INSIGHTS

Wow! Are We Already There? $1,000 Per Square Foot!

Published on 20th September 2018

The photo of Joey from Friends pictured above is what I would imagine everyone’s face looking like when they read this week’s Insight Article.

Let me preface this week’s article by saying that I hate starting any Insight Article by touting my own horn, but please if I may as I’m about to explain the new staggering statistic that we’re about to break. As the kids would say these days… #HumbleBrag!

Rewind – Back in April 19th, 2018, I released a video called “Top 5 Most Expensive Condos in Toronto“. In case you missed it, CLICK HERE to watch the video.

The message that I was trying to convey to you in that video was that condos are expensive these days, and many of the most expensive condos are well over $1,000 per square foot. The chart that I used in the video is provided again below. This chart was from December 2017.

Source: Zoocasa

As you can see above, there were only 12 condos that broke the $1,000 per square foot mark. Additionally, as at December 2017, the average condo sold price per square foot was $847, as per below.

Source: Condos.ca

Mind Blowing – Ladies and gentleman, we’re in September 2018 now and I’m about to knock your socks off with the following stat…..

Source: Condos.ca

Soaring Prices – That $986 per square foot number is from Condos.ca’s real-time calculator showing the last 14 days, which coincidentally is exactly 14 days from Labour day (start of fall market) as I write this.

On average, we’re almost at $1,000 per square foot in all of downtown Toronto. This includes the 25+ year old condos on Bay street. This is staggering because at the end of 2017, were we only talking about only 12 condos downtown breaking the $1,000 per square foot mark. Here we are 9 months later talking about potentially ALL downtown condos breaking $1,000 per square foot really soon! It’s happening folks!

That is some rapid growth, my friends!

Trending Now – For all of the buyers out there, do not be alarmed though as this is normal and was expected to begin with. This number is only going to keep increasing. Unless somebody actually addresses the condo supply issue, we will continue to see this upward trend.

There are many upcoming projects in the downtown core that are all being priced at over $1,000 per square foot. These developers pay thousands of dollars to consulting firms in order to determine their pricing model, and if their conclusion is to start pricing at $1,100 or even higher, that is likely a trend we will be seeing in the downtown Toronto resale market very soon.

King West 2.0 – If you are part of PPTO’s VIP mailing list, you would have seen this week’s note where I attended the Unzipped launch on King St West where the developers of the King West 2.0 development project brought a renowned Danish architect’s exhibit to Toronto.

*If you’re not part of the PPTO’s VIP mailing list, don’t miss out. CLICK HERE to subscribe.*

Bjarke Ingels is the Danish architect for the new project launching in October at 533 King St West. The inspiration for this project came from Montreal’s Habitat 67 development that was built for Expo 67. Below is what the scale model looks like. It’s architecturally stunning to say the least.

Word on the Street – I’ve been told this King West 2.0 project will start at $1,600 per square foot. Yup… you read that correctly – that’s $1,600 per square foot! That means your entry level 500 square foot 1-bedroom condo is going to start at $800,000!! All of the smaller investor-friendly units are going to sell out extremely fast!

If you are interested in this project, make sure you let us know as soon as possible because there are only 460 units in total! Please contact Zhen at Zhen@PrimePropertiesTO.com OR 416 436 9436.

The Wrap – As a City, we keep pushing the boundaries. The market is still as strong as ever in the downtown core. I sound like a broken record, but I’ll keep saying it over and over again to those who still believe the bubble is about to burst – with all of the factors impacting the market in today’s economy, all signs point to much more growth in the weeks, months and years to come.

P.S., Uber just announced a $200 million dollar acquisition, which means that 300 more jobs will be located in downtown Toronto. This is in addition to all of the major companies who will be moving into the downtown core. Growth!

Ontario Build-able Land SCARCITY!

Published on 13th September 2018

The availability of land has always been a hot topic in the real estate community. If this is hard to believe then you should continue reading for further insight on this highly important topic. How quickly we’re going to reach the point of no build-able land has yet to be determined but it is going to happen eventually.

Toronto and the Golden Horseshoe – Have a look at the map below. The Golden Horseshoe has been circled in red for you – this is basically the holy grail of investing right now and the available land will quickly diminish over time as projects are completed. Toronto is the centre of attention in the Golden Horseshoe and as demand outpaces supply, all of the surrounding cities will benefit from it. We have seen this in the past few years already as the suburban areas have intensified and are creating their own downtown areas.

Source: Greenbelt.ca

Landlocked – Lake Ontario is just directly south of Toronto. You cannot build on water for obvious reasons. Going north, east and west of Toronto are the cities of the Greater Toronto & Hamilton Area (GTHA) in grey. The grey area indicates the developed cities of the GTHA. Slightly past the grey area of the map is a giant blob of green that encloses the GTHA – this is the Ontario Greenbelt.

Nature Lovers Rejoice – The Ontario Greenbelt is the largest protected green space in the world – yes, in the WORLD! Due to the laws and regulations put in place for nature conservation, you cannot build on this green space. During his campaign, even our Ontario Premiere Doug Ford tried to pander to citizens about allowing developers to build on the Greenbelt. Very quickly though, he had to retract this proposition. His follow-up statement was as follows: “The people have spoken — we won’t touch the Greenbelt. Very simple. That’s it, the people have spoken. I’m going to listen to them, they don’t want me to touch the Greenbelt. We won’t touch the Greenbelt. Simple as that.”

