Author Topic: Toronto real estate?  (Read 7546 times)

aclarridge

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Toronto real estate?
« on: May 15, 2013, 03:43:50 PM »
Hereís a question for real-estate investors and/or Canadians on the forum: is there any real-estate in the Toronto area (for example) that is worth buying right now? The market seems really out-of-whack compared to most of the examples I see on this forum with American prices/rents. Iíd really like to buy something to either lower my monthly costs or as an investment, but it seems that there arenít any properties that even come close to being worth it, even assuming prices remain stable.

For example, my case:
Paying $1550/mo for a place that would list and probably go for about 450k since itís penthouse level in a new building. It is a 1bdrm 650 sq/ft condo downtown (I work downtown and walk to work). Taxes would be $1500/yr, maintenance fees $400/mo. Parking spot not included, thatís an extra $180/mo to rent (I do not do that).
The standard fixed rate mortgage is 5y at 2.89% right now. I think itís possible to get a 10yr fixed but higher than that is not really done in Canada afaik. It can be amortized over whatever time period up to 30y I think but a refinance is required after the fixed rate period ends. Our mortgage interest is not tax deductible.

Thereís lots of analysis I could do here to show that this is a bad investment that is really counting on further price increases but I think itís just stating the obvious. Am I wrong? Or am I right, and I'm simply "doomed" to rent until the market changes in some way (higher rents or lower prices)?

If you are curious, check out the local listings for the surrounding area: http://bit.ly/12c21Z5 - is there anything that even looks remotely worth the money?

Maybe my case is an anomaly though because itís downtown Ė let me give another example which is a bit more typical, a SFH in a nearby suburb which is walking distance to the train that goes right into the downtown area of the city (a reasonably desirable location and it looks like a nice spot although small).
http://www.realtor.ca/propertyDetails.aspx?propertyId=13174656&PidKey=-1029554656

It has a basement apartment that could be rented. I am guessing that taxes would be about $3700/yr (maybe somebody else knows better? This is based on the fact that the avg. Mississauga home costs 365k and about $2800 in tax so I just scaled it up linearly). As an investor, what type of rent would you demand in this situation for it to be considered a good investment? Assume house is in good condition. I know you probably donít know the Ďhood - ballpark? Iím really curious what an experienced real-estate investor would think!

tooqk4u22

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Re: Toronto real estate?
« Reply #1 on: May 15, 2013, 06:16:42 PM »
I'll qualify this with I am not Canadian and see my recent comments in this thread  for my view on housing in CAD  http://www.mrmoneymustache.com/forum/real-estate-and-landlording/sounds-like-the-mortgage-interest-deduction-may-be-changing/

Ignoring that, don't take the attitude of "doomed to rent" as it is not productive, instead take the attitude of "choose to rent" because that seems to be the most sound financial decision for my goals AND seems to be supported by the economic landscape for housing in CAD at this point in the cylce.

Renting or owning is neither bad or good, it is merely a personal decision that can, and should, be influenced by current market fundamentals.

Deano

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Re: Toronto real estate?
« Reply #2 on: May 15, 2013, 07:43:55 PM »
www.greaterfool.ca

The ONLY site for Canadian real estate advice right now.


arebelspy

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Re: Toronto real estate?
« Reply #3 on: May 15, 2013, 07:49:24 PM »
It depends.

Are you into fundamentals and solid investments, or gambling?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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BPA

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Re: Toronto real estate?
« Reply #4 on: May 15, 2013, 08:01:51 PM »
www.greaterfool.ca

The ONLY site for Canadian real estate advice right now.

I was going to recommend the same website.

(And Deano, did I see you on another forum related to TB yesterday?)

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Re: Toronto real estate?
« Reply #5 on: May 15, 2013, 08:09:49 PM »
Just wait a few years, until average price to earnings is back to average. 3-4x earnings I believe is what you should aim for as max mortgage.

Condos make no sense to me, though. $400 fee? Ouch. But then, I'm not a city person.

totoro

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Re: Toronto real estate?
« Reply #6 on: May 15, 2013, 08:23:09 PM »
Not Garth Turner and the Greater Fool again.   I'm not a fan.  Very talented at self promotion to sell his financial services and books - but a bully with a pulpit online.  Say there will be an imminent crash for long enough (five years already) and one day the cycle will match up.  I would not point anyone to his website as there is a lot of hyperbole and not a lot of balanced facts.  I dislike how he attacks others like Ben Rabidoux. 

Why don't you continue to rent in TO and looking at buying a rental in Hamilton near McMaster?  The numbers work much better there and it is not too far away.

aclarridge

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Re: Toronto real estate?
« Reply #7 on: May 16, 2013, 06:49:09 AM »
Thanks for the replies!

