because of pure size, but generate less income. Apartments, on the other hand, can require more upkeep.
5. Get pre-approved for a mortgage. Investment property is different from residential property in that it may require a larger down payment.
6. Start shopping: Check out classified ads in the newspaper and online. Find a real estate agent who specializes in commercial or income-generating properties. I have over ten years experience trading these kinds of properties so my clients always feel secure with that knowledge.
7. Choose property where people want to live, close to shops, parks and decent schools, and in a well-kept neighborhood. Also, check out any restrictions on renting with the home owners association, which, if there is one, can have a say in any rental agreements.
8. Consider what improvements, if any, you may be willing to make. Buying a fixer-upper will be less expensive than a property in pristine condition, but you can go broke bringing a property up to rentable condition. Before you buy, get cost estimates for all necessary fixes.
9. Have the property inspected. You may also want to order an appraisal to get a fair market value.
10. Search past records for vacancy rates over the last five to ten years as well as at present. If the building is occupied, find out how long the tenants have lived at the property. Long-term residents are valuable, but may also have been signed on at a lower rental rate.
11. Plan on spending time and money advertising for and interviewing potential renters. Have a contingency plan in place if a unit remains vacant for a few months.
12. Determine what a competitive rental rate is for your property by asking rental agents what they would expect to charge, by reviewing area apartment listings, and by personally visiting units available in the neighborhood.
13. Run the numbers. Make certain that whatever income you derive covers your costs of owning the property, plus a profit.
14. Work with an attorney to draw up and review any necessary papers relevant to the purchase.
15. Negotiate the terms of the sale. Some sellers may be willing to pick up a share of closing costs and other expenses. The eventual price will also be affected by prevailing market conditions--keep these in mind when negotiating.

P.A.

2009-08-03T06:27:00.001-07:00

Toronto Income Property Newsletter: August 2009

Wow. Has it ever been busy out there! When the June numbers came out we all breathed a collective sigh of relief. Up 18%, the market seems to clearly have rebounded from where we were a year ago. The reason: interest rates. When the buyers realized that prices in fact were not falling from the sky, low borrowing costs make purchasing real estate a sure bet. And with income properties, doubly so. Lock in for five years at three point something, get a longer amortization and let your tenants do the rest. Cap rates in the 5 to 6 range continue to be the norm and as such, most of the quality duplex and triplexes are being snapped up very quickly. I suspect that this will continue into September and we will have a robust fall market.

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The low vacancy rate in our city has been one of the main reasons why duplexes and triplexes continue to be in high demand. Landlords with three or four unit buildings continue to take advantage of the strong rental market. In the many years that I have been buying and selling these properties, the attractive rental rate has always been the main rationale.

In Toronto, condominium rentals are at the lowest vacancy rate in seven years, according to the Canada Mortgage and Housing Corporation. Meanwhile, new condo units are continuing completion, but the tightening market has pushed the average condo rental rate up 1.8 percent for a 2-bedroom unit.

Even with dropping housing prices, first-time buyers now make up only about 40 percent of the marketplace, according to CMHC, a drop from 47 percent in 2007. “A number of factors contributed to the lower rental vacancy rate, including more moderate home ownership demand, steady in-migration, changing demographic trends and a dip in full-time jobs for young people,” states the group’s latest Rental Market Report.

While renters wait for prices to drop further, the cost of renting has still increased below the rate of growth for inflation and incomes. “The gap between the average principal and interest payment for a condominium apartment and the average rent for an apartment likely widened more for larger unit sizes,” the report says.

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One question that I often get from my clients is whether they should offer furniture in their rental suite. Generally a furnished apartment will rent for around 10 to 20% more than an unfurnished one. Most tenants have their own furniture but there are times where renters may prefer their apartment to be fully furnished. People from out of town or who are new to the city often prefer this.

Furnished rentals tend to be for shorter terms. Some renters may only need accommodation for a shorter period, so having a bed and couches and chairs is beneficial.
Executive rentals tend to come furnished as well. Some companies may only need your suite for a few weeks, so furnishing it allows you to complete with hotels and other short-term accommodation providers

How much money should you spend on furniture for your rental suite if you decide to go that route? I would say that make sure that you buy pieces of high enough quality that it compliments the suite and is appropriate for the rent that you are charging.

2009-07-02T07:24:00.001-07:00

Toronto Income Property Newsletter: July 2009

Happy Canada Day everyone! We’re at the midway point of 2009 and the Toronto real estate market continues to hum along. Quality income properties are still in high demand as the best ones still seem to attract multiple offers. Last weekend I had three central triplexes on my radar for clients and all three sold for at least $50K more than asking. I think that we’ll see a bit of a natural summertime slowdown but I expect this bustling market to continue right into the fall. Let’s hope that we get a nice run of warm days, that the garbage strike ends soon and TFC can get their act on the road together.

Some of you will be happy to note that May was the first month in some time where 2009 sales beat 2008. June numbers when released will be similar. Take a look at the numbers that were released by TREB below. This shows the uptick in the market. Duplexes and triplexes continue to be in high demand and will likely help fuel the real estate market going forward.

HOW TO FIND GOOD TENANTS:

Finding good tenants starts with having a good place to rent to them. Even in a bad part of town, no decent person is going to live in a bad place (at least not for very long). Never show a vacant apartment to a prospective tenant until it has been painted & cleaned. Don't show a rundown unit to someone & then tell them how you're going to fix it up. Always do the work first, make it presentable, then bring them in. You can't expect a tenant to have a 'vision' of what the place will look like after it's fixed up. Remember, the crummy tenants will take anything. I once had a girl tell me over the phone that she needed a place immediately & she didn't care if there were holes in the walls or if the apartment was a total wreck. I politely told her I couldn't help her and hung up the phone. What kind of renter do you think she would've been? Always paying on time? No problems? I would've gotten a security deposit and first month's rent and then be fighting to get her out. Good places attract good tenants. Bad places attract bad tenants. It's pretty simple.

If you ever purchase a multi-unit building with a few bad tenants you should work to get them out as soon as possible. I call it re-tenanting a building. You cycle out the bad and bring in the good. Your good tenants won't put up with crazy behavior and late night loudness; they'll simply move out without notice one weekend and leave you scratching your head. Better to be proactive & let your good tenants know your on top of the situation rather than let them slip away.

So you've got a decent place & it's ready to be rented. You didn't go overboard on expensive countertops and imported ceramic tile. It's clean, sanitary and presentable. You could give the keys to someone & they could move in that night. How do you get people to come and see it? The answer is as simple as it seems: Craigslist and view-it.ca

I've used these sources many times and it works. I like these avenues better than a sign in the window. Using the Internet will save you a ton of headaches. You don't want volume. You want quality. Having 90 people respond to your sign & ad with phone calls may sound great to a novice, but I'd much rather spend a half hour of my time with a targeted gathering of prospective tenants. An added benefit when you acquire more buildings is that you can direct someone to the right place for them. They may not like the apartment your showing right now, but the apartment being vacated in another building at the end of the month may be perfect for them.

As any good salesman will tell you, it's all about getting qualified leads. I've rented apartments a week before Christmas & remember people telling me beforehand that nobody would show up. If you have a decent place, they will come. There will always be exceptions; bad weather, lull in the rental market, etc. But in good parts of town and bad, this advertising system has proven itself. It works.

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That's it for this month. Enjoy the summer everybody!

P.A.

2009-06-01T07:08:00.001-07:00

Toronto Income Property Newsletter - June 2009

I think that the worse may be over folks. After news of doom and gloom over the past twelve months or so, it seems like things are really picking up. I have been showing income properties to clients every day, so there is certainly no demand shortage. The real news though is that people are buying again. There isn’t this hesitancy of the sky about to fall so folks are no longer unnecessarily over-cautious. I have seen competing offers. I have seen triplexes being snatched up for the same prices as two years ago. I believe that the warm weather makes it easier for people to get out there, but it looks to me like in Toronto we’re back to a busy stable market.

On May 19, 2009 Greater Toronto REALTORS® reported 4,561 transactions in the first half of May – an increase of three per cent compared to May 2008.
“Members reported a rise in buying activity this month,” said TREB President Maureen O’Neill. “Many home buyers who were undecided about purchasing a home during the winter months are now proceeding with confidence as a result of the GTA housing market's affordability.” The average price for MLS® sales was in line with last year, down by less than one-half of one per cent at $399,811.“More sales and fewer listings resulted in tighter market conditions which pushed the average selling price back up to last year's level,” according to Jason Mercer, TREB’s Senior Manager of Market Analysis. “Look for new listings to increase as home owners react to the positive news surrounding home sales and prices.”

Are mortgage rates going to rise any time soon? I received an e-mail last week from a leading mortgage broker telling me to get my clients to get pre-approved now. 5 year fixed rates which are now at an all-time low are likely to start creeping back up soon. I believe that a lot of the activity that we have seen in the GTA over the past month has been strongly fueled by low borrowing rates. A lot of buyers thought that the sky was falling at the beginning of the year, figuring they had all the time in the world for prices to drop further. That hasn’t happened. Now many of these same buyers are realizing that a second window, namely low rates, may be closing soon too. If you can finance your income-generating property at a rate better than say two years ago, then many see this as a real fiscal opportunity. People locked in for five years at 5% (which historically is a very good rate) and now you can do the same term for up to 150 basis points less. That could translate into hundreds of dollars saved in interest payments per month.

I think it is safe to say that we are on the road to recovery and that the low lending rates that were intended to stimulate a softening market will rise sooner than later. Is this a temporary upswing amidst a much darker, longer drawn out economic recession? I think we’ll find out when GM finally declares bankruptcy, which could happen this week. After the dust settles, we’ll be able to fiscally plan for the future in a responsible way. I believe that the trajectory will be back to near high price and sales volume levels in the Toronto core. It seems like we’re there now and there might not be any looking back.

2009-05-01T08:15:00.000-07:00

Toronto Income Property Newsletter: May 2009

This month I'd like to reprint a couple of articles from April that I was featured in. One is a story from Toronto Star reporter Tony Wong, where he talks about the benefits of buying real estate and quotes Canadian investment guru Don Campbell and myself. If you'd like to read the original article as it appeared in the newspaper, please click here. The second article is a snippet from a much larger cover story that ran in Canadian Business magazine about real estate in Canada.

Article reprinted from Toronto Star: 16 April 2009 (written by Tony Wong)

Despite an economic downturn that has had a dramatic impact on Toronto home sales, broker Paul Anand is busier than ever.
Anand specializes in income properties, homes that have basement or in-law suites that can be rented out.
"I'm swamped. Demand is high for properties that help the owner pay the mortgage, especially during these times," says Anand.
With stock markets tanking and real estate prices forecast to decline further, real estate investors are seeking properties that help to pad the bottom line. That's if you can get them to invest at all.
Should you park the money in mutual funds, or put it in real estate? "It's the perennial question that everyone seems to be asking," says Don Campbell, the Vancouver-based author of Real Estate Investing in Canada. "The dilemma is even bigger because none of them look great on paper."
The short answer, says Campbell, is to figure out your time horizon.
"If you have a very short term, real estate is not a get-rich-quick scheme, but if you have five years and more, then well-selected properties will be a good fit," says Campbell.
"The problem is, people watch television and figure they can flip a house in half an hour – because that's how long the show is – and get into all kinds of trouble."
In previous recessions, such as 1980 and 1989, when prices peaked, investors panicked, says Campbell.
"The economic world was over, everyone said don't buy real estate, but if you bought after the peak, then you came out looking like a genius," he says.
Of course, timing can be a perilous thing: Those who bought at the peak in 1989 still haven't recovered their money two decades later if you factor in inflation.
"I figured it was the beginning of the end for this cycle when people started lining up for condos on Bloor St. The only time I line up and wear a wrist band is for U2 tickets," says Campbell.
He owns more than 200 properties with his wife Connie, and is looking at buying more properties across Canada.
The trick is to buy properties that will give you a yield – essentially a return on your money after all taxes, mortgage and expenses are factored in.
Investors call that the capitalization rate, essentially the net annual rent divided by the cost of the property. Campbell looks for a return of about 8 per cent on his properties. He will settle for less, his bottom line being 6.5 per cent, but "only if it's a fantastic area with a lot of opportunities for appreciation."
Location, of course, is half the equation in real estate. Campbell sees value in areas that "have a tougher reputation" or are slightly off the beaten path.
In the Greater Toronto Area, he likes Scarborough, the Junction and High Park.
"There are some older, really fantastic spots that are far cheaper now than they were a year ago."
He likes older low-rise properties close to transit, since they usually have good upside and are often cheaper. He typically stays away from new condos, since prices are high and, after maintenance fees and taxes, it's hard to see positive cash flow.
Campbell is currently purchasing properties in Edmonton and Hamilton because prices have been "beaten up."
For an investor, where interest rates are at historic lows, prices are depreciating and people are sitting in rentals because they don't want to buy, it doesn't get much better than the current climate, says Campbell.
"Just because people are paralyzed isn't a bad thing, that means they would rather rent with me than go buy their own home," he says. And the figures bear him out.
Vacancy rates in Toronto slipped to 2.1 per cent in 2008, versus 3.2 per cent in 2007according to the Canada Mortgage and Housing Corporation.
(One caveat: Vacancy rates aren't expected to fall much further, and could go up as a flood of condos, now being built, come onto the Toronto market.)
The upside of a recession: Campbell recently paid $209,000 for a townhome in northeast Edmonton that would have cost $249,000 last year. And interest rates at that time would have been 5 per cent, instead of the 4.14 per cent he is getting now, giving him a significantly bigger return on his investment.
As prices fall, traditionally tough areas for investors, such as downtown Toronto, are looking more attractive.
"It's tough to make a good return in Toronto because the prices are so high," says Campbell. "But the opportunities are there, you just have to look harder."
Anand says returns for multi-residential properties in the Toronto market are decent, but not spectacular because of demand.
"The good properties are always in demand, so prices still haven't dropped as dramatically as other properties," he says.
But first things first: Getting a property that suits your lifestyle is paramount, he cautions.
"I have seen it happen too many times before where clients are more concerned about the money the property is generating than whether it meets their personal needs," he warns in a preface in his self-published book, Live For Free.
"It really helps if you like where you're living – remember, this isn't just about the money, and it’s also about your lifestyle."

Portion of Article reprinted from Canadian Business Magazine, Aril 2009 (written By Andy Holloway)

If you already own income-producing real estate, now is probably not the time to unload it. Prices are lower and the rental market remains strong, because roughly 250,000 people move to Canada every year and they generally rent before they buy. "We haven't seen the rental market soften," says Michael Polzler, executive vice-president and regional director at Re/Max Ontario — Atlantic Canada. "I think the reason is that we don't build apartment buildings anymore. People used to buy a fourplex or six-plex; now they buy a floor in a new condo building and rent it out."
Paul Anand, the broker of record at Plex Realty Corp. in Toronto, says 8% — 10% of available inventory at any given time are income properties — and good properties are still scarce. Capitalization rates (the ratio of net operating income to the home's original price or current market value) have been lower than 7% for quite awhile, and in many cases 5% and 6% is the norm. "Some people feel there is an opportunity because it's cheap, but to me the opportunity is that we don't have to compete for properties now," says Anand, who adds he is always looking for more income-producing properties.
His advice? Always look at cap rates, which give an indirect measure of how fast an investment will pay off, and don't get emotional about the properties you're buying. "This is not glamorous work," he says.
Rents in the commercial market have also remained stable because vacancy rates are low. "Across Canada, we've been at around 5% or 6% vacancy in both industrial and office, which is extremely low," says Milton Lamb, a senior vice-president at Colliers International in Canada and a member of Colliers National Investment Team & Global Investment Services Team in Toronto. "That's moved up, but compared to anywhere else in the world, that's a very low vacancy rate. Just because you see the signs, it certainly exaggerates the reality a bit."

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Next month I will get into more detail about what's happening in the Toronto market. This past week, a frat house near U of T had 16 offers on it. I have also seen a few listing agents start to hold back offer dates again. I still think that there may be further fall-out from the car industry, but could the worst be behind us now?

P.A.

2009-04-06T07:30:00.000-07:00

Toronto Income Property Newsletter: April 2009

Where are all the great deals on duplexes and triplexes that everyone is waiting for? As we head into April in the midst of a recession, I’m still combing the market daily, waiting for all these great opportunities with Toronto investment properties. Well it’s not happening folks. When the dust settles and the economists determine how big an average price drop this “correction” saw, whatever that number is, it won’t apply to income properties. Cap rates are still well below seven and quality owner-occupier income properties may still get multiple offers on them. It just goes to show that buying these properties always makes sense, perhaps even more so in down markets. Some businesses do not decline in bad economic times – I guess income-generating properties (since there are so few of them) may fall into this category. For the record, it would benefit me a great deal if the prices started to drop as I have many investors waiting on the sidelines. A price drop of say 5% with a resultant bottom-line increase of even 2%, would allow me to sell a lot more buildings.

What going on with the condo market?

I’ve thought for awhile that until there is a great resale condo crash in this city, then we have a way to go before we hit bottom. Toronto condo broker Brad Lamb declared in his last newsletter that this past December was in fact the absolute bottom of the market. He states that last Christmas was “the absolute depths of negative human despair. It represented the bottom. I know that it’s difficult to see this now as the economy continues to shed jobs, but the worst is over for Toronto’s real estate market.”

He goes on to say that that the next rise will start in the fall of 2009 and run for several years. People who choose to wait until next year will kick themselves around the block. “Come May, our little correction will be over and anything lost through January will have largely been regained.” I agree that recessions always seem the worst when you are in the middle of them, and until we see a huge decline in resales, that the worst may be over.

I’d like to point out at the luxury condo market has taken a fair beating. There have been relatively few resale condos trading over half a million dollars so far this year. The under $300K market still seems very active to me.

Condos as investments … forget it. They never have made sense on the monthly cash flow side. If you bought a presale unit and were lucky to sell it along the way, that’s great. But that is speculating, not investing. Remember when people were lining up at Yonge & Bloor for days like they were in line for a Stones concert. That represented the height of the market and the crest of silliness if you ask me.

Regarding the new Ontario HST:

On March 26th, 2009, the McGuinty government announced its intention to harmonize the goods and services tax with the provincial sales tax – an all encompassing 13% tax.

As a result of this change, provincial sales tax will now be levied on legal fees, appraisals, real estate commissions, home inspection fees and other services related to a real estate transaction. They were only subject to GST before. From the consumers’ point of view, it is just another cost that they will have to unfortunately bear. From a realtor’s perspective, there may be some benefits insofar as being able to claim back the full 13% on business related expenses.
The Ontario Real Estate Association believes that this tax grab will severely hurt the resale housing market and reduce affordability for Ontarians trying to buy a home. In Toronto, there is also the year old municipal land transfer tax that some say aided in the market’s decline.

The new HST won’t take effect until July 2010. A lot can happen in between now and then so stay tuned.

Happy Easter everyone. TFC is back on the field so get behind our team!

P.A.

2009-03-02T04:55:00.000-08:00

Toronto Income Property Newsletter: March 2009

As news of economic doom and gloom continues, I can safely say that the Toronto Income Property market hasn't experienced a serious downturn ... yet! Quality duplexes and triplexes are continuing to trade and it doesn't seem to me that there has been as big a price decrease as in single family homes. Realtors that price their properties properly are not really getting caught and there were even a few multiple offers (remember them) last month on a buildings in primo locations. I expect this to continue into March as more properties hit the market.
Where are the nicest income propreties in Toronto? Which areas are always going to be a safe bet for landlords?