Source: Greenbelt.ca

Urban Sprawl – This map of the Greenbelt landlock was created in 2017. The small little bits of yellow between the grey and the green is the only land that is available for development (that is, if it hasn’t been built on already). As you can see in the map, there isn’t much left of the yellow bits. This is exactly why you see cities outside of the Greenbelt growing and expanding right now. Take a look at where Guelph, Kitchener, Waterloo, and Brantford are located; they are outside of the Greenbelt. Prices in those cities have been appreciating at a very rapid pace. Builders have already started building high-density buildings in those cities.

But wait there’s more! Evidently, there is a land shortage. However, Ontario has proposed a new policy recently – the Bluebelt. Have a look at the map below.

Source: http://www.greenbelt.ca/bluebelt

The expansion of the Greenbelt to the Bluebelt will essentially fill out a large chunk of the remaining land that can be developed, while landlocking the cities outside of the Greenbelt as well. What do you think is going to happen to prices when this goes through? Go up? Yes!

Today’s Going Rates – To give you an idea of where prices are right now, going from east to west, here are some average prices that developers have set for their new detached homes:

  • Pickering: $800,000
  • Markham: $1,500,000
  • Richmond Hill: $1,800,000
  • Keswick: $650,000
  • Vaughan: $1,200,000
  • Brampton: $1,000,000
  • Milton: $800,000
  • Burlington: $1,200,000
  • Hamilton (Mountain): $600,000

Now imagine what will happen to these prices when land becomes scarce for builders to find. When land becomes scarce, prices increase rapidly for build-able land. Here’s another Insight Article that I wrote a while back that will further help to shed light on our land scarcity problem: SOLD! Entertainment District Land Goes for $110,000,000! In a nutshell, 13 years ago a parking lot in the Entertainment District was purchased by a builder for approximately $6,000,000. The most recently sold plot of land (which was 3 times the size of the $6,000,000 parking lot) sold for $110,000,000! The price you have to charge to turn a profit on that cost of acquisition is insane! As a result, this has ultimately led to higher prices for the end buyer – i.e., you and I.

The Wrap – As investors, you can essentially view the Bluebelt map as a treasure map for hunting down investment opportunities. It all starts with Toronto. If you can afford Toronto and make it work, then I would do it. Don’t miss out on these opportunities, while Toronto is still relatively affordable!

TORONTO vs. THE WORLD – Rental Rodeo (Part 3)

Published on 6th September 2018

Back in the day, just after finishing university, the first condo that I ever rented was at Yonge & Bloor. It was a 498 square feet 1-bedroom unit (as shown below) that was listed at $1,500 per month plus hydro.

I actually had to overbid at $1,550 to get the unit. I stayed there for a few years without the Landlord increasing my rent (at the time, landlords could increase rent by any amount they wish). A few years later, when I moved out, the rent for that unit was $1,850. In today’s rental market, that same unit could be easily rented out for $2,100, if not more. These rental rate hikes all happened within a few years. Given the lack of rental supply right now, don’t be surprised if we see similar yearly increases in the coming years.

Toronto is a great place to live and if you read the first 2 parts of my TORONTO vs. THE WORLD Insight Article series, you will understand why our City has grown so fast – in both the categories of average sale price and average rents. As a world class City, we are actually not that expensive in comparison.

The Rental Numbers are IN! In this week’s Insight Article, we will go over the rental numbers in Toronto relative to the rest of the world. Below is a chart that illustrates the rental rates of global cities in USD.

Source: Numbeo & Walletwyse

The table below essentially contains the same information as the chart above, but it breaks down the highest to lowest rental rates with Canadian pricing.

Toronto Power Rankings – The average rental rate for Toronto is only $1,450 USD or approximately $1,900 CAD. As such, this puts Toronto at #23 for the highest rent (globally). The interesting thing to note is that the rent-to-purchase ratio for Toronto falls within the top 10 – the table below highlights the average price per square foot that units are being sold at and compares this with the rental rates.

This means that the amount of money you pay to own is still relatively lower to the amount of rent that a property yields. Keep in mind that in some of these cities, the purchase price of a similar style property is 2-5 times the purchase price in Toronto. When the rental yields are high and the price points are low, from a global perspective, this will attract the foreign investors. Even if you add in the 15% NRST (foreign buyer tax), Toronto real estate is still a good deal compared to other global cities.

A Peek at New York – Since Toronto is constantly compared to New York, here is a detailed snapshot of the cost to rent a 1-bedroom unit in New York.

Source: Zumper

Note that the units in New York are smaller than they are in Toronto. To be in the financial district equivalent of Toronto, it would cost you $3,400 USD/month in New York. Comparatively, a 1-bedroom rental in Toronto’s financial district is about $2,200 CAD or $1,685 USD – that’s essentially half the price!

Undoubtedly, there is still room for growth in downtown Toronto despite what most people think. As more and more corporations and people flock to the downtown core and the area intensifies, the rental rates are going to increase. Combined with the high-quality immigration that Toronto receives, you’ll get a recipe that calls for an increase in real estate prices.

