I know that most people who follow me and read this blog are probably not students of the Garth Turner school of economics, but a lot of the things that he brings up each day in his blog are certainly concerns for smart-thinking investors who are looking at the condo market right now.

Garth has been preaching doom and gloom for the real estate market in Canada for many years.

Yesterday in his blog he tackled Toronto condo assignments. As usual, I disagreed with pretty much everything he said. Here is my response (not that he asked for it!):

1. Garth Says: Pre-Construction Condos Are Being Bought with 5% Deposits

>>The truth is you need at least 15% – 20% deposits.

Non-resident buyers have to put up a minimum of 25% as a deposit. And this is just the up front money, there is another 5-10% required at final closing when the building completes in 3-5 years!

This is one of the most persistent myths in the condo market. Perhaps it is a remnant from the last condo boom of the 1980s when you actually could buy with only 5% deposit, prices were increasing by double digits, and people were selling their units for massive profits just months after buying them. The condo market was like the wild west back then.

The market is completely different now. Builders can sell units with 5% down if they want to, but these sales will not count in the eyes of the banks to go towards reaching the 70% sold mark to achieve construction financing so that is why when you do see the rare 5% deposit program, it is after sales have already hit 70%+ and usually construction has started and prices have increased so much that flipping a unit for a profit before completion is nearly a mathematical impossibility.

2. Garth Says: Most Investors Flip Their Units As Assignments

>>The truth is most assignment listings NEVER sell.

They sit on the market for months and then the building registers and the buyer is forced to close on the unit. There are many reasons for this including developers tight restrictions and when and how you can assign your unit, and the difficulty in finding educated buyers and agents who even know what an assignment is and how to complete one. I first wrote about the fact that assignment sales are highly complex and challenging about 3 years ago.

I always caution my investors up front when buying pre-construction that assignment should not be your only exit strategy. Always be prepared to close on the unit and hopefully hold it for at least a year after closing before selling.

Bottom line: many investors might like to think they can easily flip their units before closing for a profit, but only a very select few actually do it.

3. Garth Says: Valuations Are Being Pummeled Downward By Assignments

>>The truth is assignment sales have little to no effect on market values.

Because most assignments are NOT sold on the MLS, therefore they are not tracked by the statisticians and industry data crunchers. If no one knows what they are selling for, how can they affect market value?

You could buy a condo for $300K in a brand new building where the same unit sold for $270K last week by assignment but you would have no idea because it happened behind closed doors. The assignments that do sell on MLS (those that are tracked and will affect market values) tend to sell for higher…because they are on MLS (increased exposure, visibility etc)!

This myth is strongly correlated to the “prices are going to fall by 15/20/25/50%” theory on the Toronto condo market. Prices will not fall unless sellers get desperate and start lowering their prices. Sellers will not get desperate unless one of three things happen:

1) they can’t close on the condo (credit dries up, they can’t get a mortgage). Credit would have to tighten up significantly for this to happen. If this happens we are all screwed. c.f. The USA over the last few years.

2) they lose their job (recession hits, widespread job loss). If a recession hits, again, everyone is screwed, not just the condo flippers.

3) they are losing massive amounts of money each month renting the condo out. This scenario is highly unlikely. Money is cheap and rents are rising. Think about it: even in a worst-case scenario, you are an investor in a negative cash flow situation of $100-$200/month renting out your condo-are you going to drop your price by $30-$50K just to save yourself $1-2K in negative cash flow?? Of course not. You will ride it out and wait for prices to come back up then sell. In the mean time someone else is paying your mortgage and building equity. Bonus points if you also realize you are saving taxes on the loss each month!

4. Garth Says: No One Can Make Money As a Landlord At $700 Per Square Foot

>>The truth is plenty of people will make money at $700 per square foot.

I remember just 3 years ago when people said that no one would make money at $600PSF. Well, now look at the market. Rents have gone up significantly (and prices have too), mortgage rates are lower than ever, and bidding wars on rentals are happening every day. Those ‘idiots’ who bought at $600PSF waaaaaaay back in 2009 are clearing positive cash flow each month with 80% of the asset as debt.

