Archive for March, 2012

The “Passive Investor” Hangover Syndrome

Wednesday, March 21st, 2012

I have a client who is in his late twenties who prefers to purchase student income properties and fix them up. I am not talking about just paint and paper and minor decorating. This fellow tears out interior rooms, knocks out walls, adds extensions and raises rooflines. Once he bumps up the income streams on these projects he sells them out. A typical project using a small crew three to four months to finish out. In the last two or three years in spite of our difficult markets he has done very well. He obviously is not in my view a “passive investor”.
Condo investors in this town who rent out condo units are often in contrast a very different breed of investors.On closing they will assume the existing tenants or call up a newly appointed property management company and ask if the carpets should be steam cleaned. The “added value” that they put into a unit is often nill. In many respects they are passive investors who are relying  on income streams generated from individual tenants. These passive investors are quite often content on just breaking even and are hoping that inflation and the increases in property values over the long term will work in their favor.
Over the last fifteen or twenty years our London condo marketplace has been a mecca for out of town “passive investors”. Why? Well London for some reason, is often viewed by investors from across Canada as being a safe and stable city in which to invest in. Our city has had in the past, a reputation of being a university city and a hospital and insurance city. Lowrise condo buildings on Ernest and on Conway, P1210208low rise and highrise condo buildings on Jalna in White Oaks, lowrise condos on Deveron in Pond Mills and low rise condos on Jacksway in north London are just a few of the condo projects in town with high ownership ratios of out of town investors. That’s just the way it is. Recently we posted blogs about many of these complexes and have noted that their resale prices have being stumbling along without going up in price over the last few recent years. Is it healthy for our marketplace to have these high concentrations of passive investors in certain complexes? It could be argued that having too many long term passive investors in any one complex might actually hold down the values in these complexes compared to what is happening in the overall marketplace. Why? Well one might make the point that those complexes which have a higher ratio of owner occupied units will often turn over more frequently and enjoy more ongoing upgrading. This trading activity in upgraded units on a regular basis is in part what often helps to bring up the average selling prices indexes.
In one of our recent blogs about the Jacksway condos complexes we mentioned that prices actually dipped in 2011 and we noted that the complex was well over fifty percent owned by investors. We also noted that during that time period more units in these complexes sharing this address expired unsold than there were sales. At the very same time there were bidding wars on many of the condo complexes just down the road like at the condo units at 1548 and at 1570 Richmond Street.
Now think about this. Take a stroll down any kitchen cupboard isle or any bathroom supply isle at a “Home Depot” or “Rona” and marvel at how the new styles for these type of rooms are changing. Young people  typically do not want to purchase a thirty or thirty-five year old condo that does not have a newer kitchen or a newer bathroom. That’s the new reality that so many of our long term passive investors fail to understand. Often times when these tired units do hit the market they sit for months and months and often ultimately go unsold. Often times they end up back in rental pools to defer the reality of trying to get them sold.
What really is the bottom line to this blog? It is that todays condo buyers are willing to pay a bit more and get something that has extra nice finishings. This is once again, the sobering reality that many  passive investors are now having to deal with in their attempts to get their condo units sold. That’s the way we see it anyways.

Dundalk Street Condos-Starting Out or Slowing Down

Monday, March 12th, 2012

P1210211Let’s do the math. A purchase of a $82,000 townhouse on Dundalk Drive in south London with a 5% downpayment leaves someone with a mortgage of about $80,000. Let’s say the mortgage interest rate is 4% with a 25 year amortization period so that leaves one with a monthly mortgage payment of somewhere around $420.00 mark. Then add in the monthly condo fee of lets say $185.00 per month and monthly property taxes of $85.00. Once totalled, the monthly payments owing are somewhere in the $690.00 range. Isn’t that about the very same amount of money, or less that what many people shell out for the rent for any decent one bedroom apartment in the south end town?
What do you really get for that amount of money? Well lets be honest – the living space isn’t really all that large. The two bedroom townhome models have two upper bedrooms, most usually in the 11 X 9.4 and 10.8 X 9.4 range. The main level has a livingroom area in the 14.5 X 11.7 range and a kitchen and eating area. That’s really about it and the lower level may or may not have a finished rec room. This complex of 94 units is a mix of both two and three bedroom units (the ones with the extra bedroom are obviously somewhat bigger) and there is one noticable drawback to the design of the two bedroom units. It is that the floorplan of these units have no rear exit doors. It’s all kind of difficult to explain what the floorplan looks like, however the rear wall in these units where the staircase goes up to the two upper bedrooms is made out of exposed cement block and behind this block wall can be found an identical unit on the other side. This means, once again that you don’t get a rear door on your unit, nor will you get any “cross-breezes” sweeping through your unit in the summertime. This central block wall design is in part what has helped back in the day keep the initial construction costs down so low.
What is the neighbourhood like and what kind of people live here? Well there seems to be a mix of young families (there is a public school within walking distance) and retired people. This complex is also well serviced by numerous bus routes and the White Oaks Mall is only a short cab ride away.
What else can be said about these units? Well the three bedroom units are a little bit more expensive and they do have rear doors with back patio areas. One interesting peice of trivia is that the torando that touched down upon the White Oaks and Cleardale area back in the year 1984 took the roofs off some of these units!
There are people out there with the mindset that condos in general are not a good investment and that you are better starting off with something like a semi detached house or even an older house. Our take on this logic is slightly different. Why not start off here – a least you can get into the marketplace – where the cost of living is managable and spend a few years living here and saving up more money for a bigger downpayment on your next bigger place? If you want you can even move out and maintain it as a rental unit.
Now for one final brief comment. These units may be lacking in square footage and they may be somewhat “utilitarion” in design but they do however offer the element of “home ownership” at a price which is affordable. That’s the way we see it always.
This complex can be found in our Lockwood Park/Cleardale section of our website. PS. If your from Toronto, like a quarter of the visitors to our website happen to be and if you are looking for a university property for students going to school then this complex is not for you. The university is on the other side of town and it would take you an hour to get there by bus. Cheers!