There are certain Toronto neighbourhoods that are always going to be attractive to investors. From a rental property perspective, a property close to the subway line, restaurants and shopping tend to be more desirable to both to owners and renters. Other factors that high-end renters tend to look for are proximity to the more prestigious schools, sports clubs, etc. Properties close to the middle of the city - Yonge Street from Bloor Street all the way up to York Mills - get the highest rents. Other areas like the Beach or High Park that have strong locational benefits are also very attractive to renters who are looking to pay a little more.

Where are the nicest income properties in town? Almost every exclusive neighbourhood in Toronto has duplexes and multiplexes mixed amongst the single-family homes. There is always activity in the high end income property market. You may not think about spending over a million dollars in Rosedale or Forest Hill but there are many homes in these areas that have fantastic rental suites in them. Key streets include Madison, Lowther, and Admiral in the Annex and streets like Maple & South in Rosedale. Sometimes suites can rent for as high as $4500 a month in these properties. That may seem like a ridiculous amount of money to pay on rent, but believe me, there is a market for these kinds of rentals.

Statistics show us that live-in owners and investors are comfortable paying big dollars for upper-end investment properties. Since most of them will not yield a strong cash-on-cash return, I’m sure they’re being bought based on location and the hope of eventual capital appreciation. Cap rates don’t generally apply to high end rental properties.
One area that has been very desirable is prime Cabbagetown which occupies a small portion of C08. There have been some very nice duplexes and triplexes that have sold, particularly east of Parliament close to the Riverdale Farm. It seems like this section of town is beginning to closely mirror Riverdale on the east side of the valley.
Second suites (basment apartments) are legal in the City of Toronto in all single family and semi-detached homes, providing they meet certain criteria, including fire and building codes. This background information was adapted from information provided by City of Toronto planning staff. For legal and zoning information on second suites in other Greater Toronto Area municipalities, please contact your local planning department.

A second suite is a self-contained unit (rental or rent-free) in a single-detached or semi-detached house. Most second suites are basement apartments. They have also been called granny flats, in-law suites and accessory apartments.

In the past, second suites were permitted in some areas of the City (York, East York, and parts of former Etobicoke, North York and Toronto). Some parts of the City have had a long experience with this form of housing. As well, provincial legislation, in force between July 1994 and November 1995, allowed for the creation of second suites in all areas of the province.

In July 1999, City Council adopted the second suites by-law. This by-law was appealed to the Ontario Municipal Board (OMB) by a number of residents' groups and individuals. The OMB held a hearing on the appeals in February 2000. The OMB issued a decision in April approving the City's by-law but directed that two amendments be made. The amendments dealt with: (1) parking provisions in some neighbourhoods in the former Toronto, and (2) building alterations.

The new by-law permits second suites in all single-detached and semi-detached homes throughout the new City of Toronto -- with certain conditions.

Some of the conditions include:
the second suite must be self-contained with its own kitchen and bathroom.
the house, including any additions, must be at least 5 years old;
the floor area of the second suite must be smaller than the remaining unit;
in most cases, homes with a second suite must have at least 2 parking spaces and parking can be in tandem (one behind the other). There is an exception for parts of the former City of Toronto (R2, R3 and R4 districts) where only 1 parking space is required for a house with a second suite. Please contact the City of Toronto's Urban Planning and Development Services Department to determine if a property is located in a R2, R3, or R4 district.
Before planning any changes to the outside appearance of a dwelling the homeowner should contact the City of Toronto's Urban Planning and Development Services Department; and
all new second suites must comply with the Ontario Building Code and require a building permit. Existing second suites must comply with the Fire Code as well as zoning and property standards.

The unit will have to be inspected by Fire Department staff. There is a fee for the inspection and you may be required to upgrade the suite to meet the code requirements and other standards. Contact the City's Urban Planning and Development Services Department for more information

There is currently no grant or loan program for second suites. The City is discussing the potential for a program with senior levels of government. TREB's Government Relations staff is monitoring this initiative and will inform members if the City implements a program.

In most cases, there will be little impact on property taxes. A major exception would be where the second suite is created by constructing an addition, thereby significantly adding to the value of a house.
For specific zoning, property standards, or fire and building code questions please contact the City of Toronto's Urban Planning and Development Services Department.

P.A.

2009-02-06T08:37:00.000-08:00

Toronto Income Property Newsletter - February 2009

The Toronto income property market continues to be in a holding pattern. For duplexes and triplexes, the inventory is very spotty at the moment. There are a few properties on the market that are quite nice, but they still reflect 2006 prices. Then there are others that require a lot of work, which many folks are reticent to do in this economy. The average prices for these properties are not falling as much as single-family homes, at least not yet. I'm out there all the time so I'll let you know in this space each month where prices seem to be going.

A veteran city councillor is looking to suspend the controversial Land Transfer Tax in a bid to stimulate Toronto's local economy. Doug Holyday's efforts could be in vain because Toronto Mayor David Miller doesn't support the idea. The tax raises too much revenue for the city that council would have to find elsewhere if the tax were scrapped, or even suspended. Holyday told the Toronto Sun he is writing a letter to Miller and the city's budget chief Shelley Carroll asking them to at least consider a three- to six-month moratorium on the tax to "get the housing market moving."

"In the three or four months prior to the tax coming into effect (last February), there was a huge movement on the real estate market to avoid the tax," he said. "Right now, there are a lot of homes on the market but they aren't moving. I think a stimulus like this could work." Suspending the tax, which adds about $4,000 to the cost of an average home in Toronto, is something council can do to help the flagging economy, Holyday said.

"It's something that we can do without any provincial or federal approval. We can do it on our own to help ourselves," he said. The Toronto Real Estate Board said yesterday any move to suspend the tax is a "step in the right direction" if it leads to doing away with it permanently.
By their estimates, every house and condo sale transaction that doesn't take place costs the city $33,000 in spin-off economic activity in furniture and appliance sales and home renovations among other things. They estimate 5,000 sales did not happen in 2008 because of the tax.

"That equates to $200 million in Toronto's economy," said Von Palmer of the Toronto Real Estate Board. "We're pleased to see a councillor recognizing that the land transfer tax is hurting the economy."
A December 2008 study by the C.D. Howe Institute found house sales in Toronto dropped by 16% because of the tax, and that it caused housing prices to fall 1.5%.

One of the most common things that we see on listings for income properties is the claim that Vendor does not warrant retrofit status. We often explain to our clients that over 90% of the available properties that have units have not been fire retrofitted. Many lenders do prefer that multi-residential buildings meet retrofit standards; however, this is NOT a requirement to get financing on these types of properties. We are able to finance non-retrofitted properties every day.

While all income properties may not be retrofitted they still do have to confirm to the fire code. The Ontario Fire Code (O.Reg. 388/97) is a regulation made under the Fire Protection and Prevention Act as a companion document to the Ontario Building Code. The Ontario Building Code is the document that provides for safety in new buildings. The Fire Code provides for the safety of occupants in existing buildings and the retrofitting of certain occupancies. The Fire Code is enforced by the local Fire Department, being the authority having jurisdiction. Fire Code Retrofit is the upgrading of certain buildings including residential buildings containing two or more dwelling units to a reasonable level of life safety. These are buildings that may have been built prior to 1975 when the Province of Ontario adopted the Ontario Building Code as we know it to-day or buildings that have had construction or renovations done without the benefit of permits. Prior to this date construction was done under the governance of the National Building Code, if adopted by municipalities or by local by-laws. In the 1980's and 1990's The Fire Code was revised to introduce Retrofit Legislation. This was designed to bring existing buildings up to a reasonable level of life safety. This will not provide a building with today's standards but a level of life safety that will be reasonable. It is important to ensure your building complies with this legislation for the safety of residents and to protect you as a building owner from prosecution and other liabilities. The Fire Code clearly states that the Owner is responsible for complying with the requirements of the Code. Some fire departments heavy handed “you are guilty, prove your innocence” approach for enforcement of the Retrofit provisions, appears to be contrary to Canadian traditions and legal practices. The fire departments of Ontario employ excellent fire fighters, fire safety promoters and fire prevention educators. However, some very rigid enforcement policies that are driven by liability concerns continue to cause anguish among apartment building and two dwelling unit-building owners. The goal should be improved fire safety, not creating paperwork and a bureaucratic nightmare.

Today Fire Departments increasingly tend to not have the resources or manpower to carry out the education of the property owner, and consequently are finding themselves in a position where they feel justified and compelled to prosecute when non-complying situations are discovered. The property owner or prospective purchaser has very little recourse but to accept this heavy handed course of action. The term “Retrofit Status not Warranted” means just that. The building probably doesn't comply, and the purchaser should understand that they assume all liability on the day they take possession, including the above noted penalties. Complaint to the Fire Department today come from neighbors or disgruntled tenants and when they get involved the matter will often end up in court. Today we are hearing of a Fire Code Retrofit Task Force being formed in the Toronto Fire Department. The purpose of this is to try and catch up with all the non-compliant properties.

P.A.

2009-01-03T09:43:00.000-08:00

Toronto Income Property Newsletter - JANUARY 2009

Happy New Year everyone! I’d like to personally wish and your family all the best for this upcoming year. May all your hopes and dreams come true in 2009.

This month’s newsletter is in two parts. The first part is my annual prognosis for this New Year and what we might expect to see in the Toronto income property market. In the second half I will highlight a few income property sales in 2008, the year where we saw our market finally start to slow down after several years of feverish activity.

Last year was quite an economic ride. As we start this year, the country (world?) is in recession, gas prices have dropped to almost half of what they were last year and the Toronto real estate market (like many other towns) is in a slump. Next month I will review the final numbers to see how far sales and prices dropped from 2007 to 2008. In October and November, we saw near 30% declines in the number of year-on-year trades in the city, the first time there was ever a significant drop in activity this century. Naturally, the crazy market with over-inflated prices and silly multiple-offers had to end some time. It just seemed to happen rather quickly, but really the economic troubles in the U.S. started before the summer, so the indicators that trouble was heading our way were there.

Despite the recent stabilization in the financial markets, which followed the agreement to inject vast sums of taxpayers’ money into many of the country’s biggest banks, deflationary forces are still ripping at the U.S. economy: There’s the housing slump, an unprecedented collapse in consumer confidence, and a global downturn that is getting more severe by the week. In addition, a reckoning in hedge funds and private equity firms is just starting, and the ripples (and potential tidal waves) of the banking crisis are just beginning to hit the rest of the U.S. economy.

Having buried their heads firmly in the sand for much of the past year, most professional economic forecasters are now predicting a moderate recession that will last until the middle of 2009 - a consensus that could well prove as overly optimistic as the previous one, in which the U.S. was expected to avoid recession altogether. Even allowing for another significant stimulus package sometime in the spring, consumer spending, business investment, and exports all seem set to fall throughout most of next year, which would rule out any meaningful recovery. Given the pattern of last year’s events, I’d say that here in Canada we’re not as prone but we do feel the effects of the larger economic forces happening in America. If the housing markets in the major states start to pick up this year, then our market will be fine. I really believe that we’ll get a glimpse into how this year will unfold by looking at how fast the January real estate business in Toronto starts to unfold.

I personally am ecstatic to see the bottom lines improving in the Toronto income property market. I have based my business on duplexes and triplexes and it continues to be hard to make a case for properties that don’t justify themselves on the numbers. All of my investors, renovators and speculators are looking to come out of the woodwork as it seems be safe to come out and play again. If the prices drop, say 10%, but that resultant drop leads to even a 1% increase in your bottom-line cap rate, then income properties will be worth considering as long-term investments. At this moment, there aren’t a whole lot of great investment properties out there in the Central core, but presumably they will hit the market in the upcoming weeks without the previous excitement of previous years. The rental market has been and continues to be very good so you never have to be worried about being vacant for too long a time. Let’s hope that Sellers have realistic prices in mind this year and the listing agents understand that income-generating properties have to make some sort of fiscal sense. Let’s also hope that buyers are clever enough to pounce on these properties when they come around, since there are never enough of the good ones to go around.

One last point: some buyers are thinking that they should wait until prices drop even further. It is entirely possible that we are the low point of the market right at this moment, and that prices and demand will pick up in January. A lot of my buyers were tentative in November and December and I think that there may be a few regrets as we move forward. If you decided to not buy in 2004 because you thought the prices were too high, you likely missed out on a lot of capital appreciation opportunities. If you are looking to buy an income property in Toronto, now is the best time that I have seen in the last decade, and interest rates are still relatively low.

I’d now like to present my annual wrap-up of income property sales in the Toronto Central core for last year. As far as I know, there isn’t a formal breakdown of residential resale income-producing properties available elsewhere. What I have done is taken four key geographic areas and looked at all the 2008 sales with three or more kitchens. Unfortunately, this eliminates all the proper duplexes but I don’t like to count houses with basement apartments as income properties, thus the minimum three kitchens. So please take this as a rough, highly unscientific approach to income property sales.

Downtown C01, C08 (South of Bloor) Sales under $500,000

Field Count Mean
(Average) Median Mode Low High
List Price 26 $439,162 $449,500 n / a $369,900 $499,900
Original Price 26 $448,053 $458,500 n / a $369,900 $499,900
Sold Price 26 $445,462 $425,000 n / a $360,000 $615,000
% List 26 101.42 97 94 87 128
Taxes 26 $3,014 $2,954 $3,140.97 $2,285.62 $3,803.68
Bedrooms 26 3.8 4 4 2 6
Washrooms 26 3 3 3 2 6
Days On Market 26 37 24.5 7 4 105

Downtown C01, C08 (South of Bloor) Sales over $500,000

Field Count Mean
(Average) Median Mode Low High
List Price 68 $764,560 $699,900 $699,900 $519,000 $1,450,000
Original Price 68 $768,882 $699,900 $699,900 $519,000 $1,450,000
Sold Price 68 $744,404 $692,000 n / a $490,000 $1,335,000
% List 68 97.85 97 100 90 125
Taxes 64 $4,795 $4,444 n / a $1,590.56 $9,876.54
Bedrooms 68 4.9 5 4 2 9
Washrooms 67 3.8 4 3 2 8
Days On Market 68 37 24.5 7 1 239

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales under $500,000

Field Count Mean
(Average) Median Mode Low High
List Price 53 $376,562 $385,000 n / a $239,900 $499,900
Original Price 53 $380,074 $385,000 $429,900 $239,900 $529,000
Sold Price 53 $371,319 $383,000 $415,000 $245,500 $616,061
% List 53 98.4 97 97 87 123
Taxes 43 $2,719 $2,695 n / a $1,928 $3,863.38
Bedrooms 53 3.5 3 3 2 6
Washrooms 53 3.3 3 3 2 12
Days On Market 52 30 23.5 n / a 5 137

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales over $500,000

Field Count Mean
(Average) Median Mode Low High
List Price 32 $792,206 $719,900 $799,000 $529,000 $1,750,000
Original Price 32 $798,425 $749,450 $799,000 $499,000 $1,750,000
Sold Price 32 $766,170 $697,000 $525,000 $525,000 $1,650,000
% List 32 97.16 97 97 91 110
Taxes 32 $5,575 $4,856 4855.8 $2,140.64 $25,671.16
Bedrooms 31 5 5 4 1 8
Washrooms 31 4 4 3 3 8
Days On Market 32 30 22 n / a 2 105

Midtown C04, C09, C10, C11 (All sales)

Field Count Mean
(Average) Median Mode Low High
List Price 31 $1,134,619 $869,000 n / a $459,900 $3,400,000
Original Price 31 $1,144,590 $875,000 $899,000 $459,900 $3,400,000
Sold Price 31 $1,129,468 $845,000 $882,000 $443,000 $3,400,000
% List 31 98.35 98 100 76 113
Taxes 31 $7,660 $6,422 n / a $1,988.24 $27,026.61
Bedrooms 31 6.3 7 8 2 9
Washrooms 31 5.2 5 5 3 9
Days On Market 31 33 24 n / a 1 83

West side W01 (All sales)

Field Count Mean
(Average) Median Mode Low High
List Price 65 $600,984 $559,900 n / a $309,900 $1,199,000
Original Price 65 $606,148 $597,000 $799,000 $309,900 $1,199,000
Sold Price 65 $589,161 $559,000 n / a $317,000 $1,199,000
% List 65 98.63 98 100 73 128
Taxes 63 $4,204 $3,940 n / a $2,007 $10,700.24
Bedrooms 65 4.7 5 4 2 9
Washrooms 65 3.7 4 3 2 9
Days On Market 65 33 17 9 1 173

Here are some of the mind-benders of 2008, presumably the results of the last of the multiple offer situations. I actually had offers in on a few of these properties but I didn’t win them for my clients so I don’t mind showing you how crazy it can actually get out there. Remember it’s not often about the bottom line investment for some buyers. When someone finds a property that they like, sometimes returns are discarded in exchange for hopes of future capital gains. In 2009 we likely won’t be seeing near as many of these kinds of transactions:

Take a look at these:

3 Callendar (3 Suites @ Queen & Roncesvalles): Asking $399K. Sold $505K
175 Marion (3 suites in High Park): Asking $499K. Sold $640K
148 Bellwoods (3 suites in Little Italy): Asking $369K. Sold $430K
66 Oxford (3 suites in Chinatown): Asking $489K. Sold $603K.
126 Lee (3 suites in the Beach completely trashed) Asking $799K. Sold $877K
165 Crescent (4 suites in Rosedale): Asking $1.795M. Sold $2.026M!!!

There were other income properties that traded for over-asking price. My point here is to show you that people were still prepared to pay more than asking price if the property was right. Fortunately, there weren’t as many of these as there was in 2007, when the market was at its height. The majority of sales across the board were within 1 or 2% of list price, suggesting that most agents seem to be getting close to where they price the properties. Let’s hope that this continues to be the case for 2009, with prices making more fiscal sense for investors.

I look forward to keeping in touch with you over the upcoming months. If this is your year to think about an income property or you know of someone who may be interested, please send along my name. Your referrals are always greatly appreciated. Also, if you find yourself on the Danforth this year, stop by our store Drysdale & Co. @ 107 Danforth (near Broadview) for great gift-giving options.

Take care everybody.

P.A.

2008-12-01T07:15:00.000-08:00

Toronto Income Property Newsletter: December 2008

Happy holidays everyone! This will be my last newsletter for 2008, so I won’t be checking in with you again until after Christmas. In early January I will do my annual wrap-up and analysis of this year. 2008 certainly saw a long-expected downturn finally occur in the Toronto real estate and income property markets and as we head into this holiday season there is an unprecedented sense of doom and gloom in the air. So this month I thought that instead of talking incessantly about falling real estate numbers that I’d look at how best to cope during these uncertain economic times.

Let me say at the outset that for many of you it will be business as usual. Fortunately, most of my friends and clients are financially prudent and many of you have wisely bought income properties in the past that helps with your monthly cash flow. Regardless, if the current economic slow down isn’t affecting you directly, you will likely know someone who is feeling the pinch, and there are many people out there who are nervous, cutting back spending, etc. in anticipation of things actually getting worse.

I can’t ever remember a time when there was so much negativity being spread in the local media. It’s not just a slowdown in the number of real estate trades, but it seems like everyday there is a new story about some industry on the verge of collapse. Consumer indebtedness is at an all-time high and there isn’t a bright forecast for the unemployment numbers and the economy as a whole. If we are in a recession, which I do believe we are, we have to look forward to how this situation can be slowly turned around. There has been a bailout for the financial services sector in the U.S. and now the auto industry is looking for the government to fund their losses. What about a bailout for small businesses – the backbone of our North American economy? The little guy has to continue to struggle with decreased sales and higher borrowing costs, if he or she is even able to get business financing. The Bank of Canada has lowered lending rates for the major banking institutions in Canada. I got a call from my bank manager telling me that my interest rate on my credit facility would go up 1% - not because of any doing on my part, good or bad. It’s just an overall reaction to these times. Then I see what their quarterly profit was. To my all friends and clients that work at financial institutions, please forgive me, but that really sucks.

