Toronto Income Property Newsletter: December 2008
Happy holidays everyone! This will be my last newsletter for 2008, so I won’t be checking in with you again until after Christmas. In early January I will do my annual wrap-up and analysis of this year. 2008 certainly saw a long-expected downturn finally occur in the Toronto real estate and income property markets and as we head into this holiday season there is an unprecedented sense of doom and gloom in the air. So this month I thought that instead of talking incessantly about falling real estate numbers that I’d look at how best to cope during these uncertain economic times.
Let me say at the outset that for many of you it will be business as usual. Fortunately, most of my friends and clients are financially prudent and many of you have wisely bought income properties in the past that helps with your monthly cash flow. Regardless, if the current economic slow down isn’t affecting you directly, you will likely know someone who is feeling the pinch, and there are many people out there who are nervous, cutting back spending, etc. in anticipation of things actually getting worse.
I can’t ever remember a time when there was so much negativity being spread in the local media. It’s not just a slowdown in the number of real estate trades, but it seems like everyday there is a new story about some industry on the verge of collapse. Consumer indebtedness is at an all-time high and there isn’t a bright forecast for the unemployment numbers and the economy as a whole. If we are in a recession, which I do believe we are, we have to look forward to how this situation can be slowly turned around. There has been a bailout for the financial services sector in the U.S. and now the auto industry is looking for the government to fund their losses. What about a bailout for small businesses – the backbone of our North American economy? The little guy has to continue to struggle with decreased sales and higher borrowing costs, if he or she is even able to get business financing. The Bank of Canada has lowered lending rates for the major banking institutions in Canada. I got a call from my bank manager telling me that my interest rate on my credit facility would go up 1% - not because of any doing on my part, good or bad. It’s just an overall reaction to these times. Then I see what their quarterly profit was. To my all friends and clients that work at financial institutions, please forgive me, but that really sucks.
If any of you have ever seen the Enron documentary, that story is a microcosm for what has led us to the overall economic situation in North America. Greed and abuse by our supposed leaders – the guys at the top skimming huge corporate profits and in many cases, stealing from employees and pensioners, and then ultimately the whole system comes crumbling down. That’s the investment, banking and auto businesses in as nutshell. Massive profits, huge executive compensations and now all of their hands are out looking for the taxpayer to bail them out.
Adding insult to injury, the Canadian public had to endure the empty rhetoric of political candidates vying to be Prime Minister in an election that accomplished nothing. And now there is talk of a coalition which might overthrow the government that we actually elected. These are strange times indeed.
So how do we cope during these unsettling economic times? It has been proven that our emotional states do indeed affect our stress levels and our ability to sleep at night. Studies done at the University of North Carolina have found that as we enter a recession, health-related problems go down. As our economy plummets, the population’s physical well-being improves (as a whole). We smoke less, drink less and drive less, findings that are counter intuitive, since you’d think that if we’re feeling more stress, we’d do more of those less-healthy behaviors to cope with it. Well, that’s encouraging!
When we’re uncertain about the economy, however, we’re less likely to spend significant amounts of money on “luxuries,” which includes things like alcohol and cigarettes. And with the fluctuating price of gas, people tend to drive less. Instead of making three trips, you might combine them all into one trip and cut out errands that aren’t really necessary. Less driving equals less stress and less changes of getting into a crash or accident, reducing your risk of serious injury from an automobile accident.
Sure all of that’s great, but how does that help you right here and right now? Your retirement fund is tanking and there’ve been rumors at work of more layoffs! First, focus on the long-term picture when it comes to things like retirement and your career. People who check their mutual fund balances every day, every week, or even every month should stop. A retirement fund is not there to check up on in that sort of regular manner, because most returns on such funds are measured in decades, not months or weeks. The only thing you can proactively consider for your retirement funds is to move some of your investments into a quality income property that will always pay you cash at the end of the month. Otherwise, while you shouldn’t ignore those monthly statements, you also shouldn’t put much weight into them. Financial markets run in cycles, and this just happens to be a particular bad down cycle. It will recover in time.
The same goes too for your career. You only have control over what you have control over. Okay, I know that sounds obvious, but too many people stress and fret over variables or things they have no control over. If layoffs are inevitable, all you can do is to be pro-active in getting your resume updated and start looking for a new job now, and make sure your boss knows your contributions and value to the company. Being prepared for the worst means that if, by chance, it does happen, you’ll be ready with a list of jobs lined up and perhaps even an interview or two.
That idea of being in control is important. You and I can do nothing about the government bailout of the investment banks and what-not. So why worry about it? Trust that our elected officials are doing all that they can to keep things stable and moving forward, and that confidence will be restored in due time. Instead, focus on what you can control and change in your life. Scale back on planned financial commitments if it’ll make you feel better. Putting such things off a few months likely isn’t going to be a significant difficulty for most and can give a person added peace of mind when they go to sleep at night.
Uncertain economic times are also a good time to reconnect with your family and friends - the social relationships that bind us all together. Such connections remind us of the value of life, and are things we can influence and enrich. Consider this a good time to volunteer some time at a shelter or food kitchen, give blood, or find some other way to give something back to others. Usually when we give of ourselves in this manner, it reminds us of those who need our help - and that we can actually help out, locally, on our own. It can be a very empowering feeling.
Lastly, if you are self-employed like me and you’ve seen a decrease in sales, don’t stop working. Get out there everyday and hustle. My mother used to say “If you move your legs, God will give you speed”. This is very true.
We’ve seen times like this before and we know that this will pass. This current situation will be over soon and in a few weeks Barack Obama takes office. Until then, take heart in the hope that our government won’t allow something like this to happen again in our lifetimes. And with a new President in the U.S., the economy is likely to pick up once again in the New Year.
So that’s my holiday advice to all of you. It’s easy to be smiling when times are good. Just remember that we all have incredibly good fortune to live where and how we do. If you have your health and family and friends around you, then you are truly blessed. Forget about how much money you made or lost this year – at this time of year it’s simply not that important.
I promise that next month I’ll get back to just real estate, but it seems that whenever I go off topic I get the most amount of positive emails from all of you. Once again, have a very Merry Christmas or Hannukah or Kwanzaa or Festivus!
Paul Anand
Broker of Record
PLEX REALTY CORPORATION
Monday, December 01, 2008
Saturday, November 01, 2008
Newsletter: November 2008
I don’t want to sound like a real estate agent or anything, but now’s the time to buy! I guess it seems like we’re always saying that, so it’s a bit of a “cry wolf” scenario when the market really does start to offer some opportunities. Well folks, the last few weeks have seen a lot inventory not sell, leading to the first in a series of widespread price decreases in the Toronto. This has allowed some buyers to purchase properties for up to 20% under list price. And this will allow all the income property buyers to start to take stock in the bottom-line numbers again.
Here are the facts:
Activity in the Greater Toronto Area resale housing market slowed down considerably during the first half of October with 2,700 homes changing hands. Toronto Real Estate Board announced that sales volumes in the GTA decreased 18% compared to the first half of October 2007, when 3,297 transactions were recorded and are down 10 per cent compared to the same period in 2006 when 3,007 sales took place. In the City of Toronto 1,140 sales took place in the first half of this month. This represents a 21% decline from the 1,446 sales that took place in the same period a year ago and a 13 percent decrease from the 1,312 transactions recorded in the first half of October 2006.
House prices declined throughout the GTA during the first half of the month. The average price of a GTA home is currently $353,772, down 11 per cent from $399,013 recorded the comparable period in 2007. In the City of Toronto the current average price $375,804, a 15 per cent decrease from the $441,878 average recorded at mid-October 2007.
Here’s how it all looks on a graph:
With 27,559 properties currently listed on the TorontoMLS system, there is now 30 per cent more available stock from which to choose as compared to a year ago when 21,182 homes were listed. This means more choice which turns into slightly longer wait times for sellers. Homes are now on average selling after 34 days on the market as compared to 26 days a year ago. This is quite a turn around from last year and should be encouraging for the buyers to say the least.
ELEASE FOR IMMEDIATE RELEASE
Some people say the media is helping to fuel this all along, but the numbers are what the numbers are. This is not a situation where the market is self-inflicting slowness upon itself because of what’s written in the papers. Others are still blaming the second land transfer tax. This might have been the case for a slow March but I don’t think this has far-reaching consequences. Real estate is cyclical - what goes up cannot keep going up forever. It’s just fundamental, so despite a global recession and our dollar going up and down like a yo-yo, the feverish real estate activity of the past few years had to subside.
Since a few folks have suffered paper losses this year, I have also seen income properties come up for sale so that the owner could offset any capital gains by their stock losses. Tax avoidance always makes sense but you have to ask if it is prudent to sell your building when the market is slower. A year ago, an income property in the Annex at $500K would have sold. Today it might not.
After several years of crazy highs, we are returning back to normal. The Toronto market will be more well-balanced. My opinion at a macro-level is that if Barak Obama wins the election next week, I think that will give a lot of Americans a new sense of hope, and these economic times will start to turn around. I’ve noticed that the advance polls for the election have been getting record breaking voter turnouts. Chalk one up for democracy! There are a lot of people that are going to get out and vote because they really want things to change, and change they will get. This is the exact flipside of our election, where virtually nothing changed at all. Well, I guess we’ll get a new Liberal leader down the line.
That’s it for this month. If you have been curious about the buying opportunities for buying duplexes & triplexes now that the market is cooperating somewhat, please do drop me a line.
Take care everyone,
P.
I don’t want to sound like a real estate agent or anything, but now’s the time to buy! I guess it seems like we’re always saying that, so it’s a bit of a “cry wolf” scenario when the market really does start to offer some opportunities. Well folks, the last few weeks have seen a lot inventory not sell, leading to the first in a series of widespread price decreases in the Toronto. This has allowed some buyers to purchase properties for up to 20% under list price. And this will allow all the income property buyers to start to take stock in the bottom-line numbers again.
Here are the facts:
Activity in the Greater Toronto Area resale housing market slowed down considerably during the first half of October with 2,700 homes changing hands. Toronto Real Estate Board announced that sales volumes in the GTA decreased 18% compared to the first half of October 2007, when 3,297 transactions were recorded and are down 10 per cent compared to the same period in 2006 when 3,007 sales took place. In the City of Toronto 1,140 sales took place in the first half of this month. This represents a 21% decline from the 1,446 sales that took place in the same period a year ago and a 13 percent decrease from the 1,312 transactions recorded in the first half of October 2006.
House prices declined throughout the GTA during the first half of the month. The average price of a GTA home is currently $353,772, down 11 per cent from $399,013 recorded the comparable period in 2007. In the City of Toronto the current average price $375,804, a 15 per cent decrease from the $441,878 average recorded at mid-October 2007.
Here’s how it all looks on a graph:
With 27,559 properties currently listed on the TorontoMLS system, there is now 30 per cent more available stock from which to choose as compared to a year ago when 21,182 homes were listed. This means more choice which turns into slightly longer wait times for sellers. Homes are now on average selling after 34 days on the market as compared to 26 days a year ago. This is quite a turn around from last year and should be encouraging for the buyers to say the least.
ELEASE FOR IMMEDIATE RELEASE
Some people say the media is helping to fuel this all along, but the numbers are what the numbers are. This is not a situation where the market is self-inflicting slowness upon itself because of what’s written in the papers. Others are still blaming the second land transfer tax. This might have been the case for a slow March but I don’t think this has far-reaching consequences. Real estate is cyclical - what goes up cannot keep going up forever. It’s just fundamental, so despite a global recession and our dollar going up and down like a yo-yo, the feverish real estate activity of the past few years had to subside.
Since a few folks have suffered paper losses this year, I have also seen income properties come up for sale so that the owner could offset any capital gains by their stock losses. Tax avoidance always makes sense but you have to ask if it is prudent to sell your building when the market is slower. A year ago, an income property in the Annex at $500K would have sold. Today it might not.
