Baby, we got a bubble!?

[interested]

Based on the news reports, I am guessing that will not be the case. Alan Menkes was interviewed on BNN and while I did not catch it all he suggested it will be a Saudi family that plans to spend considerable time here. If it was a sale to one of the principals, I would think that would come out eventually and ultimately after some publicity would just blow up in 4S's face. So, I don't think it will turn out to be that. Now, it could be a related party cdr suggests (perhaps cousin etc) but why would one not have the Saudi person buy it at full value of $30Mill without a discount if it was in fact one of the principals if the idea was to prove that the TO market is "truly world class"?

I guess those other billionaires waiting in the wings better buy the SL penthouses before they disappear. LOL.

I think Trump's penthouse is owned by one of the principals though I believe the Ritz (which seems like a veritable bargain) may in fact have been bought by an "outsider".

 

[redfirm]

He could have bought anywhere.....Manhattan, Dubai, Hong Kong, Singapore etc. Why here in Toronto? Think about it............Trump, Ritz, Shangri La, Four Seasons invested millions on condo here, why?

Toronto is fast becoming a global powerhouse!

CG, not sure I understand your comment - are you saying that T.O. is becoming world class and therefore there will be no r/e price adjustment? Because we have 4 luxury towers in a city of 5-6 million we are now safe? I don't think anybody here is disputing that Toronto is maturing and growing (although still far away from true world-class, lets not kid ourselves!). But if I can't buy an average 2 bdrm condo with 20% down and make positive cash flow - sorry, I don't think this Saudi prince is going to help average Joe ....

 

[dlam]

CG, not sure I understand your comment - are you saying that T.O. is becoming world class and therefore there will be no r/e price adjustment? Because we have 4 luxury towers in a city of 5-6 million we are now safe? I don't think anybody here is disputing that Toronto is maturing and growing (although still far away from true world-class, lets not kid ourselves!). But if I can't buy an average 2 bdrm condo with 20% down and make positive cash flow - sorry, I don't think this Saudi prince is going to help average Joe ....

Being a world class exactly means that average joe will not be able to buy 2 bedroom condo with 20% down and make positive cash flow. Try finding that in Manhattan or Hong Kong, you certainly will not find it with a $55,000 CDN/yr average salary. Beginning to be the same in Toronto. Is an average Joe entitled to be able to buy a 2 bedroom condo? I don't think so. There are many other (cheaper) options than condos.

Nowadays, young professionals and new graduates have little chance to own a property on their own without the help of their parents.

 

[redfirm]

Being a world class exactly means that average joe will not be able to buy 2 bedroom condo with 20% down and make positive cash flow. Try finding that in Manhattan or Hong Kong, you certainly will not find it with a $55,000 CDN/yr average salary. Beginning to be the same in Toronto. Is an average Joe entitled to be able to buy a 2 bedroom condo? I don't think so. There are many other (cheaper) options than condos.

Nowadays, young professionals and new graduates have little chance to own a property on their own without the help of their parents.

Really? So landlords in world class cities are all losing money? Or in other words, there's no point investing in r/e in world class cities? Interesting .. so why do we have 60% of our condos sold to investors? I'm confused: are we or are we not world class?

 

[dlam]

thing is, investors can make money with or without tenants. rental investment property doesn't really generate positive cash flow anymore, but it does help minimize forking out more money even though you are essentially paying someone to live in your condo. but sitting on the condo for a year or two, you can make 30-40k which outweighs the couple hundred you need to fork out each month. in the end, you still make money. that's why investors are still buying and the toronto is still hot

 

[interested]

I think there may be some merit to both arguments of redfirm and dlam.

I believe that many purchased real estate at prices that were much lower than today in these world class cities.

We have all had the discussion already about whether buying real estate solely for price appreciation is reasonable. So far in Toronto, Vancouver, it has. In other cities (world class ones) they have had a significant hit to their prices but a number have totally recovered. Manhattan and Hong Kong are very much more limited as to space than Toronto. Vancouver has more limited room and is appealing to a demographic that is basically excluding all but the most wealthy of local Vancouveranites.

I am not sure however that there are very many "investors" buying in world class cities today to rent out. Rather, I believe it is mostly in the hands of "older money" that invested before it passed the realms of present prices. End use buyers is another story.

In fact, I guess one could apply this argument to say that if Toronto is truly to be world class, it will continue to escalate but no longer be a place for "investors" who should make a rational choice to purchase in another location "destined" to be up and coming.

 

[interested]

thing is, investors can make money with or without tenants. rental investment property doesn't really generate positive cash flow anymore, but it does help minimize forking out more money even though you are essentially paying someone to live in your condo. but sitting on the condo for a year or two, you can make 30-40k which outweighs the couple hundred you need to fork out each month. in the end, you still make money. that's why investors are still buying and the toronto is still hot

I would suggest that this thinking is more gambling or speculating. Unless one has a crystal ball, most investments should have an exit strategy. What is the strategy if prices stall or worse, drop?

 

[redfirm]

I think there may be some merit to both arguments of redfirm and dlam.

I believe that many purchased real estate at prices that were much lower than today in these world class cities.

We have all had the discussion already about whether buying real estate solely for price appreciation is reasonable. So far in Toronto, Vancouver, it has. In other cities (world class ones) they have had a significant hit to their prices but a number have totally recovered. Manhattan and Hong Kong are very much more limited as to space than Toronto. Vancouver has more limited room and is appealing to a demographic that is basically excluding all but the most wealthy of local Vancouveranites.

I am not sure however that there are very many "investors" buying in world class cities today to rent out. Rather, I believe it is mostly in the hands of "older money" that invested before it passed the realms of present prices. End use buyers is another story.

