# Mississauga/GTA Condo's



## KaeJS (Sep 28, 2010)

I'm having a hard time understanding something.

It seems like everyone I come across is telling me that real estate is the best investment. People keep telling me to buy a condo. I am getting frustrated.

I really just don't get it.

Assume I put $50k down on a $220,000 condo. I've done my 20% to avoid CMHC - great. But now what?

Now I have monthly condo fees, home insurance, and I have to pay the bank 3.5% (on the cheap side, which will increase soon). Then the rates will go up, I'll end up paying more money. Now I've increased my risk as I'm directly part of the biggest real estate condo investment bubble of all time, just waiting for these rates to go up which might cause the condo market to drop.

I'm afraid to buy real estate (and would have to liquidate my whole portfolio to do so). Then I have a debt over my head. If I get fired or injured, then I'm screwed.

And hold on... What about furniture for the new place? What about property taxes that will never decrease?

What about the idiots in my building I will have to live with because my condo is only $200k and I've got some low life across the hall renting from an investor?

And for what?

... A box in the sky?

I just don't see this as a "good investment". Does anyone see this as a good investment? Why, or why not?


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## andrewf (Mar 1, 2010)

I'm in the same boat. I can't make the numbers work without assuming well-above inflation price appreciation. It's not a bet I'm willing to take.


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## Berubeland (Sep 6, 2009)

Real estate is not the "best investment" it is an investment just like any other. Real estate has been going steadily up for many moons. Real Estate is leveraged so it seems like you're making piles. 

For example if you invest $50,000 in a $200,000 condo and it goes up 5% you made $10,000 by using $50,000 which is a 20% increase on your cash. 

Unfortunately it also works in reverse. In fact in a flat market after paying your mortgage for 5 years you get your money back and realtor fees and maybe some pocket change. 

In a downward trending market you can easily owe more than your downpayment and wait years to get your money back. 

Condos are also notorious for raising their management fees on a regular basis which can wreak havoc on your finances. 

The only way I'd buy a condo in this market is if I could pay the same or less to buy that I'm currently spending on rent and plan to stay a good long while. For the most part, I'd tell you to wait.


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## HaroldCrump (Jun 10, 2009)

KaeJS said:


> I just don't see this as a "good investment". Does anyone see this as a good investment? Why, or why not?


That entire model is based on several assumptions, such as:
- RE prices will keep going up indefinetely providing double digit capital gains each year.
- Interest rates will stay low for ever. We will never ever see mortgage rates north of 5%.
- All tenants will be well behaved, well paying, gentlemen with good, secure jobs
- The towns and municipalities will not raise property taxes faster than inflation and will not re-assess your property without warning in order to increase their tax revenues
- Properties will stay in tip-top shape and will require minimal maintenance upgrades and repairs.
- If any is required, you as the landlord are fully skilled in all the trades such as electricity, plumbing, roofing, etc. to perform most of the maintenance yourself without having to hire a licensed plumber/electrician @ $200 an hr.

And above all:
- There will always be a greater fool than yourself to buy a cashflow negative, low cap rate property from you when you are ready to sell.


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## ddkay (Nov 20, 2010)

Check this out

http://www.bloomberg.com/news/2012-...ork-in-market-for-condominiums-mortgages.html



> Rental units accounted for 24 percent of all condos in Toronto last year, up from 21 percent in 2010, according to CMHC





> Vancouver’s median home price of C$678,000 in the third quarter was 10.6 times its median pretax household income of C$63,800, making the city the least-affordable housing market after Hong Kong among large English-speaking cities, Demographia said. Toronto’s home price of C$406,400 was 5.5 times household income of C$73,600, a 40 percent deterioration in affordability since 2004.
> 
> Fallout from Toronto’s construction boom may not surface immediately, according to Queen’s University’s Andrew.
> 
> “It’s going to be three-and-a-half to four years from now when these loans are all coming up and you’ve got a number of people who say they can’t afford to refinance it, so they’ll just sell,” Andrew said. “They’ll find out that 40 units in the building all went on the market in the same month, and now they’ve got a big problem.”


- Interest rates are still trending downward
- With back-to-back summits to figure everything out Europe have effectively postponed default for 5 years, no credit shock
- China, just because

It's all a slow moving car crash


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## Sherlock (Apr 18, 2010)

You're not missing anything. A significant number of people in the GTA come from Asia where the RE market is even more screwed up than here, so to them the Toronto market doesn't seem so bad. Also owning your own house in Asia is much more prestigious than here, so people will put much more effort into it, even if it means using up 90% of their income to carry the mortgage.

Condos suck. I live in an apartment building and there are so many problems: I can hear when the people above and below me slam doors, I can hear a dog barking, I can hear my neighbor's loud bass, I can hear when people slam the garbage chute down the hall many times a day, someone on my floor has kids who scream every time they run down the hall. And this isn't just during the day, I'm often woken up at night. And it's not just noise, I often get bad smells in my apartment from my neighbors cooking (seems people in this building eat nothing but garlic). Apartment/condo living sucks, I dream of the day when I can finally afford my own detached, freehold house. Hopefully on a decent sized lot (at least 200x200 feet), not one of those tiny lots in most of the new subdivisions where there's literally only 5 feet between your house and your neighbor's house.


