Baby, we got a bubble!?

[ILuvTO]

ILuvTO wrote:
"I recently started reading a great book called Real Estate Investing in Canada by Don Campbell. This guy is a very successful RE investor that stresses positive cash flow as well as using as little of your money as possible to purchase property (this is why I also shake my head at the thought of putting 50% down just to create positive cash flow). Makes sense to me, but apparently not everyone agrees."

I referred to this basic concept on this forum several days ago (POL, power of leverage). I admit I was a bit cynical ... used it in a negative way. Why? Not because I don't believe in it (I used it myself) but because one needs to be really careful with it. And many r/e agents will try to convince you of its merits even in the present market conditions, while not disclosing the downside. In short, make sure you're not swimming naked when the tide goes out! And be very, very careful to analyzie all aspects of your investment before you pull the trigger. I know it sounds a bit corny but here it comes: leverage is a mother of all evil (Gordon Gekko .. hahaha). Cheers

Very true. You never want to over leverage yourself. But the idea of putting down a huge downpayment just to create positive cash flow is not something I agree with either. There is definitely a happy medium somewhere that makse good financial sense.

Strikes me as a fraud/salesman. Were he actually a 'very successful RE investor' he wouldn't be peddling his wares across the country. The former should generate a exponentially more cash flow for him that the latter, particularly in small market Canada, and especially if he employs his patented 'maximum leverage' techniques,



In my opinion you misread KA1's comments. He has a very sharp sense of wit that perhaps you haven't picked up on. He furthermore possesses a wealth of experience and knowledge that can only be earned not acquired. Pay attention carefully to his words.

As far as investing for cash flow v. appreciation my brief comments are simply that I always invest with a plan and then stress test the sh*t out of my plan. It's always 90% luck anyway of course but I want to ensure that the 10% that I can control is as tight as possible. If your plan is simply 'real estate never goes down in value' or '100,000 immigrants move to Toronto every year' (untrue btw) I suggest that your plan is flawed. It may be a good excuse to open a Tim Horton's franchise at Yonge and Bloor but it's not a wise investment strategy imho.

btw, ILUVTO 2.

The thing I like about the Don Campbell book so far is that he actually lays out a strategy with real numbers and examples of what a good investment should look like. He doesn't rely on mythical Asian investors or a mass influx of immigrants to make the investment work. One thing I will say is that he too also relies on price appreciation to realize the big win in the investment. It's just that he stresses against purchasing properties that provide negative cashflow on a monthly basis. In terms of his success, I can't comment on that. But many successful people have "peddled their wares" before. No matter how much money you have, it's never enough.

 

[cdr108]

Very true. You never want to over leverage yourself. But the idea of putting down a huge downpayment just to create positive cash flow is not something I agree with either. There is definitely a happy medium somewhere that makse good financial sense.

IMO, if an investment property with a max of 25% dp does not provide +ve cashflow, then it doesn't make sense.

anything more than 25% is a waste of capital that could be used better otherwise.

 

[adeel]

personally id say 20% max DP...if it doesnt make sense at that point then move on

 

[cdr108]

Home ownership harder in first-quarter as prices rise, mortgage rates flat: RBC

The Canadian Press, On Friday May 20, 2011, 8:32 am EDT
By The Canadian Press

TORONTO - Home ownership became less affordable during the first quarter, especially in Vancouver where it took nearly three-quarters of family income to pay for mortgages, property taxes and utilities, according to an RBC Economics report.

RBC said that while a detached bungalow in Vancouver ate up an average 72.1 per cent of income, up 3.4 percentage points, while costs in other major Canadian cities were also on the rise.

In Toronto, housing expenses ate up an average of 47.5 per cent of income (up 0.8 of a percentage point), while in Montreal it was 43.1 per cent (up two percentage points), and Calgary devoured 35.9 per cent of income (up 0.9 of a percentage point).

Other key cities like Ottawa expenses took 39 per cent of income (up 0.4 of a percentage point) and in Edmonton it was 31.5 per cent (up 0.5 of a percentage point).

The bank's affordability scale, which measures the proportion of pre-tax household income needed to pay mortgages, finds that all three major housing types were less affordable in the first quarter.

The amount of income taken up by housing costs on a detached bungalow rose 0.7 of a percentage point to 40.5 per cent. The figures for a standard two-storey home and a condominium both rose 0.2 of a percentage point to 46.2 and 27.7 per cent, respectively.

The association said national sales activity in each of the first three months of 2011 ran close to five- and 10-year monthly averages. However, home prices were up about eight per cent from the year earlier.

That followed an easing of the burden in the second half of 2010, largely due to falling long-term mortgage rates.

Home ownership costs could continue to rise as the Bank of Canada is expected to soon resume raising short-term interest rates, but expected growth in household incomes will likely soften the blow, said senior economist Robert Hogue.

“Interest rates will likely soon start to rise again, leading to a period of steady increases in homeownership costs. This, in turn, will contribute to a flattening in Canadian housing demand going forward,†said Hogue.

“We could experience some turbulence this spring and summer, given that new tighter mortgage lending rules in March and April likely shifted home buying activity to earlier in the year.â€

Home owners in British Columbia, where sales of multi-million dollar homes are surging, particularly in Vancouver. Quebecers also saw noticeable rises in home ownership costs.

The picture was mixed in other parts of the country, with Ontario, Alberta and Saskatchewan seeing ups and downs, depending on the housing type.

