Are You Doing Enough Research When You Purchase Your Property?

Condo Investment
 

For the last couple of years, the housing market in Canada’s major cities had been sizzling hot and there was no shortage of real estate news coming out on a daily basis. Being a Realtor, a homeowner and a real estate investor, I definitely have a vested interest in the real estate market and tends to read quite a few headlines on a regular basis. There is noise everywhere. The governments are introducing foreign buyer taxes and stricter mortgage qualification requirements to try to limit speculators in the real estate market. Some economists think that the Canadian real estate market is forming a huge bubble and it’s going to burst any time soon. Affordable housing activists are calling out governments and builders for not building enough affordable housing units for low-income earners or not doing enough to help first-time buyers. Builders are pointing at governments for not providing enough new land to build on. The list goes on and on and on. With all these distractions out there, no one seems to have the real answer to a fundamental question, “What’s causing all these price inflations in the real estate market?” I don’t claim to have the answer nor will I ever have the answer. However, I’ve come across some real estate practice that’s very alarming during the last couple of weeks and I feel that I should share with my readers as this knowledge may help them save potentially thousands of dollars in the future. So here it goes…

 
Investment Opportunity

A New Investment Opportunity


Back in mid-January of this year, I got an email from my brokerage with information regarding a new condo development project. I get these emails all the time as there are condo development projects being initiated everywhere around the Greater Toronto Area (GTA). However, this project seemed interesting to me as it was located just steps away from a future subway station, close to three major highways, in the vicinity of major malls, restaurants and major retailers like Home Depot, Wal-Mart and Ikea. If you’ve read my guide on how to buy an investment property, this project met most of my ideal investment criteria that I outlined in that post. So it’s definitely worth my time to check out this project to evaluate if all these euphorias are for real. If the potential is there, then I can deploy some of the leftover cash from my mortgage refinance last year into this project instead of investing all of it in the stock market. On top of that, I also have a client who’s also looking to deploy his cash to purchase more properties. It’s a win-win for me if everything goes smoothly as I can make a commission on the purchases and I will also benefit from the investment in the condo project with really great potentials.

 
Do Your Homework

Gotta Do Your Homework


After I’ve decided to further investigate the potential of the project, I started to look for more information related to the future subway. Based on the information that I found on the Toronto Transit Commission (TTC) and the Metrolinx website, the location of the condo is less than 200 meters away from the subway entrance. I also drove to the current location of the condo and the subway entrance to verified the distance – it was accurate. In addition, I also found out that the subway station will be scheduled to be completed within the next couple of years, which is ahead of the planned completion date of the condo project in 2021. Having access to public transit is crucial when it comes to an investment property. The next item on my research list is to do some analysis of the newly built and recently sold condo units in that area. This will provide me a baseline to compare the price of the new development condo with the market price of the area’s recently sold units (since I am a Realtor, I have access to all these information. You can have access to this info too by contacting me or the Realtor that you work with.) Once armed with this information, I was excited and couldn’t wait for the launch of the project.

 
Project Launch

The Launch Of The Condo Project


About a week later, the official launch of the project started and Realtors from all over the GTA were invited to the launch party. I couldn’t attend the party as I had other commitments. However, colleagues from my brokerage attended the launch and got me the floor plans, deposit structure and the pricing for the units. One piece of crucial information was missing, which as the selection process. How does the developer determine the pecking order of who gets the appointment to buy first? From what I was told, all interested buyers need to submit a worksheet with their personal information and preferred unit to purchase. For those buyers who submitted their worksheet through a Platinum Agent (it’s just a fancy title for an agent that does a certain sales volume per year, but there is no actual educational credential required for this title), they will get their applications reviewed first. My brokerage had a couple of Platinum Agents so I piggyback on their status and submit my application through them. Now the waiting game begins…

 
Waiting For An Appointment

Waiting For An Appointment


Three days had passed. I didn’t get any reply from the developer nor did my Platinum Agent colleagues from my brokerage had any feedback regarding my application. A week had passed, still no responses. So I decided to give the sales center a visit. It was busy and the environment was like a crazy flea market with Realtors everywhere and associates at the sales center wouldn’t even talk to you if you don’t have an appointment. Two weeks had passed and I finally got words from my brokerage. I thought it was news regarding my application, but it was not. The first phase of the condo project was sold out and the developer was taking application for the second phase. So once again, I filled out the application for myself and my client and submit it myself and through my Platinum Agent colleague.