After several years of crazy highs, we are returning back to normal. The Toronto market will be more well-balanced. My opinion at a macro-level is that if Barak Obama wins the election next week, I think that will give a lot of Americans a new sense of hope, and these economic times will start to turn around. I’ve noticed that the advance polls for the election have been getting record breaking voter turnouts. Chalk one up for democracy! There are a lot of people that are going to get out and vote because they really want things to change, and change they will get. This is the exact flipside of our election, where virtually nothing changed at all. Well, I guess we’ll get a new Liberal leader down the line.
That’s it for this month. If you have been curious about the buying opportunities for buying duplexes & triplexes now that the market is cooperating somewhat, please do drop me a line.
Take care everyone,
P.
Wednesday, October 01, 2008
Toronto Income Property Newsletter: October 2008
So where are all the deals?
After this past week of financial turmoil in the U.S., many of the experts are warning us that we are in for a rough ride in real estate. The cover of Macleans this week features the headline: “Canada’s Looming Real Estate Crisis” and shows a house that’s about to fall through a floor. The highlights of the article are that the west is suffering a much greater decline than Central Canada (a 9% decrease in prices) and that our market may be in for a similar drop. The argument is basically that since interest rates are still low, inflation has been kept in check and the trouble in the economy will lead to reduced incomes going forward, that house prices will have to fall. If the housing market is a barometer for the economy in general, then certainly the numbers will have to reflect this. The Toronto housing market can’t keep soaring up while the rest on the world is in recession, right?
It’s going to be interesting to see the September MLS numbers for the GTA since there is definitely a sense amongst realtors that the market has finally slowed down. Every day agents are asking me if I’m busy – which means by and large they are not. Midway through the month, TREB was reporting a 16% decrease in the number trades from last year and about a 6% drop from the year before. Since last year was yet another record-breaking year no one expected it to continue forever, but many suspected that once the market started to cool that prices would start falling. I can honestly say that hasn’t happened yet. While the number of trades are less, the average prices haven’t dropped that much as of yet.
Many argue that since we didn’t face the same sub prime mess as in the U.S. that we will not face the same devastation in our housing market. Also, interest rates are likely to stay low for the foreseeable future which will still make it fairly attractive to buy under the right circumstances. Thirdly, the construction hasn’t tanked yet, and this industry is very much tied to the housing sector. I received a 25% off flyer from Home Depot yesterday so maybe we are just around the corner.
My opinion is that there is going to be a “cooling off” period where Sellers will have to adjust their expectations. This ought to stem from real estate agents educating their clients to the realities of the market we are entering into. No market crashes overnight and often the transition from a sellers’ to a buyers’ market often takes several months. I have said in my previous newsletters that I’m not so sure we are even entering into a buyers’ market. I would call it a more “balanced market” where prices should reflect stronger returns, but there won’t be any properties to “steal”. It’s going to take some time to get used to this new market. I think that people that have to sell will need to look at their pricing strategy very carefully and that most people will simply wait.
There are many of you reading this right now that have gone to look at properties with me over these past two years and the majority of you have not bought anything. Unless you are living in a triplex in a great location I likely would a have steered you away from buying. Since income properties are supposed to make sense on the numbers the era a four and five caps will have to come to an end. I have been anxiously waiting for this turn in the market so that bottom line investments start to make sense again. I have been talking to many of my clients about getting ready to enter into the market again since I expect returns to get better and the spreads for renovators to widen.
But it’s not happening yet. Prices are still too high.
If I look at the twelve published sales of triplexes in the central districts for September, you will see that the sale prices were 97% of list. No one got over asking price, which is a first in some time, but this still shows us the people are paying what Sellers want. If I now look at the bottom lines on these properties, we are still dealing with returns of less than 7%. So we need to see more downward movement to get excited about buying again. I will look at sales again at the end of this month and see if we are still observing the same patterns.
If you are keeping an eye on the Toronto market and waiting to see if the time is right to get in, I would watch the condo market. I think that if the market really drops significantly then we will see it first in this market. There's a large stock of unsold condominiums on the market, and there are 120,000 new condos are projected to come on the market in the next couple of years. Not only are unsold and proposed condos raising eyebrows, it is believed by local market analysts that at least 20% of condos sold in recent years have been purchased by investors seeking speculative gains as opposed to those living in them which casts substantial doubt on the true underlying strength of sales numbers.
Your condo agents will try and spin it but think about it logically. If the market turns really bad, what will go first? Would you bet on a chunk of space in the air that was built in about two months or a property that actually generates money that you don’t need an elevator to get to? Hopefully, the condo market will be spared any bloodshed and will continue to thrive.
It’s going to be an interesting ride as we get into this last fiscal quarter. I don’t think that the sky will fall too dramatically but you may want top keep an umbrella handy just in case. You will be hearing from me as more houses start to make bottom-line sense again. Selfishly speaking, I can’t wait because I’m quite ready to get many of you investors back into the market again … finally.
Take care everyone. Enjoy the crisp fall weather and to all of you with kids, have a Happy Halloween.
P.A.
So where are all the deals?
After this past week of financial turmoil in the U.S., many of the experts are warning us that we are in for a rough ride in real estate. The cover of Macleans this week features the headline: “Canada’s Looming Real Estate Crisis” and shows a house that’s about to fall through a floor. The highlights of the article are that the west is suffering a much greater decline than Central Canada (a 9% decrease in prices) and that our market may be in for a similar drop. The argument is basically that since interest rates are still low, inflation has been kept in check and the trouble in the economy will lead to reduced incomes going forward, that house prices will have to fall. If the housing market is a barometer for the economy in general, then certainly the numbers will have to reflect this. The Toronto housing market can’t keep soaring up while the rest on the world is in recession, right?
It’s going to be interesting to see the September MLS numbers for the GTA since there is definitely a sense amongst realtors that the market has finally slowed down. Every day agents are asking me if I’m busy – which means by and large they are not. Midway through the month, TREB was reporting a 16% decrease in the number trades from last year and about a 6% drop from the year before. Since last year was yet another record-breaking year no one expected it to continue forever, but many suspected that once the market started to cool that prices would start falling. I can honestly say that hasn’t happened yet. While the number of trades are less, the average prices haven’t dropped that much as of yet.
Many argue that since we didn’t face the same sub prime mess as in the U.S. that we will not face the same devastation in our housing market. Also, interest rates are likely to stay low for the foreseeable future which will still make it fairly attractive to buy under the right circumstances. Thirdly, the construction hasn’t tanked yet, and this industry is very much tied to the housing sector. I received a 25% off flyer from Home Depot yesterday so maybe we are just around the corner.
My opinion is that there is going to be a “cooling off” period where Sellers will have to adjust their expectations. This ought to stem from real estate agents educating their clients to the realities of the market we are entering into. No market crashes overnight and often the transition from a sellers’ to a buyers’ market often takes several months. I have said in my previous newsletters that I’m not so sure we are even entering into a buyers’ market. I would call it a more “balanced market” where prices should reflect stronger returns, but there won’t be any properties to “steal”. It’s going to take some time to get used to this new market. I think that people that have to sell will need to look at their pricing strategy very carefully and that most people will simply wait.
There are many of you reading this right now that have gone to look at properties with me over these past two years and the majority of you have not bought anything. Unless you are living in a triplex in a great location I likely would a have steered you away from buying. Since income properties are supposed to make sense on the numbers the era a four and five caps will have to come to an end. I have been anxiously waiting for this turn in the market so that bottom line investments start to make sense again. I have been talking to many of my clients about getting ready to enter into the market again since I expect returns to get better and the spreads for renovators to widen.
But it’s not happening yet. Prices are still too high.
If I look at the twelve published sales of triplexes in the central districts for September, you will see that the sale prices were 97% of list. No one got over asking price, which is a first in some time, but this still shows us the people are paying what Sellers want. If I now look at the bottom lines on these properties, we are still dealing with returns of less than 7%. So we need to see more downward movement to get excited about buying again. I will look at sales again at the end of this month and see if we are still observing the same patterns.
If you are keeping an eye on the Toronto market and waiting to see if the time is right to get in, I would watch the condo market. I think that if the market really drops significantly then we will see it first in this market. There's a large stock of unsold condominiums on the market, and there are 120,000 new condos are projected to come on the market in the next couple of years. Not only are unsold and proposed condos raising eyebrows, it is believed by local market analysts that at least 20% of condos sold in recent years have been purchased by investors seeking speculative gains as opposed to those living in them which casts substantial doubt on the true underlying strength of sales numbers.
Your condo agents will try and spin it but think about it logically. If the market turns really bad, what will go first? Would you bet on a chunk of space in the air that was built in about two months or a property that actually generates money that you don’t need an elevator to get to? Hopefully, the condo market will be spared any bloodshed and will continue to thrive.
It’s going to be an interesting ride as we get into this last fiscal quarter. I don’t think that the sky will fall too dramatically but you may want top keep an umbrella handy just in case. You will be hearing from me as more houses start to make bottom-line sense again. Selfishly speaking, I can’t wait because I’m quite ready to get many of you investors back into the market again … finally.
Take care everyone. Enjoy the crisp fall weather and to all of you with kids, have a Happy Halloween.
P.A.
Tuesday, September 02, 2008
Newsletter: September 2008
Happy Labour Day everybody. I hope everyone enjoyed the Olympics and that all of you had a chance to take a little break over the summer. It is now September, the kids are going back to school and we’re all settling into that fall mentality. Since the Toronto real estate market started to slow down a touch at the end of May, the burning question on everyone’s mind is will the market come back from the usual summer slowdown or will the declining number of trades continue?
Unfortunately, I won’t have that answer for you until next month’s newsletter. Traditionally, business always picks up after Labour Day. But will it roar back to levels that we’ve seen in the past? I’m sure that we’ll get a good sense of what’s going on two weeks into September. If there are a good number of listings in the GTA and agents are holding back offer dates, then the market will heat up again. Remember that interest rates are still quite low and the resale condo market is still strong. However, if the pent-up demand that we have seen in past quarters does not lead to multiple offers, then we may find houses sitting longer and prices not going through the roof. In my opinion, this would be a good thing because I’m in the business of fiscal real estate – properties that make financial sense. Multiple offers always lead to inflated prices and an exaggerated market. If we can start trading income properties based on the numbers again, Paul is one happy agent.
Some sectors that are likely to experience difficulty this fall are the commercial and cottage markets. A client of mine forwarded me an article from the Star that stated commercial real estate investment in Canada is forecast to fall by as much as 40% or more this year, the biggest drop since the start of the decade. Reasons for this include economic uncertainty, hesitation by investors, a reduction in availability of financing and a smaller pool of available properties. Lenders are also becoming more stringent in their lending requirements. Remember that until we get into six units, income properties usually fall under the residential resale umbrella. So if the housing market in Toronto is strong this fall, duplexes and triplexes should follow despite larger commercial trends.
The cottage market is also suffering. I communicate regularly with realtors in Muskoka and the Kawarthas and at the moment there are a staggering number of cottage properties available. There was a time where rural properties were snapped up in multiple offers just like the City, but that has come to an end. My guess is that with the price of gas, one has to look very carefully at the cost of continually driving an extra four or five hours each weekend. Also, fractional ownership has made it easier for people who don’t need to be away every single weekend of the year. That’s an interesting market to keep an eye on because many folks believe that this market too will come back so there may be some opportunities. We all know that everything is cyclical; we just don’t know the absolute crests and dips of each wave. So if we are getting close to the bottom, the investors, renovators and speculators should take note.
