Real Estate CRASH – What Will Happen To My Rental Property?!

Published on 14th June 2018

 As a seasoned real estate investor or an investor-to-be, I’m sure you have come across your fair share of “Real Estate Millionaire Weekend Boot Camp” classes. I know I have. A handful of US-based classes are the first hits that you will find in Google searches. They make promises on how to become a multi-millionaire real estate investor over the weekend by using other people’s money (OPM) to buy properties with 0% down.

Well, let me save you the $10,000 class fee by saying that it’s a COMPLETE waste of time, money and focus. It’s simply a very steep fee for not enough return on investment. I would highly suggest to pass on it.

The Simple Secret – Let me tell you the single most important piece of information that they may never tell you at these real estate boot camps: The secret is to buy a property that pays for itself (i.e., where rental income covers all of the expenses).

That, ladies and gents, is the bread and butter of real estate investing. Simple, right?

There are a multitude of different methods and strategies for real estate investing that range in complexity and difficulty. But to this day, buy and hold is still the single most reliable way of investing and is the method which I recommend the most, especially if you are just starting out.

Remember This – Generational wealth is created by TIME IN the market, and NOT TIMING the market.

Nobody can predict what will happen to prices, and as much as I can gather data and am entrenched with the day-to-day trading of real estate, still, anything can happen (i.e., 15% foreign buyer tax).

If anybody tells you to buy real estate because it’s simply “a good investment” and it “always goes up“, you should probably turn around and run the other way, as far as you can.

What does make real estate as a great investment vehicle is that you have 100% control over the asset and it pays you in 3 different ways. You can read more about that in this insight article: Real Estate Investing 101. The first principle is cash flow (a.k.a., the rental income covers all of the expenses). Allow me to elaborate on why this is important when evaluating your next investment property.

Recalling the Financial Crisis – Back in Q3 of 2008 when the poop hit the fan with the financial crisis, We all know what happened to the price of real state in the US. Chart A below shows this exact nose dive of real estate property prices.

Chart A – USA Prices (Source: The Economist)

What do you think happened to rental vacancies when everybody decided to not pay their mortgages?

Three months after the crash (i.e., the start of 2009) when the US government bailed out Wall Street, people started to default on their mortgages. As per Chart B below, the resulting impact on the rental market was a turning point for vacancy rates – it started to plummet to historical lows. This was the time when people no longer paid their mortgages, and instead sought a rental property to put a roof over their heads instead.

Chart B – USA Vacancy Rates (Source: FRED Economics)

Note that the lower the vacancy rate, the better as this means that there are less empty rental properties just sitting around. What do you think happened to rents when these vacancy rates kept dropping?

Chart C below shows the rental rates during this same time period. Rental rates definitely didn’t drop like the prices in the buy/sell market; in fact, they stayed fairly consistent!

Chart C – USA Rental Rates (Source: DepotofNumbers)

Caveat – Now, similar to the real estate boot camps, the above info is US-driven data and is not necessarily applicable to us in Toronto. However, it does give us a good indicator on how the market reacts and behaves, should Toronto ever experience a crash as significant as the US crash in 2008.

What You MUST Understand – It doesn’t matter what happens to the price of your property as long as you buy a property that pays for itself. Even after a crash, the vacancy rates will decrease, rents will increase and your property will be filled. Over time, and because you have undertaken a buy and hold strategy, property prices will rebound.

Even if your property is worth $1, as long as your tenant covers all of your expenses, you will survive the crash because you are not paying for anything out of pocket.

There will be ups and downs in the real estate prices – I can almost guarantee you that. But as long as you buy a property that pays for itself, you’re well on your way to creating generational wealth.

The Wrap – This is why it is of utmost importance to work with an investment-oriented realtor such as myself, Zhen, and not any just any realtor. Not all investment properties are created equal and frankly, some are just terrible. If you want to learn more about how and where to find the BEST investment properties, PPTO will guide you in the right direction and help you make your real estate goals and dreams come to life!

The Market is Crazy – What Should I Do?! Fixed or Variable Rate Mortgage?

Published on 7th June 2018

Just last week, the Bank of Canada decided to hold the interest rate even though it felt like literally, every economist was saying that we should expect a rate hike.


Cue suspense music!

It did not happen.

Even a broken a watch is right two times a day. So perhaps the bears of the interest rate market will eventually get it right. Maybe next time (that’s what they always say for the Toronto sports teams, right?).

Ultimately, they will get it right because the trajectory of interest rates is trending upwards in the short term, but just not as quickly as people may think (in case of a financial crisis, but that’s an insight for another day).

So the ultimate question for investors is this: Should I lock in my mortgage rate with a fixed rate or go variable?

First, allow me to to give you a quick summary of how these rates are determined.

1) Variable Rate – The variable rate is determined by the Bank of Canada’s (BoC) overnight rate. The Bank’s mortgage rates fluctuate with the BoC’s overnight rate.

The BoC provides a schedule of dates in which they will make announcements related to interest rates and other matters. The 2018 schedule is below.

We are just past the halfway mark of the announcement dates listed above, and have had only 1 rate increase of 0.25% (to a total of 1.25%) so far.

The BoC initially told everyone that they plan on increasing the interest rate by 1% this year. To date, they are definitely not on track with that plan (thankfully!). With only 4 dates remaining (changes are usually in 0.25% increments) and with December being a hold (historically speaking), I don’t think we’ll get that 1% total increase that they keep on telling everybody.