If any of you have ever seen the Enron documentary, that story is a microcosm for what has led us to the overall economic situation in North America. Greed and abuse by our supposed leaders – the guys at the top skimming huge corporate profits and in many cases, stealing from employees and pensioners, and then ultimately the whole system comes crumbling down. That’s the investment, banking and auto businesses in as nutshell. Massive profits, huge executive compensations and now all of their hands are out looking for the taxpayer to bail them out.

Adding insult to injury, the Canadian public had to endure the empty rhetoric of political candidates vying to be Prime Minister in an election that accomplished nothing. And now there is talk of a coalition which might overthrow the government that we actually elected. These are strange times indeed.
So how do we cope during these unsettling economic times? It has been proven that our emotional states do indeed affect our stress levels and our ability to sleep at night. Studies done at the University of North Carolina have found that as we enter a recession, health-related problems go down. As our economy plummets, the population’s physical well-being improves (as a whole). We smoke less, drink less and drive less, findings that are counter intuitive, since you’d think that if we’re feeling more stress, we’d do more of those less-healthy behaviors to cope with it. Well, that’s encouraging!

When we’re uncertain about the economy, however, we’re less likely to spend significant amounts of money on “luxuries,” which includes things like alcohol and cigarettes. And with the fluctuating price of gas, people tend to drive less. Instead of making three trips, you might combine them all into one trip and cut out errands that aren’t really necessary. Less driving equals less stress and less changes of getting into a crash or accident, reducing your risk of serious injury from an automobile accident.

Sure all of that’s great, but how does that help you right here and right now? Your retirement fund is tanking and there’ve been rumors at work of more layoffs! First, focus on the long-term picture when it comes to things like retirement and your career. People who check their mutual fund balances every day, every week, or even every month should stop. A retirement fund is not there to check up on in that sort of regular manner, because most returns on such funds are measured in decades, not months or weeks. The only thing you can proactively consider for your retirement funds is to move some of your investments into a quality income property that will always pay you cash at the end of the month. Otherwise, while you shouldn’t ignore those monthly statements, you also shouldn’t put much weight into them. Financial markets run in cycles, and this just happens to be a particular bad down cycle. It will recover in time.

The same goes too for your career. You only have control over what you have control over. Okay, I know that sounds obvious, but too many people stress and fret over variables or things they have no control over. If layoffs are inevitable, all you can do is to be pro-active in getting your resume updated and start looking for a new job now, and make sure your boss knows your contributions and value to the company. Being prepared for the worst means that if, by chance, it does happen, you’ll be ready with a list of jobs lined up and perhaps even an interview or two.
That idea of being in control is important. You and I can do nothing about the government bailout of the investment banks and what-not. So why worry about it? Trust that our elected officials are doing all that they can to keep things stable and moving forward, and that confidence will be restored in due time. Instead, focus on what you can control and change in your life. Scale back on planned financial commitments if it’ll make you feel better. Putting such things off a few months likely isn’t going to be a significant difficulty for most and can give a person added peace of mind when they go to sleep at night.

Uncertain economic times are also a good time to reconnect with your family and friends - the social relationships that bind us all together. Such connections remind us of the value of life, and are things we can influence and enrich. Consider this a good time to volunteer some time at a shelter or food kitchen, give blood, or find some other way to give something back to others. Usually when we give of ourselves in this manner, it reminds us of those who need our help - and that we can actually help out, locally, on our own. It can be a very empowering feeling.

Lastly, if you are self-employed like me and you’ve seen a decrease in sales, don’t stop working. Get out there everyday and hustle. My mother used to say “If you move your legs, God will give you speed”. This is very true.

We’ve seen times like this before and we know that this will pass. This current situation will be over soon and in a few weeks Barack Obama takes office. Until then, take heart in the hope that our government won’t allow something like this to happen again in our lifetimes. And with a new President in the U.S., the economy is likely to pick up once again in the New Year.

So that’s my holiday advice to all of you. It’s easy to be smiling when times are good. Just remember that we all have incredibly good fortune to live where and how we do. If you have your health and family and friends around you, then you are truly blessed. Forget about how much money you made or lost this year – at this time of year it’s simply not that important.

I promise that next month I’ll get back to just real estate, but it seems that whenever I go off topic I get the most amount of positive emails from all of you. Once again, have a very Merry Christmas or Hannukah or Kwanzaa or Festivus!

Paul Anand
Broker of Record
PLEX REALTY CORPORATION

2008-11-01T06:39:00.000-07:00

Newsletter: November 2008

I don’t want to sound like a real estate agent or anything, but now’s the time to buy! I guess it seems like we’re always saying that, so it’s a bit of a “cry wolf” scenario when the market really does start to offer some opportunities. Well folks, the last few weeks have seen a lot inventory not sell, leading to the first in a series of widespread price decreases in the Toronto. This has allowed some buyers to purchase properties for up to 20% under list price. And this will allow all the income property buyers to start to take stock in the bottom-line numbers again.

Here are the facts:

Activity in the Greater Toronto Area resale housing market slowed down considerably during the first half of October with 2,700 homes changing hands. Toronto Real Estate Board announced that sales volumes in the GTA decreased 18% compared to the first half of October 2007, when 3,297 transactions were recorded and are down 10 per cent compared to the same period in 2006 when 3,007 sales took place. In the City of Toronto 1,140 sales took place in the first half of this month. This represents a 21% decline from the 1,446 sales that took place in the same period a year ago and a 13 percent decrease from the 1,312 transactions recorded in the first half of October 2006.

House prices declined throughout the GTA during the first half of the month. The average price of a GTA home is currently $353,772, down 11 per cent from $399,013 recorded the comparable period in 2007. In the City of Toronto the current average price $375,804, a 15 per cent decrease from the $441,878 average recorded at mid-October 2007.

Here’s how it all looks on a graph:

With 27,559 properties currently listed on the TorontoMLS system, there is now 30 per cent more available stock from which to choose as compared to a year ago when 21,182 homes were listed. This means more choice which turns into slightly longer wait times for sellers. Homes are now on average selling after 34 days on the market as compared to 26 days a year ago. This is quite a turn around from last year and should be encouraging for the buyers to say the least.
ELEASE FOR IMMEDIATE RELEASE
Some people say the media is helping to fuel this all along, but the numbers are what the numbers are. This is not a situation where the market is self-inflicting slowness upon itself because of what’s written in the papers. Others are still blaming the second land transfer tax. This might have been the case for a slow March but I don’t think this has far-reaching consequences. Real estate is cyclical - what goes up cannot keep going up forever. It’s just fundamental, so despite a global recession and our dollar going up and down like a yo-yo, the feverish real estate activity of the past few years had to subside.

Since a few folks have suffered paper losses this year, I have also seen income properties come up for sale so that the owner could offset any capital gains by their stock losses. Tax avoidance always makes sense but you have to ask if it is prudent to sell your building when the market is slower. A year ago, an income property in the Annex at $500K would have sold. Today it might not.

After several years of crazy highs, we are returning back to normal. The Toronto market will be more well-balanced. My opinion at a macro-level is that if Barak Obama wins the election next week, I think that will give a lot of Americans a new sense of hope, and these economic times will start to turn around. I’ve noticed that the advance polls for the election have been getting record breaking voter turnouts. Chalk one up for democracy! There are a lot of people that are going to get out and vote because they really want things to change, and change they will get. This is the exact flipside of our election, where virtually nothing changed at all. Well, I guess we’ll get a new Liberal leader down the line.
That’s it for this month. If you have been curious about the buying opportunities for buying duplexes & triplexes now that the market is cooperating somewhat, please do drop me a line.

Take care everyone,

P.

2008-10-01T09:39:00.000-07:00

Toronto Income Property Newsletter: October 2008

So where are all the deals?

After this past week of financial turmoil in the U.S., many of the experts are warning us that we are in for a rough ride in real estate. The cover of Macleans this week features the headline: “Canada’s Looming Real Estate Crisis” and shows a house that’s about to fall through a floor. The highlights of the article are that the west is suffering a much greater decline than Central Canada (a 9% decrease in prices) and that our market may be in for a similar drop. The argument is basically that since interest rates are still low, inflation has been kept in check and the trouble in the economy will lead to reduced incomes going forward, that house prices will have to fall. If the housing market is a barometer for the economy in general, then certainly the numbers will have to reflect this. The Toronto housing market can’t keep soaring up while the rest on the world is in recession, right?

It’s going to be interesting to see the September MLS numbers for the GTA since there is definitely a sense amongst realtors that the market has finally slowed down. Every day agents are asking me if I’m busy – which means by and large they are not. Midway through the month, TREB was reporting a 16% decrease in the number trades from last year and about a 6% drop from the year before. Since last year was yet another record-breaking year no one expected it to continue forever, but many suspected that once the market started to cool that prices would start falling. I can honestly say that hasn’t happened yet. While the number of trades are less, the average prices haven’t dropped that much as of yet.

Many argue that since we didn’t face the same sub prime mess as in the U.S. that we will not face the same devastation in our housing market. Also, interest rates are likely to stay low for the foreseeable future which will still make it fairly attractive to buy under the right circumstances. Thirdly, the construction hasn’t tanked yet, and this industry is very much tied to the housing sector. I received a 25% off flyer from Home Depot yesterday so maybe we are just around the corner.

My opinion is that there is going to be a “cooling off” period where Sellers will have to adjust their expectations. This ought to stem from real estate agents educating their clients to the realities of the market we are entering into. No market crashes overnight and often the transition from a sellers’ to a buyers’ market often takes several months. I have said in my previous newsletters that I’m not so sure we are even entering into a buyers’ market. I would call it a more “balanced market” where prices should reflect stronger returns, but there won’t be any properties to “steal”. It’s going to take some time to get used to this new market. I think that people that have to sell will need to look at their pricing strategy very carefully and that most people will simply wait.

There are many of you reading this right now that have gone to look at properties with me over these past two years and the majority of you have not bought anything. Unless you are living in a triplex in a great location I likely would a have steered you away from buying. Since income properties are supposed to make sense on the numbers the era a four and five caps will have to come to an end. I have been anxiously waiting for this turn in the market so that bottom line investments start to make sense again. I have been talking to many of my clients about getting ready to enter into the market again since I expect returns to get better and the spreads for renovators to widen.

But it’s not happening yet. Prices are still too high.

If I look at the twelve published sales of triplexes in the central districts for September, you will see that the sale prices were 97% of list. No one got over asking price, which is a first in some time, but this still shows us the people are paying what Sellers want. If I now look at the bottom lines on these properties, we are still dealing with returns of less than 7%. So we need to see more downward movement to get excited about buying again. I will look at sales again at the end of this month and see if we are still observing the same patterns.

If you are keeping an eye on the Toronto market and waiting to see if the time is right to get in, I would watch the condo market. I think that if the market really drops significantly then we will see it first in this market. There's a large stock of unsold condominiums on the market, and there are 120,000 new condos are projected to come on the market in the next couple of years. Not only are unsold and proposed condos raising eyebrows, it is believed by local market analysts that at least 20% of condos sold in recent years have been purchased by investors seeking speculative gains as opposed to those living in them which casts substantial doubt on the true underlying strength of sales numbers.

Your condo agents will try and spin it but think about it logically. If the market turns really bad, what will go first? Would you bet on a chunk of space in the air that was built in about two months or a property that actually generates money that you don’t need an elevator to get to? Hopefully, the condo market will be spared any bloodshed and will continue to thrive.

It’s going to be an interesting ride as we get into this last fiscal quarter. I don’t think that the sky will fall too dramatically but you may want top keep an umbrella handy just in case. You will be hearing from me as more houses start to make bottom-line sense again. Selfishly speaking, I can’t wait because I’m quite ready to get many of you investors back into the market again … finally.

Take care everyone. Enjoy the crisp fall weather and to all of you with kids, have a Happy Halloween.

P.A.

2008-09-02T09:24:00.001-07:00

Newsletter: September 2008

Happy Labour Day everybody. I hope everyone enjoyed the Olympics and that all of you had a chance to take a little break over the summer. It is now September, the kids are going back to school and we’re all settling into that fall mentality. Since the Toronto real estate market started to slow down a touch at the end of May, the burning question on everyone’s mind is will the market come back from the usual summer slowdown or will the declining number of trades continue?

Unfortunately, I won’t have that answer for you until next month’s newsletter. Traditionally, business always picks up after Labour Day. But will it roar back to levels that we’ve seen in the past? I’m sure that we’ll get a good sense of what’s going on two weeks into September. If there are a good number of listings in the GTA and agents are holding back offer dates, then the market will heat up again. Remember that interest rates are still quite low and the resale condo market is still strong. However, if the pent-up demand that we have seen in past quarters does not lead to multiple offers, then we may find houses sitting longer and prices not going through the roof. In my opinion, this would be a good thing because I’m in the business of fiscal real estate – properties that make financial sense. Multiple offers always lead to inflated prices and an exaggerated market. If we can start trading income properties based on the numbers again, Paul is one happy agent.

Some sectors that are likely to experience difficulty this fall are the commercial and cottage markets. A client of mine forwarded me an article from the Star that stated commercial real estate investment in Canada is forecast to fall by as much as 40% or more this year, the biggest drop since the start of the decade. Reasons for this include economic uncertainty, hesitation by investors, a reduction in availability of financing and a smaller pool of available properties. Lenders are also becoming more stringent in their lending requirements. Remember that until we get into six units, income properties usually fall under the residential resale umbrella. So if the housing market in Toronto is strong this fall, duplexes and triplexes should follow despite larger commercial trends.

The cottage market is also suffering. I communicate regularly with realtors in Muskoka and the Kawarthas and at the moment there are a staggering number of cottage properties available. There was a time where rural properties were snapped up in multiple offers just like the City, but that has come to an end. My guess is that with the price of gas, one has to look very carefully at the cost of continually driving an extra four or five hours each weekend. Also, fractional ownership has made it easier for people who don’t need to be away every single weekend of the year. That’s an interesting market to keep an eye on because many folks believe that this market too will come back so there may be some opportunities. We all know that everything is cyclical; we just don’t know the absolute crests and dips of each wave. So if we are getting close to the bottom, the investors, renovators and speculators should take note.

Now what happens if the Toronto market goes completely down the tank in the upcoming months? Are there any areas of the city that are “crash-proof”? First and foremost, by buying an income property you are mitigating that future risk since your property will always be able to at least partially able to fund itself. Any property that is on the main subway line is likely always going to be attractive. Certainly, triplexes and multiplexes that have better than average cap rates or returns should be less impervious to a down-turn as well. Some of the areas that I think will maintain their current prices levels would include anywhere down and mid-town from Dufferin over to Yonge as high as the 401. This is a big box, but it encompasses a lot of tier 1 neighbourhoods that have seen dramatic increases in value. Areas like Annex, Leaside, and Riverdale will always be in-demand areas. If the market slows down, I do not think there will be huge price drops. The sell cycles will definitely take longer though. I’m also still big on Leslieville – there’s a lot more room for growth there and there are many old Victorians that I’ve seen, especially on Queen towards Logan, being completely renovated anew. It’s also a great rental area given its proximity to the beach and to the subway and Danforth shops.

*

A client asked me last week if I had any tips on being a successful landlord. I quickly replied “Yeah, make sure you get paid” and then I thought that I should come up with a proper checklist for prospective lessors. I think that it is very admirable when looking for income-generating properties to think about your upcoming role as a landlord rather than how much money you will be earning. So here is the Paul Anand “Top Ten Landlord Success Strategies” list:

1. If something goes wrong at you rental suite, fix it! Right away. If you are not handy or unable to repair problems as they arise, hire a property manager.

2. Keep your rents at market rates. Do not charge an excessive amount or jack up the rents for your suite and you will always keep good tenants.

3. Read and understand the Residential Tenancies Act and know what your rights and obligations are under the Act. An informed landlord is a smart landlord.

4. Before you buy a property make sure that you have adequately assessed the existing rents and determined that they can be sustained. A realtor that focuses on income properties like me will always ensure that this happens.

5. Have a home inspection before you purchase a property. I know this sounds straight-forward, but in multiple offer situations, buyers often forego this in order to get the deal.

6. Call the references and run credit checks on prospective tenants. Also, make sure that you meet them in person and get a “feel” for what they are like. If you think someone might be dodgy, do not rent to them just because they are the only people interested.

7. Draw up formal leases that contractually address every aspect of the tenancy. Do not do handshake deals.

8. Join the Landlords' Association in your neighbourhood. Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property. Hire a good lawyer, insurance broker, lender and accountant. These professionals will be called upon from time to time.

9. Keep a slush fund in case something goes wrong. This is essentially money earmarked for unexpected expenses that are not covered by insurance. There is no set amount for an emergency fund, some say 10% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund.

10. Keep revisiting the Plex website for the latest news and views as well as to keep abreast of my feature properties. It’s great to stay on top pf the market and always have a sense of what your property may be worth. Since it is an investment, unloading it at the right time is often critical.

Remember that being a landlord is a privilege, not a right. Be smart and dutiful to your tenants and your income property experience will be a good one.

That’s it for this month. Take care everyone.

P.A.

2008-08-07T08:04:00.000-07:00

Toronto Income Property Newsletter: August 2008

This will be a short letter this month as it is summertime and many of you are enjoying your holidays and time with the family.

I am very pleased to announce that our retail shop on the Danforth, formerly known as Wash Up & Brush Company, has been renamed Drysdale & Co. Since the business no longer offers hair salon services we felt that this new name would be more reflective of where the business is headed, - the focus now being 100% on cool gifts and accessories. For more information, check out our newly designed website at www.drysdaleandco.com.
So what’s the latest in the Toronto real estate and income property market? In the GTA, resale housing prices continue to rise while the actual number of trades soften. Traditionally there is a little slow down in the summer months of July and August. The Toronto Real Estate Board reported that moderate activity and strong prices continued to characterize the Greater Toronto Area (GTA) resale housing market during the first half of July.
The average price in the GTA during the first half of July was $379,072, which is a one per cent increase from the $374,254 recorded in the first two weeks of July 2007 and a nine per cent increase from $346,267 recorded during the same period in July 2006. In the 416 area, the average price was $419,199, up one per cent from the $414,321 recorded during first half of July 2007 and up 14 per cent from the $367,541 recorded during the same period two years ago.
At $353,257 the 905 region’s average price was up two per cent from $345,741 recorded in the first half of July 2007 and up six per cent from $332,733 recorded during the same period in July 2006. Sales activity remained moderate in the first half of July, with 3,497 homes changing hands in the GTA. This is a decrease of 11 per cent from the 3,947 properties sold in the same period in 2007 but an eight per cent increase from the 3,251 transactions recorded in the first two weeks of July 2006. Sales in the first two weeks of July 2007 saw a 21 per cent increase from mid-July 2006.
In the 416 area there were 1,369 sales, down 17 per cent from the 1,641 recorded during the first two weeks of July 2007 but up eight per cent from the 1,264 sales recorded in the same period in July 2006. Before the Land Transfer Tax went into effect, sales increased 30 per cent in the first half of July 2007 compared to the same period in July 2006. Sales in the 905 region came in at 2,128 in the first half of the month, down eight per cent from the 2,306 recorded during the same period last year but up seven per cent from the 1,987 sales recorded during the first half of July 2006. Sales in the first two weeks of July 2007 saw a 16 per cent increase over mid-July 2006.
It seems that continued strength in house prices throughout the GTA indicates that consumers continue to recognize the value of real estate as a long-term investment.
Many of you have likely read that the federal government is aiming to avoid a housing meltdown like the one that hit the U.S. They will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis such as the sub-prime mortgage meltdown that rocked the housing market in the United States. And that could cause the housing market to cool even further. In an announcement a couple of weeks ago, they announced government-backed mortgages would require a minimum down payment of five per cent and would be limited to a maximum amortization period of 35 years.

