News   Mar 28, 2024
 104     0 
News   Mar 27, 2024
 1.4K     1 
News   Mar 27, 2024
 1.2K     2 

Investment Property, wait or buy?

You don't factor lost opportunity cost or expected vacancy rate into the calculation of profit for accounting purposes. Profit for accounting purposes is the difference between revenue minus costs of goods sold and operating expenses. You're not going to ultimately know this until you sell the place. If you're smart you would however factor in some vacant time. For tax purposes, your taxed on your profit (basically speaking) annually so if you're making a few $100 on the place each month chances are pretty high that you'll make a profit (net income) for the year that'll you'll be taxed on.

I suspect if the place is vacant for couple of months you might be more concerned about cash flow or your lack of it. A good idea is to make sure you can carry the place with no revenue for a couple of months.

We were talking about profitability, not accounting purposes nor the basis for taxation.
ps. I became an actuary because I couldn't stand the excitement of being an accountant
 
"People thinking of becoming a landlord (especially in Ontario) should spend the same amount of time studying the Ontario Residential Tenancy Act and the Landlord and Tenant board and landlord websites as they do on financial figures."

Good advice but no one really studies anything without the incentive to do so. Or they study things intensely and always do nothing. Start small. Try it out. Learn by doing but always keep your exit strategy in mind.
 
In my opinion and experience, it is a great time to invest in downtown properties. Let me Explain why:
1 - Mortgage Interest this low -----> Low Carrying cost
2 - Higher Rent --------------------> Almost takes your carrying cost down to zero
3 - Demographics ----> People renting in downtown are generally working professionals, career focus, trying to build their credit etc. Your risk of getting a tenant "from Hell" is marginal. Do you due dilligance (reference check, credit check, job letter, proper lease contract etc.)
4 - No Maintenance efforts from yourself ----> Most buildings are still new, new appliances, piping, plumbing, wiring etc. almost no headache there.
5 - Appreciation ----> Now that you have almost no carrying cost of the property, very low risk of renters messing up (with due dilligence), and no maintenance headaches, the only question is "will your property appreciate?" lets just see one building....search for condos on sale in City Place Panorama building, check the price history and compare those prices with the ones in other similar buildings in downtown...In my opinion there is a lot of appreciation potential there.....
 
I crunch a lot of numbers every week. I don't believe in Toronto you can be a real estate investor at the moment, only a speculator. A healthy investment market is a cash positive one, and as prices are outside of historical norms relative to rents and price to income, I haven't found a cash positive property in Toronto. Hoping appreciation will bail you out has worked for many people over the last number of years, but historically markets revert to the norms, and so as the prices continue to increase as quickly as they have, the likelihood of being bailed out decreases. Serious investors have been doing so in areas such as Hamilton or Kitchener Waterloo over the last couple of years, but as I am so Toronto-centric, I haven't followed that crowd.
 
A property does not have to have a positive cash flow to achieve a positive net present value.

All you gotta do is to take the net of the discounted ins and outs over your amortization and see if that number matches the current value of your property.

Toronto's property may seem overpriced when compared from 10 years ago, but in the international market it is still very attractive. When coupled with Toronto's sky rocketing population growth and very low rental property vacancy rate, I don't see why people are forecasting doom and gloom.

By my calculations, mortage rates will have to hit 7.8% before we see any down-turns in real-estate.
 
Toronto's property may seem overpriced when compared from 10 years ago, but in the international market it is still very attractive. When coupled with Toronto's sky rocketing population growth and very low rental property vacancy rate, I don't see why people are forecasting doom and gloom.

By my calculations, mortage rates will have to hit 7.8% before we see any down-turns in real-estate.

I would love to see those calculations. The U.S. is experiencing a terrible down turn and their interest rates are actually less than ours.
 
A property does not have to have a positive cash flow to achieve a positive net present value.

I don't think I understand what you are saying.

All you gotta do is to take the net of the discounted ins and outs over your amortization and see if that number matches the current value of your property.

First, you are confusing the current "price" with the current "value". I think you meant price?

Second, I presume you have a future assumed "out" for your expected sale price? Otherwise I don't see how you can do this calculation. If so, what is the assumed annual appreciation for your sale price?

Toronto's property may seem overpriced when compared from 10 years ago, but in the international market it is still very attractive.

Which international market locations are your referring to? Because if you compare price to income in Toronto, as compared to most cities in the world, Toronto is much more expensive. Or perhaps you are comparing the price of property in NY or London to Toronto? In which case it is an apples to orange comparison, and you could just as easily compare Toronto prices to Thunder Bay.

By my calculations, mortage rates will have to hit 7.8% before we see any down-turns in real-estate.

Perhaps you could post that spreadsheet on a file sharing server? I would be fascinated to see the variables in that analysis.
 
I would love to see those calculations. The U.S. is experiencing a terrible down turn and their interest rates are actually less than ours.


plus they're usually fixed for the amortization of the mortgage (ie. 25-, 30-, 35-, 40- years); while in Canada, our rates will fluctuate throughout the amortization with every term renewal (ie. 3-, 4-, 5-, 7- years).

that makes Canadian mortgages similar to US ARMs which had low teaser rates for a few years, then higher interest rates for the rest of the time left, as the lowest rates in Canadian history have no where to go but UP !
 