Below is a recent history of the BoC’s overnight rate for a brief trending overview. The rates are still very low, even if we get that 1% increase.

2) Fixed Rate – The fixed rate is determined by the bond market and NOT the BoC’s overnight rate. I’m not going to get too technical on this explanation but the bond market and mortgages are directly related to one another.

Below is a recent history of the 5-year fixed rate for a brief trending overview.

Source: Ratehub

The Rates – Currently, as it stands, mortgage lenders are pushing really steep discounts for variable rates for many reasons I will not get into in this insight.

The lowest 5-year variable rate I’ve seen is 2.16%.

The lowest 5-year fixed rate I’ve seen is 3.41%

So which rate is better? That ultimately depends on you.

When I get asked that question, the first question that I always ask back is: “What is going to help you sleep better at night?”

At the end of the day, real estate investing is about making your life easier and giving you financial options. If you lose sleep because you worry about the variable rate’s performance, then go with the fixed rate and build the fixed rate into your analysis of the investment.

However, if you’re considering factors beyond just peace of mind, then you’re better off with a variable rate for two main reasons:

1) The Difference – The current rate difference is 1.25% between the lowest variable rate and the lowest fixed rate. Over the course of 5 years, there is a chance that there could be five 0.25% increases totaling that difference of 1.25%, but there’s not enough likelihood right now that it’ll get there. Even if it does, I’d rather pay below the fixed rate for the years to come until that day happens (if it does).

As a side note, every 0.25% rate increase is about an additional $12/month to your monthly mortgage payment per $100,000 that you owe. Below is a chart to help you easily see what a 0.25% rate increase will cost per month based on the mortgage amount that you owe.

2) The Fees – Should you ever need to break your mortgage to sell, refinance or put a line of credit on the property (i.e., HELOC) to access the equity for your next purchase, the penalty for breaking a variable rate is only 3 months interest (i.e., approximately $2,000 to $3,000). It is substantially more when breaking a fixed rate mortgage (approximately $10,000 to $15,000).

As I typically recommend leveraging existing properties to buy additional properties to grow your real estate portfolio, keeping your options open would be ideal. Hence, the variable rate, in my honest opinion, gets my vote.

When should I go fixed? A simple rule of thumb is when the difference between the fixed and variable rates offered to you is only about 0.50% and you don’t plan on picking up another property for 5 years. If that is the case, then you may want to opt for a fixed rate mortgage.

The Wrap – I hope that provides you with some clarity on whether you should lock in your mortgage rate or go with a variable rate mortgage. However, we all have different goals and you may be at a different stage of your real estate journey than someone else, so please do not hesitate to contact me for a more customized answer. I can also help connect you to a professional investor-oriented mortgage broker. Let’s start helping you build a winning team behind you every step of the way!

Generation Millennial – The Next Wave of Buyers or Renters?

Published on 31st May 2018

Ah, the millennial generation – I’m sure you have heard of this cohort of individuals. This is the largest generation of people in Toronto and many of them are at the age where they are deciding whether to buy real estate. However, depicted below is a sad, but unfortunately true, the infographic on the state of real estate for millennials right now.

Source: OREA

The Who – The millennial generation consists of people who were born from the 1980’s to 1994 (as per StatsCan). This would mean that on the high range of the spectrum, a millennial is 38 years old and on the lower range, they are 24. As such, most millennials have finished university by now and are likely to be in the workforce. To give you an idea of how large this cohort is in Toronto, have a look at Chart A below.

Chart A – Toronto Population by Age
Source: StatsCan

The highlighted areas in the chart above represent the millennial generation. They account for 34% of the total workforce right now. This is NOT a small group of people in Toronto. It is huge!

The Why – As investors, you must understand and stay on top of the trends and understand where they are heading. Whether you are leasing out your next property or selling your next property, your tenant or buyer is likely going to be a millennial.

As a lot of the information and articles online posted by aggregates are not specific to Toronto, I took it upon myself and pulled the millennial average income stats from StatsCan – see below for more details.

Chart B – Average Toronto Income of a Millennial
Source: StatsCan

As per the highlighted area above, the average income of a millennial in Toronto is only $44,700. That is simply not enough to purchase a home, let alone rent one in this market!

Purchase Rule of Thumb – A simple rule of thumb guideline for how large of a purchase a person can qualify for right now is 5 times their gross income. As you can see below, the average millennial income would barely be able to afford a bachelor condo in downtown Toronto right now; even a millennial couple would barely be able to afford a 1-bedroom condo in downtown Toronto.

Chart C – What the Average Millennial Income Could Buy

So does this mean that the average millennial is going to be perpetually renting? Very likely.

Rental Rule of Thumb – When I’m filling condos in downtown Toronto for my clients, one of the rules of thumb that I generally use to determine whether a prospective tenant has the financial capability to pay for the increasing rents downtown is the 3 times rule. This means that a prospective tenant’s gross income must be 3 times what they are paying annually for rent.

Let’s use the average income of a millennial for example $44,700. This means the average millennial can only use a third ($44,700/3) of their gross income or $14,900 on rent. As a result, an average single millennial person can only comfortably pay $1,242 per month in rent ($14,900/12). If it’s a millennial couple, on average, they can comfortably afford $2,483 per month in rent.

Chart D – What the Average Millennial Income Could Rent

Sadly, the average single millennial doesn’t even have the capability to rent a bachelor suite in downtown Toronto. Meanwhile, a millennial couple or 2 millennial roommates would be able to rent a 1+1 in downtown Toronto.

