Baby, we got a bubble!?

[interested]

CDR, I think we are saying the same thing.

Either 1-5 years old or 20 years old, well run and with good reserve fund.

 

[Condo George]

Problem with 20 yr old is features and finishes and energy efficiency that usually translates into a much higher maint fee which will always hinder value moving forward. Look at Bay St for ex. College Park commanding $600s per sq ft and 20 yr old tower on same block on Bay at $450 and has not appreciated much over the years.

New is always in demand in key locations.

Whats the maint fee is scares buyers in the 20 yr old comparable

 

[cdr108]

Problem with 20 yr old is features and finishes and energy efficiency that usually translates into a much higher maint fee which will always hinder value moving forward. Look at Bay St for ex. College Park commanding $600s per sq ft and 20 yr old tower on same block on Bay at $450 and has not appreciated much over the years.

New is always in demand in key locations.

Whats the maint fee is scares buyers in the 20 yr old comparable

features will be known when one assesses the condo ... if it works for you then great, if not, next !

finishes can always be upgraded/renovated for substantially less than what every pre-construction asks ...
retail for 3 s/s appliances - $3500; condo upgrade like at X for basic North American s/s from black - $8000

many older condos are upgrading their building mechanicals (per condo act after x years) with energy efficient options, and amenities with their condo reserves

 

[paperchopper]

Sigh, I'm not going to argue with any of you, but as I stated before, if you can purchase a property and break even and hold it, you generate wealth by fulfilling someone's need for a roof over their head. This is how virtually all RE investors have made their money. The flippers, the few, have made money off fool's back, but as we've seen during the last few collapses the vast majority of them are bankrupt and, a significant portion, homeless and living rough.

If you purchase property blindly in the hopes of generating wealth by signing a few cheques without realizing the risks you are taking on, you deserve every little thing coming towards you, and more. See how Americans treat underwater 'homeowners'-- 'Morons' would be a quite common term. No sympathy for being a fool and buying a brick tomb and enslaving yourself for 35 years.

Anyways, people have to realize that real estate in the long term matches inflation. Appreciations and depreciations are the result of booms and busts in RE cycles, which are very, very well documented. Wealthy individuals purchase hard assets, ie real estate, as a store of wealth because even in times of inflation, the biggest risk factor to maintaining generational wealth, housing holds its value.

When you purchase RE at a 0-7% downpayment, you are not investing in real estate-- you are speculating in a highly, highly leveraged futures trade. The bank will gladly take the other leg of that trade, considering it's literally of no risk to them (thanks to the CMHC).

As far as the RBC 'housing affordability index' goes, if you read that and got a warm and fuzzy feeling, and coincidentally felt bullish about 'investing' in RE, then you are a fool. RBC is the biggest mortgage lender in Canada. They want you to buy property, because they make ridiculous profits with no risk to them. Furthermore, that index should scare the hell out of you, because that's pretax income. The average house in Toronto costs, what, 550k? And requires an income of 120k? Yet it consumes 55% of pre-tax income. At 120k, your taxes are 30k. So out of your monthly disposable income of 7,000, you're paying 5,500 a month for housing. Leaving you 1,500 for child care, car insurance, car lease payments, gas, food, clothing, laundry, cell phone, tv, RRSP's, etc.

In Vancouver, it takes up 70% of pre-tax income, and an average house requires 150k. Post-tax, you're taking home 103k in BC. That's 8,500 a month post-tax. Yet housing costs are........ $8,750?

But if you were reading carefully, you'd have realized I was using the minimum qualifying income instead of the average. Good catch. But now, let me ask you this, how are these people getting these mortgages, when the banks themselves have a limit of a 32% debt-to-income ratio? And besides, the ratios are relatively the same for my considerations... housing costs are now virtually 100% of take-home pay.

That is the scariest part. People are in over their heads, and a little rise in interest rates or a tanking economy (and more unemployed) will absolutely devastate Canadian RE & the Canadian economy...

If you want to generate wealth, help accelerate the bubble, and short Canadian RE. It can be done (I'm doing it as we speak ).

 

[marsh]

Cate,

I'm not an investor but I think it would be very difficult to predict the % differential decline in a bubble between pre-con and older condo buildings. It wasn't clear to me whether you are looking to buy strictly as an investor or primarily a place to live and have a roof over your head. I think those are two very different decisions and would dictate your purchase strategy. I pesonally don't like new buildings - 7 years ago I had choose between a new condo or older condo and chose the latter. I found even 7years the difference in price was quite significant for the square footage that you got and it seems that things have only gotten worse. That being said, I agree with the other comments that with an older building it is important that it has been well managed and has a healthy reserve fund. Also the units themselvs often have to remodeled/upgraded so you need the funds and patience to deal with renovation. So again I think it goes back to your primary purpose - place to live or place to invest and your preferences.

