4 risks you need to know of before you decide on short term Airbnb rentals
A large number of condo buyers in downtown Toronto are first time buyers who enter the journey of homeownership with the intent of moving up to a larger home after a few years to start a family. The data is loud and clear about Toronto's condo market; it has shifted into buyers territory and now buyers have the upper hand in the condo market. The days of bidding wars seem to be long gone. Condo sellers are having a hard time getting the price they thought they could have gotten earlier in 2012. Should one sell or refinance the condo and rent it?
Opportunity in Toronto Condos
I recently had a number of clients who had their condos for sale, but didn't get the price they wanted. They had 2 options to entertain:
1. Sell at a price lower than expected and take a loss 2. Refinance condo, pull the equity out and rent the unit
I choose to look at situations with a glass half full perspective. I showed the clients by taking advantage of today's low rates and the shortage of rental units in downtown Toronto, there is an opportunity to generate positive cash flow, have someone else pay down their mortgage and wait for a few years till the market balances itself out.
In all cases, the clients had multiple offers on their condos for rent, got higher rent what they listed the condo for and rented the condos to professionals who are easier to manage. Here are examples of what some of the condos were listed and rented for:
List: $1800, Rent: $1900 (Bathurst & King) List: $1600, Rent: $1700 (Cityplace) List: $2300, Rent: $2350 (King & Sherbourne) List: $1450, Rent: $1500 (King & Portland)
Investing In Toronto Condos
If you own a condo in downtown Toronto, this is a great time to consider locking into the historic low mortgage rates and take advantage of the high rental demand.
Now is the best time to consider restructuring the condo's mortgage due to the following 2 reasons:
1. Condo values have not dropped significantly 2. Mortgage rates at historic lows
Waiting for the "right time" can be costly especially if condo values drop there will be less equity to take out and when interest rates rise (even slightly), the monthly carrying costs will increase and might result in negative cash flow.
There is a lot of doom and gloom in the media and blogosphere, but there is always an opportunity if you have a long term approach to real estate investment.
To find out if you can refinance and rent your condo, please email Nawar or call at 416.637.3308.
June 29th is a special day for the following reasons:
- 5 years ago, Apple's iPhone was launched. It was the birth of Blackberry's nemesis
- Today is the first day after RIM announced major losses, delays in launching Blackberry 10 operating system and 5000 additional layoffs
- It is also the busiest day for lenders in Canada as the highest number of mortgages close today
You might be wondering what's the connection between the above 3 points. Last year, I was meeting with a few investment banker friends who, at that time, said RIM's stock was a buy since it's price of $16 was undervalued and the company had lots of cash. Fast forward 9 months, RIM's stock is at $7.4 (June 29, 2012 stock price). It has lost half of its value. It is important when buying a stock, mutual fund or investment property to buy based on economics: how much revenue is generated (sales of company, rental income a property demands), profits (net profit, cash flow after all expenses are taken into account) and potential appreciation (R&D and innovation for a company, solid area that will experience growth due to jobs, infrastructure or immigration). Buying (stock or investment property) because someone said it is good to buy is speculation and could result in disaster. Do your own due diligence.
As for the Apple connection, emulating their drive to innovate and improve by continuously reviewing the mortgage, adjusting it and understanding the opportunities leads to financial freedom. Being complacent by getting a mortgage, setting a payment and forgetting about it would be following RIM's path. There is more to mortgage than rates.
Having a vision (building a portfolio of positive cash flow properties or being mortgage free) and executing a plan would result in financial freedom and not arranging a mortgage on the busiest day for lenders.
To discuss how to achieve mortgage freedom or build your real estate investment portfolio, please contact me.
Lately, I have been dealing with an increasing number of clients who are deciding not to sell their home. They are choosing to keep their existing property by turning in it into an investment property and using the proceeds of the refinance to buy a home. Since the financial credit crunch in late 2008, more Canadians are skeptical about the markets, are worried about having enough to retire and are looking for alternative ways to diversify their investments. A greater number of homeowners, after reviewing the numbers, are deciding to refinance their existing home up to 80% of its current market value, take advantage of today's historic low interest rates and rent the property. Here is real example that I did for a client who owns a condo in downtown Toronto.
Condo value: $350,000 Mortgage amount: $280,000 (80% loan to value) Mortgage amortization: 30 years Mortgage interest rate: 3.29% Mortgage term: 5 years Annual appreciation: 2%
There are two items to pay attention to in the above chart: 1/ initial equity is $70,000 and after 5 years based on 2% capital appreciation and utilizing the inflation hedge mortgage strategy, 2/home equity is at $135,771. By having the tenant paydown the mortgage and adjusting the mortgage payment gradually for higher interest rate environment, the home owner almost doubles their money in 5 years. Imagine the financial freedom a fully paid off investment property would create.
If you are interested in finding out how to turn your current home into an investment property and use your home equity to buy a home, please contact me.