Is Toronto Real Estate a Good Investment Right Now?

Between all the headlines stirring fear of a bubble that's doomed to burst and soaring house prices, some potential investors are wondering if now is the right time to buy.  In fact, a recent article in Maclean's magazine which claimed that Canada looks like the US before their housing market crashed has actually spawned some more balanced perspectives to surface.  One such article in the Financial Post, examines some of the Maclean's headlines from 2007 to present which all seem to warn of imminent Canadian housing market collapse.  It's actually quite a good read.  In the end, we need to accept that danger and doom tends to see newspapers and magazines better than headlines reading "Clear Skies and Smooth Sailing Ahead" and it is really up to the consumer to find a market professional whom they trust and conduct their own research as well.

With interest rates so low and bound to eventually increase, some buyers are looking for homes which would provide them the option of renting a floor for extra income.  While not a bad idea, research into the Residential Tenancies Act as well as local zoning laws and addressing questions to a trusted real estate professional are all advisable. 

In a recent Fincial Post article, the writer, Fabio Campanella urges buyers to consider their own financial situations over market conditions when assessing whether it is a good time to buy.  The most successful investors purchase properties which they can afford to hold onto until market conditions dictate the timing is right for them to sell.  In contrast, investors who spread themselves too thin by investing in multiple properties and stretching their means, are more likely to be forced to sell if conditions or their situation were to change.  Campanella writes:

"If the Toronto residential market is used as a barometer, we can see that residential real estate has treated us quite well over the past 20 years. During the period from 1992 to 2011, the average sale price for a home in Toronto increased from $214,971 to $465,412 according to the Toronto Real Estate Board (TREB)."
He calculates a ROI based on an investor putting 25% down and finding a tenant whos payments cover only basic operating costs like interest payments (not principal) on their mortgage, taxes and maintenance.  The results are impressive... especially when compared with those of the TSX. 

He even addresses investors' fears of buying just before a dip in the market by looking back at the shattering crash in 1990:

"In fact, even if you were to have purchased a property at the bull market peak just before the infamous GTA real estate crash of 1990, you would still have achieved an 8.94% ROI if you held the property with a decent tenant until 2008 even though the value of your investment would have dropped by 25% over the first four years."

Questions regarding the comparison between real estate and stocks are common although, they are really like apples vs. oranges.  First of all, we cannot live in our stocks, enjoy our families, decorate or garden or any of the other things we associate with a home.  We need to live somewhere and we so seldom consider what our monthly payments would be as renters when considering our home expenses.  Finally, unless you hold an important position with the company of which you own stocks, you do not have much control over your stock investment (aside from deciding to sell) whereas with real estate we can upgrade, renovate and stage to our heart's content. 

Still, real estate seems to win the comparison as seen by the chart (above, right) which was published on a property inventment company's website.  While our stocks are still recovering from the downturn in 2008, the real estate market only experienced a minor bump in the road.

All in all, while specific advice should always be sought, it appears that real estate is still a solid investment for Canadians.


We are Women Hear us Roar... And Watch us Enter the Real Estate Market in Record Numbers!

With RBC's 19th annual home ownership poll showing us that women are more likely than men to be first-time buyers in the next two years, it seems that Sandra Rinomato's new show, Buy Herself premiered at the perfect time.

Like men, women looking to purchase their first home prioritize down payment, job security and readiness at the top their list of concerns although an interesting difference between the genders crops up where rick tolerance is concerned, with only 16% of women (versus 25% of men) willing to take on a variable rate mortgage.

Rinomato has already seen success with her show Property Virgins and I'm interested (both as a real estate agent and as a woman who purchased my first home on my own) to see how she deals with the unique concerns that many single women have in terms of security, a single income and many other factors.  I'm also wondering how they'll inject drama into the show without couples disagreeing on which property to buy... Perhaps we'll see some crazy characters or overly involved parents.  After all, it is television first and reality second!

The Big Four: How Are Toronto's Newest Luxury Condos Shaping Up and Why is Trump's Venture Trailing the Group?

