The Meat Market: My Hunt for Toronto Real Estate

These past two months, against all well-meaning advice, I found myself delving headlong into the world of house-hunting in Toronto.  Highly educative anti-Real Estate blogger Garth Turner has a name for this irrational somnambulant activity in the dead-still of a darkening housing market: House Horny.  Normally, I’m loathe to be included in any group whose unthinking prime directive is To Splooge, with likely remorseful consequences once hormonal tides recede, leaving behind a briny aftertaste and the realization that someone else’s problem has backwashed onto your lap.

But, ever-interested in learning through Doing It, there I went.

For me, the itch came when I was annoyed at how much I didn’t really know about Real Estate, yet it was all around me.  Over time, information was building up in the news and at dinner parties that made me want to start piecing things together already.

–       Interest rates are at historical lows.  If you were ever going to get a loan—say a giant mortgage-y one, now would be the time.

–       There are 100,000 people moving into the Greater Toronto Area every year and they need a place to rent.  You could be their landlord.

–       Further to that, few apartment complexes—the ones of our childhood—are being built.  There is a dearth of housing for renters.  Private owners are renting their properties out.

–       The math for most homeowners (who can afford to put down around 25% of the purchase price of the property) is that if they were to rent their properties out, it would likely cover 100% of costs.  This means that your renters would be paying your mortgage for you.  Is this evil?  No.  They need a place to stay at market value rent.

–       Houses / property will only ever appreciate in the long-run.  So, if you don’t buy now, it will only be more expensive later—for the same, more aged properties.

–       GTA properties appreciate at, most conservatively, 4% per year.  If you stuck your money in a bank, it would, at best, grow only 2% per year.

–       The Canadian Government has recently made the barrier to entry into the housing market a little higher by capping the mortgage amortization at 25 years (previously 30 years).  This causes monthly payments to be higher.  As well, if you can’t put down at least 20% of the value of the property, you will be slapped with penalties (this reduces the number of default-risk home-ownership in the market, which insulates it from the kind of crash the US faced).

–       There are about 30,000 people in the Greater Toronto Area with their Real Estate licenses, at least half of whom are my friends, I found out!  I was going to ask them.

“Don’t buy now,” summed up Liz Lee…

…my dimpled and pregnant friend who rolled down to Lakeview Restaurant to meet me for an interview.  Liz works in commercial Real Estate, is an entrepreneur herself who has her license and is one of several landlord friends I have.  Clearly, she’d Done It.

“But, you’ve Done It!” I exclaimed through a mouthful of sweet potato fries.

“Yes, but…” she slurped back at me through her hot cider.  Currently, the GTA’s housing prices are beyond a reasonable level.  “The average detached home in Toronto now sells for $818,000. That’s eight times average family income. Meanwhile, household debt has exploded and incomes trail inflation,” according to Mr. Turner, who was the former Minister of National Revenue.  I suppose this means that living at least 8 times beyond our means, at a time where the inflated value of money chips away at our stand-still salary, at a time where we already owe record amounts to car financiers and credit card companies, is not a good idea.  It would be sadder still, should we lock in this giant purchase, only to see it’s price pop, yet hold the bag for the full amount, with interest.

It’s happened in the US (sometimes halving housing values after 2008’s sub-prime mortgage crisis; economists / banks had not paid attention to the rising level of private debt as they freely gave out loans to whomever); it’s happened in Tokyo where land prices have dropped 25% in the past 4 years due to a shrinking population and economy (my apartment went from 95,000 yen per month to 67,700 yen in just 2 years); it’s happening now in Vancouver where a blogger is tracking non-selling properties that keep relisting under new MLS numbers with dropping prices: -22%, -29%, -38%…!

Could it happen in Toronto?  Every year, a round-table of top Real Estate people convene in Toronto to comment.  The latest verdict was, “No”.  But if you’re asking Real Estate agents, property developers, banks and mortgage lenders—what else would they say?

Liz was concerned about this possible correction in inflated housing prices, or a slowdown in growth, in general.  And, she had some sobering advice for those of us convinced that buying a fixer-upper at these low interest rates could work:

“You have to like fixing things.”  She explained how some previous occupants can leave a place in a state.  Pee stains on the floor; cracked walls from college-boy angst; destroyed toilets etc.  Then there was the usual: terrible 1970s linoleum, energy Death Eater windows from the Diefenbaker era, knob and tube wiring, mold…(Sadly, I couldn’t see how my knitting and omelet superpowers applied here 😦 )

Liz offered that you could buy cheap in an undesirable area and hope that the place becomes gentrified and your gamble pays off.  But then, it might not.  “That’s not the best plan for first time buyers.  In general, you need to look at the current interest rates, what the rent-equivalent is in the area, other expenses associated with home ownership, potential downturns in the economy and what the potential for appreciation is for your area.  You need to research economic forces and have at least a 20% down payment.”

What about being a landlord?  “Oh, sometimes, tenants don’t pay rent on time.  Or they move out unexpectedly.”  Oh.  And the other day, at -20 C, my friend in Montreal, new owner of a multiplex, posted on Facebook that he found himself in a crawl space checking to see if pipes had frozen.

All this made me and my 5-inch heels teeter-totter in dejected retreat, back to my parent’s house, where after 8 years of being abroad, living on my own, I still have a room and free butterfly shrimp dinners.  I had to regroup.

