Sell Or Refinance Your Condo?

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.

2 Factors That Can Affect Your Home Value

The second factor that can affect your home value is jobs creation or an unemployment spike. Cities or towns that are reliant on one major industry are exposed to large swings in real estate values.

For example cities such as Windsor and Oshawa are reliant on the automotive industry. Since the automotive industry downturn, many jobs that support the auto industry have been lost as well (tool & die, transportation, manufacturing companies, sub suppliers...). As unemployment numbers rise, the supply demand pendulum swings towards more people selling their homes and/or less having the appetite to buy homes since there is a lack of job security which lowers real estate values.  This has been evident in Windsor over the last few years which continues to struggle in creating jobs.

Keep in mind the next time you are looking for a home or an investment property in a city, to take a look at job creation activities such as companies relocating or expanding, infrastructure investment or a city that is diversified in multiple industies. Afterall, having all the city's eggs in one basket is risky!

To discuss your personal mortgage needs, please contact me.

2 Factors That Can Affect Your Home Value

Toronto and GTA's real estate values have increased significantly over the last 10 years.  The prices continue to increase as the global economy struggles to emerge out of the slowdown since late 2008.  There are 2 factors that can negatively affect the housing market in Toronto, GTA as well as Canada: Interest rate and/or unemployment spike.

1/ Interest Rate Spike

For the last 3 years, Canadian homeownerns and real estate investors have enjoyed historically low interest rates which have resulted in record sales and prices.  Interest rates have remained low to stimulate consumer spending and promote GDP growth.  As Canadians reach record debt levels (approximately $1.50 of debt to $1 earned), Canadians are running out of steam for further debt accumulation. Many Canadians have fixed mortgages in the 3.3%-3.8% and variable mortgages at the prime minus level.

In order to save the global economy from a depression, governments around the world took on aggressive stimulus (printing money) since late 2008 which will result in high inflation sometime in the future.  As inflation becomes the primary objective of governments, interest rates will have to rise to control and moderate inflation.  Canada is already experiencing high inflation numbers, however the Bank of Canada is choosing to keep its benchmark rate low due to the uncertainty originating out of Europe.

A spike in interest rates would effect Canadians since mortgages will renew at higher interest rates and unsecured loans would cost more.  Based on August 2011 data, the affordability index in Toronto for 2 storey homes and bungalows is at 61.4% and 51.9% respectively (http://goo.gl/8rK5B). If one assumes that an income earner is taxed at 40%, it means that in order to buy a 2 storey or bungalow in Toronto, 2 incomes are required. Condos are a more affordable option in Toronto at 34.2%.

A spike in interest rates which diminish the ability of many to qualify for a mortgage especially insured since qualification is based on posted rates.  Demand would therefore be reduced since less buyers can qualify for a mortgage.

The main point to take away from this post is to have a plan regarding mortgage/debt paydown and plan to renew ones mortgage at a 6% level.  For more information, click here.

My next post will discuss unemployment spike.