SOLD! Entertainment District Land Goes for $110,000,000!

Published on 22nd March 2018

Last week’s Insight Article talked about how the City of Toronto has effectively doubled their development charges overnight. In case you missed it, you can read about that here: Pre-Construction Condo Prices Are Primed to Increase!

As a follow-up to last week, I will be discussing yet another issue – the actual cost to build a condo is also primed for an increase this year. If you’ve been following my content for a while now, you know that when I recommend a project, there is quite some thought that goes into why I recommend it and a lot of the projects that you’ve seen me recommend have been in the Entertainment District in Toronto (area pictured below).

I’m a big advocate of the Entertainment District in Toronto because with the price per square foot to rent ratio, the returns that you could achieve is the most ideal for investors. Additionally, your tenant profile in this area tends to be the best of the best as well. As an added bonus, the growth in this area has been unmatched by any other area in the city.

Big Time Money! I have some good and bad news for you depending on your perspective. The last parcel of large land in the Entertainment District, a parking lot, has been bought by a developer for an astronomical price of $110,000,000. You read that right – ONE HUNDRED TEN MILLION DOLLARS. Queue: Doctor Evil’s pinky finger. Yes, that deserved all caps because that’s a whole lot of money!

That one expensive parcel of land is 229 Richmond St West, north of the fire station on Nelson Street between John St & Duncan St.

The Good and the Bad – This is good news if you’ve been investing in the Entertainment District for a while. The supply will surely be capped at this point until they start building on top of buildings, which is incredibly difficult to do and not very economical (but not impossible). Ultimately, this means that prices will go up due to the lack of supply.

This is bad news if you’ve been sitting on the sidelines still waiting to buy because when builders pay this kind of price for land, the charge per square foot is going to be very high in order for them to turn any sort of sufficient profit.

It always comes down to making money at the end of the day. The builders need to make money when taking on risk for developing the land. We make money as investors by taking on risk of buying projects before the construction even begins.

Land Acquisition Cost Comparatives – To give you some perspective on how crazy this deal is, I’m going to compare the last two projects and how much the land acquisition cost was. In January 2018, in the Entertainment District, 357 King St West & 8 Widmer St (Theatre District) were launched at an average price of $920 per square foot and $950 per square foot, respectively.

The chart above that I’ve put together for you to shows you the price of land, in total and the cost per square foot. The land acquisition cost for 229 Richmond St West is approximately 5 times the cost per square foot than Theatre District (8 Widmer St) just 3 years ago ($773.68 vs. $3,881.17). That’s insane!

But Wait, There’s More! Land acquisition cost is just the first part of the equation to build a condo. We also need to factor in the hard cost and the soft costs. The cost per square foot for these expenses are:

Hard costs: Approx. $350 per square foot
– All materials and labour.

Soft costs: Approx. $150 per square foot
– Everything else, development charges, architects, section 37, planning act, commissions, marketing, etc.

Land costs: Approx. $300 per square foot
– This is an approximate average price per square foot is based on Altus Group’s 2018 Real Estate Construction Cost Guide (CLICK HERE). This means that on a normal piece of land downtown, the cost per “build-able” square foot is close to $300.

When you add it all up, the cost is approximately $800 per square foot. This also does not factor in the risk of the condo becoming shorter due to city disapproval, which will mean less square footage (i.e., units) for the developer to sell.

The price per square foot that we paid at the initial offer for 357 King St West & Theatre District was an average of $935 per square foot (average between $920 and $950 from the chart above).

Let’s take a quick look at the math:

Selling Price: $935 PSF
Less Cost to Acquire Land and Build: $800 PSF
Total Developer Profit: $135 PSF

That’s about 14.4% profit margin. It’s still a lot of money, but it is quite slim compared to other businesses, especially given the significant amount of work that goes into the acquisition and development process.

With development charges doubling, construction costs continuing to increase, and this crazy land acquisition cost, even I’m preparing myself for the shock when the next few projects officially launch (especially 229 Richmond St West). I can’t imagine where it’s going to start – perhaps $1,200 per square foot?!

The Wrap – Despite the absurd purchase price for this piece of land, if all of the smart people at the developer’s office think they can make money on this project, then there is obviously something here. As they say, the juice is worth the squeeze. What do you think?

Pre-Construction Condo Prices Are Primed to Increase!

Published on 15th March 2018

I attended a real estate discussion panel last week with developers and city planners and it was an interesting discussion, to say the least. It almost felt as if all the panelists were on trial with the type of questions that they were being bombarded by.