The borrower would also need a specified minimum credit score. "Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada," a release issued by the federal Department of Finance said. All mortgages issued by federally regulated lenders with down payments of less than 20 per cent require insurance, and the government backs the insurance whether it is provided through the Canada Mortgage and Housing Corp. or private insurers, such as Genworth Financial.
The new rules are to take effect Oct. 15, 2008 to allow existing mortgage pre-approvals to be used or expire, the government said in its release.

That’s it for now. Next month we’ll do a wrap-up of the major duplex and triplex sales in the GTA over the summer and look ahead to the fall market.

Enjoy your summer everybody!

P.A.

2008-07-02T06:18:00.000-07:00

Toronto Income Property Newsletter: July 2008

Happy Canada Day everyone! We’re halfway through the year so I hope you enjoyed your long weekend (or a strange day off midweek on a Tuesday) and celebrated to the upcoming months ahead. In most businesses, the second half of the year often outperforms the first, so I feel that we tend to work harder in the July to Christmas stretch. Real estate agents have the spring market but me personally, I’m always busier towards the end of the year. Maybe it’s just the crazy nature of duplexes and triplexes.

O.K. – so what’s going on out there? Everyone has heard by now that our Toronto real estate market that has seen incredible gains over the past five years is finally settling down. TD economists are boldly declaring that the Sellers’ market in our city has come to a halt.

Here are the facts:

YTD 2008 average sale prices in the GTA are up about 5%. While the number of actual trades is fewer, the prices of homes have gone up a little. This tells us that, at least so far, the big “correction” or great price drops are not forthcoming.

Now what about income properties in the Central core?

I see most of the income properties that come to market so I have a pretty good idea with what is happening with those properties. Duplexes and triplexes fall under the general umbrella of residential resale so their sales performance is expected to mirror that of single-family homes. In other words, once the houses start to slow down, so do the income properties. Even though these properties have an income component, if the market slows down overall, they too (just like condos or recreational properties) are affected. By the way, the cottage market is already starting to slow down considerably. Remember though that everything is cyclical and another wave will come again in that market.

I haven’t seen a slow-down at all yet in the income properties priced under a half a million. If I see a triplex in Central Toronto in the fours and it is not a dump – it will surely sell. The high-end market is suffering for sure. BUT … these are usually properties that throw off a 5% return (or less) and are amongst very expensive neighbours. I’ve been saying all along that you have to get close to a seven cap out of an income-generating property to justify the price. Just because a duplex is in Rosedale shouldn’t mean it will automatically fetch a huge price unless there is some sort of justification of the rents. My experience is that if a buyer is going to spend a million bucks on a home, unless they live in it, the income had better support the price.

Since the rental market is strong some folks figure that if they overpay for an income property it will eventually go up in value since it has an income component. This might happen – but I see this as speculating, not investing. I really advocate monthly cash flows rather than some hope of a capital gain down the way, only because I can calculate the first and not the second.

To give you the best insight into what has been happening with the Toronto income property, consider these three unit sales in around our city from June:

58 Foxley Street
This was a European style home (no separation) with kitchens on each level but no bathroom on the main floor. It probably needed about $25K to make it into a proper triplex. Located in the up and coming Dovercourt village, it was listed for $389K and sold over at $393K.

1308 College Street
Four suites at College & Lansdowne, asked $399K and sold over for $440K.

490 Brock Avenue
Another four units at College & Dufferin, asked $499K and sold over for $520K.

66 Oxford Street
This was three units located on a prime street in Kensington Market. It had an asking price of $489K and sold for $603K - $100K+ over asking!

555 Concord Avenue
This was a renovated triplex in the very popular Bloor/Ossington corridor. Asking $589K, it sold over at $615K

83 Winchester Street
Cabbagetown triplex asking $679K sold for $700K on the nose.

581 Palmerston Avenue
This was a typical condition triplex on a great street in the Annex. It listed at $699K and sold over for $761K.

and finally …

18 Elm Street
This was three luxurious units in Rosedale. This is a large heritage building amongst million dollar homes. Asking price: 3.4 million. Sell price: 3.4 million!

These sales in June still show a pent-up demand for investment real estate. Since they do not come up as often as single-family homes there are still buyers out there for quality income properties. I usually have about a dozen buyers ready to go at any time if a property makes sense. I think that as we head into the traditionally slower summer months, income properties may not sell as fast and in multiple offers. It might take a few weeks, but I still feel that there is a strong demand and that most properties that are priced right will still sell.

That’s it for this month. Enjoy the rest of the summer and I’ll catch up with you again in August. Also, my congrats to Spain and all their fine supporters for a long and overdue international win.

P.A.

2008-06-02T08:21:00.000-07:00

Newsletter: June 2008

This month I’d like to examine the rental market in Toronto. Last year the City of Toronto’s Shelter, Support & Housing Administration released a report called “Rental Housing Facts & Figures”, which looked at the makeup of income properties. What follows are excerpts from this study which highlights how income properties are still a dominant part of our local real estate market:

As of 2006, there were almost half a million (464,535) rental housing units in the City of Toronto. Tenants make up half of the City’s population and there is believed to be about one million tenants in Toronto. About three-quarters of the rental housing supply (about 350,000 units) is made up of “primary rental housing”, that is, housing units built with the intention of being used as rental. This includes rental housing units built by the private sector (55%) and rental housing units built with financial assistance from the government (20%).
The remaining one-quarter of the rental housing supply is made up of
“secondary rental housing”. Secondary rental housing is housing that was not specifically intended for rental use when it was built. Some examples of secondary rental housing include houses that are rented out, semi-detached houses and duplexes, accessory apartments in houses (also called second suites or basement apartments), and condominium apartments that are rented by their owners. This is the market that I trade in. Secondary rental housing provides a less permanent supply of rental housing as the owners of these rental units may re-occupy or sell the units to a new owner-occupant at any time.

The overall breakdown in Toronto is as follows:

Condo Rental - 5%
Other Rental - 20%
Private Rental - 55%
Assisted Rental - 20%

Primary Rental Market - 75%
Secondary Rental Market- 25%

The supply of primary rental housing (purpose built rentals) has been decreasing in the City of Toronto. The decrease in this supply is due to a variety of factors, including the conversion of high-end rental housing to condominiums, and demolitions. The decrease in primary rental housing is also not being offset by new condominium units being offered for rent. Even though there have been record numbers of new condominium buildings built in Toronto over the last ten years, the number of condominium units offered for rent has decreased. In 2006, there were 1,968 fewer condominium rental units than in 1996. The reason for the decrease is that more and more buyers are occupying their units rather than renting them out.
There has been a dramatic decline in rental housing construction since the 1990s. Private rental construction began declining in 1990 with the cancellation of tax incentives to developers, even though rent controls on new units were removed the same year. In 1995, only 165 private rental units were built. In 2004, the number dropped to just 30 units built. The elimination of rent controls on all new and vacant units under the Tenant Protection Act after 1998 had little effect on private rental construction. A decline in assisted housing construction began in 1993 when federal funding for non-profit and co-operative housing was cancelled, and continued after 1995 when provincial funding was cancelled. The production of all types of new rental housing continues to remain low. Between 2000 and 2004, there were 2,508 rental housing completions, and out of this total, 663 were primary rental units, an average of 68 units per year. Of the 663 total primary rental units, 342 were built by the private sector, and 321 were built with financial assistance from the government. Most of the remaining new rental units (1,845) of the 2,508 rental units built between 2000 and 2004 were units rented in buildings that were registered as condominiums. Condominium rental units are part of the secondary rental market. They do not provide a long term, stable supply of rental housing. In addition, they provide less security to tenants who rent them, compared with tenants renting units in the primary rental market. Tenants renting a condominium unit can be evicted by the owner or purchaser of the unit if the owner or purchaser, or a member of their family, wants to occupy the unit. In 2005, Toronto City Council established a target to create 1,000 new affordable housing units per year. While this target includes all types of housing, it is expected that most would be affordable rental housing.

There continue to be changing conditions in the Toronto rental property market.
For three decades until 2006, average rental vacancy rates for private rental
apartments in the City of Toronto were very low. The vacancy rate started to
increase a little in 2002. In 2002 the vacancy rate was 2.4%, while in 2003 it
was 3.9%, 4.3% in 2004, and in 2005 it was 3.7%. With a vacancy rate of 3.7%,
there were 37 vacant rental units out of every 1,000 units in the City of Toronto
or 9,445 units in total. Today it has dropped down to around 3%.

The higher vacancy rates since 2002 are due to a decline in demand for rental
housing. More households are buying instead of renting, and the number of
households that traditionally rent has declined. More young adults are living with
their parents longer, and good employment combined with favourable interest
rates and construction of condominiums has led to more renters becoming
owners. Immigration to Canada increased significantly during 2000, 2001 and 2002. It dropped sharply in 2003. The decline in immigration levels in 2003 has also contributed to reduced demand for rental housing, however, the number of
immigrants has gone up since 2004. In 2006, Toronto’s vacancy rate fell by more than half a percentage point from 4.3% to 3.7% (representing 1,552 fewer vacant units). According to CMHC, the reduction is a result of recent increases in rental demand due to increasing immigration, incentives offered by landlords, increased costs of home ownership, and low rates of rent increases.
Rental demand can increase quickly as a result of changing market conditions,
immigration levels, and job growth. Therefore, it is important for the city to encourage the development of new primary rental housing to ensure there is a supply of rental housing for the long term. It is also important to protect the existing supply of primary rental housing. There continues to be ample secondary rentals, despite the fact that the returns for absentee investors has diminished over the past two years as result of a hot Sellers’ market.

Before I sign off I’d like to invite all of you to a special investor’s evening being put on by a very close friend of mine, Barak Queija. Barak is a financial planner with Investors’ Group. On June 18th, they are doing a complimentary seminar that will discuss retirement planning, tax planning and wealth building. These are very productive evenings that offer tons of good practical advice. If you are interested in attending please RSVP to 416-491-7400 ext 643.

Next month I will look at the perceived slow-down in the Toronto market and analyze if income properties are still going through the roof in multiple offers. Don’t forget that Euro 2008 starts next week and remember to cheer on our local team, who are having a much better go of it so far this year.

Take care everyone.

P.A.

2008-05-02T06:57:00.000-07:00

Newsletter: May 2008

It seems like the Toronto media knows something about the real estate market that we realtors don’t. I’ve taken quite a few calls from clients this past month who’ve been reading the headlines and think that they have to sell their property right away before the bottom falls out. If the market drops off, then the thinking goes that there will be a lot of houses not selling and maybe even an eventual oversupply of product in the GTA. So should you get your top buck now while you can, while the market is still strong? Or is it already too late? The papers are saying that we’re done for, so this must certainly be the case. Or is it?

Check out some of these captions that ran in Toronto media in the month of April:

Toronto Star: “Is the housing boom officially over?”

In this story, BMO Nesbitt Burns deputy chief economist Doug Porter declared that "Canada's six-year housing market boom is officially over. Sales are melting faster than this year's snow pack." The Canadian Real Estate Association said in a report that the steep decline in activity in Toronto, which represents about one-quarter of sales, was the major reason for the dismal national figure.

Globe & Mail: “The sky is falling”

This story argues that the double-digit increases in real estate had to abate at some point, so now that we’re heading towards a recession there is no way our market can sustain itself. They refer also refer to the “Great Real Estate Correction of Early 2008”.

Financial Post: Home price climb slows in Canada
This article talked about how the crisis that began in the U.S. subprime mortgage sector has eroded the value of U.S. homes and threatens to push the whole North American economy into recession.
"We know now that the Canadian real estate market has followed a markedly different path from that of the United States," said Phil Soper, president and chief executive of Royal LePage. "While Canada will not escape the negative impact of a troubled American economy, Canadians' home equity should remain safe, as the market moves into a period of slow growth, but growth nonetheless."
Canoe.com: “Real Estate Boom likely over”

This story points out that 2007 was another record year for MLS residential property sales in Canada. Any comparisons with last year mean comparing with a record breaking year. What the statistics indicate is that the residential housing market is easing back towards more historically typical levels.

Take a look at the graph below that looks at the first few months of activity on a year-to-year basis:

Note how so far our YTD numbers are not vastly below last year’s. Compare to the difference from 1997 to 1998 - or more recently from 2002 to 2003. There doesn’t seem to be near the same degree of sales drop. The first two weeks of April were only 4% lower than last year and we still don’t have our final numbers for the month either.

Now here’s my reality in the day-to-day world of buying & selling income properties in Toronto. There was a triplex on Delaware (Bloor & Ossington) asking $375K that I had some interest in. The final sale price was $485 – a full hundred grand over asking price. Another client of mine put his triplex up for sale for $499K. On the day of offers someone came to the table with $501K, but we refused it. I subsequently raised the price to $529K and worked it for a couple more weeks and we ended up getting $525K. Now this simply should not happen if the market is in a slump. Once no one came to the table at asking price, it should have been over. But in a hot market where there is always pent up demand, someone will still come out of the woodwork to pay your price. This is the market in Central Toronto.

There are still multiple offers going on out there. Until they subside it is very difficult for me to sound the death knell of our market. And what about interest rates? They continue to be at very aggressive rates and there’s talk that may be even going down again. The bottom line from my perspective is that it is simply too early to tell. A slight easing of sales from historical highpoints is not something to be up in arms over – at least not yet.

*

Before I sign off I like to repeat a paragraph from one of my newsletters from a couple years back. I often get asked about what the rules are for creating a rental apartment in your property. Some of the conditions of creating a second suite (which is perfectly legal) include:
• the suite must be self-contained with its own kitchen and bathroom;

• the house, including any additions, must be a least 5 years old;

• the square footage of the second suite must be less than the remaining unit;

• generally, homes with a second suite must have a least 2 parking spaces. In parts of the former City of Toronto - R2, R3 and R4 districts - these suites are exempt and only require 1 parking space;

• any new second suites must comply with the Ontario Building Code and need building permits. Existing suites must comply with the Fire Code and zoning/property standards.
I also always recommend getting legal advice prior to doing any significant changes to the status of your property.

That’s it for this month. We’re only a few weeks to the May 24 weekend and the official start of summer. As of this writing, Toronto FC has now won three in a row. I think we’ve found our new boys of summer. Go Reds Go!

P.A.

2008-04-05T09:41:00.000-07:00

Toronto Income Property Newsletter: April 2008

I’m sure that everyone is as happy as I am that spring is almost here. I think we’ve seen the last of the heavy snow and the biting cold. It couldn’t have happened quickly enough as the bad weather slowed down the business for the months of February and March, particularly with income properties in the downtown core. I mentioned last month that a lot of opponents of the new municipal land transfer tax were pointing to these monthly decreases as the result of buyers not wanting to pay this new tax. It is very difficult to make this argument when the three weeks after the implementation of the new tax had the worst weather in almost seventy years. Take my word for it – when there’s a snowstorm, we agents don’t like to go out and show properties – especially tenanted properties. So with fewer showings come lesser sales. That’s my take on it. If the market continues to be down in April and May then we’ll have something to talk about.

While we’re talking about a potential downtown in our real estate market, Garth Turner has released a new book called “Greater Fool” that I suspect will get a lot of attention. In it he basically suggests that our Canadian experience is not that far removed from the recessionary tendencies of the U.S. and a day of reckoning is coming. He examines the myths and counters with the facts. He dissects the American sub-prime experience and finds that the problems go far beyond mortgage products, and also reach into Toronto, Calgary and Vancouver.

I comment on this because Garth is one of Canada’s leading real estate forecasters and a lot of folks subscribe to his views. He also backs up a lot of his theories with historical data. I can’t say where the market is going after a frigid two months, but I’m still seeing multiple offers on many properties. There is also a lot of new inventory hitting the market. If the prices were too high on these new properties, the multiple-offer process would die – and that hasn’t happened yet.

It stands to reason though that the status of our economy will parallel the American situation. Canada is right now moving along with the U.S. towards recession. In fact the whole world is heading towards recession. Naturally a lot of industries are tied to what happens in the U.S. so logically it should only be a matter of time before our real estate market starts to suffer. I just don’t think it will or even can happen overnight, so we’ll see the signs well in advance. I promise as soon as it starts (if it ever does) then I’ll let you know about it.

When I meet new clients or novice investors they often ask what happens if at some point during ownership of their income property something goes wrong with the tenant relationship. Naturally we would all like to avoid trouble or disputes at all costs, but sometimes we can have a difference of opinion that could cause friction with tenants.

One of the best resources for landlords in the GTA is the Ontario Rental Housing Tribunal. The Tribunal resolves disputes between landlords and tenants about rights and responsibilities under the Tenant Protection Act (TPA), including rent increases, evictions and privacy issues.
• The system resolves disputes in a less formal environment than found in provincial courts.
• Landlords and tenants of most residential rental units are covered under the TPA, including high rise rental units, single family homes, basement units, rental condominiums, care homes, and mobile homes.
• Some units are partially covered by the TPA, including new residential complexes, and government owned and non-profit housing units.
• Some accommodation is completely exempt from the TPA, including units with a kitchen or bathroom shared with the owner, and temporary accommodation such as hotels and motels.
They are an independent, quasi-judicial agency. In mediation, a Tribunal mediator will help a landlord and tenant to resolve a dispute and reach an agreement they are satisfied with. In adjudication, a hearing may be held. A Tribunal member makes a decision based on the evidence examined, and issues an "order." The Tribunal also provides landlords and tenants with further information about the rights and obligations each has under the Tenant Protection Act. It is an invaluable service that has helped relations between landlord and their tenants.

Another wonderful resource is www.landlordselfhelp.com. This site is geared towards small scale income property owners and they do a bang-up job of offering informative tips and advice. I also always recommend checking out our website (www.plex.ca) as I make sure that we update it with the most relevant and poignant links

The last topic I’d like to address is for all my existing clients who are looking to buy income properties for investment only. I have been keeping a lot of buyers at bay, essentially advising them to wait until prices stop increasing and returns get a little stronger. The question then becomes, given that income properties continue to sell in top neighbourhoods, what is the minimum return that should be acceptable? How low should a cap rate go given that buildings tend to appreciate in the future and we continue to have a very strong rental market?

My answer is simple – seven.

If you see a seven cap or better on paper and the property is in a good area and has some upgrade potential, then I would pursue it. Financials statements have a tendency to sometimes forget key expense items, so usually the stated cap rate is going to be less. I know that over the past three years, marquee income properties have sold for four and five caps based on their neighbours, but if you’re not going to live in them, I believe that this return is simply too low. Given the responsibility of being a landlord, you would like your property to outperform a paper-based investment. If I don’t see a seven cap on the listing, then there are better places to put your money. Of course if you are going to live in the property, it’s a different story entirely. You can accept a lower cap rate if you can derive ulterior benefits by residing there.

I’d like to thank everyone that ordered a copy of my new “Live for Free” guide. It is still available for sale on the Plex website (www.plex.ca) and www.amazon.com if you’d like to get a hard or digital copy.

That’s it for this month. I realize that with an early Easter in March there are no more long weekends until the end of May, so work hard and have fun everybody during this long stretch.

