Tuesday, 27 November 2012

How to Navigate in an Inconsistent Market.

A couple of months ago, when I was obsessed with the Olympics, I suggested that the housing market and the condo market were not in sync any longer. They are synchronized divers no more, to use an Olympic analogy. 

And this desynchronizing has only become more pronounced since the summer. To simplify, the housing market is a sellers' market with its limited supply and a decent amount of bidding wars. (In fact, I was in battle yesterday with 7 bids!) And the condo market is generally a buyers' market with it's larger supply and very, very few bidding wars.

But I wish it were that simple. Some great houses still don't sell. It's a mix of where you are and whether your neighbourhood is in demand. For some areas, I have a collection of buyers looking for houses in a certain price range who are frustrated by the bidding wars they have encountered despite the crabby, sky-is-falling real estate forecasts. 

As far as condos go, don't panic if you have one. And don't think the world is your oyster if you are planning on buying one soon. Yes, the market has certainly cooled in the condo department, but it may not last as long as every one thinks. Just be wise on how you invest.

Here are a few tips:

1. Don't buy new. It's really not very appealing at the moment. Developers often project what they think a condo will cost on the completion date. They will use past sales patterns to project what they think a property will cost in say 2015 when the condo should be built. The thing is, it's 2012, and they don't know how much a condo will cost in the future.  They're generally overpriced. In fact, as far as condos go, I say buy converted lofts - they are in short supply and usually increase in value. 

2. All neigbhourhoods are not created equal. I am still a firm believer that if you are near an improving commercial strip, you will be making a wise investment. Look what a great commercial strip did for Leslieville? Now I'm looking at Danforth Village, Junction Triangle, Bloordale, Long Branch. When the economy tanked in the late 80s, the commercial strip in Little Italy on College kept on improving, bringing up the values of the homes nearby up in value. 

3. Don't buy in a giant building. If you have to sell in a buyer's market, you'll likely be up against someone in your building. Buy under 8 stories. At least you may be in a building that is not in a constant state of selling. Some units, however, in massive places are great if the unit is unique. The other exception: When you are a first time buyer on a limited budget, big condos an be affordable with maintenance fees that are spread out between more condo owners. 

Monday, 12 November 2012

The Rise of the Landlord

I own a fourplex. That's four apartments in one house. For the most part, I don't mind being a landlord. I'm not particularly handy, but I have learned a few things from youtube, my handyman books, and simple trial and error. I can change a toilet, fix a pipe, some basic electrical, and I can paint!  For a long time, I found, most people didn't want to join my ranks. Many think the role of a landlord is too stressful or requires a certain handyman-esque quality.

But lately, I've noticed a lot more people who want to be landlords. And the timing is pretty much perfect. For the most part, it's rewarding. You do get an injection of cash each month to pay off your mortgage and build equity. Of course, from time to time, there are those surprises - the broken toilet that leaks to the apartments below, the furnace that dies on the coldest day. I even had a tenant whose cat was stuck behind the radiator and couldn't get out.  (Ultimately rescued and saved!)

Regardless of how easy or difficult it is, there are more people jumping in. Why you ask? Yes, as previously mentioned, it makes money and builds equity, and its a great income stream. But also, many people can look around them now and see there are a lot of ways to be a landlord. You don't have to walk around all the time with a wrench in your pocket.

The types of landlords emerging vary widely enough. Some of them would like to buy a big house with two or more units in them. Some buy a condos as investments too. Condos rent well in key areas, and they are great investment for those of us who are not very handy at all. There is really a lot less to worry about here.

There is some thing else happening in this city. Renting some thing out these days is a snap. Renters are shocked at how competitive it has become to rent a place around here.

Currently the rents in this city are fantastic, from a landlord's perspective. Vacancy rates are low and rents have increased quite a bit in the past few years.

Also, no one really builds rental buildings any more. It still happens. I can think of Jazz downtown that mimics a condo, but it's all rental. Still, this is rare. Fewer rental apartments are built, but more people arrive in the city. So, condos and apartments in houses take up the slack.

I know the news says over and over again that there are going to be a flood of condos on the Toronto market, and condo prices in some parts of Toronto have slipped, but there is still not enough rentals to go around.

It's a perfect storm really. Low vacancy rates. Quickly rising rents. And a lot more renters, especially after the Federal government sidelined a lot of would-be buyers by making it tougher to qualify for a mortgage and sending them back to Rentersville.

Monday, 5 November 2012

The End of the High Rise?

Toronto loves a good high rise. We're a city whose identity is very much wrapped up in it's own ever-expanding skyline. In fact, some of the most visually exciting proposed projects, like the Gehry proposal on King St. West, are high rises, higher and more dynamic than ever. But there is a change going on in Toronto's condoland. And no, it's not a earth-shattering crash, but things are shifting. And it looks like the number of high rises that will be built in the future may be far fewer in number than we have seen.

As we have heard, there has been an incredible demand for condo units in this city in the past 15 years. And since the recession of 2008, Toronto is one of the few major city's in the world that seemed to have a stable housing market. So, foreign investors came here to purchased a condo for themselves or as an investment. Toronto even had the distinction of having more condo's built in one year than any where else in North America. So, with that demand came a huge increase in the number of condos going up in this city.

The foreign investors came from Asia, Russia and the Middle East, to name a few, but now they are not coming here as much. Other cities around the world are rebounding from a worst recession than Toronto experienced. So these days Miami and London are becoming great places to invest again because the values of their properties have fallen and are now turning a corner. Toronto may seem stable but we're not bargain basement prices after a massive market correction.

It appears as if the fuel that fueled the condo boom in this city is running dry though. It would seem like a guarateed recipe for a crash, but a real crash would have foreign investors trying to sell of the condos they have bought, and that does not seem to be the case right right now.

The thing is, there is another big shift happening in Toronto. There is a huge rental demand.  Very few rental units are being built, and many condos are picking up the slack of that demand. So luckily, many of these condos that are bought by investors, foreign or otherwise, can be rented out. And rents have gone up considerably in the past few years.

This drop off in foreign demand, though, will change how condos are built in the future. First, there will simply be less demand. So, fewer condos will be built. We can't have the distinction of having the most condos built on the continent every year. And future demand will likely focus more on meeting the demands of local buyers and investors. So, building high rise condos may not be necessary, since there will be a smaller demand for condos.

Secondly, the Official Plan of the city would like us to keep new properties along most major commercial streets designated as "avenues" to be between 4 to 8 stories. There are exceptions to this rule. You can, for example, build much higher in certain parts of downtown. Still, when most streets are designated to have 4 - 8 stories built on them, that does limit your options.

So, without the demand from foreign investors and the Official Plan of the city keeping the number of stories to a minimum, we will see a lot fewer high rises and a lot more midrises. Toronto will continue to densify, but not at the rate we have been seeing. Maybe it's not so much the end of the high rise. They'll keep coming, albeit at a slower rate, but it is the rise of the Midrise! Sure they don't add much to the skyline, but they do fit in very well with already existing neighbourhoods and fit the scale of the buildings around them.