People will make money on $700PSF. Just give it time. Heck, some are already making money at $700PSF if they bought the right type of unit in the right location!

5. Garth Says: 15,000 Assignment Sales in Toronto Per Year

>>The truth is this figure is completely ridiculous.

There is no way that there are anything close to 15,000 assignment sales in Toronto each year. The best way to think illustrate the absurdity of this figure is this: in 2012 there will be about 15,000 new condo completions to hit the market. Are we supposed to believe that every single one of them will sell as an assignment right before closing?

If there were really 15,000 condo assignment sales every year in Toronto, who is selling all these assignments? I’m certainly not! (Assignments make up less than 10% of my personal business) My colleagues and friends who are the top condo agents in the city are certainly not!

No one knows for sure how many condo assignments are sold each year but for a given newly completed building I would guess that no more than 10% of the units on average will sell as assignments. If we take the figure of 15,000 new condo completions per year in Toronto then that means around 1500 assignments per year maximum.

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The post 5 Things Wrong With Garth Turner’s Post On Toronto Condo Assignments appeared first on Toronto Condos.

The Modern on Richmond started selling units back in November 2007. I remember this project launch clearly because it happened right at the same time as the original 1 Bloor project and it seemed everyone in Toronto was talking about pre-construction condos at the time. Oh wait, not much has changed in the last 4+ years!

The Modern is nearing completion now and owners are starting to get occupancy of their suites which means that many units are now coming up for sale as assignments. For investors who bought at The Modern circa 2007-2010, values have gone up significantly and now is a great time to sell and cash in on the gains. If you own a unit at The Modern and you are interested in selling by assignment, please contact me to discuss.

If you are a buyer and looking for a brand new condo in a great downtown location that offers excellent value, consider The Modern. With average prices in most new downtown buildings hovering around $600 per square foot and up, many suites at The Modern can be had for around $500 per square foot – including parking! For example, at the moment we have a 920 square foot suite available for $449,900 including parking and locker, which works out to $489 per square foot!

The resale and pre-construction market are red hot right now, and getting what you want at a good price can be challenging if you are a buyer. The assignment market represents a sort of ‘third way’ of getting into the condo market without having to face as much competition. But it’s important to understand the details of how assignment sales work. Not all agents are experienced or trained in this specialty area! Contact me for more details or check out some of the articles on this website that I have written about assignment sales.

The lobby is going to be really nice in this building with a dropped floor and see-through fire place.

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For those of you who have been living under a rock for the past couple years and still do not know what an assignment is, please read through my series of blog posts on the subject before continuing.

Time and time again I see assignment sellers (and their agents) making the same mistake: over pricing their assignments.Finding a buyer for an assignment is tricky under the best of circumstances. Finding a buyer for an assignment when that assignment is over priced to begin with is nearly impossible.

For example, Maple Leaf Square assignments are popping up everywhere.  Some sellers are asking $700 per square foot for their units. This is insane. There is almost nothing selling on the resale market at that price anywhere downtown. Why would anyone pay this for a run of the mill condo?

The high end of the resale market (for non-luxury buildings) are buildings like Glas (25 Oxley), College Park (761&763 Bay), Murano (37 Grosvenor and 38 Grenville), and The Met (21 and 25 Carlton). Units in these buildings are averaging about $575 PSF for units with parking spots. The odd unit is selling for slightly above $600 PSF. This is the creme of the crop. Trying to sell an assignment in an unproven building for $700 PSF is just silly.

So what is a realistic way to price an assignment? There is no set rule at this point, however, I would suggest you first determine the value of the property if it were a resale property TODAY, then subtract 10% from that. This is assuming of course, you are a motivated, rational seller who does not want to close on the property. This is also assuming occupancy will take place in the next 6 months or less for your unit.

Don’t get greedy. Price your assignment below equivalent resale market value to give yourself the best chance to find a buyer.

This one is sure to excite some people-let me know your thoughts or comments!

The post Greed: Part 2 appeared first on Toronto Condos.