Go Toronto FC!

P.

2008-03-01T09:36:00.000-08:00

Toronto Residential Income Property Newsletter: March 2008

Hello everyone. I’m pleased to announce that my new booklet entitled “Live for Free, to be free to live” is finally here. This book is a very handy guide for anyone looking to purchase a duplex, triplex or multiplex in the G.T.A., and is especially beneficial for live-in investors and first-time buyers. I have taken all the key pointers and observations that I have learned from my years of experience in the field and neatly summed them up in this simple and easy-to-read publication. After months of rewrites, typeface and layout changes the first several hundred copies came off the presses in February. I am happy to report that the initial responses have been very encouraging.

For those of you that have known me for the past few years, the “Live for Free” concept isn’t new. I wrote my first version (a whopping fourteen pages) back in 1999 before I had even obtained my real estate license. I was shocked to find at that time that with all the myriad of books on real estate investing, there were very few that talked about living in income properties and how best to buy and maintain them. There was also very little written specifically about the Toronto income property market, which is indeed a unique animal all unto its own. Surprisingly, all these years later there still isn’t a definitive duplex or triplex strategy book so I’m hoping that my effort will fill that void.

This version is the first full-on upgrade that I have done in years with many new sections, a glossary and an investment bibliography. All in all it’s sixty seven pages, with particular emphasis on tips and strategies to maximize your chances for success. I resisted the temptation to pad the book in order to give it more volume with stuff that isn’t really relevant to a discussion of residential income properties. There are also many other Canadian investment books that do a better job of explaining cap rates or how to buy a strip mall, so I’ll leave that discussion to them. I know duplexes and triplexes, with pretty much all the ingredients that go into buying and selling them, so that is what I have tried to completely cover for my audience in this booklet.

“Live for Free” is currently available for sale through the Plex website (www.plex.ca). For the first time, I have decided to charge a small amount just to help recoup some of my upfront production costs. You can purchase the physical guide itself for $14.95 plus $2.00 shipping and handling. You can also get a link to download the book digitally as a PDF file for only $9.95. Just click through to the format that you desire and you will be taken to PayPal where you can easily pay by credit card. I don’t intend to make a profit from this book but there is a cost to printing and mailing them out so that is why I have applied these very nominal charges.

I am also working on a new webpage dedicated specifically to the book to be ultimately found at www.liveforfree.ca. I think that there are a lot of people out there, not just in the Toronto vicinity, but potentially all around the world that can benefit from the information I am providing. That is why we are starting to work on a book webpage separate from our real estate company website. I’d love to hear your thoughts and comments and love it even more if you could help me spread the word and even assist me in generating a few extra on-line sales.

O.K. – enough shameless promotion. Now on to a few topical issues: The new Toronto Land transfer tax went into effect at the beginning of February. Many of you have been asking about what the early read is on its impact. I can definitely say that (from my perspective) February was a slower than average month and sales were less than the same time in 2007. However, the weather has been terrible and it has been very cold. I think that this is more so the reason that the sales numbers may seem a little sluggish. I just got back from Florida to get away from our winter and I’m sure that I’m not the only agent that did the same thing. When the weather is really bad, none of us relish getting out there to trip through properties. As I stated in my past newsletters, I think that this extra upfront fee will be absorbed by both buyer and seller and it ought not to have a huge impact on our market.

TREB’s statistics of housing sales have shown an interesting trend since City Council’s approval of a Toronto land transfer tax last October. When City Council approved the Toronto land transfer tax, it also decided to exempt home purchases made by December 31, 2007. In both December and November of last year, there was a significant increase in market activity. For example, although the month of December typically sees less market activity because of the holidays, in December 2007 housing sales in Toronto were up by 26 per cent over December 2006, significantly higher than the 6 per cent increase for the GTA as a whole. Obviously, when the final numbers come in for February we will be able to get a more complete picture as to this tax’s real effect on the market.

The final numbers for 2007 came out a few weeks ago. Take a look at the chart below and notice how 2007 had higher sales volumes than other year in the past twenty. For all the market analysts who have been predicting a downturn in the market, it’s hard to expect these sales numbers to continue to spike up indefinitely.

I believe that the huge glut of condo sales have helped produce these past few record-breaking years. Once they slow down (and they will!) then we’ll start to see the volumes subside a little. Since income properties represent less than 10% of the total inventory (and I think it’s even less), I don’t feel that they really impact sales volumes that directly. My golden rule still stands: a quality income property in a great part of town that doesn’t need a lot of upkeep will always be desirable since these properties fuel themselves.

That’s it for this month. Go to the Plex site and grab a copy of “Live for Free” and tell all your friends about it. I always appreciate all the help and kind words. See you next time.

P.

2008-02-01T08:01:00.000-08:00

Income Property Newsletter - February 2008

This month I’d like to look at a segment of the Toronto real estate market that I haven’t discussed too much in the past. As you know, at Plex we are very active with duplexes, triplexes and multiplexes as well as “fixer-uppers” that may have profit potential. One other area that I have also done a lot of business in the past is with mixed-use buildings – retail storefronts with two or three apartments and/or offices above.

Most of these properties are on popular retail strips like Queen, Bloor, College and obviously Yonge St. There are also little strips like the Forest Hill Village, the shops on Bayview south of Eglinton or at the top of Coxwell in Leslieville. Many neighbourhoods have retail strips that offer every good and service imaginable. Some areas are more known for specialties – for instance restaurants on the Danforth, or on College in Little Italy. Most of the time these buildings fall under the I.C.I. umbrella (commercial rather than residential) even though there may be residential rental apartments above the main floor retail space.

These properties can be quite interesting for someone looking to live-in or for the absentee investor. These mixed-use buildings have been similar to strictly residential properties over the past few years insofar as lower bottom-line returns and negligible cap rates. My advice is to make sure that if you buy a mixed-use building that your main floor retail tenant is on a long lease and that their business is strong, unless of course you have a business to operate out of the main floor yourself. Most of the properties derive the bulk of their income form the main floor lease and it would be difficult to immediately make up that rent if the tenant splits. It is much easier to find a residential tenant than a commercial one. Remember too that every user is going to want to build to suit, so that cost is likely cost you months of free rent. Also, most of these properties are on busy main streets, so keep that in mind if you intend to live in it.

Some of my clients have asked where the commercial market is going since each month my comments seem to be more focused on the residential resale side of the equation. Unlike houses in the prime areas of the core, I think that the prices of commercial properties may start to come down a little. It is believed that REITs (real estate investment trusts) are great indicators of where the commercial market is going. Experts say that the overall commercial prices have already started to drop and there may have been as much as a 5% decline last year, with potentially more of a drop to follow. This is quite interesting because there is no indication that this is happening yet on the residential side.

So does that mean that a storefront with two units above it will be a better buy this year than a regular triplex? Quite often I will highlight duplexes or triplexes that trade for over-asking and comment on how the investment value gets thrown out the window.
I’d like to look at some of last year’s activity that may shed light on what’s happening with these kinds of properties:

Here are all the sales in C01 west of Yonge Street south of Bloor, specifically categorized as stores with apartments or offices above. These include shops on Bathurst, Ossington, Dundas West, Queen West, College St and others.

Field Count Mean
(Average) Median Mode Low High
List Price 37 $860,951 $689,000 n / a $325,000 $4,100,000
Original Price 37 $884,735 $699,900 $799,000 $325,000 $4,700,000
Sold Price 37 $825,486 $680,000 n / a $325,000 $3,900,000
% List 37 96.27 97 98 82 117
Taxes 36 $8,877 $6,648 n / a 2226.7 $55,000
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 17 3.6 4 n / a 1 6
Days On Market 37 61 44 n / a 3 232

Note that only six of the thirty-seven sales were over a million dollars. The largest sale which would skew the numbers up was a whole block of College near Spadina that sold for $4M. Most sales are in the five to six range but they tend to be further west towards Dufferin. Obviously to closer to Yonge, the more expensive the buildings become.

Here’s the same analysis for mixed-use buildings on the east side of the DVP. These would include sales on the Danforth, Broadview, Gerrard, Pape, Coxwell St. Clair East & many on Queen Street East.

Field Count Mean
(Average) Median Mode Low High
List Price 61 $566,926 $469,000 $549,000 $245,000 $1,499,900
Original Price 61 $575,039 $485,000 n / a $259,000 $1,499,900
Sold Price 61 $528,146 $444,000 n / a $231,000 $1,350,000
% List 61 93.66 95 95 64 106
Taxes 60 $8,251 $7,910 $3,642.84 $1,500 $25,554
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 26 3.3 3 3 1 8
Days On Market 61 53 41 n / a 7 255

The average sales prices are lower than on the west side. The highest sales here are Queen St in the Beach and prime larger buildings on the Danforth. Again the average for a small building with one apartment above seems to around $500K.

I think that the bottom line is if a mixed-use building is throwing off better numbers than a completely residential multiplex and has good lease(s) in place, then it should be considered seriously. I prefer all residential just from a rentability point of view but remember that investment real estate is all about the returns. If cap rates start to get noticeably stronger on mixed-use buildings, I will start steering more of my clients in that direction. It hasn’t happened yet, but as I pointed out earlier, it may.

I’d like to wish you all a Happy Valentine’s Day, especially to all the single folks out there that feel snubbed at this time. If you’re single go out and buy something for yourself – I suspect you can probably afford it more anyway. Enjoy the cold too folks because it doesn’t look like it is going anywhere fast.

P.A.

2007-12-31T09:58:00.000-08:00

January Income Property Newsletter

Happy New Year everyone! I’d like to personally wish and your family all the best. May all your hopes and dreams come true in 2008 and may you have a truly memorable year.

This month’s newsletter is in two parts. The first part is my annual prognosis for this New Year and what we might expect to see in the Toronto income property market. In the second half I will highlight the ups and downs of the income property market in 2007, illustrating a few sales that still boggle my mind.

The Toronto real estate market stayed strong in 2007 setting another record breaking year. Multiple offers were the norm for quality income properties in the Central Toronto core, with sellers continuing to hold the upper hand. Regardless of cap rate or investment return, duplexes and triplexes traded on land value and the price of comparable single family homes in the same neighbourhoods. For most of the year I discussed in my newsletters the likelihood of this market sustaining itself and how it seemed to be impervious to many of the dilemmas happening stateside. The real estate market in many American cities crashed in 2007 leading experts to ponder how long before a ripple effect would happen in Canada.

My opinion is that the income property market in Toronto for 2007 is going to continue to be strong and not look too different than what we have seen over the past few years. The demand for quality properties in Tier 1 locations will carry on and sellers will still see top dollar for well priced properties. Despite the situation in many key U.S towns, I believe that Toronto is different and there is still room for prices to even go up more. Remember that Canadian house price gains have paled by comparison to other major cities. Toronto showed upwards of 60% increases in prices in certain areas. While this may seem like a dramatic spike, consider that prices in London England went up 270%. In many U.S. cities which are now showing signs of trouble, prices more than doubled. That didn’t happen here. Yes, there were some big numbers but they were still modest compared to some other markets in North America.

The reason why the U.S. market is tanking primarily has to do with poor lending practices. The sub-prime mortgage market has been exposed and it is now clear that many unqualified people were given mortgages. That didn’t happen up here either. Anyone who didn’t have at least a 20% deposit had to insure their mortgage which left lenders (primarily banks) with limited options on the types of mortgages they could offer. As such, riskier borrowers were not given no money down, 100% financed products en masse. Sub-prime mortgages in Canada were less than 5% the total number of granted mortgages. Quite simply, mortgage delinquencies in Canada have been (and I expect will continue to be) far less than in the U.S. In fact, Canadian mortgage growth is running at a 17 year high despite continued talk of a credit crunch.

There are also macro-economic forces to look at when contemplating the real estate market in Toronto. It is too early to tell what the implications of our soaring dollar over the past few months will be, but I think that it will hit the manufacturing sector long before we see it adversely affect the housing market. Also, take a look at all the condo development in Toronto in 2007. Condo sales in Toronto now outpace every type of real estate – this demand has quite a lot of legs left I believe. Consider that agents and consumers are camping out for days in order to get first crack at some of the new projects. Foreign investors like Toronto, that’s for sure. If we were on the verge of a slow-down, it’s not likely that this fervent development would be at an all-time high. Our downtown has dramatically changed over the past few years with all the new condo developments and experts seem to agree that this phenomenon will continue for the foreseeable future.

I personally would like to see a little more reasonableness go back into the Toronto income property market. I have based my business on duplexes and triplexes and it continues to be hard to make a case for cap rates under six. If the market does slow down a touch, (selfishly speaking) it would be great for me. All of my investors, renovators and speculators could come out of the woodwork as it would be safe to come out and play again. Yet unfortunately I don’t see that happening in the short term. I suspect that the bulk of my business will continue to be with owner-occupiers as this still makes the most sense for buying an income property.

I’d now like to present my annual wrap-up of income property sales in the Toronto Central core for last year. As far as I know, there isn’t a formal breakdown of residential resale income-producing properties available elsewhere. What I have done is taken four key geographic areas and looked at all the 2007 sales with three or more kitchens. Unfortunately, this eliminates all the proper duplexes but I don’t like to count houses with basement apartments as income properties, thus the minimum three kitchens. So please take this as a rough, highly unscientific approach to income property sales.

Downtown C01, C08 (South of Bloor) Sales under $600,000

Field Count Mean
(Average) Median Mode Low High
List Price 99 $497,790 $499,000 $599,900 $272,900 $599,900
Original Price 99 $501,234 $499,000 $599,900 $290,000 $649,000
Sold Price 99 $506,709 $520,000 n / a $270,000 $725,000
% List 99 101.73 99 98 92 124
Taxes 97 $3,317 $3,307 n / a $1,570 $4,702.65
Bedrooms 99 4.2 4 4 2 8
Washrooms 99 3.1 3 3 2 5
Days On Market 98 26 14 9 1 185

Downtown C01, C08 (South of Bloor) Sales over $600,000

Field Count Mean
(Average) Median Mode Low High
List Price 66 $814,591 $709,450 $649,000 $609,000 $1,499,000
Original Price 66 $826,977 $747,000 n / a $609,000 $1,499,000
Sold Price 66 $786,968 $700,000 n / a $550,000 $1,350,000
% List 66 97.2 97 96 77 122
Taxes 63 $5,174 $4,401 $3,564.38 $2,064.69 $9,901.51
Bedrooms 66 5.2 5 4 3 9
Washrooms 66 4.1 4 4 2 8
Days On Market 66 27 13 8 2 147

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales under $400,000

Field Count Mean
(Average) Median Mode Low High
List Price 67 $333,633 $339,000 n / a $224,900 $399,900
Original Price 67 $336,679 $339,900 n / a $224,900 $418,000
Sold Price 67 $328,015 $326,500 n / a $230,000 $430,300
% List 67 98.51 97 96 86 119
Taxes 63 $2,494 $2,407 n / a $1,577.76 $3,681.01
Bedrooms 67 3.8 3 3 2 9
Washrooms 67 3.3 3 3 2 6
Days On Market 66 29 16.5 n / a 1 102

East E01, E02, E03 (Riverdale, Leslieville,The Beach), Sales over $400,000

Field Count Mean
(Average) Median Mode Low High
List Price 100 $574,543 $529,000 n / a $405,000 $1,400,000
Original Price 100 $621,014 $534,200 n / a $405,000 $4,899,000
Sold Price 100 $567,870 $520,400 n / a $352,000 $1,375,000
% List 100 98.87 98 99 72 123
Taxes 99 $4,281 $3,736 n / a $2,305.08 $16,015
Bedrooms 100 4.3 4 4 1 9
Washrooms 100 3.7 3 3 2 11
Days On Market 96 25 15 7 1 177

Midtown C04, C09, C10 (All sales)

Field Count Mean
(Average) Median Mode Low High
List Price 42 $771,250 $699,950 n / a $388,000 $1,499,000
Original Price 42 $775,345 $699,950 n / a $388,000 $1,499,000
Sold Price 42 $764,824 $698,000 n / a $380,000 $1,467,000
% List 42 98.98 97.5 n / a 85 143
Taxes 42 $5,755 $4,935 n / a $2,770 $14,000
Bedrooms 42 5.1 5 4 2 9
Washrooms 42 4.2 4 3 3 11
Days On Market 41 26 15 n / a 1 156

West side W01 (All sales)

Field Count Mean
(Average) Median Mode Low High
List Price 95 $578,478 $559,000 $599,900 $200,000 $1,149,000
Original Price 95 $584,092 $569,900 n / a $200,000 $1,149,000
Sold Price 95 $582,304 $551,000 n / a $250,000 $1,450,000
% List 95 100.52 99 98 88 132
Taxes 94 $4,107 $3,812 $3,780.41 $1,800 $14,743
Bedrooms 94 4.5 4 4 2 9
Washrooms 94 3.6 3 3 2 8
Days On Market 94 30 13 9 1 241

Here are some of the mind-benders of 2007, all the result of crazy multiple offer situations. I was actually in on a good number of these properties but I didn’t win them for my clients so I don’t mind showing you how crazy it can actually get out there. Remember it’s not often about the bottom line investment. When someone finds a property that they like, sometimes returns are discarded. Take a look at these:

22 Rachael (3 Suites in Rosedale): Asking $995K. Sold $1.425M
430 Markham (4 suites in Annex): Asking $899K. Sold $1.1M
2 Lonsdale (3 suites in Midtown): Asking $969K. Sold $1.121M
52 Grace (3 suites in Annex): Asking $549K. Sold $653K.
167 Shaw (4 suites in Little Italy): Asking $589K. Sold $725K
29 Kintyre (3 suites in Leslieville): Asking $439K. Sold $541K
118 Marion (5 suites in Roncesvalles Village): Asking $829K. Sold $965K

There were countless other income properties that traded for over-asking price. My point here is to show you that so long as people are prepared to pay six figures over list price then there’s a long way to go before the market starts to sour.

I look forward to keeping in touch with you over the upcoming months. If this is your year to think about an income property or you know of someone who may be interested, please send along my name. Your referrals are always greatly appreciated.

Take care everybody.

P.A.

2007-12-04T06:43:00.000-08:00

Monthly Newsletter: December 2007 (go to www.plex.ca for graphs)

As we approach the holidays, I’d like to take a look at what has been happening in the Toronto real estate market this year. Next month I’ll do my yearly wrap-up of income property sales by region and price, but for now I want to share some macro YTD sales statistics as provided by the Toronto Real Estate Board.

The Toronto Real Estate Board reported a record breaking 7,915 sales of single family homes in October 2007. This represents a 15 percent increase over the sales volume reported for September and a 15 percent increase over the sales volume reported for October 2006. This has helped fuel our best sales year ever.

This chart graphically depicts the number of single family homes sold in the years 1980 through to 2006. The volume of sales in the Toronto area experienced peaks in 1986 and 1988 followed by slow years during the early 1990's. Sales volume picked up from 1996 onwards. Sales of resale homes in 2005 were the highest recorded, although 2007 have already surpassed that.

This chart presents average price trends for houses in the Toronto area during the last 26 years. House prices clearly peaked in 1989 and then dropped until 1996. House prices have been steadily increasing during the last few years although not at the dramatic rates seen during the late 1980s. The average price reported for 2006 was 29 percent higher than the previous peak in 1989.

