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.
Thursday, November 30, 2006
Wednesday, November 01, 2006
Monthly Newsletter November 2006
This month we’re going back to basics and revisiting some of the duties and responsibilities that you have as a landlord. I will also be sharing my thoughts on where the best sources to advertise an apartment for rent are, as well as look at how you can maximize your chances for finding good tenants.
Many folks buy income properties and are happy to collect the rent every month but sometimes they forget the responsibilities that go along with being a landlord. The first thing that every new or prospective landlord should do is get intimately familiar with the Tenant Protection Act. You can find the complete TPA at this link:
http://www.e-laws.gov.on.ca/DBLaws/Statutes/English/97t24_e.htm
I can’t repeat everything that is in the T.P.A. but I will highlight some of the key topics that this legislation addresses. As a landlord you are entitled to collect rent provided you meet the following basic obligations:
i. A landlord has to keep the rental property in a good state of repair.
ii. If something is not working because of normal wear and tear, the landlord must fix it.
iii. A landlord must obey all health, safety and maintenance standards in any provincial laws or municipal bylaws. For example, a bylaw may require the heat to be turned on and kept to a minimum temperature between the fall and spring.
As a landlord you are also responsible for the supply and continued unfettered access to vital services. A landlord cannot shut off or interfere with the supply to a tenant of hydro, fuel (such as natural gas or oil) or mess with the hot or cold water. You are also responsible for making sure that the rental suite is insurable and meets all the requirements of the local fire code.
I believe that it is important to be dutiful to your tenants. I consider my tenants to be like clients. I have a space that is available and they pay me every month to live in it. It’s really no different than the relationship that a business has with its customers. Appreciate the fact that your tenants give you business and do not ever treat them like second class citizens because they rent.
Another area that is subject to misinterpretation is your right as a landlord to enter the rented premises. Even though you own the rental suite, that doesn’t mean that you can walk in on your tenants whenever you please.
A landlord can enter a unit without written notice if:
*there is an emergency, like a fire,
*the tenant allows the landlord in, a care home tenant agreed in writing to let the landlord do " bed checks."
A landlord can enter a rental unit without written notice, between 8 a.m. and 8 p.m. if:
*the rental agreement requires the landlord to clean the unit – unless the agreement allows different hours for cleaning,
*a notice of termination has been given by either the landlord or tenant, or there is an agreement to terminate the tenancy, and the landlord wants to show the unit to a potential new tenant (although notice is not required, the landlord must try to tell the tenant before entering for this reason).
A landlord can enter between 8 a.m. and 8 p.m., and only if 24 hours written notice is given to the tenant:
*to make repairs or do work in the unit,
*to allow a potential purchaser, insurer or lender to view the unit,
*to allow an inspection by an engineer or architect or similar professional for a proposed conversion under the Condominium Act, for any reasonable purpose allowed by the rental agreement.
Another misunderstood area is what rights you have for evicting a tenant. If a tenant has a valid signed lease you cannot evict them until the end of that lease and you have to give them at least sixty (60) days written notice. Some of the reasons for eviction allowed by the Act relate to the tenant’s behaviour or actions or that of their guests. These include:
*not paying the rent in full,
*often paying the rent late,
*illegal activity,
*affecting the safety of others,
*disturbing the enjoyment of other tenants or the landlord,
*allowing too many people to live in the rental unit ("overcrowding"),
There are also the following circumstances under which a tenant may be evicted through no fault or action of their own, such as:
*the landlord wants the rental unit as their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord has agreed to sell the property to someone who wants all or part of the property for their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord plans major repairs or renovations that require a building permit and vacant possession, the landlord plans to demolish the rental property,
*in a care home occupied for the sole reason of receiving therapy or rehabilitation, the rehabilitation or therapy program has ended, a tenant of a care home needs more care than that available in the home, or no longer needs the level of care provided by the landlord.
The next topic I’d like to address is some of the best ways to advertise your empty suite to prospective renters.
Craig’s list: this is a relatively new medium but it seems to work wonders. Local on-line classified ads (updated daily) are read by many prospective renters
View-it.ca: this is an on-line site dedicated to renting apartments in the GTA
Weekend Papers: the Saturday Star, the Globe and the National Post all have real estate and classified sections.
Community & Local Bulletin Boards: these can work very well too. If you are close to a University, then put up a notice in the Student housing building. People often go looking in the areas that they are interested in so if you could catch them with an ad at the local grocery store or bowling alley, you may find success that way.
MLS: a lot of residential rentals are found on MLS using the services of a realtor. Please note that this can be the most expensive marketing as it often costs the landlord one full month of rent.
Now how do you know if a potential tenant is going to be relatively hassle-free and not cause you too much grief?
Credit Check: this is the most common way that landlords find out how credit-worthy an applicant is. At least you’ll know if they can afford the rent each month.
References: I really like to talk to other people or acquaintances of the applicant. You’ll be surprised how friends and family, despite their connection to an applicant, will give you honest feedback
Old-school gut feel: Like anything in life, what’s your initial reaction when you meet the potential tenant? I don’t always like to judge a book by a cover but sometimes there are sure-fire signs that a tenant may be trouble. You just have to pick up on clues during your initial meeting with them.
Being a landlord can be a very rewarding and profitable experience. If you follow these simple guidelines your chances for success will be improved. Next month we will look at how the market has been performing over these past few months and start preparing for our year-end wrap up.
P.A.
This month we’re going back to basics and revisiting some of the duties and responsibilities that you have as a landlord. I will also be sharing my thoughts on where the best sources to advertise an apartment for rent are, as well as look at how you can maximize your chances for finding good tenants.
Many folks buy income properties and are happy to collect the rent every month but sometimes they forget the responsibilities that go along with being a landlord. The first thing that every new or prospective landlord should do is get intimately familiar with the Tenant Protection Act. You can find the complete TPA at this link:
http://www.e-laws.gov.on.ca/DBLaws/Statutes/English/97t24_e.htm
I can’t repeat everything that is in the T.P.A. but I will highlight some of the key topics that this legislation addresses. As a landlord you are entitled to collect rent provided you meet the following basic obligations:
i. A landlord has to keep the rental property in a good state of repair.
ii. If something is not working because of normal wear and tear, the landlord must fix it.
iii. A landlord must obey all health, safety and maintenance standards in any provincial laws or municipal bylaws. For example, a bylaw may require the heat to be turned on and kept to a minimum temperature between the fall and spring.
As a landlord you are also responsible for the supply and continued unfettered access to vital services. A landlord cannot shut off or interfere with the supply to a tenant of hydro, fuel (such as natural gas or oil) or mess with the hot or cold water. You are also responsible for making sure that the rental suite is insurable and meets all the requirements of the local fire code.
I believe that it is important to be dutiful to your tenants. I consider my tenants to be like clients. I have a space that is available and they pay me every month to live in it. It’s really no different than the relationship that a business has with its customers. Appreciate the fact that your tenants give you business and do not ever treat them like second class citizens because they rent.
Another area that is subject to misinterpretation is your right as a landlord to enter the rented premises. Even though you own the rental suite, that doesn’t mean that you can walk in on your tenants whenever you please.
A landlord can enter a unit without written notice if:
*there is an emergency, like a fire,
*the tenant allows the landlord in, a care home tenant agreed in writing to let the landlord do " bed checks."
A landlord can enter a rental unit without written notice, between 8 a.m. and 8 p.m. if:
*the rental agreement requires the landlord to clean the unit – unless the agreement allows different hours for cleaning,
*a notice of termination has been given by either the landlord or tenant, or there is an agreement to terminate the tenancy, and the landlord wants to show the unit to a potential new tenant (although notice is not required, the landlord must try to tell the tenant before entering for this reason).
A landlord can enter between 8 a.m. and 8 p.m., and only if 24 hours written notice is given to the tenant:
*to make repairs or do work in the unit,
*to allow a potential purchaser, insurer or lender to view the unit,
*to allow an inspection by an engineer or architect or similar professional for a proposed conversion under the Condominium Act, for any reasonable purpose allowed by the rental agreement.
Another misunderstood area is what rights you have for evicting a tenant. If a tenant has a valid signed lease you cannot evict them until the end of that lease and you have to give them at least sixty (60) days written notice. Some of the reasons for eviction allowed by the Act relate to the tenant’s behaviour or actions or that of their guests. These include:
*not paying the rent in full,
*often paying the rent late,
*illegal activity,
*affecting the safety of others,
*disturbing the enjoyment of other tenants or the landlord,
*allowing too many people to live in the rental unit ("overcrowding"),
There are also the following circumstances under which a tenant may be evicted through no fault or action of their own, such as:
*the landlord wants the rental unit as their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord has agreed to sell the property to someone who wants all or part of the property for their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord plans major repairs or renovations that require a building permit and vacant possession, the landlord plans to demolish the rental property,
*in a care home occupied for the sole reason of receiving therapy or rehabilitation, the rehabilitation or therapy program has ended, a tenant of a care home needs more care than that available in the home, or no longer needs the level of care provided by the landlord.
The next topic I’d like to address is some of the best ways to advertise your empty suite to prospective renters.
Craig’s list: this is a relatively new medium but it seems to work wonders. Local on-line classified ads (updated daily) are read by many prospective renters
View-it.ca: this is an on-line site dedicated to renting apartments in the GTA
Weekend Papers: the Saturday Star, the Globe and the National Post all have real estate and classified sections.
Community & Local Bulletin Boards: these can work very well too. If you are close to a University, then put up a notice in the Student housing building. People often go looking in the areas that they are interested in so if you could catch them with an ad at the local grocery store or bowling alley, you may find success that way.
MLS: a lot of residential rentals are found on MLS using the services of a realtor. Please note that this can be the most expensive marketing as it often costs the landlord one full month of rent.
Now how do you know if a potential tenant is going to be relatively hassle-free and not cause you too much grief?
Credit Check: this is the most common way that landlords find out how credit-worthy an applicant is. At least you’ll know if they can afford the rent each month.
References: I really like to talk to other people or acquaintances of the applicant. You’ll be surprised how friends and family, despite their connection to an applicant, will give you honest feedback
Old-school gut feel: Like anything in life, what’s your initial reaction when you meet the potential tenant? I don’t always like to judge a book by a cover but sometimes there are sure-fire signs that a tenant may be trouble. You just have to pick up on clues during your initial meeting with them.
Being a landlord can be a very rewarding and profitable experience. If you follow these simple guidelines your chances for success will be improved. Next month we will look at how the market has been performing over these past few months and start preparing for our year-end wrap up.
P.A.
Monday, October 02, 2006
Monthly Newsletter October 2006
This month I’d like to chat about a topic that has far-reaching implications for the real estate business in general. 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. Happy Thanksgiving everyone!
P.A.
This month I’d like to chat about a topic that has far-reaching implications for the real estate business in general. 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. Happy Thanksgiving everyone!
P.A.
Wednesday, September 06, 2006
Monthly Newsletter: September 2006
Is the small-scale real estate investment market dead? 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 are returning 7% to 9% in some cases and are relatively hassle-free. 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 Parkdale 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.
Happy Labour Day everyone. The kids are back to school and many of us are wrapping up our summer fun. Let’s get busy!
P.A.
Monthly Newsletter: August 2006
Wow is it hot! 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.
This month I’ll be answering some common questions about adding a second suite to your existing home. Cutting a property into two, or “duplexing” it, is an excellent way to help offset your home’s carrying costs. This information comes courtesy of www.landlordselfhelp.com, an excellent website based in Toronto, for both landlords and tenants.
1. What defines a second suite?
A second suite is a self-contained, rental apartment in a single or semi-detached house. In some areas of Toronto, second suites have existed for many years, providing tenants with affordable rental accommodation in neighbourhood settings while generating rental income for homeowners. An estimated 20% of all rental housing in Toronto is found in private homes as second suites.
Many second suites are basement apartments, but they can be installed on any floor of the house including the attic. They have also been called granny flats, accessory apartments and in-law suites.
2. Are second suites legal?
Toronto Council expects that more affordable rental housing can be created cost effectively by allowing homeowners across the city to create or legalize second suites. To do this, the city passed a zoning bylaw allowing a second suite in all single and semi-detached houses, with some conditions.
