Duke Tower Kitchener | 39 fl | completed

[innsertnamehere]

The 400sf unit would be fine for someone who is single. It's an extremely efficient layout and works about as well as you could expect it to I think. It would be a bit small for a couple though I think, but I'm sure it could work if needed.

[tomh009]

Still much larger than a lot of bachelor apartments in Tokyo!

[tomh009]

Dropped into the sales centre today, which just opened a few days ago. Over 50% sold at the moment; most of those were apparently sold by their Toronto sales centre.

Prices start at $275K (400 sq ft on 30th floor -- lower floors would have been less expensive) and go up to $426K (700 sq ft on 33rd floor). Parking costs $39K additional and the salesperson pointed out that it's more cost-effective to park at Market Square.

The cost of a 700 sq ft unit is at least $100K more than at 1877; the parking space cost is about the same. That's a crazy big jump in prices in less than one year. I don't think $275K is super affordable, either.

[jeffster]

Dropped into the sales centre today, which just opened a few days ago. Over 50% sold at the moment; most of those were apparently sold by their Toronto sales centre.

Prices start at $275K (400 sq ft on 30th floor -- lower floors would have been less expensive) and go up to $426K (700 sq ft on 33rd floor). Parking costs $39K additional and the salesperson pointed out that it's more cost-effective to park at Market Square.

The cost of a 700 sq ft unit is at least $100K more than at 1877; the parking space cost is about the same. That's a crazy big jump in prices in less than one year. I don't think $275K is super affordable, either.

Wow...they must think they're in Toronto. That seems very pricey for what you're getting. Though if it's 50% sold, that's good.

[taylortbb]

Those prices are significantly higher than Charlie West or Garment Street, both of which are in DTK and sold within the past few months. I'm guessing that's why they're selling to Toronto investors, they don't know the local market.

[GtwoK]

Which is a damn shame, because the more outlandishly pricey these get, the higher rent in general gets here.

[plam]

Which is a damn shame, because the more outlandishly pricey these get, the higher rent in general gets here.

Does it, though? Or do the amateur landlords take a hit when they find they're trying to rent above market rate?

[ijmorlan]

Which is a damn shame, because the more outlandishly pricey these get, the higher rent in general gets here.

Does it, though? Or do the amateur landlords take a hit when they find they're trying to rent above market rate?

That’s exactly correct. The only thing that can raise rents high in a reasonably liquid property market such as we have here is if the market rent is high. This in turn will only be the case if supply is constrained. To be fair, supply can be constrained by building itself being expensive. But a small group of “greedy” landlords can’t do anything to raise rents. The only people who can cause rents to be high are in government.

[panamaniac]

Which is a damn shame, because the more outlandishly pricey these get, the higher rent in general gets here.

Do they?  I would have thought market conditions determine rent.

[tomh009]

Which is a damn shame, because the more outlandishly pricey these get, the higher rent in general gets here.

Do they?  I would have thought market conditions determine rent.

Right. So just looked on Kijiji, there is a 700 sq ft unit for rent for $1400 (plus parking), at Arrow Lofts, which is likely at least as nice as DTK will be.

So let's do some math. $1400 per month, from that one needs to pay maybe $300 in condo fees and $200 in property taxes for a net cash flow of $900. If you want a property management company to take care of the unit and the rentals, it's likely another $100 or so.  Annualizing those, it's $9,600 or $10,800 per year.

Now, given the $400K starting price for a 700 sq ft unit in DTK, that gives you a 2.4% or 2.7% return on your investment, assuming you have no additional maintenance costs (not a good assumption in the long term) and assuming you can achieve 100% occupancy. Clearly this is not a good investment as such, the only way this can make sense is if the property values continue to go up strongly. And I expect that's exactly what all the Toronto-based buyers are assuming.

[innsertnamehere]

Real estate and renting it out is almost always about the equity built.

The return isn't based on the month to month cash flow, it's on any equity you build for the amount of money you put in. Let's say you put a standard 20% down payment on that $400k condo, or $80,000. To "beat" standard investing, you want to get a 5% return, when you go to sell. Which means you only need to build $4,000 in equity annually from the rent paying the mortgage payments.

