One of the most common questions I get from clients is how do I get more cash flow from my real estate investments in Toronto? Toronto is so expensive how do I invest in this market and not just break even every month?
If cash flow is what you’re looking for… you might want to invest a few minutes and read this post.
For those of you who do not know, amongst my real estate portfolio, I own two condos that I rent out, fully furnished, to what I call the “Bay Street executive”. My target market is the expat or the executive who is looking for a temporary place to call home (and does not want to live in a hotel room).
My experience to date has been fantastic and I’ve had some great tenants… Which include large multinational companies such as Kinross, Price Waterhouse, Scotiabank and Rogers Communications.
Actually, my best tenant is a national television celebrity and she loves living in the unit… so much so, she’s extended her lease three times already! She still lives in the unit and the best part is that her television studio is paying the rent!
Having rented my units out for more than the last year and a half, I thought it would be best to summarize what’s involved for you as an investor:
Increased cash flow: The “market rent” for a 1BR+Den unit is about $2,900 per month and a 2BR unit can fetch almost $4,000 a month. If your unit has a parking spot, that can add another $200-$300 in income each month.
To give you an idea what kind of cash flow that brings in for an investor today, it is about $550 a month (for a 1BR + Den) or over a $850 a month for a 2BR unit. (These awesome cash flow numbers are based on properties you can buy right now!).
Corporations are paying the rent (not individuals): Your rent is paid each month by a large Canadian or multinational corporations, making your rent that much more secure.
Demand for furnished units is high: I actually have a waiting list for my units and have had to turn people away. There simply isn’t enough supply of quality furnished units available downtown Toronto. To give you some perspective, one of my units is coming vacant this coming July and I already had a tenant commit to take the unit two months before it’s actually vacant.
Easy management: Managing my condo unit is easy now that I have built my team. Since my condos are less than 2 years old, I never get calls for broken toilets or things of that nature.
Last week was a real eye opener when I sat down with a client who was ready to dismiss the idea based on five false assumptions.
[Assumption #1] Executive tenants are hard to find: They actually aren’t – Toronto has the epicenter of corporate Canada and as I said before quality furnished units are in short supply. The team and relationships I’ve built has made locating these types of tenants surprisingly quite easy.
[Assumption #2] $4,000 a month rent isn’t realistic! (I’m going to let you in on a little secret - one of my 2BR units currently rents for $5,400 a month). Location and type of unit play a large role in the demand for furnished rentals, but you have to remember the market for these is less-price sensitive than other type of rentals. The corporation (your customer) want their top-end employees to be happy in their move to Toronto and often lifestyle is the more determining factor over price.
[Assumption #3] I need to buy a fancy million dollar condo: If you’re looking at buying a 2BR unit, you can find good units for $550k to $650k depending on location. You don’t need to buy at the Shangri-La to make this investment work, but you do need to buy in the right building and location. As a matter of fact, there are less than a dozen of condo buildings in all of Toronto where these furnished rentals will actually work.
[Assumption #4] Buying all the furniture myself takes a lot of time that I don’t have! Your time is very valuable and for those of you who don’t want to furnish the units yourself – I have a brilliant designer who will get your rental condo furnished efficiently!
[Assumption #5] This seems like a lot of work! Owning real estate is just like owning a business. The number one mistake I see real estate investors make is not treating their real estate like a business. If you set your business up correctly from the start, it doesn’t have to be a lot of work. Now that I have setup my systems properly I spend less than 1 hour per month on these two units combined.
I know what you’re thinking – this sounds wonderful, but there has to be some risk to this type of real estate investment? Yes, owning real estate carries it’s risk (whether that is buying a condo, duplex or apartment building) and you should always carefully weigh your risk and complete your due diligence.
As always, if you have questions or would like to find out more about these furnished rental opportunities feel free to email me and I’d be happy to share my experience with you.