 

[cat]

Sigh, I'm not going to argue with any of you, but as I stated before, if you can purchase a property and break even and hold it, you generate wealth by fulfilling someone's need for a roof over their head. This is how virtually all RE investors have made their money. The flippers, the few, have made money off fool's back, but as we've seen during the last few collapses the vast majority of them are bankrupt and, a significant portion, homeless and living rough.

If you purchase property blindly in the hopes of generating wealth by signing a few cheques without realizing the risks you are taking on, you deserve every little thing coming towards you, and more. See how Americans treat underwater 'homeowners'-- 'Morons' would be a quite common term. No sympathy for being a fool and buying a brick tomb and enslaving yourself for 35 years.

Anyways, people have to realize that real estate in the long term matches inflation. Appreciations and depreciations are the result of booms and busts in RE cycles, which are very, very well documented. Wealthy individuals purchase hard assets, ie real estate, as a store of wealth because even in times of inflation, the biggest risk factor to maintaining generational wealth, housing holds its value.

When you purchase RE at a 0-7% downpayment, you are not investing in real estate-- you are speculating in a highly, highly leveraged futures trade. The bank will gladly take the other leg of that trade, considering it's literally of no risk to them (thanks to the CMHC).

As far as the RBC 'housing affordability index' goes, if you read that and got a warm and fuzzy feeling, and coincidentally felt bullish about 'investing' in RE, then you are a fool. RBC is the biggest mortgage lender in Canada. They want you to buy property, because they make ridiculous profits with no risk to them. Furthermore, that index should scare the hell out of you, because that's pretax income. The average house in Toronto costs, what, 550k? And requires an income of 120k? Yet it consumes 55% of pre-tax income. At 120k, your taxes are 30k. So out of your monthly disposable income of 7,000, you're paying 5,500 a month for housing. Leaving you 1,500 for child care, car insurance, car lease payments, gas, food, clothing, laundry, cell phone, tv, RRSP's, etc.

In Vancouver, it takes up 70% of pre-tax income, and an average house requires 150k. Post-tax, you're taking home 103k in BC. That's 8,500 a month post-tax. Yet housing costs are........ $8,750?

But if you were reading carefully, you'd have realized I was using the minimum qualifying income instead of the average. Good catch. But now, let me ask you this, how are these people getting these mortgages, when the banks themselves have a limit of a 32% debt-to-income ratio? And besides, the ratios are relatively the same for my considerations... housing costs are now virtually 100% of take-home pay.

That is the scariest part. People are in over their heads, and a little rise in interest rates or a tanking economy (and more unemployed) will absolutely devastate Canadian RE & the Canadian economy...

If you want to generate wealth, help accelerate the bubble, and short Canadian RE. It can be done (I'm doing it as we speak ).

Well balanced discussion guys - thank you.

I'm curious papperchopper, how exactly are you shorting Cdn RE? Short the builders, Inc trusts (can that be done?). I didn't think that a US style credit default swap mechanism process existed in this county. Nor do city "housing indices". Please correct me if I'm wrong.

Perhaps this is also a question well-suited for urbandreamer's expert input.


Best - Cate

 

[cat]

I'll hazard a few guesses. New because it goes up more and costs more means that it likely will lose more.

That said, a building must be maintained, if not, in a down market, it will be unsellable. I think you are safer with slighly new, by this I mean a building perhaps 2-5 years old for a few years. Unlikely to have major expenses, still modern, and the new premium for future growth should be out of the price.
Location is always important. So desirable areas will decrease less I would believe.

On the other hand, a 20 year old building has expenses but if good reserve fund and well run/maintained, you get good value and have protection on the downside.

At least that would be my guess.

Hope this helps.

Good luck Cate.

Thanks interested.

Interesting that you should mention this. Brad Lamb seems to have a habit of buying to live (mainly his own developments), then sells and buys another to live - just about at the "expiry" of the future premium. To my knowledge, he has done this (at least) 3 times.

 

[interested]

Well balanced discussion guys - thank you.

I'm curious papperchopper, how exactly are you shorting Cdn RE? Short the builders, Inc trusts (can that be done?). I didn't think that a US style credit default swap mechanism process existed in this county. Nor do city "housing indices". Please correct me if I'm wrong.

Perhaps this is also a question well-suited for urbandreamer's expert input.


Best - Cate

Cate, I will let UD or Paperchopper handle how you short the market. One obvious way would be to short stores like Home Depot or Lowes or Rona which cater to building and renovations since if the R/E market goes down, people do not renovate/build.