Most of the attendees were asking about 1 of 3 things:

1. Prices increased too much, everything is unaffordable
2. NIMBY (Not In My Back Yard) protest
3. Foreign Investments

Maybe it was due to the background of the panelists, or maybe it was just an avenue for people to complain in the hopes that another outcome will occur if they voice their concerns, but I was definitely not feeling great about the energy in the room as it was largely, if not all, negative.

Although the headlines are screaming for a crash, the market is actually going quite strong and prices will likely continue to increase in the most affordable segments of the market, that is condos and townhomes but especially so in the pre-construction condo segment of the market.

Price Increase Again, But Why??! Pre-construction condo prices are going to see an increase soon but not because of the usual root cause (i.e., lack of supply). On the contrary, the increase is actually caused by the City of Toronto, believe it or not.

What most people don’t often talk about is the significant cost to develop such huge towers. Everybody thinks that the builders are charging more strictly due to demand. While there is truth to increasing prices when demand is high, there are also other reasons, such as increasing construction and development cost that result in increased prices.

Take the recent minimum wage increase as a prime example. I don’t know about you, but I’ve noticed that all my favourite restaurants have increased the prices on their menu. I remember back when I was a child, I could get a large bowl of pho (Vietnamese beef noodle soup) for around $5.00. This year, it officially surpassed the threshold of double digits ($10.00), as the cost to create this delicious bowl of noodle soup has increased. This same phenomenon is occurring in the pre-construction world as well and basically everything else. The most recent increase from the City of Toronto was the doubling of development charges, effective February 1st, 2018. Nobody talks about this in the headlines but it’ll trickle down to the end-user without a doubt.

Doubling the Charges – Take a look at the development charge cost increase yourself. You can see in the right-hand side, all the development charges have effectively doubled, if not more.

Capped Levies – As of right now, the standard capped levies that we get for our clients is around $8,500 to $10,000 for Bachelors and 1-bedroom units. For 2 bedroom units and up, it’s between $10,000 to $15,000. The developer would be responsible for the balance of that.

Effectively, with this new Toronto development bylaw, somebody will be paying for it. In other words, that’s us – the end consumers.

The Two-Way Play Wrap-Up – I can see this playing out in two ways:
The capped development fees will be higher in accordance to the increased amounts.
The price per square foot will go up.
Most developers who I have talked to are still working out the numbers to see how it affects the bottom line for them, so we will have to wait and see how this all plays out in reality.

All I know is, like my bowl of pho, we will be the ones paying for it as the end consumer. It’s unfortunate, but it is just the way it is unless someone can convince the City of Toronto to eliminate an additional $300 million dollars of annual generated revenue from these development charges.

Doom and Gloom is Here… Maybe?

Published on 8th March 2018

Brace yourselves my fellow investors and landlords, the media bombardment of the Toronto real estate market crash has begun!

As Expected – If you didn’t get a chance to read my insight post from late January about the expected doom and gloom headlines, you can click on the link below to have a read.

Brace Yourself, Doom and Gloom is Knocking

This week’s Insight Article is just to remind you that everything will be okay, no need to panic. Again, this was expected.

Some would say that I have a crystal ball (there’s some sarcasm there if you couldn’t tell), some would say that I got lucky (reality, perhaps), but I would say that I’m just a nerd and looked at the numbers and saw this coming.

Whenever you have a peak, especially a peak as high as the prices in early Q1 2017, the comparison is bound to look terrible on the descent.

PPTV – In this week’s episode of PPTV, I go over the stats that TREB just released in detail in order to explain why seeing these numbers is okay and why it doesn’t mean you should liquidate your portfolio right away.

You can watch it here: The World is Falling?! March 2018 Market Watch

“The overall average selling price for February sales was down 12.4% year-over-year to $767,818. However, putting aside the price spike reported in the first quarter of 2017, it is important to note that February’s average price remained 12 percent higher than the average reported for February 2016, which represents an annualized increase well above the rate of inflation for the past two years.”
– Toronto Real Estate Board President Tim Syrianos

I tend to agree with Tim’s thoughts on this one. If you look at the chart below, you can see that there was a giant spike in Jan 2017 and then a giant drop (relatively) back down. If you look at the trend, we can expect it to come down a tad bit more.

Spring Headlines Forecast: Gloomy – Unless you bought a detached house in the 905 at the absolute peak, you shouldn’t be expecting any crazy losses. If you’ve had your property prior to January 2016, you’re still rocking and rolling, so no need to worry. Do expect the headlines to continue talking about the doom and gloom for the next few months though.

If you have been following my content for some time now, you’ll understand how in this current market, there is no blanket statement about the entire real estate market as a whole. The trends and stats have been chopped up into segments and localized into each individual region.