The average selling price so far for 2007 is $373,998 - approximately 6 percent higher than the average selling price for 2006 of $351,941.
There are certain neighbourhoods where prices have gone up even more dramatically. In Riverdale, where I live, in some cases prices have gone up over 40%. A semi-detached that may have traded for $350K five years ago could sell today for over $500K. This is the case for income properties too – that is why there are so many sales that don’t make sense insofar as the returns go. Duplexes and triplexes in good condition on marquee streets tend to be priced more on comparable sales than on the numbers. Since you can see overall sales still trending upward, it is difficult to say exactly when prices may stabilize such that the bottom line returns start to be more competitive again with other types of investments.

Next month we’ll see how the above market activity has been specifically reflected in the Toronto income property market. To all my friends and clients, I’d like to wish you and your family a very merry X-mas and happy holidays.

P.A.

2007-10-31T14:49:00.000-07:00

Toronto Income Property Newsletter - November 2007

Here’s some good news after the approval of the new Toronto Land Transfer Tax in October. According to the National Post, the Canada Mortgage & Housing Corp. (CMHC) has decided to let Canadians buy investment properties with no down payment. Apparently they have quietly introduced changes that lower the down-payment threshold for an investment property. Canadians who qualify will be able to purchase an income property and or several more with no money down. The mortgage insurance for the new product is 7.25% of the total amount of the loan.

“These enhancements will ensure continued supply of affordable rental accommodation across Canada,” said Pierre Serre, vice-president of insurance products with CMHC.

I haven’t been able to find out too much more information so far. Their website isn’t reporting anything on this yet but obviously I will be watching this very closely.

The reaction to the newly imposed Toronto Land Transfer Tax has been mixed. The Toronto Real Estate Board worked very hard to oppose this tax as did many local real estate agents. TREB took a strong position to oppose this tax as unfair in principle and refused to compromise. As a direct result of this strong position they feel that City Council was forced to make a number of amendments to the City’s original proposal, including rebates for first-time buyers, a reduced rate, and grandfathering for existing transactions.

On the other hand, some folks feel that the market can absorb this tax and it will ultimately help in the City’s current cash shortfall. There are others who claim that despite how much realtors may have opposed the tax, aren’t we often indirectly responsible for driving up the prices of homes through things like blind multiple offers or camping out at new condo developments to make a quick commission?

Since I sell income properties I have to look at this tax in terms of adding to the overall cost of the building at closing, thereby reducing my anticipated returns. Will this tax stop people from purchasing duplexes or triplexes for investment? I think if your margin is so tight that this new tax (which at most will be 2%) makes the difference then it probably isn’t too great an investment to begin with.

For those of you who are unfamiliar with how the new Toronto Land Transfer tax will work, it is like this:

There will be a second land transfer tax, on top of the provincial land transfer tax, at the following rates:

For residential homes there is an easy-to-use residential calculator is available at www.NoHomeBuyingTax.com): The rates are as follows:

0.5% of the amount of the purchase price up to and including $55,000
1% of the amount of the purchase price between $55,000 and $400,000
2% of the amount of the purchase price above $400,000

For commercial and industrial properties the rates are:

0.5% of the amount of the purchase price up to and including $55,000
1% of the amount of the purchase price between $55,000 and $400,000
1.5% of the amount between $400,000 and $40 million
1% of the amount above $40 million

First time home buyers of new and re-sale homes will receive a rebate of the Toronto land transfer tax of up to $3,725 (this equals a 100% rebate on homes purchased for up to $400,000). Teranet will be collecting the Toronto land transfer tax for the City of Toronto. Once the City’s first-time buyer policy is reflected in Teranet’s collection system, first-time buyer transactions will be exempt from the Toronto land transfer tax at the time of registration. Until that time, first-time buyer transactions will be charged the Toronto land transfer tax, which will then be rebated by the City of Toronto. The City has indicated that the necessary changes to Teranet’s system will be implemented in the “spring of 2008”.

This all goes into effect February 1st next year.

I read a story the other day that stated that construction projects in downtown Toronto are at the highest rate ever! Think about that for a second. When you are constantly hearing about the dollar and real estate issues in the U.S., you have to wonder if this city can ultimately sustain all this development and leave all the participatory investors unscathed. There are now four high-end hotels going up (the Ritz, Trump, Four Seasons & Shangri-la). It seems like a bit of a glut of top-notch accommodation to me – especially when we’ve gone this long without any. There are a lot of condo projects going up in the core as well but so long as they’re hitting their pre-sale numbers, I suppose the developers are happy and will continue to seek out new locales.

That’s it for now. We’re now less than two months to Christmas and wrapping up another year. Boy, does time fly fast. I look forward to putting out my Live for Free book (see cover below) and getting into the world of self-publishing in 2008. It will also definitely be another interesting year for real estate in Toronto.

See you next month.

P.A.

2007-10-01T06:02:00.000-07:00

Monthly Newsletter: October 2007

Last month I addressed the mortgage crisis in the U.S. and how it may ultimately affect our real estate market. I made the point that although certain American cities have been experiencing serious downtowns, up here in Toronto we are still seeing record-breaking months. In September I was involved in six multiple offer situations which suggests that demand is still very strong for quality properties. Income properties in the central core that show well and are in desirable locations are still trading at a steady clip and at all-time high prices.

I don’t want to sound like a broken record coming back to you each month posing the question how long can this continue? Interest rates are staying put and in fact during the month of September the Fed actually lowered them a touch. This led to a whole lot of speculation as to whether the same would happen in Canada. Many financial analysts have gone on record saying that the Toronto market is unique and has the ability to continue on this trajectory for quite some time. But does everyone think that this is the case.

A friend of mine sent me this article from the Globe’s Report on Business that I’d like to highlight since the thoughts are from Bank of Canada Governor David Dodge. Have a look as to what the person with the most power to influence lending rates has to say:

OTTAWA AND VANCOUVER — Bank of Canada Governor David Dodge is raising a red flag about housing prices in Canada, saying that increasingly loose lending rules may be helping overheat the country's real estate market.

While Mr. Dodge did not draw any direct parallels with the subprime mortgage crisis that has gripped the economy of the United States and sparked a credit crunch around the world, he signalled that his long-standing concerns about mortgages with increasingly easy terms have not been addressed.

“One worries about the structure of the mortgage market, that we may be actually aiding, facilitating a rise in the price of houses that is really not warranted,” he told reporters after a speech in Vancouver.

In his comments to reporters Tuesday, Mr. Dodge further warned that housing prices outside of the fast-growing cities of Western Canada may be rising too quickly. Housing prices in Vancouver, Edmonton, Calgary and Regina have soared, but that growth is to be expected from an expanding economy and population. More troubling is the picture elsewhere, Mr. Dodge said.

“But I guess what has worried us a little bit more, is that even if you extract from those centres, what we're seeing is house prices rising faster, probably at up to twice as fast as the rate of inflation,” Mr. Dodge said.
“We're worried about that, and we'll continue to worry about that.”

Mr. Dodge did not name any housing markets, but the most recent figures from the Statistics Canada new housing price index indicate a number of markets are in the range of growth he pegged as problematic: Halifax, with a 6.8-per-cent increase; Hamilton, 4.3 per cent; London, 5 per cent; Greater Sudbury and Thunder Bay, 4.5 per cent; Winnipeg 15.7 per cent.

Last year, Mr. Dodge met with executives from Canadian Mortgage and Housing Corp. (CMHC) to complain about new incentives by the housing agency to encourage interest-only mortgages and mortgages with amortization periods of up to 35 years. CMHC said at the time that it had addressed all of Mr. Dodge's concerns. CMHC said it had no comment yesterday, but the governor's comments suggest his concerns remain.

Since then, Canadian housing prices have soared, and consumer demand in general has surpassed most analysts' expectations with its endurance. At the same time, Mr. Dodge says he is re-evaluating his thinking about how risky and sophisticated credit structures affect the Canadian and global economy.

The credit crunch that has seized global markets since August and caused a tightening of credit in Canada was partially caused by a lack of understanding on the part of central bankers, Mr. Dodge said. The world's central bankers failed to realize the magnitude of the easy money made available over the past few years through sophisticated market structures, and as a result, central banks kept interest rates too low. For Canada, the too-low rates were offset by the appreciating Canadian dollar, he added. But going forward, central bankers will have to better take into account the pricing and availability of credit, when setting monetary policy, he cautioned.
Generally, he expressed confidence that the Canadian economy is supple and strong enough to handle a dollar at par with the U.S. currency and tightening credit conditions at the same time.

“The adjustment is continuing, and in the end the Canadian economy will emerge as a rather strong economy, even if there are difficulties,” he told reporters.

“We're in the process of adjusting and the growth of the economy will not necessarily be as strong as it was in the second quarter but it will continue [to grow] rather strongly.”

The Canadian economy grew an annualized pace of 3.4 per cent in the second quarter, but economists have been scaling back their expectations for the rest of this year and next, and warning of a growing risk of recession in the United States. Within the past year and a half, Canadians have increasingly chosen longer mortgage amortization terms than the average 25 years. Terms of 30, 35 and even 40 years have become much more popular, particularly among home buyers taking out high-ratio mortgages in which they are putting down less than 20 per cent of the purchase price, according to a recent Royal Bank report.

It is interesting that he didn’t specifically mention Toronto and doesn’t seem to be terribly concerned with the declining American dollar bringing our exchange rate to par. It’s amazing that only five years ago, in January 2002, our loonie hit a record low of 61.79 US cents.

Helping the dollar's rise over the past few months was a Statistics Canada report that the economy grew by 0.2 percent in July, the same rate as in June. While the rising currency has been a boon to cross-border and online shoppers, it has also hurt Canada's manufacturing sector, concentrated in Ontario and Quebec, and anyone else competing for sales in the U.S. There have been nearly 250,000 manufacturing-related jobs have been cut over the past three years in an attempt to reduce costs.

"The sectors that obviously get hurt the most are the ones most linked to the United States. The forest products sector has certainly been very hurt by this, (also) the smaller auto parts companies," said Scotiabank economist Carlos Gomes.

We’ll keep a close watch on these economic forces as there eventually may be some consequences to our local market. We’ll just have to wait and see.

Have a great month everybody and Happy Thanksgiving!

P.A.

2007-09-10T08:54:00.000-07:00

September 2007 Income Property Newsletter

Happy Labour Day everybody. I hope you all enjoy this last long weekend of the summer. It’s then back to work, back to school and back to a lot more income properties coming up for sale. The Toronto market has enjoyed a great summer with August being another record-setting month, so there’s no reason to expect September and October will be any different.

All the talk in the news over the past few weeks has been about the mortgage crisis and declining real estate markets in the U.S. A lot of people are asking if and when the real estate market up here in Toronto will start to follow suit. It is a difficult question to answer since our market has shown no signs of slowing down at all. Most experts can’t say definitively what will happen but many suggest that interest rates will continue to stay low in order to avoid more panic and stress to already troubled American markets.

It seems like overnight a problem that was limited to a small segment of the U.S. housing market has mushroomed into talk of a worldwide economic slowdown. In a nutshell, here’s how this situation came about. After the dot-com boom, the economy was in a funk and the US Federal Reserve decided to drastically cut interest rates to try and stimulate growth. These low interest rates started a housing frenzy in many major North American cities. Suddenly (and with no real explanation at all) practically anybody who wanted to get a mortgage could get one. Lenders started fighting hand over fist to sign up more and more people to loan money to. The kicker is that they even leant to people with abysmal credit ratings who didn’t even have any cash for a down payment. These “subprime” borrowers hit the market in droves and were all papered up. It was something like 600 billion dollars that was given out. These loans were then sold off in part to massive pension funds, equity investors, etc. many from Europe and other parts of the world. Somehow getting a piece of the pie seemed more important than the inherent risk.

Now fast forward to 2007. Not surprisingly many subprime mortgage lenders have begun to experience delinquent payments. Borrowers, many up to their eyeballs in debt, and with no equity to lose are just starting to walk away from their homes leaving the lender stuck with them. That’s why the markets are beginning to crash. The investors are bailing because there’s just too much risk in their portfolio. More than 120 subprime borrowers in the US have gone out of business. Go figure: they’re now concerned about someone who has no income living in a house that’s worth less than the mortgage on it.

I read that last week that a major Toronto finance company had $250 million worth of granted loans but no investors to put up the money. A coalition of Canadian financial firms had to come to the rescue so that the effect of the credit crunch in the U.S. doesn’t spread into Canada too quickly.
I also believe that the lenders up here were a little more cautious. I’m not saying that all were 100% prudent in their decision-making but I don’t think it was quite the same free-for-all as it was in some States. Only time will tell, but if we are in fact on the verge of a global economic slowdown, then it will affect us eventually.
In October there is going to be a provincial election in Ontario and then Toronto City Council will be revisiting the proposed land transfer tax again. The real estate industry loudly spoke out the first time around and many feel it was one of the most influential voices in getting the tax delayed.
For background on the proposed Toronto land transfer tax you can view TREB’s detailed submission and visit www.NoHomeBuyingTax.com. Some of TREB’s key messages are provided below:
• A second land transfer tax, on top of the existing provincial land transfer tax, is an unfair way to solve the City of Toronto’s financial challenges.
• Provincial action is a key part of the solution to Toronto’s financial challenges. The provincial government must adequately support Toronto. Expecting the City to, instead, penalize homebuyers with a 100% increase to land transfer taxes is not fair.
• The City of Toronto must ensure that its house is in order and all creative solutions have been considered.
• A Toronto land transfer tax will hurt Toronto’s economy, which will have serious implications for the provincial economy.
• By making it more expensive to live in Toronto, a Toronto land transfer tax would contradict the provincial government’s plans to prevent urban sprawl.
• A Toronto land transfer tax hurts those who can least afford it, such as first-time buyers and seniors
• When impacts on mortgage interest and insurance are considered, a Toronto land transfer tax could ultimately cost over $15,000 for the average buyer.
• No other Canadian jurisdiction has two land transfer taxes
• With the proposed Toronto land transfer tax, Toronto would have the highest land transfer taxes in Canada and the second highest in North America
The last thing I’d like to discuss this month is average rents. There are many statistics out there outlining what an average one bedroom rents for in the GTA. Most of these figures come from large apartment building associations or rental tribunals and I find that they don’t really accurately represent the market for duplexes and triplexes in the core. In other words, a one bedroom in a mid-town duplex is quite a different equation than a one bedroom in a high rise in the east or west ends. I usually give my clients the following guidelines for income properties in downtown residential neighbourhoods:
Basements usually start at around $600 - $700 for a bachelor and then go into the $850 - $1000 range for a one bedroom. It is rare to see a basement rent over a grand unless it has many bedrooms, is partially above grade or is in a really nice part of town. I have seen basements rent for less than $600 but they have been very small. Remember a room in a rooming house could be as high as $500 a month these days.
One bedroom suites can be as low as $800 for rental grade (a very basic accommodation) and go up to $1300 or $1400 if they are really nice. Obviously things like parking, access to backyards, condition of appliances, etc will have an upward influence on the rent. Average one bedroom price would be in the $1100 to $1200 range.
Two bedrooms usually start at around $1200 a month and go as high as $2000 a month if they are really nice. Take all the duplexes along Avenue Rd that have the same typical two-bedroom layout – by and large they usually rent for around $1500. A bi-level apartment may get a little more. Once again if the condition is top-notch then it approaches the upper limit. In the high end neighbourhoods the rents can even go higher but some of these suites are absolutely stunning.
When we look at income properties it is always important to gauge if the existing rents are at, above or below market. It’s great if the rent is sustainable but sometimes I see places that I think may be getting too much. Ideally the current rents are below market so that you know they will have the opportunity to go up at some point down the road.
That’s it for this month. I’m sure that by my next newsletter the fall market will be back in full swing. As always if you need any specific market info for duplexes or triplexes in your part of town please send me a line and I’ll get you the data your need right away.
P.A.

2007-08-02T07:13:00.000-07:00

Wow, is it hot! We’re heading into the August long weekend and there’s no mistaking that we’re in the middle of the summer. There’s been so much talk lately about climate change and how weather patterns are becoming more erratic. It’s supposed to be hot in August, but it seems like the past couple of years have been particularly warm. It’s feels as hot here as it did in the Israeli Desert near the Dead Sea last month. It’s still a great time of year to go tripping through income properties though.

Congratulations to Plex Sales Rep. Jay Snider and his wife Lea on the birth of their first son. Jay’s down in Los Angeles, still active in real estate and renovating homes. He keeps his eye on the Toronto market and still keeps in touch with his gang up here in Toronto. All the best Jay and we all look forward to seeing you soon.

I’m pleased to finally unveil the newly updated Plex website this month. It has been redesigned with a much easier to use interface and new convenient drop down menus. Take a look at our new homepage:

We have also made the information sections easier to read and now allow direct access to the often-used Toolkit from the homepage. Most importantly is the addition of two new “Featured Properties’ links. We have added small commercial buildings and mixed-use retail properties. Many of you have expressed interest in keeping up with the storefront properties market. We will also be adding “Flip Properties” next month. These are all the distressed properties that need major renovations and may offer some sort of profit potential.

I’d like to thank Everth Fletes for all his help in the redesign. He’s also currently putting the finishing touches of the “Live for Free” book that I will be releasing in the Fall. Everth is a consummate professional and I highly recommend him for any design/communications project that you may have. For more details, please check out www.seakore.com.

Even though we’re still in the dead of summer, the Toronto real estate market continues to surge along. There is still plenty of activity and multiple offers continue week after week. There was one home in the Beach last week that traded for $600,000 over the asking price. Either the house was poorly priced, or someone really, really wanted it. I’d guess it was the latter.

The income properties at the moment are a little soft, but I find that that can often change in a heartbeat. There will be more of them by September for sure, especially since most new renters will have moved in. Look for owner-occupied duplexes and triplexes to continue to be in high demand for the duration of the year. The rental properties in top neighbourhoods that show really well, particularly the ones with nice owners’ suites, will certainly continue to get top dollar. If the market does slow down at some point, I think that these kinds of properties will have the best chance to retain their value since in most cases they partially (if not fully) fund themselves.

I’m sure that many of you heard that the proposed Municipal Land Transfer Tax has been delayed. I believe the rational is to see what happens after the Provincial election in October, but don’t be surprised if this tax still comes to pass.

That’s about all I have for this month - short and sweet. Next month I will be providing

2007-07-03T10:16:00.000-07:00

Monthly Newsletter: July 2007

Happy Canada Day everyone! This is one of my favourite long weekends as it signifies that the prime summer months are upon us and that we are at the half-way point in the year. It gives you pause to reflect on the year thus far as well as give yourself time to think about what you intend to accomplish for the duration of 2007. It also allows us to celebrate being Canadian. Having just come back from holidays in Israel and then Amsterdam (one of my favourite cities in the world), it’s still nice to come back home to Toronto. I’ve traveled extensively and Canada is still the number one country in the world. We are very lucky to be able to live here so we should celebrate it with passion.

What’s so great about Toronto and the rest of Canada? For me there are a number of things. Toronto is one of the most multicultural places in the world. I like that, maybe because I’m part Indian, part Portuguese and was born in the U.K. It’s great to live in a town with so many ethnicities that share the same space. Our restaurants are honestly second to none. I live on the Danforth where you can sample some of the finest meals available in the city. A million people who descend upon the area for “Taste of the Danforth” in August can’t be wrong. We have relatively low crime rates compared to other major North American cities. And of course, the land that is Canada is one of the largest and most geographically diverse on the globe. Drive from Banff through the Rockies at one end of the country or along Sydney’s maritime coast on the other and you’ll see what I mean. I also like the fact that we have four seasons so we get to experience the coldest of the cold as well as the hottest of the hot. Hanging out on the Mediterranean Sea was great for a week, but honestly that constant desert type heat all the time would be a bit too much for me.