No Reservations – With the pace that the Toronto real estate market is going at, real estate in our city is unfortunately not reserved for the “average” person anymore.

Presently, the millennials who are capable of buying and renting in downtown Toronto are all making above average incomes or have financial assistance from alternate sources (i.e., their parents, inheritance, etc.); that is a fact based on personal screening on many tenants and working with many different buyers.

Here are some numbers for some incomes required in order to purchase a certain type of real estate in Toronto right now.

Chart E – What Income is Required to Buy Real Estate

Just because the average millennial income is priced out of the market does not mean that they will not find a way to make it work. Trust me, I’ve seen people get really creative.

The Wrap – Everyone always seems to forget that real estate, the roof over your head, is not a want, it is a necessity. People will have to find creative ways to put a roof over their head, whether that is having more people under one roof or getting a second stream of income – they will do it. This is why I always preach owning starter homes (condos) in Toronto because there will always be a buyer or a tenant for it! If you have the ability to invest in the real estate market, now is the time!

How to Capitalize on the Upcoming Rental Blood Bath!

Published on 24th May 2018

In real estate, many people are familiar with the spring market where activity and prices jump (also possibly peaking for the year). However, what most people are not as familiar with is that there is a summer rental market in Toronto.

The Wrinkle – The summer rental market is when everybody’s leases are up for renewal and tenants are usually looking for a new place to live. The summer rental market is usually the norm that we see, but this year, we are going to have a huge wrinkle in this market. This anticipated wrinkle will arise because of the 1-year anniversary of rent control. Traditionally, the supply of rental units spike during this time of the year and continues until about the end of July. However, this will not be the case this year due to rent control.

Here is a quick snapshot of the rental rates in downtown Toronto right now.


Chart A – May 2018 Market Snap Shot (courtesy of


Back in November of 2017, I warned my PPTO family that rental rates will skyrocket due to 5 reasons. If you missed it, or would like a refresher, you can read that Insight Article here: There’s No Stopping the Rental Rate Increase

The chart below highlights the rental stats from November 2017 versus the stats for the present day, May 2018.


Chart B – Supply & Price Comparison, Nov 2017 vs. May 2018


The amount of available units to lease is down 34%. No media headline is going to highlight this for you because it’s not an attention-grabbing sales number. But do allow me to shed some light on the severe magnitude of this statistic that nobody else is writing about.

Historically, November is a slow month for rentals. On the other hand, May is the start of peak rental season. In the peak season this year, we are starting with 34% less supply already, combined with many reasons to expect even less supply moving forward.

Now look at the rental rates, they’ve increased on average 10% in the last 6 months before the May peak rental season. We could potentially see a 20% price increase year-over-year if we maintain price hikes at this rate (or perhaps maybe even more). Good job rent control – you did exactly the opposite of what you were supposed to do!


Chart C – Average Rental Price Per Square Foot Comparison


As per Chart C above, each square foot that is rentable is going up in price. So at this point, you may be asking, well how is the rental cost per square foot going up even higher than the average rental price itself? Shouldn’t it be the same percentage as shown in chart B? Chart D below ought to explain this. As evident in the chart below, the size of the rental units is clearly getting smaller!


Chart D – Average Rental Unit Size Comparison


The Low Down – So to recap, we are heading into the peak rental market season with:
Less supply
Higher prices
Smaller units
We are at a junction where there are two rental markets.

1) Pre-rent control units that are leased for less than the market price. Surely, nobody will move out of these units, which means these units will not contribute to any supply.

2) Post-rent control units where landlords know they can only increase their rents annually based on what the government arbitrarily deems as inflation. For 2018, this increase is 1.8%.

Connecting the Dots – Calling all condo investors, get ready to raise your rents if you have units coming onto the rental market. It’s going to be a blood bath for tenants and as an investor, you need to be well prepared in order to capitalize on this situation. I’ve already advised many of my clients to price rentals at rates that are much higher than usual.

So what does this mean for YOU? It’s a great time to be a condo investor. If you’re not one already, perhaps it is finally time for you to give it a go! Give me a call and we can help you work out a strategy that best suits your long-term wealth-building plan.

Predicting the Future… Back in 1990!

Published on 17th May 2018

We live in an interesting world where The Simpsons predicted the inauguration of Donald Trump as the President of the United States – a seemingly improbable joke, yet here we are, US President Trump is in power. Ah, good old Simpsons. When we look back at the predictions and reports that call out future events, no matter how improbable they seem, many of us refuse to believe it until it actually happens.

I find that this is all too true with the Toronto real estate prices as well, especially if you have been a native Torontonian for 20+ years. The rise of Toronto real estate prices to this point today seemed improbable and impossible back then. Many people with a fixed mindset still refuse to believe it. Some even go as far as creating a narrative for themselves that this isn’t justifiable and a crash is coming (I hate to be the bearer of bad news, but I don’t think a crash is happening anytime soon).

News from the Capsule – I stumbled across an interesting article written in the Globe and Mail on February 2nd, 1990 and I wanted to share it with you (see excerpt below). Yes, this article is almost 30 years old! You don’t have to read it all though, I’ll summarize it afterwards.

MIND BLOWING!! The article essentially predicts exactly what is happening in our economy right now in Toronto… except, can you believe that this was written back in 1990?! In summary, it predicted that prices of real estate will outpace the incomes that Torontoians earn and those who are looking for prices to plummet (since they raised excessively relative to income) are going to be disappointed.