Now what happens if the Toronto market goes completely down the tank in the upcoming months? Are there any areas of the city that are “crash-proof”? First and foremost, by buying an income property you are mitigating that future risk since your property will always be able to at least partially able to fund itself. Any property that is on the main subway line is likely always going to be attractive. Certainly, triplexes and multiplexes that have better than average cap rates or returns should be less impervious to a down-turn as well. Some of the areas that I think will maintain their current prices levels would include anywhere down and mid-town from Dufferin over to Yonge as high as the 401. This is a big box, but it encompasses a lot of tier 1 neighbourhoods that have seen dramatic increases in value. Areas like Annex, Leaside, and Riverdale will always be in-demand areas. If the market slows down, I do not think there will be huge price drops. The sell cycles will definitely take longer though. I’m also still big on Leslieville – there’s a lot more room for growth there and there are many old Victorians that I’ve seen, especially on Queen towards Logan, being completely renovated anew. It’s also a great rental area given its proximity to the beach and to the subway and Danforth shops.
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A client asked me last week if I had any tips on being a successful landlord. I quickly replied “Yeah, make sure you get paid” and then I thought that I should come up with a proper checklist for prospective lessors. I think that it is very admirable when looking for income-generating properties to think about your upcoming role as a landlord rather than how much money you will be earning. So here is the Paul Anand “Top Ten Landlord Success Strategies” list:
1. If something goes wrong at you rental suite, fix it! Right away. If you are not handy or unable to repair problems as they arise, hire a property manager.
2. Keep your rents at market rates. Do not charge an excessive amount or jack up the rents for your suite and you will always keep good tenants.
3. Read and understand the Residential Tenancies Act and know what your rights and obligations are under the Act. An informed landlord is a smart landlord.
4. Before you buy a property make sure that you have adequately assessed the existing rents and determined that they can be sustained. A realtor that focuses on income properties like me will always ensure that this happens.
5. Have a home inspection before you purchase a property. I know this sounds straight-forward, but in multiple offer situations, buyers often forego this in order to get the deal.
6. Call the references and run credit checks on prospective tenants. Also, make sure that you meet them in person and get a “feel” for what they are like. If you think someone might be dodgy, do not rent to them just because they are the only people interested.
7. Draw up formal leases that contractually address every aspect of the tenancy. Do not do handshake deals.
8. Join the Landlords' Association in your neighbourhood. Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property. Hire a good lawyer, insurance broker, lender and accountant. These professionals will be called upon from time to time.
9. Keep a slush fund in case something goes wrong. This is essentially money earmarked for unexpected expenses that are not covered by insurance. There is no set amount for an emergency fund, some say 10% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund.
10. Keep revisiting the Plex website for the latest news and views as well as to keep abreast of my feature properties. It’s great to stay on top pf the market and always have a sense of what your property may be worth. Since it is an investment, unloading it at the right time is often critical.
Remember that being a landlord is a privilege, not a right. Be smart and dutiful to your tenants and your income property experience will be a good one.
That’s it for this month. Take care everyone.
P.A.
Happy Labour Day everybody. I hope everyone enjoyed the Olympics and that all of you had a chance to take a little break over the summer. It is now September, the kids are going back to school and we’re all settling into that fall mentality. Since the Toronto real estate market started to slow down a touch at the end of May, the burning question on everyone’s mind is will the market come back from the usual summer slowdown or will the declining number of trades continue?
Unfortunately, I won’t have that answer for you until next month’s newsletter. Traditionally, business always picks up after Labour Day. But will it roar back to levels that we’ve seen in the past? I’m sure that we’ll get a good sense of what’s going on two weeks into September. If there are a good number of listings in the GTA and agents are holding back offer dates, then the market will heat up again. Remember that interest rates are still quite low and the resale condo market is still strong. However, if the pent-up demand that we have seen in past quarters does not lead to multiple offers, then we may find houses sitting longer and prices not going through the roof. In my opinion, this would be a good thing because I’m in the business of fiscal real estate – properties that make financial sense. Multiple offers always lead to inflated prices and an exaggerated market. If we can start trading income properties based on the numbers again, Paul is one happy agent.
Some sectors that are likely to experience difficulty this fall are the commercial and cottage markets. A client of mine forwarded me an article from the Star that stated commercial real estate investment in Canada is forecast to fall by as much as 40% or more this year, the biggest drop since the start of the decade. Reasons for this include economic uncertainty, hesitation by investors, a reduction in availability of financing and a smaller pool of available properties. Lenders are also becoming more stringent in their lending requirements. Remember that until we get into six units, income properties usually fall under the residential resale umbrella. So if the housing market in Toronto is strong this fall, duplexes and triplexes should follow despite larger commercial trends.
The cottage market is also suffering. I communicate regularly with realtors in Muskoka and the Kawarthas and at the moment there are a staggering number of cottage properties available. There was a time where rural properties were snapped up in multiple offers just like the City, but that has come to an end. My guess is that with the price of gas, one has to look very carefully at the cost of continually driving an extra four or five hours each weekend. Also, fractional ownership has made it easier for people who don’t need to be away every single weekend of the year. That’s an interesting market to keep an eye on because many folks believe that this market too will come back so there may be some opportunities. We all know that everything is cyclical; we just don’t know the absolute crests and dips of each wave. So if we are getting close to the bottom, the investors, renovators and speculators should take note.
Now what happens if the Toronto market goes completely down the tank in the upcoming months? Are there any areas of the city that are “crash-proof”? First and foremost, by buying an income property you are mitigating that future risk since your property will always be able to at least partially able to fund itself. Any property that is on the main subway line is likely always going to be attractive. Certainly, triplexes and multiplexes that have better than average cap rates or returns should be less impervious to a down-turn as well. Some of the areas that I think will maintain their current prices levels would include anywhere down and mid-town from Dufferin over to Yonge as high as the 401. This is a big box, but it encompasses a lot of tier 1 neighbourhoods that have seen dramatic increases in value. Areas like Annex, Leaside, and Riverdale will always be in-demand areas. If the market slows down, I do not think there will be huge price drops. The sell cycles will definitely take longer though. I’m also still big on Leslieville – there’s a lot more room for growth there and there are many old Victorians that I’ve seen, especially on Queen towards Logan, being completely renovated anew. It’s also a great rental area given its proximity to the beach and to the subway and Danforth shops.
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A client asked me last week if I had any tips on being a successful landlord. I quickly replied “Yeah, make sure you get paid” and then I thought that I should come up with a proper checklist for prospective lessors. I think that it is very admirable when looking for income-generating properties to think about your upcoming role as a landlord rather than how much money you will be earning. So here is the Paul Anand “Top Ten Landlord Success Strategies” list:
1. If something goes wrong at you rental suite, fix it! Right away. If you are not handy or unable to repair problems as they arise, hire a property manager.
2. Keep your rents at market rates. Do not charge an excessive amount or jack up the rents for your suite and you will always keep good tenants.
3. Read and understand the Residential Tenancies Act and know what your rights and obligations are under the Act. An informed landlord is a smart landlord.
4. Before you buy a property make sure that you have adequately assessed the existing rents and determined that they can be sustained. A realtor that focuses on income properties like me will always ensure that this happens.
5. Have a home inspection before you purchase a property. I know this sounds straight-forward, but in multiple offer situations, buyers often forego this in order to get the deal.
6. Call the references and run credit checks on prospective tenants. Also, make sure that you meet them in person and get a “feel” for what they are like. If you think someone might be dodgy, do not rent to them just because they are the only people interested.
7. Draw up formal leases that contractually address every aspect of the tenancy. Do not do handshake deals.
8. Join the Landlords' Association in your neighbourhood. Joining an association will provide you with a wealth of experience as well as sample leases, copies of laws and regulations, and lists of decent lawyers, contractors and inspectors. Some associations may even allow you to join before you buy a rental property. Hire a good lawyer, insurance broker, lender and accountant. These professionals will be called upon from time to time.
9. Keep a slush fund in case something goes wrong. This is essentially money earmarked for unexpected expenses that are not covered by insurance. There is no set amount for an emergency fund, some say 10% of the value of the property, but anything is better than nothing. If you are getting current income from a property, you can pool that money into an emergency fund.
10. Keep revisiting the Plex website for the latest news and views as well as to keep abreast of my feature properties. It’s great to stay on top pf the market and always have a sense of what your property may be worth. Since it is an investment, unloading it at the right time is often critical.
Remember that being a landlord is a privilege, not a right. Be smart and dutiful to your tenants and your income property experience will be a good one.
That’s it for this month. Take care everyone.
P.A.
Thursday, August 07, 2008
Toronto Income Property Newsletter: August 2008
This will be a short letter this month as it is summertime and many of you are enjoying your holidays and time with the family.
I am very pleased to announce that our retail shop on the Danforth, formerly known as Wash Up & Brush Company, has been renamed Drysdale & Co. Since the business no longer offers hair salon services we felt that this new name would be more reflective of where the business is headed, - the focus now being 100% on cool gifts and accessories. For more information, check out our newly designed website at www.drysdaleandco.com.
So what’s the latest in the Toronto real estate and income property market? In the GTA, resale housing prices continue to rise while the actual number of trades soften. Traditionally there is a little slow down in the summer months of July and August. The Toronto Real Estate Board reported that moderate activity and strong prices continued to characterize the Greater Toronto Area (GTA) resale housing market during the first half of July.
The average price in the GTA during the first half of July was $379,072, which is a one per cent increase from the $374,254 recorded in the first two weeks of July 2007 and a nine per cent increase from $346,267 recorded during the same period in July 2006. In the 416 area, the average price was $419,199, up one per cent from the $414,321 recorded during first half of July 2007 and up 14 per cent from the $367,541 recorded during the same period two years ago.
At $353,257 the 905 region’s average price was up two per cent from $345,741 recorded in the first half of July 2007 and up six per cent from $332,733 recorded during the same period in July 2006. Sales activity remained moderate in the first half of July, with 3,497 homes changing hands in the GTA. This is a decrease of 11 per cent from the 3,947 properties sold in the same period in 2007 but an eight per cent increase from the 3,251 transactions recorded in the first two weeks of July 2006. Sales in the first two weeks of July 2007 saw a 21 per cent increase from mid-July 2006.
In the 416 area there were 1,369 sales, down 17 per cent from the 1,641 recorded during the first two weeks of July 2007 but up eight per cent from the 1,264 sales recorded in the same period in July 2006. Before the Land Transfer Tax went into effect, sales increased 30 per cent in the first half of July 2007 compared to the same period in July 2006. Sales in the 905 region came in at 2,128 in the first half of the month, down eight per cent from the 2,306 recorded during the same period last year but up seven per cent from the 1,987 sales recorded during the first half of July 2006. Sales in the first two weeks of July 2007 saw a 16 per cent increase over mid-July 2006.
It seems that continued strength in house prices throughout the GTA indicates that consumers continue to recognize the value of real estate as a long-term investment.
Many of you have likely read that the federal government is aiming to avoid a housing meltdown like the one that hit the U.S. They will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis such as the sub-prime mortgage meltdown that rocked the housing market in the United States. And that could cause the housing market to cool even further. In an announcement a couple of weeks ago, they announced government-backed mortgages would require a minimum down payment of five per cent and would be limited to a maximum amortization period of 35 years.
The borrower would also need a specified minimum credit score. "Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada," a release issued by the federal Department of Finance said. All mortgages issued by federally regulated lenders with down payments of less than 20 per cent require insurance, and the government backs the insurance whether it is provided through the Canada Mortgage and Housing Corp. or private insurers, such as Genworth Financial.
The new rules are to take effect Oct. 15, 2008 to allow existing mortgage pre-approvals to be used or expire, the government said in its release.
That’s it for now. Next month we’ll do a wrap-up of the major duplex and triplex sales in the GTA over the summer and look ahead to the fall market.
Enjoy your summer everybody!
P.A.
This will be a short letter this month as it is summertime and many of you are enjoying your holidays and time with the family.