Over the last couple of months I have seen a substantial increase in “bully bids”. A bully bid is otherwise known as a preemptive offer on a home accepting offers on a specified date. Holding back offers or specifying a particular offer date has been common practice in Toronto for the past decade or so.
Now, more buyers are using the preemptive offer as a strategy to gain leverage in a seller’s market. It doesn’t always work, but it’s something that both buyers and sellers need to be aware when they’re “in the market”.
As an agent, I have been on both sides of bully bids (representing buyers who wish to aggressively go after a property as well as representing the sellers end of the transaction when would be buyers are trying to “bully” their way to the front of the line).
When you are selling your home, you need to be aware that you may get an offer before the offer acceptance date. You do need to have a conversation with your real estate agent to make sure you discuss this scenario and how to re-act to such an offer. Your agent should also give you an expected sale price (usually a range betweeen 1-2%) and an approximate number of offers that you might expect. Having myself represented sellers countless times on offer nights, it’s more of an art than a science in predicting the number of offers, but having a sense of what to expect is good if you’re presented with a bully offer.
My advice to sellers is that’s it’s always better to wait until the offer date than to accept a preemptive offer. The only exception to that rule is of course if the offer is “too good to be true” and significantly better than the “market” value.
On the flip side, if you’re a buyer you need to be aware of the bully bid for two reasons. Firstly, if you a home is newly listed on MLS and is holding back offers until the following week, don’t wait to see the home. Why? It might by sold the time the weekend rolls around. The chances are slim, but definitely possible. You don’t want regret about not seeing that great house that sold before you even got a chance to see it. New house listings typically come out on Tuesdays, Wednesdays or Thursdays and I always recommend to clients to see the home within the first day or two of being on the market.
The second reason - if you do find that “perfect home” you should at the very least consider a pre-emptive offer. I am not suggesting you should bully bid, but at the very least you should consider the option. In this case you would have to prepare a very strong offer and give the sellers only a few hours to consider the offer. It does throw the listing agent off their game and they’ll scramble to try to drum up competing offers. This strategy doesn’t always work and there are definitely risks involved in doing this, but as buyer should be aware this as a possible option.
This real estate market is still very much a seller’s market and you need to be aware of the different options available to you when competing with other buyers and sellers.
I was in a multiple offer last week and shared this story with my client and thought it would make it would make for an interesting (and relevant) post this week.
When sellers are in a position to accept more than one offer, price often becomes the differentiating factor. While price is extremely important, it’s not the only consideration…
Last year my wife and I had listed one of our income properties for sale in the Beaches neighbourhood and were reviewing offers a week later. Fast forward to offer night and we 4 offers to review (3 of which I considered in the same relative ballpark).
All 3 of these offers had our desired closing date. Here is what the offers looked like:
Offer # 1 was for $462,000 with no conditions, $25k deposit.
Offer # 2 was for $480,000 with a financing condition, $10k deposit.
Offer # 3 was for $470,000 with no conditions, $30k deposit.
At first glance, Offer #2 had the highest price however I asked their agent to explain why they were including a financing condition. The agent said his client’s plans were to live in the home and he was “rock solid” and he wouldn’t have any problems with financing.
“Ok”, I responded. “If financing wasn’t going to be a problem, then why include the condition?”
The agent explained that his Banker had recommended to include a financing condition in all offers that were to be presented.
I thanked him and asked him for a few minutes for my wife and I to make a final decision.
While it was awfully tempting to take the highest priced offer ($10,000 over the second highest offer) – for a split second I thought of what I could do with that extra $10,000 if the deal were to go through. Then, I asked myself : what would I advise my client to do in this situation?
The answer was an easy one – accept a firm offer, even if it isn’t the highest priced offer. And that’s exactly what we did.
I took agent of Offer # 2 and told him we’d accept a lower offer without any conditions and gave him the following advice: Your client needs to find a new Banker. Find one that will give him a full pre-approval so he can be competitive in the next multiple offer scenario he finds himself in. The agent thanked me for the advice and went on his way.