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## KaeJS (Sep 28, 2010)

Sherlock said:


> You're not missing anything.


Thanks for the clarification.

Below, you will see a very detailed explanation of the Toronto Condominium Market. Also known to some as a "real estate bubble" or, in more recent terms, known as "jenga".


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## Argonaut (Dec 7, 2010)

http://www.canadianbusiness.com/article/65694--prediction-the-canadian-housing-market-will-crash

Note the part about the oversupply of condos in T-Dot. You'll probably be able to get one for cheap in the future.


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## blin10 (Jun 27, 2011)

KaeJS said:


> Thanks for the clarification.
> 
> Below, you will see a very detailed explanation of the Toronto Condominium Market. Also known to some as a "real estate bubble" or, in more recent terms, known as "jenga".





Argonaut said:


> http://www.canadianbusiness.com/article/65694--prediction-the-canadian-housing-market-will-crash
> 
> Note the part about the oversupply of condos in T-Dot. You'll probably be able to get one for cheap in the future.


been hearing that same thing since 2005 how houses over priced... good thing I didn't listen anyone and bought a house


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## ddkay (Nov 20, 2010)

The oversupply shouldn't show for another 5 years. Right now there is no oversupply, downtown resale units are usually selling within a couple of days of listing and usually above asking price which suggests it's still a seller's market.

Also you see the same thing in the market for luxury homes ($1.5mm+), there is a very tight supply right now. Last I checked less than 6 homes are listed in Toronto in $1.5mm-$2.0mm at an agency that caters specifically to that market.

You have to wait for the next credit shock, but you know how long cans get kicked, you'll be waiting forever.


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## andrewf (Mar 1, 2010)

It remains to be seen whether we end up in a Japan-style deflationary period or a 1970s style staglationary period. I don't see a scenario where robust economic growth causes strong personal income growth and an improvement in housing affordability. But deflation and stagflation aren't too friendly to credit bubbles.

It doesn't really matter how long the can gets kicked down the road. Unless you need to buy a house for lifestyle reasons, it is currently cheaper to rent, and capital appreciation on houses over the long term should be very low or negative, given how far house prices have run ahead of incomes and rents. 2% cap rates are not sustainable.


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## KaeJS (Sep 28, 2010)

Well, I missed the 08/09 crash.

So, being 21... maybe I can take advantage of the housing crash in a few years from now and pick me up some cheap property when I'm 26?


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## canadianbanks (Jun 5, 2009)

I wouldn't buy residential real estate in Toronto at this point, however if you really had to buy I would go with a house that has a piece of land under it, not a condo.


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## Berubeland (Sep 6, 2009)

KaeJS said:


> Well, I missed the 08/09 crash.
> 
> So, being 21... maybe I can take advantage of the housing crash in a few years from now and pick me up some cheap property when I'm 26?


You're smarted than you look


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## blin10 (Jun 27, 2011)

andrewf said:


> It remains to be seen whether we end up in a Japan-style deflationary period or a 1970s style staglationary period. I don't see a scenario where robust economic growth causes strong personal income growth and an improvement in housing affordability. But deflation and stagflation aren't too friendly to credit bubbles.
> 
> It doesn't really matter how long the can gets kicked down the road. Unless you need to buy a house for lifestyle reasons, *it is currently cheaper to rent, and capital appreciation on houses over the long term should be very low or negative,* given how far house prices have run ahead of incomes and rents. 2% cap rates are not sustainable.


nobody knows that, it's all talk and talk is cheap, just like 7 years ago, I hear same thing...


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## andrewf (Mar 1, 2010)

Sure, houses are going to double again in value. The average house in Toronto will cost $1 million, while the average household income is $100,000. Care to do some math on what that looks like for new home buyers if rates go up 2 percentage points?


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## HaroldCrump (Jun 10, 2009)

^ multi-generation mortgages


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## KaeJS (Sep 28, 2010)

Multi-generation mortgages are a joke.

Multi's are a horrible idea. Just ask the Japanese.


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## Sherlock (Apr 18, 2010)

ddkay said:


> Last I checked less than 6 homes are listed in Toronto in $1.5mm-$2.0mm at an agency that caters specifically to that market.


Err huh? I just plugged in 1.5 - 2 mil in MLS and there are hundreds of houses in that range currently for sale in Toronto.


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## rebel_ins (Apr 6, 2009)

blin10 said:


> nobody knows that, it's all talk and talk is cheap, just like 7 years ago, I hear same thing...


Seven years ago, the household debt/income ratio wasn't in the range of 140-150%.

Seven years ago, we weren't experiencing the largest financial crisis since the Great Depression.

Seven years ago, there was no Euro crisis - our financial institutions have a lot of exposure to the Euro.

And of course, house prices cannot indefinitely rise faster than income. It's simply not sustainable.


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## ddkay (Nov 20, 2010)

@Sherlock there are, but MLS is aggregated


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## Berubeland (Sep 6, 2009)

rebel_ins said:


> Seven years ago, the household debt/income ratio wasn't in the range of 140-150%.
> 
> Seven years ago, we weren't experiencing the largest financial crisis since the Great Depression.
> 
> ...