The Land of Many Opportunities – Take a look at PWC’s 2018 City of Opportunities chart below to see how great of a City Toronto has become.

Source: PWC City of Opportunities, 2018

Surprise, surprise – Of all the mega global cities, Toronto is ranked #1 in the affordability category. Furthermore, Toronto is ranked top 10 in most of the other categories. Toronto is ranked in the top 3 for ease of doing business, along with health and safety, a factor which is very important for people considering immigration to Toronto. Overall, across all categories, Toronto is ranked third for the best city to be in when it comes to having opportunities.

Affordability Affirmation – This study looks at other areas as well. Taking a look at the charts below, Toronto has a perfect score for quality of living and despite what we may think, we are still relatively affordable for housing. Additionally, our cost of living is still one of the lowest in North America.

Source: PWC City of Opportunities, 2018

Source: PWC City of Opportunities, 2018

The Wrap – We have covered off a number of topics in this TORONTO vs THE WORLD Insight Article series. Here is a quick recap of our City:

1. Low global purchase price
2. Massive high-quality immigration
3. Growing metropolitan area
4. Fourth largest population in North America
5. Lack of supply
6. The pace of population growth
7. Quality of life
8. Business opportunity
9. Health care and safety

With all of the above factors in mind, you can now see why Toronto checks almost all of the boxes for impending growth. As locals, we should be grateful that we live in one of the best cities in the world and as investors, we should appreciate the opportunity we have to snatch up real estate in such a fast growing market.

If you’re looking to add more properties to your portfolio or to get started with the best investment opportunity in Toronto, contact us today to see how we can help you realize your real estate goals!

Contact:
Zhen
416 436 9436
Zhen@PrimePropertiesTO.com

TORONTO vs. THE WORLD – The Uprising (Part 2)

Published on 30th August 2018

Growing up in downtown Toronto, I recall the first time I saw the only condos downtown being built at City Place. Remember those days? It was the talk of the town. Fast forwarding to today, condos are a dime a dozen as these tall buildings are going up almost everywhere. I’ve always joked with the fiancée that when we were both in university, we should have used our OSAP cash to invest in pre-construction condos. We could have been building generational wealth a long time ago! But alas – hindsight. If only they taught us more of these useful topics in school!

Back in Time – Back in those days, you could buy a pre-construction condo with 5% down and it would actually finish in 4 years. The starting prices of 1-bedroom condos along Yonge Street were $300,000, for a total investment of… wait for it… $15,000! I could have bought a condo each year during university! But again – hindsight!

Reality Right Now – Oh, how things have changed! This wasn’t all that long ago as well. As the demand outpaces supply, this is a sure sign that the City is on the up-rise and primed for growth. We’re now at 15-20% down for a 1-bedroom condo along Yonge Street and they all start at $600,000. This means that each condo would cost you a minimum investment of $90,000 – this represents a 600% increase in upfront capital required in slightly less than a decade. How’s that for perspective?

Fast Forward to the Future – Below is a before and after photo of the downtown Toronto skyline in 2000 and what it is projected to be in 2025, respectively.

Image 1: Downtown Toronto in 2000
Source: Joe Berridge – Toronto the Accidental Metropolis

Image 2: Downtown Toronto in 2025
Source: Joe Berridge – Toronto the Accidental Metropolis

The blue buildings above represent proposed projects that have not yet started development because permits to build have not been obtained, while the purple buildings represent projects with permits that will commence construction soon. Regardless, both of the blue and purple buildings above are going to be built at some point in the future.

These maps above don’t even show the King West & Liberty Village developments. There is no doubt that Toronto is growing at a very rapid pace.

There have been many arguments about overbuilding and foreign investment. However, the bottom line is demand and that has always has outpaced supply – both in the rentals and buy segments in the downtown core over the last 20 years.

In last week’s Part 1 Insight Article, What Everybody Should Know About Toronto, it was explained that the growth of the Toronto population is the fastest in the world.

Source: Tom McCormback, Metro Economics

Knocking on the Canadian Door – Oftentimes, people seem to have a hard time realizing that immigration into Canada is based on a point system, unlike the US. In the US, having family members will help with your immigration process. In Canada though, you must pass a point-based system.

Here is an excerpt from the government’s website on immigrant selection criteria:

“Applicants must obtain at least sixty-seven points out of a total of one hundred possible points on the selection grid. According to CIC, if your score is the same or higher than the pass mark, then you may qualify to immigrate to Canada as a skilled worker. If your score is lower than the pass mark, you are not likely to qualify to immigrate to Canada as a skilled worker.”

The point system grades you based on education, languages, experience, age, arranged employment and adaptability. One would need at least a B in all of these categories in order to get into Canada. Evidently, Canada accepts high-quality immigrants only.

So what does this mean for real estate? Simply put, people who are immigrating here have the ability to buy properties! They are likely more economically capable than the average Canadian. This is your answer if you have wondered why prices have gone up so quickly and where prices are going to go in the future.

