Monthly Newsletter: July 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Real Estate News & Views / Toronto Income Property Report

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

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

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

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

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

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

i. State of the premises:

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

ii. Rent Increases & the Residential Tenancies Act

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

iii. Fire Issues

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

iv. Eliminating Expenses

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

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

Take care everybody.

P.A.

Monthly Income Property Newsletter - April 2007

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

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

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

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

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

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


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

Monthly Newsletter March 2007

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

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

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

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

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

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

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

Monthly Newsletter February 2007

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

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

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

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

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

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

P.A.

Monthly Newsletter January 2007

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

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

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

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

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

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

P.A.

Monthly Newsletter December 2006

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

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

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

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

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

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

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

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

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

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

Take care everybody and enjoy!

P.A.

Monthly Newsletter November 2006

This month we’re going back to basics and revisiting some of the duties and responsibilities that you have as a landlord. I will also be sharing my thoughts on where the best sources to advertise an apartment for rent are, as well as look at how you can maximize your chances for finding good tenants.

Many folks buy income properties and are happy to collect the rent every month but sometimes they forget the responsibilities that go along with being a landlord. The first thing that every new or prospective landlord should do is get intimately familiar with the Tenant Protection Act. You can find the complete TPA at this link:

http://www.e-laws.gov.on.ca/DBLaws/Statutes/English/97t24_e.htm

I can’t repeat everything that is in the T.P.A. but I will highlight some of the key topics that this legislation addresses. As a landlord you are entitled to collect rent provided you meet the following basic obligations:

i. A landlord has to keep the rental property in a good state of repair.
ii. If something is not working because of normal wear and tear, the landlord must fix it.
iii. A landlord must obey all health, safety and maintenance standards in any provincial laws or municipal bylaws. For example, a bylaw may require the heat to be turned on and kept to a minimum temperature between the fall and spring.

As a landlord you are also responsible for the supply and continued unfettered access to vital services. A landlord cannot shut off or interfere with the supply to a tenant of hydro, fuel (such as natural gas or oil) or mess with the hot or cold water. You are also responsible for making sure that the rental suite is insurable and meets all the requirements of the local fire code.

I believe that it is important to be dutiful to your tenants. I consider my tenants to be like clients. I have a space that is available and they pay me every month to live in it. It’s really no different than the relationship that a business has with its customers. Appreciate the fact that your tenants give you business and do not ever treat them like second class citizens because they rent.

Another area that is subject to misinterpretation is your right as a landlord to enter the rented premises. Even though you own the rental suite, that doesn’t mean that you can walk in on your tenants whenever you please.

A landlord can enter a unit without written notice if:
*there is an emergency, like a fire,
*the tenant allows the landlord in, a care home tenant agreed in writing to let the landlord do " bed checks."

A landlord can enter a rental unit without written notice, between 8 a.m. and 8 p.m. if:

*the rental agreement requires the landlord to clean the unit – unless the agreement allows different hours for cleaning,

*a notice of termination has been given by either the landlord or tenant, or there is an agreement to terminate the tenancy, and the landlord wants to show the unit to a potential new tenant (although notice is not required, the landlord must try to tell the tenant before entering for this reason).

A landlord can enter between 8 a.m. and 8 p.m., and only if 24 hours written notice is given to the tenant:

*to make repairs or do work in the unit,
*to allow a potential purchaser, insurer or lender to view the unit,
*to allow an inspection by an engineer or architect or similar professional for a proposed conversion under the Condominium Act, for any reasonable purpose allowed by the rental agreement.

Another misunderstood area is what rights you have for evicting a tenant. If a tenant has a valid signed lease you cannot evict them until the end of that lease and you have to give them at least sixty (60) days written notice. Some of the reasons for eviction allowed by the Act relate to the tenant’s behaviour or actions or that of their guests. These include:

*not paying the rent in full,
*often paying the rent late,
*illegal activity,
*affecting the safety of others,
*disturbing the enjoyment of other tenants or the landlord,
*allowing too many people to live in the rental unit ("overcrowding"),

There are also the following circumstances under which a tenant may be evicted through no fault or action of their own, such as:

*the landlord wants the rental unit as their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord has agreed to sell the property to someone who wants all or part of the property for their own residence, or that of their spouse or same-sex partner, or a child or parent of one of them,
*the landlord plans major repairs or renovations that require a building permit and vacant possession, the landlord plans to demolish the rental property,

*in a care home occupied for the sole reason of receiving therapy or rehabilitation, the rehabilitation or therapy program has ended, a tenant of a care home needs more care than that available in the home, or no longer needs the level of care provided by the landlord.

