Toronto Income Property Newsletter: July 2008

Happy Canada Day everyone! We’re halfway through the year so I hope you enjoyed your long weekend (or a strange day off midweek on a Tuesday) and celebrated to the upcoming months ahead. In most businesses, the second half of the year often outperforms the first, so I feel that we tend to work harder in the July to Christmas stretch. Real estate agents have the spring market but me personally, I’m always busier towards the end of the year. Maybe it’s just the crazy nature of duplexes and triplexes.

O.K. – so what’s going on out there? Everyone has heard by now that our Toronto real estate market that has seen incredible gains over the past five years is finally settling down. TD economists are boldly declaring that the Sellers’ market in our city has come to a halt.

Here are the facts:

YTD 2008 average sale prices in the GTA are up about 5%. While the number of actual trades is fewer, the prices of homes have gone up a little. This tells us that, at least so far, the big “correction” or great price drops are not forthcoming.

Now what about income properties in the Central core?

I see most of the income properties that come to market so I have a pretty good idea with what is happening with those properties. Duplexes and triplexes fall under the general umbrella of residential resale so their sales performance is expected to mirror that of single-family homes. In other words, once the houses start to slow down, so do the income properties. Even though these properties have an income component, if the market slows down overall, they too (just like condos or recreational properties) are affected. By the way, the cottage market is already starting to slow down considerably. Remember though that everything is cyclical and another wave will come again in that market.

I haven’t seen a slow-down at all yet in the income properties priced under a half a million. If I see a triplex in Central Toronto in the fours and it is not a dump – it will surely sell. The high-end market is suffering for sure. BUT … these are usually properties that throw off a 5% return (or less) and are amongst very expensive neighbours. I’ve been saying all along that you have to get close to a seven cap out of an income-generating property to justify the price. Just because a duplex is in Rosedale shouldn’t mean it will automatically fetch a huge price unless there is some sort of justification of the rents. My experience is that if a buyer is going to spend a million bucks on a home, unless they live in it, the income had better support the price.

Since the rental market is strong some folks figure that if they overpay for an income property it will eventually go up in value since it has an income component. This might happen – but I see this as speculating, not investing. I really advocate monthly cash flows rather than some hope of a capital gain down the way, only because I can calculate the first and not the second.

To give you the best insight into what has been happening with the Toronto income property, consider these three unit sales in around our city from June:

58 Foxley Street

This was a European style home (no separation) with kitchens on each level but no bathroom on the main floor. It probably needed about $25K to make it into a proper triplex. Located in the up and coming Dovercourt village, it was listed for $389K and sold over at $393K.

1308 College Street

Four suites at College & Lansdowne, asked $399K and sold over for $440K.

490 Brock Avenue

Another four units at College & Dufferin, asked $499K and sold over for $520K.

66 Oxford Street

This was three units located on a prime street in Kensington Market. It had an asking price of $489K and sold for $603K – $100K+ over asking!

555 Concord Avenue

This was a renovated triplex in the very popular Bloor/Ossington corridor. Asking $589K, it sold over at $615K

83 Winchester Street

Cabbagetown triplex asking $679K sold for $700K on the nose.

581 Palmerston Avenue

This was a typical condition triplex on a great street in the Annex. It listed at $699K and sold over for $761K.

and finally …

18 Elm Street

This was three luxurious units in Rosedale. This is a large heritage building amongst million dollar homes. Asking price: 3.4 million. Sell price: 3.4 million!

These sales in June still show a pent-up demand for investment real estate. Since they do not come up as often as single-family homes there are still buyers out there for quality income properties. I usually have about a dozen buyers ready to go at any time if a property makes sense. I think that as we head into the traditionally slower summer months, income properties may not sell as fast and in multiple offers. It might take a few weeks, but I still feel that there is a strong demand and that most properties that are priced right will still sell.

That’s it for this month. Enjoy the rest of the summer and I’ll catch up with you again in August. Also, my congrats to Spain and all their fine supporters for a long and overdue international win.

P.A.