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Posts tagged ‘toronto’

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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8
Feb

Market conditions stressing out local Realtors too

hair-pullAs a manager for a busy downtown Toronto real estate office, I never thought I would be spending my time talking agents off the edge of a cliff. The truth is, that the market is breaking new ground on agent management. In the past, my conversations with fellow agents revolved around helping them write clauses, dealing with complaints, running meetings, being a liaison with front desk workers, reviewing advertising and generally ensure their business was running smoothly. Today I’m still doing those tasks but as an unfortunate byproduct of this market, I find myself spending a lot of time comforting agents, offering condolences and talking through the ‘post offer’ game tapes. Don’t get me wrong, these are great conversations, but I worry about an office full of stressed out and exhausted agents.
Now, you might be thinking…boo hoo, poor agents, they make so much money it’s hard to have any sympathy. The reality is that the buying process is seriously intense these days. Frustration levels amongst agents are extremely high. They are missing out on offers on both condos and houses and our office meetings and masterminds are dominated by countless stories of failed offer attempts despite clients throwing everything they have at a property.
The problems of low supply, as reported in the media, are not limited to the downtown core either. This is a Golden Horseshoe problem, from Hamilton to Ajax and as far north as Barrie. Granted, the supply crisis is highest in the 416. For several years I have been tracking the weekly sales of houses and condos in the downtown market, defined by the area between the 401 and the lake and east to include the Beaches and west to include High Park. Over the years I have watched the general trend of tightened supply in both houses and condos as well as an increase in the percentage of properties selling over the list price. While housing has stayed relatively consistent, only edging up slowly, the condo market has often surprised me. When I first started tracking sales, there was only true competition on about 13-15% of units sold. That percentage was pretty stable for a few years. Then the number started to shift. By mid year 2016 I started to see more units selling at or above the list price. By June we started to see 30%, by October we were testing out 40% and by December we were seeing some numbers in the 50% range. Imagine, half of all condos selling above the list price. In January 2017 new records were set. Last week we hit 65% and when I am reviewing each and every listing on a line by line basis I notice that condos are not selling over the list price by a $5-10,000 like a few years ago, they are selling over the list price by $50-100K now. It is an extraordinary phenomenon.
Freehold homes face the same challenges for buyers. Recently a home in the west end, listed at $799K sold for $999k then, less than a month later a similar home sold for over $1.2M. Everything in an agent’s gut says these houses are worth the same money. So imagine what is happening to those clients who are being told to submit their offer based on a recent sale, only to get completely blown out of the water.
What impact, if any, is filtering down to the agent on the street? Productive agents are feeling the pressure as much as new agents entering the real estate field. I personally find myself spending as much time coaching the newbie agent the art of increasing your odds at the offer table as talking to the experienced agent who is frustrated with market conditions and looking for answers. And it’s not just the shear number of buyers looking for homes that is creating high stress levels. Increased scrutiny by the banks on their borrowers (sometimes insisting on conditional financing clauses), appraisals and quick home inspections are severely complicating the buying process. Are there any quick fixes? Nothing seems evident on the horizon and my impression is that as the spring market approaches it is going to be a whole lot harder before it gets easier.
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.

23
Feb

The Powerball Meeting Part 1(billion)

Sometimes you just have to use current affairs as a springboard to your next meeting. A few weeks ago I sent out a simple email to the team. It read; “So the news is out. I was the sole winner of last week’s Powerball draw in the US. I’ve decided to start my own country and as a gesture for you NOT to leave I will be giving everyone who attends tomorrow’s meeting $10,000 in Marco Currency ( which is tied to the US dollar). There is one caveat; you must spend it on real estate related things. Have I piqued your interest? Also I will be importing bagels and cream cheese from distant shores (Roncy) for your further enjoyment”.

My message worked. The next day my meeting was packed, thus proving the point that good titles are as important as good content. I learned another interesting lesson too; When you are printing fake currency don’t try to photocopy real money, even if it’s significantly doctored up. Modern printers won’t let you (but that’s a story for another day). So to start my meeting I asked people what they spend their money on in order to promote their business. We came up with about 16 things ranging from website maintenance to client gifts. powerball meeting

I wrote each suggestion on a piece of paper and then handed out $10,000 (in $500 increments) in Marco Money. I asked each agent to “spend” their money as they wanted. There was a bit of mayhem in the office for the next few minutes as agents jockeyed to get their money distributed but their was an added bonus to the madness as I watched some agents explain their logic on why they placed certain amounts on each pile. While at least one agent put the whole $10K on online lead generation, others distributed it more evenly. marcomoney No surprises coming from a bunch of peacocks like us, they spent the most money on entertaining ($34,500), followed by website ($33,500), awesome listing packages ($29,500), online advertising ($24,000), gifts ($22,000), networking events ($19,500), education ($18,500), productivity tools like CRMs ($12,500), sponsorship and community events and seminars ($12,500), flyers ($12,500), direct mail ($11,000), image ($11,000), newsletters ($6,500), bus shelters ($5,000), videos ($4,000) and finally billboards ($2,000).

Why $10,000? Simple math really. Several years ago our firm hired a company to conduct a survey on our agents and verify all their responses. One of the questions was “how much do you spend on marketing?”. The other question was “how much should you spend on marketing?”. Not surprisingly there were two different answers but the message came through loud and clear. 10% of your earnings, at the very least, should be designated towards marketing. Presuming your goal is to earn $100K then $10K seems like a good place to start.

In my next meeting (part 2) I’m going to reveal how much the agents spent on each category and then I’m going to ask them to explain their logic. Stand by for the follow-up.

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

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