I am very pleased to announce that our retail shop on the Danforth, formerly known as Wash Up & Brush Company, has been renamed Drysdale & Co. Since the business no longer offers hair salon services we felt that this new name would be more reflective of where the business is headed, - the focus now being 100% on cool gifts and accessories. For more information, check out our newly designed website at www.drysdaleandco.com.
So what’s the latest in the Toronto real estate and income property market? In the GTA, resale housing prices continue to rise while the actual number of trades soften. Traditionally there is a little slow down in the summer months of July and August. The Toronto Real Estate Board reported that moderate activity and strong prices continued to characterize the Greater Toronto Area (GTA) resale housing market during the first half of July.
The average price in the GTA during the first half of July was $379,072, which is a one per cent increase from the $374,254 recorded in the first two weeks of July 2007 and a nine per cent increase from $346,267 recorded during the same period in July 2006. In the 416 area, the average price was $419,199, up one per cent from the $414,321 recorded during first half of July 2007 and up 14 per cent from the $367,541 recorded during the same period two years ago.
At $353,257 the 905 region’s average price was up two per cent from $345,741 recorded in the first half of July 2007 and up six per cent from $332,733 recorded during the same period in July 2006. Sales activity remained moderate in the first half of July, with 3,497 homes changing hands in the GTA. This is a decrease of 11 per cent from the 3,947 properties sold in the same period in 2007 but an eight per cent increase from the 3,251 transactions recorded in the first two weeks of July 2006. Sales in the first two weeks of July 2007 saw a 21 per cent increase from mid-July 2006.
In the 416 area there were 1,369 sales, down 17 per cent from the 1,641 recorded during the first two weeks of July 2007 but up eight per cent from the 1,264 sales recorded in the same period in July 2006. Before the Land Transfer Tax went into effect, sales increased 30 per cent in the first half of July 2007 compared to the same period in July 2006. Sales in the 905 region came in at 2,128 in the first half of the month, down eight per cent from the 2,306 recorded during the same period last year but up seven per cent from the 1,987 sales recorded during the first half of July 2006. Sales in the first two weeks of July 2007 saw a 16 per cent increase over mid-July 2006.
It seems that continued strength in house prices throughout the GTA indicates that consumers continue to recognize the value of real estate as a long-term investment.
Many of you have likely read that the federal government is aiming to avoid a housing meltdown like the one that hit the U.S. They will no longer guarantee 40-year or zero-down mortgages in an effort to avoid a housing crisis such as the sub-prime mortgage meltdown that rocked the housing market in the United States. And that could cause the housing market to cool even further. In an announcement a couple of weeks ago, they announced government-backed mortgages would require a minimum down payment of five per cent and would be limited to a maximum amortization period of 35 years.
The borrower would also need a specified minimum credit score. "Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada," a release issued by the federal Department of Finance said. All mortgages issued by federally regulated lenders with down payments of less than 20 per cent require insurance, and the government backs the insurance whether it is provided through the Canada Mortgage and Housing Corp. or private insurers, such as Genworth Financial.
The new rules are to take effect Oct. 15, 2008 to allow existing mortgage pre-approvals to be used or expire, the government said in its release.
That’s it for now. Next month we’ll do a wrap-up of the major duplex and triplex sales in the GTA over the summer and look ahead to the fall market.
Enjoy your summer everybody!
P.A.
Wednesday, July 02, 2008
Toronto Income Property Newsletter: July 2008
Happy Canada Day everyone! We’re halfway through the year so I hope you enjoyed your long weekend (or a strange day off midweek on a Tuesday) and celebrated to the upcoming months ahead. In most businesses, the second half of the year often outperforms the first, so I feel that we tend to work harder in the July to Christmas stretch. Real estate agents have the spring market but me personally, I’m always busier towards the end of the year. Maybe it’s just the crazy nature of duplexes and triplexes.
O.K. – so what’s going on out there? Everyone has heard by now that our Toronto real estate market that has seen incredible gains over the past five years is finally settling down. TD economists are boldly declaring that the Sellers’ market in our city has come to a halt.
Here are the facts:
YTD 2008 average sale prices in the GTA are up about 5%. While the number of actual trades is fewer, the prices of homes have gone up a little. This tells us that, at least so far, the big “correction” or great price drops are not forthcoming.
Now what about income properties in the Central core?
I see most of the income properties that come to market so I have a pretty good idea with what is happening with those properties. Duplexes and triplexes fall under the general umbrella of residential resale so their sales performance is expected to mirror that of single-family homes. In other words, once the houses start to slow down, so do the income properties. Even though these properties have an income component, if the market slows down overall, they too (just like condos or recreational properties) are affected. By the way, the cottage market is already starting to slow down considerably. Remember though that everything is cyclical and another wave will come again in that market.
I haven’t seen a slow-down at all yet in the income properties priced under a half a million. If I see a triplex in Central Toronto in the fours and it is not a dump – it will surely sell. The high-end market is suffering for sure. BUT … these are usually properties that throw off a 5% return (or less) and are amongst very expensive neighbours. I’ve been saying all along that you have to get close to a seven cap out of an income-generating property to justify the price. Just because a duplex is in Rosedale shouldn’t mean it will automatically fetch a huge price unless there is some sort of justification of the rents. My experience is that if a buyer is going to spend a million bucks on a home, unless they live in it, the income had better support the price.
Since the rental market is strong some folks figure that if they overpay for an income property it will eventually go up in value since it has an income component. This might happen – but I see this as speculating, not investing. I really advocate monthly cash flows rather than some hope of a capital gain down the way, only because I can calculate the first and not the second.
To give you the best insight into what has been happening with the Toronto income property, consider these three unit sales in around our city from June:
58 Foxley Street
This was a European style home (no separation) with kitchens on each level but no bathroom on the main floor. It probably needed about $25K to make it into a proper triplex. Located in the up and coming Dovercourt village, it was listed for $389K and sold over at $393K.
1308 College Street
Four suites at College & Lansdowne, asked $399K and sold over for $440K.
490 Brock Avenue
Another four units at College & Dufferin, asked $499K and sold over for $520K.
66 Oxford Street
This was three units located on a prime street in Kensington Market. It had an asking price of $489K and sold for $603K - $100K+ over asking!
555 Concord Avenue
This was a renovated triplex in the very popular Bloor/Ossington corridor. Asking $589K, it sold over at $615K
83 Winchester Street
Cabbagetown triplex asking $679K sold for $700K on the nose.
581 Palmerston Avenue
This was a typical condition triplex on a great street in the Annex. It listed at $699K and sold over for $761K.
and finally …
18 Elm Street
This was three luxurious units in Rosedale. This is a large heritage building amongst million dollar homes. Asking price: 3.4 million. Sell price: 3.4 million!
These sales in June still show a pent-up demand for investment real estate. Since they do not come up as often as single-family homes there are still buyers out there for quality income properties. I usually have about a dozen buyers ready to go at any time if a property makes sense. I think that as we head into the traditionally slower summer months, income properties may not sell as fast and in multiple offers. It might take a few weeks, but I still feel that there is a strong demand and that most properties that are priced right will still sell.
That’s it for this month. Enjoy the rest of the summer and I’ll catch up with you again in August. Also, my congrats to Spain and all their fine supporters for a long and overdue international win.
P.A.
Happy Canada Day everyone! We’re halfway through the year so I hope you enjoyed your long weekend (or a strange day off midweek on a Tuesday) and celebrated to the upcoming months ahead. In most businesses, the second half of the year often outperforms the first, so I feel that we tend to work harder in the July to Christmas stretch. Real estate agents have the spring market but me personally, I’m always busier towards the end of the year. Maybe it’s just the crazy nature of duplexes and triplexes.
O.K. – so what’s going on out there? Everyone has heard by now that our Toronto real estate market that has seen incredible gains over the past five years is finally settling down. TD economists are boldly declaring that the Sellers’ market in our city has come to a halt.
Here are the facts:
YTD 2008 average sale prices in the GTA are up about 5%. While the number of actual trades is fewer, the prices of homes have gone up a little. This tells us that, at least so far, the big “correction” or great price drops are not forthcoming.
Now what about income properties in the Central core?
I see most of the income properties that come to market so I have a pretty good idea with what is happening with those properties. Duplexes and triplexes fall under the general umbrella of residential resale so their sales performance is expected to mirror that of single-family homes. In other words, once the houses start to slow down, so do the income properties. Even though these properties have an income component, if the market slows down overall, they too (just like condos or recreational properties) are affected. By the way, the cottage market is already starting to slow down considerably. Remember though that everything is cyclical and another wave will come again in that market.
I haven’t seen a slow-down at all yet in the income properties priced under a half a million. If I see a triplex in Central Toronto in the fours and it is not a dump – it will surely sell. The high-end market is suffering for sure. BUT … these are usually properties that throw off a 5% return (or less) and are amongst very expensive neighbours. I’ve been saying all along that you have to get close to a seven cap out of an income-generating property to justify the price. Just because a duplex is in Rosedale shouldn’t mean it will automatically fetch a huge price unless there is some sort of justification of the rents. My experience is that if a buyer is going to spend a million bucks on a home, unless they live in it, the income had better support the price.
Since the rental market is strong some folks figure that if they overpay for an income property it will eventually go up in value since it has an income component. This might happen – but I see this as speculating, not investing. I really advocate monthly cash flows rather than some hope of a capital gain down the way, only because I can calculate the first and not the second.
To give you the best insight into what has been happening with the Toronto income property, consider these three unit sales in around our city from June:
58 Foxley Street
This was a European style home (no separation) with kitchens on each level but no bathroom on the main floor. It probably needed about $25K to make it into a proper triplex. Located in the up and coming Dovercourt village, it was listed for $389K and sold over at $393K.
1308 College Street
Four suites at College & Lansdowne, asked $399K and sold over for $440K.
490 Brock Avenue
Another four units at College & Dufferin, asked $499K and sold over for $520K.
66 Oxford Street
This was three units located on a prime street in Kensington Market. It had an asking price of $489K and sold for $603K - $100K+ over asking!
555 Concord Avenue
This was a renovated triplex in the very popular Bloor/Ossington corridor. Asking $589K, it sold over at $615K
83 Winchester Street
Cabbagetown triplex asking $679K sold for $700K on the nose.
581 Palmerston Avenue
This was a typical condition triplex on a great street in the Annex. It listed at $699K and sold over for $761K.
and finally …
18 Elm Street
This was three luxurious units in Rosedale. This is a large heritage building amongst million dollar homes. Asking price: 3.4 million. Sell price: 3.4 million!
These sales in June still show a pent-up demand for investment real estate. Since they do not come up as often as single-family homes there are still buyers out there for quality income properties. I usually have about a dozen buyers ready to go at any time if a property makes sense. I think that as we head into the traditionally slower summer months, income properties may not sell as fast and in multiple offers. It might take a few weeks, but I still feel that there is a strong demand and that most properties that are priced right will still sell.
That’s it for this month. Enjoy the rest of the summer and I’ll catch up with you again in August. Also, my congrats to Spain and all their fine supporters for a long and overdue international win.
P.A.
Monday, June 02, 2008
Newsletter: June 2008
This month I’d like to examine the rental market in Toronto. Last year the City of Toronto’s Shelter, Support & Housing Administration released a report called “Rental Housing Facts & Figures”, which looked at the makeup of income properties. What follows are excerpts from this study which highlights how income properties are still a dominant part of our local real estate market:
As of 2006, there were almost half a million (464,535) rental housing units in the City of Toronto. Tenants make up half of the City’s population and there is believed to be about one million tenants in Toronto. About three-quarters of the rental housing supply (about 350,000 units) is made up of “primary rental housing”, that is, housing units built with the intention of being used as rental. This includes rental housing units built by the private sector (55%) and rental housing units built with financial assistance from the government (20%).