Freeholds Lagging Behind – At first glance, the chart provided by TREB below looks terrible as everything is on the decline and negative. What nobody is writing about, yet again, is that the freehold houses (except for the towns in Toronto) are sitting on the market much longer or selling for less than the peak. However, the condo market is still seeing price increases despite the sales being down. As you can see below, the number of transactions is on the left (under the “Sales” heading) and average price is on the right (“Average Price”). The green highlights indicate increases, while orange highlights mean decreases.

Condo Market on FIRE – If you have been in the market as I have in the last few months, you’ll even notice that all downtown condos have offer dates on them, yet again! They are also selling with multiple offers, yet again! This is exactly why the prices are still increasing despite the overall average prices being down 12%. If anything, I would say that the condo market is preventing the total average prices of the market from looking even worse. That, in reality, is how strong the condo market is right now!

Affordability – At the end of the day, it all comes down to affordability as I’ve been preaching. The mortgage stress test did have an effect on the market. The lending rules implemented by OFSI have made getting any kind of mortgage much more difficult, especially a mortgage over 1 million dollars.

Gone are the days where you can borrow up to 7 to 8 times your gross income. You can borrow approximately 5 times your gross income now. On a $100K family income, that’s a difference of $300K, from being able to afford $800K to now only $500K. This is why the properties going for over $1 Million have a hard time on the market right now because the credit isn’t available for such purchases. It is exactly why the most affordable segment of the market, condos, is super hot. It all comes down to affordability, folks!

The Wrap – So don’t let the coming months of doom and gloom freak you out. As long as you’re not investing strictly for the appreciation, then you’ll still do great!

The Untold Truth About Pre-construction Platinum Agents

Published on 1st March 2018

As much as I enjoy living and breathing real estate, there are a few things that I actually dislike about it as well. However, I am a glass half full kind of guy.

When I started out my real estate career (a story for another day), truth be told, I disliked realtors and disliked being one because of the stigma that came with it – i.e., realtors are oftentimes seen like sleazy used car salesmen. Don’t get me wrong though, there are a ton of amazing realtors out there that I know of and have had the pleasure of working with. On the other hand, a lot of the bad apples in our industry conduct business in ways that’s, let’s just say, are “interesting”.

Got “Platinum Access”? Think Again – This is especially true in the pre-construction segment of the market as it is highly competitive to get allocations to condo projects. Having worked with many clients who have been burned recently by bad realtors, I thought that this would be an opportune time to shed some light on how “platinum access” with agents really work.

The term platinum gets thrown around so often that I personally don’t think it has any merit anymore, not to mention, there is no way to prove that an agent is actually a platinum agent. So in essence, anyone can claim to be one.

Buyer Beware – The other interesting component is that even though an agent may have platinum access to one project, it doesn’t automatically mean that they have this same type of access to all of the projects. So what does that mean? Agents have the full discretion to designate themselves as a “platinum agent”.
So if someone tells you that they are a platinum agent for ALL projects, I would run the other way. Even the most successful agents that I know don’t have platinum access to everything.

This is not to bash on platinum agents because legitimate ones can actually get you access before everyone else, thereby saving you lots of money if there are any incentives. However, there does need to be more clarity on what and who is actually a platinum agent.

Pulling Back the Curtains – Since there are no clear definitions of what a platinum agent is, I’m going to pull back the curtain on how the allocation process (the dispersion of units) typically works. I used the word typically here because every developer operates differently.

I’ve personally coined the terms for each of the categories below as there are no correct terms that are consistent across the board for the level of advance access myself or other agents may have.

1) The Partner Hook-Up – In most cases, if the development is a joint venture deal, the partners of the developer will have their pick of units to buy personally before everybody else.

Access: Partners only, no realtors
Total Percentage Sold: 1 – 2%

2) The Family and Friends Connection – This is loosely used by different developers but it is basically a private sales event for family and friends only. This is becoming more rare as demand for pre-construction condos is rapidly increasing.

Access: Only relatives and close friends, no realtors
Total Percentage Sold: 3-4%

3) The Secret Agent Sales (aka. Pre-Platinum or VVIP) – This is when the developer secretly starts selling way in advance of the project being officially launched, for reasons that I will not get into in this post. If you have ever bought a pre-construction condo with us and have had to see the floor plans in person without any of the finalized marketing material available, then you’ve been part of this category. This doesn’t happen all the time. If you come across these opportunities, take it!

Access: A couple of agents
Total Percentage Sold: 5-10%

4) Platinum Access – This is when a select few agents who have a proven track record with the developer are given access to sell to their clients. It will either be by worksheet (reservation forms) or allocations (pre-determined units). For high demand buildings, the project is often sold out at this stage.

