TorontoRealtyBlog

Whatever happened to the hype man?

I mean, I know that some occupations unfortunately go out of style.

I still use a travel agent, by the way.  So don’t add that one to the list.

But while the telegraphist, pinsetter, elevator operator, and town crier may have gone the way of the dodo bird, I think there’s always going to be a place for the hype man.

On the subject of hype men, there need be no debate for the greatest ever.

While some recent commenters here on Toronto Realty Blog might suggest that, whether it need to directly pertain to real Estate, or not, it might be me who is the greatest hype man of all time.

After all, I’ve been “hyping” the Market, right?  In the face of poor real estate statistics and all, I continue to be bullish about the market.

Flattering as that honour may be, I lack the necessary clock to be the greatest hype man of all time.

Picture it.  You know who I’m talking about.

Maybe my shoulders aren’t broad enough to carry a clock as big as he did back in the day, I think few could ever compare to the GOAT.

The image is legendary:

Flavor Flav is almost a senior citizen.

I can’t believe it.

In March, he will turn sixty-five years old, but I’m sure he could still hype up a crowd like it’s 1985.

My attempts to hype the Toronto real estate market simply can’t hold a candle to what Flav did with Chuck D and Public Enemy in the 1980’s, but that’s okay.  I know my place.

Having said that, I’ve been saving this blog post for a while now.  I wanted to to wait until the transaction had closed, but I also figured I’d wait until there was a gap in the goings-on of the Torotno real estate market and that I wouldn’t be taking a blog post away from a hot listing or in-the-trenches story.

I can be somewhat……….impulsive, if I’m being honest.

I’m not the one to purchase the goods next to the cash register at Canadian Tire or Sobey’s, but I can be prone to making snap decisions.

It doesn’t necessary mean they’re not well thought out decisions, but I can act quickly.

I was in the office on Tuesday, January 2nd.

It was the first day “back” at work, although our office was virtually empty.

My family and I had just returned from London, England, the day before, as we had the pleasure of visiting my brother and his family for five incredible days.  The only time that I really, truly ever disconnect is when I’m in London.  Going on a “vacation” Punta Cana or West Palm Beach doesn’t take me away from Toronto and the real estate market, sadly, or expectedly.  But going to London does.  Maybe it’s the time change or maybe it’s the company I keep, I don’t know.  But when I got back on January 2nd, I was rested and ready to take on the world.

There was one problem with that, however: the real estate market was still on Winter Break.

While I can always “find things to do” in my line of work, whether it’s writing blogs, filming videos, touching base with clients, etc., there isn’t really much real estate to list and sell on the second day of January.

That first week of January was quite slow.

I received few inquiries from new would-be buyers, two of which were investors.

I told both of them, “There isn’t really anything on the market right now that I love.  Most of what’s available are holdovers from last year and re-lists from last year.  In lieu of a massive change in price, none of these are worth looking at.”

I’m very choosey when it comes to investment condos.

The price is important, of course.  But the location is important too.  So is the actual building in which the unit is located.  And the style.  And the layout.  And the size.

I don’t love “micro condos” but I don’t like 1-plus-den condos either.

I like small, 1-bedroom condos.  They have the highest yield, and a 1-bed-plus-den, 2-bath, is just too small for the tenant who wants a 2-bed, 2-bath, but way too large for the tenant who’s looking for a 1-bedroom.

I like buildings with low maintenance fees.  Who doesn’t?

But that means I like buildings with few amenities.  It’s great if your investment condo is in a building with a gym, pool, concierge, etc., as your tenants will love that!  But also consider that a low-amenity building comes with low fees.

Who doesn’t like a building where utilities are included in the maintenance fees too, right?

There’s a lot that goes into choosing an investment property, but as I said at the onset, price and location are usually atop the list.

About one week into January, I saw a unit hit MLS that looked familiar.

I mean, everything was familiar except the price.

I clicked on the listing, then the listing history, and I said, “Ah, okay, I know this unit.”

The property had been listed for sale last year for $599,900.

Then it was up for $589,900.

Then $574,900.

Then finally $555,000, where it sat for the rest of the year.

But now it was suddenly listed for $494,900 and it seemed, how we say, too good to be true.