The next topic I’d like to address is some of the best ways to advertise your empty suite to prospective renters.

Craig’s list: this is a relatively new medium but it seems to work wonders. Local on-line classified ads (updated daily) are read by many prospective renters

View-it.ca: this is an on-line site dedicated to renting apartments in the GTA
Weekend Papers: the Saturday Star, the Globe and the National Post all have real estate and classified sections.

Community & Local Bulletin Boards: these can work very well too. If you are close to a University, then put up a notice in the Student housing building. People often go looking in the areas that they are interested in so if you could catch them with an ad at the local grocery store or bowling alley, you may find success that way.

MLS: a lot of residential rentals are found on MLS using the services of a realtor. Please note that this can be the most expensive marketing as it often costs the landlord one full month of rent.

Now how do you know if a potential tenant is going to be relatively hassle-free and not cause you too much grief?

Credit Check: this is the most common way that landlords find out how credit-worthy an applicant is. At least you’ll know if they can afford the rent each month.
References: I really like to talk to other people or acquaintances of the applicant. You’ll be surprised how friends and family, despite their connection to an applicant, will give you honest feedback

Old-school gut feel: Like anything in life, what’s your initial reaction when you meet the potential tenant? I don’t always like to judge a book by a cover but sometimes there are sure-fire signs that a tenant may be trouble. You just have to pick up on clues during your initial meeting with them.

Being a landlord can be a very rewarding and profitable experience. If you follow these simple guidelines your chances for success will be improved. Next month we will look at how the market has been performing over these past few months and start preparing for our year-end wrap up.

P.A.

Monthly Newsletter October 2006

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

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

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

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

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

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

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

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

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

P.A.

Monthly Newsletter: September 2006

Is the small-scale real estate investment market dead? In these days of properties being sold at 4 or 5 caps, one has to wonder what the motivation is to pay these kinds of prices. If you are going to buy a triplex in Toronto for investment, what kind of reasonable yearly return should you expect? If your ROI is under 5%, does it really make sense to assume the business risk? Properties require hands-on management, have frequent maintenance issues and are often difficult to dispose of quickly. In that sense, real estate is not a very liquid investment relative to stock or other paper-based vehicles. REITs are returning 7% to 9% in some cases and are relatively hassle-free. They also can be cashed in quickly if need be. It always makes sense to live in your income property when possible, but does it make sense to become an absentee landlord in today’s market?

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

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

Many investors feel that it is illogical to purchase property that might have yielded a higher return five or even two years ago. From a practical standpoint, traditional measuring sticks are being redefined. If you’re looking for 10 to 12 times your gross rents to determine market value, you’re going to have a hard time finding a suitable property, at least in the central part of the city. As I said at the outset cap rates have come down. The only way to determine if they are too low is to consider alternative investment strategies and see what kinds of returns you can achieve elsewhere. Since there’s a lot of risk associated with real estate, you have to decide what minimum percentage return justifies an income property purchase.

The most successful businesspeople (not just in real estate mind you) are those who often go against the grain. They see opportunities where others see nothing. I enjoyed a biography that I saw recently on the Reichmanns. When downtown Manhattan real estate hit all time lows in the 1980s, Paul Reichmann swooped in a bought and redeveloped many key locations that local players had passed on. A couple of years later things turn around and those purchases tripled in value. It actually paved the way for guys like Trump to start redeveloping. The point is that if everyone thinks a property is too expensive, there may be hidden opportunities.

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

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

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

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

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

Happy Labour Day everyone. The kids are back to school and many of us are wrapping up our summer fun. Let’s get busy!

P.A.

