“I’ve been going through some first time home owners remorse over the last couple of months,” says Heather, “and a friend suggested I reach out to you.”
Yeah, you guessed it. Heather went condo. Bought in a trendy Toronto hood almost a year ago now. Brand new building. No firm idea of condo fees or taxes.
“I was advised that the estimates for these should be pretty accurate when the building registered and didn’t give it too much of a second thought. I was also advised that condo prices generally went up after registration, so it was a good time to make the investment and would likely see a return within the next few months once the building registered. We negotiated the sale and away we went.”
In case any hormonal property virgins are reading this (you know who you are), pay attention. Never buy into an unregistered building. Never trust a salesguy’s guesstimate of costs. Never sign a contract where costs are open-ended. Never buy without a lawyer. And, while we’re at it, don’t buy a condo in Toronto.
“For the next few months I paid a ghost mortgage until the building registered. And that’s when I felt the BOOM. When I went to sign the paperwork with my lawyer he explained to me that maintenance fees would actually be closer to 500/month, an increase of 30% from the estimate. A few months later, I received a notice that my taxes were also going to be a fair amount more based on my assessed property value. At the end of the day, I’m spending over $2,150 to maintain a 690 foot box. Had I been aware of the actual numbers or the fact that estimates are almost always way under actuals, I would not have made this purchase.”
By the way, the same unit rents for about $1,750, with no downpayment required, no closing costs, no land transfer tax and no CMHC premium – all of which amount to just under $34,000 on a $350,000 condo with 5% down.
“To make matters worse,” she says, “I’ve been keeping my eye on recent sales in the building and the general area since the sale closed to make sure that I was seeing positive increases post registration. Unfortunately, this hasn’t been the case. Condo prices in my building seem to have remained flat and in some cases even decreased. Furthermore, building in the area has accelerated to the point where I am now concerned about over saturation, and a dropping condo market over the next couple of years.”
Heather’s learning fast. There are 147 condo buildings under construction in Toronto, and over 21,000 new and vacant units on the market. In total, more than 50,000 condos are in the development, marketing or building phase. And there are another 6,300 resale condos currently for sale in the GTA.
And how many new units sold last month? Just over 680 – a 40% drop from two years ago.
“So here’s my question: Am I better to look into selling privately (screw the agents) and get someone to assume my mortgage, or worst case scenario selling and assuming the loss now. Or, do I hold onto it and hope prices increase enough over the next 5 years to make my rather high monthly payments worth it?”
Are you sitting, kid? Good. This is ugly. First, trying to FSBO your unit is a non-starter. With six thousand condos for sale on MLS alone, plus thousands more being flogged on Kijiji, Craigslist and the walls of the women’s washroom at Union Station, you need all the marketing firepower you can get. Find an experienced agent who knows the building and the area, and who’s actually selling units and has a network of people looking. Hire him.
Second, nobody’s going to assume your mortgage. Not when they can get a fresh, steaming new one at a rate lower than yours (or at least equal to it). Fixed-rate, five-year money can now be had for 2.95%, and locked-in three year loans for half a point less. No, if you sell you’ll have to add a mortgage break fee to the commission. And, yes, that means you’ll have to bring a cheque to the closing.
Hang on for five years? Another bad idea. Spend another $24,000 premium over what the renter next door is shelling out, then try to sell a well-used, 690-foot space in a five-year-old building, in flooded market for what you spent in 2012 at a time when mortgage rates will likely be double? Sweetie, you’ve been listening to Brad Lamb again.
Speaking of which, a trusted friend went to Mr. Lamb’s ritzy Toronto seminar a few nights ago (I’d have gone, but there’s a contract out on me). This guy is a long-time condo-owner, runs a condo board and even consults other condo corporations. He’s also urbane, wise and accomplished.
I thought you might be interested in his observations. You too, Heather.
Crowd of about 300 was composed 15 percent wrinklies, 75 percent downtown hipsters, and 10 percent groupies from his office.
The statements and projections he made were shockingly vacuous and clearly designed to channel people into condo box speculation, typically in his own upcoming developments (a fact he was not ashamed to state). He obviously has a big pipeline to fill in his Lamb Development Corp. projects.
Basically he was promoting a 25 year plan that anyone can follow, to become a real estate multi-millionaire by flipping debt in multiple condo units and signing up reliable, trouble-free tenants. He heavily emphasized the advantages (generally all false) of only buying brand new developments. While everyone knows that older established buildings have greater inherent value and stable fees. His self-interest in this market fallacy was nakedly obvious.
He never once mentioned anything about the costs of carrying debt. All projections are based on continued long term historic low rates (plus perhaps a one percent increase in middle term). He shows tables showing 30-year appreciation of real estate, but not the 30-year averages of mortgage interest rates.
He heavily emphasized the word ‘profit’ all the time, but none of the tables showed anything about carrying costs or taxes. His idea of profit is always fantasy-world gross amounts, not net.
And worst of all, sprinkled the F-bomb word (and variations thereof) plus the BS word about 18 times by my count. The whole 90 minutes was a profanity-laced intimidation of hapless audience listeners. He seems to think that coarse language for shock value somehow builds authority. Witnessing this was actually quite disturbing, the number of ways he laced the talk with such vulgar comments.
He’s a real piece of work.