| dc_denizen |
Oct 20, 2021 9:10 PM |
I'm merely pointing out some interesting differentiators between Toronto and high-growth US metros like Dallas. Why is this considered hostility to Toronto/Canada?
I doubt retail investors are buying 4-6 pre-construction condos in Plano, TX apartment buildings, I'll tell you that, even as 40-50,000 multifamily units are constantly under construction in Dallas/Ft Worth
As I said, Vancouver and Toronto represents a new Dubai-like paradigm for property investment in North America. this is just a comment, not a value judgment (Dubai has lots of skyscrapers, you may have noticed)
WINNING IN THE CONDO MARKET WITH NEGATIVE CASH FLOW
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The rewards associated with cash-flow positive condos are clear. They put extra money in your pocket each month. The benefits of buying a unit with negative cash flow are less obvious—and it comes with some risks. If market conditions don’t go your way, you may never see the kind of returns you’re hoping for. And if you lose a separate source of income (due to a job layoff or because another investment takes a nosedive), the costs of maintaining the property could lead to financial strain.
That said, there are a couple of big reasons why some investors are willing to take on the risks of a cash-flow negative property. Namely: impressive sale profits or a fantastic rental income down the line.
While it’s true that nobody knows exactly what’s going to happen in the Toronto market, educated guesses can sometimes pay off. Using factors like historical appreciation rates and projected neighbourhood price growth, investors can estimate how much their cash-flow negative condo will be worth in a few years. Of course, it’s important to note that this is speculating—and it can be risky. That said, if you see a strong possibility for future capital growth (and interest rates aren’t slated to rise), you could be looking at a great investment.
If your end goal is to make money by renting out your unit, there are other factors you’ll want to look at. What’s the local rental market like? How much are landlords charging for condos in nearby buildings like yours? Is there strong job growth in the area? Is the community becoming a popular “it” destination? If you can accurately assess the situation, you’ll make a wiser (and more potentially profitable) investment.
Pre-Construction Condo Buying & Negative Cash Flow
Let’s say you find a pre-construction project that you’re interested in, that’s located in a hot neighbourhood. Not only is the location great, but it boasts fantastic features and amenities. There’s only one issue: it’s projected to be cash-flow negative. When you’re trying to decide whether or not to buy it, consider this. Every real estate investment comes with some risk.
Right now, you’ll find a lot of projected cash-flow negative properties in prime locations. Liberty Village for example. Liberty Market Tower, to be even more specific. Is purchasing a unit in an area like that really a bigger risk than buying one with positive cash flow in the middle of nowhere? Many investors don’t think so. They’re snapping up good pre-construction units the minute they’re available, with the expectation that rents will rise (perhaps slowly) while mortgage rates stay the same. And think about the appreciation in value – THAT’s the key here.
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From 2017: price appreciation overcomes negative rental cash flow
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About half of the newly completed condos in the GTA last year were bought as rental investments and these investors likely realized a return of about 155 per cent before closing costs
Nearly half of all investors who bought condominiums completed in the Toronto area last year aren’t making enough rent to cover their holding costs, despite chalking up exceptional gains on the value of their properties, a new study finds.
No less than 44 per cent of investors who took possession of new units in 2017 were in negative cash flow — that is their rental income fell short of the amount needed to cover their mortgage payments and condominium fees, according to the study by CIBC and Urbanation, a market analysis firm.
Though 45 per cent of those investors were short by less than $500 per month, another 20 per cent were short between $500 and $1,000 per month. And 34.5 per cent were in the hole for more than $1,000 per month.
“We know now that many of them are in negative cash flow, but they also made very nice money on their investment,” said Benjamin Tal, deputy chief economist at CIBC World Markets Inc.
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Investors who bought condominiums for the purpose of renting accounted for 48 per cent of all newly completed units in the Greater Toronto Area in 2017. The resale price of those units – most of which were bought between 2011 and 2013, before the market boomed – was an average $817 per square foot in 2017, up 51 per cent from their average pre-sale price of $541 per square foot. An average of five years elapsed between when the units were pre-sold — or purchased from the developer ahead of construction — and when they were completed.
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