The best thing for me, I thought, was to do investigative house-hunting myself.  If I were to really put myself in the buying market, all these ideas would stop being theoretical, and might just start making sense for my own situation.

So, regroup I did!  I assembled a Voltron house-buying team!

1. My friend’s friend who owns a tool belt and has actually built a house with his bare hands, and sold it. That removed a lot of my girly-girl anxiety of cabinetry and pipes.
2. My long-time friend from high school who is a mortgage broker. I can really trust to talk about the innards of my piggy bank with him.
3. A Real Estate agent whose whole family has been in the business for decades, who actually looks at me when I talk to her and doesn’t walk ahead of me.

Then, I hopped into my agent’s immaculate, cinnamon-smelling white BMW.  My hunt?  I was looking at investment property, where I could live in some part of it, yet still have lots of decent living space for a tenant.  Here is what I saw down the Rabbit Warren of Toronto Real Estate:

Davenport and Lansdowne (sold for $432,000): A giant, detached, labyrinthine legal duplex (at least 2,000 sq ft).  Rundown on the inside, mold, marinated in at least 60 years of cooking smells, old wiring, needed at least $100K in overhaul.  Had long-term tenants paying $1700, but there would be no keeping them with a months-long restoration.  Location and bones only.  But spectacular for deeper pockets than mine.

Pape Station (sold for around $430,000): This narrow (17 ft wide) charming, but creaky and moldy home listed for $299,000 hoping for a bidding war and got it.  2 years ago the owner tried to privately sell it for $469K, but failed.  It was dark and musty inside.  I was afraid of the extent of mold and water damage I sensed when taking a breath and looking at the blackened ceiling tiles and old doors and windows that would not shut tight.  But it had 300 showings and ended up on the news!

Coxwell and Gerrard (last seen at $440,000):  Semi-detached duplex in East China Town and close-ish to the Beaches.  This home had great structure, but apparently had old wiring (the house insurance was unusually high at over $2,000) that would require eviction of tenants and at least $10-15K in electrical work.  I felt intimidated by that prospect.  I felt with the overhaul, rent wouldn’t really exceed what it was currently at $2300 because the number of bedrooms wouldn’t change—whereas it was possible to buy a cheaper home with this rental prospect.  Similar homes had recently been sold on average for $70-100K more on the same street, so had I bought it, theoretically, I would have “made $70K+ right away”.  Whatever.

Keele and Eglinton (last seen at $349,000): Duplex, two separate garages.  Location is near future site of Eglinton subway.  This was entirely tenanted for $2050.  This had been a bungalow, with an added 2^nd floor, which was too low, and not really usable for regular sized-people.  The basement apt was also super low—barely 6ft.  I felt this could be a sort of cash cow now, but it would be hard to re-sell or maybe even re-tenant due to its strange, Hobbity features.

Houses being sold by Real Estate agent owners: I saw two homes that were magazine perfect. Though, when I asked about the previous date and purchase price, they were fairly recent (within 3-5 years) and at least 100K less than the current asking prices.  Granted “a lot” was done to the homes—but the changes were cosmetic and did not warrant the exorbitant mark-up.  It seems that home-buyers knew this, and though these were the prettiest and most move-in-ready homes by far, they remained unsold at many days on the market.

During this process, I found that agents have a way of pep talking the weirdest properties into your consciousness.  Treacherous stairs?  Strange smell?  Dubious building material?  “Weeellll, you can just…”  (Say. No.)

Another thing I couldn’t “get” was how in general, people walked into a house for 10 minutes and could decide that, ok, they’d buy it!  This is the biggest purchase most people will ever make in their lives!  I’ve bought coffee presses under greater scrutiny.  Worse still, there is the strategy of listing the house for a very low price—even down to $1.  This invites many showings.  Then, on a pre-planned “offer date” (a Real Estate selling strategy) House Hornies have a bit of a bidding war—which drives up the price.  Basically, 10 buyers show up at a designated time, make their offers, give each other cut eye and then stake the place out in their cars, waiting.  Triangulated calls are made to-ing and fro-ing about the price until some people give up or bid higher.  If you try to put in a condition like you’d like to have a home inspection first, you automatically lose out to the other offers.  (So, homes are selling without even being inspected for stuff like plumbing problems!)  In the end, someone “wins”.  Apparently, this is all justified because “things never sell beyond market value” as the old capitalist adage goes.  Granted, not everyone is a rookie like me—they don’t need inspections to understand the value of a home.  But I’m thinking that when you have a whole family and the kids need to be placed in a school and you’ve lost out at 20 other offer dates, I bet things get a little emotional and you concede that $20K extra on a mortgage will just make it all stop.  I don’t think it’s all little Donald Trumps dealing in these low-brow immigrant-era duplexes.  Cha.  Though a lot of foreign money is coming in, buying up these places for their location and knocking them down to build more expensive homes.  In which case, how will the average Canadian ever compete?

Btw, Spring, the busy season for Real Estate where every house is sold on this Offer Date model, has not even started yet.

I count myself lucky that I can eat butterfly shrimp for months to come.  And that I don’t need to…anything, really.  I have the luxury of not being desperate right now.  I do feel though, that home ownership for my cohort will not be possible after these next 10 or so years in Toronto.  It’s worth it to look into it, at least and understand your pain threshold

The Canada Housing and Mortgage Corporation has a totally helpful website, especially this page, which helps determine if you are financially ready to buy a house.

Then, put on a prophylactic, it’s a swamp out there!

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