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.

Why You Should NOT Sell Your Pre-Construction Unit on Assignment

Published on 12th July 2018

If you have been buying pre-construction condos or simply just looking around, then you might recall seeing incentives like “$0 assignment fee” or a “reduced assignment fee”. You might be wondering why that is important and if you should be looking for that in your next purchase. Recently, I’ve been asked a few times about selling a pre-construction condo via assignment. As a fellow investor, I wanted to share my thoughts and strategy so that you are able to maximize your real estate investing efforts instead of making make a costly mistake.

What is an Assignment and its Purpose? An assignment is essentially the process in which one person sells the rights and obligations of a contract to someone else.

In the case of a pre-construction condo, when you assign a contract to someone else, they will get the benefit of closing the specific unit stated in the contract upon its completion, in addition to fulfilling the other contract obligations. A similar process takes places when you are transferring a leased car to someone else.

So then the question becomes: why do some people always look for an assignment clause on pre-construction purchases?

The Assignment Flipper – If you are a pre-construction assignment flipper, then yes, you could potentially make money on the assignment sale. The downside though is that you are essentially throwing away the long-term benefits of owning real estate. Allow me to explain why I don’t always recommend assignment flipping.

Finder’s Keepers – In my honest opinion, you will make the most money when you buy and hold a property, especially the way that the Toronto and Golden Horseshoe markets are shaping out. The longer you hold onto a property, the better off you will be for many reasons other than just appreciation. You also get the benefits of:

1) Cash Flow
2) Mortgage Pay Down
3) An Income Producing Asset

Many of my clients ask me to sell their properties, but as much as that will benefit my own business, I often talk them out of it because of the above benefits that you get with owning and holding onto real estate.

An Example – Let me give you an example (approximate numbers based on one of my clients). Let’s say that you purchased a pre-construction condo a few years ago for $400,000. It’s now worth $500,000 and you plan to assign the deal. From your perspective, you may think “Awesome! If I sell this property, I can make a quick $100,000 on my deposit from a few years ago!” That sounds like some wickedly good 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 the 5% realtor fee, which is $25,000 + HST. Then, your profits will also be taxed at 50% for capital gains at your marginal tax rate. For a person who has an annual income of $100,000, that’s 21.75% or in other words, another $10,875 gone from your profits from the assignment deal. You will also need to pay the builder assignment and legal fee of approximately $6,000.

On the other hand, if you don’t do the assignment and just close on the property, you can rent it out and make a healthy cash flow each month. Subsequently, you could also choose to refinance your property immediately after closing (since there would already be some appreciation in the unit). This means that you could be possibly pulling out about $80,000 tax-free (from the refinance) to pick up another property.

What’s the Catch? The refinance would add another $350 per month to your monthly mortgage payments. However, as long as your monthly rental income on the additional property supports the added $350 per month mortgage payment, then you’re golden!

Here’s the kicker though – YOU STILL OWN THAT PROPERTY!

It is for the above reason why I will always try to talk you out of doing an assignment, unless you absolutely have to as a result of personal circumstances.

The longer you hold onto real estate, the more benefits you will have. So why not leverage the appreciation that you gain during the construction phase of a pre-construction unit in order to buy more properties? It’s a very simple formula.

Generational Wealth = Buy + Hold + Re-finance + Repeat

The Wrap – I hope this helps you understand why I’ll always push for you to not flip your pre-construction properties. You have the opportunity to close on an amazing asset in Toronto, why give it up that easily. It’ll only get more and more difficult to own real estate in Toronto in the years to come, so hold onto those hard assets! Here at PPTO, we can help you acquire even MORE properties so that your portfolio just keeps growing and outpacing the market instead of the other way around!

Mortgage WARS and What This Means for YOU!

Published on 5th July 2018

Move aside Trump trade wars! We have mortgage wars between the banks to deal with right now. If you haven’t heard the news yet, HSBC and BMO have officially just dropped their mortgage rates, which will ultimately force other competing banks to follow suit.

Three weeks ago, I wrote an Insight Article called, “The Market is Crazy – What Should I Do?! Fixed or Variable Mortgage?“. That article answered a yearning question of whether you should go fixed or variable with your mortgage rate.

Knowledge is Power – Another interest rate announcement will take place next week on July 11th, 2018. But whether the interest rate increases or not, we technically already have a discounted rate from these bank promotions. As investors, being in the know is half the battle! So being able to understand what is going on with the mortgage rates is critical to being a savvy investor.

Controlling the Rates – I’ve spoken to many mortgage brokers on this matter and I get the feeling that many of them believe that the major financial institutions are like the biggest money cartels. In a way, the major banks essentially monopolize the industry as they control the interest rates and dictate the cost of borrowing. That said, there is nothing we can really do about that if we need to borrow money in order to fund our investments.