We've heard them called Caviar Condos and right now, Toronto has four of them.  With Residences at the Ritz-Carlton and Trump International Hotel and Tower open and Four Seasons Private Residences and Living Shangri-La both scheduled to open this summer, many are wondering exactly who is buying these 1 million to 28 million dollar residences attached to luxury hotels and whether there can possibly be a demand for over one thousand of these units hitting the market within a year.

Toronto Life recently featured a fun article comparing these luxury developments in terms of percentage of units sold as well as some of the challenges these developers have been facing.  The Four Seasons seems to be the hands down winner, with around 90% of the units sold and stories of some early investors who have already sold their units (over half a decade later) for nearly double what they paid.  Second place seems to go to the Ritz with over 90% of units sold.  The difficulty now is that the 20 units listed for resale could prove difficult for the builder to sell their remaining inventory.  Third place goes to Living Shangri-La with around 85% of their units sold with Trump trailing with only 40% of residential units sold and 80% of all units.

 This news about Trump Tower shouldn't surprise anyone who has been following some of the bad press this residence has been receiving.  It seems that while the hotel condos are selling (certainly faster than the residences) many buyers have encountered problems with financing due to the different rules applied to commercial properties.  A few buyers have so little confidence in the project that they are even attempting to break their contracts or walk away from their significant deposits.  Not only can property taxes be much higher for commercial properties but most lenders require the bar to be set higher in order to qualify a commercial buyer.  For me, this is just a shame.  I like to see DT thrive and I never miss an episode of The Apprentice.  Perhaps this will just mean we'll be seeing this real estate mogul in Toronto more frequently as he attempts some damage control.

Luckily, not everyone feels pessimistic and our luxury condo market seems to be an attractive investment for foreign buyers.  While it is difficult to obtain statistics on foreign investors, Janice Fox, the director of sales at The Four Seasons estimates between 30% and 40% of sales have been to international buyers.  In fact, The Four Seasons enjoyed a record setting sale last year of a 28 million dollar unit to a foreign family with plans to move here.

This optimism is also shared by many industry experts here in Toronto.  Oliver Beumeister, a real estate agent purchased a unit in one of these luxury developments five months ago and, according to a Reuters article, his plan is to wait until the surplus of units has been sold off in about four years and to then sell his unit for a 20% profit.  Not bad.

Will a Home Inspection Clause Disqualify my Offer?

Most buyers today generally accept the value of a home inspection.  This is especially true with many of the older homes in some of Toronto's established neighbourhoods.  A recent Huffington Post article reminds us of some of the areas an inspector typically examines and there are many sub-areas of specialty including termites and old wiring.

For between $300 and $500 on average, buyers can have an expert set of eyes examine their prospective home or sellers can obtain a pre-listing inspection as an added value feature to entice buyers.  So, what happens when a buyers is competing against multiple offers and the seller's agent is asking for "clean" offers (without conditions) only?

Only the buyer can make this decision.  I've seen buyers fall in love with a house and ignore the odd problem uncovered in a home inspection.  In fact, I typically remind buyers that in my experience, a home inspector always finds something... even if it's small, since no house is perfect.  On the other hand, there is something to be said for entering into the largest purchase of your life with open eyes and an awareness of major repairs that may arise.  Indeed, an inspection is not a guarantee and sometimes there are issues that cannot be examined due to access, time of year etc. but my concern for buyers who ignore this step is that they may wonder "what if..." down the road.

For buyers who are worried about forgoing an inspection in order to make their offer more attractive, I remind them that it is their choice and leave them with the options:

They may waive the inspection entirely (I don't advise this) and hire an inspector once they move in to give them some awareness of any upcoming repairs or preventative maintenance.

They may request a copy of the pre-listing inspection (if there is one) and allow their own inspector or contractor to read through it.

They may ask the seller permission to pay for an inspection prior to submitting an offer.

OR, They may include an inspection clause in the offer with a short conditional time.  In this case, it is up to their agent to convey to the seller's the good intentions but fair concerns of the buyers and highlight the other attractive aspects of the offer.

I often ask my clients to imagine two different frames of mind when paying a roofing company to re-shingle the roof one year after moving in.  Would you rather be thinking: "Well, we knew we'd need to do this and we budgeted and considered it in the purchase price." or "I can't believe we're already spending more money!  I wonder if we would have bought this place if we had known we'd need to do this so soon."