Second suites have been permitted in parts of Toronto for some time. A provincial law also allowed homeowners to create a second unit in their homes from July 14, 1994 until November 16, 1995 when that law was repealed. Suites created during that period were permitted provided they met fire, building and housing safety standards.
3. What are the conditions that must be met to have a second suite?
While the second suite zoning bylaws permits second suites in all single and semi-detached houses, certain conditions apply. Some of these conditions are that:
· your second suite must be self-contained (including a separate entrance, kitchen and bathroom)
· your house must be at least five years old
· the floor area of the second suite must be less than the rest of your house
· you must have at least two parking spaces (except in parts of the former City of Toronto where only one parking space is required)
· you cannot make significant exterior alterations to the street frontage of your house.
Note: The new bylaw refers to self-contained suites only. If you rent a room in a house or a flat with a shared entrance, this bylaw does not apply to you.
All second suites must comply with fire, building and housing safety standards based on the Building Code, city bylaws and the Fire Code. These may include, for example:
· minimum sizes for the rooms that make up the second suite
· minimum ceiling height for basement or attic suites
· fire separations between the second suite and the rest of your house
· exits from your second suite
· smoke alarms and carbon monoxide detectors
· electrical safety
You will require a building permit and may need other permits to create your suite. Ultimately, you as the owner are responsible for taking all the steps required to ensure your second suite is legal. Toronto has produced an information kit that may help you. The kit provides easy-to-read information on how to create a second suite that meets all fire, building, and housing safety standards required by law.
4. What if there already is a second suite in my house?
The second suite zoning bylaw allows for many more second suites as long as they comply with fire, building and housing safety standards. If you already have a second suite, the first step is to call Fire Services. They will let you know what steps to take and will then inspect your home. The cost of inspection and a letter of clearance confirming your suite is safe is $150 (see below for information on where to call).
If, as a result of a fire inspection, you learn that you need to do some work on your second suite, you may need a building permit. Again, Toronto's information kit may help you.
5. What do I need to know to be a landlord?
If you are considering putting a second suite in your home, you must consider the change in your lifestyle, the expense and the commitment you must make when becoming a landlord. It is essential that you research the legal obligations you are taking and have a clear understanding of your rights and responsibilities.
Once you become a landlord, your relationship with the tenant is governed by the Tenant Protection Act (TPA). Tenants have specific rights. Most importantly they have "security of tenure," which means that a tenancy agreement can only be terminated under specific circumstances. To evict your tenant, you must have a valid reason as defined in the TPA and follow a specific procedure.
When you rent a portion of your house, you must respect your tenant's right to enjoy his or her home. Tenants have the right to have overnight guests, cook foods they enjoy, come and go as they please and have a pet as long as these activities don't conflict with your right to the reasonable enjoyment of your home.
6. Are there any tax implications?
It is anticipated that the property tax impacts of second suites will, for the most part, be minimal. Under Current Value Assessment (CVA), the assessed value of a home is based on its market value. According to the Ontario Provincial Assessment Corporation, the agency responsible for property assessment, a property's CVA does not usually go up unless there is an increase in the total property value of at least $10,000 or 5%.
A typical second suite increases the value of a home by only 2%-5%, depending on the neighbourhood. Therefore, most second suites do not add enough value to meet this threshold. A major exception to this would be a second suite that is created with a building addition. This could significantly affect the total value and result in a property being reassessed.
If you have any further questions about creating residential apartments, please call me or any of our Plex sales representatives. You may also want to call your lawyer. It is always a good idea to get professional advice prior to starting a major construction project.
In closing, I’d like to wish my business partner David a very Happy Birthday this week. I can’t say how old he’s going to be because I’d be dating myself. Remember to stay cool everyone and enjoy the rest of the summer.
P.A.
Wow is it hot! 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.
This month I’ll be answering some common questions about adding a second suite to your existing home. Cutting a property into two, or “duplexing” it, is an excellent way to help offset your home’s carrying costs. This information comes courtesy of www.landlordselfhelp.com, an excellent website based in Toronto, for both landlords and tenants.
1. What defines a second suite?
A second suite is a self-contained, rental apartment in a single or semi-detached house. In some areas of Toronto, second suites have existed for many years, providing tenants with affordable rental accommodation in neighbourhood settings while generating rental income for homeowners. An estimated 20% of all rental housing in Toronto is found in private homes as second suites.
Many second suites are basement apartments, but they can be installed on any floor of the house including the attic. They have also been called granny flats, accessory apartments and in-law suites.
2. Are second suites legal?
Toronto Council expects that more affordable rental housing can be created cost effectively by allowing homeowners across the city to create or legalize second suites. To do this, the city passed a zoning bylaw allowing a second suite in all single and semi-detached houses, with some conditions.
Second suites have been permitted in parts of Toronto for some time. A provincial law also allowed homeowners to create a second unit in their homes from July 14, 1994 until November 16, 1995 when that law was repealed. Suites created during that period were permitted provided they met fire, building and housing safety standards.
3. What are the conditions that must be met to have a second suite?
While the second suite zoning bylaws permits second suites in all single and semi-detached houses, certain conditions apply. Some of these conditions are that:
· your second suite must be self-contained (including a separate entrance, kitchen and bathroom)
· your house must be at least five years old
· the floor area of the second suite must be less than the rest of your house
· you must have at least two parking spaces (except in parts of the former City of Toronto where only one parking space is required)
· you cannot make significant exterior alterations to the street frontage of your house.
Note: The new bylaw refers to self-contained suites only. If you rent a room in a house or a flat with a shared entrance, this bylaw does not apply to you.
All second suites must comply with fire, building and housing safety standards based on the Building Code, city bylaws and the Fire Code. These may include, for example:
· minimum sizes for the rooms that make up the second suite
· minimum ceiling height for basement or attic suites
· fire separations between the second suite and the rest of your house
· exits from your second suite
· smoke alarms and carbon monoxide detectors
· electrical safety
You will require a building permit and may need other permits to create your suite. Ultimately, you as the owner are responsible for taking all the steps required to ensure your second suite is legal. Toronto has produced an information kit that may help you. The kit provides easy-to-read information on how to create a second suite that meets all fire, building, and housing safety standards required by law.
4. What if there already is a second suite in my house?
The second suite zoning bylaw allows for many more second suites as long as they comply with fire, building and housing safety standards. If you already have a second suite, the first step is to call Fire Services. They will let you know what steps to take and will then inspect your home. The cost of inspection and a letter of clearance confirming your suite is safe is $150 (see below for information on where to call).
If, as a result of a fire inspection, you learn that you need to do some work on your second suite, you may need a building permit. Again, Toronto's information kit may help you.
5. What do I need to know to be a landlord?
If you are considering putting a second suite in your home, you must consider the change in your lifestyle, the expense and the commitment you must make when becoming a landlord. It is essential that you research the legal obligations you are taking and have a clear understanding of your rights and responsibilities.
Once you become a landlord, your relationship with the tenant is governed by the Tenant Protection Act (TPA). Tenants have specific rights. Most importantly they have "security of tenure," which means that a tenancy agreement can only be terminated under specific circumstances. To evict your tenant, you must have a valid reason as defined in the TPA and follow a specific procedure.
When you rent a portion of your house, you must respect your tenant's right to enjoy his or her home. Tenants have the right to have overnight guests, cook foods they enjoy, come and go as they please and have a pet as long as these activities don't conflict with your right to the reasonable enjoyment of your home.
6. Are there any tax implications?
It is anticipated that the property tax impacts of second suites will, for the most part, be minimal. Under Current Value Assessment (CVA), the assessed value of a home is based on its market value. According to the Ontario Provincial Assessment Corporation, the agency responsible for property assessment, a property's CVA does not usually go up unless there is an increase in the total property value of at least $10,000 or 5%.
A typical second suite increases the value of a home by only 2%-5%, depending on the neighbourhood. Therefore, most second suites do not add enough value to meet this threshold. A major exception to this would be a second suite that is created with a building addition. This could significantly affect the total value and result in a property being reassessed.
If you have any further questions about creating residential apartments, please call me or any of our Plex sales representatives. You may also want to call your lawyer. It is always a good idea to get professional advice prior to starting a major construction project.
In closing, I’d like to wish my business partner David a very Happy Birthday this week. I can’t say how old he’s going to be because I’d be dating myself. Remember to stay cool everyone and enjoy the rest of the summer.
P.A.
Monthly Newsletter: July 2006
Happy Canada Day everybody! I hope that you all enjoy this long weekend and find some time to kick back and have fun some. If you’re a soccer fan like me it doesn’t get any better than the on-going World Cup. Isn’t it great that we all live in a city where we can cheer for our respective teams and have most of the countries in the tournament represented? I wish your the team all the best, but for me - GO ENGLAND!!!
Since we are half-way through the calendar year I’d like to talk about the income property market so far this year. I’ll look at year-to-date sales statistics and try and surmise where the multiplex market may be heading for the upcoming months. I will break Toronto into eight key neighbourhoods and look at how the market performed in each of them.
As I have suggested in past columns, we have been more active over the past few months with live-in purchasers of income properties. This is not to say that the investment market has dried up, but at Plex Realty we have seen a lot more owner-occupied properties trade that make better fiscal sense. Essentially, buying a multi-unit building to live in is always a prudent form of home ownership since you are able to defray some of your living costs. Cap rates and R.O.I.s on the other hand have been dropping as purchasers seem to be accepting of lower returns. In my opinion, these returns will have to improve as real estate has to remain competitive in relation to other investment vehicles.
Sales statistics from TREB suggest that the overall Toronto residential resale market in 2006 has remained quite strong:
"Market conditions have been very good all spring, and the strong activity we’ve seen is a reflection of that," TREB president John Meehan states. "With just a few days remaining, this spring has so far been over two per cent more active than last spring." As you can see form the chart above, while April dipped a little we have seen year-on-year growth each month. The overall average selling price year-to-date for 2006 is $356,683 - approximately 6 percent higher than the average selling price for 2005 of $335,907. Remember that 2005 set a record for the highest number of sales ever, so it seems like we’re on pace to beat that record again this year.
Independent analyses of the multi-residential market do not exist. All income properties with six or less suites are lumped in with the single-family stats. In order to determine what’s going on in the multiplex market, I have gone into MLS data and pulled all sales of those properties with three or more kitchens. Naturally, there are many sales of duplexes with only two kitchens, but I have no way of distinguishing them from single family homes with basement apartments. Thus all figures below are for three units or more.
I have broken Toronto into eight key neighbourhoods for the purpose of analyzing market activity:
Downtown Toronto - south of Bloor, west of Yonge (C01)
This includes neighbourhoods like Chinatown, Little Italy, Trinity Bellwoods, etc.
Midtown Toronto (C10)
From Lawrence down to Eglinton, east of Yonge
The Annex (C02)
This is the area north of Bloor St to St. Clair., west of Yonge
Cabbagetown (C08)
This is the neighbourhood east of Yonge to the DVP, running south of Bloor St.
Rosedale/Moore Park (C09)
This is the area in between St. Clair & Bloor, east of Yonge
Riverdale/Leslieville (E01)
This is the area from the Danforth down to the Lake, just east of the DVP.
The Beach (E02)
East of Coxwell, from the lake up to the Danforth
High Park (W01)
South of Bloor, in between Dufferin and the Humber River
# of YTD Sales
Average Price
Days on Market
C01
69
519,393
28
C10
7
747,489
34
C02
55
666,302
28
C08
11
588,591
46
C09
6
1,186,667
29
E01
47
418,834
29
E02
23
526,504
25
W01
65
524,856
27
There are some interesting observations to be made from these YTD stats. It seems like it takes around a month to sell an income property no matter where it is. This also suggests that the multiple offer frenzy that has been happening with single family homes is not occurring as much with income properties. The largest number of sales occurred in C01 & W01 which isn’t surprising since these are the two largest residential areas. The high average price in C09 is a little misleading since there were only six trades and two of them were for almost $2M. It is interesting that sale prices in C01, E02 & W01 were also very close. Note too that all average income property prices are about $200K higher than the average house sale price in the entire GTA.