Monthly Newsletter: August 2006

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

This month I’ll be answering some common questions about adding a second suite to your existing home. Cutting a property into two, or “duplexing” it, is an excellent way to help offset your home’s carrying costs. This information comes courtesy of www.landlordselfhelp.com, an excellent website based in Toronto, for both landlords and tenants.

1. What defines a second suite?

A second suite is a self-contained, rental apartment in a single or semi-detached house. In some areas of Toronto, second suites have existed for many years, providing tenants with affordable rental accommodation in neighbourhood settings while generating rental income for homeowners. An estimated 20% of all rental housing in Toronto is found in private homes as second suites.

Many second suites are basement apartments, but they can be installed on any floor of the house including the attic. They have also been called granny flats, accessory apartments and in-law suites.

2. Are second suites legal?

Toronto Council expects that more affordable rental housing can be created cost effectively by allowing homeowners across the city to create or legalize second suites. To do this, the city passed a zoning bylaw allowing a second suite in all single and semi-detached houses, with some conditions.

Second suites have been permitted in parts of Toronto for some time. A provincial law also allowed homeowners to create a second unit in their homes from July 14, 1994 until November 16, 1995 when that law was repealed. Suites created during that period were permitted provided they met fire, building and housing safety standards.

3. What are the conditions that must be met to have a second suite?

While the second suite zoning bylaws permits second suites in all single and semi-detached houses, certain conditions apply. Some of these conditions are that:

· your second suite must be self-contained (including a separate entrance, kitchen and bathroom)
· your house must be at least five years old
· the floor area of the second suite must be less than the rest of your house
· you must have at least two parking spaces (except in parts of the former City of Toronto where only one parking space is required)
· you cannot make significant exterior alterations to the street frontage of your house.

Note: The new bylaw refers to self-contained suites only. If you rent a room in a house or a flat with a shared entrance, this bylaw does not apply to you.

All second suites must comply with fire, building and housing safety standards based on the Building Code, city bylaws and the Fire Code. These may include, for example:

· minimum sizes for the rooms that make up the second suite
· minimum ceiling height for basement or attic suites
· fire separations between the second suite and the rest of your house
· exits from your second suite
· smoke alarms and carbon monoxide detectors
· electrical safety

You will require a building permit and may need other permits to create your suite. Ultimately, you as the owner are responsible for taking all the steps required to ensure your second suite is legal. Toronto has produced an information kit that may help you. The kit provides easy-to-read information on how to create a second suite that meets all fire, building, and housing safety standards required by law.

4. What if there already is a second suite in my house?

The second suite zoning bylaw allows for many more second suites as long as they comply with fire, building and housing safety standards. If you already have a second suite, the first step is to call Fire Services. They will let you know what steps to take and will then inspect your home. The cost of inspection and a letter of clearance confirming your suite is safe is $150 (see below for information on where to call).

If, as a result of a fire inspection, you learn that you need to do some work on your second suite, you may need a building permit. Again, Toronto's information kit may help you.

5. What do I need to know to be a landlord?

If you are considering putting a second suite in your home, you must consider the change in your lifestyle, the expense and the commitment you must make when becoming a landlord. It is essential that you research the legal obligations you are taking and have a clear understanding of your rights and responsibilities.

Once you become a landlord, your relationship with the tenant is governed by the Tenant Protection Act (TPA). Tenants have specific rights. Most importantly they have "security of tenure," which means that a tenancy agreement can only be terminated under specific circumstances. To evict your tenant, you must have a valid reason as defined in the TPA and follow a specific procedure.

When you rent a portion of your house, you must respect your tenant's right to enjoy his or her home. Tenants have the right to have overnight guests, cook foods they enjoy, come and go as they please and have a pet as long as these activities don't conflict with your right to the reasonable enjoyment of your home.

6. Are there any tax implications?

It is anticipated that the property tax impacts of second suites will, for the most part, be minimal. Under Current Value Assessment (CVA), the assessed value of a home is based on its market value. According to the Ontario Provincial Assessment Corporation, the agency responsible for property assessment, a property's CVA does not usually go up unless there is an increase in the total property value of at least $10,000 or 5%.

A typical second suite increases the value of a home by only 2%-5%, depending on the neighbourhood. Therefore, most second suites do not add enough value to meet this threshold. A major exception to this would be a second suite that is created with a building addition. This could significantly affect the total value and result in a property being reassessed.

