Brad Lamb sits in his office, amidst a forest of paper, overlooking downtown Toronto and declares that 2020 will be a “slight seller’s market” and “not a stupid year, but a good one.”
As December wound down into January, Lamb answered questions from Post City readers about empty nesters, dog parks on roofs and the moderate seller’s market that will take place this year.
Is the math broken if, after buying a condo from floor plans, we still need to pay a few hundred dollars to cover the mortgage on top of the rent collected?
Even if you put 35 per cent down, you’ll lose some money every month after rent. Could you buy a townhouse in Forest Hill, pay $3 million and put 35 per cent down, rent it out and make money? No. The idea of buying a condo, renting it out and operating it with a positive cash flow doesn’t happen in any premium city. In Toronto, New York City, London, etc., there have been moments in time where condos or, say, single family homes could rent and show a positive return. It never lasts. It can’t last. If buying a house were cheaper than owning a home, most people would own housing, and they don’t.
When prices were $300 per foot, rentals carried. When prices hit $500, they didn’t. Then at $700 per square foot rentals worked again. Now they don’t. Rent rates obviously are a big factor. Sometimes rent rises more than real estate prices. The cost of housing and rent are closely aligned. In Toronto, price and rent have decoupled, meaning renting is much cheaper than owning. They’ve decoupled in Montreal and Vancouver. You can rent a one bedroom in Montreal for $1,200 a month, in Toronto that same apartment is $2,400. Neither are cash flow positive with 35 per cent down. The math isn’t broken. Maybe the expectations are.
So what’s the best way to make the math work?
Take a $500,000 condo that rents for $2,400 per month. After you pay your condo fees and taxes, the net rent is $1,850 per month. A cash buy yields a 3.7 per cent rate of return. At the bank, you will earn one per cent; 3.7 per cent is pretty good, and the property will be rented all the time. Rent will rise, and there will be a capital gain at some point as prices will rise over time. Real estate should be judged over an arc of time. Rents rise three to five per cent a year, and property values have averaged a six per cent increase per year for 40 years.
Patience and time will pay great returns for real estate investors.
Buying something and flipping it is a failed exercise. It may work a couple of times, but you will get caught in the short term if prices fall. And you will lose money. Right now, a 50 per cent down payment on a Toronto condo will carry the rent. Additionally, a 500K condo with 250K mortgage will retire $6,000 of debt a year thanks to your tenant.
Is 2020 the year in which we see every condo open a dog park on the roof?
I would never waste a roof on a dog park, and I like dogs. Maybe 10 per cent of residents in a building are dog owners, so why “give” the prime real estate to 10 per cent of the population? I would rather have penthouses and sell it or create a rooftop pool/lounge that everyone can use and enjoy.
What is the amenity of the year this year?
Tech rooms or coworking spaces. People want to hang with other people doing the same things. People need and want to meet people, outdoor space, BBQ areas, gardens. Places where people can socialize are also nice.