I have no reason to expect that this market will slow down. The summer is traditionally a little slower but then business tends to pick up after Labour Day. I fully expect a strong showing for the second half of the year. As I said earlier, I also think that more investment only properties will begin to trade as the vacancy rate continues to decrease. Owner-occupied multiplexes and properties that are purchased for conversion will also continue to be very popular, as they always make good fiscal sense.
If you ever have any questions about the income property market in Toronto or would like more even more detailed information on what’s happening in your target area, please send me an e-mail. Remember that we are the “Income from Properties” specialists and we pride ourselves on being on the frontlines of this market, 24-7.
Enjoy the long weekend and the summer months ahead.
P.A.
Happy Canada Day everybody! I hope that you all enjoy this long weekend and find some time to kick back and have fun some. If you’re a soccer fan like me it doesn’t get any better than the on-going World Cup. Isn’t it great that we all live in a city where we can cheer for our respective teams and have most of the countries in the tournament represented? I wish your the team all the best, but for me - GO ENGLAND!!!
Since we are half-way through the calendar year I’d like to talk about the income property market so far this year. I’ll look at year-to-date sales statistics and try and surmise where the multiplex market may be heading for the upcoming months. I will break Toronto into eight key neighbourhoods and look at how the market performed in each of them.
As I have suggested in past columns, we have been more active over the past few months with live-in purchasers of income properties. This is not to say that the investment market has dried up, but at Plex Realty we have seen a lot more owner-occupied properties trade that make better fiscal sense. Essentially, buying a multi-unit building to live in is always a prudent form of home ownership since you are able to defray some of your living costs. Cap rates and R.O.I.s on the other hand have been dropping as purchasers seem to be accepting of lower returns. In my opinion, these returns will have to improve as real estate has to remain competitive in relation to other investment vehicles.
Sales statistics from TREB suggest that the overall Toronto residential resale market in 2006 has remained quite strong:
"Market conditions have been very good all spring, and the strong activity we’ve seen is a reflection of that," TREB president John Meehan states. "With just a few days remaining, this spring has so far been over two per cent more active than last spring." As you can see form the chart above, while April dipped a little we have seen year-on-year growth each month. The overall average selling price year-to-date for 2006 is $356,683 - approximately 6 percent higher than the average selling price for 2005 of $335,907. Remember that 2005 set a record for the highest number of sales ever, so it seems like we’re on pace to beat that record again this year.
Independent analyses of the multi-residential market do not exist. All income properties with six or less suites are lumped in with the single-family stats. In order to determine what’s going on in the multiplex market, I have gone into MLS data and pulled all sales of those properties with three or more kitchens. Naturally, there are many sales of duplexes with only two kitchens, but I have no way of distinguishing them from single family homes with basement apartments. Thus all figures below are for three units or more.
I have broken Toronto into eight key neighbourhoods for the purpose of analyzing market activity:
Downtown Toronto - south of Bloor, west of Yonge (C01)
This includes neighbourhoods like Chinatown, Little Italy, Trinity Bellwoods, etc.
Midtown Toronto (C10)
From Lawrence down to Eglinton, east of Yonge
The Annex (C02)
This is the area north of Bloor St to St. Clair., west of Yonge
Cabbagetown (C08)
This is the neighbourhood east of Yonge to the DVP, running south of Bloor St.
Rosedale/Moore Park (C09)
This is the area in between St. Clair & Bloor, east of Yonge
Riverdale/Leslieville (E01)
This is the area from the Danforth down to the Lake, just east of the DVP.
The Beach (E02)
East of Coxwell, from the lake up to the Danforth
High Park (W01)
South of Bloor, in between Dufferin and the Humber River
# of YTD Sales
Average Price
Days on Market
C01
69
519,393
28
C10
7
747,489
34
C02
55
666,302
28
C08
11
588,591
46
C09
6
1,186,667
29
E01
47
418,834
29
E02
23
526,504
25
W01
65
524,856
27
There are some interesting observations to be made from these YTD stats. It seems like it takes around a month to sell an income property no matter where it is. This also suggests that the multiple offer frenzy that has been happening with single family homes is not occurring as much with income properties. The largest number of sales occurred in C01 & W01 which isn’t surprising since these are the two largest residential areas. The high average price in C09 is a little misleading since there were only six trades and two of them were for almost $2M. It is interesting that sale prices in C01, E02 & W01 were also very close. Note too that all average income property prices are about $200K higher than the average house sale price in the entire GTA.
I have no reason to expect that this market will slow down. The summer is traditionally a little slower but then business tends to pick up after Labour Day. I fully expect a strong showing for the second half of the year. As I said earlier, I also think that more investment only properties will begin to trade as the vacancy rate continues to decrease. Owner-occupied multiplexes and properties that are purchased for conversion will also continue to be very popular, as they always make good fiscal sense.
If you ever have any questions about the income property market in Toronto or would like more even more detailed information on what’s happening in your target area, please send me an e-mail. Remember that we are the “Income from Properties” specialists and we pride ourselves on being on the frontlines of this market, 24-7.
Enjoy the long weekend and the summer months ahead.
P.A.
Monthly Newsletter: June 2006
This month I’d like to discuss a very important concept in real estate theory: gentrification or the process whereby an area improves over time to become attractive to new residents. I wrote on this topic a couple of years ago and got a very positive response from my readers. This suggests to me that many of you are interested in which areas offer the most opportunity for gains in the future.
As Realtors we are always looking for new market opportunities and signs of up- and-coming areas. Which neighbourhoods are on the rise and where are property values likely to see the sharpest increases? The three neighbourhoods of Toronto that are spoken about most often are Leslieville, Parkdale and the Junction. 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 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. We Realtors 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 families, 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. 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.
One more interesting news item: Did you know that the “Beaches” are no more.
The neighbourhood featuring four beaches, encompassing Queen east of Woodbine up to Gerrard St, is now to be officially called "The Beach." The head of the Beaches business association made the announcement last month at the Toronto Public Library Beaches Branch. "Beach area residents have spoken," Neil Macdonald said of a poll conducted over the past month to resolve a decades-old debate on the east-end neighbourhood's name. Of more than 2,200 votes cast, 58 per cent sided with the singular over the plural. The result means that 100 historic street signs including the words "The Beach" are to go up this fall along Queen Street East. "I think they've done the right thing (picking a standard name)," John Nishida, chief branding officer at Pigeon Branding and Design in Oakville, said when he heard the news. "One of the principles of branding is to have a consistent message to all audiences.... Now city officials, government officials and everybody else who has a stake in the community will hopefully use the proper terminology."
I don’t know – they’ll always be the “Beaches” to me. That’s it for this month. Next month we’ll do a wrap-up on income property activity for the first six months of 2006. The World Cup also starts next week, so to all you soccer fans out there, I hope your team comes through for you.
P.A.
This month I’d like to discuss a very important concept in real estate theory: gentrification or the process whereby an area improves over time to become attractive to new residents. I wrote on this topic a couple of years ago and got a very positive response from my readers. This suggests to me that many of you are interested in which areas offer the most opportunity for gains in the future.
As Realtors we are always looking for new market opportunities and signs of up- and-coming areas. Which neighbourhoods are on the rise and where are property values likely to see the sharpest increases? The three neighbourhoods of Toronto that are spoken about most often are Leslieville, Parkdale and the Junction. 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 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. We Realtors 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 families, 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. 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.
One more interesting news item: Did you know that the “Beaches” are no more.
The neighbourhood featuring four beaches, encompassing Queen east of Woodbine up to Gerrard St, is now to be officially called "The Beach." The head of the Beaches business association made the announcement last month at the Toronto Public Library Beaches Branch. "Beach area residents have spoken," Neil Macdonald said of a poll conducted over the past month to resolve a decades-old debate on the east-end neighbourhood's name. Of more than 2,200 votes cast, 58 per cent sided with the singular over the plural. The result means that 100 historic street signs including the words "The Beach" are to go up this fall along Queen Street East. "I think they've done the right thing (picking a standard name)," John Nishida, chief branding officer at Pigeon Branding and Design in Oakville, said when he heard the news. "One of the principles of branding is to have a consistent message to all audiences.... Now city officials, government officials and everybody else who has a stake in the community will hopefully use the proper terminology."
I don’t know – they’ll always be the “Beaches” to me. That’s it for this month. Next month we’ll do a wrap-up on income property activity for the first six months of 2006. The World Cup also starts next week, so to all you soccer fans out there, I hope your team comes through for you.
P.A.
Monthly Newsletter: May 2006
This month I’d like to talk about basic investment strategies and why we continue to put our money into real estate. Folks often have different objectives when investing their hard earned money, not just in income properties necessarily, but in any vehicle that protects their initial principal and yields a return. You would think that the most common objective is to make as much money each month as possible, but I find that there are other reasons why people so often still turn to real estate. Now that the first third of 2006 is over, I will also provide a quick analysis of income property activity so far this year in Toronto to give you an idea of where we may be heading for the rest of the year.
Over the past few months there has been a recurring theme with many of our investor clients. If the market is only supporting a 6 cap, and traditionally similar properties yielded higher returns, why would one knowingly “overpay” today. We see properties on a daily basis that we feel are listed too high, yet sometimes the sellers still get their price. Why opt for a 6% return when a REIT or mutual fund may potentially give you the same or better return with far less hassle? Who needs to be a landlord, taking on all that responsibility, when you can make the same profit each month without really doing anything? Of course, owner occupied always duplexes or triplexes always make sense. If you live in your investment then you can immediately appreciate the presumably lower monthly cost of your suite. But does it make sense to purchase a property with a low deposit and have it just break-even each month? The answer to this last question for many investors is yes.
Many people who purchase investment properties actually have different goals. While no one wants to lose money each month, I find that investors have different rationales for their purchases and determining how much to pay. The options for investing our savings are continually increasing, yet every single investment vehicle can be easily categorized according to three fundamental characteristics - safety, income and growth - which also correspond to types of investor objectives. While it is possible for an investor to have more than one of these objectives, the success of one must come at the expense of others.
Perhaps there is truth to the axiom that there is no such thing as a completely safe and secure investment. Yet we can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy's top companies. Such securities are arguably the best means of preserving principal while receiving a specified rate of return. In the real estate market, buying income properties in tier-1 locations and hanging on to them for the long-term is generally considered the safest bet. These properties may not generate returns quickly in the short-term, but they do provide a relative degree of stability over as many years. However, these “safe” investments are also the ones that are likely to have the lowest rate of income return, or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. This is the inverse relationship between safety and yield: as yield increases, safety generally goes down, and vice versa. Remember that real estate is not a liquid asset that can easily be converted to cash, so there’s an inherent risk in having your money in an investment where it is difficult to get at.
Future capital appreciation always looms in most purchasers minds. If a property appreciates 2 or 3% per year then they may be able to look the other way if the monthly returns in the first few years are less than stellar. We all know that the real estate market is cyclical. If one buys a property today for an exaggerated price and the market experiences a down-turn, then so long as you hang in there, the thinking is that eventually the property will increase in value again. This is the mindset of many people buying in the city’s best areas today. Get in at all costs and then just bide your time until the market goes up in the area. Of course, the longer you hang on, the more equity you recapture through the monthly payments made by your tenants.
Anticipated future family needs are often a reason for buying income properties with average returns. You may be thinking that one day you might like to have a suite available to your kids when they go to University so buying an income property that carries itself in that area makes sense. Some of our clients are even thinking about when they eventually down-size and may make use of one the rental suites themselves. Remember that long term, multi-year analyses always make your numbers look more attractive.
Investors also buy properties as tax-minimization strategies. An investor may pursue certain investments in order to adopt save taxes as part of his or her investment strategy. A highly-paid executive, for example, may want to seek investments with favorable tax treatment in order to lessen his or her overall income tax burden. There are new mortgage products out there for single-family homeowners that encourage you to borrow against your principal residence by buying investments where you can enjoy greater write-off and tax benefits.
Choosing a single strategic objective and assigning weightings to all other possible objectives is a process that depends on such factors as the investor's temperament, his or her stage of life, marital status, family situation, and so forth. Out of the multitude of possibilities out there, each investor is sure to find an appropriate mix of investment opportunities, especially in the real estate market. You need only be concerned with spending the appropriate amount of time and effort in finding, studying and deciding on the opportunities that match your objectives.
