Toronto Income Property Newsletter – June 2018

As we approach the midway point of the year, the story with the Toronto real estate market has been fewer trades overall but prices continuing to rise. This shouldn’t be surprising given that the overall demand hasn’t really lessened that much.

I hear people say all the time that the market has slowed down. Yes, compared to that crazy three-month stretch in early 2017, but quality downtown properties are still by and large often selling in multiple offers over the list price. On the investment side, I’m seeing multiplexes being priced by other agents at a 3.5 cap rate. These buildings aren’t selling at that, but it shows you what some of these landlord sellers are thinking.

It is funny that people would buy an investment property that actually does not provide any real returns to speak of, but it happens all the time. Overpay now and hope that down the road capital appreciation will save you.

As many of you know I’m a big soccer fan so I’m quite looking forward to the Word Cup. The smart money is on Germany or Brazil, but it would be nice if some other nation came out of nowhere to shock everybody – kind of like the Vegas hockey team.

- P.A.

There was an interesting article in the Globe & Mail last week, stating that with real estate values soaring in major Canadian cities that perhaps the time may come to take away the principal residence capital gains exemption. Canadians have been able to sell their homes and take any sale profits tax free so long as they have lived in that property. This is intended to not punish people who live in their homes for many years and see the value of their homes rise through market forces.

British Columbia’s NDP government broke with this tradition in its spring budget and went after expensive homes, of which there are plenty in the province. Starting next year, owners of houses with an assessed property valued between $3-million and $4-million will pay an additional 0.2 per cent of what’s known in the province as a school tax. An extra 0.4 per cent will apply on home values above $4-million. Could such a measure be contemplated one day in Ontario?

Please remember that if you live in an income property and sell it down the road you can only claim the portion of the property that you lived in for capital gains exemption. If your suite say occupies a third of the total building, then you can only tax exempt yourself on 33% of the gain. As always speak to your accountant or financial advisor for a more detailed synopsis of disposing of your investment assets.

This could be a huge source of revenue for the government and they have been recently clamping down on investors who try to cheat the principal residence rule. In the past three years, CRA auditors have reviewed more than 30,000 files and identified nearly $600 million in additional taxes, resulting in over $43 million in penalties. People that live in more expensive homes already likely pay higher property taxes than average, but it will be interesting to see if residences in the nicer areas of town may be subject to additional taxation.

When I started in the real estate business in 2000 there were far fewer practicing realtors than there are today. As of last year, TREB reported there are over 48000 licensed real estate agents in the GTA. That is one agent for about every 120 people in the Metropolitan area. This is up from 34000 about five years ago. Many people have capitalized on the hot Toronto market. They say, 'Oh, I'm going to go get my real estate license, make myself a ton of money and walk away,' but they don't realize that 90 per cent of the business is done by 10 per cent of the agents. There are many part time agents who might do one trade a year, if even that. If an average trade nets a part-time agent anywhere from $12,000 to $15,000 that can be serious additional income.

I have lost many clients because they have had a family member or best friend get licensed which effectively cuts me out. They would rather use me for my experience with income properties but get guilted into using their friend or family. I have even had several clients get licensed themselves. In fact, two of our current Plex agents were originally clients of mine.

I find that part-time realtors cannot provide the same level of service as we people that do this every day. They lack the overall experience and do not have the time flexibility necessary to adequately service a large client base. The real estate board makes a lot of money in fees from all its members so from their perspective, the more the better. I appreciate that it is a free market out there but if you are using a part-timer please make sure that they can adequately handle your needs.