This wasn’t a huge unit, by the way.  It was only 495 square feet, albeit with a huge balcony, and a soft-loft, open concept style.  But there’s an argument to be made that $1,000 per square foot isn’t really a “deal.”

Except that if you look at the history of the market and of this unit, you can also make an argument that it was, in fact the very definition of a “deal.”

Which of the following is the most powerful?

1) The unit was listed for $599,900 and was now listed for $494,900.

2) The unit was purchased for $515,000 in January of 2019 and was now on the market in January of 2024 for $494,900.

3) The unit was listed for $1,000/sqft but the prevailing average in the building, over the last 365 days, is $1,210/sqft.

4) The same model sold for $618,800 at the “peak” in 2022.

Those are all pretty good reasons to think that $494,900 was, in fact, a “deal,” but if you had to pick one, which would it be?

In any event, the reason I say to “pick one” is because I feel that one of those reasons is sufficient to represent a deal, but all four together provide irrefuteable evidence that this is a deal.

So I emailed an investor-client of mine and told him about the property.

I didn’t want to sound like a hype man here, but I told him, “This won’t last.”

Geez.

Neither will that used car that’s been sitting on the dealership lot for weeks, right?

I called one of the new buyers who had reached out to me days prior and told him about the unit as well.  He said, “It’s just too fast for me, but I appreciate you touching base.”

Then I called the other would-be investor and told her about the unit as well, and she said she would mull it over and get back to me.

Sidebar here, and we’ll get back to where we just left off, I promise…

In February of 2005, I sold my brother and his fiancée a condo at 168 King Street East.

Two weeks later, an awesome unit was listed for sale at 230 King Street East that was very similar to the one my brother had bought, as both had huge outdoor terraces, but it was smaller in size and probably better suited for one person.

I called my buddy Pete and said, “Hey, you said you want to get a place this spring, so let’s go check out this unit.”

So we did.

I distinctly remember walking through the unit and falling in love with it immediately.

But my love was much, much greater than Pete’s, as he just wasn’t the smitten kitten.

He said, “Um, I dunno.”

And I replied, “Are you sure?”

Pete said, “Yeah, I just, I dunno.  The timing, and all.”

So I told Pete, “Look man, honestly, truly, if you don’t buy this unit, I will.”

He threw his head back and laughed.  How could he not?  It’s old-school sales bullshit, right?

I said, “Pete, honestly, I’m telling you right now; almost asking you.  If you’re not going to buy this place, no problem, seriously.  But I’m going to.  Okay?”

He said, “Alright.”

And two days later, I bought the unit.

I lived one block from my brother (not sure if his fiancée was a fan of the move…) for the next five years and we both came of age in our young adulthood in the King East area.

But that’s an aside.

The point is that there have been times in my life where I’ve said, “If you don’t buy this, I will,” and have meant it.

When it came to this little condo, listed for $494,900, that all of my investors were passing on, I felt the same way.

Real estate as an investment is very, very different from a share of stock.

A share of stock can go down to $0.

A house or condo can’t.

A piece of real estate doesn’t pay dividends like a stock does, but over time, I think we can all agree that the price goes up no matter what.

I had no doubt that this condo, which was “worth” over $600,000 in 2022, would attain that value again.

I simply couldn’t let go of the fact that this wasn’t just a deal, it was a steal, and I obsessed about it that night.

The next morning, I called the listing agent and said, “So you’re at $494,900, eh?”

She said, “Yeah,” with a bit of a sigh.

I said, “And you were at $555,000 in December.”

She said, “Yessir,” with a bit more enthusiasm.

I said, “So is this $494,900, but we’re kinda, sorta, hoping that we get multiple offers, and push the price up by twenty, thirty, forty grand?”

She was all business and replied, “No, David.  They need to sell.”

I answered, “So, if I bring you an offer for $494,900 right now, no conditions, three-week closing, with a $50,000 bank draft, you’re good to go?”

Agents like this know how to get deals done.  It was clear that her clients wanted to sell, so she was taking their lead and acting accordingly.

“Look, these guys are giving this away, okay?  But we’re not going to mess around.  Not a penny under the list price, seriously, not a penny.  I’ve got an offer in hand from somebody who came in last night with a bullshit offer and the sellers just want this done, okay?”