Back in the 1990, the article pointed out that we are “still some way from the “world-class” prices of Tokyo, New York or London”. Fast forwarding to present day, we’ve gotten pretty close now and we will continue to close the gap.

Déjà Vu – For anyone who doesn’t remember or didn’t follow real estate back then, the year 1990 marked the start of the biggest Toronto real estate crash to date. Within 1 year, prices dropped 8% and continued to decline until about 1996 (Does that sound familiar?! Hint: 2017). I know many horror stories of families getting wiped out financially because of this. People who read that article 30 years ago must have thought the author was crazy, especially since the prices were drastically dropping. Look at where we are now.

Income Growth is FLAT! Of course, one could argue about the low-interest rates and how easy it was to qualify for a mortgage after the crash, but that is besides the point. The point is that incomes DO NOT grow as fast as real estate prices, period.

Here is a scary graph that I used in my previous Insight Article, “The Uncatchable Wealth Gap” about half a year ago that plots the growth of the average income against the growth of real estate in the Toronto. It’s a pretty scary looking graph.

Graph A – Average Income Vs Average Home Price since 1970

Don’t get fooled though – that gold line on the bottom looks like the X axis of the graph, but it is actually the trend line representing the growth of average income. That gold line looks quite flat doesn’t it? It’s a scary world we live in.

You can see that the only dip in real estate prices was in the early 1990’s, circled in red above. This dip was exactly when the article from 30 years ago was written. Today though, looking at Graph A, we can see that the average home is over 13x the average income right now, which is significantly higher than 4x in 1990.

Higher Prices, Less Space – Furthermore, to add insult to injury, the entry level home is now a condo which means the size is significantly smaller as well. This is something that we all must adjust to as Toronto continues to grow and we push towards the housing class that offers the most affordability.

Affordability Indicator – Here is some more craziness that nobody talks about as well. Have a look at Graph B below for the affordability indicator tracked by TREB.  Back in the late 80’s, before the crash happened, people were using almost 55% of their household income to pay for housing. Today we’re only at ~45%. More room to go?

Graph B – % of Income Used to Service Housing

The Wrap – As improbable as the future sounded in that article from 1990, it all eventually came true. As improbable as it is for me to say that prices will continue to rise, I truly believe this will eventually happen, especially when you factor in population growth, foreign income, immigration, the green belt and the blossoming of Toronto as a World Class City. It has never been more urgent to own hard assets such as real estate in order to protect yourself from getting out-priced in the coming years. Do it now, before its too late.

May 2018 Toronto Condo Market – Everything You MUST Know

Published on 10th May 2018

It’s May!! This means that statistics are out for the first month of the Spring market and everyone is writing about something different, with a different spin and a different angle. It could be good or it could be bad – it all just depends on how you interpret the numbers.

So I wanted to dedicate this week’s Insight Article to give you a comprehensive breakdown of the Toronto condo market to date.

Terms, Explained – Before we get started, here are a few statistical definitions to help you get started so that you can better understand the charts and graphs below.

Median Price – This is the middle price out of all the sales. Half of the properties sold are over this median price, while half of the properties sold fall below this price.

Pros: Gives you the middle
Con: This price varies based on market and volume

Average Price – This is the number that everybody talks about. The sum of all of the sales prices divided by the total number of sales.

Pros: Takes into account lower and higher sales amounts
Cons: In real estate, the average can be skewed by luxury sales such as condo penthouses.

Benchmark Price – MLS came up with this stat that removes the outliers. This price is determined by the most popular type of asset class and the value of the characteristics determined by the home buyer purchased in a specific area.

Pros: Removes the outliers, and considers the “most purchased price” in a specific community and asset category
Cons: It’s unclear how MLS comes up with “value” of the characteristics

The Story of the Rising Condo Prices – So here are the stats for the Toronto condo market, all summarized in an easy-to-read chart.

You’ll notice that despite prices being at an all-time high last April, condo prices are still even higher right now because there was never a slowdown. The 4% year-over-year increase during our so-called “crash” is quite the spectacular feat, wouldn’t you say? The benchmark increased by 12.4% because the value of condos from the buyer’s perspective has gone up significantly (due to high demand).

Graph A – Month-over-Month Condo Prices

As illustrated by Graph A above, take note of the price plummet since April of 2017 and the bounce back to the peak in March 2018. Overall, there has been a general steady rise in prices month-over-month since 2012.

Graph B below indicates the year-over-year price changes. You’ll notice that all percentage changes are still above the 0% line, which means that despite what the chart may look like upon first glance, prices are still in fact increasing, albeit just at a slower rate.

Graph B – Year-over-Year Condo Prices

Now that prices have increased further and we have surpassed the 2017 peak according to Graph A, you can expect the line in Graph B to trend upwards in the coming months as prices will likely increase at a faster pace with the start of the Spring market. However, many real estate pessimists are predicting that prices will keep plummeting, but let me ask you this question to ponder: If we were in a so-called “crash”, then why are the stats in Graph B still above the 0% line (i.e., prices were still increasing year-over-year during the “crash”)?

Counting the List and Checking It Twice – This next statistic will require 3 illustrations, but don’t worry – it’ll all make sense shortly. Let’s remember that 2017 was the “peak” and let’s just call 2018 the so-called “correction” after the peak. We can use 2016 as a point of reference for what we can deem as “normal”

Below are two graphs that show the number of sales that have occurred from 2012 to the present day, by month. The red line represents 2018.