In the end, the answer to the question in the title is a definite MAYBE... Many sellers would likely prefer to take a "sure thing" which in this case comes in the form of an offer without conditions.  A buyer who insists on an inspection may not get the house but I'm a believer that you'll never know if you don't try.


Is Buying U.S. Real Estate as Easy as it Sounds?

A recent blog post on Condo.ca discusses a prospect many of us have probably contemplated lately: looking for an investment property South of the border.  For Torontonians and Canadians in general, the past few years have certainly seemed like an ideal time to invest in the American housing market and for most of us, the thought evokes an image of a sunny little pied-a-terre to escape to during our chilly winter months.  In fact, with all the stories of Florida condos priced so low they could practically be purchased on a credit card, it may be surprising that many Canadians are straying from the sunbelt and some are even opening their wallets wide enough to purchase in the luxury market!

I find it reassuring that, while our workout habits may suffer on vacation, our national conservative attitude towards mortgage debt seems too deeply ingrained for a south-of-the-border lapse.  This is evident by the fact that 9 in 10 Canadians are paying for their U.S. properties in cash.

While many Canadians have already purchased vacation or investment properties, for those who are looking to take the plunge, here are a few factors to consider:

Consider whether you intend to rent out your property while you're not using it and have a frank discussion with a trusted real estate professional regarding the challenges and benefits to being a landlord. Royal LePage just released the results of our 2012 Recreational Property Survey and we know that while 51% of Canadians intending on purchasing a recreational property within the next five years would consider renting it to offset ownership costs, 83% of those who currently own vacation properties do not actually do this.  

Consider asking your own real estate agent for a referral to an agent who practices in the U.S.  Many of us attend international networking events regularly and seek out colleagues with similar professional characteristics who would provide our clients with the same level of service that we would at home.

Speak with a lawyer!  I cannot stress this point enough.  Not only are there taxation rules to be aware of but the landlord and tenant laws (should you plan to rent) can vary widely.

The main point here is to do your research.  Real estate in the US may be cheaper than it is at home but it is still a large investment.

In a HOT Seller's Market, Where is the Line Between Savvy Business and Sneaky Tactics?

In a recent Globe and Mail article Carolyn Ireland asks this very question and many agents (like myself) who have both buyer and seller clients are pondering a fair answer.  While, in many pockets in Toronto, it is currently normal to expect a listing to sell for over asking, some of the severely underpriced homes on the market can be misleading and frustrating to buyers.

For sellers who may want to draw as much interest as possible, or who list low expecting multiple offers (or, as many like to call these scenarios- bidding wars) and are disappointed when they don't see numbers as high as they had hoped, this strategy seems reasonable.  After all, it may be a great time to be a seller in Toronto but aren't we all just trying to make the most of our investments?

For buyers however, who may have already placed offers on other homes which were not acccepted, the thought that some of the properties on the market may be listed in a totally different price bracket may seem overwhelming.  Ireland's article seems to scoff at the fact that this obvious game playing is legal and accepted practice.

At one point, Ireland asks if a customer would expect to walk into a retail store and offer the proprietor the $2.99 posted price for a tube of toothpaste only to be told by the owner that, they were actually hoping for $3.45 since there are many customers and few tubes of toothpaste and they will not accept anything under $3.20?  Of course this sounds ridiculous but it works the other way as well: In a time of toothpaste abundance, a buyer would likely not expect to offer the shop owner $1.75, "take it or leave it" and make much progress.  Well, this is exactly what buyers expect in a real estate market which favours buyers so why shouldn't the reverse be acceptable for sellers?  In the end, this is a very important and large purchase for most people (unlike a tube of toothpaste) and is therefore very obviously subject to the laws of supply and demand.

My opinion?  Buyers need to find an agent whom they trust and ask candidly about properties that seem too good to be true.  This market requires some strategizing and preparation on the buyer's end but with the right information and advice, it is just another minor challenge to overcome on the road to a new home.

As for the "games", I advise my buyers to remember that just as we are trying to find the best terms for them, the seller's agent is doing the same for their client.  I like to think of the lowball listings as just another strategy... Good or bad, it is just that.

Related Posts by Zemanta