 
Price List At Project Launch

The Lack Of Transparency From The Builder


Once again, I waited to get an appointment and I still didn’t get any responses from anyone. Now it’s about a month since the first launch of the project and I know that my chances of buying a unit in that project are pretty slim. However, I was not very happy about the whole selection process and the lack of transparency provided by the condo developer. One Saturday, when I was in the area, I decided to drop by the sales center and inquire about my application. This time, the sales center was a bit less busy and there were actually people there who I was able to talk to. To my surprise, nothing was reviewed about the appointment selection process and I was told that the second phase was sold out too. Now they are on to phase three. For this phase, buyers no longer have to send in their worksheet and waited to be contacted for an appointment. It’s a first come first serve basis. Feeling a little forgotten and mistreated, I kept my cool and asked for the price list and the available units. When I received the available units and price list, I couldn’t believe my eyes…

 
Price List After One Month

The Lack Of Regulations


The first thing that really surprised me was the price list. The price for a one bedroom unit of approximately 504 square feet in size was priced at about $283,999 at the start of the launch and the price for a two bedroom unit of approximately 773 square feet in size was priced at about $458,999. For a similar sized one and two bedroom unit, I was provided a handwritten price list of $319,999 and $520,999 for a one bedroom and two bedroom unit, respectively. On top of that, I was told by the sales representative that she can only hold that unit for me for an hour so. Instead of providing a deposit of $5,000 on signing as stated in the original price list at the start of the launch, I’d have to provide a 5% deposit instead. I was really disappointed to see that price list and was even more disappointed that the real estate industry was allowed to conduct business in such a manner. If I didn’t have the original price list to compare the prices with, I would have been outright robbed by this builder for tens of thousands of dollars. Sadly, I saw a few people who were signing their purchase and sales agreement for a unit and they probably had no idea how much the prices had increased and how the builder was able to arbitrarily offer buyers any price they want on a daily basis. Would you have paid for a condo unit that was not even built yet, and knowing the price for a similar unit was offered for $60,000 less about a month ago?

 
Difficult Recommendation

The Difficult Recommendation


After seeing the price list, I decided that I didn’t want to be robbed by this builder, even though I really liked the potential of this project and the investment opportunity it presented due to its location. Now, I had to call my client to inform him that he has an opportunity to purchase a unit in the condo project if he wanted. However, I decided that it’s not wise for me to get ripped off by this builder and he shouldn’t be ripped off too. So I recommended against buying a unit in that condo project. My logic was quite simple. One of the purposes of purchasing this investment property is to make a profit through price appreciation in the future when you sell (here is a recent post on how I helped one of my clients saved $30,000 when he sold his home). But when your cost is significantly higher to start with, you are also losing out in other investment areas too. For example, you’ll be borrowing more to purchase the unit due to a higher purchase price, your cash flow will be less as a higher percentage of your cash flow will be used to service the mortgage debt. Suffice to say, he was disappointed too with this decision not to invest in this project. This recommendation cost me more than $20,000 in potential earnings as the commission was 4% of the purchase price, but as I mentioned in my previous article, I am not in the real estate business to make a quick buck. My client’s interest comes first, and everything else is secondary.

 

My Two Cents


With such a hot real estate market, it seems like everyone is making money in the real estate market and there are opportunities to make money everywhere. For sure, if you have purchased a property anywhere in the Greater Toronto Area within the last five years, your chances of making money is almost 100%. However, with such a lofty market and all these euphorias, sometimes, investors lowered their guard a bit and do less due diligent. For me, it doesn’t matter what the investment is or the time during the economic cycle, the same due diligent needs to be conducted for every investment. If the investment is putting you at a disadvantage to start with, one must be prudent enough to reject such investment, regardless of how good it looks paper. There will always be another investment opportunity in the future as long as you have investment capital.