Graph C – Condo Sales By Month from 2012-2018

As expected, the Spring market usually has the most activity, as illustrated by the peaks each year between April to June. However, this year we only hit about 67%of the sales that we hit last year (1,574 in 2018 compared to 2,324 in 2017). This is precisely why you are seeing some news headlines that read something like “real estate sales down 33% (100% – 67%)”.

This second graph below shows the number of active listings from 2012 to 2018. Again, the red line represents year-to-date 2018.

Graph D – Number of Condo Listings By Month from 2012-2018

In order to generate sales, we need listings; if there’s no listing, then there’s nothing to sell. You can see that we had slightly more listings in 2018 vs 2017, but one of the reasons the prices jumped the way it did last year was because the demand for properties completely outpaced the amount of supply (i.e., due to a low number of listings). As evident from the graph, all of the years prior to 2017 had plenty of supply, with upwards of 5,000 listings at the peaks in Graph D compared to 2,130 listings in April 2018. To be in a healthy market, demand needs to be balanced with supply.

The Demand Says List It! This last chart below highlights the Sales to New Listings Ratio (SNLR) in the last 3 April months (2016-2018).

Historically speaking, if the SNLR is over 50%, then this would indicate a seller’s market whereas if the SNLR is below 50%, it would be a buyer’s market. The sales to new listing ratio was about 55% in April of 2016, which signifies a super healthy and balanced market – this is why we deemed 2016 to be a normal year for the purposes of being a point of reference. In April of 2017, the SNLR was an absurd 121%, which means that there were more sales than new listings. You may be wondering, well how is that possible? This means that listings from the previous months that didn’t get sold was subsequently purchased in April 2017. Now, let’s take a look at this year’s condo SNLR. For the month of April 2018, we’re at a strong 73%, which is clearly indicative of the demand for Toronto condos.

Unless there is more supply, this demand isn’t going away anytime soon. With the City of Toronto slowing down the residential development process, we could very well be in a supply crunch for the foreseeable future.

The Wrap – To conclude, it is fairly obvious that the Toronto condo market is very, very strong right now and it will likely continue as this is the only means of affordable housing for the average person. Is this a peak for condos and are the pessimists right that a crash is looming? Based on all of the stats so far, this is likely not the last of the peak. Prices will continue to rise as we have yet to get to the point where buying any property for the average person is impossible.

In a few years though, if the same overall trend continues, the current entry condo purchasers may very well become permanent renters. It’s really a matter of either owning assets that go with the market, such as real estate and stocks, or otherwise forever chasing these assets with an income that won’t increase nearly as fast.

ATTN ALL LANDLORDS: New Standard Lease – What You Need To Know

Published on 3rd May 2018

As you have probably heard by now, there is a new standard lease that came into effect on April 30th, 2018 across all of Ontario. This standard lease applies to all residential leases including, single, semi-detached, detached, townhome, multi-dwelling family homes, apartments, condos, secondary suites, and student rentals. Essentially, it covers all common forms of residence.

The Fear Factor – One of the fears of being a landlord and investing is that one may think they will have to deal with the 3 am clogged toilet calls. In reality though, this is usually not the case, especially if you are a condo investor where property management is actually rather easy.

This new standard lease has struck some fear into potential investors and existing landlords. As with most changes, especially government-related ones, the fear of the unknown is real. In this Insight Article, I will address those fears, debunk some myths, and let you know that everything will be okay.

The New Lease on the Block – So without further adieu, allow me to shed some light on what exactly the new Ontario standard lease is. It has all of the typical components of a lease such as rent, the term of the lease, deposits, tenant insurance, utilities, maintenance, etc. The new standard lease is written in accordance with the Residential Tenancy Act (RTA), but it is also written in easy-to-understand language.

Simply put, it is a document that very clearly spells out what landlords and tenants CAN and CANNOT do. Nothing more. It is actually a well put together document. If you would like a copy of it, you can download it by clicking here.

The RTA Runs the Show – As a Landlord, it actually doesn’t matter what you write in your own personalized lease agreement (even your existing one), if it is not written in accordance with the RTA. Should there ever be a dispute, and if your lease cannot be supported by the RTA, you would have a tough time enacting your lease on the tenant.

A prime example of this is pets. Although many condo leases prohibit the tenants from having a pet, this prohibition is actually not allowed in the RTA. The only way a pet can be banned from a condo is if the condo bylaws forbid it (this is very rare, and although some condos have size restrictions for pets, condo management will not actually weigh nor measure your dog). So the misconception that you can evict a tenant for having a pet is actually just a myth. You can only evict a tenant for having a pet if the pet has caused damages or disturbed other people in the condo.

The same misconception applies for smoking. We’ll talk about marijuana smoking later on in the months to come, as I know it is a hot topic given that the Cannabis Act will kick into effect on July 1, 2018.

Another reason why some landlords are freaking out about the new standard lease is that there is no section for them to add in standard condo clauses that we’re so used to seeing, such as key fobs, first $75 dollars of damages, and more than 2 months of deposit. Do not worry though, this section actually does exist! In Section #15, there is room for “additional clauses”. Any clauses you want to add that are not addressed in the first 14 sections can be added there (similar to a Schedule B). Just keep in mind, any language you use, if it cannot be held up in the RTA it’ll get dismissed in a dispute. However, that’s not to say that you can’t still put them in your leases.Just be mindful of it if there comes a time that you have a dispute over it.

The Transition – So how do we transition from the original leases that we have to the new ones? Basically, a new lease that is signed starting on April 30th, 2018 MUST use the new standard lease, no exemptions. All existing original leases, however, will be grandfathered.

