Investing in One Bloor Condo- Does it make any sense?

Recently, I was approached by some investors seeking information on One Bloor condo VIP broker’s sales event. One Bloor by Great Gulf will include 690 suites and a proposed 100,000 sq. ft. of prime retail space along Yonge and Bloor. Some of these investors are my past clients; many of them have profitably ridden the Toronto real estate boom since 2001.

In my opinion, real estate investing is a good way to accumulate substantial wealth. It requires a few simple techniques, analysis and discipline. In fact, the right real estate property can be a lot safer than putting money in the bank, GICs, investing in stocks, collectibles etc.

Before investing in real estate you should first ask yourself, Who you are? A User, an Investor or a Flipper. Once you have answered the above question, you should evaluate the respective projects accordingly.

Just to make this easier to understand in the above context, let’s take One Bloor condo as an example and evaluate the results as a user, an investor and a flipper.

User: One Bloor is a prestigious project, no doubt. Prices at One Bloor start from $390,000 to over $1,500,000. for 530 to 1,724 sq. ft. respectively. Approx. $850 per square foot price tag in my opinion should be not an issue for someone who can afford it.

In Punjabi language someone said, ‘Shawnk da mul nahin’ (one can not put a price tag on a feel good factor). Toronto’s luxury condo prices are lower than Paris, London, Tokyo, Moscow, Hong Kong, New York, Los Angeles and Sydney. Canada has done very well in post recession and has come out as a shining star in the global economy. Toronto is the financial hub and has a great future.

Affluent immigrants, foreign investors, local business owners or top corporate executives who want to satisfy their craving for luxury real estate by living in the property or keeping it as one of their homes in Downtown Toronto should consider buying into One Bloor condominium project.

Investor: If you plan on investing in One Bloor condo for the purpose of renting, then numbers may not make much sense. The project will be completed in 2014 costs approx. $800 price per square foot (standard pre-construction condos cost approx. $600 psf and $350 psf in Downtown TO and Mississauga, respectively).  In order to arrive at the financial numbers, you need to calculate mortgage payments based on interest rates in 2014 (builder’s bank rates may the best option to choose from), condominium fees based at 0.50 cents per square feet (likely to go up after first year), property taxes in Toronto (currently at approx. 0.9 percent of property’s current value assessment), rental income, vacancy rates, real estate commission on tenant finding services, maintenance, property management etc.

Like the most expensive stock or one with lowest P/E ratio is not always the best stock to invest in, similarly, buying one of the most expensive condo may not be the best property to go for. Real estate investor craves for the best value (net rent, property growth over time, positive cash flow etc.)

Flipper: Flipping is all about speculating for profit. You need to decide if it makes any sense to speculate on future real estate prices by flipping an approx. $850 per square feet price tag condo. In real estate, prices appreciate in direct proportion to affordability, that is;  more affordable properties in an area will appreciate better than lesser affordable properties in the same area over time. Most of the profits in real estate are made at the time of buying.

If the prices don’t grow substantially then the flipping will not make sense, then you might end up either as an investor or a user. If you have deep pockets, you may afford to live at One Bloor. There are also many real estate investors who don’t mind negative cash flow (you may be one of those high income earners who offset rental loss against other sources of income).