 

Leo T. Ly, Canadian Personal Finance Blogger/Enthusiast and a Realtor Living in the Markam, Ontario, CanadaAbout Leo
I am a Canadian personal finance blogger/enthusiast and a Realtor living in Markham, Ontario, Canada. I built a net worth of a million dollars over a ten year period. I did it by being a disciplined saver, taking advantage of income tax rules and borrowing money to invest rather than for consumption. I am often excited to take advantage of free money from employers and governments in addition to building more passive income sources. After accumulating my first million dollars, I am now embarking on a second journey towards achieving financial independence. On this journey, I will strive to increase my net worth to two million dollars and retire by the age of 48 - Freedom 48. Come along and follow my journey.



There are 70 comments on this post.

  1. Great read. As you were writing about it, I was starting to get interested =). Yeah that sucks the way it ended up. At least you get a lot better info then the general public. People going right in without an agent were probably just signing the dotted line. Real estate is crazy, I had friends in the fall sleep outside a Mattamy showroom so they could get which unit they wanted on first day of sales… thanks for the insiders perspective!
    Passivecanadianincome recently posted… Stock Watch – March 2017My Profile

    1. @PassiveCanadianIncome, as a homeowner and a Realtor, I am happy that the real estate market is doing well. As an investor, it really bothers me that there is no fair process that will allow buyers a fair chance to get access to appointments. The worst of all is that builder can change the price anytime and by any amount when they offer it to the public. There should be regulations governing such inconsistent practice.

    1. @Rane, thanks for dropping by. Since you spend a lot of money to buy a property, it’s best to be a thorough as possible. It’s great that you are able to do that every time.

    1. @Emily, in the city where I live (Markham, Ontario, Canada), the year over year price increase is just not sustainable. A 20+% year over year increase, so if anyone is investing in real estate for the last couple of years, it’s a great investment.

    1. @MSM, with such a crazy market, I tend to be more and more cautious. Sometimes, it’s very difficult to know if you are paying a reasonable price for your property or not. I feel fortunate that I am a licensed Realtor and have access to market data to do reach whenever I need to. If I don’t feel that I am getting a fair deal, I rather be safe than sorry.

  2. This is a very interesting article, now I can compare property market in Canada, Poland and England. Unfortunately, a similar situation is in many countries. New properties market is better for developers than buyers.
    Ewa recently posted… St. Patrick’s cakeMy Profile

    1. @Ewa, I definitely agree with you on the point that new properties are better for the builders than buyers, especially in the low rise market. These properties are selling like hotcakes and builders rarely offer any commission to Realtors for referring clients to their projects.

    1. @Alicia, What you are mentioning is the heard mentality. When the market is hot, people tends to just jump in the market and try to grab whatever they can and do very little research to protect their investment. This is a very risky investment practice and hopefully people are doing enough to protect their finances.

    1. @Jessica, Hopefully you did not over paid for your property and you’ve picked up a few tips from this post to help you make better decisions in the future.

  3. It’s a big investment and we should really research and think about it before we decide on purchasing a property. This makes a pretty awesome guide on how to do just that.

    1. @Elizabeth, I definitely agree with you that we should do as much research as we can before we dive into the market. Thanks for dropping by and sharing your thought.

  4. I do my research before I purchase anything especially if it’s a piece of land. It’s better to invest your time learning about the place instead of diving straight for it.

  5. Yes, both times that I have purchased a home I have done my research. I took a real estate course in college which helped me understand the process a lot.

    1. @Glenda, taking an educational course is a very smart way to protect your finances and your investments. We can never learn enough in our lifetime and the economic environment is always changing.

    1. @David, thanks for the complement. I try to provide advice that are as practical as I can and through my own experience. Hopefully, you’ll reach that point soon and if you need a refresher, you can always come back and check out my other real estate posts.

  6. Here in Manila, the old ways of finding the property through word-of-mouth, are still very useful and could still bargain the price without compromising the quality.

    1. @Blair, every culture/country conduct their business in a different manner. However, I believe that being prudent and doing a good amount of research will often provide you with the information to help you make an inform decision. This way, you’ll have less chances to over pay for a property.