Access: Real Platinum Agents identified by the developer
Total Percentage Sold: 11 – 100%

5) VIP Access – Truth be told, VIP access is even more loosely thrown around than “Platinum Access” because anyone can be a “VIP Agent”. It’s sometimes as simple as clicking a button to register with the developer.

Access: Almost all realtors
Total Percentage Sold: Units left over from the previous phase

6) Public Access – This is when the general public will get access to the project, where anyone can walk into the sales centre and buy a unit. There are a few low-rise developments outside of the GTA where the developer will launch their project directly with this category of access.

Access: All Realtors & General Public
Total Percentage sold: Units left over from the previous phase

7) Developer Hold Back – After the project has been “sold out”, the developer may release additional units to agents or the public. These are units that the developer has opted to hold back initially and not sell in the earlier phases. More often than not, these hold back units are more expensive than when they were first launched. However, there have been a few times when my clients scored a deal during this phase (i.e., Daniel’s Waterfront & Minto West Side last year).

Pricing and Demand – It is important to note that at each stage, the prices may or may not change; it will ultimately depend on the project and the demand. Yes, sometimes prices increase, but sometimes they don’t and certain incentives are either removed or added based on the demand.

The ultimate goal for the developer is to sell out the project in order to achieve maximum profits. If the demand is huge, they will increase the price. If the demand isn’t quite there, they will add incentives.

The Wrap – As you could imagine, everything from prices to availability and incentives can change at each phase. However, what remains certain is that the good units are always picked up first and as time passes, your selection diminishes. So if there’s a great opportunity that you see, don’t wait. Act fast before you regret it!


Until Next Time, Happy Real Estate-ing,

Would You Sing to Rent a Condo?

Published on 22nd February 2018

There are times when the Real Estate Market presents itself with a hilarious series of events that make the long hours of the profession really worth it at the end of the day.

Recently, there has been a slew of heated articles about the rental market being crazy for tenants right now. These articles have been about things like multiple offers (yes, it’s been happening for a while) to rapid price increases (yes, it has also been happening for a while) to tenants being priced out of the Downtown Toronto market (yes, this has been happening too but more on that next week).

Trending Now – I’m no professional copywriter by any means nor did I study journalism, but the basis for these heated articles seem to be one of the four below:

1) Quote from a tenant in a bad situation;
2) Outline of how dire their situation is;
3) How it’s unfair Torontonians can’t rightfully live in their own city;
4) Blame something or somebody.

The most recent one is by FAR the best, not because it’s actually positive unlike most articles, but because it’s creative and funny!

Recently, a prospective tenant, Huy Do, couldn’t find an apartment to rent and/or was being rejected by so many landlords (reasons that are obvious, but I won’t list here) that he ended up writing a parody song to Chainsmokers’ Closer. To his valiant efforts, he managed to secure a condo to rent. I do have to credit his songwriting capabilities as it’s quite good. I’ll put a link to his song at the end of this insight article to add some humour to your day.

So that poses some hilarious questions…

Would you write a song, sing it and post it online just to find a place to live?

Have we gotten to a point where that’s what it takes now to put a roof over our head?

I honestly (and hopefully) don’t think so, but the ingenuity is quite amazing.

So you must be wondering, how bad is the rental market right now?

I’ll answer it here in two short sentences below, but also provide you with a real-life case study as well.

  • If you’re an investor the current rental market is completely in your favour, especially if you have a pre-construction condo coming soon.
  • If you’re a tenant looking for a condo to rent, you’re going up against a lack of supply, a huge demand, and a huge price spike. Good luck.

Now let’s take a closer look at the case study. I’ve been representing the Entertainment District for a while now since it has been one of the best areas to invest in over the last 2 years and it continues to demonstrate that. So I took the 1-bedroom rental stats from the area in the first 3 weeks of February 2018 to give you an idea of how the rental market shaped up.

One thing to keep in mind is that February is a VERY slow month for rentals, with most rentals turning over during the spring and summer months.

Below are the parameters of the Entertainment District.

Here are the details for the 38 properties that were leased in February 2018.

Now, here are some shocking statistics from the above details:

  • 30 of the 38 properties, or 79%, went for 100% of the asking price or more. One can assume that most of those had multiple offers.
  • Average Lease Price was $2,160.63 (That’s nuts, but I expect it will increase some more in Spring 2018)
  • 12 of the 38 properties, or 32%, were leased within a week.
  • Green Highlight represents over asking and yellow represent less than 100%

So it’s safe to say that the rental market is pretty crazy right now. If you prefer to NOT have to write a song, sing and post it, then here are some alternative strategies that you may like better. These are some strategies that I’ve seen prospective tenants use to secure a rental.

