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Posts tagged ‘maintenance fees’

14
Feb

The New Danger to Toronto’s Rental Pool

condo-rentalsThere should be no surprise to anyone that we are seeing significant competition for rental suites in the city. Last week an agent in my office scoured MLS to find 21 condos that met the size, location and price for his client. He started calling to make appointments only to find that all but 4 had been rented out. Clearly a shortage exists in the rental pool across the city which is creating competing bids. In this situation the winner is not just the guy with the biggest amount of money. Today’s winning tenant is the one who has the best covenant, that is.. the best job (meaning long track record of employment) and the biggest salary, the least debt and highest credit score. Perhaps that doesn’t come as much of a surprise.

But the bigger concern should be the shrinking pool of rental units across the city. The double-digit price increases that condos are experiencing together with some of the highest numbers, in terms of millennial buyers, entering the market, should be cause for concern. Consider that in January 2014 the average condo in C01 cost $448k. That would typically be a 1 bedroom and den configuration of about 700 square feet +/-. For simplicity I will assume that a typical buyer would put down 20% (or $90k) and carry the balance on a mortgage at a cost of about $1694/month. ($358k at 3%, 5 yr term). Include a typical property tax of about $265 per month (Around $3200 annually) and maintenance fees around $385/month ( $.55/per sq ft). and you have a total operating cost of about $2345/ month. For that kind of money in C01 you are probably located on King West about a few blocks away from the Financial District and assuming the unit had parking, the monthly rent MIGHT cover your nut. Not a bad deal especially if you hope that the unit is appreciating year over year.
Jump ahead two years. That same unit is now, according to TREB stats, pushing $531k. Interest rates have not changed significantly so the monthly cost of your mortgage, with the same 20%down, is now $2016/mo ($531k-$105k deposit= $426k at 3%, 5 yr term). Assume maintenance and taxes are similar and your monthly carrying cost is now closing in on $2670/month. Rental rates have not kept pace, so if you are an investor, you would be running a loss, in fact you need to have nerves of steel to be ok with losing well over $300/ month. For investors, buying a condo to rent out just doesn’t make sense.
Now consider the investor who bought in 2012. Chances are they are covering their expenses nicely. Even with higher maintenance fees and taxes, they are still in the black by $200-$300/month. But at an average purchase price of $410K in January 2012, if that person sold today he would gross $121k. Hard to pass up on that considering it would take you roughly 40 years to earn that same income when you are collecting it $250 a month. Naturally, I am omitting commissions and capital gains out of the picture but the theme remains. Currently in the C01 there are nearly 400 active listings of which 122 are listed as having tenants. Many of the listings I examined contained vacant possession notes in the broker comments. If half of those tenants are forced to move to accommodate end users, Toronto could face a much more serious housing shortage. On a side note, two other factors will change the landscape of rental units in Toronto namely the tightening of speculative lending through the banks and AirBandB. Two things to keep an eye on.

Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.

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31
Mar

Client or Customer? If It Quacks Like A Duck…

duckWe all know it. In real estate there are differences between clients and customers. We learn these differences very early in our education and training. We talk about fiduciary duties, accounting, fair and honest service etcetera, but the reality is that often those lines get blurred and that puts us into a difficult situation. Case in point. An agent, lets call him Terry, gets a call on one of his listings. The couple want to look at it at 5pm on a Thursday. Terry is not available to show the property so he gives the lead to Fran, an agent in his office who often acts as a buyer agent for him. Fran meets the couple at the condo and shows them around. They spend a long time there and ask Fran a bunch of questions about the property such as, what closing are the sellers looking for, what is included and excluded, and what facilities are in the building. Fran is happy to answer their questions. After a few minutes, it is clear that this couple is very interested in the condo. They start asking more questions about past sales, additional parking costs, maintenance fees and reserve funds. Fran knows the building and answers their questions. Finally the couple tell Fran that they are prepared to make an offer. They want to know why the seller is selling, what the Seller is likely to accept, closing date, and how much commission the seller will be paying and what clauses they should include in their offer. Fran is no dummy. She advises the couple that the property is inline with past sales and is well priced but gives no details into motivation or details into the listing contract.
The couple tell Fran that their lawyer has advised them not to sign a BRA and that they should only enter into a customer agreement. They also feel that it is only fair that since they contacted the Selling agent directly they should only pay 1/2 the commission however they still want Fran to prepare the offer. So here is the crux of the situation. Fran, has treated them, for the most part, like clients. She has provided information and offered advice on the property before establishing what kind of relationship the couple wished to assume. This creates a problem for Fran. If something were to go wrong during the transaction the couple could hold Fran responsible. She has after all put herself into an implied client/buyer relationship. If she knew that the couple wanted only to be customers, her answers on most of the questions would have been much simpler…”Please have your lawyer direct his questions to the Sellers or the Sellers agent”. By doing so, she exonerates herself from any potential question of representation.
As to the comments about commission, the answer again is simple. “My firm has been retained by the sellers to market their property for sale. The details of that contract are confidential and do not impact the sale price”.
It is only human nature to want to help and that desire becomes stronger when there are dollar signs on the other side, but the pitfalls of taking too many assumptions can be equally devastating. The example above highlights the importance of that critical first interaction with a potential buyer who you meet through a direct call or even at an open house. The realities of the Toronto market are that buyers are looking for a price advantage, just don’t let your eagerness to make a deal cloud your judgement.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.

19
Apr

Mastermind for April 18th. Condo Listings and Information Gathering

Mastermind rocks! As you know, we meet every Wednesday in the lobby of Bosley Real Estate’s Queen West Office. In the beginning it was just our little team but it has since grown to include many agents from our other offices. It is amazing to connect with our counterparts and we always love to welcome new faces.  So, if you slept in or just couldn’t get it together, you missed a great discussion about listing condos. The conversation seemed timely as a recent article in The Star reported some interesting stats on condo prices. See the article in full here. http://bit.ly/HTQYO0 

It seems to be a common occurence. Agents miss information on condo listings fairly regularly. Maybe it is because it is easier to take information from other listings than to call up the management office. As I wrote in a previous post, that can land you in seriously hot water. Read the story here.http://bit.ly/Hj2b4R . We had several very interesting anecdotes about condo buying experiences.  One agent relayed a story about doing some checking on a listing that a client of hers was interested in. The listing stated that the price included a locker, but after many phone calls to the management office, it seemed that the unit didn’t have a locker even though the seller assured the listing agent that there was one. As insignificant as it sounds, lockers are an important, and costly, part of condo ownership today, especially when storage space is at a premium in small spaces. Another agent talked about how parking spaces seem to be getting smaller and that recently a buyer client of hers couldn’t fit his car into the underground spot of a building he was interested in. We heard a story about a buyer client who was forced to buy out a rental furnace contract and another client who, after moving into a new condo, discovered that the previous owner had signed a 10 year third-party maintenance package on a furnace and hot water tank. Finally we heard many examples of other agents listing maintenance fees and their inclusions incorrectly.

The take away from this discussion seems that you really can’t leave any stone unturned. It is important to spend the same amount of time checking the facts on condos as you should on freehold properties. Don’t assume that any previous listings in a building contain accurate information.  From our discussion, we reminded ourselves that when you list a condo it is important to ask the owner to look at the parking spot, check out the locker (even take measurements) and find out if there are any third-party contracts that would fall outside the regular maintenance fee.  While you are at it, why not check out the amenities? Does the building have guest parking? In Toronto, condo sales are responsible for over 60% of property traded. It seems like taking a few simple steps will go along way to limiting liability and creating a smooth selling process.

Have a great week!

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