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Xenosblitz

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Your reasoning is correct but on the issue of present market value it is not as simple. For e.g. you purchased for $300/sq.ft. in 2002. Today it is worth $600/sq.ft. in 2012. However, when you sell, you have to recapture depreciation so based on 4%/year (2% the first year) you will have 38% of recaptured depreciation. Depending on your tax bracket, say 40% that would mean that 15.2% of your original cost of the building(not the land) will be lost. If we assume for arguments sake 1/3 land cost, that leaves 2/3 of 15.2 or 10% of your equity which goes to tax when you sell. Then you have all the expenses of selling. The point is that 15-18% of your equity based on $600/sq.ft. would disappear meaning you will see about $500/sq.ft.

As an investor you have to make the return on $500/sq.ft. which is what is left over, not the $600/sq.ft. when you reinvest. The longer the you own the property, the more the recapture of the depreciation.

Being an accountant myself, I agree with you. I wanted to keep it simple since I wanted to ensure my concept was clear. My point was if you can't even beat a GIC with your condo investment (using the amount you can obtain from selling your condo vs renting it out), its clearly not a good investment. And I'm being very generous comparing a condo investment to a GIC (risk adjusted).

I'm not sure how much CCA you'll have on some of these condos though, with the high price and low rents the past couple years. In general, you wouldn't take CCA if you don't even turn a tax profit on the condo. I admit I'm not a tax accountant though.
 

interested

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Being an accountant myself, I agree with you. I wanted to keep it simple since I wanted to ensure my concept was clear. My point was if you can't even beat a GIC with your condo investment (using the amount you can obtain from selling your condo vs renting it out), its clearly not a good investment. And I'm being very generous comparing a condo investment to a GIC (risk adjusted).

I'm not sure how much CCA you'll have on some of these condos though, with the high price and low rents the past couple years. In general, you wouldn't take CCA if you don't even turn a tax profit on the condo. I admit I'm not a tax accountant though.

I am not an accountant, just putting forth a business concept. That said, a condo bought at $300/sq.ft. will be in positive cash flow in all likelihood, especially if the down payment was significant or if paid in cash.
 

js97

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Don't forget increase of property taxes and maintenance costs (assuming some basic up keep of painting and washing the carpets?)

Let's forget the additional hassle of being a landlord (speaking from experience).

And if we are projecting price of the condo in 5 to 10 yrs, let's factor in the real demand once the 'shine' is rubbed of those buildings...

We have many great examples of older condos in the core (By the Grange, 393 King, 701 King)
that may not beat the inflation index.
 
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000

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We have many great examples of older condos in the core (By the Grange, 393 King, 701 King)
that may not beat the inflation index.
Not so sure those are great examples, firstly because they aren't in the core (core = financial district) and second they all still appreciated 5-10% per yer in the last decade

Price history psf:
http://condos.ca/condominiums/toron...-st-120-st-patrick-st-60-st-patrick-st#trends
http://condos.ca/condominiums/toronto-the-393-on-king-393-king-st#trends
http://condos.ca/condominiums/toronto-the-summit-701-king-st-570-wellington-st#trends
 

000

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It looks like this website only has sales history going back to 2001. Might be an MLS limitation? It's easy enough to adjust them yourself, BoC says the average annual rate of inflation since 2001 is 1.94% http://www.bankofcanada.ca/rates/related/inflation-calculator/

In every case, those buildings are beating inflation, and in the worst case, The Summit condos, still appreciated 4%. One way The Summit building could stop beating inflation is with a 20% price drop and flat or no recovery. In real estate, it's the overhead, moving, maintenance, and transaction costs that kill you, IMO one shouldn't be buying property unless they intend to occupy or use it for a period of longer than 15 years.
 
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CN Tower

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Not so sure those are great examples, firstly because they aren't in the core (core = financial district) and second they all still appreciated 5-10% per yer in the last decade

Price history psf:
http://condos.ca/condominiums/toron...-st-120-st-patrick-st-60-st-patrick-st#trends
http://condos.ca/condominiums/toronto-the-393-on-king-393-king-st#trends
http://condos.ca/condominiums/toronto-the-summit-701-king-st-570-wellington-st#trends

Cool site triple 0- thanks for sharing!

Not so accurate but great for some rough info. I've said it before but with the sheer ease of access & simplicity of online navigation available online today, why on planet urth would anyone but a spectacular simpleton require the services of a real estate agent to buy a property anymore?
 

neubilder

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I've said it before but with the sheer ease of access & simplicity of online navigation available online today, why on planet urth would anyone but a spectacular simpleton require the services of a real estate agent to buy a property anymore?

We agree on at least one point CN.
 

Kenny

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CREA cuts forecasts as Canadian home sales slump

http://www.theglobeandmail.com/repo...-as-canadian-home-sales-slump/article4548858/

The Canadian Real Estate Association is cutting its forecasts for both home sales and average prices, as it reported that national sales over the MLS system fell 5.8 per cent in August from July, the largest month-over-month decline in two years.