We do pay a considerable amount of income tax here though and some experts question how good our standard of living really is. There was a very interesting article in Macleans a few weeks back that discussed why when unemployment rates are so low and the dollar is booming (which is great when you go on holidays by the way), that many Canadians are just scraping by. Canada’s net worth has reached an all-time high of $4.9 trillion and oil exports have been steadily increasing, yet it doesn’t seem like the average Canadian is really that much further ahead.

For the vast majority of workers, personal disposable incomes, while increasing have actually failed to keep pace with economic growth over the past five years. Prices of goods and services have risen at a rate higher than the gains in salaries. Just look at the price of gas! Driven by rising commodity prices, “gasoline and electricity rates have gone up way faster than inflation and incomes” states Jeffrey Gandz of the Ivey School of Business. Good paying manufacturing and production jobs have all but disappeared. Unemployment may be at an all-time low but people with lower paying salaries often need to work two jobs to make ends meet.
In addition to oil, the real estate market in most major Canadian cities has seen unprecedented growth over the last few years. Homes have gotten steadily less affordable since 2000 – in Toronto a two-storey home can consume nearly half of your household income. My dad bought his first house in Toronto many years ago for under $30,000. I deal with first time buyers regularly who have to pony up a half a million just to get into a nice centrally-located income property. So a lot of people in Toronto have to go into debt big-time just to keep a roof over their head. The low interest rates that allowed so many people to get into the game will eventually start to rise and some of these folks will squeezed, and hard! If the dollar is up and the economy is booming, yet you are paying tons of interest on your mortgage and the cost of goods and services are higher than they’ve ever been, then you are simply aren’t going to be able to get ahead that easy. Now I don’t know if the situation is any better in other similar sized American cities, but going forward this is a problem that’s likely going to worsen. Despite this I still would rather struggle in Toronto than anywhere else.

Speaking of how hard it is to try and get ahead when real estate prices are so high, I’d now like to briefly chat about the new Toronto land transfer tax that is going to be implemented. A few months ago I talked about a new home buying tax was being proposed to help the Municipal government deal with some of its shortfalls. It was met with a TON of resistance, but that doesn’t matter because Mr. Miller still seems to be moving forward with it. Since I already gave you my thoughts on how ridiculous this tax is, I thought I would share with you the official position of the Toronto Real Estate Board: The following press release was issued last week:
The Toronto Real Estate Board has told the City of Toronto that its proposal to charge a second land transfer tax treats home buyers unfairly. TREB’s comments were made in a formal presentation to the City’s Executive Committee earlier this week. If the City moves forward with the proposal, the average Toronto home buyer will pay another $4,200 in land transfer tax. That is a 100 per cent increase, and would give Toronto the highest land transfer taxes in Canada and the second highest in North America.

“A second land transfer tax discriminates against home buyers. The City doesn’t provide any land transfer related services, so this tax is just a way of forcing home buyers to pay for services for everyone. That, simply, is unfair,” said Dorothy Mason, President of the Toronto Real Estate Board.
TREB also pointed out that the proposed second land transfer tax is most unfair to those who can least afford it – people who have small down payments and, therefore, can only qualify for a mortgage by also paying for mortgage insurance. “Many home buyers will have no choice but to take money from their down payment to pay this tax, which would mean extra mortgage interest and higher mortgage insurance premiums. For the most vulnerable, this means that the second land transfer tax will actually cost over $15,000. The City will literally be forcing people to take out a mortgage to pay a tax. That is unfair,” Mason said.

TREB also noted that Toronto residents and businesses can’t even expect that the new money the City collects from this tax will result in any improved services. The Mayor and City staff has admitted that the money the City takes from home buyers will be used to fill the holes in the City’s current budget, not to expand or improve services. It’s not fair that home buyers will be paying more for the same service”, Mason said. TREB plans to continue opposing the implementation of a second land transfer tax in Toronto. “A second land transfer tax will make the dream of home ownership more difficult to achieve. Toronto’s REALTORS are protecting the interests of home buyers by strongly opposing the City’s proposal. Just in the last week, hundreds of REALTORS and the public have sent emails to the Mayor and all City Councillors telling them that his tax is a bad idea. We plan to keep up the fight,” said Mason.

I suggest that you all stayed tuned to this one as it will directly affect all of us who buy real estate in Toronto in the future.

Before I sign off, I would like to just share a few observations about income property activity so far this year in the GTA. After the first six months of sales in 2007, there has been little to distinguish between this and the prior two or three years. Sales are still brisk. Prices are still high. Rents are still stable despite the huge increases in prices in some neighbourhoods. In other words, forget about looking to cap rates to get a sense of where the best market opportunities are, especially for owner-occupied income properties. In the nicest neighbourhoods properties with rental suites are still trading at unheard of multiples.
When I do my analyses, I look at all properties that have minimum three kitchens. My assumption is that with three kitchens there must be some sort of rental component to the property. Now sometimes we find European homes that are for one family that might have only two washrooms but have a kitchen on each floor. Even though these are not proper income properties per se, they often do have the ability to be converted to into units. As I have mentioned before, this doesn’t allow me to adequately categorize duplexes, since most listings that show two kitchens are often just houses with basement apartments. I’ve been saying to TREB for years that if a house has two equal size rental units then it should be mandatory that it be classified on MLS as duplex. They don’t seem to agree though.

Here are the income property (3 kitchens) sales statistics for C01, Bloor Street down to the water and west of Yonge which encompasses most of Central Toronto:

Field Count Mean
(Average) Median Mode Low High
List Price 72 $594,111 $571,450 n / a $340,000 $1,399,000
Original Price 72 $601,825 $584,450 n / a $349,000 $1,499,000
Sold Price 72 $593,021 $559,000 $610,000 $335,000 $1,350,000
% List 72 100.01 98 n / a 82 123
Taxes 71 $3,819 $3,481 n / a $1,570 $8,924
Bedrooms 72 4.6 4 4 2 9
Washrooms 72 3.4 3 3 2 8
Days On Market 72 28 15 n / a 2 185

Here are the income property stats for E01, E02 & E03, the east districts including Riverdale, the Danforth, Leslieville and the Beach:

Field Count Mean
(Average) Median Mode Low High
List Price 94 $492,937 $434,450 n / a $234,900 $2,699,000
Original Price 94 $543,386 $434,450 n / a $234,900 $4,899,000
Sold Price 94 $487,282 $431,144 $340,000 $230,000 $2,811,000
% List 94 98.5 98 99 72 123
Taxes 92 $3,656 $2,958 n / a 1645.1 $16,015
Bedrooms 94 4.3 4 4 1 9
Washrooms 94 3.5 3 3 2 11
Days On Market 89 26 13 7 1 172

The next chart is quite interesting. In the midtown areas of C09, C10 & C11 there were only a handful of income property sales in the past six months. Note how high the average prices are:

Field Count Mean
(Average) Median Mode Low High
List Price 10 $890,900 $911,500 $995,000 $599,000 $1,399,000
Original Price 10 $890,900 $911,500 $995,000 $599,000 $1,399,000
Sold Price 10 $916,310 $864,000 $985,000 $599,100 $1,467,000
% List 10 102 98 n / a 92 143
Taxes 10 $6,713 $6,514 n / a $4,104.45 $12,637.36
Bedrooms 10 6 6 8 3 8
Washrooms 10 4.6 4 4 3 8
Days On Market 10 37 26.5 n / a 7 156
(Calculations are performed excluding zero-values)

Finally here are the income property stats for W01, which encompasses High Park and the parts of the west side:
List Price 53 $562,558 $526,999 $519,900 $200,000 $1,100,000
Original Price 53 $566,126 $529,000 n / a $200,000 $1,100,000
Sold Price 53 $567,894 $531,370 $540,000 $250,000 $1,450,000
% List 53 100.72 98 98 88 132
Taxes 52 $3,977 $3,631 $3,888.42 $1,869 $8,684
Bedrooms 52 4.4 4 4 2 9
Washrooms 52 3.6 3 3 2 8
Days On Market 53 32 13 8 1 241

As you can see with the exception of midtown there have been many sales of income properties and the average prices as I alluded to above has been in excess of $500,000. Consider that many single family homes in these same areas trade for the same of even more, so it’s still good to get some revenue out of these steadily increasing properties.

Next month I will finally be unveiling our new look website and will be releasing “Live for Free” in a book format so that I can continue to spread the good word about income properties. Enjoy the sun and if you are traveling this summer, have a safe, fun and relaxing journey.
P.A.

2007-05-01T13:19:00.000-07:00

Real Estate News & Views / Toronto Income Property Report

The Toronto real estate market continues to chug along as we head into the warmer months. There was a 2% reported drop in year-on-year activity for March but without knowing the final numbers yet for April, it seems like this great five year spike in Toronto prices is still holding. Quality income properties, where the cap rates are respectable (minimum 7%), still seem to be selling very quickly if they are priced correctly. Buildings with jazzed up owner’s suites are also still moving fast in the more desirable neighbourhoods. In some cases perhaps buyers are looking to convert back to single family residences but, for the most part, great owner-occupy buildings continue to always be in demand.

I don’t want to sound like a broken record, month after month, stating that the market is great and our prices are holding while other markets are crumbling. But that’s what’s happening! Remember though that this market has been particular good if you are a seller. The high prices and lower returns really don’t do a lot of my investment clientele any favours. If the prices start to subside a little bit and the demand curve falls more in line with supply then I’ll be busier than ever. A lot of investors have been cautious in the current climate and with my blessing have stayed the last few years out. If cap rates start to approach double digits again then many more investor buyers will come out of the woodwork.

The natural question is when will we return to that state, if at all? I don’t have the answer – no one does – but I’d say look to the condo market dropping to be your first sign of trouble. When the new projects that have been traditionally selling out on preview night slow down, then that would be an indication that demand is finally starting to subside. The first time buyers have fuelled this growth and there has been unparalled development in this segment. Will it continue like this, unabated for the foreseeable future? Somehow I doubt it. But when condo sales start to calm down then I think we’ll be closer to a time where income properties will start to make more sense on the numbers.

I have quite a cross section of readers. Many of you are seasoned investors with many years of experience in the landlord business. I also do get a lot of feedback from readers who are just getting into real estate. Sometimes the topics I talk about are only really relevant to one side of my audience, so this month’s column is going to be split into two parts. First if you are looking to get into the income property market in Central Toronto I will present a series of pointers to help you out in the searching and buying process. The second part is for all you income property owners out there – I have presented a “good landlord” checklist. Most of this information I have pulled form the Plex website which I wrote some years ago. Despite market conditions, the advice is still very relevant today. This gave me the opportunity to look at the info on our website and prepare for the launch of our new site later on this summer. Stay tuned for more news on that.
FOR PEOPLE GETTING INTO THE INCOME PROPERTY MARKET:

If you are a first time buyer of a duplex, triplex or multi-unit apartment building in the GTA here are a few steps that you ought to follow to ensure your chances for success:
i. Define Your Investment Goals
Each time you review a listing or visit a property you should ask yourself would this property meet my fiscal objectives? Some of the specific factors that you should consider are: suitability of neighbourhood for renters, the current vacancy rate, economic conditions and your own propensity to stick it out with the property long-term.
ii. Identify Your Needs & Desires
Determine what you’d like to have versus what you must have. These include obvious items like location, type of investment property and whether you have a penchant for doing renovations if necessary.
iii. Know Your Financial Readiness
The financial questions that you have to ask yourself before you get started include:
• How much money can you afford to put towards a deposit on your income property?
• How much of a debt obligation you are prepared to undertake? What is the maximum that you will be able to borrow?
• What is your net monthly payment comfort level? Set a maximum dollar amount and do not exceed this threshold when searching for properties
iv. Establish a Relationship with a Lender
This is very important because there a myriad of financial products on the market today. The mortgage business has become one of Canada’s fastest growing segments. You can get no money down options, 40 year amortizations and there are specific programs for self-employed people that don’t show a lot income on their tax returns. I often say that how we finance a purchase is just as important as how much we pay for the property.
v. Develop a Purchase Strategy
There are many ways to proceed here. I obviously recommend using a realtor like myself for getting into income properties. My knowledge comes from countless hours in the field looking at rental properties, which I think is the best way to truly gain a proper understanding of the market. Once you have found a qualified agent to assist you, then it is important to develop a strong plan of attack. Start by having your agent search your local real estate board's listings as often as possible. There are many different ways in which income properties are listed on the Multiple Listing Service (MLS) so ensure that your agent is are being thorough in conducting searches. Look for listings with multiple kitchens and bathrooms and always check both residential and commercial listings. Challenge your agent to determine an innovative campaign to find you the right income property. If you don't find what you are looking for you may ask them to call income property owners of certain target buildings in your area - you never know when an owner may be thinking of selling. In addition, you may want to place classified ads outlining your specific investment criteria.
FOR LANDLORDS:

Once you have purchased a property and have gotten it all rented out, here a few pointers that may help your continued success with your venture.

i. State of the premises:

This may sound obvious, but under no circumstances should you let your property fall into a state of disrepair. If your tenants are paying each month, on time, then you have an obligation to keep everything in good working order. If something breaks down, fix it. Also, please try and keep up on maintenance items. Make sure the snow gets shoveled, the eaves get cleaned, the grass gets cut, etc. A tidy property is better all around for both you and your tenants.

ii. Rent Increases & the Residential Tenancies Act

You are allowed to raise your tenants rent 2.6% a year. Keep up on your allowable limit and try and stay familiar with you rights and obligations under the tenancies Act. If are unfamiliar with this, please take a look at:
http://www.ontariotenants.ca/law/act.phtml

iii. Fire Issues

As a landlord you are obligated to ensure that your rental property meets fire code guidelines. The best way to ensure that your building is compliant is to hire a retrofit consultant who will give you a laundry list of all the things that need to be done. I recommend Paul Schuster at www.pcfirecode.com.

iv. Eliminating Expenses

Sometimes you are limited on how much rent you can get way with, so the best way to improve your profitability is to cut on expenses. Things like separate hydro meters help but ensuring that your building isn’t wasting energy can go a long way to saving you money in the long term.

That’s it for this month. I’m sure many of you heard the government’s announcement that CMHC is now only required for purchases with less than 20% down (it used to be 25%). It’s a small victory … but we’ll take it!

Take care everybody.

P.A.

2007-04-02T09:23:00.000-07:00

Monthly Income Property Newsletter - April 2007

Spring is in the air. This next quarter is traditionally one of the busiest times for the real estate business and the income property business specifically. As the weather gets warmer, more and more folks turn their attention to potentially moving or getting renovations done for a future sale. People always like to move in the summer so that they are somewhat settled by the fall.

There have been some crazy sales out there over the past month. One house in Riverdale asking $899K traded for over $1.1M. There are many more instances of houses trading for a lot over asking price, suggesting that multiple offers on well presented properties are still the norm. The established neighbourhoods like the Annex, Kingsway, Leaside, the Beach, etc. are still reaching record high numbers on single-family homes. So if anyone is thinking that the market is starting to slow down in favour of buyers over sellers, I respectfully think you’re mistaken. In many major U.S. cities, yes. In Toronto, no.

On the investment side it’s been a little trickier. When properties are only managing only a 4 or 5 cap rate, I advise my investment clients to keep a low profile. Naturally potential capital appreciation is always a lure but it has been difficult to make spreads on properties that are going in multiple offers. It’s the smart folks out there that are moving into their income properties that are fuelling the current market. As always if you are going to move into a property and you don’t absolutely need all the available space, why not let out a portion of it. Take a look at the properties on the sidebar to get a sense of the duplex and multiplex market in Toronto. If you would like more detailed information on the income property market in specific neighbourhoods, please send me an e-mail and I’ll send you all the relevant sales for you to get a better idea.

The baby boom is definitely also affecting income property sales in Toronto as I have seen more and more older couples downsize from bigger homes north of Steeles and come into the city to look for a nice income property to live in. It makes a lot of sense if you travel a lot or may be away for extended periods to have a good tenant on the scene to keep an eye on your home. Naturally, the rent cheque on the first of the month doesn’t hurt either.

A few months ago I talked about some new initiatives tabled by the city, specifically the notion of licensing landlords. Well there at it again! Just recently Toronto mayor Miller proposed a municipal land transfer tax for all new real estate transactions in the future. Remember that we already have a provincial land transfer tax and not all provinces in Canada even have that. So rather than raising property taxes, the idea is that everyone who buys property will have to pay the land transfer tax twice. This is a double whammy. Experts suggest that this new tax will result in a 45% increase in the existing land transfer taxes, which must be paid in full upon completion of the transaction. I hope that they understand that they are putting an unfair burden on people who buy real estate. Essentially, those buyers of new homes, condos, income properties, etc. are subsidizing those folks who rent or stay in their homes forever. The extra money that will be generated will be spent on services that will be enjoyed by all citizens so I can’t understand why the burden won’t be shared equally and why people who purchase real estate would have to bear the brunt of this. I have personally bought quite a few properties over the past years so I certainly don’t relish the idea of having to pay two land transfer taxes going forward. To my knowledge Toronto will be the only city in Canada that has this double taxation in a market where prices are already higher than anywhere else in the country.

The other issue that is really starting to heat up again is the allowing of consumers direct access to the MLS. Some lawmakers in the U.S. are declaring it anti-competitive to only allow licensed realtors onto the system. This past week the RCMP started looking into the operations of the Canadian Real Estate Association trying to uncover unfair practices along the same lines. If a homeowner feels that they can do an adequate job marketing and showing their property, why should they have to pay upwards of 2.5% of the home’s value to a listing agent? It’s a very interesting argument. Many realtors fell that we have to fight tooth and nail to protect our trademarks which ultimately protect our interests. Regardless of how you fell about this issue, I can promise you one thing: this controversy isn’t going to get resolved for some time. We are at the beginning of what will turn into a long, long legal battle. Once lawyer’s for both sides are able to fully digest the ramifications of opening up the MLS, it will takes years, if not decades before any of this gets sorted out. This is the 21st century and technology has altered the fundamental business mechanics of many industries. Remember that there are a lot of agents out there (including myself) who earn their livelihood trading properties. I expect many real estate boards will work vociferously to protect the livelihoods of their members and will keep this issue tied up in the courts for a long time before any solutions or widespread changes occur.

As always when there are many sides to an issue like the two above, many of you may have different thoughts which I’d love to hear. So please drop me a line at paul@plex.ca if you have anything to add. Happy Easter everyone and enjoy your long weekend!

2007-02-26T10:44:00.002-08:00

Monthly Newsletter March 2007

This month I’d like to start by announcing some exciting changes at Plex Realty Corp. Over the next few months I will slowly be transitioning our operation to the downtown core, much closer to our client base and most of the available income property inventory. As of March 1st, we will be moving our office to interim premises in Riverdale. My partner and I sold our office building in Leaside before the holidays and have been feverishly preparing for this move. We have seen this area transition over the past few years that we have been here and thought that the time was right to cash out. We are in the real estate game after all, so the thinking was that we had improved our building to the point where the price we’d receive today is as much as we’d ever see, so it was time to make this move. This is a strategy that I often discuss with my landlord clients after they spend significant dollars in renovations – it falls under the “time value of money” rule. Essentially money in your pocket today is worth more than money in your pocket tomorrow - so I was happy to put into practice what I so often preach.

I look forward to being a little closer to the downtown core and to not have to do the drive back out east everyday. Our phone number will stay the same (416-422-4882) as will our e-mail contact information. You can always reach me directly at paul@plex.ca or info@plex.ca. Stay tuned for even more changes that we’re contemplating over the months ahead.