The remaining one-quarter of the rental housing supply is made up of
“secondary rental housing”. Secondary rental housing is housing that was not specifically intended for rental use when it was built. Some examples of secondary rental housing include houses that are rented out, semi-detached houses and duplexes, accessory apartments in houses (also called second suites or basement apartments), and condominium apartments that are rented by their owners. This is the market that I trade in. Secondary rental housing provides a less permanent supply of rental housing as the owners of these rental units may re-occupy or sell the units to a new owner-occupant at any time.
The overall breakdown in Toronto is as follows:
Condo Rental - 5%
Other Rental - 20%
Private Rental - 55%
Assisted Rental - 20%
Primary Rental Market - 75%
Secondary Rental Market- 25%
The supply of primary rental housing (purpose built rentals) has been decreasing in the City of Toronto. The decrease in this supply is due to a variety of factors, including the conversion of high-end rental housing to condominiums, and demolitions. The decrease in primary rental housing is also not being offset by new condominium units being offered for rent. Even though there have been record numbers of new condominium buildings built in Toronto over the last ten years, the number of condominium units offered for rent has decreased. In 2006, there were 1,968 fewer condominium rental units than in 1996. The reason for the decrease is that more and more buyers are occupying their units rather than renting them out.
There has been a dramatic decline in rental housing construction since the 1990s. Private rental construction began declining in 1990 with the cancellation of tax incentives to developers, even though rent controls on new units were removed the same year. In 1995, only 165 private rental units were built. In 2004, the number dropped to just 30 units built. The elimination of rent controls on all new and vacant units under the Tenant Protection Act after 1998 had little effect on private rental construction. A decline in assisted housing construction began in 1993 when federal funding for non-profit and co-operative housing was cancelled, and continued after 1995 when provincial funding was cancelled. The production of all types of new rental housing continues to remain low. Between 2000 and 2004, there were 2,508 rental housing completions, and out of this total, 663 were primary rental units, an average of 68 units per year. Of the 663 total primary rental units, 342 were built by the private sector, and 321 were built with financial assistance from the government. Most of the remaining new rental units (1,845) of the 2,508 rental units built between 2000 and 2004 were units rented in buildings that were registered as condominiums. Condominium rental units are part of the secondary rental market. They do not provide a long term, stable supply of rental housing. In addition, they provide less security to tenants who rent them, compared with tenants renting units in the primary rental market. Tenants renting a condominium unit can be evicted by the owner or purchaser of the unit if the owner or purchaser, or a member of their family, wants to occupy the unit. In 2005, Toronto City Council established a target to create 1,000 new affordable housing units per year. While this target includes all types of housing, it is expected that most would be affordable rental housing.
There continue to be changing conditions in the Toronto rental property market.
For three decades until 2006, average rental vacancy rates for private rental
apartments in the City of Toronto were very low. The vacancy rate started to
increase a little in 2002. In 2002 the vacancy rate was 2.4%, while in 2003 it
was 3.9%, 4.3% in 2004, and in 2005 it was 3.7%. With a vacancy rate of 3.7%,
there were 37 vacant rental units out of every 1,000 units in the City of Toronto
or 9,445 units in total. Today it has dropped down to around 3%.
The higher vacancy rates since 2002 are due to a decline in demand for rental
housing. More households are buying instead of renting, and the number of
households that traditionally rent has declined. More young adults are living with
their parents longer, and good employment combined with favourable interest
rates and construction of condominiums has led to more renters becoming
owners. Immigration to Canada increased significantly during 2000, 2001 and 2002. It dropped sharply in 2003. The decline in immigration levels in 2003 has also contributed to reduced demand for rental housing, however, the number of
immigrants has gone up since 2004. In 2006, Toronto’s vacancy rate fell by more than half a percentage point from 4.3% to 3.7% (representing 1,552 fewer vacant units). According to CMHC, the reduction is a result of recent increases in rental demand due to increasing immigration, incentives offered by landlords, increased costs of home ownership, and low rates of rent increases.
Rental demand can increase quickly as a result of changing market conditions,
immigration levels, and job growth. Therefore, it is important for the city to encourage the development of new primary rental housing to ensure there is a supply of rental housing for the long term. It is also important to protect the existing supply of primary rental housing. There continues to be ample secondary rentals, despite the fact that the returns for absentee investors has diminished over the past two years as result of a hot Sellers’ market.
Before I sign off I’d like to invite all of you to a special investor’s evening being put on by a very close friend of mine, Barak Queija. Barak is a financial planner with Investors’ Group. On June 18th, they are doing a complimentary seminar that will discuss retirement planning, tax planning and wealth building. These are very productive evenings that offer tons of good practical advice. If you are interested in attending please RSVP to 416-491-7400 ext 643.
Next month I will look at the perceived slow-down in the Toronto market and analyze if income properties are still going through the roof in multiple offers. Don’t forget that Euro 2008 starts next week and remember to cheer on our local team, who are having a much better go of it so far this year.
Take care everyone.
P.A.
This month I’d like to examine the rental market in Toronto. Last year the City of Toronto’s Shelter, Support & Housing Administration released a report called “Rental Housing Facts & Figures”, which looked at the makeup of income properties. What follows are excerpts from this study which highlights how income properties are still a dominant part of our local real estate market:
As of 2006, there were almost half a million (464,535) rental housing units in the City of Toronto. Tenants make up half of the City’s population and there is believed to be about one million tenants in Toronto. About three-quarters of the rental housing supply (about 350,000 units) is made up of “primary rental housing”, that is, housing units built with the intention of being used as rental. This includes rental housing units built by the private sector (55%) and rental housing units built with financial assistance from the government (20%).
The remaining one-quarter of the rental housing supply is made up of
“secondary rental housing”. Secondary rental housing is housing that was not specifically intended for rental use when it was built. Some examples of secondary rental housing include houses that are rented out, semi-detached houses and duplexes, accessory apartments in houses (also called second suites or basement apartments), and condominium apartments that are rented by their owners. This is the market that I trade in. Secondary rental housing provides a less permanent supply of rental housing as the owners of these rental units may re-occupy or sell the units to a new owner-occupant at any time.
The overall breakdown in Toronto is as follows:
Condo Rental - 5%
Other Rental - 20%
Private Rental - 55%
Assisted Rental - 20%
Primary Rental Market - 75%
Secondary Rental Market- 25%
The supply of primary rental housing (purpose built rentals) has been decreasing in the City of Toronto. The decrease in this supply is due to a variety of factors, including the conversion of high-end rental housing to condominiums, and demolitions. The decrease in primary rental housing is also not being offset by new condominium units being offered for rent. Even though there have been record numbers of new condominium buildings built in Toronto over the last ten years, the number of condominium units offered for rent has decreased. In 2006, there were 1,968 fewer condominium rental units than in 1996. The reason for the decrease is that more and more buyers are occupying their units rather than renting them out.
There has been a dramatic decline in rental housing construction since the 1990s. Private rental construction began declining in 1990 with the cancellation of tax incentives to developers, even though rent controls on new units were removed the same year. In 1995, only 165 private rental units were built. In 2004, the number dropped to just 30 units built. The elimination of rent controls on all new and vacant units under the Tenant Protection Act after 1998 had little effect on private rental construction. A decline in assisted housing construction began in 1993 when federal funding for non-profit and co-operative housing was cancelled, and continued after 1995 when provincial funding was cancelled. The production of all types of new rental housing continues to remain low. Between 2000 and 2004, there were 2,508 rental housing completions, and out of this total, 663 were primary rental units, an average of 68 units per year. Of the 663 total primary rental units, 342 were built by the private sector, and 321 were built with financial assistance from the government. Most of the remaining new rental units (1,845) of the 2,508 rental units built between 2000 and 2004 were units rented in buildings that were registered as condominiums. Condominium rental units are part of the secondary rental market. They do not provide a long term, stable supply of rental housing. In addition, they provide less security to tenants who rent them, compared with tenants renting units in the primary rental market. Tenants renting a condominium unit can be evicted by the owner or purchaser of the unit if the owner or purchaser, or a member of their family, wants to occupy the unit. In 2005, Toronto City Council established a target to create 1,000 new affordable housing units per year. While this target includes all types of housing, it is expected that most would be affordable rental housing.
There continue to be changing conditions in the Toronto rental property market.
For three decades until 2006, average rental vacancy rates for private rental
apartments in the City of Toronto were very low. The vacancy rate started to
increase a little in 2002. In 2002 the vacancy rate was 2.4%, while in 2003 it
was 3.9%, 4.3% in 2004, and in 2005 it was 3.7%. With a vacancy rate of 3.7%,
there were 37 vacant rental units out of every 1,000 units in the City of Toronto
or 9,445 units in total. Today it has dropped down to around 3%.
The higher vacancy rates since 2002 are due to a decline in demand for rental
housing. More households are buying instead of renting, and the number of
households that traditionally rent has declined. More young adults are living with
their parents longer, and good employment combined with favourable interest
rates and construction of condominiums has led to more renters becoming
owners. Immigration to Canada increased significantly during 2000, 2001 and 2002. It dropped sharply in 2003. The decline in immigration levels in 2003 has also contributed to reduced demand for rental housing, however, the number of
immigrants has gone up since 2004. In 2006, Toronto’s vacancy rate fell by more than half a percentage point from 4.3% to 3.7% (representing 1,552 fewer vacant units). According to CMHC, the reduction is a result of recent increases in rental demand due to increasing immigration, incentives offered by landlords, increased costs of home ownership, and low rates of rent increases.
Rental demand can increase quickly as a result of changing market conditions,
immigration levels, and job growth. Therefore, it is important for the city to encourage the development of new primary rental housing to ensure there is a supply of rental housing for the long term. It is also important to protect the existing supply of primary rental housing. There continues to be ample secondary rentals, despite the fact that the returns for absentee investors has diminished over the past two years as result of a hot Sellers’ market.
Before I sign off I’d like to invite all of you to a special investor’s evening being put on by a very close friend of mine, Barak Queija. Barak is a financial planner with Investors’ Group. On June 18th, they are doing a complimentary seminar that will discuss retirement planning, tax planning and wealth building. These are very productive evenings that offer tons of good practical advice. If you are interested in attending please RSVP to 416-491-7400 ext 643.
Next month I will look at the perceived slow-down in the Toronto market and analyze if income properties are still going through the roof in multiple offers. Don’t forget that Euro 2008 starts next week and remember to cheer on our local team, who are having a much better go of it so far this year.
Take care everyone.
P.A.
Friday, May 02, 2008
Newsletter: May 2008
It seems like the Toronto media knows something about the real estate market that we realtors don’t. I’ve taken quite a few calls from clients this past month who’ve been reading the headlines and think that they have to sell their property right away before the bottom falls out. If the market drops off, then the thinking goes that there will be a lot of houses not selling and maybe even an eventual oversupply of product in the GTA. So should you get your top buck now while you can, while the market is still strong? Or is it already too late? The papers are saying that we’re done for, so this must certainly be the case. Or is it?
Check out some of these captions that ran in Toronto media in the month of April:
Toronto Star: “Is the housing boom officially over?”
In this story, BMO Nesbitt Burns deputy chief economist Doug Porter declared that "Canada's six-year housing market boom is officially over. Sales are melting faster than this year's snow pack." The Canadian Real Estate Association said in a report that the steep decline in activity in Toronto, which represents about one-quarter of sales, was the major reason for the dismal national figure.
Globe & Mail: “The sky is falling”
This story argues that the double-digit increases in real estate had to abate at some point, so now that we’re heading towards a recession there is no way our market can sustain itself. They refer also refer to the “Great Real Estate Correction of Early 2008”.
