A Pie in the Sky

Buying an Investment Property 101

By Shiuli Sharma

Not quite the urban legend, but you've heard this story often enough at backyard barbeques, dinner parties or even at the office cooler of a friend's friend who made quite the neat packet when he bought an investment condo in downtown Toronto, then another and another. Now he spends time on his yacht in the south of France. While it may sound like a fairy tale, investing in condos like any other investment can accrue big payoffs if you've done your due diligence. "Investing in real estate isn't a get rich fast plan, but a get rich slow plan," says Hunter Milborne, the President and Founder of Milborne Real Estate Inc. With over 34 years of marketing and selling more than 600 developments for some of Canada's leading developers, Milborne is often referred as the "Dean of Condos".

The Toronto Factor

Buying a condo in downtown Toronto seems like a tempting investment option. After all, Toronto is the largest condominium market in North America. In fact, just in the month of April, a new condo suite was sold every 13 minutes! Unlike other large North American cities, Toronto's appeal lies in its sound economic, political and social environment that has remained fairly unscathed by the recession, but more importantly in the attractive condo prices it offers.

THE DOs AND DON'Ts

It is a good idea to invest in condos now, as the sales in the downtown condo market will increase by 10%, but note the prices too will go up by 3 to 5%. The current vacancy rate for rental condos is under 1%, the rental rates will increase by $100 per month. What's more, most condos are renting within 10 to 15 days on average. Although the small units are always the first to go, the bigger units are now selling at the same price per sq ft as the smaller ones. And in the future, these units will sell for more per square foot than the smaller ones. In such a scenario, every investor should follow some rules in order to protect their investment, and ultimately their peace of mind.

DOs

Do your homework on the property, the developer and the local market
Do consult an expert before you take a decision
Do make sure you can afford the property
Do remember that investing in property is a long-term proposition
Do have an achievable exit strategy even before entering

DON'Ts

Don't overpay for the property
Don't take on more than you can handle
Don't always assume a stable/increasing rental market
Don't assume the property will increase in value from the time you sign the contract till the final settlement

HUNTER'S TIPS

Buy a great location
Buy close to transit
Buy what is affordable
Always protect your capital
Don't sell in haste

In New York, condos can go for $10,000 - $12,000 per sq.ft. as compared to $2,000 - $3,000 in Toronto, and these are the luxury segment prices. By comparison, 210 Simcoe offers an incredible investment opportunity at an attractive price point. According to Urbanation Inc., a leading research firm, Toronto condo sales over the last five years amounted to 18,000 suites annually. Believe it or not, more than half of these were bought by investors. "It is the economics of demand and supply, solid banking system, low interest rates that lure the investors to the Toronto condo market," says Hunter Milborne. But the real story behind Toronto's booming condo market is yet to unfold. "Every year close to 100,000 - 150,000 people come to the GTA from across the country, and this includes new immigrants as well. This influx of population will create a demand for living space that will soon outstrip the supply," adds Milborne. "Investing in real estate isn't a get rich fast plan, but a get rich slow plan." In 2005 the provincial government enacted the Green Belt legislation. This legislation froze a significant amount of land in the GTA, thus restricting the supply of low rise towns and singles in the 905 area. According to Milborne, "over the next five to ten years because of this legislation there will be serious supply issues in the low rise area and the demand will have to be taken by the high-rises." It is against this background that investors are flooding the Toronto condo market. While some are in to make a quick buck, the serious and experienced investor knows that big money will come over time. For the first time investor, Milborne has this advice, "buy what you can afford and hold on."

The Starting Line

So where does the novice investor begin? "As trite as it may sound," says Milborne, "always begin with the three main things in real estate - location, location, location!" When you buy into the right location, you need not worry about anything. For instance at 210 Simcoe it takes just two and a half minutes to walk to transit. This fact in itself opens a world of possibilities for those who will call it home. And most will be willing to pay the price for this convenience.The other important advice that Milborne has for the first time investor is, "don't buy more than you can afford and don't sell at the wrong time." Like any other investment, taking a defensive position is always a safer bet. Like the guru of investing, Warren Buffett once said, "Rule No.1: Never lose money. Rule No.2: Never forget rule number one".

A Matter of Size

In a market that offers a variety of floor plans and suite sizes, it's easy to get overwhelmed. For the first time investor, Milborne has this to say," When choosing a suite, a bachelor or a one bedroom + den offer a better rent to price ratio than the larger suites." If you're in the market for first time opt for suites that are smaller, cheaper and affordable, as these always accrue better returns at presales."Once demand outstrips supply, which is bound to happen in the coming years", says Milborne, "the two bedrooms and two bedrooms + den will appreciate more, as they are fewer in number." These units are good for those investors who may want to move in later or put them up for resale.

All renderings are artist's concept only.