As well, you could short the banks if you accept that the Banks make a large amount of profit from mortgages which they do. My suggestion here is that they will find other revenue sources and that might be a risky strategy.

As will anything, if you short the market, you have to be a sophisticated investor as if correct, you make a fortune, if wrong, you lose your shirt.

I think it is fair to be skeptical of the R/E market. Most of us are.

You said you wanted to buy to live.

I think the take home point of this if you absolutely want to buy and not rent at this point is: 1)buy a good value, not based on highly speculative future value of the current new condo market.
2) If you can get at around $450-500/sq.ft. in downtown a relatively new desirable building and are prepared to ride it out for a number of years, that is only a decision you can make. So long as you will not lose sleep if it descends up to say 25% and have enough equity, you should be OK in my opinion. While Paperchopper and others are predicting more than this, I think it will be less. However, you will be totally paralyzed if you plan for more than 25% and frankly, if you believe that, then this should override the decision to buy anyhow. One could effectively argue that the decision to buy should be overridden if you believe prices will just drop but people buy houses for more than their investment potential (though this should of course be considered).

Even well run 20 year old buildings have higher condo fees, especially of late that they have to add the HST (the further 8%) to their reserve fund calculations. My mother lives in a superb building, close to 30 years old. Large space: Selling for $400-500 / sq. ft. on Bloor street. The operating budget went up 0.25% this year. However, to fund the Reserve fund, 12% increase so a net of just about 4% increase in condo fees. They have now reached 60 cents. I say again, this building is well run and holds value quite well.

3) One final point, as CDR tried to point out. If the difference is for eg: $450 vs. $600 new based on say 700 sq.ft., then you are talking about $300000 vs. $420000. It takes alot of appreciation to make up say 10 cents/sq.ft/month condo fees of $70/month or $840/year. Further your tax difference on $120000 will be $1000/year. So ask yourself if you think the new is going to appreciate enough to offset this. Of course I realize there may be special assessments etc but the bottom line is that I agree with Paperchopper on one point and that is that I would not be looking at appreciation as a driving point at this time. If you get it, all the better but not an sound investment strategy.

So again just to be clear: If you have decided to buy and you feel you absolutely wish to do this at this time as a place to live primarily and not as an investment(though realizing it is none the less a huge investment for you):
Buy 2-5 years old (once you see condo fees being stable for a couple of years or have an idea) and you get a good price that has taken out the new premium or alternatively buy in a good/well maintained/well run/proper reserve fund building that is around the 20 year mark. Much smaller appreciation potential on the latter but more than made up by the extra space or alternatively cost/foot savings.

 

[interested]

Thanks interested.

Interesting that you should mention this. Brad Lamb seems to have a habit of buying to live (mainly his own developments), then sells and buys another to live - just about at the "expiry" of the future premium. To my knowledge, he has done this (at least) 3 times.

You are correct and despite what everyone says about him: good or bad, I know Brad Lamb. He in fact was my agent (when he still did such mundane tasks) and showed me the buildings in downtown that were good 16 years ago. Of all the real estate agents I have met, and I have met many in the past, I will grant him he was the best, most straight talking and most informed agent I have dealt with. We were done in 2 outings having boiled it down to 5 buildings and 8 units. Done in 2 days and to this day I do admire that.

Yes, what has worked to date has been buy on paper: then prices increase. Move in therefore solidfying your gains as your principal residence, and then selling when there is less appreciation available and moving to the next project. Remember however, BJL builds and hence can buy in his own projects and gets value you or I cannot get.

Also, while this strategy worked in the past with an increasing market, if you believe as I do that we are tapped out and will decline, it clearly won't work going forward. Therefore the downside protection is to remove that new premium.

Again, only you can decide if you like older/newer buildings. Ask yourself one question as well when you buy. Alot of amenities are offered in new buildings but are you going to use them because remember you are going to pay for them no matter what. So if you want a swimming pool because you swim, then great, but otherwise, you are paying alot to say the building has a swimming pool (when in fact studies show less than 1-2% use them when in the building).

Once again, all the best of luck Cate. If you don't mind, let us know what your final decision was.

 

[CN Tower]

Yes, what has worked to date has been buy on paper: then prices increase. Move in therefore solidfying your gains as your principal residence,.

It's 99% about the principal residence exemption.

You are correct and despite what everyone says about him: good or bad, I know Brad Lamb. He in fact was my agent (when he still did such mundane tasks) and showed me the buildings in downtown that were good 16 years ago. Of all the real estate agents I have met, and I have met many in the past, I will grant him he was the best, most straight talking and most informed agent I have dealt with. We were done in 2 outings having boiled it down to 5 buildings and 8 units. Done in 2 days and to this day I do admire that.