Financial Post: Home price climb slows in Canada
This article talked about how the crisis that began in the U.S. subprime mortgage sector has eroded the value of U.S. homes and threatens to push the whole North American economy into recession.
"We know now that the Canadian real estate market has followed a markedly different path from that of the United States," said Phil Soper, president and chief executive of Royal LePage. "While Canada will not escape the negative impact of a troubled American economy, Canadians' home equity should remain safe, as the market moves into a period of slow growth, but growth nonetheless."
Canoe.com: “Real Estate Boom likely over”
This story points out that 2007 was another record year for MLS residential property sales in Canada. Any comparisons with last year mean comparing with a record breaking year. What the statistics indicate is that the residential housing market is easing back towards more historically typical levels.
Take a look at the graph below that looks at the first few months of activity on a year-to-year basis:
Note how so far our YTD numbers are not vastly below last year’s. Compare to the difference from 1997 to 1998 - or more recently from 2002 to 2003. There doesn’t seem to be near the same degree of sales drop. The first two weeks of April were only 4% lower than last year and we still don’t have our final numbers for the month either.
Now here’s my reality in the day-to-day world of buying & selling income properties in Toronto. There was a triplex on Delaware (Bloor & Ossington) asking $375K that I had some interest in. The final sale price was $485 – a full hundred grand over asking price. Another client of mine put his triplex up for sale for $499K. On the day of offers someone came to the table with $501K, but we refused it. I subsequently raised the price to $529K and worked it for a couple more weeks and we ended up getting $525K. Now this simply should not happen if the market is in a slump. Once no one came to the table at asking price, it should have been over. But in a hot market where there is always pent up demand, someone will still come out of the woodwork to pay your price. This is the market in Central Toronto.
There are still multiple offers going on out there. Until they subside it is very difficult for me to sound the death knell of our market. And what about interest rates? They continue to be at very aggressive rates and there’s talk that may be even going down again. The bottom line from my perspective is that it is simply too early to tell. A slight easing of sales from historical highpoints is not something to be up in arms over – at least not yet.
*
Before I sign off I like to repeat a paragraph from one of my newsletters from a couple years back. I often get asked about what the rules are for creating a rental apartment in your property. Some of the conditions of creating a second suite (which is perfectly legal) include:
• the suite must be self-contained with its own kitchen and bathroom;
• the house, including any additions, must be a least 5 years old;
• the square footage of the second suite must be less than the remaining unit;
• generally, homes with a second suite must have a least 2 parking spaces. In parts of the former City of Toronto - R2, R3 and R4 districts - these suites are exempt and only require 1 parking space;
• any new second suites must comply with the Ontario Building Code and need building permits. Existing suites must comply with the Fire Code and zoning/property standards.
I also always recommend getting legal advice prior to doing any significant changes to the status of your property.
That’s it for this month. We’re only a few weeks to the May 24 weekend and the official start of summer. As of this writing, Toronto FC has now won three in a row. I think we’ve found our new boys of summer. Go Reds Go!
P.A.
It seems like the Toronto media knows something about the real estate market that we realtors don’t. I’ve taken quite a few calls from clients this past month who’ve been reading the headlines and think that they have to sell their property right away before the bottom falls out. If the market drops off, then the thinking goes that there will be a lot of houses not selling and maybe even an eventual oversupply of product in the GTA. So should you get your top buck now while you can, while the market is still strong? Or is it already too late? The papers are saying that we’re done for, so this must certainly be the case. Or is it?
Check out some of these captions that ran in Toronto media in the month of April:
Toronto Star: “Is the housing boom officially over?”
In this story, BMO Nesbitt Burns deputy chief economist Doug Porter declared that "Canada's six-year housing market boom is officially over. Sales are melting faster than this year's snow pack." The Canadian Real Estate Association said in a report that the steep decline in activity in Toronto, which represents about one-quarter of sales, was the major reason for the dismal national figure.
Globe & Mail: “The sky is falling”
This story argues that the double-digit increases in real estate had to abate at some point, so now that we’re heading towards a recession there is no way our market can sustain itself. They refer also refer to the “Great Real Estate Correction of Early 2008”.
Financial Post: Home price climb slows in Canada
This article talked about how the crisis that began in the U.S. subprime mortgage sector has eroded the value of U.S. homes and threatens to push the whole North American economy into recession.
"We know now that the Canadian real estate market has followed a markedly different path from that of the United States," said Phil Soper, president and chief executive of Royal LePage. "While Canada will not escape the negative impact of a troubled American economy, Canadians' home equity should remain safe, as the market moves into a period of slow growth, but growth nonetheless."
Canoe.com: “Real Estate Boom likely over”
This story points out that 2007 was another record year for MLS residential property sales in Canada. Any comparisons with last year mean comparing with a record breaking year. What the statistics indicate is that the residential housing market is easing back towards more historically typical levels.
Take a look at the graph below that looks at the first few months of activity on a year-to-year basis:
Note how so far our YTD numbers are not vastly below last year’s. Compare to the difference from 1997 to 1998 - or more recently from 2002 to 2003. There doesn’t seem to be near the same degree of sales drop. The first two weeks of April were only 4% lower than last year and we still don’t have our final numbers for the month either.
Now here’s my reality in the day-to-day world of buying & selling income properties in Toronto. There was a triplex on Delaware (Bloor & Ossington) asking $375K that I had some interest in. The final sale price was $485 – a full hundred grand over asking price. Another client of mine put his triplex up for sale for $499K. On the day of offers someone came to the table with $501K, but we refused it. I subsequently raised the price to $529K and worked it for a couple more weeks and we ended up getting $525K. Now this simply should not happen if the market is in a slump. Once no one came to the table at asking price, it should have been over. But in a hot market where there is always pent up demand, someone will still come out of the woodwork to pay your price. This is the market in Central Toronto.
There are still multiple offers going on out there. Until they subside it is very difficult for me to sound the death knell of our market. And what about interest rates? They continue to be at very aggressive rates and there’s talk that may be even going down again. The bottom line from my perspective is that it is simply too early to tell. A slight easing of sales from historical highpoints is not something to be up in arms over – at least not yet.
*
Before I sign off I like to repeat a paragraph from one of my newsletters from a couple years back. I often get asked about what the rules are for creating a rental apartment in your property. Some of the conditions of creating a second suite (which is perfectly legal) include:
• the suite must be self-contained with its own kitchen and bathroom;
• the house, including any additions, must be a least 5 years old;
• the square footage of the second suite must be less than the remaining unit;
• generally, homes with a second suite must have a least 2 parking spaces. In parts of the former City of Toronto - R2, R3 and R4 districts - these suites are exempt and only require 1 parking space;
• any new second suites must comply with the Ontario Building Code and need building permits. Existing suites must comply with the Fire Code and zoning/property standards.
I also always recommend getting legal advice prior to doing any significant changes to the status of your property.
That’s it for this month. We’re only a few weeks to the May 24 weekend and the official start of summer. As of this writing, Toronto FC has now won three in a row. I think we’ve found our new boys of summer. Go Reds Go!
P.A.
Saturday, April 05, 2008
Toronto Income Property Newsletter: April 2008
I’m sure that everyone is as happy as I am that spring is almost here. I think we’ve seen the last of the heavy snow and the biting cold. It couldn’t have happened quickly enough as the bad weather slowed down the business for the months of February and March, particularly with income properties in the downtown core. I mentioned last month that a lot of opponents of the new municipal land transfer tax were pointing to these monthly decreases as the result of buyers not wanting to pay this new tax. It is very difficult to make this argument when the three weeks after the implementation of the new tax had the worst weather in almost seventy years. Take my word for it – when there’s a snowstorm, we agents don’t like to go out and show properties – especially tenanted properties. So with fewer showings come lesser sales. That’s my take on it. If the market continues to be down in April and May then we’ll have something to talk about.
While we’re talking about a potential downtown in our real estate market, Garth Turner has released a new book called “Greater Fool” that I suspect will get a lot of attention. In it he basically suggests that our Canadian experience is not that far removed from the recessionary tendencies of the U.S. and a day of reckoning is coming. He examines the myths and counters with the facts. He dissects the American sub-prime experience and finds that the problems go far beyond mortgage products, and also reach into Toronto, Calgary and Vancouver.
I comment on this because Garth is one of Canada’s leading real estate forecasters and a lot of folks subscribe to his views. He also backs up a lot of his theories with historical data. I can’t say where the market is going after a frigid two months, but I’m still seeing multiple offers on many properties. There is also a lot of new inventory hitting the market. If the prices were too high on these new properties, the multiple-offer process would die – and that hasn’t happened yet.
It stands to reason though that the status of our economy will parallel the American situation. Canada is right now moving along with the U.S. towards recession. In fact the whole world is heading towards recession. Naturally a lot of industries are tied to what happens in the U.S. so logically it should only be a matter of time before our real estate market starts to suffer. I just don’t think it will or even can happen overnight, so we’ll see the signs well in advance. I promise as soon as it starts (if it ever does) then I’ll let you know about it.
When I meet new clients or novice investors they often ask what happens if at some point during ownership of their income property something goes wrong with the tenant relationship. Naturally we would all like to avoid trouble or disputes at all costs, but sometimes we can have a difference of opinion that could cause friction with tenants.
One of the best resources for landlords in the GTA is the Ontario Rental Housing Tribunal. The Tribunal resolves disputes between landlords and tenants about rights and responsibilities under the Tenant Protection Act (TPA), including rent increases, evictions and privacy issues.
• The system resolves disputes in a less formal environment than found in provincial courts.
• Landlords and tenants of most residential rental units are covered under the TPA, including high rise rental units, single family homes, basement units, rental condominiums, care homes, and mobile homes.
• Some units are partially covered by the TPA, including new residential complexes, and government owned and non-profit housing units.
• Some accommodation is completely exempt from the TPA, including units with a kitchen or bathroom shared with the owner, and temporary accommodation such as hotels and motels.
They are an independent, quasi-judicial agency. In mediation, a Tribunal mediator will help a landlord and tenant to resolve a dispute and reach an agreement they are satisfied with. In adjudication, a hearing may be held. A Tribunal member makes a decision based on the evidence examined, and issues an "order." The Tribunal also provides landlords and tenants with further information about the rights and obligations each has under the Tenant Protection Act. It is an invaluable service that has helped relations between landlord and their tenants.
Another wonderful resource is www.landlordselfhelp.com. This site is geared towards small scale income property owners and they do a bang-up job of offering informative tips and advice. I also always recommend checking out our website (www.plex.ca) as I make sure that we update it with the most relevant and poignant links
The last topic I’d like to address is for all my existing clients who are looking to buy income properties for investment only. I have been keeping a lot of buyers at bay, essentially advising them to wait until prices stop increasing and returns get a little stronger. The question then becomes, given that income properties continue to sell in top neighbourhoods, what is the minimum return that should be acceptable? How low should a cap rate go given that buildings tend to appreciate in the future and we continue to have a very strong rental market?
My answer is simple – seven.
If you see a seven cap or better on paper and the property is in a good area and has some upgrade potential, then I would pursue it. Financials statements have a tendency to sometimes forget key expense items, so usually the stated cap rate is going to be less. I know that over the past three years, marquee income properties have sold for four and five caps based on their neighbours, but if you’re not going to live in them, I believe that this return is simply too low. Given the responsibility of being a landlord, you would like your property to outperform a paper-based investment. If I don’t see a seven cap on the listing, then there are better places to put your money. Of course if you are going to live in the property, it’s a different story entirely. You can accept a lower cap rate if you can derive ulterior benefits by residing there.
I’d like to thank everyone that ordered a copy of my new “Live for Free” guide. It is still available for sale on the Plex website (www.plex.ca) and www.amazon.com if you’d like to get a hard or digital copy.
That’s it for this month. I realize that with an early Easter in March there are no more long weekends until the end of May, so work hard and have fun everybody during this long stretch.