Before I sign off, I’d like to present a brief synopsis of income property activity in Toronto so far this year. This will give you a good idea of what you may expect in the months to come:
Price Range 300,000 – 500,000
District: C01
Average List Price: $420,309
Average Sale Price: $407,365
Average Original Price: $423,949
% of List Price: 97.39
Taxes: $2,838
In C01 the average listing netted $407,365 (97% of the list price average of $420,309), with taxes averaging $2,838.
District: E01
Average List Price: $373,236
Average Sale Price: $362,768
Average Original Price: $375,788
% of List Price: 98.04
Taxes: $2,561
Similarly, in the E01 district, the average list price was $373,236, with an average sale price of $362,768 fetching approximately 98% of the list price. In the E01 the average taxes are $2,561.
Price Range 500,000 +
District: C10
Average List Price: $707,543
Average Sale Price: $762,486
Average Original Price: $708,971
% of List Price: 98.14
Taxes: $5,033
In C10 the average listing netted $762,486 (98% of the list price average of $707,543), with taxes averaging $5,033.
If you ever would like specific sales information on any MLS district, please let me know. I believe very strongly in the maxim that “knowledge is power” so if I can arm you with the details you need to make an informed purchase decision, it would be my pleasure.
Take care everyone. See you next month.
P.A.
This month I’d like to talk about basic investment strategies and why we continue to put our money into real estate. Folks often have different objectives when investing their hard earned money, not just in income properties necessarily, but in any vehicle that protects their initial principal and yields a return. You would think that the most common objective is to make as much money each month as possible, but I find that there are other reasons why people so often still turn to real estate. Now that the first third of 2006 is over, I will also provide a quick analysis of income property activity so far this year in Toronto to give you an idea of where we may be heading for the rest of the year.
Over the past few months there has been a recurring theme with many of our investor clients. If the market is only supporting a 6 cap, and traditionally similar properties yielded higher returns, why would one knowingly “overpay” today. We see properties on a daily basis that we feel are listed too high, yet sometimes the sellers still get their price. Why opt for a 6% return when a REIT or mutual fund may potentially give you the same or better return with far less hassle? Who needs to be a landlord, taking on all that responsibility, when you can make the same profit each month without really doing anything? Of course, owner occupied always duplexes or triplexes always make sense. If you live in your investment then you can immediately appreciate the presumably lower monthly cost of your suite. But does it make sense to purchase a property with a low deposit and have it just break-even each month? The answer to this last question for many investors is yes.
Many people who purchase investment properties actually have different goals. While no one wants to lose money each month, I find that investors have different rationales for their purchases and determining how much to pay. The options for investing our savings are continually increasing, yet every single investment vehicle can be easily categorized according to three fundamental characteristics - safety, income and growth - which also correspond to types of investor objectives. While it is possible for an investor to have more than one of these objectives, the success of one must come at the expense of others.
Perhaps there is truth to the axiom that there is no such thing as a completely safe and secure investment. Yet we can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy's top companies. Such securities are arguably the best means of preserving principal while receiving a specified rate of return. In the real estate market, buying income properties in tier-1 locations and hanging on to them for the long-term is generally considered the safest bet. These properties may not generate returns quickly in the short-term, but they do provide a relative degree of stability over as many years. However, these “safe” investments are also the ones that are likely to have the lowest rate of income return, or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. This is the inverse relationship between safety and yield: as yield increases, safety generally goes down, and vice versa. Remember that real estate is not a liquid asset that can easily be converted to cash, so there’s an inherent risk in having your money in an investment where it is difficult to get at.
Future capital appreciation always looms in most purchasers minds. If a property appreciates 2 or 3% per year then they may be able to look the other way if the monthly returns in the first few years are less than stellar. We all know that the real estate market is cyclical. If one buys a property today for an exaggerated price and the market experiences a down-turn, then so long as you hang in there, the thinking is that eventually the property will increase in value again. This is the mindset of many people buying in the city’s best areas today. Get in at all costs and then just bide your time until the market goes up in the area. Of course, the longer you hang on, the more equity you recapture through the monthly payments made by your tenants.
Anticipated future family needs are often a reason for buying income properties with average returns. You may be thinking that one day you might like to have a suite available to your kids when they go to University so buying an income property that carries itself in that area makes sense. Some of our clients are even thinking about when they eventually down-size and may make use of one the rental suites themselves. Remember that long term, multi-year analyses always make your numbers look more attractive.
Investors also buy properties as tax-minimization strategies. An investor may pursue certain investments in order to adopt save taxes as part of his or her investment strategy. A highly-paid executive, for example, may want to seek investments with favorable tax treatment in order to lessen his or her overall income tax burden. There are new mortgage products out there for single-family homeowners that encourage you to borrow against your principal residence by buying investments where you can enjoy greater write-off and tax benefits.
Choosing a single strategic objective and assigning weightings to all other possible objectives is a process that depends on such factors as the investor's temperament, his or her stage of life, marital status, family situation, and so forth. Out of the multitude of possibilities out there, each investor is sure to find an appropriate mix of investment opportunities, especially in the real estate market. You need only be concerned with spending the appropriate amount of time and effort in finding, studying and deciding on the opportunities that match your objectives.
Before I sign off, I’d like to present a brief synopsis of income property activity in Toronto so far this year. This will give you a good idea of what you may expect in the months to come:
Price Range 300,000 – 500,000
District: C01
Average List Price: $420,309
Average Sale Price: $407,365
Average Original Price: $423,949
% of List Price: 97.39
Taxes: $2,838
In C01 the average listing netted $407,365 (97% of the list price average of $420,309), with taxes averaging $2,838.
District: E01
Average List Price: $373,236
Average Sale Price: $362,768
Average Original Price: $375,788
% of List Price: 98.04
Taxes: $2,561
Similarly, in the E01 district, the average list price was $373,236, with an average sale price of $362,768 fetching approximately 98% of the list price. In the E01 the average taxes are $2,561.
Price Range 500,000 +
District: C10
Average List Price: $707,543
Average Sale Price: $762,486
Average Original Price: $708,971
% of List Price: 98.14
Taxes: $5,033
In C10 the average listing netted $762,486 (98% of the list price average of $707,543), with taxes averaging $5,033.
If you ever would like specific sales information on any MLS district, please let me know. I believe very strongly in the maxim that “knowledge is power” so if I can arm you with the details you need to make an informed purchase decision, it would be my pleasure.
Take care everyone. See you next month.
P.A.
Monthly Newsletter: April 2006
This month I’d like to present our “top ten” strategies to enhance your chances for success when purchasing an income property. This applies to both owner-occupied income properties as well as properties for investment only. The principles also work in any given real estate market or geography. By following these few simple rules you can limit your risk and get closer to buying the right property that meets your specific needs
This list was originally presented in the Toronto Star by a shrewd investor named Andrew Vitch, who is active in the Niagara area. I agree with all ten points whole-heartedly and I can honestly say that this is one of the smartest articles on income properties that I have ever come across. Rather than come up with my own version of a top ten, I have taken his list and added my own thoughts afterwards. If you follow these ten simple rules then it is unlikely (though not impossible) that you will make a bad purchase decision.
The property should be visually appealing or have the potential to be appealing with a few cosmetic improvements. The test: “Would you want your 20 –year-old daughter to live there?” This is important because when it comes time to sell, the curb appeal of your property is the first impression that is made when one comes to take a look. Generally, if a house looks good on the outside, it will show well on the inside.
The property should be close to public transit or have its own parking. It should be located near other apartments as well. There are some good neighbourhoods where a rental doesn’t belong. If you put student housing among single-family homes, for example you can anticipate opposition from your neighbours and calls to city hall.
The property should be zoned for the number of rental units you have and the construction should be done with a permit. Otherwise, the bank will do its due diligence and find out you don’t have a legal apartment, which may bring your financing into question. Remember to always let your lender and your insurer know if you are going to be living in the property but also renting a portion of it out.
The property’s major systems should be working properly. Put a condition in your offer that you want a building inspection. Does the heating system use a boiler or forced-air gas? Doe the plumbing use copper or galvanized pipes? Is there aluminum or knob-and-tube wiring, which could pose a safety problem? How's the drainage in the basement? These are things you have to know. Make sure that key parts of the heating or electrical systems aren’t sitting in a tenant’s apartment. That way, you won’t have to knock on doors each time you have to do repairs. Also, check for termites, knob & tube wiring and other potential surprises that may affect the property. If you have to buy a property “firm” because of market competition, try and do a preinspection. If not, please be very careful.
The property should have a hydro inspection and, if possible, a fire safety retrofit review. Ask your real estate agent about them when visiting the property. If you read last month’s article you know that most properties are not fire retrofitted but it’s still not a bad idea to get a list of everything that needs to be done in order to ensure that you meet fire code compliance.
Try to meet the tenants when you visit the units. Ask them if there’s anything they don’t like about the building. This protects you from unexpected demands from the tenants after the deal closes. Also, if a tenant looks dodgy, proceed with extreme caution. Some tenants try to bully landlords and not pay their rent. If I go into a rental suite and it’s a real dump then I almost insist that you get a look at the occupant(s). The last thing you want to have happen is that a tenant makes your life difficult. This negates all the positive aspects of being a landlord.
Crunch the numbers to make sure you’re getting a good return on your investment. Divide the building’s net operating income by its purchase price. The result is “the cap rate”. Today a cap rate of five to seven is the norm in Toronto. Ownership costs, such as hydro, gas, water, insurance and property taxes have been going up more quickly than rents. Interest rates have started rising, too. If you buy at an 6 percent cap rate, the property had better be completely improved. You don’t want to take more money out of your pocket to improve it.
If possible, ask the seller to participate in the financing. Use only borrowed money, with a line of credit on your own home for the down payment. This isn’t always possible but in a good borrowing climate this makes a lot of sense.
Try to buy one property a year. You’ll see the second mortgage being paid off in four to six years and you’ll have a bonus monthly income each year. Sometimes this isn’t possible. Don’t buy though, just for the sake of buying. Please meet sure that it’s a solid invesment or that it meets your future needs. Also, be patient. There are a lot of duds out there so make sure that you are careful to wait for the right property. But when it turns up, don’t mess around. If you hesitate or over-complicate things you are likely to lose the property to someone else.
Bring along someone with experience when visiting properties. It is smarter to do business with a company like Plex Realty who deals with these kinds of properties everyday – not just once in a blue moon. It is important that you get accurate and current investment market knowledge.
When the time comes to make a purchase or sale decision, following these simple rules can make the process go much smoother. I find that most of our clients educate themselves online to prepare themselves as much as possible. Our website at www.plex.ca is loaded with a lot more useful information. I personally update the features properties every week so that you are seeing the best of what’s still available. Of course, there is still no substitute for getting out there and seeing as many properties as possible. This is the best way to stay on the cutting edge of the market.
Next month I will do a wrap-up on MLS income property activity so far this year as well look at some other Canadian markets to compare how well Toronto is doing in relation to other large cities.
Enjoy the warm weather everyone – hopefully the worst of the cold is past us.
P.A.
