High-carb condos


Should he plunk windfall cash into Toronto market?

GarthI’m a 43 year old, working for 19 yrs and have 2 kids, 10 and 8yrs of age. My wife has just recently gone back to work. My scenario is this – my In laws want to give us money for a down payment but conditional as long as we buy a property. So we found a condominium that is going to be built by 2010, and the downpayment is $15,000

The condominium costs $225,000 which would mean we would have to carry a big mortgage.

The problem is, I already have a mortgage on my existing housing and taking on another mortgage especially with what’s happening in the U.S, worries me, mind you whatever I read and whoever I talk to say NO THAT WONT HAPPEN HERE but you’re in disagreement with this. There is much information stating otherwise. I know this year there is a U.S election and chances are they will try and get that liquidity primed till after the elections. But what about 2010 and beyond will baby boomers retire and cause a decrease in property values, or will they buy condos and I should try and pick one up.

Need help. Really confused on this one…Andrew

I’m guessing this question relates to an investment property, not your principal residence. Therefore my answer can best be framed by a simple question: Are you nuts?

First, look at the local market in the Toronto region. There are 56,000 condos in the pipeline now – being marketed or built – and it’s estimated at least 40% have been purchased by investors. This means a couple of things: First, it’s a glut. A classic, carb-rich, obese, waddling, over-indulgence of units that will ensure most of those tens of thousands of investors get to eat their shirts. Flip for a profit? You jest.

Second, this also means a tidal wave of new rental properties will be coming on the market in the next couple of years – just about the time this unit you are sniffing around is ready for occupancy. This rental situation means, of course, we have a renter’s market on our hands, with condo-owners only too happy to get whatever paltry income they can to stem the sickening monthly losses.

Therefore, do the math. A mortgage of $210,000 will cost you $1,700 a month. Condo fees will be at least $400 monthly, as will taxes. That means you need $2,500 a month to break even, and that doesn’t factor in the lost earning power of the $15,000 downpayment, or the closing costs. However, Andrew, a brand-new, two-bedroom luxury downtown condo on a high floor is going for a mere $2,000 these days, and in the $1,500 range in outlying areas.

You will notice I haven’t even mentioned the ‘recession’ word, or hinted at what happens if the American real estate contagion infects Toronto (which it already is – resales collapsed by 14% in the first half of this month). Obviously, this will just make the situation more acute, dropping condo sales, reducing rents and increasing the misery of investors. It will also guarantee that what’s happening in Vancouver – condo projects being outright cancelled – is likely to affect the north shore of Lake Ontario.

Will the US elections make a difference? Hardly. The American central bank has proven unable to, after all, so how could Barack, John or Hillary? This is a matter of consumer confidence, which has resulted in a collapse of the real economy. We are yet a year, or more, from the housing market there even stabilizing. Here in Canada, our best case scenario is several years of flatlined prices, but more likely, a drop of 10-15%.

To summarize: Condo glut, plunging market, falling rents, freaked-out investors.

This is what your in-laws want you to invest in?

They never did like you, did they?


#1 baileyq on 03.23.08 at 10:19 pm

210k is a big mortgage? Is this a typo? Where I live it takes a mortgage of three quarter mil to own.

But how can you be 43, working for 19 years, with 0 savings? Am I reading this right?

#2 Al on 03.24.08 at 1:32 am

In the interest of full disclosure, I am a successful Realtor working out of Victoria BC .
It is my view that when and if that unit is built, by 2010 you will be able to buy it for well under 200K. You’re crazy to commit 15K to a hole in the ground.
Why not short a Dow index fund instead and make some serious coin :0

#3 Paul W. on 03.24.08 at 7:31 am

If your worried about not getting the money in the end, putting money into real estate now is a sure way to see that through. I would get your in-laws to put the money into a trust fund for you with the same conditions if they must that way you will at least have something to work with when conditions are right.

With the exception of my wife, my entire family and most of my friends and co-workers disagreed wholeheartedly with my views on an impending real estate doom. Everyone was shocked and in disbelief when I announced the sale of our house and that we were going to rent for an undetermined amount of time. Some even told me I was stupid for doing that and that we’d never get back into the market.

I’ve been professing a major downturn for a year and a half now and after watching the events over the last six months in the US unfold my feeling is that there will be more like a 40% drop in the end rather than the 10-15% hiccup Garth is touting. Almost ever major economic downturn in our history since the early 1900s has not ended until 40-45% was given up – research it.

The writing is on the wall… We are not immune!

#4 wolfey on 03.25.08 at 2:06 am


i ‘vw sold my house in early 2006 and it still went up 100k in 2008. though i bought some stocks with the money and made some nice returns.

renting right now is so much cheaper than owning the same place. It’s easier to buy when we are in good times . It is has probably been the best for canada in the last few years but nothing lasts forever. No matter how an optimistic economist can spin it

#5 Greenhorn on 03.30.08 at 6:14 pm

Strata fees would be about $200. The mortgage payment would be $1,300 per month at 5.75%, the current 5 year rate. Garth, your numbers are way off!!!

Not in Toronto. — Garth

#6 Greenhorn on 03.31.08 at 4:42 pm

Garth, may be I am light on strata fees as I used Vancouver numbers and we do not have air conditioning and snow removal to pay for. But your mortgage calculation is not correct. Monthly payment would be $1,300.

$210,000 at current rates, 25-year amortization is $1,700. — Garth

#7 Tony on 03.25.09 at 6:41 am

The place to buy in is Edmonton, Alberta certainly not a Toronto condo. I was on here talking about Edmonton, Alberta real estate and picking up all the rock bottom bargains in the west and south west areas of Edmonton. This 2 bedroom apartment in the west end of Edmonton just sold this past weekend at the list price of $124,900 E3172229. Get the idea? The real estate market in Edmonton has bottomed out. The real estate market in Toronto is no where near the bottom yet. The condo market in Toronto has been severely overbuilt. Stay away from it.