# Toronto Housing Market and Down Town Condos



## can_84 (Jul 2, 2011)

I need some advice.

I've been pondering buying my first condo rental in down town Toronto but given that the market is is staring to cool off I feel torn between buying and holding off. I have considered the Toronto market and have come to the conclusion that it is correcting (mostly driven by government policy) but I also feel that the government is pursuing high density housing in Toronto which makes me believe that the condo market will heat up while the detached market will cool off. 

Please share your thoughts and advice?

Thank you in advance.


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## Mortgage u/w (Feb 6, 2014)

A condo is not considered a good rental.
Keep your money in the stock market instead.


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## GreatLaker (Mar 23, 2014)

I just sold a condo in downtown Toronto. If I felt it would have a great return I would have kept it as a rental.

2BR condo value ~$675k. Typical rent for a 2BR in the building $2750/month. If I calculated based on 12 months rent (i.e. 100% occupied) and not using a property manager the annual return would have been 3% after insurance, condo fees, electricity and taxes. But if I based it on 11 months rent/yr (i.e. some churn in tenants), and paying a property management fee of 10% of rent (because I would not be local) the return dropped to 2.2%. Add in increase in value over time of 5%/yr could bring the return to 7 or 8%. Just rough guesses. Who knows what the market is really going to do. These calculations don't include tax deductions for expenses, but they also exclude interest costs if you need a mortgage. Over long time periods real estate goes up slightly faster than inflation. The only places that has not been true is Toronto and Vancouver.

I simply did not feel it was worth keeping such a large investment that could be a PITA to manage vs. investing it in a diversified stocks / bond portfolio despite the nice cashflow.

You did not say what type of condo you were thinking of. 1 BR with standard builder finishes probably gets the best rent per sq.ft. IMO larger ones with lots of upgrades won't get the same return on investment, and 1BR is usually easier to rent. Most tenants care more about cheap rent than nice finishes.

Buying an older unit and doing some quick renovations yourself is often a good way of getting better value, compared to a brand new unit.

Edit: Forgot to add this link. I'm not a fan of Garth Turner or Brad Lamb, but there is some interesting thought here:
http://www.greaterfool.ca/2012/11/30/smart-***-condo-math/


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## Mortgage u/w (Feb 6, 2014)

^^
What mortgage amount and payment are you using?? Cause someone buying a $675k property will require at most a $540k mortgage which the payment is roughly $2600 a month. Once you add condo fees, insurance, taxes (not to mention personal income taxes), I don't see where there would be a return.

Lets not forget, its only 1 door - 1 income. Any missed payments or vacancies will greatly affect your expenses.

$540,000 should work a lot harder than that for you.


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## GreatLaker (Mar 23, 2014)

^^
No mortgage. It was paid for condo that I was living in and sold to move elsewhere. So I did the rough math of keep as a rental vs sell and invest the $ in my stock/bond portfolio. Keeping it a a rental did not make sense to me, but it really depended on assumptions on future R/E prices vs. market returns.

I did factor in 1 vacant month/yr so ~92% occupancy.

It's only one data point and probably not typical of investment properties. It was (IMO) too large of a place to get the best rental value per $ invested. And my belief is that to be a successful R/E investor you need to use debt/leverage and be a hands-on landlord, not using property management services.


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## kcowan (Jul 1, 2010)

Here is a Wood Gundy quoted study. Frictional costs reduce returns by 5% over 5 years.


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## Mortgage u/w (Feb 6, 2014)

GreatLaker said:


> ^^
> No mortgage. It was paid for condo that I was living in and sold to move elsewhere. So I did the rough math of keep as a rental vs sell and invest the $ in my stock/bond portfolio. Keeping it a a rental did not make sense to me, but it really depended on assumptions on future R/E prices vs. market returns.
> 
> I did factor in 1 vacant month/yr so ~92% occupancy.
> ...


Ah. Makes more sense. Glad you made the choice of selling it - I would have done the same.


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## can_84 (Jul 2, 2011)

Thank you GreatLaker. You helped me come to a decision I decided to move on from condos after doing some number crunching like you suggested. I felt that its purely a capital gains speculation. Now I am stuck on Bitcon lol.. Would love to hear your advise on that.


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## cheech10 (Dec 31, 2010)

You just got rid of one speculative investment, this condo, and want to move right into another speculative investment, Bitcoin? Bitcoin has done well recently, and may even continue to do so in the future, but with no hard assets behind it and no income generation it is the very definition of speculation. Would limit it to a small (if any) portion of one's portfolio.


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## Mortgage u/w (Feb 6, 2014)

can_84 said:


> Thank you GreatLaker. You helped me come to a decision I decided to move on from condos after doing some number crunching like you suggested. I felt that its purely a capital gains speculation. Now I am stuck on Bitcon lol.. Would love to hear your advise on that.


Do you have money burning a hole in your pocket? Why the need for such speculative investements? 

Understand this: there is nothing out there that will make you a successful investor without hard work and dedication.


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## GreatLaker (Mar 23, 2014)

can_84 said:


> Thank you GreatLaker. You helped me come to a decision I decided to move on from condos after doing some number crunching like you suggested. I felt that its purely a capital gains speculation. *Now I am stuck on Bitcon lol.. Would love to hear your advise on that.*


One word: *Don't*

Two words: *Millionaire Teacher*

Three words: *If You Can*


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## can_84 (Jul 2, 2011)

Thank you for all the advise. I decided to buy more RNW (Transalta Renewable) and just play it safe with dividends.






This scared me off from considering real-estate for sometime. I am guessing that the cycle is near peak so I wont be buying in unless I want a place to live in. It's just said that the whole country is living on debt.


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