Okay.  Understood.

So call it impulsive if you want to, but I decided to put my money where my mouth was.

I was bullish on the market.

Bullish short, medium, and long-term, and this was a downright steal.

So I made an offer.

And three hours later, it was accepted.

I paid $494,900 for the unit, but if we’re being completely honest here, when you reduce the purchase price by the real estate commission plus HST, the price ends up being $480,920.

So since I know most of you want the numbers, let’s work with that.

The down payment is 20%.

That’s $96,184.

Interest rates suck, right?

But this is a long-term play, just as every investment condo should be.

I took a variable rate at a whopping 6.7%.

That’s big!  I know.

But that’s for today.  And for tomorrow.  It’s not forever, and while I understand that all investments “need a return,” I choose not to evaluate my return (or loss!) based on the next few months, but rather the next five years at a minimum, but realistically over twenty.

The monthly mortgage payment is $2,459.27, via the 30-year amortization.

The maintenance fees for the unit at $305.58 per month.

The taxes are $183.33 per month.

The tenant will pay the utilities.

This unit “should” rent for $2,400 per month, becasue of the location and the building, but the rental market is flooded right now and it’s soft.  So let’s say $2,300.

All in, this unit costs $2,948.18 per month and I’ll only get $2,300.

Gosh.

I’m losing $648.18 per month!

But that’s cash flow and I have cash on hand.

There’s $350 per month of principal repayment, so the condo is “only” losing $298.18 per month.

Still a terrible investment from the perspective of many out there, right?

But what’s $298.18 per month?

$3,600 per year?

Who cares?

At some point in the next 12-24 months, we will see a five-year, fixed rate of 3.49%.

That’s my target.

I’m not greedy.  I’m not looking for the pandemic-driven 1.69% rates or even the 2.69% rate I have on my principal residence.

Just a simple 3.49% rate.

When that happens, the numbers change.

The mortgage is $1,720.11 per month.

The monthly carry is $2,209.02.

The unit will still rent for $2,300, or more, if this is in 1-2 years.

So the unit is cash-flow positive by $100-$200 per month, but as I said, I’m not concerned with cash flow.

Of the new $1,720.11/month payment, now $650/month is principal repayment.

So we’re about $750 – $850 per month in the black.

Yes, there are going to be expenses, such as the real estate fee to find a new tenant, or upkeep on the unit.

But $10,000+ per year on the $96,184 down payment + $12,187 sunk cost in land transfer tax + $3,000 in legal fees and disbursements is a 9% return.

And that doesn’t include appreciation.

Real estate investing has always benefitted from leverage.

While a cynic or a bear will point out, “Five-times leverage can be five times as painful when you take a loss,” I have made it clear that I don’t believe in a loss here.  I’m not selling this unit and over 5, 10, or 20 years, this will go up.

Let’s say that the condo market “only” appreciated 2.5%, on average, every year, for the next ten years.

25% in a decade?

Does anybody expect less than that?  Tell me if you do, but inflation alone will push prices that high, or more.

So when a real estate investor makes a 20% down payment, they are 5X leveraged.

That 2.5% appreciation is actually a 12.5% return on investment.

Add in the 9% return via cash flow and principal repayment, and this is a 21.5% investment over the next ten years.

That’s with an appreciation rate at the rate of inflation, by the way.

Give me the 50% increase that I think is the minimum over the next decade, and the return is 34% per year.

A good private equity vehicle, for those who have access, and who can lock money up for 5-8 years, should return – what – maybe 15-18%?

Debate that, please and thanks.

Although we’re now risking delving into the dirty world of unverified and anonymous accounts of market returns, which is something I learned not to do while sitting at an East Side Mario’s with my buddies in my early-20’s, but I have no problem putting my facts and figures in the preceding paragraph.

After all, I feel as though I need to live up to the hype.

I’ve put my money where my mouth is.

I’m not here on TRB cheerleading, spinning, or hyping.

Just chatting.  Or rapping.

Please share your thoughts…

…if you have the time…

The post Putting My Money Where My Mouth Is! appeared first on Toronto Realty Blog.