Toronto Real Estate “Stock Market”

Toronto Real Estate: Is it BUY BUY BUY? Or SELL SELL SELL? One thing is certain: Today’s real estate market has many characteristics of the infamous stock market. Much like stocks, even in today’s market, there are properties that will make you money and there are those that could lose you a bunch.

Are you a risk taker who wants to gamble for highest return? Or you want to play it safer and collect cash flow (much like dividends) but limit your upside?

Our last month’s Special Report on the housing market exposed many pitfalls which buyers should be aware of. But as negative as it may have seen, make no mistake about the fact that overall Toronto’s real estate market is still one of the best in all of North America!

To begin with we always like to bring real life examples from our personal experience, these ones are real and unfiltered facts. And one good example came last month.

For obvious reasons we cannot disclose the exact location of the property, but here are some details. This subject property was purchased by now sellers at the end of 2009 for $367,000 (great deal!). Property was located close to Lake Ontario, but not waterfront. It was a small bungalow in the south-west end of the city with a shared/mutual driveway. Today (being 2014), this property looks largely the same on the outside with no major changes. The main level is nicely renovated compared to 2009, and the basement was completely finished since the purchase date. All in all we’d estimate the renovation costs to total around $70,000.

This property was listed for $649,000 and drew 6 offers, one of which was ours. Not going to lie, knowing the market, some things are given. Based on the access to information we have this one is selling well over asking, and every offer on the table is likely a firm one (unless some agent really wants to waste their time).

Long story short, our offer was $732,000 firm, and the property sold for $778,000. That is nearly $130,000 over asking, which even in our mind blew all proportions. There were facts in which we could justify $732,000, and may be even $750,000, but $778,000 definitely did break all the barriers. Likely in the long term, the buyers won’t care about the price they paid because this particular pocket became hot cakes & today it is surrounded by million dollar homes…

But back on to our point. The buyers who bought this property 4.5 years ago, after some renovations, realtor fees, etc. have cashed in over $300,000 tax free (no capital gains tax on your principal residence) just based off the price increase alone. That is right… this property which they bought for $367,000 and lived in for 4.5 years has more than doubled in price since the end of 2009. That is what we call a jackpot!

Now, how do you differentiate between a good real estate investment from a bad one?

For that, let’s first look at the stocks: If you decide to invest into some technology stocks because your research shows that industry is hot, you will still want to really narrow down your list based on ‘fundamental’ & ‘technical’ analysis down to a particular company or two.

This is taken straight from wiki:

“Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets”
“Technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.”

When searching for a property with the goal of Making Money believe it or not that same principal applies.

Your Fundamental analysis will involve research of the city or town, then area, community, and often times all the way down to each street… you won’t believe how big of a difference can a street appeal alone make when it comes to future buyers who are shopping for a property.

Your Technical analysis (while not as extensive as with stocks) will involve studying the price growth in the area, as well as trying to figure out whether there is more upside potential and if so how big could it be.

When it comes to investing in Real Estate many factors are in play, and if you are planning to make money in this industry then every fact & detail counts.

There are people & entities that make a lot of money investing in stocks and then there are those that lose just as much. Today’s Toronto Real Estate market is turning the same.

Remember, for every winner there is usually a loser, WHICH SIDE ARE YOU ON?