1) Increase deposit (up to 6 months instead of just first and last)
2) Overbid (as seen from the stats above)
3) Accept earlier possession dates

Tenant Profile – Here is something even crazier for you to ponder. I’m going to work back the numbers for you so that you understand who these prospective tenants are.

  • If the average rent is $2,160.63, that means the rent you pay each year is approximately $26,000.
  • Now let’s assume that half of this individual’s income goes towards their rent, while the other half goes towards other living expenses and savings. This would mean that this individual would need approximately $52,000 after-tax income ($26,000 x 2).
  • What does that translate to in gross income? $70,000.

This means that if you own a condo in Downtown Toronto right now, then you are picking between tenants who make $70,000 or more. That’s insane! That’s MUCH higher than the average income, not to mention most of them have nearly perfect credit scores.

The Wrap – To the ladies and gents who are prospective tenants reading this Insight Article – that is your competition, my friends. If you have the funds saved up, perhaps it’s time for Plan B and consider buying your own condo before that gets out of reach too. If you’re a condo investor, CONGRATS to you for making the decision to invest – time to reap the rewards!

Link to Huy Do’s Parody Song:

Until Next Time, Happy Real Estate-ing,

10 Shocking Condo Stats That Will Blow Your Mind!

Published on 15th February 2018

Early February is usually when all of the big data miners come up with their year-end review of the previous year’s market since all of the stats are available and reported, including TREB (Toronto Real Estate Board). So we’re going to break down some major numbers in the Condo market today.

“Numbers don’t lie” – I don’t know how much you believe in this old adage, but I would prescribe this slightly modified version of it instead: “Numbers don’t lie, but it’s up to the eyes of the beholder to interpret them the way they want”.

So what I’m going to do in this week’s insight article is provide you with some stats and my initial thoughts on the stats. How you personally want to interpret it will be completely up to you.

All of these stats come from Urbanation. They are the industry’s most trusted source for condo data as they actually include sales of pre-construction condos which TREB cannot track. Urbanation also consults for many major developers in the city so you know their data is relied upon quite heavily in the GTA condo market.

Without further adieu, let’s begin.

1) 32,000 pre-construction condos were sold in 2017, which is up approximately 20% from 27,000 in 2016.

Okay, this was jaw-dropping. The number of unit sales was supposedly down approximately 9.6% in the resale market according to TREB, but were up 20% in the pre-construction – umm… WOW! I knew the demand was significant but a 30% swing in these resale versus pre-construction numbers – that’s HUGE!

2) 35,000 pre-construction units were available for sale in 2017, and 32,000 of that was absorbed.

That’s also nuts – that’s an absorption rate of approximately 90%, meaning that for every 10 new-build condos on the market, 9 out of 10 are bought. More condo units were sold in the pre-construction market than the resale market!

3) Pre-construction condo prices saw a 20% increase in price from January to the end of December 2017.

I’m not surprised here. At the start of the 2017, I was still seeing Downtown Toronto condos at $900 per square foot. It’s well over $1,000 per square foot now. Congrats to everybody who picked up a unit in 2017!

4) 500 unit complexes are being approved at a higher rate now such as Icona, Transit City, Time & Space, and M City.

Years ago, we would never get these super projects with over 500 units. Present day, master-planned condo communities have become the norm. With some of these projects having over 2,000 units, this tells me that the demand for pre-construction is huge and has so much more room for growth. One of the super projects mentioned above sold out in only 2 days!

5) 38% of the pre-construction market is now in the 905 area code.

This didn’t surprise me as it’s getting increasingly tough to afford a downtown condo at +$1,000 per square foot. As a result, investors and first-time home buyers are seeking their next property in the 905. Don’t sleep on Downtown Mississauga, Downtown Vaughan and Downtown Markham.

6) Although the projected number of occupied units was 20,000, only 13,000 units were occupied in 2017 as 7,000 units simply didn’t finish on time.

This is an interesting statistic. Apparently, each year around 7,000 units that were projected to be occupied don’t make it due to construction delays from material and weather. 13,000 units occupied out of 20,000 definitely leads us to a huge supply problem. Supply is just not keeping up with the demands, which results in pretty big price jumps in the rental and resale markets.

7) Only 2% of the occupied units get listed on the resale market, which is down from 7%.

This means that approximately 98% of the supply goes into the rental market and the rental market is still crazy right now. I’ll say it again here – there is a HUGE supply issue in the condo market. This explains why rents are constantly increasing and properties being rented out in only 1-2 days with bidding wars.

8) We’re expecting 22,000 units to occupy in 2018.