With interest rates at record lows, and a glut of condos in Toronto, anybody who wished to buy has already done so. This leaves a pool of poor or bad-credit renters to choose from.

If you can fog a mirror, you are approved for a mortgage. Banks will even lend the 5% down.

The current TO condo market is just speculators flipping amongst themselves,and big players, e.g. the condo developer kings unloading massive amounts of inventory onto them. Kind of like the NASDAQ at peak of market in early 2000. :rolleyes:

check Kijiji Toronto, there are thousands of brand new, never lived in, condos for rent.

1500 ads contain the words "Brand new".

Don't forget the 10,000 of closing and lands transfer taxs fees when you buy, and the 15-20000 of closing closts and realtor fees when you sell.
the house (and middle men) always win.

When you buy a condo, the profit has been made by the developer, tradesmen, city taxes, surveyors and the list goes on. Even the night watchman makes a 'profit' and walks away wihh cash in his hand each week. You are buying pure 100% retail mark up.
 
Last edited:
Well, the penthouse for the Four Seasons just sold for $28million to an internatonal investor. This to me speaks volumes about how the Toronto market is viewed. This guy could have parked this money anywhere in the world!
 
Well, the penthouse for the Four Seasons just sold for $28million to an internatonal investor. This to me speaks volumes about how the Toronto market is viewed. This guy could have parked this money anywhere in the world!

Brilliant analysis.

Speaking of which, the other day one person won $40m in a lottery. This to me speaks volumes about how we should view the profitability of lotteries. This person could have invested their $2 anywhere they wanted!
 
Which international market locations are your referring to? Because if you compare price to income in Toronto, as compared to most cities in the world, Toronto is much more expensive. Or perhaps you are comparing the price of property in NY or London to Toronto? In which case it is an apples to orange comparison, and you could just as easily compare Toronto prices to Thunder Bay.

Well, you can't just as easily compare TO to Thunder Bay. I generally agree that comparing real estate prices is pretty difficult and bordering on meaningless in most cases, but if comparing TO to NY or London is apples-to-oranges, then comparing TO-TBay is apples-to-weathervanes.

One of the problems with price-to-income is that it doesn't take into account the real-life probablility of making a good income now. Most of northern Ontario and much of Canada looks great on paper but the probability of making a good income (or even the average) as a newcomer is next to nil, the probability of your spouse also making that is limited, likelihood of you ever making that income again if you lose your job is also nil, limited immigration and jobs means that the market for resale is limited-to-nil, the stagnancy of the market means that the quality of the available housing stock can be marginal-to-nil meaning you have to shell out well above that average house price to get a reasonably nice place. And if you lose your job the probability of selling that place at full value will then also be limited-to-nil.

The numbers only tell so much about real-time affordability, opportunity and risk.

Toronto is expensive. I'd say it is overpriced too. But everything considered, despite having lived in northern Ontario (and loving it), I'd feel much more financially secure about buying a $550k semi in Toronto than a nice $300k house in Thunder Bay or nice $200k place in Kirkland Lake or Timmins or pretty much anywhere else in Canada. Even in Hamilton, my fav city, limited secure well-paying jobs makes home ownership somewhat of a risk even at their low prices. And in that sense, TO has more in common with NY or London than most cities in Canada, although as a comparison it is still generally meaningless.

It could even be argued that Toronto isn't even the most expensive city in Canada, relative to oppotunities, services, employment, location, rent cost, etc. and I'm talking about Edm, Calg, Ottawa and not just Vanc. There are some factors that may (unfortunately) sustain higher price-to-income ratios in Toronto as compared to elsewhere in Canada - some of them national, some international, but some also local. I wouldn't discount the impact of only three meaningful transit expansions since 1980 in driving up prices of houses situated along or near subway lines.

But I'm a live-er, not an investor. And that being said, I agree that even if those factors do exist they are not a reason for continual never ending price increases (particularly in the condo market.) Toronto is still overpriced (IMHO economic, social, demographic trends mean that it's not to the extent that some think it is) however the trend will flatten, if not fall eventually. If I were an investor, I certainly wouldn't buy as an investment-only now either (which may make my post in this thread a waste! ;) )
 
Last edited:
If you have the money, you might as well 'speculate' in the stock market. At least they have more realistic fundamentals.

Buying in Toronto's Condo market and expecting a profit from Capital gains is 100% speculative. You're literally 'hoping' that the market goes up by 10%, and even then, after 5% commisions, 2.5 percent land transfertax, and closing costs, you'll end up with a miniscule profit, if any. And that's based on 10% increase.

Stocks on Margin, or puting you'r money in Chinese banks (5% interest and the continual increase of the RenMenbi) will net you more gains.

Of course, if you're purchasing signature suites, i.e. penthomes or properties that are exceptionally unique (great views, terraces) you have an opportunity to make some margin. But those properties generally already have a substantial markup. If you have that kind of flow, you might as well put it in in Reits or Bank funds
 
I am just hoping to invest in real estate as part time business and it is worth to know huge information about this here.I think real estate is a business which never leads you down and temperament is essential.
 

Back
Top