Monthly Newsletter: March 2006
This month I'd like to spend some time discussing two of the most often misunderstood facets of the income property business & fire retrofit legislation and the issue of legal duplexes/triplexes, etc. I’d like to thank Paul Schuster, one of Toronto’s leading retrofit experts, for his contributions to this month’s column. If you have any further questions, please feel free to contact him at paul@pcfirecode.com or contact your Plex sales representative. 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. Another issue that I’d like to discuss is the notion of a legal vs. non-legal duplex or triplex. Legality in this case refers to its zoning status and does not suggest or imply that the property may be contravening any actual laws. It simply means that the City des not recognize the property as a duplex. This can be for a number of reasons. A purpose-built duplex is almost always legal. If you add a basement suite, that does not make the building a legal triplex. It is still a duplex, but with a legal non-conforming basement. “Non-confirming” means that the additional unit doesn’t meet the guidelines in the zoning bylaws. It may have constructed prior to existing bylaws, so we term that as being grand fathered. An example might be if there is a gas station at the end of a block. Say the zoning changes such that no more gas stations are permitted to operate. The pre-existing station does not have to close down. Its use is now considered non-conforming to the new municipal zoning bylaw, but it is certainly allowed to continue to operate. The second suite bylaw acknowledges that every dwelling unit can have two self-contained units in it with no concerns. Once you add additional units, the status of the building does not necessarily change. As noted above, all accessory apartments have to meet fire code standards. Sales of Toronto income properties continue to be brisk, with many properties with nice suites often selling for over asking price. The sales prices suggest to me that the Sellers are still on the winning side of the equation. From an investors’ point of view, it has become difficult to make great returns in the prime areas of the City. It seems that just having properties in key neighbourhoods is just as desirable for purchasers as making short term returns. Many shrewd investors understand the prime areas always hold their value, although they usually achieve better than average capital appreciation, and that’s why it’s important to get in now. Perhaps, it does make sense to buy a six cap today while you still can. Remember that we’re still very competitive relative to other major markets. Lastly, a quick thought on interest rates and where they may be heading this year. Are interest rates going up in 2006? There has been lots discussion concerning the Bank of Canada's need to raise interest rates and contain the threat of inflation. However, the realities today are very different from last year. Our dollar has been on a tear lately and according to many economists a $.90cent dollar acts in the same way as raising interest rates... it contains inflation. Knowing this fact, the real estate industry can and should know that rates might be raised one or two might times... with all signs pointing to a holding pattern for the end half of 2006.All the best to everyone for a safe Spring break.
P.A.
This month I'd like to spend some time discussing two of the most often misunderstood facets of the income property business & fire retrofit legislation and the issue of legal duplexes/triplexes, etc. I’d like to thank Paul Schuster, one of Toronto’s leading retrofit experts, for his contributions to this month’s column. If you have any further questions, please feel free to contact him at paul@pcfirecode.com or contact your Plex sales representative. 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. Another issue that I’d like to discuss is the notion of a legal vs. non-legal duplex or triplex. Legality in this case refers to its zoning status and does not suggest or imply that the property may be contravening any actual laws. It simply means that the City des not recognize the property as a duplex. This can be for a number of reasons. A purpose-built duplex is almost always legal. If you add a basement suite, that does not make the building a legal triplex. It is still a duplex, but with a legal non-conforming basement. “Non-confirming” means that the additional unit doesn’t meet the guidelines in the zoning bylaws. It may have constructed prior to existing bylaws, so we term that as being grand fathered. An example might be if there is a gas station at the end of a block. Say the zoning changes such that no more gas stations are permitted to operate. The pre-existing station does not have to close down. Its use is now considered non-conforming to the new municipal zoning bylaw, but it is certainly allowed to continue to operate. The second suite bylaw acknowledges that every dwelling unit can have two self-contained units in it with no concerns. Once you add additional units, the status of the building does not necessarily change. As noted above, all accessory apartments have to meet fire code standards. Sales of Toronto income properties continue to be brisk, with many properties with nice suites often selling for over asking price. The sales prices suggest to me that the Sellers are still on the winning side of the equation. From an investors’ point of view, it has become difficult to make great returns in the prime areas of the City. It seems that just having properties in key neighbourhoods is just as desirable for purchasers as making short term returns. Many shrewd investors understand the prime areas always hold their value, although they usually achieve better than average capital appreciation, and that’s why it’s important to get in now. Perhaps, it does make sense to buy a six cap today while you still can. Remember that we’re still very competitive relative to other major markets. Lastly, a quick thought on interest rates and where they may be heading this year. Are interest rates going up in 2006? There has been lots discussion concerning the Bank of Canada's need to raise interest rates and contain the threat of inflation. However, the realities today are very different from last year. Our dollar has been on a tear lately and according to many economists a $.90cent dollar acts in the same way as raising interest rates... it contains inflation. Knowing this fact, the real estate industry can and should know that rates might be raised one or two might times... with all signs pointing to a holding pattern for the end half of 2006.All the best to everyone for a safe Spring break.
P.A.
Monthly Newsletter: February 2006
I’d like to start this month by thanking all of our clients and friends who came to see us at the 2006 Financial Forum. I’d all also like to welcome all the new folks that we met at the show that will be reading our monthly newsletter for the first time. This year’s show was a resounding success and we were happy to be a part of it. Despite all the chatter about income trusts, investment syndicates and precious metals, real estate was a still a hot topic with all the attendees. We had the pleasure of doing six seminars over the four days and all but one were standing room only. I talked about strategies for achieving success in Toronto’s income property market (all this information is available for you to read at www.plex.ca) and was at amazed at how many folks still have an active interest in this market.
I’d also like to thank Mortgage Marcus and Paul Schuster (fire retrofit expert) for their participation with us at the show. Marcus did several excellent presentations on mortgage mathematics and had plenty of interest in his tax-saving and debt restructuring programs. He talked in detail about the “Smith Manoeuvre” - where you top up the mortgage on your principal residence (provided that it’s a single family home) and use the extra funds to purchase investments (of any sort) where you can fully deduct the interest payments. It’s a very interesting proposition and worth educating yourself on. If you are interested in finding out more or would like to get a free copy of the actual book, please feel free to contact Marcus at marcus@mortgagemarcus.com.
The income property market in Toronto has started off this year with a bang. From everything that I have seen over the past three weeks, 2006 is looking a lot like last year – high prices, multiple offers and a lot of overall action. There’s no doubt in my mind that the market still favours sellers but there are still quality income properties out there if you look hard enough.
Interest rates went up 25 basis points last week and most believe that we can still expect increases upwards of a point (or slightly more) this year, but I still don’t think that this will stall the market. I also still believe that if the market cools down, the prices that we have seen over the past couple of years will still hold. I do not anticipate a reduction in the prices of plexes in prime locations
One in six Canadian homeowners and investors who responded to a recent study said they planned on investing in property in the next two years. The study, commissioned by Re/Max, found that single-home purchases were the most popular investment, followed by multi-unit buildings, condominiums and townhouses. Of those who planned to invest in real estate, close to 30 per cent already owned a home and 43 per cent were under age 40. Michael Polzler, executive vice-president of Re/Max Ontario – Atlantic Canada Inc., said Canadians are by nature conservative investors and like the predictable returns real estate offers, even if they might bet a better bang for their buck in equity investments. “It has an allure,” Polzler said. “You can write off your expenses and you know what you have.”
Carl Gomez, an economist with Toronto-Dominion Bank, offers an opposite view. He states there has been a “big rush to real estate” in recent years, thanks to rising prices, low interest rates and poor returns in equity markets, but he is not convinced that trend will hold now that interest rates are on the rise and equity markets are delivering strong returns. “People go where the returns are,” he said. “The tide might be turning.” If the tide does in fact start to turn, I’m sure that we on the investment side of the Toronto market will see the signs well in advance.
One topic that came up a few times over the course of the Financial Forum was the continued belief that Toronto is undergoing a vacancy problem. In my opinion, this is an exaggerated concern spurred on by the media. Folks think that there are loads of empty apartments out there, thus making investment properties an unsure bet. This is simply not the case – at least, not in the core of the city. There was an article in a Toronto daily last week about an investor who bought a triplex and was having a tricky time tenanting the last suite. Well, she was our client. We bought the building with her and she is now looking for another property. And yes, her empty suite mentioned in the paper did get rented for what she wanted.
The vacancy rate for new condos is under 1%. I would argue that the rate in the Central core for income properties with less than six units is under 2%. I had a friend call me the other day looking to rent a two bedroom and wanted to spend around $1400 a month. I couldn’t find anything on MLS or on www.viewit.ca so I called a few clients who I knew had multi-unit buildings. No one had any vacant units. When I show income properties to clients we do see vacant suites. In many cases though, the owner chooses not to rent, in case the buyer would like that suite. It’s also awkward to tell a new tenant that the building is for sale – it sometimes makes the renters feel nervous.
“I see a downward push on vacancy rates in 2006 and 2007, though there will be some resistance as new condos come on stream,” Ted Tsiakopolous, Ontario regional economist for the Canada Mortgage and Housing Corp. says. “The volume of incentives has softened a bit and landlords are pulling some of them off the able, such as free rent, free parking, or renovations. This is good news for real estate investors.”
Average rents in Toronto were flat between 2004 and 2005 and virtually unchanged since 2002, says a report by Clayton Research Associates Ltd. Aggressive recruiting of tenants helped fill vacant units. Better times are ahead for landlords, because of continuing strong immigration and a widening gap between renting and owning. “Overall vacancy rates will decline over the medium term,” the report concludes, “thereby allowing landlords to pass rent increases through more easily in the future.”
Even commercial space is starting to rent at a premium. For the first time this decade, rents for premier office space in leading markets world wide increased simultaneously, new data show. And here in the GTA, office demand is tipping the balance of bargaining power to landlords. Commercial real estate services company CB Richard Ellis says a strong economy and low unemployment pushed the vacancy rate in the downtown core to 6.3 per cent, down from 8.4 percent in 2004. Take a look at the following chart that shows how Toronto commercial vacancy rates compares to other major cities:
Market
2005 rent
(sq. ft.,
U.S. dollars)
% change
from 2004
Vacancy
Rate
Hong Kong
$58.81
45.0%
4.8%
London
$141.72
6.7%
7.0%
Los Angeles
$29.76
15.3%
13.1%
Madrid
$36.59
8.0%
9.0%
New York
$44.85
11.8%
7.0%
Paris
$72.06
2.1%
5.0%
Sydney
$40.68
3.2%
10.4%
Tokyo
$111.45
19.8%
1.7%
Toronto
$25.44
3.9%
6.3%
Washington
$45.47
4.5%
6.4%
It is interesting to see how competitive we still are on a square foot basis. At Plex Realty, we still show many mixed-use buildings to our clients. It’s encouraging that rents for both residential apartments and storefronts are starting to creep back up.
Before I sign off this month, we elected a Conservative Prime Minister last week. What does this mean for our economic future and the overall Toronto residential investment market? I think I’ll leave those thoughts for David and Greg. J
Next month we’ll be in the midst of the Spring market so I look forward to sending you more news from the field.
Paul Anand
Broker
www.plex.ca
I’d like to start this month by thanking all of our clients and friends who came to see us at the 2006 Financial Forum. I’d all also like to welcome all the new folks that we met at the show that will be reading our monthly newsletter for the first time. This year’s show was a resounding success and we were happy to be a part of it. Despite all the chatter about income trusts, investment syndicates and precious metals, real estate was a still a hot topic with all the attendees. We had the pleasure of doing six seminars over the four days and all but one were standing room only. I talked about strategies for achieving success in Toronto’s income property market (all this information is available for you to read at www.plex.ca) and was at amazed at how many folks still have an active interest in this market.
I’d also like to thank Mortgage Marcus and Paul Schuster (fire retrofit expert) for their participation with us at the show. Marcus did several excellent presentations on mortgage mathematics and had plenty of interest in his tax-saving and debt restructuring programs. He talked in detail about the “Smith Manoeuvre” - where you top up the mortgage on your principal residence (provided that it’s a single family home) and use the extra funds to purchase investments (of any sort) where you can fully deduct the interest payments. It’s a very interesting proposition and worth educating yourself on. If you are interested in finding out more or would like to get a free copy of the actual book, please feel free to contact Marcus at marcus@mortgagemarcus.com.
The income property market in Toronto has started off this year with a bang. From everything that I have seen over the past three weeks, 2006 is looking a lot like last year – high prices, multiple offers and a lot of overall action. There’s no doubt in my mind that the market still favours sellers but there are still quality income properties out there if you look hard enough.
Interest rates went up 25 basis points last week and most believe that we can still expect increases upwards of a point (or slightly more) this year, but I still don’t think that this will stall the market. I also still believe that if the market cools down, the prices that we have seen over the past couple of years will still hold. I do not anticipate a reduction in the prices of plexes in prime locations
One in six Canadian homeowners and investors who responded to a recent study said they planned on investing in property in the next two years. The study, commissioned by Re/Max, found that single-home purchases were the most popular investment, followed by multi-unit buildings, condominiums and townhouses. Of those who planned to invest in real estate, close to 30 per cent already owned a home and 43 per cent were under age 40. Michael Polzler, executive vice-president of Re/Max Ontario – Atlantic Canada Inc., said Canadians are by nature conservative investors and like the predictable returns real estate offers, even if they might bet a better bang for their buck in equity investments. “It has an allure,” Polzler said. “You can write off your expenses and you know what you have.”