Go Toronto FC!
P.
I’m sure that everyone is as happy as I am that spring is almost here. I think we’ve seen the last of the heavy snow and the biting cold. It couldn’t have happened quickly enough as the bad weather slowed down the business for the months of February and March, particularly with income properties in the downtown core. I mentioned last month that a lot of opponents of the new municipal land transfer tax were pointing to these monthly decreases as the result of buyers not wanting to pay this new tax. It is very difficult to make this argument when the three weeks after the implementation of the new tax had the worst weather in almost seventy years. Take my word for it – when there’s a snowstorm, we agents don’t like to go out and show properties – especially tenanted properties. So with fewer showings come lesser sales. That’s my take on it. If the market continues to be down in April and May then we’ll have something to talk about.
While we’re talking about a potential downtown in our real estate market, Garth Turner has released a new book called “Greater Fool” that I suspect will get a lot of attention. In it he basically suggests that our Canadian experience is not that far removed from the recessionary tendencies of the U.S. and a day of reckoning is coming. He examines the myths and counters with the facts. He dissects the American sub-prime experience and finds that the problems go far beyond mortgage products, and also reach into Toronto, Calgary and Vancouver.
I comment on this because Garth is one of Canada’s leading real estate forecasters and a lot of folks subscribe to his views. He also backs up a lot of his theories with historical data. I can’t say where the market is going after a frigid two months, but I’m still seeing multiple offers on many properties. There is also a lot of new inventory hitting the market. If the prices were too high on these new properties, the multiple-offer process would die – and that hasn’t happened yet.
It stands to reason though that the status of our economy will parallel the American situation. Canada is right now moving along with the U.S. towards recession. In fact the whole world is heading towards recession. Naturally a lot of industries are tied to what happens in the U.S. so logically it should only be a matter of time before our real estate market starts to suffer. I just don’t think it will or even can happen overnight, so we’ll see the signs well in advance. I promise as soon as it starts (if it ever does) then I’ll let you know about it.
When I meet new clients or novice investors they often ask what happens if at some point during ownership of their income property something goes wrong with the tenant relationship. Naturally we would all like to avoid trouble or disputes at all costs, but sometimes we can have a difference of opinion that could cause friction with tenants.
One of the best resources for landlords in the GTA is the Ontario Rental Housing Tribunal. The Tribunal resolves disputes between landlords and tenants about rights and responsibilities under the Tenant Protection Act (TPA), including rent increases, evictions and privacy issues.
• The system resolves disputes in a less formal environment than found in provincial courts.
• Landlords and tenants of most residential rental units are covered under the TPA, including high rise rental units, single family homes, basement units, rental condominiums, care homes, and mobile homes.
• Some units are partially covered by the TPA, including new residential complexes, and government owned and non-profit housing units.
• Some accommodation is completely exempt from the TPA, including units with a kitchen or bathroom shared with the owner, and temporary accommodation such as hotels and motels.
They are an independent, quasi-judicial agency. In mediation, a Tribunal mediator will help a landlord and tenant to resolve a dispute and reach an agreement they are satisfied with. In adjudication, a hearing may be held. A Tribunal member makes a decision based on the evidence examined, and issues an "order." The Tribunal also provides landlords and tenants with further information about the rights and obligations each has under the Tenant Protection Act. It is an invaluable service that has helped relations between landlord and their tenants.
Another wonderful resource is www.landlordselfhelp.com. This site is geared towards small scale income property owners and they do a bang-up job of offering informative tips and advice. I also always recommend checking out our website (www.plex.ca) as I make sure that we update it with the most relevant and poignant links
The last topic I’d like to address is for all my existing clients who are looking to buy income properties for investment only. I have been keeping a lot of buyers at bay, essentially advising them to wait until prices stop increasing and returns get a little stronger. The question then becomes, given that income properties continue to sell in top neighbourhoods, what is the minimum return that should be acceptable? How low should a cap rate go given that buildings tend to appreciate in the future and we continue to have a very strong rental market?
My answer is simple – seven.
If you see a seven cap or better on paper and the property is in a good area and has some upgrade potential, then I would pursue it. Financials statements have a tendency to sometimes forget key expense items, so usually the stated cap rate is going to be less. I know that over the past three years, marquee income properties have sold for four and five caps based on their neighbours, but if you’re not going to live in them, I believe that this return is simply too low. Given the responsibility of being a landlord, you would like your property to outperform a paper-based investment. If I don’t see a seven cap on the listing, then there are better places to put your money. Of course if you are going to live in the property, it’s a different story entirely. You can accept a lower cap rate if you can derive ulterior benefits by residing there.
I’d like to thank everyone that ordered a copy of my new “Live for Free” guide. It is still available for sale on the Plex website (www.plex.ca) and www.amazon.com if you’d like to get a hard or digital copy.
That’s it for this month. I realize that with an early Easter in March there are no more long weekends until the end of May, so work hard and have fun everybody during this long stretch.
Go Toronto FC!
P.
Saturday, March 01, 2008
Toronto Residential Income Property Newsletter: March 2008
Hello everyone. I’m pleased to announce that my new booklet entitled “Live for Free, to be free to live” is finally here. This book is a very handy guide for anyone looking to purchase a duplex, triplex or multiplex in the G.T.A., and is especially beneficial for live-in investors and first-time buyers. I have taken all the key pointers and observations that I have learned from my years of experience in the field and neatly summed them up in this simple and easy-to-read publication. After months of rewrites, typeface and layout changes the first several hundred copies came off the presses in February. I am happy to report that the initial responses have been very encouraging.
For those of you that have known me for the past few years, the “Live for Free” concept isn’t new. I wrote my first version (a whopping fourteen pages) back in 1999 before I had even obtained my real estate license. I was shocked to find at that time that with all the myriad of books on real estate investing, there were very few that talked about living in income properties and how best to buy and maintain them. There was also very little written specifically about the Toronto income property market, which is indeed a unique animal all unto its own. Surprisingly, all these years later there still isn’t a definitive duplex or triplex strategy book so I’m hoping that my effort will fill that void.
This version is the first full-on upgrade that I have done in years with many new sections, a glossary and an investment bibliography. All in all it’s sixty seven pages, with particular emphasis on tips and strategies to maximize your chances for success. I resisted the temptation to pad the book in order to give it more volume with stuff that isn’t really relevant to a discussion of residential income properties. There are also many other Canadian investment books that do a better job of explaining cap rates or how to buy a strip mall, so I’ll leave that discussion to them. I know duplexes and triplexes, with pretty much all the ingredients that go into buying and selling them, so that is what I have tried to completely cover for my audience in this booklet.
“Live for Free” is currently available for sale through the Plex website (www.plex.ca). For the first time, I have decided to charge a small amount just to help recoup some of my upfront production costs. You can purchase the physical guide itself for $14.95 plus $2.00 shipping and handling. You can also get a link to download the book digitally as a PDF file for only $9.95. Just click through to the format that you desire and you will be taken to PayPal where you can easily pay by credit card. I don’t intend to make a profit from this book but there is a cost to printing and mailing them out so that is why I have applied these very nominal charges.
I am also working on a new webpage dedicated specifically to the book to be ultimately found at www.liveforfree.ca. I think that there are a lot of people out there, not just in the Toronto vicinity, but potentially all around the world that can benefit from the information I am providing. That is why we are starting to work on a book webpage separate from our real estate company website. I’d love to hear your thoughts and comments and love it even more if you could help me spread the word and even assist me in generating a few extra on-line sales.
O.K. – enough shameless promotion. Now on to a few topical issues: The new Toronto Land transfer tax went into effect at the beginning of February. Many of you have been asking about what the early read is on its impact. I can definitely say that (from my perspective) February was a slower than average month and sales were less than the same time in 2007. However, the weather has been terrible and it has been very cold. I think that this is more so the reason that the sales numbers may seem a little sluggish. I just got back from Florida to get away from our winter and I’m sure that I’m not the only agent that did the same thing. When the weather is really bad, none of us relish getting out there to trip through properties. As I stated in my past newsletters, I think that this extra upfront fee will be absorbed by both buyer and seller and it ought not to have a huge impact on our market.
TREB’s statistics of housing sales have shown an interesting trend since City Council’s approval of a Toronto land transfer tax last October. When City Council approved the Toronto land transfer tax, it also decided to exempt home purchases made by December 31, 2007. In both December and November of last year, there was a significant increase in market activity. For example, although the month of December typically sees less market activity because of the holidays, in December 2007 housing sales in Toronto were up by 26 per cent over December 2006, significantly higher than the 6 per cent increase for the GTA as a whole. Obviously, when the final numbers come in for February we will be able to get a more complete picture as to this tax’s real effect on the market.
The final numbers for 2007 came out a few weeks ago. Take a look at the chart below and notice how 2007 had higher sales volumes than other year in the past twenty. For all the market analysts who have been predicting a downturn in the market, it’s hard to expect these sales numbers to continue to spike up indefinitely.
I believe that the huge glut of condo sales have helped produce these past few record-breaking years. Once they slow down (and they will!) then we’ll start to see the volumes subside a little. Since income properties represent less than 10% of the total inventory (and I think it’s even less), I don’t feel that they really impact sales volumes that directly. My golden rule still stands: a quality income property in a great part of town that doesn’t need a lot of upkeep will always be desirable since these properties fuel themselves.
That’s it for this month. Go to the Plex site and grab a copy of “Live for Free” and tell all your friends about it. I always appreciate all the help and kind words. See you next time.
P.
Hello everyone. I’m pleased to announce that my new booklet entitled “Live for Free, to be free to live” is finally here. This book is a very handy guide for anyone looking to purchase a duplex, triplex or multiplex in the G.T.A., and is especially beneficial for live-in investors and first-time buyers. I have taken all the key pointers and observations that I have learned from my years of experience in the field and neatly summed them up in this simple and easy-to-read publication. After months of rewrites, typeface and layout changes the first several hundred copies came off the presses in February. I am happy to report that the initial responses have been very encouraging.
For those of you that have known me for the past few years, the “Live for Free” concept isn’t new. I wrote my first version (a whopping fourteen pages) back in 1999 before I had even obtained my real estate license. I was shocked to find at that time that with all the myriad of books on real estate investing, there were very few that talked about living in income properties and how best to buy and maintain them. There was also very little written specifically about the Toronto income property market, which is indeed a unique animal all unto its own. Surprisingly, all these years later there still isn’t a definitive duplex or triplex strategy book so I’m hoping that my effort will fill that void.
This version is the first full-on upgrade that I have done in years with many new sections, a glossary and an investment bibliography. All in all it’s sixty seven pages, with particular emphasis on tips and strategies to maximize your chances for success. I resisted the temptation to pad the book in order to give it more volume with stuff that isn’t really relevant to a discussion of residential income properties. There are also many other Canadian investment books that do a better job of explaining cap rates or how to buy a strip mall, so I’ll leave that discussion to them. I know duplexes and triplexes, with pretty much all the ingredients that go into buying and selling them, so that is what I have tried to completely cover for my audience in this booklet.
“Live for Free” is currently available for sale through the Plex website (www.plex.ca). For the first time, I have decided to charge a small amount just to help recoup some of my upfront production costs. You can purchase the physical guide itself for $14.95 plus $2.00 shipping and handling. You can also get a link to download the book digitally as a PDF file for only $9.95. Just click through to the format that you desire and you will be taken to PayPal where you can easily pay by credit card. I don’t intend to make a profit from this book but there is a cost to printing and mailing them out so that is why I have applied these very nominal charges.
I am also working on a new webpage dedicated specifically to the book to be ultimately found at www.liveforfree.ca. I think that there are a lot of people out there, not just in the Toronto vicinity, but potentially all around the world that can benefit from the information I am providing. That is why we are starting to work on a book webpage separate from our real estate company website. I’d love to hear your thoughts and comments and love it even more if you could help me spread the word and even assist me in generating a few extra on-line sales.