    1. @Sharon, just like Warren Buffett says, “The more you learn, the more you’ll earn.” The earning is by way of saving money when you don’t over pay for a property.

    1. @Everest, for the average person, obtaining market data regarding a community can be difficult as these information are not available to the public. However, any licensed Realtor has access to these data, all you need to do is provide them with a criteria and they should be able to provide you with a report.

  7. Hey Leo,

    Great post – your content has a lot of information as always! For my next property, I’m going to have to do a lot of research. My current property I bought in 2 days!

    Erik

    P.S. Some readers are turned off by big blocky paragraphs. If you make paragraphs in 3-4 line blocks, then it will be easier to read. Look for the Yoast SEO plug-in.
    Erik @ The Mastermind Within recently posted… Positive Transformation – Bigger, Faster, Stronger 11My Profile

    1. @Erik, thanks for the feedback regarding the length of the post. I do notice that some points can be a bit long. I will definitely try to install Yoast SEO to see if it can make it a bit better. As for the research, just work with a great local Realtor and take your time.

    1. @Aish, in an uptrend market most people will make money if they had purchased the property more than two years or so. However, in a down trend, not doing your research can cost you thousands of dollars. It’s best to do as much research as you can.

  8. This was an interesting read. I didn’t really research well enough before buying my first home and am really paying for it now.

    1. @Nay, it’s an expensive mistake, but not all is lost. If you home is in a great neighborhood, has access to transit, in a great school zone and have access to amentity, the price will eventually move back up in the long run.

    1. @Sandra, I definitely agree that the larger the investment, the more time you should spend on doing your research. You want to be armed with information that will allow you to make the right decision.

  9. Buying property is a huge investment so I agree that you should do your research before venturing in such a deal. We bought a home that had an inlet in our backyard, we sold it for a great price but several years later the storm Sandy came and destroyed the home.

    1. @Jennifer, a great starting point for your search is to talk to a few knowledgeable realtors that have in-depth knowledge of the area that you are searching in. Take your time to evaluate the potentials realtor.

    1. @Miera, In a hot real estate market, it best to approach it with caution. Also, don’t put too much emotion into any property. Otherwise, it can cost you quite a few pretty pennies.

    1. @Qian, from what I can see, this market is really bad for first time home buyers as they lack the market experience and may have difficulties catching up with the astronomical price increases. I hope that the information posted here can benefit them.

  10. It is always best to do a thorough research before hand before investing in property. Some information might really come in handy whenever you go around and have a look at the ones that you are interested in.

    1. @Shivani, you’re right. Doing comparison shopping with different areas or vendors is a great idea. Even comparing prices from two different times for the same vendor is also helpful.

  11. Hi Leo
    I am just reading your thoughtful & researchful blog, and I think most of the pepole did not do enough research when he purchases his property but must do it, myself I should take care of it. Thanks for sharing!!

    1. @Alica, since buying a home is most likely to be the largest investment that you’ll ever make in your lifetime, doing a bit of research is definitely warranted. I would recommend doing as much as you can.

  12. Hey Leo,

    You shared an informative post. From many days we thought about an investment, And we thinking about hiring a real estate agent for this purpose but really I don’t know this is a worthy decision or not. Can you suggest me few things, which I need to keep in mind while hiring an agent?

    I have one more confusion that I select Toronto location for investment. Is this a good choice?

    Looking forward to your reply.
    Thank you.

    Warm Regards,
    Johnson Pattrick
    Johnson Pattrick recently posted… Just Move Into Your New Toronto Apartment? Reward YourselfMy Profile

    1. @Johnson, I have a couple of posts that can assist you to find the real estate agent that’ll fit your need. As for determining if Toronto is a good choice to invest, it really depends on your personal situation. A great investment for one person may not be a great investment for another. If you have more questions, feel free to contact me using the contact form or reply to this post.

      Here are some post to assist you:
      What Skill Set Should Your Realtor Have?
      How To Find Your Ideal Realtor
      How to buy an investment property: step-by-step
      A Beginner’s Guide To Owning Rental Properties
      The Benefits Of Investing With A Partner

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