Greetings Everyone,
Today I had a very interesting conversation with a fellow real estate investor. Our conversation was by chance, as neither one of us knew that the other was involved with investing in real estate.
I was very fascinated by this individual and the way in which he was investing in condo units in downtown Toronto.
In point form, here is a quick summary of his investment strategy:
- He is currently a part time real estate investor
- He works full time in the entertainment industry (on the set of movies, commercials, etc.)
- Specifically, he buys pre-construction condos in downtown Toronto, and flips them once the unit has been constructed.
As an aside, I know that investors with deep pockets do this. Instead of purchasing single condo units in a building, these deep pocket investors will buy entire floors in a condo building. Or they will buy a specific type of unit in the building. For instance, they may buy all of the bachelor units in a particular building and then flip them at a later date.
- This particular investor was just buying single units in a given building
- His long term strategy is to eventually invest in pre-construction condos as his full time job
What I found interested about this Condo Flipper was that he initially started out as a traditional real estate investor, buying and holding properties long term.
He told me that he started out investing in buy and hold properties approximately 15 to 20 years ago.
He also added that he moved into purchasing pre-construction condos because he wanted to invest his money in a ‘different’ way. I got the feeling that perhaps he became bored of the buy and hold strategy.
Here are some important take aways that I got from my conversation with this investor. This is the most important part of my article, as this gives an insight as to what is really going on ‘in the head’ of this particular investor.
- As fascinated as I was talking to him, and asking questions about how he was investing…he was equally as fascinated about how I was investing.
This insight led me to believe that as cool as condo flipping must be, there was a part of him that still wished he was buying and holding properties for the long run.
- He was very bullish about certain condo developments in downtown Toronto that a lot of traditional real estate investors would run screaming from.
His perspective here made me realize that opportunity truly exists everywhere. Whether you are buying properties to hold for the long term, or pre-construction condos to flip, there is an opportunity to make a profit with both scenarios.
Often, I find that many traditional buy and hold real estate investors don’t like certain ideas. For instance, they tend not to like the ‘buying pre-construction condos and flipping them’ strategy. Many of them disregard this idea completely as a money making strategy.
*Neil’s Wisdom* — Sometimes when we have our eyes closed (to certain investment strategies) we tend to miss these opportunities, as we are in the dark and we don’t see them.
Just some food for thought for my traditional buy and hold investors/readers. 🙂
In closing, there was one other point that this Condo Flipper made that I found fascinating. Anyone who has been watching the Downtown Toronto condo market knows that parking spots are now selling for a premium. A few years back $25,000 for a parking spot was the going rate. This going rate, depending on where you buy a condo in Toronto could now be $35,000 a spot.
The Condo Flipper told me that with his recent condo unit that he purchased at Front St. and Jarvis St. in Toronto…
…he bought a parking spot for $41,000 one year ago. A year later, the same parking spot was selling for $50,000.
$50,000 for a parking spot?!
As the kids say… OMG!
Leave me a comment and let me know what you think of this Condo Flipper’s Investment Strategy. Do you like it? Do you hate it? Do tell.
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Great and insightful post Neil!
It’s an interesting take on real estate investing and one we are familiar with…albeit to a lesser extent. We have bought a few pre-construction condos (2 of which were in Toronto). We bought them using strong fundamentals in the market at the time of purchase. They were in the Toy Factory Lofts in Liberty Village. Great true loft conversion. We ended up “flipping” 1 of them to our partner (and we then dissolved the partnership) for a nice profit and then closed on the other one.
All in all a nice payday on those 2 particular units, but a strategy I am not keen on doing again. If nothing else but the fact that working with the developer was a HUGE pain in the butt.
I cannot stress that enough when buying pre-construction. Do NOT think it is a hand’s off investment that you can just put your 5 or 10% deposit down and forget about until it’s time to flip. Especially if you do take occupancy. I do not have the time nor energy to re-hash my story but needless to say, be prepared for a lot of effort if you do take occupancy and/or close on the unit.
And, more importantly, unequivocally KNOW the market you are investing in not only today but 2-5 years from today once the condo is complete. AND, KNOW the reputation of the builder/developer. If they don’t have a strong track record – do NOT invest with them.
Nuff Said!
Cheers
p.s. Neil, what’s your Twitter account???? Oh, and thanks for the head’s up that Julie has another article coming in Canadian Real Estate Magazine’s April edition!!!
Hi Dave,
Thanks very much for you comment. I would be very interested to hear about your experience with the Toy Factory Lofts one day offline. 🙂
You are so right when you say, ‘know your market 2-5 years from today once the condo is complete’.
Also, your point with regards to knowing the reputation of the developer is so very important as well.
Related, I heard of a high profile condo development here in the GTA that got canceled a few months back. Luckily, the builder is well known, and was able to refund the downpayments to all of the purchasers. This is not always the case with shady or unknown developers, as you know.
My Twitter account is… @Neil_Uttamsingh
🙂
Hello Neil;
This goes to show everyone that money can be made in any part of any business and in any market condition.
It all comes down to the level of knowledge, creativness, risk management and the ability to execute on a solid plan.
But I have to say, flipping properties can be a very risky proposition. One has to ensure that they are:
1. Buying the right property with a lot of demand in any market condition – i.e. start units etc
2. Buying in the right areas with strong fundmentals so that the unit appreciates or at least holds its value even if the market is soft or slows down
3. Ensure that the investor is able to qualify for a mortgage in case he/she has to take possession of the property once its completed. Its very easy to sign a Purchase agreement and put down a 5%-15% deposit to get a pre-construction property. But its a whole different story when it comes to qualifying for a mortgage (of course this depends on the individual investor’s financial situation)
4. Have a strong and viable exit strategy. Also have a plan B in case your first exit strategy does not work out – i.e. the investor is not able to “flip” the property to another person at a higher price. Under this scanario, are you able to qualify for a mortgage, have a system in place to find high quality tenants quickly, manage the property and finally will the property at least break even after all the expenses?
These questions should be reviewed prior to trying to get into any sort of real estate strategy (buy/hold, flipping, rent to own etc)
On that note, we have identified a few investors that purchased pre-construction properties in 2006 (Downtown Toronto) and now are unable to “close” on the property (i.e. get mortgage financing now that the building is ready to be occupied). Now they are scambling to off load their purchase to someone else.
But on the flip side, its a great opportunity for us to come in and assume/take over that investor’s purchase agreement and secure properties at 2006 prices! Its a win-win situation because the other party no longer has the headache of trying to find financing and being stuck with an obligation to purchase which they can’t do anyway at this time.
Ajay Sritharan
Real Experts Inc
http://www.realexpertsinc.com
ajay@realexpertsinc.com
Hi Ajay!
Thanks for your comment. I hope that all is well with you.
I really liked your point about ‘having a viable exit strategy’. As well, having a plan B is so important.
I think that many people who buy pre-construction get caught up with the ‘thrill’ of buying a property off of the ‘builders plans’.
However, when rubber hits the road, things can become much more difficult for the investor if they have not planned accordingly.
I would be interested to hear how you came across those investors that you were able to purchase the condo from at 2006 prices…Very cool!
See you at the next REIN meeting.
Regards,
Neil.
Hi Neil,
I would certainly share my comments re. Toy Factory with you some time. Just have to pick a time to chat.
As for projects that get canceled, yes, there is always that risk when buying pre-construction. Again, pointing to the fact it is SO IMPORTANT to DO your DUE diligence on a builder/developer before putting up your deposit!
Thanks Dave.
We’ll definitely connect at some point so that I can hear your story on the Toy Factory lofts. 🙂
Talk to you soon.
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