I'll qualify this with I am not Canadian and see my recent comments in this thread  for my view on housing in CAD  http://www.mrmoneymustache.com/forum/real-estate-and-landlording/sounds-like-the-mortgage-interest-deduction-may-be-changing/

Ignoring that, don't take the attitude of "doomed to rent" as it is not productive, instead take the attitude of "choose to rent" because that seems to be the most sound financial decision for my goals AND seems to be supported by the economic landscape for housing in CAD at this point in the cylce.

Renting or owning is neither bad or good, it is merely a personal decision that can, and should, be influenced by current market fundamentals.

Yeah I agree - that's what I meant by "doomed" in quotes, just that it's not necessarily a bad thing and I understand it's a choice.

It depends.

Are you into fundamentals and solid investments, or gambling?

I'm only looking at this long-term - like I said the point would be to either lower my monthly living costs or as an investment. That said, you could accuse me of market timing, and so in a way I'm gambling by renting now and waiting to buy until later. I really do think that prices should drop at least a bit in the next 5 years.
I'd be interested to hear your answer to my last question in particular.

Just wait a few years, until average price to earnings is back to average. 3-4x earnings I believe is what you should aim for as max mortgage.

Condos make no sense to me, though. $400 fee? Ouch. But then, I'm not a city person.

I think/hope you're right about the market correcting. I'm not a city person either, but I'm dealing with it for a while for a few reasons.

Not Garth Turner and the Greater Fool again.   I'm not a fan.  Very talented at self promotion to sell his financial services and books - but a bully with a pulpit online.  Say there will be an imminent crash for long enough (five years already) and one day the cycle will match up.  I would not point anyone to his website as there is a lot of hyperbole and not a lot of balanced facts.  I dislike how he attacks others like Ben Rabidoux. 

Why don't you continue to rent in TO and looking at buying a rental in Hamilton near McMaster?  The numbers work much better there and it is not too far away.


I am very familiar with that blog and I agree. It just holds entertainment value for me and that's about it. I've checked his math and found it to be wrong on a few occasions as well, so I don't trust any of the calculations he does.
That said, I am inadvertently following some of his advice - staying out of the Toronto condo market and holding a diversified portfolio of liquid stuff instead.
I'm aware Hamilton is a bit more reasonably priced - I am not sure about the investing potential though. Do you know anyone that is doing it now or do you have any more info about it? It would be good to find out about a RE investing club or something. I'd love to know what they would be up to these days.

arebelspy

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Re: Toronto real estate?
« Reply #8 on: May 16, 2013, 07:11:35 AM »
It depends.

Are you into fundamentals and solid investments, or gambling?

I'm only looking at this long-term - like I said the point would be to either lower my monthly living costs or as an investment. That said, you could accuse me of market timing, and so in a way I'm gambling by renting now and waiting to buy until later. I really do think that prices should drop at least a bit in the next 5 years.
I'd be interested to hear your answer to my last question in particular.

Okay.

Your last question says "As an investor, what type of rent would you demand in this situation for it to be considered a good investment?"

1% of the purchase price in gross monthly rent is a typical minimum investors shoot for.  Some set their standards as high as 2%.  I'm in between using today's low rates and leverage.  1.3% will give you 10% cash on cash and the other benefits are gravy.

So for 1550/mo, I'd pay no more than about 140k.  Considering there's a large HOA as well, I'd likely want to pay less than 100k.  In other words, that 450k it will cost you is ridiculous.

Rent for 1550, then take the difference you are saving on your PITI/HOA/maintenance/etc. and invest it - you'll come out way, way ahead, while getting to live in exactly the same housing situation.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

aclarridge

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Re: Toronto real estate?
« Reply #9 on: May 16, 2013, 07:53:40 AM »
So for 1550/mo, I'd pay no more than about 140k.  Considering there's a large HOA as well, I'd likely want to pay less than 100k.  In other words, that 450k it will cost you is ridiculous.

Rent for 1550, then take the difference you are saving on your PITI/HOA/maintenance/etc. and invest it - you'll come out way, way ahead, while getting to live in exactly the same housing situation.

Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

KingCoin

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Re: Toronto real estate?
« Reply #10 on: May 16, 2013, 07:59:57 AM »
Renting a $450k property for $1,550? Where do I sign up?

Realize that a similar property in New York would rent for $2500+ or $4000+ in most other areas of the US. You should be slapping your fellow tenants high fives on the elevator ride down from your penthouse for the killer deal you're getting.

If you apply the 50% rule to the owner, he's earning a dismal 2% yield on this property. That means he's banking on further price gains (or a substantial hike in rent)  to make this a worthwhile investment. It seems a rather dubious gamble given the fundamentals:
http://www.cnbc.com/id/100725735

Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

Probably the heady combination of a "everyone around me is getting rich doing it" bubble mentality and the visceral appeal of owning property. We saw how that movie ends 5 years ago.