So 22,000 units to occupy less the usual delay of 7,000 units and we’re at 15,000 units to occupy in 2018. With approximately 130,000 (potentially more thanks to Trudeau) people immigrating to the city, that’s hardly enough supply this year.

9) Projects on average are taking 12 more months to complete than 10 years ago.

Not surprised with this as the projects are getting bigger now and the Ontario Municipal Board (OMB) is more stringent on approvals.

10) Tenants are staying on average 6 months more.

Also not surprised here. There has been a decrease in the lateral movement from years ago due to rent control and tougher lender situations. This explains the extremely tight 1% vacancy rate in Toronto.

Final Thoughts – So that wraps up the 10 surprising condo statistics that will blow your mind. Hope your mind was blown, as mine was! With the city growing as fast as it is (130,000+ people per year), we simply aren’t building fast enough to keep up with this type of demand and population growth. Even with the projected number of completed units expected to increase over the next 5 years, by my math, that’s still not enough to slow the demand.

There will be a breaking point in the Downtown core when it becomes even more unaffordable. Perhaps this breaking point will be when the market reaches $1,400 per square foot (translation: $700K for a 500 square feet 1-bedroom condo). High rise intensification is the name of the game according to the OMB’s new rules so I wouldn’t be surprised in the next 10 years when we run out of build-able condo space in the Downtown core.

Until Next Time, Happy Real Estate-ing

Multiple Offers, They’re Back!?

Published on 8th February 2018

In last week’s article, I eluded to the reality that multiple offers are back in the resale market and I’ve been asked a few times by clients to elaborate on where and what these properties are. So in this week’s newsletter, we’ll go over the lay of the land (i.e., the current situation).

Direct from the Streets of TO – Before you read on, let me preface you with this. Everything I’m about to tell you is from first-hand experience from the last month of transacting straight from the field. It’s not speculation nor theory.

The Numbers – First off, TREB released it’s annual 2017 market review and as expected (and as I’ve been preaching), the sales activity in 2017 was down 18% compared to 2016. HOWEVER, the average price was $822,681 in 2017; this is actually UP 12.7% from 2016.

Sticker Shock?? If you are shocked by that statistic, then you’ve been bamboozled by the media! The only area in the GTA where the average prices are dropping is the $1.5 million+ 905 detached houses. Anything less than $1 million in the GTA, specifically in the 416, has been moving incredibly fast – I repeat, INCREDIBLY fast.

I always speak about the shift to affordability, which means that people still want to be in the market but they can only afford to buy the entry-level properties. These are your properties sub-$700K for an average family. The major consumers looking in the sub-$700K range are first time home buyers, investors and downsizers. This category of buyers accounts for over 60% of the market, if not more.

So with that many people after the same asset category, combined with the huge lack of supply that we’re facing, this is the exact reason as to why we are seeing multiple offers again. Some more mind-blowing statistics and numbers will appear in next week’s featured insight article where we will talk about the huge backlog caused by a lack of supply at the entry-level market. It’s real and it’s here to stay. So be sure to keep your eyes peeled for this insight next week!

It’s not as crazy as early 2017 where there were 10+ unconditional offers; it’s more like 2-5 multiple offers now. These offers are sometimes conditional and sometimes unconditional – it really depends on the property. I’ve frequently experienced this in the downtown condo market between the $500K – $800K range. Anything that shows nice tends to lead to multiple offers. This has also been seen in the 416 townhouses less than $900K.

So Where Are The Headlines About This? Well, what I’m about to tell you next are the secrets that realtors are using to create multiple offers. Mostly gone are the days where a property was listed at a low price of $100,000, waiting for 10+ offers and a huge bidding war. These days, there are two new favourite strategies that seem to be popular with the listing agents.

Strategy #1 – Under-list the property by 2-5% of market value and hold offers for 1 week with the popular line: “Will graciously review offers on X date, if any. Seller reserves the right to review pre-emptive offers”.

This basically means that they’ll hold offers and review later, if any (keywords: if any); in other words, they aren’t expecting a ton. Combined with the fact that they are reviewing pre-emptive offers, you might as well just say “offers anytime”. However, this seems to be working as I’m seeing multiple offers on offer dates or even beforehand. All it takes are two motivated buyers with good decent offers to get the deal done.

Strategy #2 – Listed slightly below market value and ask for 48 hours irrevocable. Irrevocable, for those who do not know, is the amount of time the offer is valid for. If the sellers are asking for 48 hours irrevocable, it means they want the offer to be valid for 2 days.

To the untrained eye, this looks like a standard listing protocol. However, it is not. The worst lie I’ve heard was “my sellers are out of town” when they were clearly living in the unit.

