The Biggest Mistakes Condo Buyers And Investors Make

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When you are buying a condo, whether to enjoy as your “principal residence” (a legal term with impact on taxes paid upon selling) or strictly as an investment, you are coughing up a whole lot of money, real hard earned dollars.

For decades now I been amused to see just how little thought these consumers actually put in to what they are doing.

Many simply walk out into the streets, stumble into a condo presentation centre and walk out with a condo.

Most investors don’t attend the “turn over meeting” or ever know a board member let alone volunteering to become one, never read the minutes of any board meeting, or vote at the Annual General Meeting (the only time that their voice can be heard).

Toronto has a disappointing track record when it comes to its condos.

I’ve been involved in Toronto condos since they came into law back in the 1970’s and I can tell you first hand that absolutely nothing has changed, resulting in a horrifically successful time for developers to make outrageous income at the expense of the consumer.

And our governments, Municipal, Provincial, and Federal having each walked away with full coffers has done nothing to protect the tax payers, especially those unfortunate souls that are simply looking for a home.

Unless you have deep pockets, you are going to be buying a condo in Toronto.

With entry level condos coming on stream these days in the $700 – $800 per square foot range and sizes starting in the 300 square foot range to allow those ads to keep on saying that you can “buy in the low $200’s” I can’t see anyone trying to challenge the fact that this is a “high stakes” game.

To me, price is actually a relative thing, specifically relative to “location” and when you are looking at the financial nucleus of the nation, in the country’s largest city, then possibly these prices could be justifiable.

But when you realize to sub-standard quality of the product that is delivered and the helpless position buyers are left in when they realize just how sub-standard their new condo unit is, you can understand that there is a lot more going on here than meets the eye.

And that poor family trying to buy their first home has to wait in line for the opportunity to buy their condo as an “Assignment” at best because of the way that pre-sale condos are sold, resulting in the price significantly skyrocketing, you’ve got to ask yourself where is this all going?”!

For those unfamiliar with the manner by which Toronto condos are sold, developers hold what are called “VIP Sales Events” that are exclusively available to Realtors and their clients.

The developers advertise these events as granting these “Priority Brokers” (all Realtors receive the invitations that they can show family friends, and to-be clients) giving the impression that those in attendance will enjoy priority access to all of the units before anyone else has a chance to buy and to be able to buy the units at “preferred pricing“.

Realtor’s then advertise themselves as having this “Exclusive Pre-Launch Access” because they are “Priority Brokers” (instant “industry credibility” especially for new industry sales people).

Doesn’t it sound strange to you that a developer would give “open access” to their entire inventory of suits in a to-be-built condo, “at discounted prices“.

availability board

Of course, they don’t release all of their suites.  Of course they release ONLY their “Dog Suites“!

They don’t want those “dog suites” around when the building is completed because they will be much more difficult to sell!

I’m including a photograph in this blog, showing the “Availability Board” on the first day of the “VIP Sales Event” for the Shangri-La Hotel & Residences on University Avenue.

All the red dots are allegedly “Sold Units“.  No-one at the event even inquired about how so many units could already be sold if this was legitimately the first time anyone could buy a unit, but there sat this board with less than 10% of the suites available.

I told the sales rep that day, that I would be reporting on my blog about this “bait and switch” game and he assured me that it was “legitimate“.

If you’ve been reading my blogs over the past decade and a half you know my trade market warning:  “believe nothing that you hear and half of what you see”!

History has proven my case relating to these Events in general and the categoric dishonesty that dominates Condo Land.  It is like there is nothing that developers can’t get away with!

I’ve pulled out of the pre-sale condo game as I feel that it has become a crap shoot not worthy of my attention.  I wouldn’t “speculate” in Toronto condos and if I wouldn’t do it myself, I wouldn’t suggest someone else to do so either.

The basis of my conclusion is based on the numbers no longer working.

In my days as an investor I was buying suites at just over $325/square foot (as recently as The Hudson about 10 years ago).  You could put 25% down and the rent would pay your monthly maintenance fees, annual property tax and financing costs and you could enjoy the equity growth on the unit itself.

Today, at $700 – $800 per square foot and drawing about the same rent, you have a “negative cash flow” situation (this is a commonly used term today, that I coined while selling condos at Minto Plaza in 1989 while the market crashed around us).

In those days the negative cash flow was brought on by excessively high interest rates!  Today it’s based on high per square foot prices against low rental income rates.

So to conclude today’s blog I will answer my own question about “The Biggest Mistake Condo Buyers and Investors Make” and that is “buying without sufficient knowledge of what you are doing”.

For those legitimately looking for a home, my advise is to look into the existing market.  Work with a Realtor that has been in the business long enough to be able to show you the good condo buildings from the bad condo buildings (the ratio is about 20% good to 80% bad)!

In downtown Toronto, your best bet is . . . . “me”.

I’m not trying to get your listing!  You can do that yourself for $95 these days (something I’ve said for decades is where the industry should go).

But if you are looking to buy, you had better know the difference and which ones fall into which category and only an old guy like me with decades of hands-on experience is going to know that.

I’m Charles

 

 

 

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