If an existing tenant wishes to use the new standard lease, then you MUST comply with their request. You would have 21 days to issue the new standard lease, otherwise the tenant is allowed to hold out 1 month worth of rent from you. This was the real sticking point that some of my clients have been concerned about. Rest assured though because technically, nothing bad should happen if your tenant requests a new lease apart from there being a bit of paperwork for you.

The Silver Lining – If the tenant requests for the existing lease to be transitioned into a new standard lease, then you are allowed to increase the rent above the normal rent control limits since it is a new lease and not just simply a renewal. Ding Ding Ding!! If you are currently at below market rent with your tenant, then this is a golden opportunity for you to bring their rent up to the market value. If your tenant does not agree to the new terms, then they have 60 days to give you notice to terminate. If your tenant wants to stay forever and never wants to sign the new standard lease, then all terms of the grandfathered lease will remain valid except for the clauses that do not abide by the RTA.

The Wrap – Hopefully this gives you some clarity on the new standard lease. As investors, finding a great deal on a property is just one of the first steps in the process. Finding a great tenant will be just as important of a factor in it becoming a successful investment property.

Not to worry though – if you purchase your next investment property through PPTO, we will guide you from start to finish. As part of our full package of services, we will help you find your first tenant FREE of charge upon closing! PPTO will help ensure that you’re well on your way to becoming a successful real estate investor, and beyond.

Condos Cancelled! How to AVOID the Bad Apples!

Published on 25th April 2018

Recently, there is has been a series of captivating publicity battles that builders have been going through. We focused on Mattamy’s freehold subdivision last week (if you missed it you can read it by clicking here), but this week, we will shift our attention to Liberty Development’s cancellation of Cosmos Condos and how buyers could have avoided this pitfall.

The One That Got Away – The impact of the Cosmos development has gotten a lot of people worried about other potential project cancellations. According to The Altus Group, since January 2017, there have been a total of 17 projects cancelled in the GTA, totalling 3,627 units to date. However, none were as alarming as Liberty Development’s Cosmos, which cancelled approximately 1,100 units across the 3 towers.

All of these cancellations are unfortunate for the buyers involved because they thought they had bought something for a great price a few years ago. Now with this cancellation, their deposits are being returned and they lost the investment opportunity they once had. As the market has gone way up in the last year, some of these buyers have been potentially priced out of the market now.

The Story – So what exactly happened at Cosmos? Liberty Development has told their buyers that they have failed to get financing for the project and there really wasn’t any further answers. So what does it all mean? There are 3 additional speculative reasons, likely in combination, that lead to this particular cancellation:

1) Liberty Group got greedy as they sold this project at $600 per square foot and now Vaughan has reached almost $900 per square foot with the subway opening in December.

2) Hard cost (materials and labour) and soft costs (permits and interest) have gone up significantly, making builder profits very slim or even in a loss position.

3) The City has not been cooperative with the permits and holding the land has been expensive.

In recent Insight Articles, I have been talking about the increasing costs to build. This is a real challenge as labour cost has increased significantly in the last few years and the demand for construction works has outpaced the supply. The usual profit margin for a condo for the builder is about 15% (yes, it’s not as high as you think it is), so if construction costs have gone up dramatically, development charges have doubled, and permit processing has slowed down in the last few years, then there really isn’t that much room for profits given the amount of risk taken on by the developer.

Keep Calm and Condo On – Hang on a second though, everybody keeps focusing in on the negatives because this is what grabs attention like no tomorrow. However, when you look on the flip side, a much different story can be told. As usual, the media tends to focus on the negative news. Viewers beware! Condo cancellations are anything but the norm – they are the exceptions and the bad apples of the bunch that tend to give everything else a bad rep.

Currently, there are approximately 420 condo projects in total, which includes projects that are selling, sold out, and under construction. Out of the 420 condo developments in the pipeline right now, this year, there have only been 4 cancelled projects – this is less than 1%. When this statistic is brought to light, it hardly seems like a problem at all. If you extrapolate historic trends, then only a small number of condo projects will be cancelled moving forward.

Back to Basics – In fact, any cancellation of large projects will put immense pressure on the supply and this would in turn only work towards further pushing up the prices. I spoke to an individual last week looking for a pre-construction condo to live in who was part of the fallout from Cosmos. They are back in the market now because they ultimately need a home to live in.

From an investment perspective, when I hear that supply is tight, it tells me that there will be high demand for pre-construction condos, whether it is for rental or for sale upon project completion. An asset that you have in high demand usually signifies growth!

At the end of the day, there will always be pressure on the supply until we see an actual increase in supply. We are not building enough housing for the sheer demand that we have, and this is before factoring in our massive projected immigration growth.

So how do we protect ourselves and AVOID picking the bad apples?

1) The first thing we want to do is make sure that we buy from a reputable builder, especially one who has a longstanding history of completing projects.

2) We want to make sure the builder has gotten their permits or at least in the process of getting them. Newer builders have a harder time obtaining permits to build from the City, especially after the recent changes to the Ontario Municipal Board (OMB).

3) Make sure the builder is registered with Tarion, who provides new home warranty protection to more than two million Ontario homes. They serve new home buyers and new home owners by ensuring that one of their life’s biggest investments is protected.

4) Do your best to avoid buying from local “start-up” builders who does not have any reputation in the market. Most of the cancelled projects have come from builders who were either very new to the game or very small businesses.