The 48 hours irrevocable allows the sellers to show the units over the weekend and wait for an offer to come in. When an offer is received, all the other agents who have shown the property will be notified. In turn, this means that these other agents will have 48 hours to submit an offer and meanwhile the initial registered offer is still valid. Then, the selling agent will set a time to review all the offers with the seller. Sneaky sneaky, but clever nonetheless. As a realtor, I am not too proud of this strategy, but I must give the originator of this strategy a slow clap for his or her sneaky creativeness.

The Wrap – So yes, multiple offers are back indeed, but disguised as something different. Will they become more prevalent as the market starts to pick up in March? I think so, but only time will tell. Just be prepared!

How First Time Home Buyers are ACTUALLY Getting Destroyed by Stricter Lending Policies.

Published on 1st February 2018

It’s dawned on me that I may have exhausted my options with written and visual content about the stress test. I’ve already written and talked about it at great lengths, so I promise this one will be the last time I talk about it (unless it’s brought back by popular viewer demand – as always, please let me know what you think).

In my opinion, the stress test has been completely overblown by the media, and I’m guilty of adding fuel to the fire sometimes.

The effects of the stress test in the resale condo market have been almost zero. Funny enough, for every resale deal I’ve transacted on in January, there have been multiple offers with the exception of one. However, through a series of cascading events, the stress test does have some effect on the pre-construction side (new condos); albeit not to the extent that the Liberal government wanted.

Now Trending: “Mortgage Commitment” Required – I’ve noticed a trend this month. It looks like its going to stay so I wanted to share this with you all. When you buy a pre-construction condo, the developer will typically ask you for a mortgage pre-approval to show that you have the ability to purchase this property right now even though it will be complete in 3 – 5 years time. Typically, it’s a fairly useless piece of paper because the mortgage pre-approval usually lasts for only 3-4 months. So when a pre-construction condo completes in 3-5 years time, that pre-approval has long been void.

Instead of pre-approvals, as of late, developers have been asking buyers to provide a mortgage commitment instead. Mortgage pre-approval vs mortgage commitment, it sounds like it’s the same thing… right? So, what’s the big deal?

A mortgage commitment is completely different and the big deal is exactly what is destroying any first time home buyer’s chance at getting into the market via pre-construction. It all boils down to what each letter means and the requirements to get them.

The Difference – In a mortgage pre-approval, the lender basically runs a quick check on your ability to buy based on your income and credit score. It’s like giving someone an approximation, an estimation if you will, of how much they could buy.

In a mortgage commitment, the lender will actually go to the underwriter to ensure that you are cleared for closing. The details such as address, price, closing date, loan-to-value ratio, interest rate, amortization years and the term will all be present. It’s like getting the bill at the end of a meal – every line item is written out for clarity, not an approximation.

A Series of Unfortunate Events – Let me guide you through the series of events that one would encounter in order to illustrate how this all ties together.

In order to get a mortgage commitment, you must go to one of the 5 major banks (RBC, TD, Scotia, BMO, CIBC) to get it. All of these major banks are governed by OFSI.

If you didn’t know already, OFSI was the one responsible for implementing this stress test.

You cannot bypass the stress test by an alternative lender if you need a mortgage commitment from the major banks (i.e., going to a B-lender won’t work for mortgage commitments).

So what does this all mean? First time home buyers are out of luck if they can’t get a mortgage commitment AND pass the stress test with their newly purchased condo despite having the deposit.

This means they will have to return the unit. This actually happened twice in the last month with a two of my clients at different banks and developments. You can imagine their disappointment.

This isn’t a big enough deal to create any waves in the market, but it does serve as a reminder that all of these government interventions have only made it harder for first time home buyers to buy. They are definitely getting the short end of the stick with these new rules. Good job liberal government, your recent policies are short-sighted – yet again.

To end this article on the bright side though, if you’re an existing homeowner or investor, then this stress test may not be as big of a deal to you. Continue picking up real estate while you can, in the case that the lending policies go awry again.

Brace Yourself, Doom and Gloom is Knocking

Published on 25th January 2018

Many years ago, when I was starting out my career, I had a mentor who had a running joke that he would start his own TV channel called the GNN (instead of CNN). GNN stood for “Good News Network“. I remember that quite vividly because it serves as a reminder to me that negative news headlines sell really well and the whole purpose of media is to grab eyeballs for ad revenue. This is why I purposely don’t read newspapers or watch any news. I simply don’t want to be bombarded by negativity.

Ironically enough though, as a realtor who now specializes in condo investments, despite not wanting to be bombarded by negativity, I have to follow the real estate headlines quite closely these days in order to understand buyers’ psychology.

As much as it shouldn’t make an impact on the market, news outlets do have a slight effect on the market.

