The biggest regret I’ve had as an investor, thankfully and mercifully, was an early one: my first condo. I was 22 and had recently closed on a new unit at Bay and Dundas. (This was back in 2002, when someone fresh out of school could afford to buy in that area of Toronto.) It was a decent enough property, but I was under the impression that the only way I could buy more units was to sell the one I had and put the profits to work.
It was a rookie mistake. Not only did I fail to capitalize on the ridiculous appreciation that condo would have experienced over the last 17 years, I also failed to realize that I could have started growing my portfolio faster and more effectively if I had simply refinanced that property and used the money I pulled out for my next purchase.
It’s painful to recollect such mistakes, but botching my first property play led directly to the strategy I now use with my investment clients. I call it the multiplier. It’s the simplest way I’ve found for generating wealth through real estate. Here’s how it works.
Step 1: Purchase a pre-construction condo
The multiplier could conceivably work with other asset classes, but since appreciation is a key factor in its success, pre-construction condos are the optimal property type. Pre-construction properties appreciate far faster than any other property type, particularly in cities with rabid rental markets like Toronto, Vancouver, Victoria and Montreal. By the time your unit is built, it will likely have enjoyed four to six years’ worth of rapid appreciation. When you take possession of it, you will own an asset that could conceivably be worth 30% to 50% more than what you agreed to pay for it.
You could flip it and walk away with a tasty profit. But you’d no longer have a pristine, in-demand property. You’d also have to give the government a cut of the action. Why do either of those things?
Step 2: Refinance the property
Once you’ve taken possession of your property, it’s time to refinance it at its new appraised value. The funds you receive will then be used for deposits on one or two other pre-construction units.
The beauty of this step is twofold. Not only do you get to secure two additional properties with the bank’s money, but you also get to defer your capital gains payout to the feds by holding onto your first condo.
In four or five years, when you take possession of your two new units, it’s time to repeat the process – only this time, you have three properties to refinance, all of which have appreciated considerably during the construction phase of Properties 2 and 3. The money at your disposal this time around will allow you to put down a deposit on three more properties, doubling the size of your portfolio with a few strokes of a pen.
That’s the multiplier. It really is that easy.
Baked into this strategy is the realization that the fastest-appreciating units are going to be found in top-notch buildings going up in prime locations. You need to work with a Realtor who can help you determine which projects are most likely to fetch you the multiplier’s choicest outcomes while also securing early access to them.
You should also partner with a mortgage broker who can perform the kind of financial ninjutsu that will get you the results you want. (At CONNECT, we’re currently building a portfolio tracker that will monitor the approximate value of our clients’ properties and notify them of the optimal time to refinance.)
This isn’t a quick and sexy way of making money; a lot of people won’t want to wait five or more years between purchases. But in my opinion, the multiplier is the safest, most lucrative way to make money on the planet. It has greatly increased my own personal wealth. I’d recommend it for anyone who wants to retire in 15 to 25 years with an incredible amount of wealth.
Ones to watch
There’s never a shortage of attractive pre-construction opportunities in the GTA. Here are two projects we can’t wait to show our clients.
The first, 411 King, is going up at the corner of King and Spadina, one of downtown Toronto’s most rentable areas. Trendy restaurants, the King West club scene, the Fashion District and Raps/Leafs/Jays games are all within walking distance for the area’s growing cohort of young professionals, who have yet to balk at the astronomically high rents. Great Gulf, the company behind 411 King, is one of the largest developers in Toronto, if not all of Canada. They have completed a number of projects where our clients have done tremendously well.
There’s also a fantastic opportunity to get in on the full-scale redevelopment of the Port Credit waterfront in Mississauga. Brightwater, a master-planned community by Diamond Kilmour, will be bringing thousands of units – not to mention transit, retail and office space – to what is already one of Mississauga’s most beloved neighbourhoods. Getting in early on a master-planned community is never a bad move; doing so in Mississauga, one of the GTA’s fastest-growing communities, has ‘winner’ written all over it.
Ryan Coyle is managing director and partner at CONNECT Asset Management. One of Toronto’s leading experts in pre-construction condo investing, Coyle has sold more than $1 billion in real estate since 2004 and currently owns over 30 condo properties. To learn more about pre-construction opportunities in Ontario and the company’s innovative approach to investment, visit connectassetmanagement.com or email firstname.lastname@example.org.
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