Fast-forward 3 weeks later that very same agent gave me a call. The good news is that they got an accepted offer (in multiple offers) and was looking for the name of a of a mortgage broker to help his client. He was also looking for some friendly realtor-to-realtor advice, which I happily gave as well.
Anyhow, the story didn’t end so well for this realtor’s client – long story short is he couldn’t qualify for the mortgage and had to walk away from this great home. He simply didn’t have enough stable income to qualify for the mortgage.
For a second, I felt bad that things didn’t work out for this guy, but at the end of the day there were a couple of important lessons to be learned from these series of events. First, if you’re in the market to buy a home – contact your mortgage broker first – they’re a fantastic resource and will give you options before you start house hunting. As a seller, the second lesson was – don’t be greedy – if you’re in the fortunate position to have more than one offer on the table, always give the most weight with the unconditional offer. An unconditional offer shows that they have done their homework ahead of time and if the offer comes with a healthy deposit – this only confirms their commitment to the purchase. As a seller, you want piece of mind knowing you can focus on your next move.
I met with a prospective client, Janet who wanted to sell her cute bungalow just north of the Danforth. She was looking to move into the better school district just West of where they were. When I viewed her home, I asked her to point out many of the upgrades she had done since she bought it. As we sat down, I asked her to tell me a little more about her motivation to sell, as I wanted to get a better idea of the bigger picture.
Before asking me what I thought her home was worth, she said that she needed $450,000 to make the move. She must have seen my facial expression completely change as she asked me if that was realistic. I gave her a copy of the Home Selling Guide that I wrote and included in it was a list of recent sales. I pointed out that the range in her neighbourhood for a similar type of property was between $410k to $420k. No bungalow in her area has ever sold for more.
She kept going back to what she “needed” to sell for to make the move. I could tell she was getting very emotional. I felt like her dream-squasher, telling her the price was not realistic.
I said to Janet that the only people that would benefit by listing her home at $450,000 would be her competition.
“What do you mean – the competition?” She asked.
I explained that an average buyer views 12.4 homes in a particular neighbourhood before submitting an offer. If her house was priced outside the range of what it is worth, then it would make the other homes on the market more appealing and help those sell – not hers!
I invited Janet to view 3 homes for sale in her neighbourhood with me the following day to see what I was talking about. I asked her try to view these homes as a possible buyer and compare against her home priced at $450,000.
Janet was very quiet and didn’t say much during these viewings. Once we left the third home Janet turned to me and said: “My house won’t sell for $450,000. I can see that now.”
Janet agreed that it’s very important to know who you’re competing against. On the advice of her mortgage broker, Janet decided holding off on selling her house until the spring. By that time she’ll have full-time hours at work, which will help her qualify for the mortgage she needs to make the move.
I know Janet really appreciated the honest no b.s. advice that I gave her. My business is completely built on referrals and I will not make any unrealistic promises I can not keep.
Every now and again, the real estate market does funny things. Sometimes when you expect the real estate market to throw you a fastball - it throws you a curveball – when you least expect it.
At this time of year, many prospective home buyers have decided to hibernate over the winter months and check back in the springtime. With fewer buyers on hand, it can create some interesting scenarios for active shoppers. A perfect example of this that occurred this past week.
Two similar homes were on the market in North Toronto, both listed at $839,000. Both were accepting offers the same week. House A on Monday night, and House B on Tuesday night. I showed these two homes to my clients looking in this nice midtown Toronto neighbourhood. House A was the nicer of the two homes (with a new open concept kitchen and a larger than typical renovated bathroom). House B was nice, but the kitchen and bathrooms were updated about 25 years ago and didn’t compare to House A. What House B had was a better “finished” basement than House A. Both homes were on equally desirable streets only a few blocks away from each other.
After visiting both House A and House B we all agreed that House A would sell for more than House B given all of the recent renovations. Given the lack of supply of homes in this neighbourhood, bidding wars are still very much the norm. The question was how much more House A would sell over House B on offer night?