While the MLS Home Price rose 4 per cent from August, 2011, that gain actually marks the slowest rate of increase in over a year.

A for sale sign hangs in the front yard of a property in Burnaby, British Columbia, Monday, April 16, 2012.
Housing

Video: Economist says Canada's already in housing bubble
Canada's Finance Minister Jim Flaherty at at meeting of the Globe and Mail's editorial board on April 27, 2012.
Interview

Video: Ottawa will act if economy stalls, Flaherty vows
New home construction in Richmond Hill, Ontario.
Housing

Video: August housing starts beat forecasts

“The Canadian housing market has indeed ratcheted down its growth pace,” TD economist Sonya Gulati wrote in a research note after the new data was released Monday. “In fact, in most local markets, it has reversed course with price and sales contractions becoming more the norm.”

The figures suggest that the moves Finance Minister Jim Flaherty made in July, which were designed to curtail housing activity and the rise in consumer debt loads, are having an impact, the Canadian Real Estate Association (CREA) said. Mr. Flaherty tightened the mortgage insurance rules as of July 9, including cutting the maximum length of an insured mortgage from 30 years to 25.

“The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that that amortization periods for high ratio mortgages have been shortened,” CREA’s chief economist Gregory Klump stated in a press release. “As the linchpin of the housing market, lower first-time buying activity will have downstream effects over the rest of the market.”

August’s decline in sales affected much of the country including almost all large urban centres such as Toronto, Montreal, Vancouver, the Fraser Valley, Calgary, Edmonton and Ottawa.

The number of newly listed homes fell 1.7 per cent in August from July, led by a 7.7-per-cent decrease in the Greater Toronto Area.

“August’s sales figures will no doubt provide comfort to policy makers, providing the first clear indication that the recent changes to mortgage regulations aimed at cooling the market are working as intended,” Mr. Klump stated.

With the decline in sales activity outstripping the decrease in new listings, the national housing market was more balanced in August than it had been at any other point in the past two years, CREA said.

The actual national average price for homes sold in August was $350,192, up three-tenths of 1 per cent from a year earlier, it added, but the softening in Vancouver is acting as a drag on that figure.

The MLS Home Price Index posted its first year-over-year decline in almost three years in Greater Vancouver, falling 0.5 per cent. In contrast the index rose 6.5 per cent in Calgary, 6.3 per cent in Greater Toronto, and 2.2 per cent in Montreal.

With new evidence of slowing activity in Ontario and British Columbia, CREA has cut its forecast for both sales and prices.

It now expects national resale housing activity to rise by 1.9 per cent this year, to 466,900 units. It still expects Alberta to market the largest gains, offsetting the decline in British Columbia.

CREA expects sales to turn negative next year, falling by 1.9 per cent for 2013 to 457,800 units. That’s a bigger drop than it was previously expecting. “Activity is expected to ease in all provinces except Alberta and Manitoba, with Ontario registering the largest decline,” it said.

Meanwhile it now expects the national average home price to rise by just 0.6 per cent this year, to $365,000.

Next year it expects the average price to fall one-tenth of 1 per cent to $364,500, with Ontario and B.C. seeing small price declines while the other provinces see modest gains.
 

Ric

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Wow, what a great job to be chief economist for CREA (Mr. Klump). Constantly being wrong about the market and then having the ability to continuosly revise ur figures only to be wrong again and again.....damn, I want that job. Can you imagine if doctors or airline pilots (anyone for that matter) were held by those standards? My crystal ball is more accurate.
 
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ducati0000

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What I notice is the once desirable projects the units are staying on the market much longer than before....they are selling though but instead of only days on the market its table 3-4 weeks before selling...Have not seen any drastic price cutting yet though...buyers have a choice now but dont expect to be low balling the sellers anytime soon........
 

cdr108

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Investors don't need to unload their properties because of the positive cash flows from their investment properties. Moreover, most investors are wealthier than the young first time home buyers, so they have the better abilities to borrow the mortgages or hold their units. However, there are many first time home buyers have to turn to the rental market and to help these investors paying back their mortgage thanks to the strict mortgage rules!


hmmm, who's opinion should i give more credence to ... yours or Joe Vaccaro, president of BILD and Brian Johnston, president of Monarch Corp., or Urbanation, etc:

"Mr. Vaccaro said rental rates have been “mostly flat” but he says the real test will come when all the towers now under construction hit the market. “We will have to see what impact that has in terms of the rental market,” he says."

Brian Johnston, president of Monarch Corp., says he always wonders what type of rental rates investors are expecting. “It’s not apparent to me there is a great return,” he says. “I think it’s mostly capital appreciation. The fallback position seems to be if they can’t sell it or the market is soft, I’ll just rent it.”


http://business.financialpost.com/2012/03/20/toronto-condos-lose-investment-lustre/


It’s just one month, but a new set of numbers from Toronto builders showing condo prices climbing just 2% on a year-over-year basis could make investors think twice.