If you have any further questions about creating residential apartments, please call me or any of our Plex sales representatives. You may also want to call your lawyer. It is always a good idea to get professional advice prior to starting a major construction project.

In closing, I’d like to wish my business partner David a very Happy Birthday this week. I can’t say how old he’s going to be because I’d be dating myself. Remember to stay cool everyone and enjoy the rest of the summer.

P.A.

Monthly Newsletter: July 2006

Happy Canada Day everybody! I hope that you all enjoy this long weekend and find some time to kick back and have fun some. If you’re a soccer fan like me it doesn’t get any better than the on-going World Cup. Isn’t it great that we all live in a city where we can cheer for our respective teams and have most of the countries in the tournament represented? I wish your the team all the best, but for me - GO ENGLAND!!!

Since we are half-way through the calendar year I’d like to talk about the income property market so far this year. I’ll look at year-to-date sales statistics and try and surmise where the multiplex market may be heading for the upcoming months. I will break Toronto into eight key neighbourhoods and look at how the market performed in each of them.

As I have suggested in past columns, we have been more active over the past few months with live-in purchasers of income properties. This is not to say that the investment market has dried up, but at Plex Realty we have seen a lot more owner-occupied properties trade that make better fiscal sense. Essentially, buying a multi-unit building to live in is always a prudent form of home ownership since you are able to defray some of your living costs. Cap rates and R.O.I.s on the other hand have been dropping as purchasers seem to be accepting of lower returns. In my opinion, these returns will have to improve as real estate has to remain competitive in relation to other investment vehicles.

Sales statistics from TREB suggest that the overall Toronto residential resale market in 2006 has remained quite strong:

"Market conditions have been very good all spring, and the strong activity we’ve seen is a reflection of that," TREB president John Meehan states. "With just a few days remaining, this spring has so far been over two per cent more active than last spring." As you can see form the chart above, while April dipped a little we have seen year-on-year growth each month. The overall average selling price year-to-date for 2006 is $356,683 - approximately 6 percent higher than the average selling price for 2005 of $335,907. Remember that 2005 set a record for the highest number of sales ever, so it seems like we’re on pace to beat that record again this year.

Independent analyses of the multi-residential market do not exist. All income properties with six or less suites are lumped in with the single-family stats. In order to determine what’s going on in the multiplex market, I have gone into MLS data and pulled all sales of those properties with three or more kitchens. Naturally, there are many sales of duplexes with only two kitchens, but I have no way of distinguishing them from single family homes with basement apartments. Thus all figures below are for three units or more.

I have broken Toronto into eight key neighbourhoods for the purpose of analyzing market activity:

Downtown Toronto - south of Bloor, west of Yonge (C01)
This includes neighbourhoods like Chinatown, Little Italy, Trinity Bellwoods, etc.
Midtown Toronto (C10)
From Lawrence down to Eglinton, east of Yonge
The Annex (C02)
This is the area north of Bloor St to St. Clair., west of Yonge
Cabbagetown (C08)
This is the neighbourhood east of Yonge to the DVP, running south of Bloor St.
Rosedale/Moore Park (C09)
This is the area in between St. Clair & Bloor, east of Yonge
Riverdale/Leslieville (E01)
This is the area from the Danforth down to the Lake, just east of the DVP.
The Beach (E02)
East of Coxwell, from the lake up to the Danforth
High Park (W01)
South of Bloor, in between Dufferin and the Humber River

# of YTD Sales
Average Price
Days on Market
C01
69
519,393
28
C10
7
747,489
34
C02
55
666,302
28
C08
11
588,591
46
C09
6
1,186,667
29
E01
47
418,834
29
E02
23
526,504
25
W01
65
524,856
27

There are some interesting observations to be made from these YTD stats. It seems like it takes around a month to sell an income property no matter where it is. This also suggests that the multiple offer frenzy that has been happening with single family homes is not occurring as much with income properties. The largest number of sales occurred in C01 & W01 which isn’t surprising since these are the two largest residential areas. The high average price in C09 is a little misleading since there were only six trades and two of them were for almost $2M. It is interesting that sale prices in C01, E02 & W01 were also very close. Note too that all average income property prices are about $200K higher than the average house sale price in the entire GTA.