It’s All In the Headlines – As investors, we must understand our city and the economics that are driving the GTA’s growth. We cannot just focus in on headlines meant to grab attention. Oftentimes, these headlines and articles are written by newspaper columnists who are not even investors themselves nor do they understand the basic fundamentals of investing.

The purpose of this insight article is to prepare you for all that lies ahead in the world of media headlines in the coming 2-3 months. Brace yourself, as it is going to spell out doom and gloom. Winter will be coming (Game of Thrones reference if you didn’t get that)!

Zero-ing in on Ups and Downs – Around this time last year, in 2017, through a whole bunch of factors, the market was on FIRE in January, February, and March before the cooling started in April.

Media members always create headlines out of the monthly stats that are released by the Toronto Real Estate Board (TREB). These stats are compared to the previous year’s numbers, hence the frequently used term “year-over-year difference”. Year-over-year doesn’t necessarily paint a good, representative picture of where the market is heading; and especially not if there are a lot of major government interventions.

So in the coming months, media headlines will be comparing the first quarter of 2018 to the first quarter of 2017, the latter of which experienced a major increase in prices due to lack of supply. Even though it may be a strong first quarter in 2018, it will look like peanuts compared to that of 2017’s first quarter.

Keep it Real – So brace yourself for headlines and articles that show stats demonstrating that prices and sales activity are dropping over 10% year-over-year. In reality, that is true, but it doesn’t spell doom and gloom for the real estate market because the stats will be comparing a super spike (Q1 2017) to something that is much more balanced (Q1 2018).

To my fellow investors – let this serve as a pre-emptive warning sign in case of any major freak out that may come when you read the coming month’s headlines about Toronto’s real estate market. It is not as bad in reality as they will write it up to be. Perhaps you may even opt to not read any of the headlines at all and just carry on, doing your own thing. That might actually be a wiser choice, my friend!


Until Next Time, Happy Real Estate-ing,


How Shadow Lending May Fuel the Market

Published on 18th January 2018

Despite a lot of discussion about the stress test lately, I’m still seeing quite a lot of activity in the market during the first two weeks of January. Perhaps all of this activity is a result of a combination of low listings and high demand. That, or it’s the fact that there are many alternative solutions around the stress test. One alternative is applying for a fixed rate mortgage instead of variable, or another one is what we’ll be talking about in this Insight Article: Shadow Lending.

Money Under the Table?! The words “shadow lending” sounds a bit sketchy upon first read. If I didn’t know better, I would think it’s someone lending another person some cash in a dark alleyway behind a restaurant somewhere, all hidden through an extended trench coat (or maybe I’ve just been watching too many movies!).

Although the terminology may not sound the best, it’s simply a terminology for a transaction that is not regulated by the federal government. In Canada, we are regulated by OFSI; these are the folks who implemented the stress test.

Technically, if your parents lend you some money for a down payment, this is also considered as shadow lending. So really, it’s not as bad as it sounds.

The five big Canadian banks are regulated by OFSI, and it is highly probable that you bank with at least one of them. However, you can get access to shadow lenders using a good mortgage broker who doesn’t work at a big bank. Do not worry though, as many of these shadow lenders are regulated by the provincial government instead of the federal government.

What Stress Test? After talking to a few mortgage brokers, it sounds like there has been an increased demand for getting approvals from the non-major banks and private sources for buyers to purchase a property. This leads to me think that the demand for home buyers is high enough that they are seeking alternative sources to get their funding for their purchases.

So What’s the Catch? Some of the conditions for these shadow lenders are not as bad as what you may think. Yes, the interest rates may be a couple of points higher and there may potentially be a lender fee as well, but it’s between that or not being able to own a home for the rest of your life. The former is probably an easier pill to swallow for most people.

Do remember though, once enough equity is built up in the property, there is always an opportunity to take it to a major bank for your next mortgage.

What This All Means – With the stress test bringing shadow lenders into the forefront of many buyers’ minds, shadow lending could become more of a mainstream solution. This means that the so-called buyers who have been priced out of the market with the stress test are, in actuality, still able to be in the market through shadow lending. As a result, the demand will still be here for those who want to own a property badly enough.

As I’ve been preaching in the last little while, this stress test really isn’t that big of a deal. If you’ve been a bit taken back by the stress test and are hesitating to buy thinking that prices will drop as a result of the stress test, I would recommend for you to reconsider and give it a second thought. This could be the perfect opportunity to buy when the general consensus is that the stress test will have a monumental negative effect on the market. Remember, consensus is built into the price. If it’s deemed as a safe investment, prices go up and the returns are lower or completely gone.

Until Next time, Happy Real Estate-ing,