Carl Gomez, an economist with Toronto-Dominion Bank, offers an opposite view. He states there has been a “big rush to real estate” in recent years, thanks to rising prices, low interest rates and poor returns in equity markets, but he is not convinced that trend will hold now that interest rates are on the rise and equity markets are delivering strong returns. “People go where the returns are,” he said. “The tide might be turning.” If the tide does in fact start to turn, I’m sure that we on the investment side of the Toronto market will see the signs well in advance.
One topic that came up a few times over the course of the Financial Forum was the continued belief that Toronto is undergoing a vacancy problem. In my opinion, this is an exaggerated concern spurred on by the media. Folks think that there are loads of empty apartments out there, thus making investment properties an unsure bet. This is simply not the case – at least, not in the core of the city. There was an article in a Toronto daily last week about an investor who bought a triplex and was having a tricky time tenanting the last suite. Well, she was our client. We bought the building with her and she is now looking for another property. And yes, her empty suite mentioned in the paper did get rented for what she wanted.
The vacancy rate for new condos is under 1%. I would argue that the rate in the Central core for income properties with less than six units is under 2%. I had a friend call me the other day looking to rent a two bedroom and wanted to spend around $1400 a month. I couldn’t find anything on MLS or on www.viewit.ca so I called a few clients who I knew had multi-unit buildings. No one had any vacant units. When I show income properties to clients we do see vacant suites. In many cases though, the owner chooses not to rent, in case the buyer would like that suite. It’s also awkward to tell a new tenant that the building is for sale – it sometimes makes the renters feel nervous.
“I see a downward push on vacancy rates in 2006 and 2007, though there will be some resistance as new condos come on stream,” Ted Tsiakopolous, Ontario regional economist for the Canada Mortgage and Housing Corp. says. “The volume of incentives has softened a bit and landlords are pulling some of them off the able, such as free rent, free parking, or renovations. This is good news for real estate investors.”
Average rents in Toronto were flat between 2004 and 2005 and virtually unchanged since 2002, says a report by Clayton Research Associates Ltd. Aggressive recruiting of tenants helped fill vacant units. Better times are ahead for landlords, because of continuing strong immigration and a widening gap between renting and owning. “Overall vacancy rates will decline over the medium term,” the report concludes, “thereby allowing landlords to pass rent increases through more easily in the future.”
Even commercial space is starting to rent at a premium. For the first time this decade, rents for premier office space in leading markets world wide increased simultaneously, new data show. And here in the GTA, office demand is tipping the balance of bargaining power to landlords. Commercial real estate services company CB Richard Ellis says a strong economy and low unemployment pushed the vacancy rate in the downtown core to 6.3 per cent, down from 8.4 percent in 2004. Take a look at the following chart that shows how Toronto commercial vacancy rates compares to other major cities:
Market
2005 rent
(sq. ft.,
U.S. dollars)
% change
from 2004
Vacancy
Rate
Hong Kong
$58.81
45.0%
4.8%
London
$141.72
6.7%
7.0%
Los Angeles
$29.76
15.3%
13.1%
Madrid
$36.59
8.0%
9.0%
New York
$44.85
11.8%
7.0%
Paris
$72.06
2.1%
5.0%
Sydney
$40.68
3.2%
10.4%
Tokyo
$111.45
19.8%
1.7%
Toronto
$25.44
3.9%
6.3%
Washington
$45.47
4.5%
6.4%
It is interesting to see how competitive we still are on a square foot basis. At Plex Realty, we still show many mixed-use buildings to our clients. It’s encouraging that rents for both residential apartments and storefronts are starting to creep back up.
Before I sign off this month, we elected a Conservative Prime Minister last week. What does this mean for our economic future and the overall Toronto residential investment market? I think I’ll leave those thoughts for David and Greg. J
Next month we’ll be in the midst of the Spring market so I look forward to sending you more news from the field.
Paul Anand
Broker
www.plex.ca
Monthly Newsletter: January 2006
I’d like to start off by wishing all of our clients, friends and family a very safe, happy and prosperous New Year. I hope that all your dreams come true in 2006 and all your hard work and efforts are well-rewarded.
I am happy to announce that Gregory Elliot Laxton has joined the Plex team of sales representatives. Greg has extensive experience with multi-family dwellings as well as first-hand construction expertise. Greg will be primarily focusing on Central Toronto where he currently resides. His keen eye for value and opportunities in the marketplace will be a valuable asset to our group.
One of your resolutions for 2006 may be to try and be more fiscally responsible and to try and create greater returns on your investment dollars. A great way to get started is to come and join us at the Financial Forum at the Metro Convention Centre from January 26th through to January 29th. If you are on my e-mail list, I have attached a free pass for you to attend in case you missed last month’s newsletter. Feel free to print out as many passes as you need and bring your friends and associates. If you are not on my list, please send me an e-mail and I will make sure that I get you a free pass for the show. This trade show is Canada’s foremost investment gathering and will be indispensable for you to make informed decisions about the myriad of financial products that are available to you. Naturally, we will be there talking about the income property market in Greater Toronto and why we feel that real estate in the GTA is still one of the best long-term investment strategies. We will also be hosting two seminars. I will be talking about the overall economic outlook for real estate in Toronto, while Marcus Tzaferis, one of our lead mortgage brokers, will introduce you to the many mortgage and financing options that exist in the marketplace today. We will also have Paul Schuster, our fire-retrofit expert available to answer all of your questions. I really think that many of you will benefit from attending and will come out of it with a much broader understanding of how best to spend your investment funds. This is the last newsletter that I will doing before the show, so I hope to see as many of you there as possible.
This past year was a very robust one for the residential resale market. 2005 has once again set the record for the greatest number of resale transactions in the Greater Toronto Area, Toronto Real Estate Board President John Meehan announced last week. With a total of 83,547 properties changing hands to-date, this year has just surpassed the previous record of 83,501 set in 2004. “The phenomenal number of sales this year demonstrates that consumers continue to have confidence in the real estate market,” said Mr. Meehan. Canadian Mortgage and Housing Corporation predicts that next year the Greater Toronto Area real estate market will continue its strong performance; it forecasts a total of 84,000 sales for 2006.
TREB President John Meehan says that even more important than the figure itself, the market's performance in 2005 illustrates an important point. "In recent years, we have shattered countless records and while we are always pleased to report that new benchmarks have been set, we are even more delighted that an increasing number of families in the Greater Toronto Area recognize that investing in a home is the most sound decision you can make."
The New Year is traditionally the time to make predictions about where the real estate market is heading. Real estate forecasters look at many socio-graphic and economic factors and try to get a sense of where prices will be going in the months ahead. So what’s going on? Essentially, one of three things can happen. The feverish demand that we have been experiencing slows down, houses sit for sale for a longer time and the overall market slows down. On the other hand, since we still (as recently as November) have been experiencing record-breaking sales months, this trend can continue with housing prices continuing to rise. Last month all of us here at Plex gave our predictions for where we see the market going next year. The overriding consensus from our point of view is that the market will remain strong, particularly for residential investment properties.
One of the largest segments fuelling this sustained growth has been the condo market in the GTA. Conventional wisdom suggests that Toronto's sizzling condo market will eventually slow down – but that doesn’t seem to be the case either. Predictions are that condo starts will hit new highs in 2006, while a building frenzy similar to 1989 continues. The difference between the speculator-infested condo boom back then and today's market, explains Jason Mercer, CMHC senior market analyst, is now only 18%-20% of condo buyers are investors. That compares to 30% back in 1995. Also rising apartment vacancy rates – some experts figure it to hit 5% in 2006 (which I, by the way, believe is probably too high an estimate)-- plus new restrictions on building financing based on the number of sold condo units has deterred investors from buying condos to flip. Today it's more and more first-time buyers who are snapping up condos and townhomes as detached homes become less and less affordable.
The residential income property market remained strong in 2005. Investors on larger-scale buildings are settling on lower returns than in the past, but still remain bullish about owning income-generating property in Toronto. Since the market seems to be strong overall, but with room to grow relative to other major world cities, investors are adapting a buy and hold strategy. Remember that future cash flows always improve over time so a six cap today could be a significantly better investment five years down the road. Of course, owner-occupied income properties are always a good bet. I’ve found that prices for the better live-in opportunities are a little higher than average, but there are still opportunities out there if you look hard enough. They also remain one of the easiest forms of real estate to finance.
We compile our own stats on the multi-residential market in Toronto. I have published three of the downtown MLS districts as a sample to illustrate the year-to-date activity:
C01
82 sold under 500K
Average list price under 500K $421184
Average sale price under 500K $412636
52 sold over 500K
Average list price over 500K $670975
Average sale price over 500K $638909
C02
64 sold under 500K
Average list price under 500K $371156
Average sale price under 500K $356174
44 sold over 500K
Average list price over 500K $964039
Average sale price over 500K $925615
C03
37 sold under 500K
Average list price under 500K $346705
Average sale price under 500K $336708
As you can see, income property prices tended to be higher than the overall average prices in Toronto. We have also found that it is becoming more and more difficult to buy anything good for under $350K. Quality owner-occupied income properties in nicer locations tend to start at $400K and go up from there. As I stated last month, I feel that this market is very much inventory-driven and the trick is to continually stay on top of the inventory to find the best deals.
Will 2006 be your year to buy an investment property? We’re here to help and I give you my word that we will stay on top of the investment market to give you the critical information you need to make the right purchase decisions. Once again, a very Happy New Year to everyone and hopefully we’ll see you at the Financial Forum.
P.A.
I’d like to start off by wishing all of our clients, friends and family a very safe, happy and prosperous New Year. I hope that all your dreams come true in 2006 and all your hard work and efforts are well-rewarded.
I am happy to announce that Gregory Elliot Laxton has joined the Plex team of sales representatives. Greg has extensive experience with multi-family dwellings as well as first-hand construction expertise. Greg will be primarily focusing on Central Toronto where he currently resides. His keen eye for value and opportunities in the marketplace will be a valuable asset to our group.
One of your resolutions for 2006 may be to try and be more fiscally responsible and to try and create greater returns on your investment dollars. A great way to get started is to come and join us at the Financial Forum at the Metro Convention Centre from January 26th through to January 29th. If you are on my e-mail list, I have attached a free pass for you to attend in case you missed last month’s newsletter. Feel free to print out as many passes as you need and bring your friends and associates. If you are not on my list, please send me an e-mail and I will make sure that I get you a free pass for the show. This trade show is Canada’s foremost investment gathering and will be indispensable for you to make informed decisions about the myriad of financial products that are available to you. Naturally, we will be there talking about the income property market in Greater Toronto and why we feel that real estate in the GTA is still one of the best long-term investment strategies. We will also be hosting two seminars. I will be talking about the overall economic outlook for real estate in Toronto, while Marcus Tzaferis, one of our lead mortgage brokers, will introduce you to the many mortgage and financing options that exist in the marketplace today. We will also have Paul Schuster, our fire-retrofit expert available to answer all of your questions. I really think that many of you will benefit from attending and will come out of it with a much broader understanding of how best to spend your investment funds. This is the last newsletter that I will doing before the show, so I hope to see as many of you there as possible.
This past year was a very robust one for the residential resale market. 2005 has once again set the record for the greatest number of resale transactions in the Greater Toronto Area, Toronto Real Estate Board President John Meehan announced last week. With a total of 83,547 properties changing hands to-date, this year has just surpassed the previous record of 83,501 set in 2004. “The phenomenal number of sales this year demonstrates that consumers continue to have confidence in the real estate market,” said Mr. Meehan. Canadian Mortgage and Housing Corporation predicts that next year the Greater Toronto Area real estate market will continue its strong performance; it forecasts a total of 84,000 sales for 2006.
