The Toronto market spent most of 2019 rubbing the sleep out of its eyes, but now that it’s up and stretching its legs once again, investors will be taking a hard look at the city in 2020 and wondering how best to approach it from a property standpoint.
Ambitious investors with cash on hand and a desire for land will continue to view Toronto’s detached market as worth the steep cost of buying in and the ongoing maintenance demands. Cost-conscious investors looking to rent or resell to families will battle each other for townhouses. But I feel the most rewarding real estate investment you can make in 2020 is in pre-construction condos.
Admittedly, I may be a little biased – not because I sell them, but because I own so many of them. Pre-construction has been a game-changer for me as an investor, allowing me to grow my portfolio more quickly and more efficiently than any other property type I’ve worked with.
This isn’t just a matter of striking while the GTA’s condo market is hot, either. Pre-construction is a smart, simple, highly strategic play that has launched countless investors on a trajectory they couldn’t have imagined for themselves if they had gone the traditional resale route.
As passive as it gets
Pre-construction provides three distinct advantages over resale: ease on the part of the investor, payoff in terms of appreciation and the momentum that can be generated after taking possession of the unit.
1. Ease. When you go pre-construction, you’re not actually buying a property. You’re putting down a deposit on a highly leveraged piece of paper. The only tangible piece of real estate involved fits in your desk drawer, where it will sit for up to five or six years – appreciating steadily and requiring no maintenance.
2. Payoff. Because you’re agreeing to purchase what will eventually be an in-demand, brand-new property, that appreciation will be occurring at a rate that far surpasses that of a pre-owned property. By the time you take possession of your condo, it will have been appreciating for several years. Based on the current average rate of appreciation for condo properties in Toronto – an average that is brought down by resale prices – you could reasonably expect a $500,000 pre-construction property to be worth over $700,000 in five years if the market maintains its heat.
3. Momentum. Here’s the best part. Once taking possession, after years of above-average appreciation, an investor can then refinance the property at its new appraised value. This is what we do with our clients. They wind up with up to 80% of the property’s new value, which can then be used to fund more pre-construction purchases.
If it sounds simple, that’s because it is. The difficult part is choosing which property to invest in.
Turning down the noise
If you’re a regular CREW reader, you likely receive dozens of emails a month touting the next big pre-construction opportunity. With everyone claiming they have the best access to the best projects, making sense out of all that noise can start to feel like a second job.
To make sure you choose the right property for your portfolio, you need to ensure two things. First, the project you’re considering putting your hard-earned money behind must be supported by strong fundamentals. Is the location of your condo poised for population and job growth? What is the current (and future) transit situation? Are there post-secondary schools nearby? A project that answers these questions favourably is often worth a closer look.
But you also need a strategy, and that really only materializes when you work with real estate agents who specialize in the pre-construction space. Look for a company that:
- Has a proven track record
- Owns their own portfolio of real estate
- Buys at the right time in the right location
- Provides effective, out-of-the-box property management, financing and tax strategies that are fundamental to creating wealth
That last point is especially critical. The best pre-construction partners can provide you capital, offer tax strategies that can juice your bottom line and even get your units furnished, which has increased returns 40% to 90% for some of our clients.
Options for 2020
Although Toronto is swimming in pre-construction opportunities, there are two upcoming projects we have our eyes on.
The first is Prime Condos by CentreCourt, one of the top developers in the city. CentreCourt is known for strategically choosing investor-friendly locations, and Prime is a … well, prime example of that. Prime Condos is going up in Toronto’s downtown core, which is already seeing an insatiable demand for condos. It’s near Ryerson University, where the lack of student housing is reaching painful proportions, and Hospital Row on University Avenue, providing an easy walk to work for the area’s countless medical professionals.
Another project on our radar is CollecDev’s Nordic Condos. Located a stone’s throw from the Wilson subway station, Nordic is set to provide investors with a very enticing value play. Investing in downtown Toronto is great, but getting in on Wilson Avenue’s revitalization means investing in one of the city’s most exciting growth stories. There’s a ton of development planned for the area – retail, infrastructure, employment, transit. Nordic will also be a single subway stop from the economic rebirth that is set to transform Downsview Park, where Bombarier recently sold its former manufacturing site for $800 million.
Investing in Toronto is always exciting, but for returns that are truly surprising, pre-construction is where it’s at. It’s where I make my money and where I hope you’ll be making yours.
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 ryan@connectassetmanagement.com.