Driving the Bottom Line – It’s a highly competitive industry because when one of the major financial institutions reduces their lending rate for mortgages, it will drive the other lenders to reduce their rates as well. A good comparison for this would be when Telus, the telecom giant, introduced a 10-gigabyte phone plan for $60 to drive higher profits; the other telecom giants soon followed in their footsteps. Similarly, in the lending world right now, BMO dropped their mortgage rates for the exact same reason – to drive profits!

OFSI Driving Down the Profits – The OFSI stress test requires that all borrowers be assessed for their purchasing power at the posted interest rate. This means that it doesn’t matter what rate the individual banks offer; the rate of measure for the stress test is always the one that is posted.

So even though there are customers who would want a mortgage to purchase a property, many of these customers are no longer qualified to get the mortgage as a result of the stress test. In turn, these unqualified customers are no longer taking out mortgages at the major banks – they’ve been priced out. All of this leads to major losses for the big banks.

Mortgage Wars! Mortgages are the bread and butter of the major financial institutions because it is a significant driving force for profits. If the amount of mortgages decrease, banks will report lower earnings. Since mortgages make up a large part of the banks’ portfolios, large swings in mortgages will drastically impact their bottom line.

Ladies and gentlemen, this is exactly why the banks will go into a mortgage war with one another. When you can’t control the rate that the customer is being stress-tested at, you can only entice them to get a mortgage with a specific lender that has a much a lower rate than the rest.

On Sale Now – Currently, BMO has a promotion on fixed rate mortgages at 3.19% relative to the 3.75% rate (on average) that other banks are offering. In addition, BMO is now offering their variable rate mortgages at 2.35% compared to 2.65% (on average) at other major banks – that’s a whole 0.3% less!

This mortgage war indicates that banks are struggling to increase the number of mortgages in their portfolio, having to deal with the new OFSI rule changes themselves as well. They are attempting to take matters into their own hands to combat the stress test.

Interest Rate Hike – Then What?? So what if there is another interest rate hike when the Bank of Canada makes their announcement next week? There is actually no need to panic if you think about what the banks are offering right now. Interest rate hikes, if any, will go up in 0.25% increments (historically speaking). If you compare this with the BMO promotion on variable rate mortgages that are 0.3% less than the average rate, there is essentially nothing to worry about. We already have a great deal on rates! Any interest rate hike would just essentially nullify the promotional rates. The only condition here, as it’s been since January 1st, 2017, you just need to be able to qualify for the mortgage after the stress test.

The Wrap – If the interest rate hike risks have been holding you back from purchasing your next property, now is the time to take action. Take advantage of these discounted interest rates while they last! We have the burden of the stress test now, but every small win in our favour counts!

Wealth Building – BAD Debt Vs. GOOD Debt

Published on 28th June 2018

Back to the Beginning – You may not know this, but I was actually not born in Canada. I immigrated here with my parents when I was very young so I had a Canadian upbringing (not sure what that really means, but definitely lots of hockey though).

My parents, on the other hand, had a difficult time getting a job in Canada when we landed as they were not fluent in English. My dad owned a refrigerator strip manufacturing business in China, which he sold to immigrate to Canada, and my mom was a seamstress. Without being fluent in English though, they were forced to work at a Chinese restaurant, similar to most other non-English speaking Chinese immigrants.

Traditional Teaching – As a result of my environment at home as a child, this led to the constant teachings of go to school, get good grades, and get a good job.

What that translated into was pay attention in class, study hard, and get a white-collar job with pension and benefits.

This belief was entrenched in me for over 20 years.

I knew why it made sense, mathematically and financially. If I increase my skills and worth to an employer with school, my value per hour to my company will increase. Hence my income will increase. The goal was to increase my skill level to $50/hr so that I could make six figures. Then after all of that, I can have a comfortable life.

That was the dream.

Unfortunately, The World Has Changed – That dream doesn’t exist for me anymore (and generally speaking, that dream is fading for many young people in Toronto as well). Rather, it was a dream that my parents sold me.

Even with a six-figure income, which is double the average income, one can barely afford a 1-bedroom condo downtown these days; let alone being able to pay off any school debt while saving up for a down payment.

The AHA! Moment – Through a series of unfortunate events at the time (but fortunate looking back now), I realized that what my parents had taught me, despite all of their good intentions, was actually going to make me poor. One of the lessons that turned my financial life around was the concept taught in Robert Kiyosaki’s popular book, “Rich Dad Poor Dad”. That lesson was the difference between good debt and bad debt. I wish I didn’t have to learn this the hard way.

This is very important and it took me forever to understand because I was raised to squirrel money away and pay off my debts as quick as possible to avoid paying extra interest. The following summarizes the simple difference between good debt versus bad debt.

Good Debt – Payments are covered by someone else.
Bad Debt – Payments are covered by you.

It sounds simple in theory, but hard in execution.

Let me give you an example.

Bad debt is using your line of credit from your house (HELOC) to pay for kitchen renovations for your own personal home. Who pays for this? You do! Yes, I know what you may be thinking – there is “resale” value and you can re-cooperate the cost of renovations in the end, but ultimately it is you who are paying for these costs until the house is sold (which may be a long time down the road). This is an example of the poor use of debt.