“Despite the latest erosion in affordability, provincial levels generally continue to stand near their long-term averages, suggesting that owning a home remains affordable or, at worst, slightly unaffordable across Canada – with Vancouver being a notable exception,†Hogue said.

 

[TCW]

BoC should raise interest rates to curb inflation: OECD
http://www.ctv.ca/CTVNews/Canada/20110525/bank-of-canada-oecd-report-110525/

 

[Eug]

Competition Bureau sues Toronto Real Estate Board.

http://www.theglobeandmail.com/repo...ues-toronto-real-estate-board/article2037341/

Excellent.

 

[Eug]

So my sis went shopping for a condo today. She wants a big place, 2 bedroom, or 2 bedroom + den, downtown, and she likes luxury buildings.

She's looking the $600/sq. ft. range, and one nice place got listed yesterday.

She liked the place and asked me to have a look at the pix. Then I went out to do some yard work. When I came back, it was already sold.

 

[interested]

Eug,
I think the devil is in the detail: "One nice place got listed yesterday".

I think people looking go and bid right away on new listings, at least those who are serious and know what they want.

 

[redfirm]

So my sis went shopping for a condo today. She wants a big place, 2 bedroom, or 2 bedroom + den, downtown, and she likes luxury buildings.

She's looking the $600/sq. ft. range, and one nice place got listed yesterday.

She liked the place and asked me to have a look at the pix. Then I went out to do some yard work. When I came back, it was already sold.

Can you please provide some details? Size, building, location?

 

[cdr108]

So my sis went shopping for a condo today. She wants a big place, 2 bedroom, or 2 bedroom + den, downtown, and she likes luxury buildings.

She's looking the $600/sq. ft. range, and one nice place got listed yesterday.

She liked the place and asked me to have a look at the pix. Then I went out to do some yard work. When I came back, it was already sold.

luxury and downtown @ $600 / sq.ft. seems like a steal if it's truly luxury and downtown so i wouldn't be surprised if it was picked up asap.

just the average dt Toronto condo products like X, RoCP, 8 Yorkville, Met, etc are all around $550-600 psf.

 

[KA1]

luxury and downtown @ $600 / sq.ft. seems like a steal if it's truly luxury and downtown so i wouldn't be surprised if it was picked up asap.

just the average dt Toronto condo products like X, RoCP, 8 Yorkville, Met, etc are all around $550-600 psf.

RoCP1, where I live in, is going for $ 650 psf. Units on the higher floors are even more expensive.

 

[interested]

I think by $600 Eug was referring to "upscale" rather than true luxury. Remembering that smaller units generally command a bit higher price/square foot in the same building than larger ones, this maybe what Eug was eluding to.

One would have to note that the average "new" product in the core I believe I read was approximately $750/sq.ft.

Perhaps the $600/sq.ft. was for a finished larger suite and maybe priced to get either a bidding war or underpriced to get action.

What would be interesting would be to hear what it sold for.

 

[Eug]

This was actually a quite a big unit, hence the "bargain" pricing.

1498 sq. ft. for $924000 ($617 per sq. ft.) in the condos that are connected to the Thompson Hotel, with private access to the hotel pool and pool bar (as well as lounges and restaurants). To me, that definitely qualifies as luxury, but your definition may differ. It sold for the asking price. (It was listed yesterday, but with no fixed bid date. So it doesn't seem to me like it was really their intent to push hard for a bidding war. Usually if they want to encourage a bidding war, they'd have a fixed bid date 1 week after listing.) I think it included both parking and a locker too.

My sis was saying that some similar units in the area were listed for more, but just didn't sell. However, I don't know any details about those.

P.S. In my area a tear down lake front bungalow (Bluffs) just went for 18% more ($864000) than a similar tear down on the same street from three years ago (~$700000). I'm not surprised it went for more than the $729000 it was advertised for, but I might have guessed it would have gone for something more like $750000-$800000 - on a good day if the stars were aligned - not $864000. That's $135000 over asking. Mind you, it's in good company, as just next to it are two modern very big waterfront homes (which are also rebuilt teardowns).

 

[interested]

The Thomson is in King West and outside the "core" which I believe but could be wrong is bounded essentially by Spadina to the West. King West If I recall is selling around $650/sq.ft. I just can't remember where exactly I saw the break down hence I am going from memory. I believe it was in a newspaper article last week in either The Star, Post or the Globe and Mail. Perhaps because it is so large a unit as you say, the price/foot is a bit lower. As well, while the Thomson hotel has "cache" to it, I don't believe that one would call Freed's developments luxury, rather I would call them "upscale". Not to suggest that it is not a beautiful spot and a good development but I think the same thing in the "core" would likely have sought an additional $100/sq.ft.

That said, we must remember there is still a premium being sought for preconstruction and the prices I was quoting are for new construction condos. I appreciate this building is "new" but it is already built and so it is priced at todays prices rather than still allowing for "future appreciation".

 

[Eug]

Maybe I'm biased, since I used to live near Bathurst, but I nowadays consider the ("extended"?) downtown out to Bathurst. Actually when I bought I got it partially because it was outside the core, and the shops were more interesting, etc., but now Queen from Spadina to Bathurst is in some ways much like Queen east of Spadina used to be.

Anyways, tomorrow we're gonna check out Tip Top, for a place that's almost 1800 sq. ft. at about $632 per sq. ft. Condo fees are 58¢ per square foot. Personally, I'm not convinced it's worth $1.13 million, but then again anything that is over $500 per sq. foot is too pricey for my preference.