Investing in condos and real estate in general is a high or low risk investment depending on cycles but cycles are not mystical futuristic thinking things.
Cycles are brought on by laws of supply and demand, primarily. Oh, world events, like Greece and/or Porto Rico these days have a ripple effect on condo investing but they are also reaching havoc in the stock market world.
All investments carry risk and what you invest in and how you invest is a very private thing. Too many people these days are comfortable just “getting into the game“. I see them all the time attending those phoney “VIP One Day Only Sales Events” that developers hold for “Priority Realtors“.
Apparently, there are no protections for the public about misleading advertising when it relates to condo land.
I see one developer who was a nightmare in Toronto has moved to Hamilton and reliving his past by promoting how successful he was in Toronto when, in Toronto every site that he touched ended up on the rocks.
I’m not supporting the theory that the city cannot have too many condos being built at the same time. The majority of these condo units (Toronto has more condos being built than ANY American city) are being sold to investors.
Anyone who buys a condo is an investor whether it’s to be your permanent home or a rental property, or whatever, and any time you are looking to plunk down a half million dollars (roughly the average price of a condo in Toronto) as an “investment”, you had better take matters very, very seriously.
I’m astonished to see that most speculators attending those VIP Sales Events are so comfortable buying so blind. Most couldn’t tell you anything about the developer and usually not even their name.
They certainly can’t tell you whether the interior doors are solid core or hollow core and usually can’t tell you the ceiling heights.
The reconstruction prices today in Toronto run from $800 – $1,000 per square foot including entry level condos! Let’s do the math. You will be buying 600 square feet (600 square feet x $900/sq.ft. = $540,000.00). If you want a parking space you’ll need an additional $50,000.0o. And lockers will run you between $5,000 – $25,000.
So, realistically you can only afford 500 square feet of living space, if you can afford to pay $500,000.00.
Do you recall that I said (actually I was quoting the Toronto Star, one of Toronto’s news papers) that Toronto has more condos under construction than any other North American city?
When you add up all your closing costs and adjustments at closing, which include “hidden” levies to the City, plus hook up charges, school board levies, etc. and add to that real estate commissions to sell, you just have to wonder about the “liquidity” of your investment.
If you wanted to bail out could you without taking a loss? That’s risk!
And if you could sell it, are you comfortable that you are going to have to get upwards of $900/sq.ft. (plus parking and locker) to break even?
As an investor I am not looking at presages in Toronto for this reason as well as the decidedly poor quality of condos that are out there.
In this entire city there are only a small handful of developments that I, as an investor would buy in or as a Realtor/Blogger endorse.
I’ve spent the last decade and a half protecting the best interests of buyers and global investors as Toronto’s first Buyer’s Agent.
In 2000 condos like the Hudson (where I represented 48 buyers) were selling at just over $300 per square foot.
18 Yorkville shattered the ‘glass ceiling‘ of condo prices coming on the market at $400 per square foot.
Today, entry level condos by no-name developers are running at $800 per square foot, yet I see speculators still flooding in to those VIP events buying the dysfunctional logic that the developer is willing to “sell premier suites at discounted prices“.
The city is literally overwhelmed with shoddy developers getting delivering sub-standard condos.
So, today’s blog is focusing on “risk” and “cycles”.
I got into the business in 1979 and watched the market book for a decade. Then came the “Crash of 1989” when mortgage interest rates increased by double digits in under a week!
The market took another decade to bounce back. In 2000 it took off and boomed for a little over a decade (12 years or so) which brings the “cycle” to roughly today (actually a couple years ago I started warning of the elevated risk).
So, based on this observation, I can conclude that it is safe to say that the cycle appears to have fulfilled itself once again.
That increases your risk today. Add to this, the over-saturation of condo units (eventually reality will catch up to the market when the government stops subsidizing interest rates – it’s funny because it is again the consumer underwriting the tab) and over-inflated prices and you’ve got a cocktail of risk that I am just not willing to drink. Apparently there still are a lot of people drinking the developer’s Cool-Aid!
On the other hand and if you are looking for a condo to live in, I can still find you quality units in quality buildings (resales – don’t let the misleading maintenance fees of presage condos fool you at Churchill Park there was a 100% increase imposed over the first 3 years because of the Mechanical Engineer’s Audit and Reserve Fund Study were so deficient) priced lower than reconstruction offerings.
And even if you are an investor looking for rental income you are better served having me find you a unit in an older building that is well managed. I’ve been doing this for almost 40 years now and I know all of the good, the bad and the ugly condos out there.
When you work with me, you won’t waste time running around checking out dog suites in dog buildings (they are all over the place!). You can’t tell visually checking out a condo in person whether the condo itself is good, bad or downright ugly (I have a client who bought into a brand new condo and every morning woke up choking on cigarette smoke even though her windows were all closed).
Playing roulette with half million dollar stakes is, in my calculations “high risk gambling“. Betting on a condo in Toronto without me as your buyers agent substantially elevates that “risk“.
My services are FREE.