TREB President John Meehan says that even more important than the figure itself, the market's performance in 2005 illustrates an important point. "In recent years, we have shattered countless records and while we are always pleased to report that new benchmarks have been set, we are even more delighted that an increasing number of families in the Greater Toronto Area recognize that investing in a home is the most sound decision you can make."
The New Year is traditionally the time to make predictions about where the real estate market is heading. Real estate forecasters look at many socio-graphic and economic factors and try to get a sense of where prices will be going in the months ahead. So what’s going on? Essentially, one of three things can happen. The feverish demand that we have been experiencing slows down, houses sit for sale for a longer time and the overall market slows down. On the other hand, since we still (as recently as November) have been experiencing record-breaking sales months, this trend can continue with housing prices continuing to rise. Last month all of us here at Plex gave our predictions for where we see the market going next year. The overriding consensus from our point of view is that the market will remain strong, particularly for residential investment properties.
One of the largest segments fuelling this sustained growth has been the condo market in the GTA. Conventional wisdom suggests that Toronto's sizzling condo market will eventually slow down – but that doesn’t seem to be the case either. Predictions are that condo starts will hit new highs in 2006, while a building frenzy similar to 1989 continues. The difference between the speculator-infested condo boom back then and today's market, explains Jason Mercer, CMHC senior market analyst, is now only 18%-20% of condo buyers are investors. That compares to 30% back in 1995. Also rising apartment vacancy rates – some experts figure it to hit 5% in 2006 (which I, by the way, believe is probably too high an estimate)-- plus new restrictions on building financing based on the number of sold condo units has deterred investors from buying condos to flip. Today it's more and more first-time buyers who are snapping up condos and townhomes as detached homes become less and less affordable.
The residential income property market remained strong in 2005. Investors on larger-scale buildings are settling on lower returns than in the past, but still remain bullish about owning income-generating property in Toronto. Since the market seems to be strong overall, but with room to grow relative to other major world cities, investors are adapting a buy and hold strategy. Remember that future cash flows always improve over time so a six cap today could be a significantly better investment five years down the road. Of course, owner-occupied income properties are always a good bet. I’ve found that prices for the better live-in opportunities are a little higher than average, but there are still opportunities out there if you look hard enough. They also remain one of the easiest forms of real estate to finance.
We compile our own stats on the multi-residential market in Toronto. I have published three of the downtown MLS districts as a sample to illustrate the year-to-date activity:
C01
82 sold under 500K
Average list price under 500K $421184
Average sale price under 500K $412636
52 sold over 500K
Average list price over 500K $670975
Average sale price over 500K $638909
C02
64 sold under 500K
Average list price under 500K $371156
Average sale price under 500K $356174
44 sold over 500K
Average list price over 500K $964039
Average sale price over 500K $925615
C03
37 sold under 500K
Average list price under 500K $346705
Average sale price under 500K $336708
As you can see, income property prices tended to be higher than the overall average prices in Toronto. We have also found that it is becoming more and more difficult to buy anything good for under $350K. Quality owner-occupied income properties in nicer locations tend to start at $400K and go up from there. As I stated last month, I feel that this market is very much inventory-driven and the trick is to continually stay on top of the inventory to find the best deals.
Will 2006 be your year to buy an investment property? We’re here to help and I give you my word that we will stay on top of the investment market to give you the critical information you need to make the right purchase decisions. Once again, a very Happy New Year to everyone and hopefully we’ll see you at the Financial Forum.
P.A.
Monthly Newsletter: December 2005
I’d like to begin this month by wishing all of our clients, friends and family a very happy and safe holiday season. Merry Christmas, Happy Hanukkah, Merry Kwanzaa and a Happy New Year to all of you from all of us here at Plex Realty.
We would like to cordially invite you to attend the Financial Forum being held at the Metro Convention Centre (North Bldg., Hall C) from January 26th through January 29th, 2006 from 10:00 to 5:00 daily. The Financial Forum has been the preeminent investment education platform in Canada for the past 20 years. The Conferences and Exhibitions allow investors to navigate and learn about smart money options to maximize their investments. This is your opportunity to learn about investing in real estate as well as a myriad of other investment choices. Plex Realty will be exhibiting at the Financial Forum for the second year in a row. We will be conducting real estate investment seminars over the four days, touching on key topics such as mortgage financing, fire retrofit, tenant and vacancy issues and overall analyses of the income property market in Toronto. We will also have a few discussion tables set up near the main stage where we can discuss one-on-one your future real estate goals. Please find attached your free pass to come to this show as our guest.
One quick issue I’d like to address is the notion of “illegal basement apartments”. It’s a concern that I have to contend with regularly as I visit with my clients many homes that have secondary suites in them. In Toronto, we have the second suite by-law which quietly came into effect in 1999. Basically, second suites 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. The second suite bylaw does not apply to new homes that are less than five years old, which is interesting because as recently as this week, I saw new builds near York University, with separate entrances enticing owners to consider basement apartments. All new basement apartments must comply with the Ontario Building Code and require a building permit. Existing secondary suites must comply with the Fire Code as well as zoning and property standards.
Here’s a little bit of interesting information if you go outside of the City of Toronto. The Brampton Real Estate Board has issued a statement regarding basement or accessory apartments. The issue revolves around the use of the word “unregistered apartment” when these properties are being listed for sale. The City has noted that a second dwelling unit or basement apartments must meet the City of Brampton’s registration criteria and be registered with the City. Furthermore, the City of Brampton is advising all brokers that multi-dwelling units (more than 2 units) are never permitted in the City of Brampton unless designated and licensed by the City to be a lodging, rooming or group home.
I’d now like to present a few different views on where the real estate market will be heading in the New Year. There are always opposing views on whether overall sales will increase, decrease or stay relatively level. A major Re/Max report just released says that after shattering existing records from coast-to-coast in 2005, housing values are expected to moderate in most major centres in 2006. More balanced conditions should emerge in the year ahead, with healthy inventory levels and less urgency in the marketplace. “An influx of new listings in the marketplace should ease some of the upward pressure on housing values and allow purchasers the luxury of time when buying a home”.
I’m quite optimistic for the Toronto income property sector in 2006. I’ve always been a proponent of the theory that income properties are more so inventory-driven than market-driven. In other words, I don’t necessarily believe that sellers of income properties closely analyze market conditions and put their property up for sale during peak economic times. Of course, some do, but the majority of sellers list for a variety of other factors. It’s usually external circumstances, apart from the market conditions, that influence one to sell. In fact, I’ve often found that sellers who try to time the market end up disappointed. We never really know when the next batch of quality investment properties will hit the market. Given that we have been in a seller’s market for the past two years, once this turns around, it will give buyers a more level platform. Interest rates should start to creep up slowly which ought to slowly start the trend towards a more balanced market. We may not completely see a “buyers market” in 2006, but I think that there will be more choice out there for the active real estate investors.
Here are some further thoughts from our own David Risenman and Howard Esakov. David states the following: “The market for resale real estate will end the year up 5% above last year, making it a 5th straight record year. This will be an unprecedented feat in Toronto’s real estate market. Mortgage interest rates are expected to remain within 1% of today's rates - hardly a halt to affordability - in fact with unemployment at record lows and immigration at all-time highs I see little if any impact on the volume of sales transactions. The biggest problem in the urban centers like the GTA is still on the side of quality supply inventory with demand continuing to be strong. Our client base continues to grow and that shows how attractive investing in Toronto remains. Rents will rise, partially fuelled by immigration and overall capital appreciation will swing in that direction as well. If there is one thing that is crucial in this market, it will be for Realtors to price properties fairly and follow the crucial fundamentals for assessing value for both buyers and sellers.”
Howard presents the following view: “The Toronto real estate market is demand and interest rate driven and until one or both of these factors change significantly, the market will remain active and strong. The demand for single family homes in AAA locations, such as Forest Hill, Rosedale, The Beaches, and The Annex remains high and will until interest rates rise significantly. Currently, income properties face the challenge of diminishing returns as upkeep costs continue to rise and rents are pressured due to low interest rates. However, as interest rates creep up I believe this will create a good buying climate for our clients as we should begin to see more inventory at better cap rates. Our motto remains the same, “Patience, Persistence and Perseverance will yield the profitable results.”
Next month, we will do our year-end wrap up as we prepare for the New Year. Seasons Greetings everyone!
P.A.
I’d like to begin this month by wishing all of our clients, friends and family a very happy and safe holiday season. Merry Christmas, Happy Hanukkah, Merry Kwanzaa and a Happy New Year to all of you from all of us here at Plex Realty.
We would like to cordially invite you to attend the Financial Forum being held at the Metro Convention Centre (North Bldg., Hall C) from January 26th through January 29th, 2006 from 10:00 to 5:00 daily. The Financial Forum has been the preeminent investment education platform in Canada for the past 20 years. The Conferences and Exhibitions allow investors to navigate and learn about smart money options to maximize their investments. This is your opportunity to learn about investing in real estate as well as a myriad of other investment choices. Plex Realty will be exhibiting at the Financial Forum for the second year in a row. We will be conducting real estate investment seminars over the four days, touching on key topics such as mortgage financing, fire retrofit, tenant and vacancy issues and overall analyses of the income property market in Toronto. We will also have a few discussion tables set up near the main stage where we can discuss one-on-one your future real estate goals. Please find attached your free pass to come to this show as our guest.
One quick issue I’d like to address is the notion of “illegal basement apartments”. It’s a concern that I have to contend with regularly as I visit with my clients many homes that have secondary suites in them. In Toronto, we have the second suite by-law which quietly came into effect in 1999. Basically, second suites 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. The second suite bylaw does not apply to new homes that are less than five years old, which is interesting because as recently as this week, I saw new builds near York University, with separate entrances enticing owners to consider basement apartments. All new basement apartments must comply with the Ontario Building Code and require a building permit. Existing secondary suites must comply with the Fire Code as well as zoning and property standards.
Here’s a little bit of interesting information if you go outside of the City of Toronto. The Brampton Real Estate Board has issued a statement regarding basement or accessory apartments. The issue revolves around the use of the word “unregistered apartment” when these properties are being listed for sale. The City has noted that a second dwelling unit or basement apartments must meet the City of Brampton’s registration criteria and be registered with the City. Furthermore, the City of Brampton is advising all brokers that multi-dwelling units (more than 2 units) are never permitted in the City of Brampton unless designated and licensed by the City to be a lodging, rooming or group home.
I’d now like to present a few different views on where the real estate market will be heading in the New Year. There are always opposing views on whether overall sales will increase, decrease or stay relatively level. A major Re/Max report just released says that after shattering existing records from coast-to-coast in 2005, housing values are expected to moderate in most major centres in 2006. More balanced conditions should emerge in the year ahead, with healthy inventory levels and less urgency in the marketplace. “An influx of new listings in the marketplace should ease some of the upward pressure on housing values and allow purchasers the luxury of time when buying a home”.
I’m quite optimistic for the Toronto income property sector in 2006. I’ve always been a proponent of the theory that income properties are more so inventory-driven than market-driven. In other words, I don’t necessarily believe that sellers of income properties closely analyze market conditions and put their property up for sale during peak economic times. Of course, some do, but the majority of sellers list for a variety of other factors. It’s usually external circumstances, apart from the market conditions, that influence one to sell. In fact, I’ve often found that sellers who try to time the market end up disappointed. We never really know when the next batch of quality investment properties will hit the market. Given that we have been in a seller’s market for the past two years, once this turns around, it will give buyers a more level platform. Interest rates should start to creep up slowly which ought to slowly start the trend towards a more balanced market. We may not completely see a “buyers market” in 2006, but I think that there will be more choice out there for the active real estate investors.
Here are some further thoughts from our own David Risenman and Howard Esakov. David states the following: “The market for resale real estate will end the year up 5% above last year, making it a 5th straight record year. This will be an unprecedented feat in Toronto’s real estate market. Mortgage interest rates are expected to remain within 1% of today's rates - hardly a halt to affordability - in fact with unemployment at record lows and immigration at all-time highs I see little if any impact on the volume of sales transactions. The biggest problem in the urban centers like the GTA is still on the side of quality supply inventory with demand continuing to be strong. Our client base continues to grow and that shows how attractive investing in Toronto remains. Rents will rise, partially fuelled by immigration and overall capital appreciation will swing in that direction as well. If there is one thing that is crucial in this market, it will be for Realtors to price properties fairly and follow the crucial fundamentals for assessing value for both buyers and sellers.”