Deano

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Re: Toronto real estate?
« Reply #11 on: May 16, 2013, 08:11:56 AM »
www.greaterfool.ca

The ONLY site for Canadian real estate advice right now.

I was going to recommend the same website.

(And Deano, did I see you on another forum related to TB yesterday?)

Great site, even though sometimes I think he's a bit of a whank (c'mon, stop crowing about your Hummer!).

I post as Deano on greaterfool and here, that's all actually. I don't post on any other site as anything actually, so it was an imposter for sure.

totoro

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Re: Toronto real estate?
« Reply #12 on: May 16, 2013, 09:46:04 AM »
"I'm aware Hamilton is a bit more reasonably priced - I am not sure about the investing potential though. Do you know anyone that is doing it now or do you have any more info about it? It would be good to find out about a RE investing club or something. I'd love to know what they would be up to these days."

I looked into it two years ago because I have family there.  I also looked at Thunder Bay.  The numbers worked well enough that, but for other investments I have made, I probably would have gone with Hamilton.

I don't know other local contacts.  If you are really interested I would suggest a google search and maybe then going to Hamilton and taking someone from the area who is doing this out to lunch and asking the questions.

arebelspy

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Re: Toronto real estate?
« Reply #13 on: May 16, 2013, 10:28:40 AM »
So for 1550/mo, I'd pay no more than about 140k.  Considering there's a large HOA as well, I'd likely want to pay less than 100k.  In other words, that 450k it will cost you is ridiculous.

Rent for 1550, then take the difference you are saving on your PITI/HOA/maintenance/etc. and invest it - you'll come out way, way ahead, while getting to live in exactly the same housing situation.

Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

They are investing for appreciation, rather than cash flow.

Whether or not you think that's a wise idea depends on you.

I wouldn't be investing there right now.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

totoro

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Re: Toronto real estate?
« Reply #14 on: May 16, 2013, 10:55:41 AM »
So for 1550/mo, I'd pay no more than about 140k.  Considering there's a large HOA as well, I'd likely want to pay less than 100k.  In other words, that 450k it will cost you is ridiculous.

Rent for 1550, then take the difference you are saving on your PITI/HOA/maintenance/etc. and invest it - you'll come out way, way ahead, while getting to live in exactly the same housing situation.

Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

They are investing for appreciation, rather than cash flow.

Whether or not you think that's a wise idea depends on you.

I wouldn't be investing there right now.

Agreed.

aclarridge

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Re: Toronto real estate?
« Reply #15 on: May 16, 2013, 11:35:07 AM »
Renting a $450k property for $1,550? Where do I sign up?

Realize that a similar property in New York would rent for $2500+ or $4000+ in most other areas of the US. You should be slapping your fellow tenants high fives on the elevator ride down from your penthouse for the killer deal you're getting.

If you apply the 50% rule to the owner, he's earning a dismal 2% yield on this property. That means he's banking on further price gains (or a substantial hike in rent)  to make this a worthwhile investment. It seems a rather dubious gamble given the fundamentals:
http://www.cnbc.com/id/100725735

Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

Probably the heady combination of a "everyone around me is getting rich doing it" bubble mentality and the visceral appeal of owning property. We saw how that movie ends 5 years ago.

LOL at the high fives suggestion. I was already very confident about what I'm doing, but it's still good to hear that somebody else thinks I'm making the right decision (I get questioned all the time why I'm "throwing away" money on rent for the past 2-3 years).
I checked out the link you gave - it seems like a good sign to me that Steve Eisman is now warning about the dangers of the Canadian housing market.

I looked into it two years ago because I have family there.  I also looked at Thunder Bay.  The numbers worked well enough that, but for other investments I have made, I probably would have gone with Hamilton.

I don't know other local contacts.  If you are really interested I would suggest a google search and maybe then going to Hamilton and taking someone from the area who is doing this out to lunch and asking the questions.

Cool. I will keep at it in terms of the googling, but so far haven't been able to find much. Some of the REI clubs set off my BS alarm right away - run by realtors essentially promising they can help you get rich quick. I am going to go check out the area though with people who know the neighbourhood to get an idea of what prices and rents are like near campus.

They are investing for appreciation, rather than cash flow.

Whether or not you think that's a wise idea depends on you.

I wouldn't be investing there right now.

