Real Estate as an Investment in Toronto

Quickly we're going to look at two vehicles for very different real estate investors.

New condos are still arguably a decent place (with some risk) to invest money over a short term horizon and look for a small but healthy bang for your buck.

If you are fortunate enough to be tied to a broker who has an in with a solid developer, you may be invited as an investor to buy into the development well before it is built. In most cases a developer need sell up to 70% of the units at preconstruction phase in order to tie up the financing they require.

Often this 70% can be sold through these relationships with buyers at this stage buying in for 10%-15% below the planned market value. The remaining 70% will get sold to the average Joe Buyer at a higher rate.

Many would argue that buying in at preconstruction should net you 25k-50k plus depending on the developer, location and when you pull th trigger to sell. Some developers will allow you to "assign" (sell the deed prior to closing to another party) and you should still be seeing a pretty penny for this hurried transaction.

Why does this work?

1. Since 70's there's been few buildings built as rentals. I'm talking about high rises. Most have been developed as condos so renters need somewhere to live

2. we still have 100k plus immigrants a year coming to Toronto to look for work. Before they buy a home many rent. You hold the stock!

A second investment is a small apartment building.

In the Toronto core these days, you're looking primarily at 5-6% returns. Not sexy but certainly better then the bank's GIC rate. You need to be prepared to work though. It's a job. The supply of these buildings is in tight order so Sellers are having their way. You need to look past the cap rate and look as a buy and hold. As such the real opportunity lies in the areas inflation If you can find a building buried in a residential area that is seeing growth...all the better.
The one downside is that rental escalations are tied to the CPI and last year that wasn't showing much growth. As a result, rent increases for existing tenants who wish to renew at a low .7%. But there are accounting advantages on taxes for both property and depreciation.

Much more can be said and needs to be addressed.

If you have the interest and time, please don't hesitate to call me direct.

Stay cool....

Michael Gruenstein MBA CSC
mgruenstein@trebnet.com