In fact, I guess one could apply this argument to say that if Toronto is truly to be world class, it will continue to escalate but no longer be a place for "investors" who should make a rational choice to purchase in another location "destined" to be up and coming.

Dlam is talking about flipping. Its like discussing the merits of gambling with somebody. No prudent investor will ever do that. What happens to all these condos like Cityplace, Waterpark, etc. So 60% of these are bought by flippers, who are going to sell them in 2 years to some other flippers (because according to Dlam average Joe will be priced out and won't be a factor) who in turn will resell in another 2 years to some new flippers .... from now to eternity? And nobody makes positive cash flow in this story? THIS IS A DEFINITION OF R/E BUBBLE.

 

[interested]

Also the definition of a Ponzi scheme.

 

[redfirm]

Also the definition of a Ponzi scheme.

Bingo!

 

[dlam]

Dlam is talking about flipping. Its like discussing the merits of gambling with somebody. No prudent investor will ever do that. What happens to all these condos like Cityplace, Waterpark, etc. So 60% of these are bought by flippers, who are going to sell them in 2 years to some other flippers (because according to Dlam average Joe will be priced out and won't be a factor) who in turn will resell in another 2 years to some new flippers .... from now to eternity? And nobody makes positive cash flow in this story? THIS IS A DEFINITION OF R/E BUBBLE.

i am aware of this and i know it can not be sustainable. but that doesn't take away the fact that investors in the past 2 years have made good money.

i am in the boat of the average joe trying to buy a condo right now. i cannot afford a 2bedroom. so i am looking for older apartments that are 1+1. i am facing this steep housing market everyday. the math doesn't make sense to buy and rent it out completely. so i look for ways to buy and rent out the bedroom while myself living in the den bedroom. and oh yea, i can't do this without help in down payment.

 

[cdr108]

ditto the last few comments by interested and redfirm.

dlam, what you're describing is pure speculation.

Real Estate Speculation In Hot Markets

Article Source: http://EzineArticles.com/435180

Why real estate speculation? You can make a lot of profit in a year or less if you have your timing right, especially if you have your cash split into small down payments on many properties. Of course it is easy to guess wrong when it comes to future price appreciation, and this can mean you get eaten alive by expenses on properties that don't go up in value fast enough.

This is a common method of investing when times are good. It is also very risky. The idea is simply to buy at a reasonable price and count on rising values to make you some money within a few months or a year. Often people who invest this way are losing money from month to month on their investments, planning on the profit when they sell to easily cover those losses.

When we moved to Tucson in 2004, the prices of homes had been going up by more than 20% annually for several years. Homes that cost $200,000 rented for as little as $650 per month. Even small apartment buildings were so overpriced that actually getting cash flow was just a dream.

There were hundreds of investors who were buying properties like these that made no financial sense. Upon purchasing them, they immediately had to start shelling out hundreds of dollars per month to hold onto them. Why did they do it? Because they could sell the home for $50,000 more within a year or so.

Of course, by 2006 prices stopped going up. What do you do when you bought a property that has a negative cash flow of hundreds of dollars per month, and the value stops rising? Well, hopefully you find a creative solution, but most often, you simply lose money. This is a risky game.

On the other hand, it is hard to convince those that made money this way that it was a bad idea. The real question, then, is how do you predict a fast rise in values? At the time we moved from Tucson (2006), everyone in our real estate investing club, including all the wealthiest and most experienced investors, were convinced that prices would continue to rise, so this may not be an easy task.

One way is to stop looking at the trend, which after all, can change starting next month, and is only a trend after it happens. More important may be a look at the job creation in the area, which drives the demand for housing and other real estate. A real estate boom may pass a city by if there is no growth in jobs, and therefore no growth in population.

Another important thing to watch is the direction of interest rates. As they fall, prices can easily go up without houses actually becoming less affordable. For example, when my parents sold their house in Michigan, it was worth almost double what they had bought it for, but the new buyer would make almost identical payments. This is because my parents bought at a time when interest rates were over 13%, and the new buyer was borrowing at 6%.

Of course the opposite is true as well. It is much less likely that people can continue to pay higher prices if interest rates are rising. This is certainly part of the reason why home prices are dropping in many areas as I write this.

The bottom line? Do your homework before you count on rising prices as an investment strategy - and even then remember that real estate speculation is closer to gambling than investing.

Article Source: http://EzineArticles.com/435180

 

[CN Tower]

thing is, investors can make money with or without tenants. rental investment property doesn't really generate positive cash flow anymore

O RLY.

 

[redfirm]

http://baystreet.money.ca.msn.com/quotedata/partners/msn/ca/the_economy.aspx
Some numbers:

"The debt-service ratio, the interest households must pay on their debt each month as a share of personal disposable income, climbed to a two-year high of 7.6% in [the first quarter of] 2011, despite still record low interest rates. Over the next year and a half, the expectation is that a future rise in interest rates will lift this ratio to the highest level in more than a decade."

As others have also suggested -- and evidence this week highlighted -- the TD economists note that consumers are tapped out and won't be the main driver of the rebound after "spending like gangbusters" over the past five to 10 years.

 

[redfirm]

i am aware of this and i know it can not be sustainable. but that doesn't take away the fact that investors in the past 2 years have made good money.

i am in the boat of the average joe trying to buy a condo right now. i cannot afford a 2bedroom. so i am looking for older apartments that are 1+1. i am facing this steep housing market everyday. the math doesn't make sense to buy and rent it out completely. so i look for ways to buy and rent out the bedroom while myself living in the den bedroom. and oh yea, i can't do this without help in down payment.

Happy househunting! All we are saying is: do not buy assuming that prices always go up, do not put yourself in position where you won't be able to sustain higher interest rates / decrease in r/e values.