Yeah I guess they must be investing for appreciation, assuming they are at all rational.
I'm not planning on it either unless I can find something that's much more palatable - I'll check out areas like Hamilton I guess.

arebelspy

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Re: Toronto real estate?
« Reply #16 on: May 16, 2013, 12:24:27 PM »
LOL at the high fives suggestion. I was already very confident about what I'm doing, but it's still good to hear that somebody else thinks I'm making the right decision (I get questioned all the time why I'm "throwing away" money on rent for the past 2-3 years).

Most people who say that haven't done the math.

I'd question them why, asking would I throw money away owning?  Cost of a mortgage will be so much more than rent, you can instead save the difference instead of throwing it away on an overpriced property.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

aclarridge

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Re: Toronto real estate?
« Reply #17 on: May 18, 2013, 06:35:16 AM »
Most people who say that haven't done the math.

I'd question them why, asking would I throw money away owning?  Cost of a mortgage will be so much more than rent, you can instead save the difference instead of throwing it away on an overpriced property.

Yeah I usually say something similar - but if I don't want an argument for whatever reason, I just say I want the luxury of being able to move whenever since I'm month to month now. This is almost always accepted - people understand buying luxuries.

So in case anybody is wondering I did check out Hamilton a bit. I know the area around campus and checked out some student housing. I'll be honest, I didn't look all that hard - going by that "gross rent at least 1% of purchase price" rule it didn't look very appealing. The best house I was able to find (close to campus, relatively low price, not a total dump) was listed at 300k, and it had 5 bedrooms. Based on checking out several rent ads in the area, I think one might be able to get 450/rm, so about 2250/mo, still pretty far from the 3k/mo minimum that one might want...also, considering that this is a student rental with high turnover, I think one might reasonably demand much higher than 1% in gross rent. Students are hard on houses. So it's not looking great as an investment opportunity at least at first blush.

I'll be keeping my eyes open, but for now, I guess it's continue renting and contributing to my index funds while waiting for the real estate market to change. Thanks for the replies everybody.

totoro

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Re: Toronto real estate?
« Reply #18 on: May 18, 2013, 09:56:04 AM »
I personally would not rent out rooms.  I look for homes with a suite or suitable. 

At the time I was looking there were some available around 260 000 similar to this:  http://www.realtor.ca/propertyDetails.aspx?propertyId=13180374&PidKey=-1284258606 (this is more but gives you an idea).

In Hamilton if you rent out four or more rooms you are running a rooming house and different, and more expensive, regulations apply.   

aclarridge

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Re: Toronto real estate?
« Reply #19 on: May 20, 2013, 05:43:35 AM »
I personally would not rent out rooms.  I look for homes with a suite or suitable. 

At the time I was looking there were some available around 260 000 similar to this:  http://www.realtor.ca/propertyDetails.aspx?propertyId=13180374&PidKey=-1284258606 (this is more but gives you an idea).

In Hamilton if you rent out four or more rooms you are running a rooming house and different, and more expensive, regulations apply.

Thank you very much. This is good to know.

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Re: Toronto real estate?
« Reply #20 on: July 05, 2013, 07:58:23 AM »
I think Hamilton might be somewhere where it's worth figuring at least a little appreciation into your calculations. Especially near the university, which I think will continue to grow in size and stature, creating an even bigger pool of graduate students, medical interns, etc. who are good tenants. Also, Torontonians have started to notice the value of homes in Hamilton, and are starting to buy (in fact, a better time to buy there would have been a year ago). This is helped by the fact there's a super-frequent express GO bus from Toronto directly to the university neighbourhood.

I know, buying for appreciation is as much of a sucker's game as timing the market, but if you look at price-to-income ratios (relevant for selling as owner-occupied) rather than price-to-rent ratios (relevant for, uh, renting), Hamilton doesn't look so bad:
http://theeconomicanalyst.com/content/house-price-and-income-ratios-canadian-cities-part-2

And if you look at Hamilton-price-to-Toronto-income ratios, it looks even better.

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Re: Toronto real estate?
« Reply #21 on: July 05, 2013, 12:11:43 PM »
Thank you. See, this is what I can't understand - are RE investors here just idiots? There are many folks buying condos in this city to rent them out. Rents would have to triple or quadruple in order for an investor like you to find it worthwhile to invest here. What gives?

I've looked long and hard at buying rentals here . . . and right now, there's no way I can spin the math to make it work.  I do think that rents in Toronto are going to be going up, maybe quite a bit over the next five to ten years . . . but don't see how they'll cover the cost of investing in a rental.

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Re: Toronto real estate?
« Reply #22 on: July 05, 2013, 01:23:15 PM »
Windsor has some good prices, but it's 4 hours away and the town seems to be dying.

totoro

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Re: Toronto real estate?
« Reply #23 on: July 05, 2013, 02:37:02 PM »
I've thought about Windsor because of the prices, but it does seem to be dying.  One market might be housing for university students but I've never looked into it closely.