The condominium market in the city, the biggest of its kind in North America for that class of housing, is largely based on a capital appreciation. Most investors finance their units knowing that they will be unable to carry them on a cash-flow positive basis based on present rental rates.

“If you are negative cash flow and the thing is not going up in price, you are out of there,” said certified financial planner Ted Rechtshaffen, noting at these rates, the condo owner has more reason to worry.

The 2% rate — a return you could get from an online bank — would be in stark contrast to the 7% to 9% annual increase condo research firm Urbanation Inc. says has been the norm for the last five years.

But the past February to February, the Building Industry and Land Development Association (BILD) says that new condominium purchases across the Greater Toronto Area were an average of $532 per square foot in February, up from $520 per square foot a year earlier.

“I guess what I would say is the 2% reflects two things,” Joe Vaccaro, president of BILD, adding at that price developers have been able to keep condo prices in check. “The reality is units have shrunk in square footage overall; they’ve gone down by 100 square foot over the last five years on average. You are getting a smaller unit, but to remain affordable, they have turned to more innovative designs.”

At the same time as prices gains are slowing, Mr. Vaccaro said rental rates have been “mostly flat” but he says the real test will come when all the towers now under construction hit the market. “We will have to see what impact that has in terms of the rental market,” he says.

BILD says it’s still early, but so far, high-rise sales for the first two months of the year are down 51.2% compared to a year earlier. The group points out 2011 was a record-breaking year.

The numbers could represent just a short blip because Urbanation says its latest statistics, which were based on the fourth-quarter of 2011, showed prices up 8% from a year earlier. The group says the average sale price was $509 per square foot in the fourth quarter, up from $471 square foot a year earlier.

Ben Myers, vice-president of Urbanation, agrees that many investors in the GTA are not cash-flow positive on those properties, taking the loss because they’ll make money on the underlying condominium.

“It’s hard to say what is cash-flow positive. In the downtown core, at $650 to $700 per square foot with a minimum [20%] down payment, definitely not but a 905 project likely will because they only cost $400 to $450 per square foot,” says Mr. Myers.

The average size of a new condominium in the GTA is 650 square feet per year, meaning based on average price, it will cost you $330,000. With rental rates on average $2.21 per square foot, you could expect close to $1,450 per month in rent.

But will that rent cover your costs? If you put 20% down, a $264,000 mortgage at even 3% amortized over 25 years, your principal and interest costs would be close to $1,250. Monthly condo fees are about 50¢ per square foot per month on average and property taxes are about 1% of home value. Add in heat and hydro and you are easily under water.

But the condominium game continues to be about capital appreciation and a 2% the return would shrink the pool of investors. “Investors would be leery at 2% and may look elsewhere to put money,” says Mr. Myers, adding a key consideration is many investors put significant cash into a deal, not burdened with a large mortgage payment and looking for a safe long-term investment.

Brian Johnston, president of Monarch Corp., says he always wonders what type of rental rates investors are expecting. “It’s not apparent to me there is a great return,” he says. “I think it’s mostly capital appreciation. The fallback position seems to be if they can’t sell it or the market is soft, I’ll just rent it.”

Prices are still going up in Toronto’s condominium sector and maybe the 2% bump is a blip but if prices start to fall, or worse yet flatten out, you have to believe condo investors will be checking out in the future.
 
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ducati0000

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I agree...those who paid close to $600 per sqft for a small sub 700sqft condo is going to feel it the worst when their rental price barely covers the mortgage and payments...factor in insurance,extra income taxes,and property taxes those renting would need at least $1600 to be above water.I see huge projects like City Place the investors would be dumping those units asap if they cannot at least break even on the daily put out for the units.
 

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GTA REALTORS® Release Mid-Month Resale Figures

September 18, 2012 -- Greater Toronto Area (GTA) REALTORS® reported 2,544 transactions through the TorontoMLS system in the first 14 days of September. This result was down by 15 per cent compared to the 2,995 sales reported during the same period in 2011.

“The combination of stricter lending guidelines, rising home prices and the added upfront cost associated with the land transfer tax in the City of Toronto resulted in a slower pace of sales during the summer of 2012 compared to a year ago,” said Toronto Real Estate Board (TREB) President Ann Hannah.

The average selling price for sales during the first two weeks of September was $496,786 – representing an annual rate of increase of more the 9.5 per cent. Average selling prices were up for both low-rise and high-rise home types, including condominium apartments sold in the ‘416’ area code.

“Price growth continued to be strongest for low-rise home types during the first two weeks of September. This segment of the market has been very tight, with months of inventory remaining low from a historic perspective,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.


http://www.torontorealestateboard.c...market_updates/news2012/nr_mid_month_0912.htm



416 Average selling price - $536,128 up almost 16% y/y Sales down 23% y/y

Average detached selling price in the 416 - up 17% y/y $805,308 Sales down 20% y/y

Average condo selling price in the 416 - up 5% y/y $352,851 Sales down 32% y/y
 
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