The Uprising – Part 1 of this Insight Article series TORONTO vs. THE WORLD highlighted the average price per square foot in Toronto right now ($864.86). I have since pulled up some information with data on the price per square foot relative to the world from 2016. Almost 3 years ago, Toronto was at $518 per square foot!

That’s an astronomical increase in a short time period of 3 years – more than 20% per year! Let’s say Toronto slows down its immigration and growth slows down (it’s actually the opposite right now) – do you really think prices are going to drop off or just stay stagnant for a bit while supply gets absorbed from our lack of supply thus far? (Note: Recently, the government has been slowing supply down with many newly proposed policies. We could be facing a bigger supply crunch in the coming years).

Let’s take a look at growth relative to the other cities around the world over the course of 3 years.

World Views – Globally, you can see that when it comes to the largest increase in prices, Toronto ranks third (behind Shanghai and Tokyo). Many other cities in China, such as Shenzhen & Beijing, have had growth similar to Shanghai as well. So comparatively speaking and from a global standpoint, the growth of Toronto is actually not as aggressive as one may think. When you couple that in with our net immigration numbers, I truly believe that we have even more room to grow – both in price and population.

We didn’t even break the 4-digit price per square foot average as a city yet. There are many other countries with price per square foot averages that are well over $1,000. We’re very likely going to break the $1,000 mark in the coming years with even more room to grow!

The Wrap – So investors – don’t sell, while buyers – keep buying! This wraps up Part 2 of this Insight Article series. Next week, we take a closer look at the rents and Toronto as a city to live in. Stay tuned!

TORONTO vs. THE WORLD – What Everyone Should Know (Part 1)

Published on 23rd August 2018

Having grown up in Toronto and being able to witness the transformation that our City has undergone is awe-inspiring. I wasn’t born in Canada but immigrated here when I was very young, which gave me some perspective on other cultures and countries as well. This is why I am forever grateful that my parents took a big leap of faith to start a life here.

I am even more grateful that I am an investor in one of the best areas in the world to invest in real estate. Why do you think there is so much talk about our City from non-Torontonians? The answer is because our city kicks butt! That, and of course, you can make a lot of money by investing in Toronto real estate.

Unfortunately, when we garner so much attention from other parts of the world, real estate here starts getting expensive. As with all markets, there is the factor of supply and demand that causes ebbs and flows with prices. This causation effect is happening right now as real estate prices are rising so quickly and becoming too expensive for locals.

Expensive is Relative – However, just how expensive are we relative to the rest of the world? Have a look at the chart below showing Canadian dollar per square meter.

Source: Numbeo

I find it funny how, as Canadians, we’re always using the metric system but we use the imperial system for real estate… so strange! Anyways, the chart below has been converted into the much more familiar price per square foot benchmark that we are accustomed to.

As it currently stands, we’re only #43 when comparing price per square foot to the rest of the world. According to this chart, we’re at $864.86 per square foot. One would think this sounds a little low in our current market. However, keep in mind the downtown core is over $1,000 per square foot, but when you factor in Scarborough, Etobicoke, Mimico, Don Mills & North York Condo nodes, it’ll bring the average down a bit.

So, Toronto doesn’t seem THAT bad, relatively speaking right?

North American Ranking – We’re not even in the top 10 in North America when it comes to prices, but we have the 4th largest metropolitan population in North America (only behind New York, Mexico City, and Los Angeles – we surpassed Chicago in 2016).

Source: Tom McCormback, Metro Economics

For the price that we pay and the size of our growing population, doesn’t it almost feel like arbitrage for us in be investors in Toronto?

Toronto As the Base – The table that I’ve put together for you below is really going to blow your mind. In the table below, you will see how expensive each city is relative to Toronto.

Vancouver is about 30% more expensive than Toronto, yet their market is still growing with a population that is only one-third the size of ours.

Everyone likes to compare Toronto to New York. The two are both super big metropolitan cities, but New York is almost double the price! Just imagine the property you own right now and having to pay twice what you paid for it! Let that sink in for a second…

Crazy Rich Asians – Here is an interesting perspective I have for you. Most people wonder why the Chinese are “so rich” and own so much real estate. Looking at the last table above, if you sell a property in Hong Kong, then you can effectively buy THREE similarly sized properties in Toronto. The same idea applied to Shanghai and Beijing would yield you TWO similarly sized properties in Toronto. Imagine people who did that 5 years ago when you could buy Toronto properties at approximately $650 per square foot – that would mean 1 Hong Kong property equates into 5 Toronto properties!! That was exactly what was happening, and continues to happen today.

The Wrap – This is the power of a growing metropolitan area such as Toronto, and that is why I’m grateful to be able to live and invest here. Some people wonder why I am so bullish on the real estate market but just ask yourself this: Is Toronto better than any of the 42 cities ranking higher in price point? If it is, then there is a very good chance that our prices will continue to go up in the long-run. We’re the 4th largest metropolitan area in North America, yet there are TEN cities more expensive than us.

To Be Continued… This is part 1 of TORONTO vs. THE WORLD. Next week, we’ll examine the growth that Toronto has experienced thus far.

Revenue LOSS – Is Toronto too Dependent on Real Estate?