Fast forward to offer night, my clients decided to pass on both homes since both backyards could not accommodate a swimming pool. Having said that, we were interested in following what happened to both properties. Having been in touch with both real estate agents on both properties (and connecting a few dots in between), here is what happened:
House A (the better house) shockingly got no offers on Monday night.
House B had 2 offers on Tuesday night and sold more than $40k over the list price.
Then the losing party on House B bought House A three days later for $15k below the list price. How can House A sell for $57,000 less than House B when it had a brand new kitchen and bathroom? Mind boggling isn’t it?
My answer to this question is very simple. The real estate market isn’t like the stock market where millions of shares trade hands every single business day. In a given month and in any Toronto neighbourhood, you might get 12 condo sales and 41 freehold sales a month – sometimes less. (Each neighbourhood will have a different condo/freehold split, but you get the idea). And with that type of volume trading hands you’re never going to get an exact price – which is why I always give my clients a 2-3% range of what a house or condo’s value. On top of that you get you get other motivating factors like closing dates, terms of the offer or even uniqueness of the property and emotional attachment to the home - which can sometimes be difficult to quantify in dollar terms, but may also affect purchase price if you get the right buyer.
I recently sat down with a real estate agent who’s new to the business and we were talking about negotiation strategies and some recent interactions I had with other agents. Before I delve into the topic further, I do have a confession to make: I love to negotiate... It’s one of my favorite parts of the business. Not to mention that I’ve had many interesting negotiating tales along the way (some of them shared on this blog!).
So, the question came up as to when do you start negotiating with the other party? I really believe you start negotiating when you have your first interaction with the buying or selling agent. If you start negotiating when the offer is just in front of you, it’s too late to start negotiating in my opinion. Allow me to explain.
Before I write up an offer, I’ll always have a conversation with the selling agent to get as much information I can about the property, the seller and their situation. I call this the “posturing conversation”. I have a set of questions that I always ask, and that gives me a good sense of what their motivation levels are like and what they would be looking for in an offer. Once I’ve had this conversation with the agent, I relay the information to my clients and give them my read on the situation. At that point, I listen for my client’s feedback on how they would like to proceed.
First impressions are critical in any negotiations. When I represent buyers, I don’t like to reveal anything about my clients until an offer is presented. The reason being, I only want to show our intentions when it is appropriate to do so. For instance, if we’re viewing an open house, I’ll tell my clients that they shouldn’t say anything during the viewing since the listing agent is always within an ear-shot of visitors. There is a possibility they may use what we say against us during a negotiation. The same applies if you’re the selling agent at an open house… what you reveal to potential buyers will have material impact on buyers perception and will ultimately be reflected in any offer that might come.
In any negotiation, there will be some “give and take”. In the end, you don’t want to “give” more than you have to. Be aware that the negotiations often begin before any offer is even drawn on paper.
I had an interesting experience last year with a home I sold for my clients who lived in a nice Central Toronto neighbourhood. My clients were expecting a baby and wanted to move into a larger home. They lived on a choice street and I knew the interest in the home would be high. We decided to list the home for sale on the Wednesday and review offers on the following Tuesday evening.
As anticipated, there was significant amount of traffic and based on conversations with a few buyer agents, I expected a few offers on the following Tuesday.
Fast forward to Tuesday, we had 7 offers on the table for my clients’ consideration. My clients were obviously ecstatic. Getting that many offers to the table is more of an art than a science, something I have learned through facilitating countless offer presentations.
My clients understood that the more offers they received that night, should translate into a higher the sale price.
It’s funny… Usually, before the offers are being presented, Agents often would often ask: “Why are they selling?” I would always repeat the same answer and my answer would almost sound rehearsed: “they are looking to move into a larger home”. Rarely would I get any additional probing questions on this topic.