I love you +1


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## blin10 (Jun 27, 2011)

rebel_ins said:


> Seven years ago, the household debt/income ratio wasn't in the range of 140-150%.
> 
> Seven years ago, we weren't experiencing the largest financial crisis since the Great Depression.
> 
> ...


i'm just saying future is unpredictible, and if houses would loose value for sure in the future everyone would already unload them.... go look at prices in new york, they're more then double then what it is here and Toronto is the main city in Canada just as new york in states...


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## jamesbe (May 8, 2010)

It's funny how people always compare Toronto to NY.

I think the biggest difference is the fact that NY is TINY. We have TONS of room in Canada and Toronto is absolutely MASSIVE compared to NY.


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## andrewf (Mar 1, 2010)

Greater NY is not small. NYC itself is a bit like Vancouver with geographic barriers to the rest of the region, driving up property values.


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## blin10 (Jun 27, 2011)

jamesbe said:


> It's funny how people always compare Toronto to NY.
> 
> I think the biggest difference is the fact that NY is TINY. We have TONS of room in Canada and Toronto is absolutely MASSIVE compared to NY.


first of all NY is now small, and just because we have a ton of space in Canada doesn't mean anything, because Toronto will always be Toronto and a center of business.... it's like Tokyo in Japan, Paris in France, Moscow in Russia, etc, people will not move to north of north bay becuase there's no jobs there for majority and nothing to do there... in fact the more they build outside of toronto the more value will increase it toronto, because as andrewf said "geographic barriers to the rest of the region, driving up property values"... a friend of mine could not find anything cheap in gta and bought townhouse in BOLTON for 400k, that says something... and i'm not saying correction will not happen, if it does happen it will never be like in states..... in a heart of 09 crisis house values around my area only lost about 10%, on 600k house that's not bad at all after prices doubled over 10 years, and that was when Lehman and GM went down with Bush announcing 600?billion package... rising interest rates in my opinion, will just keep houses prices flat for a while, if greece defaults and euro gets hit hard bank of Canada will not raise rates


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## rebel_ins (Apr 6, 2009)

blin10 said:


> i'm just saying future is unpredictible, and if houses would loose value for sure in the future everyone would already unload them.... go look at prices in new york, they're more then double then what it is here and Toronto is the main city in Canada just as new york in states...


http://furmancenter.org/files/publications/Q3_2011_FINAL.pdf

As of Q3 2011, the New York City home price index has dropped 20% from its peak. And this figure is largely due to Manhattan skewing the average upwards. This is understandable, as there is no shortage of very high income professionals (well into the mid 6 figures or more) living in Manhattan. The same index dropped by ~24% or ~30% in other NYC boroughs.

Just because prices are higher in NYC does not mean a significant correction cannot happen in Toronto - just like it did in NYC.

Your confidence in the average Canadian's judgment is misplaced. Before the subprime crisis in the US, American homeowners were quite confident in the safety of their "investment". There is no reason to believe that Canadians have better judgment.


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## blin10 (Jun 27, 2011)

rebel_ins said:


> http://furmancenter.org/files/publications/Q3_2011_FINAL.pdf
> 
> As of Q3 2011, the New York City home price index has dropped 20% from its peak. And this figure is largely due to Manhattan skewing the average upwards. This is understandable, as there is no shortage of very high income professionals (well into the mid 6 figures or more) living in Manhattan. The same index dropped by ~24% or ~30% in other NYC boroughs.
> 
> ...


nowhere did I say prices will go up and I'm confident about anything, please read my posts before replying...


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## rebel_ins (Apr 6, 2009)

blin10 said:


> nowhere did I say prices will go up and I'm confident about anything, please read my posts before replying...



I didn't mean to put words in your mouth. I was mostly reacting to this (which sounds quite confident IMO):

"if houses would loose value for sure in the future everyone would already unload them"

I don't think the above is backed by convincing evidence, and since you brought up New York, I merely used NY data to back my argument.


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## andrewf (Mar 1, 2010)

Blin, Toronto doesn't have geographic barriers (rivers, mountains, bays, etc.) to constrain the supply of land. It does have transportation barriers, due to underinvestment in infrastructure. If transit and highways worked properly, a lot of the premium for being in the city could disappear/be averaged out with the suburbs.


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## ddkay (Nov 20, 2010)

What about the greenbelts created to curb sprawl? http://greenbelt.ca/sites/default/files/maps/files/ontario039s-greenbelt-20.pdf I hear its expanding again in 2015.


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## andrewf (Mar 1, 2010)

I was under the impression that the greenbelt was more of a notional curb on development. There is still quite a lot of land open for development.


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## ddkay (Nov 20, 2010)

With the exception of expansion under the "existing use" clause in settlement areas any type of development gets auto-blocked by the Ontario Municipal Board. There is still quite a lot of land to build on, just not as much as there used to be 7 years ago because of this artificial boundary. I have no problems with it, I believe we should be protecting moraines and wetlands that we use and are extremely rare to the province. Nature rocks.


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