Howard presents the following view: “The Toronto real estate market is demand and interest rate driven and until one or both of these factors change significantly, the market will remain active and strong. The demand for single family homes in AAA locations, such as Forest Hill, Rosedale, The Beaches, and The Annex remains high and will until interest rates rise significantly. Currently, income properties face the challenge of diminishing returns as upkeep costs continue to rise and rents are pressured due to low interest rates. However, as interest rates creep up I believe this will create a good buying climate for our clients as we should begin to see more inventory at better cap rates. Our motto remains the same, “Patience, Persistence and Perseverance will yield the profitable results.”
Next month, we will do our year-end wrap up as we prepare for the New Year. Seasons Greetings everyone!
P.A.
Monthly Newsletter: November 2005
This month I’d like to look at how rooming houses operate in Toronto and what you should know if you are thinking of buying or selling one. Rooming houses comprise a small percentage of the residential income property market in Toronto. Although the number of new licensed rooming houses has been on the decline, we still see many of these types of properties on a day-to-day basis. It is important to understand how these properties work and what the liabilities are for owning such a property that is not properly licensed. Unfortunately, the proliferation of illegal rooming houses is becoming a problem in the GTA, and is often a source of concern to me when I’m showing clients legitimate two & three suite buildings.
A rooming house is any building in which renters occupy single rooms and share kitchens, bathrooms, and common areas. The building may be a converted single-family house, a converted hotel, or a purpose-built structure. Rooming houses may have as few as three rooms for rent, or more than a hundred. They are the cheapest form of permanent accommodation currently available in Toronto. Rents average about $400-$450 a month. Those who cannot afford a room in a rooming house, or who are evicted from a rooming house because they cannot pay the rent generally have to go to a hostel. (This puts an added burden on the city, because housing people in hostels costs about $1,200 per person per month.)
Rooming houses are an essential form of housing for low-income people. They constitute the bottom rung of the housing ladder. If they disappear, it will become even harder for low-income people to remain on the ladder, let alone climb it. In other words, the fewer rooms that are available in rooming houses in Toronto, the greater the number of people who will fill the hostels and live on the streets. The decline in the number of rooming houses in Toronto has occurred at the same time as an increase in homelessness. The people who live in rooming houses are those who cannot afford self-contained apartments. These people include people on social assistance, people with minimum-wage jobs, students, new immigrants who are not yet established in jobs, refugees, old age pensioners with low incomes, disabled people, and former psychiatric patients. Recently, because of the shortage of inexpensive apartments in Toronto, working people who would normally have found apartments have begun to move into certain rooming houses. As such, rooming houses serve an important function for our city’s population.
The difficulty that I have is the overwhelming number of homes in this city that are operating as rooming houses that shouldn’t be. These illegal properties are putting not only the tenants but the owners at severe risk as well. A rooming house is considered illegal if it contravenes city bylaws. In the City of Toronto, rooming houses are required to obtain a license from City Hall to operate. Any rooming house that does not have a license can be considered "illegal." Rooming houses may also be "illegal" because their owners did not obtain a permit to make renovations to divide up the building, because they do not have sufficient parking for tenants, or because one or more rooms are below a certain minimum size. Rooming houses are also "illegal" if they are located in one of the former municipalities that prohibited them in its bylaws.
There are many areas of the city where I find illegal rooming houses. Often, renting by the room yields more income than renting out a two or three bedroom self-contained suite. Many new immigrants (some who may even be here questionably) often end up in these properties and naturally they keep quiet for fear of repercussion from their landlord. These landlords are just trying to squeeze as much revenue from their properties as possible and the overall well-being of their tenants becomes a secondary concern. There are many such homes in the Junction area of Toronto which borders Bloor to St. Clair and Lansdowne to Keele. Chinatown is also notorious for having many illegal rooming houses. Owners of these properties should be very careful. First of all, many of them don’t confirm to any fire code standards whatsoever, and are effectively accidents waiting to happen. Secondly, from an insurance standpoint, I wouldn’t want to have to put in a claim on one of these properties.
The City of Toronto has been granting fewer and fewer rooming houses licenses over the years. Many years ago there was a huge fire in a rooming house at the corner of Queen and Parliament where several inhabitants perished. This sparked a controversial debate about the safety and insurability of rooming houses. At present, the City licenses very few new rooming houses. They do still renew existing licenses to ensure that minimum standards of care are maintained. Licensing has benefits and drawbacks. Its chief benefit is that it makes rooming houses officially "visible." City of Toronto staff may inspect licensed rooming houses to ensure that they comply with building codes, fire codes, and city bylaws. This allows the city to set standards and to apply sanctions against landlords who do not keep their properties safe or in good repair. However, some of these standards are onerous or unrealistic for small rooming houses. If a smaller rooming house cannot comply, it may lose its license and either close down (evicting tenants in the process) or continue to operate illegally, without inspections.
If you are looking to buy a rooming house, please ensure that it is licensed. If not, it will be difficult to continue to legally earn rents. Many of these older rooming houses are ripe for reconversion to single family homes. If that is your intention, I would suggest that you get vacant possession prior to starting to renovate. It is also difficult to finance a rooming house without less than a 35% deposit, so make sure that you have your funds in order. Also, make sure that your insurer is aware that the property you are looking at is a rooming house and that they will offer adequate coverage. Proceed with caution as there are many pitfalls and potential problems that one may encounter when dealing with this type of investment real estate.
If you have a rooming house to sell, make sure that you let your potential purchaser know what the rent roll is and try to keep up-to-date and accurate expense records to share with the new purchaser. Sometimes landlords take their rent in cash which is difficult to show on a financial statement. I would recommend that your agent is familiar with rooming houses and knows all the ins and outs. Of course, you can always call us here at Plex if you are buying or selling as we stay up on all current legislation.
The City of Toronto has a Rooming House Working Group that meets every month during the fall, winter and spring (and less frequently during the summer) to discuss matters related to rooming houses. Landlords, tenants, service providers and anyone interested in rooming houses may attend these meetings. There is also a Rooming House Information Center, where tenants and landlords and people looking for a room or other rooming house related information could call. The Working Group and the Information Center fall within the Shelter Housing and Support Division of the Community and Neighborhood Services Department. Call 416-392-1274 for more information.
That’s it for this month. Next month we start our year-end wrap-up of Toronto’s income property market, highlighting some of the more significant sales over the year and we’ll try and give you a clearer sense of where we see the market going in the New Year.
P.A.
This month I’d like to look at how rooming houses operate in Toronto and what you should know if you are thinking of buying or selling one. Rooming houses comprise a small percentage of the residential income property market in Toronto. Although the number of new licensed rooming houses has been on the decline, we still see many of these types of properties on a day-to-day basis. It is important to understand how these properties work and what the liabilities are for owning such a property that is not properly licensed. Unfortunately, the proliferation of illegal rooming houses is becoming a problem in the GTA, and is often a source of concern to me when I’m showing clients legitimate two & three suite buildings.
A rooming house is any building in which renters occupy single rooms and share kitchens, bathrooms, and common areas. The building may be a converted single-family house, a converted hotel, or a purpose-built structure. Rooming houses may have as few as three rooms for rent, or more than a hundred. They are the cheapest form of permanent accommodation currently available in Toronto. Rents average about $400-$450 a month. Those who cannot afford a room in a rooming house, or who are evicted from a rooming house because they cannot pay the rent generally have to go to a hostel. (This puts an added burden on the city, because housing people in hostels costs about $1,200 per person per month.)
Rooming houses are an essential form of housing for low-income people. They constitute the bottom rung of the housing ladder. If they disappear, it will become even harder for low-income people to remain on the ladder, let alone climb it. In other words, the fewer rooms that are available in rooming houses in Toronto, the greater the number of people who will fill the hostels and live on the streets. The decline in the number of rooming houses in Toronto has occurred at the same time as an increase in homelessness. The people who live in rooming houses are those who cannot afford self-contained apartments. These people include people on social assistance, people with minimum-wage jobs, students, new immigrants who are not yet established in jobs, refugees, old age pensioners with low incomes, disabled people, and former psychiatric patients. Recently, because of the shortage of inexpensive apartments in Toronto, working people who would normally have found apartments have begun to move into certain rooming houses. As such, rooming houses serve an important function for our city’s population.
The difficulty that I have is the overwhelming number of homes in this city that are operating as rooming houses that shouldn’t be. These illegal properties are putting not only the tenants but the owners at severe risk as well. A rooming house is considered illegal if it contravenes city bylaws. In the City of Toronto, rooming houses are required to obtain a license from City Hall to operate. Any rooming house that does not have a license can be considered "illegal." Rooming houses may also be "illegal" because their owners did not obtain a permit to make renovations to divide up the building, because they do not have sufficient parking for tenants, or because one or more rooms are below a certain minimum size. Rooming houses are also "illegal" if they are located in one of the former municipalities that prohibited them in its bylaws.
There are many areas of the city where I find illegal rooming houses. Often, renting by the room yields more income than renting out a two or three bedroom self-contained suite. Many new immigrants (some who may even be here questionably) often end up in these properties and naturally they keep quiet for fear of repercussion from their landlord. These landlords are just trying to squeeze as much revenue from their properties as possible and the overall well-being of their tenants becomes a secondary concern. There are many such homes in the Junction area of Toronto which borders Bloor to St. Clair and Lansdowne to Keele. Chinatown is also notorious for having many illegal rooming houses. Owners of these properties should be very careful. First of all, many of them don’t confirm to any fire code standards whatsoever, and are effectively accidents waiting to happen. Secondly, from an insurance standpoint, I wouldn’t want to have to put in a claim on one of these properties.
The City of Toronto has been granting fewer and fewer rooming houses licenses over the years. Many years ago there was a huge fire in a rooming house at the corner of Queen and Parliament where several inhabitants perished. This sparked a controversial debate about the safety and insurability of rooming houses. At present, the City licenses very few new rooming houses. They do still renew existing licenses to ensure that minimum standards of care are maintained. Licensing has benefits and drawbacks. Its chief benefit is that it makes rooming houses officially "visible." City of Toronto staff may inspect licensed rooming houses to ensure that they comply with building codes, fire codes, and city bylaws. This allows the city to set standards and to apply sanctions against landlords who do not keep their properties safe or in good repair. However, some of these standards are onerous or unrealistic for small rooming houses. If a smaller rooming house cannot comply, it may lose its license and either close down (evicting tenants in the process) or continue to operate illegally, without inspections.
If you are looking to buy a rooming house, please ensure that it is licensed. If not, it will be difficult to continue to legally earn rents. Many of these older rooming houses are ripe for reconversion to single family homes. If that is your intention, I would suggest that you get vacant possession prior to starting to renovate. It is also difficult to finance a rooming house without less than a 35% deposit, so make sure that you have your funds in order. Also, make sure that your insurer is aware that the property you are looking at is a rooming house and that they will offer adequate coverage. Proceed with caution as there are many pitfalls and potential problems that one may encounter when dealing with this type of investment real estate.
If you have a rooming house to sell, make sure that you let your potential purchaser know what the rent roll is and try to keep up-to-date and accurate expense records to share with the new purchaser. Sometimes landlords take their rent in cash which is difficult to show on a financial statement. I would recommend that your agent is familiar with rooming houses and knows all the ins and outs. Of course, you can always call us here at Plex if you are buying or selling as we stay up on all current legislation.
The City of Toronto has a Rooming House Working Group that meets every month during the fall, winter and spring (and less frequently during the summer) to discuss matters related to rooming houses. Landlords, tenants, service providers and anyone interested in rooming houses may attend these meetings. There is also a Rooming House Information Center, where tenants and landlords and people looking for a room or other rooming house related information could call. The Working Group and the Information Center fall within the Shelter Housing and Support Division of the Community and Neighborhood Services Department. Call 416-392-1274 for more information.
That’s it for this month. Next month we start our year-end wrap-up of Toronto’s income property market, highlighting some of the more significant sales over the year and we’ll try and give you a clearer sense of where we see the market going in the New Year.
P.A.
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