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Season 2 Episode 4: Are condos a scam?
There was a CBC documentary made in 2013 but just got released on YouTube a couple of days ago. It has gone viral, with over 53 thousand views so far and counting. It’s called “Towers of trouble” with a sub caption: “Toronto’s condo market has no rule book”. The documentary is saying that we should be afraid condos (known as HOA’s for those of you listening in the US) because of falling glass and that it’s a scam to buy poorly-built condos.
So today’s podcast topic is: is it a scam to buy a condo or not?
It’s Kenneth Yim, and thanks for tuning in to Boardwalk Talks, the Toronto real estate investing podcast where we walk and talk and go around the board collecting properties.
Basically this documentary is talking about Toronto’s condo market and the poor quality of construction, that there is little to no consumer protection, that the condo act reform keeps getting pushed back due to developers with political persuasion, and that the entire industry was a dumping ground for the world’s capital to take advantage of the end user. Here is an excerpt from the beginning part of the documentary:
[WATCH THE VIDEO HERE: https://youtu.be/QIWimSN_cGk]
I think you get the point. It was well written and they do have some valid points, especially when they said that consumers believe the condo game is about home ownership when it’s really, it’s as much about global money markets. So yes, I do think condos are becoming commoditized as investments, but I don’t agree with the video where they say it’s not a good housing alternative. It really is. With vacancy rates at single digits, I’m talking about just around 1%, that means 99% of the condos available for lease in downtown Toronto are actually being absorbed and occupied.
The average rent for a one bedroom condo in the second quarter in 2019 in the downtown C01 district is $2,359, which is up 5% from the same quarter the year before, which was up 11% from the year before that. Rents are far outpacing the growth of average incomes, and as a result, tenants have come up with creative ways to make condos affordable. They are getting roommates, and they are getting help from parents to subsidize their rents and act as guarantors.
All this is because of the attractiveness of living downtown. People don’t want to deal with traffic any more, people don’t want the long commutes. People want nice restaurants, entertainment, and amenities. All the jobs are down here, and Toronto is becoming or already is a major player in the tech space. Canada is a safe place to live, if you factor in all of the nasty stuff happening all around the world like the protests in Hong Kong, trade tensions in the US, Brexit and the EU falling apart, wars, human rights, terrorist bombings, and all that crazy stuff. We are lucky to be in Canada. The smart money is coming back to Canada and I believe that there is a lot of up side here in the long term.
So the demand for housing is here. There’s no denying it.
As for the issue with poor workmanship, that’s what the reserve fund is for. If you don’t know what a reserve fund is, it’s a small section of the annual operating budget that is made up of your monthly maintenance fees, typically it’s 10-15% of any annual budget, and it’s money that you sock away for a rainy day. The reserve fund has to be reviewed every 3 years by law, and every other year has to be an on-site visit, so the engineers should be able to give the boards an accurate assessment as to how much they need to budget for repairs.
The documentary goes on to further exaggerate the situation by saying that condo boards are made up of amateurs and volunteers that haven’t got a clue about what they are doing, but I disagree. Sure, there are some rotten apples, you may have heard of some scandals in the news a couple of years ago with condo board members, but for the most part these are capable individuals. They get voted in from the all of the owners, and they are expected to make sound judgement calls from employing experts like lawyers, management companies, engineers, and other trades to keep the building sustainable in the long term. I should know, I have 10 years experience as condo board presidents on a couple of condos. Anyway, the system isn’t perfect, but it’s getting better with condo act reform as the industry matures. In theory, these condos can last forever.
Some of you know that I am a fan of condo investing, I mean, that’s how I got started building my wealth in real estate, but really I’m a fan of investing in anything that you can get your hands on.
The average price of a detached home in Toronto is 1.2 million dollars, whereas the average price of a condo is half of that, just over $600 thousand. In Downtown Toronto, that number is hovering around $1.4 million for detached homes, and $700 thousand for condos in the core. Basically, condos are approximately half the cost of detached homes.
So how do you build wealth through Real Estate Investing? It really all begins with taking that first step. So whatever you can afford, get your hands on it. We are going through a gold rush of real estate in Toronto, and before you know it, we will become the next Manhattan, Hong Kong, Paris, London and other mega cities.
Demand isn’t going anywhere, supply can’t keep up, and we will continue to attract more global wealth, talent, and all sorts of diverse economies and industries here.
If you want to share your thoughts or continue talking about this, visit broadviewavenue.ca, and click on the button to schedule a 15 minute conversation with me and we can go back and forth about investing in Toronto real estate. It’s Ken, and don’t believe the hype. Thanks for listening.