The Wrap – At the end of the day, any worthwhile investment has some aspect of risk associated with it. It’s always best to do your own due diligence on the builder and the project, make sure that you understand the risks involved, and cap the downside with the 4 suggestions above.

All of the condo investment projects that we recommend to our clients have been vetted by us. We only approve of the very best investment projects out there. As mentioned before, there are currently 420 projects, but we have only recommended a small handful out of this bunch. We personally hand-pick the best of the best, for you to live well and invest well.

Until Next Time, Happy Real Estate-ing


Home Buyers Face Financial Ruin

Published on 19th April 2018

In last week’s Insight Article, I broke down the headline, “Condo owners make big gains, but nearly half aren’t making enough rent to cover costs” with a more bullish perspective and provided real-life examples of my client’s pre-construction deals that are raking in some serious returns. If you missed last week’s Insight Article, you can check it out here: “Money Made In Pre-Construction Condos!”

The Bearish Perspective – This week’s Insight Article will provide the opposite perspective – the bearish analysis of the headline, “They bought their pre-built homes at the market’s peak. Now they face financial ruin.” At the end of the Insight Article, I’ll provide you with the inside scoop on exactly how one particular builder is pricing their new homes for sale.

The bearish headline above is actually comprised of 3 separate articles that were talking about the same underlying story. As with most viral headlines, there is always a human story attached to it. When I read these articles, I also empathize with the buyers as well (as intended by the writer).

Where It All Began – All of this publicity stemmed from the article where Mattamy, a very reputable builder, reduced their prices on the second phase of their Queen’s Commons development in Pickering. One buyer was upset that she paid $60,000 more (Original Purchase price was $955,000) one year ago when the market was strong, compared to the newly released second phase prices during a time when the market for detaches in the 905 is weaker.

Three Buyers, One Fight – The story continues where three buyers of Mattamy’s Oakville Preserve subdivision had challenges closing their detached homes this year. Of the three buyers, two were expecting to sell their current house (at last year’s price) in order to pay for their newly built home. However, the current valuation of the homes they are trying to sell is much lower now since the market has slowed down compared to last year. The third buyer was a newlywed couple who was apparently saving up for their entire lives by living in their parent’s house prior to this pre-construction purchase.

So now, as a result of the market being softer for the 905 freehold homes, these buyers are apparently all in “financial ruin”. I put financial ruin in quotation marks because based on my understanding of the situation, they suffered a loss but it’s not financial ruin. Mattamy’s public relations must be working around the clock right now dealing with such bad publicity; they must hate the Toronto Star writer who has put them through all of this backlash.

Sympathy Poll – Let me preface my analysis by saying that I completely empathize with these buyers. However, there are reasons why I draw the line at empathy and nothing more. As with the example poll illustrated below, it looks like 25,122 people don’t have much sympathy towards these buyers.

Capping the Downside – The biggest difference when buying a personal home and an investment home is that with an investment, your tenants will be paying for the mortgage. On the other hand, with a personal home, you will be paying for the mortgage. So you definitely want to cap the downside when it comes to your personal home because finding a good tenant is easier than significantly increasing your salary.

Turning Tables – For the Mattamy’s Queens Commons home buyer who paid $60,000, or 6.7%, more than the current price of phase 2, it’s unfortunate but at the same time, it is fair. Nobody seems to think about the flip side of the situation when this happens because the media doesn’t write about it.

When you buy pre-construction property and the prices increase (like it has been in the last 8+ years), you’re sitting on massive equity from appreciation before you even own the property. In these scenarios, the builder doesn’t ask the purchaser to increase the original purchase price upon closing to get some of the appreciation back.

Additional Thoughts – For the Queens Commons buyer, I would recommend closing the property and paying the $239/month mortgage payment difference because her property will increase in value as GTA intensifies over the course of the next 5 years.

For the two Oakville buyers who have bought 1.2 – 1.6 million dollar homes but are worried about closing, I find it hard to believe that they are in financial ruin. Yes, they may have to sell their existing property for less than expected. However, unless they bought their existing property last year at the height of the market AND this current pre-construction home concurrently, I suspect the equity in the existing home is massive.

Although the OFSI-B20 rules have made it more difficult to close with a prime lender, they shouldn’t have pushed themselves to the limit where closing with an alternative lender at a slightly higher interest rate would put them in financial ruin. Perhaps they didn’t cap their downside.

The last buyer, the newlywed who saved up by living at their parents’ home are in the best situation. If you don’t need to sell a property to close on this Oakville home, then you’re set. As far as I know, if you were previously pre-approved for your purchase, you are still approved as many banks grandfathered it in for buyers. The only hurdle is if the appraisal comes in lower than expected; nothing crazy to freak out about here though. This feels like a story just thrown in for dramatic effect.

My analysis may sound a little bit harsh by analyzing it from a bearish perspective, but it was part of the exercise.

I truly hope these buyers can figure it out. As a buyer, whether you’re investing or buying for personal use, make sure you cap the downside. Make sure you work with a good mortgage agent or broker who actually knows what they’re doing, making sure that you’re not stretched too thin (P.S., if you need a good mortgage broker, I can pass along some great contacts).

Massive Price Drop for Newly Released Project – As many of these freehold builders are pivoting their prices and secretly trying to keep things under wraps, one particular project in Markham saw a major price drop compared to the prices from their first phase in the Spring of last year. The Abbey Lanes Phase 2 sales event was last weekend and the prices were almost 30% less than what they were when they first launched 8 months ago. Take a look at the price list comparison below.