Published on 16th August 2018

You and I both know that Toronto real estate is a hot topic these days and oftentimes, a very sensitive matter as well. For these reasons, this is probably why you are following these blog posts closely. The most common topics that are brought up include: prices, sales, the amount of construction and locals being priced out of the market. As great as those topics are to write about, there has already been a lot of press in the news about it since they’re all essentially “eyeball magnet” topics. So today, I want to shed some light on some important issues that haven’t really been addressed a whole lot yet – the loss of revenue for the City of Toronto.

The Villain – As a world-class city, there are many improvements that need to be continually made as we grow and need more and more revenue to support these developments. Every mayor wants to improve our City, however, the issue always seems to be where will that money come from. Who has the guts to be the villain and increase taxes in order to further improve our City?

The David Miller Factor – Back in 2008, David Miller implemented the Municipal Land Transfer Tax (MLTT) in addition to the Ontario Land Transfer Tax. It essentially doubles the land transfer tax if you buy a property within the City of Toronto. For a $500,000 property (i.e., an average entry-level condo), the land transfer tax is $6,475 for Ontario and $6,475 for Toronto, for a grand total in land transfer tax fees of $12,950.

Pot of Gold – To date, the MLTT has unexpectedly produced over $9 billion dollars in revenue as a result of the growing real estate market. In 2017, it accounted for 9% of the City’s total annual revenue. Have a look at the disproportionate growth of the MLTT relative to the other sources of revenue between 2011 and 2018.

Source: NationalObserver

For reference, 47% of the City’s revenue comes from property taxes despite having the lowest property tax rate in the Ontario (the latter of which is shown in the chart below).

Unexpected Cash – The MLTT tax has basically become a cash cow for the City. This has allowed Mayor John Tory to freeze all increases on the property tax rate during his tenure. In the last few years, Toronto’s budget has had an unexpected increase of tax revenue from MLTT as follows:

2015 – Unexpected $75 million
2016 – Unexpected $101 million
2017 – Unexpected $182 million

This all sounds great for the City, but with the decline in sales volume, this poses a huge issue for Toronto’s budget. The following is word-for-word excerpt from Toronto’s 2018 Principles of the Long-Term, Financial Plan:

“Revenue from the Municipal Land Transfer Tax has been the dominant force in maintaining stable revenues in spite of low property taxes. When the Municipal Land Transfer Tax was introduced in 2008, it was expected to be a small portion of total revenues. As has been well documented and flagged, it has grown considerably with the real estate market, bringing the City considerable and unforeseen revenue increases along with revenue risk. It is important to take appropriate steps to mitigate the cyclical risk of this tax. Municipal Land Transfer Tax revenues do not need to decline to pose a significant problem. If the tax does not continue to grow, Council may have to make difficult decisions to close the structural budget gap each year.”

The scary thing is if the tax revenue flat-lines, it could prove to be an issue for Toronto.

By the Numbers – Although the real estate market is healthy in various pockets of the GTA, the damage has already been done. Have a look at the chart below for MLTT that has been collected in the first 7 months of 2018 relative to 2017.

Keep in mind that the first 4 months of 2017 were all record-setting years. However, don’t forget that the balance of 2017 was super weak. At this point in time, the City already has a $244 million dollar (30%) deficit relative to last year. The 2018 Fall market is going to have to perform incredibly well in order to cover this deficit and maintain the revenue levels being generated in the years prior.

Development Charges, Explained – It is for all of the reasons above why I believe the development charges were doubled back in February 2018 (Pre-Construction Condo Prices Are Primed to Increase!). The doubling of development charges will yield the City approximately $300 million dollars in tax revenue. However, the issue with that is since development companies are for-profit, they will not be absorbing this tax. It will ultimately be passed onto you and I as the end-consumers and citizens – all of this has effectively driven up real estate prices for us.

The Wrap – At the end of the day, the City of Toronto is a business as well – it needs to have enough revenue coming in to support the dollars it spends. Money must come in one way or another. Unless the real estate market explodes in the Fall of 2018, Toronto is going to need to find a way to fill the financial gap created by the potential loss of the MLTT revenue in 2018. Personally, I don’t think something drastic will be coming because a municipal election is happening in October and nobody is going to run on a platform of increasing taxes. However, I wouldn’t be surprised if we see some changes in the future!

Analysis Paralysis – How to NOT Get Trapped!

Published on 9th August 2018

Have you ever wondered why there are just SO many Realtors in this city? The answer is actually quite simple because the requirements and steps to obtain the license is fairly easy. You don’t need a university education to be a Realtor. You complete 5 multiple choice exams over the course of 18 months. If you’ve successfully passed the exams, then you can carry on with trading real estate. From my own experience, what they teach you with the real estate courses is really not the most useful in helping you become a successful Realtor.

It is for the reasons above why I always find it interesting to talk to people who transitioned into real estate from what they originally studied in school (i.e., engineering, accounting, etc.). A lot of these skills from other professions are transferable to a career in real estate, and many do use their skills to their advantage in order to excel.

For me, I actually studied science in school (because every immigrant parent wants their kid to be a doctor when they grow up!). Ultimately, this means that I was trained to always look for empirical evidence.