On the other hand, good debt is using that same line of credit from your house (HELOC) to acquire a rental property that pays for itself. Who pays for this newly acquired house? Your tenant will perpetually pay for all of your expenses, including interest on your HELOC if done correctly. This is an example of a great use of debt.

Money That Works For YOU – What I learned was that in order to be wealthy, it’s not just about chasing after that six-figure job, but rather it was about being smart with my money so that I could let my money work for me instead of having to work for money.

Doing a kitchen renovation with your HELOC would mean that you are working for money to pay off that borrowed money. Instead, if you invest your borrowed money in a rental property, your money would be working for YOU via consistent rental income and mortgage paydown.

The Wrap – This lesson has changed how I view money for the rest of my life. It has also shaped how I build wealth for the rest of my life. I hope this Insight Article strikes the same aha! moment for you as it did for me when I learned the difference between bad debt versus good debt. Give us a call to see what good debt in real estate can do for you!

Until Next Time, Happy Real Estate-ing,
(416) 436 9436

Real Estate CRASH – What Will Happen To My Mortgage?!

Published on 21st June 2018

Last week, I wrote about what happens to rental rates when the market crashes. As a quick recap: As long as your investment property pays for itself, you are protected in a crash, whether it is worth $1,000,000 or $1. This is why real estate investing is much easier than buying your own personal property – you are not paying for the mortgage on your investment property (that is, if the investment is properly put together).

Although I am bullish on the real estate market (because I can see the economic trends and fundamentals of the GTA), I always prepare for the worst case scenario and as investors, you should as well. Capitalize on the upside but always cap the downside.

In this week’s Insight Article, we will continue along the same path as last week as I further discuss the “what if” situation for mortgages.

Real Estate Fuel – First off, everyone must understand that real estate is fuelled by credit.

In layman’s terms, “fuelled by credit” means that access to borrowed money is the main driver of real estate. Remember that most of the time, the bank funds the balance of your purchase after your down payment. So if access to credit is difficult, then the real estate market will slow down. On the other hand, if credit is readily accessible, then the real estate market will speed up.

The Credit Killer – At the start of this year, the access to credit for real estate slowed down through the implementation of the stress test.

Pre-Stress Test – Prior to 2018, you could purchase a property that is valued at approximately 7-8 times your gross income.

Post-Stress Test – Starting from January 1st, 2018, that dropped to only 5 times your gross income.

That is exactly why everybody effectively lost about 20% of their purchasing power through these traditional lending avenues. Have a look at the chart below for the difference.

When the River Stops Flowing – When there is a financial market crash, access to credit usually comes to a complete stop. Cash is normally king, but it becomes even more critical in these situations. Let’s use the 2008 financial crisis in the US as an example. Leading up to 2008 in the US, if you had a pulse, you could get a mortgage.

However, when poop hit the fan, credit froze, real estate prices plummeted and the most important factor was this: the mortgages were worth more than the price of real estate. This means that people had a mortgage for approximately $400,000 but their properties were worth only $300,000.

That’s Crazy, Right?! So what people did was drop their keys and stopped paying for their mortgage, and thereby purposely going into default. It sounds scary, right? Will this happen to us in Toronto if the market crashes?

I doubt it.

Allow me to explain.

There are two main reasons why I doubt we will spiral like our counterparts in the US if the market crashes in Toronto:

  1. The Office of the Superintendent of Financial Institutions (OFSI) regulates the lending industry like a total control freak. The difficulty of getting a mortgage has been increasing since 2008 to protect our housing market from becoming like the US.
  2. Recourse Loans – This may be a new term unless you are in the financial world, but there are basically two types of loans: a recourse and non-recourse loan. The definitions are below.


  • Recourse Loan – this is what we have in Ontario, and it allows the lender to garnish wages and take your assets to pay off your debt.
  • Non-recourse Loan – this is what the US has, and it DOES NOT give the lender the right to take assets to pay off your debt.

So Why Is This Important? After the financial crisis, people in the US packed their bags and walked away from their mortgages. People in Ontario simply cannot walk away from their mortgage if a similar crash were to happen here. For that reason alone, that is why if you are buying an investment property, the investment MUST pay for itself. You cannot walk away from your debt here in Ontario.

The same applies for a personal home – make sure you have the means to pay for the property as you cannot walk away from the mortgage on your personal home either.

Protected by OFSI – There are so many safety mechanisms built into our lending policies that the next time you are applying for a mortgage and are jumping through hoops, do take a look at it from a different perspective. OFSI has implemented these lending policies to ensure that mortgages issued by lenders are safe and we do not have the same type of financial meltdown as the US.

The Wrap – With the recent credit freeze (i.e., stress test), if you are still able to purchase a property whether for investment or personal, I would recommend you do so sooner rather than later because it will only get harder down the road as they make access to credit even more difficult later on. Keep leveraging the credit while you still can and have that money work for you!

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.