Last month I spoke about how income property sales in the Central core were off to a brisk start. It seems like February has been just as strong. Toronto Real Estate Board Members reported 3,240 sales during the first half of February, within two per cent of last February's pace, TREB President Dorothy Mason reported today.
“This is very solid performance in line with some of the strongest results we've had, especially given the record January we just experienced,” Mrs. Mason said. “Consumers are showing that the colder months are a great time to get in to the market or make a switch to a different home.” Mrs. Mason noted that the overall health of the market is very good.
“Activity is accelerating nicely as we move towards spring,” Mrs. Mason said. The first half of February saw nearly 80 per cent more transactions than the first half of January, and that bodes well for the next few months.”

The average price of a resale home climbed in the first half of February, registering at $358,533, up three per cent from the $348,804 recorded during the same timeframe last year. Meanwhile, days on market rose to 35 from 34 in February 2006, and the average list-to-sale price ratio remained stable at 98%. Toronto's Riverdale neighbourhood (E03) saw overall transactions increase by 38 per cent compared to mid-February of last year, fueled by strong sales of townhomes. That is very interesting to me since I bought in Riverdale over the holidays and have been renovating new premises there to move into. I think that certain key neighbourhoods like Riverdale, the Annex and the Beach will always be in demand and quality properties (especially income-generating ones) will be able to maintain their value.

One issue that I’d like to address this month has to do with tenants and pets. Please bear in mind that I’m a cat lover – any of you who have ever gone house-hunting with me knows how much I like to fuss over the cats that I find in rental units. A landlord client asked me the other day if he could deny a tenant who was looking to get a dog. Do you as a landlord have the right to request a tenant to get rid of their pet? The short answer is no. Only if the pet is dangerous, causes allergic reactions or causes problems for other tenants or the landlord, that a tenant must get rid of their pet or consider moving elsewhere as per a formal Landlord application to terminate tenancy based on animals. Even if you signed a lease with a "no pets" clause, if the pet is not a problem for anybody they can not enforce it; such no pet clauses are invalid under the law. Also remember that a tenant does not have to move or get rid of the pet unless you issue a written order to do so. I read a story a few weeks ago about a snake getting loose in a downtown apartment building and causing all sorts of panic amongst residents – I think this would be one of the rare cases where you could request that the pet be removed and not be given any resistance.

Another topic that I’d like to address this month is what your heating obligations are during these cold winter months. I have clients at the moment with an upper tenant who is not satisfied with their temperature, claiming that their suite is too cold. The temperatures are set under municipal bylaws. If the tenant is not the cause for the cold temperatures, such as by keeping windows open, or by setting a thermostat to a lower temperature, then the landlord has a responsibility to maintain a minimum temperature as set by the municipality. If the landlord is not meeting the minimums, a renter may put in a complaint to the city's Building and Inspections department or their local city councillor. In Toronto the temperature must be a minimum of 21C (70 Fahrenheit) from September 15 to June 1 according to Chapter 497-2 of the Toronto Municipal Code under bylaw 499-2000.

Last month I talked about how the City of Toronto was contemplating a licensing system for landlords. I got a lot of interesting e-mails from many of you out there with your thoughts on the matter. I do appreciate all your comments and always welcome your thoughts on anything I might write about. At a minimum, it makes me happy to know that many of you are actually reading these newsletters. Next month I will fill you on how our move is unfolding and introduce you to some changes to the Plex website (http://www.plex.ca/) that we’re currently working on.
Stay warm everyone and please drive carefully in the snow.

2007-02-26T10:41:00.000-08:00

Monthly Newsletter February 2007

The Toronto real estate market has roared back to life and sales of income properties in the Central core are hopping once again. After an early slow down in December and a bit of a late start in January, the amount of trades have steadily rose back to up to levels that we’ve become used to over the past few years. The demand for quality income properties, especially the live-in variety, has not subsided like many of us thought it might. It very much remains a sellers’ market with many sales still going above asking price. I have been in several multiple offer situations over the past two weeks. This is the sure-fire sign that the market is back from the holidays and as strong as ever. Take a look at the properties listed at the sidebar. As you can see, many were priced at perceived market value yet still managed to sell for significantly higher prices.

My prognosis for the spring is that this will simply keep up. I just locked in a new mortgage for five years at a rate under 5% - this in my mind makes for a very favourable borrowing climate. Experts are saying that rates may even drop before they start to creep up again. So long as this is the case, people will be able to carry their properties for less, thereby being able to stretch their after-tax earnings further. I wouldn’t even be surprised if we experience a few record breaking months this year as we have in the past few years.
In a recent news release from the Toronto Real Estate Board, it was announced that the first half of January yielded 1,592 resale home transactions in the Toronto Area, a six per cent increase over the same time period a year ago, . “The strong activity we saw in December has carried through into the new year,” TREB president Dorothy Mason said. “Though these are very preliminary results, it is definitely an encouraging sign for the market to be so active this time of year.” Toronto’s Downtown East (C08) neighbourhood saw 32 per cent more homes change hands compared to mid-January of last year. This is very interesting because this is one district that did not see an unusually high number of income properties trade in January.
This month I’d like to discuss an interesting to topic that will affect many of you reading this. Toronto’s City Council has been toying around with the idea of implementing a licensing system for all landlords. You need a license to drive a car or go fishing so why not make it mandatory that if you are going to have tenants you must be “approved”? In my humble opinion, this is one of the silliest things that I’ve heard proposed in some time.
Councillor Howard Moscoe, who chairs the city's new licensing and standards committee, is proposing the creation of four categories of buildings, based on the state of maintenance and repair – A, B, C, and D. The owner of an A building would pay a modest fee to the city of perhaps $10 a unit per year, while the owner of a D building would be hit with a $400 charge per unit. The goal is to encourage D owners to fix up their properties and qualify for lower fees. When he first floated his proposal earlier this month, Moscoe (Ward 15, Eglinton-Lawrence) said he is targeting landlords with large holdings. "I want to create an incentive for landlords to want to be A buildings."
It seems to me to be just another cash grab by the City. Toronto introduced a retrofit standard and they have done a very poor job policing it and making sure that buildings measure up to this standard. 95% of income properties do not meet retrofit code, so really what’s the point? The City also introduced Current Value Assessment for municipal property taxes a few years back – the idea being that similar types of properties would pay similar tax amounts. Well, unfortunately this hasn’t happened either. They don’t have the manpower to chase down all the illegal construction done without permits let alone try and figure out who has accessory apartments in their homes.

Does this mean that a house with a basement apartment has to be licensed? I would certainly expect not. I really wonder what kind of criteria a landlord would have to meet. Would people be turned down as landlords for any reason or would this be an inalienable right available to all of us, just like healthcare? There are too many questions and not enough answers.
A spokesman for one landlord association seems to agree with me and has also questioned the need for citywide regulations. "We are willing to find a reasonable solution, but a full-fledged licensing regime is not the answer," said Brad Butt, president of the Greater Toronto Apartment Association. I agree with this 100%. He said the city should start bearing down on landlords who are "not maintaining rental-housing properly." At city hall, one advocacy group called for a system that would place rent payments in an escrow account until a landlord makes needed repairs. I’m sure we will be hearing more of this in the upcoming months and I promise to keep you up on what our fair City decides with this proposed legislation.
Lastly, The Toronto Real Estate Board has just released their 2006 Rental Market Report. If you have a moment, you can have a look at it at:

http://communications.torontomls.net/statistics/rental/pdf/rental_report0107.pdf

I find this report quite interesting. Please note that the figures are garnered predominantly from condo rentals on MLS. This naturally only represents a fraction of the actual rentals but statistically it does present some interesting numbers – particularly on average rents. If you are a landlord and would like to get a better sense of the rental market, then this will be quite relevant. It is exceptionally valuable if you have purchased rental condos. In my opinion, it is difficult to make condos work as good cash-on-cash investments unless you have significant equity in the purchase. I’m not aware of any studies that look at duplexes, triplexes, etc. and try to cull any meaningful statistics like the rental report – one day I might have initiate something like that on my own. For the time I’ll have to keep it all in my head.

Next month I’ll be talking more about the income property market as well as letting you in on some very exciting changes at that are starting to unfold at Plex Realty, including a move closer to downtown to better service our client base. Stay tuned for the details.

P.A.

2007-01-03T07:36:00.000-08:00

Monthly Newsletter January 2007

Happy New Year everybody! I hope that you all had a wonderful holiday break and wish you and your family very safe and prosperous times for the months ahead. This is the time of year that many of us resolve to work harder, eat better, exercise more, etc. May all of your goals, hopes and aspirations come to pass this year. If you work as hard as you can, I’m sure you’ll be rewarded. Remember the old saying that if you move your legs, God will give you speed.

Last month I talked about how there may be a slow down coming in the Toronto residential resale market. This was one of my most popular writings as many you responded to my ideas. Some agreed, others disagreed but it stimulated a lot of discussion. To recap, here’s what happened in December. By the end of the first week, everything had pretty much come to a grinding halt. This lead to a lot of speculation that the market was finally turning around. I believe that many agents just happened to shut down a little earlier than normal. By December 11th most of us were already looking ahead to January. So now it’s the beginning of January, where do we stand? As of this early date in January, the market is still dormant. So either the market will stay calm or more than likely it’s just too early to tell. Rather than trying to guess, I’ll be able to give you a much more concrete picture of where the income property market is going in about two weeks. I’d reckon that by Friday the 15th, we’ll have a solid very indication as to whether we’re in for more of the same or know if the market is going to be more favourable to buyers.

In order to prep you for these prognostications that will come next month, Shannon and I have prepared a synopsis of income property activity in the key Central districts for last year - 2006. We looked at all sales of all properties with three or more kitchens (which I recognize will eliminate the sale of duplexes but I don’t want to count the hundreds of homes with basement apartments). If you are in the income property business, this chart is a handy snapshot of some poignant data.

C01 C02 C03 C04 C09 C10 C11
Counts
Districts C01 C02 C03 C04 C09 C10 C11
Total Sold 95 72 51 20 6 11 1
Mean (Average)
List Price 496316 566200 467948 571510 1026833 661982 649900
Original Price 496457 572976 476940 577660 1032000 622363 649900
Sold Price 496211 558849 451715 549680 927667 654702 630000
% List 99.75 98.57 96.8 96.51 92.67 98 97
Taxes 3418 4081 3360 4072 6405 4884 4951
Bedrooms 4.5 4.2 4.1 4 4.7 4.5 6
Washrooms 3.2 3.2 3.3 3.5 3.3 3.8 3
Days On Market 28 34 38 30 26 39 49
Median
List Price 469000 449450 379900 499000 822000 639900 649900
Original Price 469900 449450 389000 499000 822000 649000 649900
Sold Price 450000 455000 365000 475000 787500 585000 630000
% List 98 98 96 96.5 92.5 99 97
Taxes 3149 3237 2750 3490 7000 4760 4951
Bedrooms 4 4 4 4 4 4 6
Washrooms 3 3 3 3 3 3 3
Days On Market 17 22.5 22 31.5 18.5 34 49
Mode
List Price 399900 399000 n/a 499000 n/a n/a 649900
Original Price n/a 399000 399900 499000 n/a n/a 949900
Sold Price n/a 455000 360000 n/a n/a 570000 630000
% List 98 97 n/a n/a n/a 99 97
Taxes n/a n/a n/a 3327.75 n/a n/a 4950.82
Bedrooms 4 4 4 4 4 4 6
Washrooms 3 3 3 3 3 3 3
Days On Market n/a n/a 20 10 n/a n/a 49
Low
List Price 269000 289000 239000 344900 598000 409000 649900
Original Price 469 289000 239000 344900 629000 54990 949900
Sold Price 27500 270000 209000 318000 580000 408000 630000
% List 86 89 85 91 84 88 97
Taxes 1196.9 2002.37 1050 2402 4461.18 2965 4950.82
Bedrooms 2 2 2 2 4 2 6
Washrooms 2 2 2 2 3 3 3
Days On Market 1 1 2 4 5 8 49
High
List Price 1268000 2148000 1495000 1179000 2295000 1150000 649900
Original Price 1268000 2148000 1495000 1179000 2295000 1150000 949900
Sold Price 1250000 2270000 1400000 1100000 1925000 1265225 630000
% List 125 118 120 100 99 110 97
Taxes 8300 15777.348462.85 8449.83 7704.32 7580.37 4950.82
Bedrooms 9 8 8 6 7 6 6
Washrooms 10 7 6 6 4 7 3
Days On Market 177 143 202 71 67 95 49
Type
Att/Row/Twnhouse28 3 1 0 0 0 0
Detached 17 30 38 11 2 3 0
Semi-Detached 48 36 7 1 1 3 0
Duplex 0 2 3 1 2 2 1
Triplex 2 0 1 7 1 3 0
Multiplex 0 1 1 0 0 0 0
Storeys
2 1/2 - Storey 24 12 1 3 2 1 0
2 - Storey 41 30 45 13 2 7 1
3 - Storey 29 29 3 0 2 3 0
Other 1 0 0 0 0 0 0
Bungalow 0 1 0 4 0 0 0
1 1/2 Storey 0 0 1 0 0 0 0
Backsplit 4 0 0 1 0 0 0 0

One last point that has little to do with real estate specifically but should be of prime concern to al of us. Over the holidays I watched the Al Gore documentary on Global Warming (it’s called “An Inconvenient Truth” and should be available at your local Blockbuster). If you haven’t done so, please give it a watch. I don’t normally make a fuss about these kinds of things, but the facts as they are presented are truly startling. I don’t want to sound like a hypocrite because I drive my clients around in an S.U.V., but I figure that if I help spread the word about this film, then more people can get switched on to the very real problems that we are facing today. Check it out.

Next month, I’ll comment on how the market has started off for 2007 and be able to give you a much clearer picture of what to expect for the months ahead. Back to work everybody!

P.A.

2006-11-30T08:10:00.000-08:00

Monthly Newsletter December 2006

Is the Toronto real estate market finally slowing down? Stories abound daily about how certain US markets are failing and experts are predicting that the bottom may be starting to fall out. There has also been a lot of coverage in the media about the Western Canada markets, particularly Calgary, where many buyers are starting to realize that they might have overpaid on their recent home purchases. I have heard stories of buyers not waiving their conditions for fear that they won’t be able to recapture the dollars spent down the road. This month I’m going to look at what has been happening in our city over the last few weeks, with particular focus on the income property market and renovators’ activity.

There is no denying that we have been in a sellers’ market for at least the past three years, if not longer. When key areas of Toronto have seen their average prices shoot up as high as 20% and agents are often engaged in multiple offers, then naturally it is the sellers that benefit. Five buyers for one house ultimately means that the house is going to fetch more money. Low interest rates coupled with aggressive borrowing programs have also made home ownership a possibility for a lot more people, especially first timers. The competition amongst lenders has been fierce, leading to many people getting mortgages that may not have been possible in the past. I can only imagine how many new home buyers have signed up for 5% down mortgages with 35 year amortizations. In the U.S., zero down mortgages have become commonplace, where the buyer would have no equity (so no real financial stake) in their homes. If prices were starting to exaggerate, even slightly, the lenders could potentially be upside down so I’m not surprised that certain key American markets are “crashing”, as mortgages are no longer available to people who shouldn’t really have qualified in the first place.

A recent report put out by Re/Max Canada forecasting trends for 2007 addresses that for the first time in awhile there may not be year-on-year growth in our market. “Residential housing sales are expected to be moderate … Nationally, 2007 will be the third best year on record. After four years of double-digit gains, average prices are predicted to climb a modest five per cent, by year-end 2007.” This is the first time that reports are coming out that speak to the market easing off, using terms like “modest” and “moderate”. Of course underlying economic factors like GDP growth, unemployment, the strength of the Canadian dollar, oil prices etc. are going to yield their influences, but it will be difficult to pin-point the exact causal relationship between any of these factors and the market as a whole.

A few weeks after Labour Day, I started to hear a buzz around other real estate agents in Toronto that things were finally starting to quiet down a little. If one were to analyze MLS activity over the ensuing six-week period there didn’t appear to be as many homes going for over-asking price as there have been in the fall two and three years ago. At Plex we fortunately have been quite steady throughout this time, but I think that’s because when there is more inventory that we don’t have to compete on, we are able to make better fiscal purchases. In other words, on the financial side of real estate we are better served in a buyers’ market. Given that prices may be stabilizing it seems likely that less people might be motivated to sell, leading to a perceptible drop in the housing inventory.

As we go into December I concur that this does seem to be happening. If the market in January doesn’t see a spike in the number of houses available for sale, or the existing inventory continues to sit longer, then it is safe to declare that the turn-around has begun and we are moving back to a traditional buyers’ market. At the very least, one could argue that we are moving towards a more balanced situation, that doesn’t necessarily favour buyer or seller.

Remember too that real estate is cyclical. This has been proven time and time again. Any analyst will tell you that there are boom times and bust times, ups and downs, and market swings that is all a natural part of the economics of real estate. I have had many conversations with clients thinking that the Toronto market is going to correct itself and prices will start to drop. This may not necessarily be the case. Upper-end neighbourhoods have established new benchmarks for prices that may not tumble at all. In a balanced market, it may take a few weeks longer to sell and there won’t be a frenzy as soon as a listing hits the market. The assumption that if prices go up they must eventually come down may prove to be untrue in our market going forward.

Take a look at the condo market in Toronto. The last decade has seen arguably one of the biggest condominium build-ups ever in our downtown core. Take a walk around Rogers Centre and note how many buildings are there and how many more are still coming. The downtown golf course is being filled in with many new high-rise buildings. Forget about the Gardiner coming down – it really doesn’t matter as the cityscape from the water is littered with these downtown condos. Who’s buying all these condos? Yes there are investors and people down-sizing but the bulk of the market is still first-time buyers. My opinion is that the builders do not commit to these large scale development projects unless they are sure that there is a demand. Based on all the new condos that are still going to be built, these builders obviously don’t see a let up in activity for some time to come. In my opinion, if the market has turned and we are heading for a “downturn”, it is the condos that will feel the pinch of this first, and worst.

Making a case for flip properties has been difficult over the past few years. I have many clients who are in the trades and are ideally suited to purchase homes to renovate and make profit in the short term. The problem is that first-time buyers have often been overpaying for these distressed homes, thereby taking away the spread for the renovator. If the buyer stays in the house for ten years, then they’ll likely be fine. If, however, circumstances change and these newly renovated homes need to be sold in the short term, many people are going to be upside down. With the market moving towards a more level playing field, the renovators can come back out and start looking at viable projects again.

Guess what happened to me last week? I was involved in a vicious multiple-offer situation on a really nice three-unit building in Little Italy that ultimately traded for $80K over list price. If the market is changing, one might think that this shouldn’t happen or at least won’t happen as often any more. I personally feel though income properties are going to always make fiscal sense if they are priced right. For the live-in buyer, this is certain to be the case, as the top properties always get close to asking – in any market! For the absentee investor however, being able to contemplate seven and eight caps again will fuel that market. From my perspective as one of the leading income property realtors in the city, bring it on! The long and short of it is; yes the market is changing, but for people in the income property business, this couldn’t come soon enough. While other realtors are dreading what a turn might represent to their business, we at Plex will certainly be making hay. Essentially the argument boils down to: The better the price, the more attractive the return, and ultimately the better the climate for buying these types of properties.

I’d like to wish all my clients and friends a very joyous holiday season and all the best for a safe and prosperous new year. My last newsletter for this year will be in your in-boxes just before New Years Day. We will do our annual wrap-up of the income property market in Toronto and look forward to what we can all expect in 2007.

Take care everybody and enjoy!

P.A.