Real Estate Riches – What I have seen (and continue to see) after helping manage the portfolios of very wealthy clients is that real estate is a huge contributor to their overall net worth. I’m sure you have heard that a majority of the millionaires in the world come from owning real estate.

In the Driver’s Seat – The simple fact is that with real estate, you can use a down payment of 5% to buy an income producing asset that is 20 times its value, combined with the fact that you have full control over the asset itself. If that last sentence makes sense to you, then you’ll understand why real estate is such a great wealth creation vehicle.

Learning to Drive – Obviously, in order for real estate to be a great wealth creation vehicle, you need to know how to drive first. It is here where the rubber often meets the road, and this is where I see a lot of people getting stuck. Action needs to be taken instead of over analyzed a million times.

Decisions, Decisions – There are so many different investment strategies out there for real estate that ranges from, buy and hold, short-term rental, flipping, buy-fix-refi-rent, pre-construction, rent-to-own, vacation rentals, multi-residential, commercial, development, and many more. As a result, many first time investors get stuck with trying to learn and understand each and every single strategy; they will analyze each strategy to the nth degree before they make their first investment. The empirical evidence that I have seen over and over again is simple – buy a property that pays for itself and you’re golden! You will have many options moving forward once you actually own that asset.

Rubberneck Rule – I recall when I first learned how to correctly invest in real estate – I kept coming back to one rule. This rule is the 1% rule. It is a basic rule that I was told to always apply to every investment property. That is, to have each month’s rent be at least 1% of the total purchase price.

At the time, it seemed like a great rule that many leading experts had recommended to follow because it meant that you could, in theory, pay off the property in approximately 8 years. Looking back though, having that rule in my mind actually worked to my disadvantage because it got me completely stuck for a while (kind of like driving by and rubbernecking when there’s an accident on the road).

Applying the Rule to Reality – If you think about it, the average investment condo is a little over $500,000. If I applied the 1% rule to the average condo investment, I would need $5,000 per month in rent to make that rule work. Even with the massive rental incomes in short-term rentals, the $5,000 per month expectation is hard to achieve every month on a consistent basis. From that perspective alone, all of the condos purchased in the last decade would have been a terrible investment. However, there are tons of real estate millionaires in Toronto that have made their fortunes with condos and who have NOT followed this 1% rule.

So Then That Begs the Questions: How effective is having an inflexible rule for investing in real estate? How much analysis do you really need to have in order to determine if a property is a good investment?

Ultimately, you will have to answer those questions for yourself. For me, even though I could analyze a property to death, I have trained myself to be flexible enough – as long as I can make the property pay for itself, then the rest really doesn’t matter as much. Taking action in the NOW is first and foremost. Without taking action, there will be no results nor a bottom line.

The Wrap – In summary, if you want to be successful in real estate or just about anything else for that matter, you must overcome any fears and doubts that you may have. Remember that taking action will get you results. So the next time that you experience analysis paralysis, just remember this:

“Thinking will not overcome fear, but action will” – W. Clement Stone

Should I Sell My Property?!

Published on 2nd August 2018

To sell or not to sell… that is the question. You could imagine one asking such a question with a face similar to the emoji on the bottom.

Recently, I’ve been asked by a few of my clients regarding whether they should sell their property right now. Unless it’s for personal reasons, my answer has always been no. So at the request of one of my clients, I’ll go deeper into this topic in this week’s Insight Article so that I can shed some light on why selling doesn’t make any sense.

If you’re reading this and would like me to do a deep dive on this controversial topic with you, please send me an email at Zhen@PrimePropertiesTO.com.

One for One – When pondering the dilemma of “to sell or not to sell”, I would actually challenge your question with another question:

“Is your property generating positive monthly cash flow?”

The above question applies to both selling an existing property and a pre-construction assignment. Before I tell you my thoughts, allow me briefly explain what an assignment is and the purpose of it.

Where’s the Assignment Clause? An assignment is essentially the process in which one person sells the benefits and obligations of a contract to someone else. In the case of a pre-construction contract, the new buyer (the “assignee”) gets to close on the condo unit which you (the “assignor”) purchased much earlier from the developer. Technically, the purpose of an assignment is for a “just in case of an emergency” situation and you should treat it as such.

I know many may disagree with me on this and some investors even actively treat the assignment clause as a mandatory necessity when purchasing a pre-construction condo because they know they will want to sell it before closing.

Think Twice – Allow me to explain why I don’t recommend selling any piece of real estate right now, and that includes both existing and assignment properties.

In my honest opinion, you will make the most money when you buy and hold a property, especially with the way the Toronto real estate market is trending. The longer you hold onto a property, the better off you will be. The combination of cash flow, mortgage paydown and a very conservative appreciation will generally yield you over 25% return on your money (i.e., your mortgage down payment). This is significantly better than any mutual fund!

I have many clients who ask me to sell their properties, and as much as that will help benefit my business, I often talk them out of the sale of their property because I don’t want them to lose an income producing asset. Income producing assets are super important to your wealth generation because in our current world, it’ll only be more difficult to own anything from this point forward as a result of inflation, interest rates, and a whole lot of other reasons that I won’t get into here.

