Toronto Residential Income Property Newsletter: November 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter: October 2011

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

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

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

The Toronto Real Estate Board is calling for the mayor to rescind this very unfair tax.  Unfortunately, this additional revenue to the city is now very much needed in light of all the cutbacks that are being contemplated by City Council.

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

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

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

Toronto Income Property Newsletter: September 2011

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


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

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

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


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

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

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

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

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

Toronto Income Property Newsletter - August 2011

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter: July 2011

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

Rental Increase Guideline to Quadruple?

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

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

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

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

Rental Transactions up 18 Per Cent

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

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

Toronto Income Property Newsletter - June 2011

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

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter: May 2011

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

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

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

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


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


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

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

Toronto Income Property Newsletter - April 2011

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter - March 2011

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

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

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

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

i. Define Your Investment Goals

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

ii. Identify Your Needs & Desires

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

iii. Know Your Financial Readiness

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

iv. Establish a Relationship with a Lender

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

v. Develop a Purchase Strategy

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

FOR LANDLORDS:

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

i. State of the premises:

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

ii. Rent Increases & the Residential Tenancies Act

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

iii. Fire Issues

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

iv. Eliminating Expenses

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

Toronto Income Property Newsletter - February 2011

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

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

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter - January 2011

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter - November 2010

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter - October 2010

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

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

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

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


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

Who checks your credit report and credit score?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter: September 2010

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

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

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

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

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

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

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

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

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

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

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

Toronto Income Property Newsletter - August 2010

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

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

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

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

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

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

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

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

TORONTO INCOME PROPERTY NEWSLETTER - June 2010


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


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

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

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

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

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

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