O.K. – enough shameless promotion. Now on to a few topical issues: The new Toronto Land transfer tax went into effect at the beginning of February. Many of you have been asking about what the early read is on its impact. I can definitely say that (from my perspective) February was a slower than average month and sales were less than the same time in 2007. However, the weather has been terrible and it has been very cold. I think that this is more so the reason that the sales numbers may seem a little sluggish. I just got back from Florida to get away from our winter and I’m sure that I’m not the only agent that did the same thing. When the weather is really bad, none of us relish getting out there to trip through properties. As I stated in my past newsletters, I think that this extra upfront fee will be absorbed by both buyer and seller and it ought not to have a huge impact on our market.
TREB’s statistics of housing sales have shown an interesting trend since City Council’s approval of a Toronto land transfer tax last October. When City Council approved the Toronto land transfer tax, it also decided to exempt home purchases made by December 31, 2007. In both December and November of last year, there was a significant increase in market activity. For example, although the month of December typically sees less market activity because of the holidays, in December 2007 housing sales in Toronto were up by 26 per cent over December 2006, significantly higher than the 6 per cent increase for the GTA as a whole. Obviously, when the final numbers come in for February we will be able to get a more complete picture as to this tax’s real effect on the market.
The final numbers for 2007 came out a few weeks ago. Take a look at the chart below and notice how 2007 had higher sales volumes than other year in the past twenty. For all the market analysts who have been predicting a downturn in the market, it’s hard to expect these sales numbers to continue to spike up indefinitely.
I believe that the huge glut of condo sales have helped produce these past few record-breaking years. Once they slow down (and they will!) then we’ll start to see the volumes subside a little. Since income properties represent less than 10% of the total inventory (and I think it’s even less), I don’t feel that they really impact sales volumes that directly. My golden rule still stands: a quality income property in a great part of town that doesn’t need a lot of upkeep will always be desirable since these properties fuel themselves.
That’s it for this month. Go to the Plex site and grab a copy of “Live for Free” and tell all your friends about it. I always appreciate all the help and kind words. See you next time.
P.
Friday, February 01, 2008
Income Property Newsletter - February 2008
This month I’d like to look at a segment of the Toronto real estate market that I haven’t discussed too much in the past. As you know, at Plex we are very active with duplexes, triplexes and multiplexes as well as “fixer-uppers” that may have profit potential. One other area that I have also done a lot of business in the past is with mixed-use buildings – retail storefronts with two or three apartments and/or offices above.
Most of these properties are on popular retail strips like Queen, Bloor, College and obviously Yonge St. There are also little strips like the Forest Hill Village, the shops on Bayview south of Eglinton or at the top of Coxwell in Leslieville. Many neighbourhoods have retail strips that offer every good and service imaginable. Some areas are more known for specialties – for instance restaurants on the Danforth, or on College in Little Italy. Most of the time these buildings fall under the I.C.I. umbrella (commercial rather than residential) even though there may be residential rental apartments above the main floor retail space.
These properties can be quite interesting for someone looking to live-in or for the absentee investor. These mixed-use buildings have been similar to strictly residential properties over the past few years insofar as lower bottom-line returns and negligible cap rates. My advice is to make sure that if you buy a mixed-use building that your main floor retail tenant is on a long lease and that their business is strong, unless of course you have a business to operate out of the main floor yourself. Most of the properties derive the bulk of their income form the main floor lease and it would be difficult to immediately make up that rent if the tenant splits. It is much easier to find a residential tenant than a commercial one. Remember too that every user is going to want to build to suit, so that cost is likely cost you months of free rent. Also, most of these properties are on busy main streets, so keep that in mind if you intend to live in it.
Some of my clients have asked where the commercial market is going since each month my comments seem to be more focused on the residential resale side of the equation. Unlike houses in the prime areas of the core, I think that the prices of commercial properties may start to come down a little. It is believed that REITs (real estate investment trusts) are great indicators of where the commercial market is going. Experts say that the overall commercial prices have already started to drop and there may have been as much as a 5% decline last year, with potentially more of a drop to follow. This is quite interesting because there is no indication that this is happening yet on the residential side.
So does that mean that a storefront with two units above it will be a better buy this year than a regular triplex? Quite often I will highlight duplexes or triplexes that trade for over-asking and comment on how the investment value gets thrown out the window.
I’d like to look at some of last year’s activity that may shed light on what’s happening with these kinds of properties:
Here are all the sales in C01 west of Yonge Street south of Bloor, specifically categorized as stores with apartments or offices above. These include shops on Bathurst, Ossington, Dundas West, Queen West, College St and others.
Field Count Mean
(Average) Median Mode Low High
List Price 37 $860,951 $689,000 n / a $325,000 $4,100,000
Original Price 37 $884,735 $699,900 $799,000 $325,000 $4,700,000
Sold Price 37 $825,486 $680,000 n / a $325,000 $3,900,000
% List 37 96.27 97 98 82 117
Taxes 36 $8,877 $6,648 n / a 2226.7 $55,000
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 17 3.6 4 n / a 1 6
Days On Market 37 61 44 n / a 3 232
Note that only six of the thirty-seven sales were over a million dollars. The largest sale which would skew the numbers up was a whole block of College near Spadina that sold for $4M. Most sales are in the five to six range but they tend to be further west towards Dufferin. Obviously to closer to Yonge, the more expensive the buildings become.
Here’s the same analysis for mixed-use buildings on the east side of the DVP. These would include sales on the Danforth, Broadview, Gerrard, Pape, Coxwell St. Clair East & many on Queen Street East.
Field Count Mean
(Average) Median Mode Low High
List Price 61 $566,926 $469,000 $549,000 $245,000 $1,499,900
Original Price 61 $575,039 $485,000 n / a $259,000 $1,499,900
Sold Price 61 $528,146 $444,000 n / a $231,000 $1,350,000
% List 61 93.66 95 95 64 106
Taxes 60 $8,251 $7,910 $3,642.84 $1,500 $25,554
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 26 3.3 3 3 1 8
Days On Market 61 53 41 n / a 7 255
The average sales prices are lower than on the west side. The highest sales here are Queen St in the Beach and prime larger buildings on the Danforth. Again the average for a small building with one apartment above seems to around $500K.
I think that the bottom line is if a mixed-use building is throwing off better numbers than a completely residential multiplex and has good lease(s) in place, then it should be considered seriously. I prefer all residential just from a rentability point of view but remember that investment real estate is all about the returns. If cap rates start to get noticeably stronger on mixed-use buildings, I will start steering more of my clients in that direction. It hasn’t happened yet, but as I pointed out earlier, it may.
I’d like to wish you all a Happy Valentine’s Day, especially to all the single folks out there that feel snubbed at this time. If you’re single go out and buy something for yourself – I suspect you can probably afford it more anyway. Enjoy the cold too folks because it doesn’t look like it is going anywhere fast.
P.A.
This month I’d like to look at a segment of the Toronto real estate market that I haven’t discussed too much in the past. As you know, at Plex we are very active with duplexes, triplexes and multiplexes as well as “fixer-uppers” that may have profit potential. One other area that I have also done a lot of business in the past is with mixed-use buildings – retail storefronts with two or three apartments and/or offices above.
Most of these properties are on popular retail strips like Queen, Bloor, College and obviously Yonge St. There are also little strips like the Forest Hill Village, the shops on Bayview south of Eglinton or at the top of Coxwell in Leslieville. Many neighbourhoods have retail strips that offer every good and service imaginable. Some areas are more known for specialties – for instance restaurants on the Danforth, or on College in Little Italy. Most of the time these buildings fall under the I.C.I. umbrella (commercial rather than residential) even though there may be residential rental apartments above the main floor retail space.
These properties can be quite interesting for someone looking to live-in or for the absentee investor. These mixed-use buildings have been similar to strictly residential properties over the past few years insofar as lower bottom-line returns and negligible cap rates. My advice is to make sure that if you buy a mixed-use building that your main floor retail tenant is on a long lease and that their business is strong, unless of course you have a business to operate out of the main floor yourself. Most of the properties derive the bulk of their income form the main floor lease and it would be difficult to immediately make up that rent if the tenant splits. It is much easier to find a residential tenant than a commercial one. Remember too that every user is going to want to build to suit, so that cost is likely cost you months of free rent. Also, most of these properties are on busy main streets, so keep that in mind if you intend to live in it.
Some of my clients have asked where the commercial market is going since each month my comments seem to be more focused on the residential resale side of the equation. Unlike houses in the prime areas of the core, I think that the prices of commercial properties may start to come down a little. It is believed that REITs (real estate investment trusts) are great indicators of where the commercial market is going. Experts say that the overall commercial prices have already started to drop and there may have been as much as a 5% decline last year, with potentially more of a drop to follow. This is quite interesting because there is no indication that this is happening yet on the residential side.
So does that mean that a storefront with two units above it will be a better buy this year than a regular triplex? Quite often I will highlight duplexes or triplexes that trade for over-asking and comment on how the investment value gets thrown out the window.
I’d like to look at some of last year’s activity that may shed light on what’s happening with these kinds of properties:
Here are all the sales in C01 west of Yonge Street south of Bloor, specifically categorized as stores with apartments or offices above. These include shops on Bathurst, Ossington, Dundas West, Queen West, College St and others.
Field Count Mean
(Average) Median Mode Low High
List Price 37 $860,951 $689,000 n / a $325,000 $4,100,000
Original Price 37 $884,735 $699,900 $799,000 $325,000 $4,700,000
Sold Price 37 $825,486 $680,000 n / a $325,000 $3,900,000
% List 37 96.27 97 98 82 117
Taxes 36 $8,877 $6,648 n / a 2226.7 $55,000
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 17 3.6 4 n / a 1 6
Days On Market 37 61 44 n / a 3 232
Note that only six of the thirty-seven sales were over a million dollars. The largest sale which would skew the numbers up was a whole block of College near Spadina that sold for $4M. Most sales are in the five to six range but they tend to be further west towards Dufferin. Obviously to closer to Yonge, the more expensive the buildings become.
Here’s the same analysis for mixed-use buildings on the east side of the DVP. These would include sales on the Danforth, Broadview, Gerrard, Pape, Coxwell St. Clair East & many on Queen Street East.
Field Count Mean
(Average) Median Mode Low High
List Price 61 $566,926 $469,000 $549,000 $245,000 $1,499,900
Original Price 61 $575,039 $485,000 n / a $259,000 $1,499,900
Sold Price 61 $528,146 $444,000 n / a $231,000 $1,350,000
% List 61 93.66 95 95 64 106
Taxes 60 $8,251 $7,910 $3,642.84 $1,500 $25,554
Bedrooms 0 n / a n / a n / a n / a n / a
Washrooms 26 3.3 3 3 1 8
Days On Market 61 53 41 n / a 7 255
The average sales prices are lower than on the west side. The highest sales here are Queen St in the Beach and prime larger buildings on the Danforth. Again the average for a small building with one apartment above seems to around $500K.
I think that the bottom line is if a mixed-use building is throwing off better numbers than a completely residential multiplex and has good lease(s) in place, then it should be considered seriously. I prefer all residential just from a rentability point of view but remember that investment real estate is all about the returns. If cap rates start to get noticeably stronger on mixed-use buildings, I will start steering more of my clients in that direction. It hasn’t happened yet, but as I pointed out earlier, it may.
I’d like to wish you all a Happy Valentine’s Day, especially to all the single folks out there that feel snubbed at this time. If you’re single go out and buy something for yourself – I suspect you can probably afford it more anyway. Enjoy the cold too folks because it doesn’t look like it is going anywhere fast.
P.A.
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