Interestingly though, that night one agent took a completely different approach and asked me: “Is this sale a result of a positive occurrence or negative occurrence?” I was a little surprised by her question, but it was the first time I got this kind of question before. I told her that they’re planning on having another child and needed a home with an additional bedroom. It’s a brilliant way of asking the same question: Why are they selling?
Fast forward a few hours later, when this same Agent presented her offer... Because I had shared with her that this move was a “positive one”, she was very upbeat, positive and full of energy. She did a wonderful job at presenting the offer in the appropriate tone, her offer stood out the most against all of the other offers. In the end my clients ended up accepting her client’s offer.
It’s interesting, because if I had told this same Agent my clients were getting a divorce and this is was the reason why they are selling, I am sure her presentation style would have been much different.
So now before I present any offer, I always ask the same question, “Is this sale a result of a positive occurrence or a negative occurrence?” Some would argue it’s the same as asking: “Why are they selling”, although I believe it provides a little more insight than that. Sometimes, that insight might be enough to distinguish your offer from being accepted or rejected. In this competitive market, that simple question might be enough to give you that edge.
I hope everyone enjoyed the last few weeks of summer! I recently had a coffee with a friend of mine who was thinking about opening up his own business. I told him about my first business venture and thought that the lessons I learned then were just as applicable to my real estate business today.
My first official foray into small business came at the ripe age of 13… when I sold hockey cards at a sports card convention. At the time, I got together with 3 of my buddies and we decided to rent a booth at a local community center for a 1 day convention. The cost to rent the booth was $40 and we agreed to split it 4 ways. It sounds strange to say this now, but back then the $10 investment to rent the booth seemed steep to each of us.
I remembered when we first arrived at the convention center to setup our display many of the other vendors came by to see what hockey cards “these kids” were selling. I distinctly remember this seasoned vendor came to our table and offering me ridiculously low prices on some of my cards. I politely said “no thanks, in no hurry to sell” and off he went mumbling some rude remark under his beard.
The doors opened to the public shortly thereafter and I made my first sale about 45 minutes later. Overall the day was a success and I had sold a couple of hundred dollars of inventory and easily covered the cost of the booth. I really enjoyed the experience and I knew that this wouldn’t be my last entrepreneurial venture.
So here are 5 lessons that I learned that day:
1. Don’t be afraid to take calculated risks: The old saying rings true: Nothing ventured, nothing gained. I remember doing a pros/cons list before signing up for the convention and after that I felt that a $10 investment was worth the risk. In hindsight, the experience I received from this 1-day venture was by far the most valuable asset I gained.
2. Know your market: As nerdy as this might sound, I made it a hobby of mine to memorize the “Beckett’s Hockey Card Price Guide Book” (it’s very similar to the stock tables found in newspapers today). At the end of the day, I knew the market value of my inventory inside out.
3. Be patient: If I accepted the first offer I got for any of my hockey cards that day, I probably would have made half of what I actually did. Being patient and knowing when to accept a good offer was key.
4. Be professional: That summer, my grandfather and I built a wooden display case for the purposes of this sports card show. It looked very professional and made it easy to prominently display my inventory to customers. I also think our potential customers might have taken us more seriously as well.
5. Love what you do: At the time, I loved hockey cards, so that was a great business for me to be involved in. Since that time I’ve been involved as an owner in a number of businesses, with my real estate brokerage being my latest which was opened almost 3 years ago (although I was a real estate salesperson for more than 3 years before that point). I really do love operating the real estate brokerage and without a doubt has been my favorite business to date. Probably because it is the most emotionally rewarding business I have ever been a part of.
It’s amazing… the lessons I learned that day are just as applicable today than they were back then. Hope you enjoyed reading this blog post as much as I did writing it!
I was recently part of a very interesting negotiation on an offer to purchase for a condo in the West-end of Toronto. I was representing the buyers in this particular transaction and the seller’s agent – Gino – requested that we negotiate the entire offer by SMS Text Messaging. No, I am not kidding.