Sounds like a better deal for him that you- 2 days and his client finds a property and he collects a 2.5% commission. Not bad. Most agents have to spend weeks or months looking diligently for their buyers.

In my limited experience with his office (not him personally) I found the firm to be the most unethical residential real estate agency that I have come across in Ontario. Other provinces have much lower standards I find. I'm sure it starts from the top down.

 

[CN Tower]

Forgive me - I have some very stupid questions. My apologies if this subject belongs elsewhere on the forum (where?)

I am trying to assess the probability of the % differential in bubble decline (assuming it occurs/continues) between pre cons, new(er) builds, and older buildings (say 10+yrs).
If I need to buy to live and want to minimize my downside risk, which of the above 3 options would decline the least? And why?

For "older" buildings in desirable d/t core nabes, what kind of difference should I reasonably expect to see in a building which has maintained its CAPX vs. one whose maintenance has been neglected.

Am I better off purchasing older, well maintained resale? How well do older condos maintain their value, and what's/when's the optimal bailout exit strategy?

Many thanks - Cate

Easy. Buy into a condo that is predominantly owner occupied and you will see the best value retention. This is exactly what happened in Florida after the crash. Owner occupied buildings only dropped 20%-25% instead of 40%-50%.

Age makes no difference- it's factored into the price. You should however take a good look at the financial condition of the building to ensure that there aren't any large capital expenditure items on the horizon that will bite you in the butt.

 

[CN Tower]

Problem with 20 yr old is features and finishes and energy efficiency that usually translates into a much higher maint fee which will always hinder value moving forward. Look at Bay St for ex. College Park commanding $600s per sq ft and 20 yr old tower on same block on Bay at $450 and has not appreciated much over the years.

New is always in demand in key locations.

Whats the maint fee is scares buyers in the 20 yr old comparable

More self-serving rhetoric from the ridiculously conflicted industry talking head.

George, from now on you should add a disclaimer to your signature:

"Please note: I derive the bulk of my income from selling pre-construction condos. Have a nice day."

 

[interested]

It's 99% about the principal residence exemption.



Sounds like a better deal for him that you- 2 days and his client finds a property and he collects a 2.5% commission. Not bad. Most agents have to spend weeks or months looking diligently for their buyers.

In my limited experience with his office (not him personally) I found the firm to be the most unethical residential real estate agency that I have come across in Ontario. Other provinces have much lower standards I find. I'm sure it starts from the top down.

I am sorry about your experience. After discussing with him my needs/desires: we boiled it down to 5 buildings. Saw the 5 buildings, 8 units. Decided on the 1 that was appropriate. Yes he made his money quickly. However, he negotiated effectively for me. He was just very knowledgeable. And I have no vested interest to say that.

That said, I have read quotes in the paper in the past few years where he comes off as pompous, self serving and cold hearted. I don't know if that is true now or if the reporters choose to paint him in that light.

I would state that buying a condo 15 years ago was easier. Less of them. A limited number of buildings in the mid/downtown area had excellent reputations, and we could limit our search. But we had a relatively small perimeter to look at. It went quickly because I gave him a budget, he stuck to it, showed me things that were at the budget or slightly above which he thought we could purchase for the budget. that is in fact exactly what happened.

Anyhow, I deal with an agent in his office to rent a couple of units we have in the core. She is very professional and a pleasure to deal with and thorough. No complaints though having seen Big City Broker occasionally, alot of them come off as self centered egotistical unprofessional individuals. Perhaps it is just being aggressive but I did not find that at the time with Brad nor with my present agent for rentals.

 

[interested]

More self-serving rhetoric from the ridiculously conflicted industry talking head.

George, from now on you should add a disclaimer to your signature:

"Please note: I derive the bulk of my income from selling pre-construction condos. Have a nice day."

CN Tower,
I think CG should state he is an agent. That said, I think he has made it clear in alot of posts. Yes, of course he must necessarily be conflicted because if not, he would be wilfully advertising his own demise.
However, in an effort to be fair, it would be disingenuous to state that maintenance fees on older buildings are not a consideration.
That said, from the argument both you and I presented to Cate on this forum recently, it can/should be counterbalanced by either extra space, or cheaper taxes.

 

[ILuvTO]

Easy. Buy into a condo that is predominantly owner occupied and you will see the best value retention. This is exactly what happened in Florida after the crash. Owner occupied buildings only dropped 20%-25% instead of 40%-50%.

How can one determine which buildings are predominantly owner occupied?

Thanks for your help.