People contact me just about every day and ask me about assignments - I want to buy an assignment! I want to sell my condo by assignment! The truth is, most people have no idea what is involved when buying and selling an assignment. When the Average Joe learns just a fraction of what there is to know about assignments, 95% of the time Average Joe ends up returning to the comparatively simple world of pre-sales and resales.

So for all the sellers of assignments, as well as those who may be thinking about buying a condo by assignment, I’d like to introduce to the the top-5 reasons why many assignment listings never sell:

1. No Market Exposure. You are not allowed to advertise assignments on the MLS. Many assignment listings don’t sell because no one knows about them!
2. Lawyers. Most lawyers hate assignment deals. They often look for reasons to kill the deal – and with assignments, you don’t have to look to hard.
3. Price. This is probably the #1 reason why many assignment listings don’t sell. You can’t price an assignment like a resale property. Investors buy assignments and investors don’t pay current market value for property!
4. Closing Day Too Far Away. Buying a pre-sale condo then trying to flip it a month later is a fool’s game. The unit must be at or very close to occupancy so that market value can be accurately predicted and the investor can safely determine if they are getting a deal.
5. Closing Costs. Did you get your closing costs capped by the developer when you first bought your condo? If not, there is no way to tell exactly what they might be. Buyers of assignments need some degree of certainty as to what closing costs they will incur, otherwise they will move on.

Bottom line, assignments are not for everyone, but for the right buyer and seller, working with a good Realtor and co-operative lawyers, they can be a fantastic way to transact in real estate. Questions about assignments? Contact me.

The post Why No One is Buying Your Assignment appeared first on Toronto Condos.

Nearly all listings on the resale market downtown priced under $350K are generating multiple offers. The lower the price, the more activity on the listing, the more showings, the more offers. Every day I have buyers calling me and emailing me who are looking to buy a condo downtown for under $250K. The market is hot, everyone wants a piece of it, and suddenly anyone with a few extra dollars in the bank considers themselves a real estate investor.

My advice is to consider buying an assignment at a building that is about to take occupancy or is in the occupancy period but not yet registered. For example, my colleague has a Junior 1 bedroom suite (525 sq ft) at West Harbour City with an asking price of $249,000. Occupancy is slated for March. A great starter condo or investment unit in what will likely be an excellent building. If this unit were on the resale market, it would likely be priced at something more like $269,000. Assignments like this give buyers the chance to save a little money and a little sanity.

Make sure you are working with a Realtor and a lawyer who understands assignments! Most do not and will only cause severe frustration for you. Questions? Contact me today.

The post Buyers: Avoid Bidding Wars in the Assignment Market appeared first on Toronto Condos.

• Get your money back! Let’s face it, 20-25% of the average condo in Toronto is a lot of money. If you bought a new condo in the past few years in Toronto, that’s the amount in cash you would have had to put down to the developer. Your plans have changed and you want that money for something else. Selling by assignment is a way to get that deposit money back into your hands.
• Avoid occupancy fees. There has been a lot of talk about occupancy fees (or phantom mortgage) lately as horror stories have emerged of some buyers paying fees to the developer for up to 2 years to live in their condo without ever putting a single cent towards the principle on their mortgage. If you have no intention of living in the unit, why pay occupancy fees?
• Avoid closing costs. Closing costs on a new condo can be significantly more than the closing costs on a typical resale. Always consult your lawyer and your accountant for what you can expect in terms of closing costs, especially if you are purchasing a condo that will not be your primary residence. Selling by way of assignment means you pass all these closing costs on to the buyer.
• Take advantage of the market without getting greedy. The market has been great for the past few years. If you were fortunate enough to have bought a pre-sale condo in 2007 or before, then your investment has probably appreciated significantly. For some, selling their contract is a great way to take your profit and move on.

Questions? Leave a comment or contact me.

The post Assignment Advantages For Sellers appeared first on Toronto Condos.