Let me give you two scenarios:

Option #1 – Selling Now

Let’s say you have purchased a pre-construction condo a few years ago for $400,000. It’s now worth $500,000. In your mind, you would think, “AMAZING – If I sell this property now, I can make a quick $100,000 on my deposit from a few years ago!” Wicked return on investment right!?!

While that is correct, let me break down the numbers some more for you.

Your $100,000 profit would be eaten up by a 5% realtor fee, which is $25,000 + HST. Then, your profits will also be taxed at 50% for capital gains tax at your marginal tax rate (assuming this unit was not for personal occupancy). For a person making an annual income of $100,000, the marginal tax rate is 21.75% or in other words, another $10,875 would be gone from your profits. After that, you still need to account for the builder assignment and legal fees of approximately $6,000 combined.

With all of the factors above, your profits have been reduced down to almost half of what you originally expected – to an actual profit of approximately $54,875. The calculation below provides an illustration of this example:

Option #2 – Not Selling

This is the option that I would highly recommend. You close on the property, rent it out and make a healthy monthly cash flow each month. This is why the earlier question, “Is your property generating positive monthly cash flow?”, is so important. Assuming that your property appreciated by $100,000, you could opt to refinance your property immediately after you close on it. Doing this refinance would allow you to possibly pull out approximately $80,000 TAX-FREE to pick up another property!

So What’s the Catch? That $80,000 refinance will add another $350 per month to your monthly mortgage payments. However, as long as your rental income supports this additional monthly mortgage expense (i.e., the added expense does not put you in a net negative cash flow position), then you’re golden!

…and Here’s the Real Kicker – YOU STILL OWN THAT INCOME-PRODUCING ASSET! #winning all around!

So over the course of 5 years, which scenario above is going to make you more money? Selling now for a profit of $55,000 and try to double that with another property, or knowingly having TWO fully rented out properties that are still both continuing to appreciate in value?

YOU are Top Priority – It is for the reasons above why I will always try to talk my clients out of doing any selling unless you absolutely have to due to personal circumstances. When I advise my clients against giving me their business to sell their home, I always get great feedback for being completely honest and transparent. Watching out for the best interests of my clients is always top priority for us here at PPTO. We always want you to make the most out of your hard earned dollars!

The Wrap – So hopefully this helps you understand why I would always push for not selling your existing and pre-construction properties. If you have the ability to own real estate in Toronto, why give up an in-demand asset that will ultimately keep increasing in value over time? It’ll only get more and more difficult to own real estate in Toronto in the years to come, so hold on to those assets!

4 Record Setting Trends you wont believe

Published on 26th July 2018

Generally, summertime usually means a slower real estate market. Families head out to cottages, vacations are taken, and people are just generally busy enjoying the many activities happening in and around Toronto during the summer months. However, despite this supposed “summertime slowdown”, there have been some shocking statistics coming out from the downtown core in the past 4 weeks.

Believe It Or Not – Every morning, I monitor the MLS for new and sold properties in certain areas for my clients, and I often stumble across some that have me thinking, “Seriously… that happened?!”. Recently, there have been 4 such cases that really caught my attention, and I wanted to share it with you to give you an idea of some trends we may be seeing.

Keep in mind that although these properties are outliers right now, there is a very good chance that the market is trending in that direction. I remember vividly when we had pre-constructions condos that were just breaking the $1,000 per square foot mark last September 2017 (10 months ago). At that time, many of my clients had expressed concerns that we broke the 4-digit mark; in other words, they thought that had to be the peak (that’s a rather odd way to determine the peak, if I may add). However, 5 months later, in January 2018 (7 months ago), $1,000 per square foot was considered cheap as many projects were pushing $1,100 per square foot product in that short time span. Presently, another 7 months later, and we’re pushing the $1,300 per square foot mark in the downtown core.

Outrageous New Norms – I’m not saying we’re going to see this kind of appreciation moving forward, but the point that I’m trying to make is that sometimes the record setters become the norm much quicker than you may think. Remember 5 years ago when you could buy a downtown condo for $650 per square foot? Long gone are those days!

In the past 4 weeks, the properties below really caught my eye on where the market could be heading. I absolutely have to share this with you!

Example #1: Bachelor Unit Sells for Over Half A Million Dollars
Address: 80 John St #1502
Sold Price: $500,800
Sold Date: July 21, 2018

Closer Look: I have never seen a bachelor unit sell for over $500,000 before. Granted, this is a shallow, well laid out bachelor unit – but nonetheless, it is still a bachelor unit. There are no doors to the bedroom. Also, this unit was sold in a bidding war and OVER asking! This says a lot about the demand for entry-level properties. I wouldn’t even classify entry-level properties based on the type of unit nowadays, but rather based on the price (i.e., an entry-level property is what an average person can afford).

Note: This unit has 1 locker, no parking, and above-average maintenance fees.

Example #2: Bachelor Unit Sells for Almost $1,300 Per Square Foot
Address: 290 Adelaide St W #2903
Sold Price: $415,000
Sold Date: July 9th, 2018

Closer Look: Recently, new build condos were starting in the $1,300 per square foot range and many people thought it was crazy. Well, just recently a bachelor unit at Bond Condo sold for $1,269 per square foot – that’s a new resale record for sure (excluding luxury penthouse units)! Here is the interesting thing though that many people who only read the headline would miss. If you purchased this condo at a record-setting price per square foot, then your monthly carrying cost (mortgage, taxes, maintenance) of owning the property is actually lower than if you were to rent this property to live in. True story! So despite its price tag, this property is actually cash flow positive!

