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Toronto Real Estate “Stock Market”

Posted on July 9, 2014 by Orkhan Raguimov in Real Estate

Toronto Real Estate “Stock Market”

Toronto Real Estate: Is it BUY BUY BUY? Or SELL SELL SELL? One thing is certain: Today’s real estate market has many characteristics of the infamous stock market. Much like stocks, even in today’s market, there are properties that will make you money and there are those that could lose you a bunch.

Are you a risk taker who wants to gamble for highest return? Or you want to play it safer and collect cash flow (much like dividends) but limit your upside?

My last month’s Special Report on Toronto’s condominium market exposed many pitfalls which buyers should be aware of, and I explained why the condo market is not the strongest segment in the housing market today.

But as negative as my last month’s report may have seen, make no mistake about the fact that overall Toronto’s real estate market is one of the hottest markets in the entire developed world!

To begin with I always like to bring real life examples from my personal experience, these ones are real and unfiltered facts. And one good example came last month.

For obvious reasons I cannot disclose the exact location of the property, but here are some details. This subject property was purchased by now sellers at the end of 2009 for $367,000 (great deal!). Property was located close to Lake Ontario, but not waterfront. It was a small bungalow in the south-west end of the city with a shared/mutual driveway. Today, this property looks largely the same on the outside with no major changes. The main level is nicely renovated compared to 2009, and the basement was completely finished since the purchase date. All in all I’d estimate the renovation costs to total around $70,000.

This property was listed for $649,000 and drew 6 offers, one of which was ours. Not going to lie, knowing the market, some things are given. Based on the access to information we have this one is selling well over asking, and every offer on the table is likely a firm one (unless some agent really wants to waste their time).

Long story short, our offer was $732,000 firm, and the property sold for $778,000. That is nearly $130,000 over asking, which even in my mind blew all proportions. There were facts in which I could justify $732,000, and may be even $750,000, but $778,000 definitely did break all the barriers. Likely in the long term, the buyers won’t care about the price they paid because this particular pocket became hot cakes & today it is surrounded by million dollar homes…

But back on to our point. The buyers who bought this property 4.5 years ago, after some renovations, realtor fees, etc. have cashed in over $300,000 tax free (no capital gains tax on your principal residence) just based off the price increase alone. That is right… this property which they bought for $367,000 and lived in for 4.5 years has more than doubled in price since the end of 2009. That is what I call a jackpot!

Now, the good old condos. Had a pleasure of visiting one of the units on Yonge & Sheppard area last month, and this condo is currently for sale by… you are going to love this… an agent! Meaning it is owned by a real estate agent :)

It was purchased in the beginning of 2011 for $412,000 and is currently sitting on the market for 2 months with an asking price of $399,000… and likely has no hope of selling at that price. Is there an opposite word for jackpot?

One of the most recent stats that was released by Toronto Real Estate Board showed that condo prices in Toronto were up on average 6.8% over the past year. This is one of those stats that I would take with a big grain of salt.

Average. Let me put this in a perspective for you. 2 Buildings are located in a particular area and average 1 bedroom condo there sells for $200,000. Builder comes in, builds a brand new building next to those 2 and finds suckers who buy those units for an average of $250,000 for each 1 bedroom unit.

Now, even though the 1 bedroom units in the first 2 buildings are still selling for $200,000 each, the new building has upped the price of the average 1 bedroom unit in the area to $217,000. And there, your average has just gone up by over 8%!

And what is in it for you? Who is the winner? Definitely not the owners of those condo units!

There are ‘some’ areas that have increased, but the opposite is true as well. Few months ago I sold a unit for top dollar in one particular area of the city… today, in that same building, ‘asking’ prices are lower than what I sold that unit for.

The bottom line is that the average price of a resale condo in GTA is not up 6.8%. Always remember to compare apples to apples.

Now, how do you differentiate between a good real estate investment from a bad one?

Stocks vs Real EstateFor that, let’s first look at the stocks: If you decide to invest into some technology stocks because your research shows that industry is hot, you will still want to really narrow down your list based on ‘fundamental’ & ‘technical’ analysis down to a particular company or two.

This is taken straight from wiki:

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets”

Technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.”

When searching for a property with the goal of Making Money believe it or not that same principal applies.

Your Fundamental analysis will involve research of the city or town, then area, community, and often times all the way down to each street… you won’t believe how big of a difference can a street appeal alone make when it comes to future buyers who are shopping for a property.

Your Technical analysis (while not as extensive as with stocks) will involve studying the price growth in the area, as well as trying to figure out whether there is more upside potential and if so how big could it be.

When it comes to investing in Real Estate many factors are in play, and if you are planning to make money in this industry then every fact & detail counts.

There are people & entities that make a lot of money investing in stocks and then there are those that lose just as much. Today’s Toronto Real Estate market is turning the same.

Remember, for every winner there is usually a loser, WHICH SIDE ARE YOU ON?


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