This process was a very interesting experience and definitely eye opening – something that I wanted to share with you today.
Now, I consider myself a person who’s very comfortable with technology, yet I have never negotiated an offer this way. Call me old school, but I really feel that negotiations of any kind should be done in person or at the very least over the telephone.
There is an important “human” element to negotiations that gets lost when transmitting electronic messages on our mobile devices. As a matter of fact, depending on the circumstances, negotiating this way can potentially put you at a disadvantage with the other party. Let me explain.
So, when Gino the listing agent, asked me if I was “text-friendly” I had no idea he was asking me to negotiate this way. I originally requested to Gino that I meet him and his sellers in person so I can highlight the benefits of our offer, but Gino declined. I was stunned to tell you the truth, as I do think it hurt his clients more than it helped.
I had a good discussion with Gino earlier that day and got some very valuable information about why the sellers were selling and what their personal situation was. Interestingly, Gino said they received an offer last week that fell apart at the last minute and divulged all of the juicy details of the offer they were going to accept. I learned that the closing date was extremely important to them and what price they previously accepted. With this valuable information I spoke with my clients and gave them a good picture of the seller’s situation. We agreed to give them the closing they wanted and from a strategic perspective gave them our “best offer” we were prepared to give them, which coincidentally was several thousand less than they previously accepted.
So at Gino’s request I emailed the offer and waited for him to arrive at his seller’s home.
Not too long thereafter I got a text from Gino that read: “Reviewed the offer. Any movement on the price?”
“No, Gino. As I said before this is the best my clients are prepared to do right now.”
There was a pause. About 5 minutes later, I got another buzz on my phone. It’s Gino again. He asks: “How about the conditions, can we reduce the number of days to 3?”
I reply: “No, their bank has specifically requested 5 days condition period. Let’s stick to that.”
Gino comes back several minutes later and says: “About the price, it’s lower than my clients really want.”
I reply: “Ok. This is my clients best offer.”
At this point we offered $261,500 which is about $5,000 less than they previously accepted. A week has gone by and I know they need to close by the end of June and their window of getting this closing date is shrinking fast. Our offer was a good one and slightly below market value based on recent sales in the building.
Gino comes back at $264,000.
“Sorry Gino. That won’t work.” I quickly texted.
Another 10 minutes goes by and my phone buzzes again. “Ok, my clients are willing to do $262,000 – they really like the sound of that number.”
In my head I am thinking, what does the sound of a number have to do with anything?? Realizing that’s just an expression I reply: “Not going to work. As I said before this is our best offer. Your clients can take it as is or wait for another one”.
I knew there some risk that they could decline our offer and wait for another, but for $500.00 difference and understanding that we had their preferred closing date, they would be silly not to take our offer.
At this point, I don’t hear from Gino for a good 45 minutes. I check to see if my phone is still operational. Check. Full signal strength. Check. Battery at 80%. Check.
Not to long thereafter Gino texted: “We have a deal!”
I then spoke with my clients and they were thrilled about their new home. There were also somewhat surprised that they accepted our offer without any changes whatsoever.
The next day I called Gino to give him an update with how things are progressing on our end, and I asked him: “Out of curiosity, why did you want to negotiate the offer by SMS Text Message?” He replied, it’s more speedy and efficient. While that may be true to some extent, I told him that I would have preferred to meet the sellers in person and present our offer this way.
I couldn’t help but think that Gino didn’t do his clients any favours by negotiating this way. He knew virtually nothing about my clients (he never asked) and was more focused at getting the deal done quickly than negotiating a better offer for his clients. Very rarely is there no give-and-take in any contract. Granted, we were able to determine that the closing date was of utmost importance to them – and we gave them that. But still, I can’t help but wonder if the outcome would have been different if we didn’t negotiate by texting back and forth.
Technology makes it so easy to communicate with others quickly and efficiently, however I do think we rely on technology a little too much to the detriment of the human element. Sometimes the old fashioned way might actually be the better way.