I have no reason to expect that this market will slow down. The summer is traditionally a little slower but then business tends to pick up after Labour Day. I fully expect a strong showing for the second half of the year. As I said earlier, I also think that more investment only properties will begin to trade as the vacancy rate continues to decrease. Owner-occupied multiplexes and properties that are purchased for conversion will also continue to be very popular, as they always make good fiscal sense.

If you ever have any questions about the income property market in Toronto or would like more even more detailed information on what’s happening in your target area, please send me an e-mail. Remember that we are the “Income from Properties” specialists and we pride ourselves on being on the frontlines of this market, 24-7.

Enjoy the long weekend and the summer months ahead.

P.A.

Monthly Newsletter: June 2006

This month I’d like to discuss a very important concept in real estate theory: gentrification or the process whereby an area improves over time to become attractive to new residents. I wrote on this topic a couple of years ago and got a very positive response from my readers. This suggests to me that many of you are interested in which areas offer the most opportunity for gains in the future.

As Realtors we are always looking for new market opportunities and signs of up- and-coming areas. Which neighbourhoods are on the rise and where are property values likely to see the sharpest increases? The three neighbourhoods of Toronto that are spoken about most often are Leslieville, Parkdale and the Junction. New businesses are moving into these areas and there has been a significant increase in the number of new real estate developments. Many streets in these see homes being renovated and household values increase. The Drake, The Gladstone and The Beaconsfield taverns on Queen West are an obvious sign of older businesses cleaning themselves up and attracting new folks to come into the area. The question becomes are these areas over-done. Once an area has opportunity and everyone finds out about it, is it still an opportunity?

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

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

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

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

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

One more interesting news item: Did you know that the “Beaches” are no more.
The neighbourhood featuring four beaches, encompassing Queen east of Woodbine up to Gerrard St, is now to be officially called "The Beach." The head of the Beaches business association made the announcement last month at the Toronto Public Library Beaches Branch. "Beach area residents have spoken," Neil Macdonald said of a poll conducted over the past month to resolve a decades-old debate on the east-end neighbourhood's name. Of more than 2,200 votes cast, 58 per cent sided with the singular over the plural. The result means that 100 historic street signs including the words "The Beach" are to go up this fall along Queen Street East. "I think they've done the right thing (picking a standard name)," John Nishida, chief branding officer at Pigeon Branding and Design in Oakville, said when he heard the news. "One of the principles of branding is to have a consistent message to all audiences.... Now city officials, government officials and everybody else who has a stake in the community will hopefully use the proper terminology."

I don’t know – they’ll always be the “Beaches” to me. That’s it for this month. Next month we’ll do a wrap-up on income property activity for the first six months of 2006. The World Cup also starts next week, so to all you soccer fans out there, I hope your team comes through for you.

P.A.

Monthly Newsletter: May 2006

This month I’d like to talk about basic investment strategies and why we continue to put our money into real estate. Folks often have different objectives when investing their hard earned money, not just in income properties necessarily, but in any vehicle that protects their initial principal and yields a return. You would think that the most common objective is to make as much money each month as possible, but I find that there are other reasons why people so often still turn to real estate. Now that the first third of 2006 is over, I will also provide a quick analysis of income property activity so far this year in Toronto to give you an idea of where we may be heading for the rest of the year.

Over the past few months there has been a recurring theme with many of our investor clients. If the market is only supporting a 6 cap, and traditionally similar properties yielded higher returns, why would one knowingly “overpay” today. We see properties on a daily basis that we feel are listed too high, yet sometimes the sellers still get their price. Why opt for a 6% return when a REIT or mutual fund may potentially give you the same or better return with far less hassle? Who needs to be a landlord, taking on all that responsibility, when you can make the same profit each month without really doing anything? Of course, owner occupied always duplexes or triplexes always make sense. If you live in your investment then you can immediately appreciate the presumably lower monthly cost of your suite. But does it make sense to purchase a property with a low deposit and have it just break-even each month? The answer to this last question for many investors is yes.