Crash, But Not Really – A 30% drop in prices is quite significant and is technically considered as a crash. But if all of these homes are still selling, is it really a crash in reality? I’ll leave that up to you for interpretation. What do I think though? This may have been the opportunity that buyers were waiting for. The pent up demand was like a hawk eyeing the supply, snatching it up as soon as the product made itself available. The buyers are definitely still out there.

The Wrap – So that concludes this two-part Insight Article on the bullish vs bearish perspectives on the recent real estate headlines. Every writer has an objective, and I certainly hope that my objective through these Insight Articles has helped you to be more critical in analyzing the headlines. Feel free to reach out to me if you need a second perspective.

Until next time, Happy Real Estating!

Money Made in Pre-Construction Condos!

Published on 12th April 2018

Real Estate is such a hot topic these days that everyone in Toronto is so passionate it about, and I love that. What I love even more is the constant debate between the bears vs the bulls. For some context, bears are “bearish” on the real estate market and believe the market will crash, whereas the bulls are bullish on the market and believe the market is strong.

Grass is Greener on the Other Side? The bears vs the bulls real estate market debate reminds me quite a lot of the debate between Apple vs Android – both are great platforms for phones and they each have their own strengths and weaknesses. Having just switched from Apple to Android (Apple fans, please don’t hate me), I can see the merit for both. There are things that I miss about Apple (the ecosystem and how things run smoothly), but at the same time, there are a lot of things about Android that I like such as the customization and battery life for my super long days. I digress, this wasn’t what I was actually writing about!

The reason why I brought up the phone debate is that I can see the merit for both the real estate bears and the real estate bulls as well. Both have very valid arguments and it’s always good to take an empathetic approach and understand both sides before coming to a conclusion yourself.

Breaking Down the HEADLINES – Recently, two headlines that have taken a life of its owns are presented below and I wanted to give you a counter-analysis of them both to train your mind on how to actually interpret headlines. One counter-analysis will be slightly more bullish while the other will be slightly more bearish.

Headline #1 – Condo owners make big gains, but nearly half aren’t making enough rent to cover costs.

Headline #2 – They bought their pre-built homes at the market’s peak. Now they face financial ruin.

I’ve gotten a lot of questions about them both and they’ve been brought up in conversations quite a bit recently, so I’ll address the first headline in this Insight Article.

When I read the headline “Condo owners make big gains, but nearly half aren’t making enough rent to cover costs,” I was mind-boggled because to me that reads, “Condo investors get rich on appreciation but are cash flow negative.”

One mortgage broker was telling me how a lot of his “investor” clients have shifted their expectations from generating cash flow to just breaking even. Apparently, his “investor” clients are also willing to accept a monthly loss in order to gain the massive appreciation happening in the condo market right now. Needless to say, that point had me scratching my head even more. The term investor is in quotation marks here because these individuals who are incurring monthly losses on their investment property are not savvy investors.

Breaking Down the Real DEALS – A result of confusing headlines like this, I started to analyze 3 pre-construction deals that are expected to close within the next year in order to give you all an idea of some real life numbers.

In each of the 3 examples below, I’m going to give you the purchase price, the address of the condo, the layout and what the projected cash flow number is after mortgage, property tax, insurance, and condo fees. For privacy reasons, the unit number, and the purchaser will remain unknown.

Example 1#:
Grid Condo – 181 Dundas St E, Toronto
Purchase Price: $342,400
Purchase Date: August 30th, 2016
Projected Cash Flow: $326
Current Market Value: $480,000
Appreciation: $137,600 over 1.5 years

Grid Condo is scheduled to occupy in August 2018. I expect rent and condo prices to increase even more by the occupancy date. If my client leases the den as a second bedroom, the projected rent will be even higher!

Example #2:
The Met Condo – 7896 Jane St, Vaughan
Purchase Price: $332,900
Purchase Date: February 13th, 2016
Projected Cash Flow: $302
Sold via Assignment: $425,000
Gross Assignment Profit: $93,000
Yearly ROI: 34.4% over 2 years

This unit at The Met was just recently assigned. Purchasing the condo in the pre-construction phased yielded $93,000 in profits over 2 years, or 34.4% ROI. Pretty good for simply signing a contract 2 years ago. Even at the new purchase price this unit is just about to break even at current market rents.

Example #3:
Harbour Plaza – 88 Harbord St, Toronto
Purchase Price: $358,990
Purchase Date: November 12th, 2013
Projected Cash Flow: $402
Current Market Value: $540,000
Appreciation: $181,010 over 4.5 years

Harbour Plaza has already occupied. The tenant is currently paying $2,300/month right now during occupancy. Upon closing, my client will have positive cash flow of $400 per month and have almost $200,000 in appreciated equity. They will be able to refinance the condo’s mortgage and pull out approximately $80,000 in equity, while still being able to break even on cash flow with the rental numbers. This investment was a home run.

The Wrap – So when I see articles written about condo investors paying $500 a month out of pocket as a cost of their condo’s appreciation, it makes no sense. Those investors are clearly working with the wrong realtor who is recommending bad investment projects. Understanding how to evaluate each individual project is very important because not every pre-construction condo is worth investing in. Make sure you understand the game and not just blindly purchasing a pre-construction condo purely for the capital gains – that’s gambling.

If you’re interested in learning more about how to make the returns in the examples above, feel free to contact me at 416-436-9436 or

Stay tuned for next week’s Insight Article where I provide an analysis that breaks down the second headline, “They bought their pre-built homes at the market’s peak. Now they face financial ruin.”