[plam]

Real estate and renting it out is almost always about the equity built.

The return isn't based on the month to month cash flow, it's on any equity you build for the amount of money you put in. Let's say you put a standard 20% down payment on that $400k condo, or $80,000. To "beat" standard investing, you want to get a 5% return, when you go to sell. Which means you only need to build $4,000 in equity annually from the rent paying the mortgage payments.

Yup, the stock market will get you about 8%, let's say 5% after inflation. (https://www.theglobeandmail.com/globe-in...e30019116/)

Residential Canadian real estate has historically been at 2.1% after inflation, although there have been bubbles as well as slow periods like the entire 80s. (https://www.td.com/document/PDF/economic...Prices.pdf)

There are definitely years where appreciation was much more than 2.1%, but I wouldn't put my investing money into expecting appreciation in the broader real estate market now. Maybe there were years in K-W when that would have worked, but I don't think that today is a time where one should expect appreciation.

[tomh009]

Real estate and renting it out is almost always about the equity built.

The return isn't based on the month to month cash flow, it's on any equity you build for the amount of money you put in. Let's say you put a standard 20% down payment on that $400k condo, or $80,000. To "beat" standard investing, you want to get a 5% return, when you go to sell. Which means you only need to build $4,000 in equity annually from the rent paying the mortgage payments.

Looking at just mortgage payments is the wrong way to look at it. If you are paying down the principal, you're moving equity from your bank account to the condo, it's a net effect of zero. What matters is the interest you pay on borrowed money, and the returns you could earn if you didn't have your own money invested in the down payment.

If you borrow $320K at 4%, that's $12,800 per year. Condo fees and property taxes add $6,000 per year, and property management another $1,500. You're now at $20,300 per year, before any repairs, when your rental income would likely be no more than $18,000 per year (at 100% occupancy), and that's without considering the opportunity cost of the $80,000 down payment (maybe $4,000).

Basically you would be badly upside down on this, and you would be counting on continued appreciation of the property -- which may happen, or it may not. Not a game I would personally want to play.

[Viewfromthe42]

I'm trying to find the source, but I still remember the detail that return on housing and return on the stock market, over the past 30 years housing has outperformed the market on average (and exceedingly in hotter markets), with a risk/volatility/standard deviation less than a quarter that of the market. I would hazard that most owners of property, especially in hotter markets, understand that restricted supply by way of things like zoning greatly affects this, and so you get the yellow belt, you get single storey as the heritage development style for certain areas of California, because if you have the power to determine your return on investment as these kinds of actions do, and nobody is stopping you, of course you will act accordingly in your self interest at the expense of vast untold others.

[Rainrider22]

Real estate and renting it out is almost always about the equity built.

The return isn't based on the month to month cash flow, it's on any equity you build for the amount of money you put in. Let's say you put a standard 20% down payment on that $400k condo, or $80,000. To "beat" standard investing, you want to get a 5% return, when you go to sell. Which means you only need to build $4,000 in equity annually from the rent paying the mortgage payments.

Looking at just mortgage payments is the wrong way to look at it. If you are paying down the principal, you're moving equity from your bank account to the condo, it's a net effect of zero. What matters is the interest you pay on borrowed money, and the returns you could earn if you didn't have your own money invested in the down payment.

If you borrow $320K at 4%, that's $12,800 per year. Condo fees and property taxes add $6,000 per year, and property management another $1,500. You're now at $20,300 per year, before any repairs, when your rental income would likely be no more than $18,000 per year (at 100% occupancy), and that's without considering the opportunity cost of the $80,000 down payment (maybe $4,000).

Basically you would be badly upside down on this, and you would be counting on continued appreciation of the property -- which may happen, or it may not. Not a game I would personally want to play.

Interesting point of view. I have rental condos. They carry themselves. So a side from a the down payment money I tied up, someone else is paying off the mortgage for me and I am writing off a lot off expenses like interest condo fees and management fees. I get quite the nice cheque back at the end of the year from CRC. I am very happy with the returns so far and I will continue to look to buying more.   You can crunch numbers all day long but until you actually try it and realize it is worth it...