Note: This unit has 1 Locker, no parking, and super low maintenance fee & taxes.

Example #3: Bachelor Unit Leased for Over $2,000 Per Month
Address: 88 Blue Jays Way #2611
Sold Price: $2,050 per month
Sold Date: June 27, 2018

Closer Look: Remember how I was talking about the lack of rental supply and a potential bloodbath that is happening? Well, this landlord clearly took advantage of that. A bachelor unit being leased for $2,050 is definitely a record. Just take a moment and think about that for a second – there is a bachelor unit that is worth over $2,000 per month to rent in downtown Toronto… that’s insane! The rent of $2,050 per month is a higher monthly payment than if you were to buy and own the previous bachelor unit at Bondo Condo (which is literally a 1 minute walk down the street). The new tenant even paid above asking price just to get the unit. The demand is just incredible. On a per square foot basis, the rent is $4.75. We’re getting close to $5 per square foot. Can you believe this?!

Note: This unit has no locker, no parking, the hydro is extra, and it has never been lived in before.

Example #4: 1 Bedroom Unit Breaks $3,000 Per Month
Address: 5 St. Joseph St #1008
Sold Price: $3,000 per month
Sold Date: July 16, 2018

Closer Look: One year ago, it was crazy to think that 1-bedroom units were going to break the $2,000 per month rental mark. Well, this 1-bedroom unit just broke the $3,000 per month rental mark. Granted, this is a nice corner unit, but the fact that this unit was leased out in 2 days for $3,000/month tells me that there is a huge demand for 1-bedroom units with parking (as I have been warning my clients). I’ve experienced this with a few of my clients in the last few months as well. This property is leased at $4.21 per square foot.

Note: This unit has no locker, 1 parking spot, and hydro is extra.

The Wrap – The 4 examples highlighted above set new records in their respective areas, but you shouldn’t take this as where the market is right now. However, do note that because there have been cases like this caused by the lack of supply, I wouldn’t be surprised to see these cases being the norm in the coming months. Everyone thought a condo couldn’t exceed $1,000 per square foot just a few years ago when people were buying properties for $650 per square foot. Well, we’re past that $1,000 per square foot mark in the downtown core now. Unfortunately, this is the new norm. Will $1,300 per square foot soon be the new norm? Only time will tell. Hang tight everyone!

Here We Go Again… Rental Rate Hikes!

Published on 19th July 2018

It has been less than two months since I wrote an insight article on how to capitalize on the upcoming rental bloodbath. Now, here we are in the middle of July and the bloodbath is real.

Oftentimes, it is hard for some people to understand and grasp how fast the market is actually moving (even when you are actively trading in it). So when good, reputable sources come out with just pure stats on how the market is doing (without any further bias), I always review it to do some due diligence. Plus, of course, I will always share my thoughts with you afterwards :).

The Numbers are In – A few days ago, Urbanation released the annual rental numbers comparing the current rental market to last year and to no surprise for me, the current rental rates are at an all-time high – an 11.2% increase from last year, or in other words, the current average rental rate in the GTA is now $2,302/month! For your reference, the average rental increase after considering inflation is expected to be approximately 3-4%.

Up, Up and Away! Below is a chart depicting the escalating cost of rent year-over-year, and you can see that in 2018, we had the biggest jump to date. You can blame some of that jump on rent control and the stress test, but there are also other factors that have caused this spike as well.

Scarce Market – The supply issue is real, but nobody is addressing it. With no one moving out of their rental property due to rent control, Toronto is experiencing historic lows for the turnover rate on rentals right now. We’re currently at an average of 15 days on the market with rental units.Good luck to everyone out there trying to find a rental unit right now!

Rental bidding wars are back! Below is a quick snapshot of what it currently takes to rent a particular type of unit in the GTA. Some of these numbers may come as a surprise to some people, but this is as real as it gets. Some of these numbers are even at least 20% higher when you are in the downtown area!

High Cost of Living – Lastly, below is a snapshot of each municipality and their rental rates. You can see that to be in the city (not even just the downtown core), the average rent in Toronto is over $2,500 per month or in other words, that’s $30,000 going towards rent per year.

The average pre-tax income in Toronto is approximately $45,000. If annual rental costs are $30,000, that’s two thirds of your pre-tax income going towards living costs!

More Bloodbath?! So even though we find ourselves in the middle of July’s rental bloodbath, there is actually even more potential rental rate increases coming our way between now and September. When October rolls along and we get the numbers, we’ll see where the rental market ended after the summer, and quite frankly, it would not surprise me if we reach new historical highs for rental rates yet again.

The Wrap – So what does that mean for investors? New peaks in rental rates translate to higher average selling prices. For an investor, it’s a winning situation. For the renters, we’re seeing an unfortunate series of events here. This is the vicious cycle in Toronto that we are living through right now. Condo prices and rents are going to keep going higher and higher until someone actually addresses this underlying supply issue.