Many people who purchase investment properties actually have different goals. While no one wants to lose money each month, I find that investors have different rationales for their purchases and determining how much to pay. The options for investing our savings are continually increasing, yet every single investment vehicle can be easily categorized according to three fundamental characteristics - safety, income and growth - which also correspond to types of investor objectives. While it is possible for an investor to have more than one of these objectives, the success of one must come at the expense of others.

Perhaps there is truth to the axiom that there is no such thing as a completely safe and secure investment. Yet we can get close to ultimate safety for our investment funds through the purchase of government-issued securities in stable economic systems, or through the purchase of the highest quality corporate bonds issued by the economy's top companies. Such securities are arguably the best means of preserving principal while receiving a specified rate of return. In the real estate market, buying income properties in tier-1 locations and hanging on to them for the long-term is generally considered the safest bet. These properties may not generate returns quickly in the short-term, but they do provide a relative degree of stability over as many years. However, these “safe” investments are also the ones that are likely to have the lowest rate of income return, or yield. Investors must inevitably sacrifice a degree of safety if they want to increase their yields. This is the inverse relationship between safety and yield: as yield increases, safety generally goes down, and vice versa. Remember that real estate is not a liquid asset that can easily be converted to cash, so there’s an inherent risk in having your money in an investment where it is difficult to get at.

Future capital appreciation always looms in most purchasers minds. If a property appreciates 2 or 3% per year then they may be able to look the other way if the monthly returns in the first few years are less than stellar. We all know that the real estate market is cyclical. If one buys a property today for an exaggerated price and the market experiences a down-turn, then so long as you hang in there, the thinking is that eventually the property will increase in value again. This is the mindset of many people buying in the city’s best areas today. Get in at all costs and then just bide your time until the market goes up in the area. Of course, the longer you hang on, the more equity you recapture through the monthly payments made by your tenants.

Anticipated future family needs are often a reason for buying income properties with average returns. You may be thinking that one day you might like to have a suite available to your kids when they go to University so buying an income property that carries itself in that area makes sense. Some of our clients are even thinking about when they eventually down-size and may make use of one the rental suites themselves. Remember that long term, multi-year analyses always make your numbers look more attractive.

Investors also buy properties as tax-minimization strategies. An investor may pursue certain investments in order to adopt save taxes as part of his or her investment strategy. A highly-paid executive, for example, may want to seek investments with favorable tax treatment in order to lessen his or her overall income tax burden. There are new mortgage products out there for single-family homeowners that encourage you to borrow against your principal residence by buying investments where you can enjoy greater write-off and tax benefits.

Choosing a single strategic objective and assigning weightings to all other possible objectives is a process that depends on such factors as the investor's temperament, his or her stage of life, marital status, family situation, and so forth. Out of the multitude of possibilities out there, each investor is sure to find an appropriate mix of investment opportunities, especially in the real estate market. You need only be concerned with spending the appropriate amount of time and effort in finding, studying and deciding on the opportunities that match your objectives.

Before I sign off, I’d like to present a brief synopsis of income property activity in Toronto so far this year. This will give you a good idea of what you may expect in the months to come:

Price Range 300,000 – 500,000
District: C01
Average List Price: $420,309
Average Sale Price: $407,365
Average Original Price: $423,949
% of List Price: 97.39
Taxes: $2,838

In C01 the average listing netted $407,365 (97% of the list price average of $420,309), with taxes averaging $2,838.

District: E01
Average List Price: $373,236
Average Sale Price: $362,768
Average Original Price: $375,788
% of List Price: 98.04
Taxes: $2,561

Similarly, in the E01 district, the average list price was $373,236, with an average sale price of $362,768 fetching approximately 98% of the list price. In the E01 the average taxes are $2,561.

Price Range 500,000 +

District: C10
Average List Price: $707,543
Average Sale Price: $762,486
Average Original Price: $708,971
% of List Price: 98.14
Taxes: $5,033

In C10 the average listing netted $762,486 (98% of the list price average of $707,543), with taxes averaging $5,033.

If you ever would like specific sales information on any MLS district, please let me know. I believe very strongly in the maxim that “knowledge is power” so if I can arm you with the details you need to make an informed purchase decision, it would be my pleasure.

Take care everyone. See you next month.

P.A.