Talk The Talk - Walk The Walk
I met with an old friend recently and during the meeting he said something that I have heard many times before, believe it or not; he said, “Alex, I hate real estate.” As we continued our conversation, he explained that he’s been watching our Weekly Talks and wanted to see if we are a match to work together. Most importantly, he said he has a level of trust with me. My client’s trust is an important factor in my business which is why I always treat my portfolios as an open book.
A couple weeks ago, I "talked the talk" about why investing in pre-construction condos is a great idea, this week it's all about the walk. I’ve recently purchased a pre-construction investment condo and decided this would be a great opportunity to take you through my thought process when analyzing a project and why I purchased it.
The Azura Development Project
The Azura development sits across the street from the Yonge and Finch subway station. I normally get quite involved with projects like these because I have to speak with and answer client’s questions and usually end up getting myself sold on the upsides of the project. I truly become an expert and know everything about it.
The majority of the units that I end up purchasing are because other people didn’t show up for their appointment. At this point, I already know everything there is to know about the project, I’ve been sold on it for weeks, and someone else has given me an opportunity to jump in by not showing for their appointment. That’s when I take out my cheque book and write the cheque.
First, The Analysis
I will start by saying, Yonge and Finch isn’t an area that is normally on my radar as I tend to stick with more central areas. I prefer being in the core of downtown or at a location that has direct access to it. I hadn’t really explored the Yonge and Finch area.
When doing an analysis of the area, these are the points that met my criteria:
Immediate access to transit, as the unit is directly across from the Yonge and Finch subway station.
There is very limited development and construction in this area. This means there will be very little new supply coming into that area which allows for a more limited selection for people moving into that area.
Azura is bordered by the Willowdale neighbourhood which contains multimillion dollar homes.
There is a strong Korean and Middle Eastern presence in that area making the neighbourhood extremely desirable for different cultures and ethnicities.
Easy highway access to the 401, the DVP, and the 407 northwest.
The project is being developed by Capital Developments, a great and successful builder in the city of Toronto.
Bonus : while in the process of purchasing the unit the provincial government announced that they are extending the Yonge subway line all the way to Richmond Hill. This allows tenants to live outside of Toronto’s core while still having easy access to it.
To summarize the analysis, there is little ongoing development in this very desirable area, this unit has easy access to highways and transit, the transit extension will be complete in 8 to 10 years which aligns beautifully with my 8 to 10 year time frame to hold these properties for. All in all, this project was looking like a very attractive investment opportunity.
Let’s Do The Math
I invested in a 441 square foot, 1 bedroom unit, for $467,000. You may be thinking, “Over $1000 per square foot? That seems high for the Yonge and Finch area.” I ask you in return, where can someone get a brand new 1 bedroom entry-level condo in Toronto for under $500,000? When looking over the criteria listed in the analysis above, then looking at the floor plan, I’m not concerned because I know I have a very strong product on my hands.
As of current rates, the unit would rent out at about $2,100 per month. This would run a slightly negative cash flow of about $90 per month, but I didn't buy it to get today’s rent. I bought it for when the project will actually be completed, which will be in 2022. If I apply a conservative 5% annual growth on the rental rate of this product, the rent in 2022 will be in the neighbourhood of $2,300 to $2,400 per month. This puts me in a positive cashflow anywhere between $125 to over $200 per month.
As explained in my blog “Secrets of Buying a Pre-Construction Condo”, we’re able to lock into the lowest price point the unit will ever be at now and then receive a positive cash flow later. In addition, this new project is NOT subject to rent control. So, even if the cashflow in 2022 doesn’t reach what I had originally calculated, I can rent for a low price the first year then elevate the price the following year at the end of the lease, giving the tenants 90 days notice as required by law.
Let’s look further into the future now. I purchased the unit at $467,000, after analyzing other new buildings that have recently been completed in the same area, I calculated the current market value of the finished product at $500,000, then I apply a %5 annual growth rate. In 2023 we’re looking at around $607,000 and in 2024 we’re estimating $638,000. The price will only continue to rise higher and higher as we reach our 10 year mark.
You may be wondering why I personally focus on a 10 year horizon. With real estate, it’s all about buying and holding your product. For example, back in 2012, I invested in a unit in The Carnaby in the mid $200,000s. In 2019, 7 years later, the condo is worth somewhere around $703,000. Once it reaches 10 years it’ll be worth north of $800,000. When looking specifically at the Azura project, the new subway extension project going into Richmond Hill is estimated to be completed in that same time line which will only add value to the property.
After learning everything there is to know about the project, making my own analyses on the development and unit itself, and doing the math, this investment became a no brainer. So when the person didn’t show up for their appointment, I pulled out my cheque book and made the investment myself. I mentioned in the beginning that trust is important and that my portfolio is always open, so I’ll be honest. With real estate, the game is a long and boring one. But I know I can’t go wrong with this investment.
Wait! Are There Any Units Left?
There are units left in the Azura project! They have sold out of 1 bedroom units but still have 2 bedroom units and possibly a 1 bedroom with den available. Because the project is in a multimillion dollar home area, the 2 bedroom condos become a very attractive option to those who want to live in that area but can’t afford that price point.
If you’d like to look into this development and want to invest in the Yonge and Finch area send me an email at firstname.lastname@example.org, or give me a call/send a text message at (416) 996-5181.