• Lower purchase price. Buying an assignment is sort of like having a time machine and being able to go back in time to purchase a condo today, at yesterday’s prices. Sellers know they have to price their units for less than what the developer would sell a similar unit at today. Savings can be in the tens of thousands compared to buying through the developer, and in some cases the price paid is even lower than what is available on the resale market.
• Lower taxes. If you buy an assignment contract that was originally signed prior to the new Toronto Land Transfer tax kicked in (January 1, 2008), you can save yourself a few thousand dollars in closing costs by not having to pay them even though the closing date is after Jan 1, 2008. Also, with the McGuinty government recently announcing a new Harmonized Sales Tax (HST), buying an ‘old’ contract is a great way to avoid the tax man!
• New condo without the wait. Usually when  you buy pre-sale you are looking at a very long wait to move into your new condo. When you buy an assignment, you don’t have the usual 3-4 year lag time, often occupancy is only months away.
• Tarion Warranty. Since you are buying a new condo, you do qualify for Tarion‘s 7-year warranty that comes with all new homes and condos in Ontario.
• Inherit VIP incentives. Many sellers of assignments are investors who purchased during the initial ‘VIP’ stage of the sales process, when prices were lowest and often many upgrades were thrown in by the developer for free that if  you bought today from the developer directly you would have to pay extra for.
• Negotiate from a position of strength. Many sellers are selling because they cannot wait until occupancy or final closing -they need to get their money out now. Negotiating with someone in this position can be advantageous. 

Questions? Leave a comment or contact me.

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Buying an assignment usually means you are getting a better price than if you just bought directly from the developer. However, instead of dealing directly with the developer – the entity that you are buying a condo from, you are negotiating and dealing with an individual. There is an element of risk by definition because you are inheriting someone else’s contract rather than negotiating your own from the start with the developer.

Most lenders are very familiar with pre-sale condos and they have programs set up for buyers to arrange the financing portion of the sale. When it comes to assignments, some lenders are not familiar with the process and buyers and sellers often encounter difficulties when dealing with the banks on assignment deals. This is another reminder why having a lawyer and a lender who are experienced with assignments is crucial for both the buyer and the seller in any assignment transaction.

Questions? Leave a comment or contact me.

The post Pre-Sale vs. Assignments appeared first on Toronto Condos.

The biggest difference is that when you are buying resale you are buying real real estate. The property exists and it is registered in the land registry system of Ontario. When you buy an assignment, you are really just buying a piece of paper, the contract that in turn gives you right to own real real estate once the building is completed and is entered into the land registry system.

Practically speaking, dealing with resale is a much more tactile experience because you can see /feel /touch the property, where as dealing with assignments is more similar to buying pre-sale / buying from plans. 

Resale requires a mortgage, and closing dates are usually 60-90 days. Assignments do not require a mortgage up front, but they usually require a hefty deposit (25%+), and closing dates can vary from months to years depending on how the agreement is structured and how far along the project is in construction.

In terms of growth, the assignment market is likely to grow substantially over the next couple years as many people who bought at the peak of our current market cycle will be looking to sell. This in contrast to the resale market where many sellers are taking a wait-and-see approach before putting their properties on the market.

Questions? Leave a comment or contact me.

The post Resale vs. Assignment appeared first on Toronto Condos.

The answer is it depends. It depends what is in your contract, or your Agreement of Purchase and Sale that you have with the developer.

Every Agreement of Purchase and Sale will have a clause that deals with the handling of assignment sales when purchasing a new condo. By default, most contracts will forbid the assignment of units, but many developers have included the ability to assign as incentive for buyers to purchase. Also, many savvy buyers insist on having the ability to assign written into their contracts if it is not there by default. (Remember, it is not in the best interests for the developer to have individual sellers re-selling their product before the building is completed.)

If your contract allows you to sell by assignment, there usually is a fee to do so. The fee often is in the $3000-$5000 range. This is not negotiable.

In some cases, even if you do not have an assignment clause in your original contract, the developer may allow you to assign your unit as a one-off scenario, or they may be willing to add an assignment clause to your contract.

Final word of caution: Never assume anything. Always consult your Realtor, your lawyer, and the developer before proceeding with any effort to sell your condo by assignment.

Wondering if you can assign your condo? Contact me.

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