Welcome everyone to condo investing with Costas and guess what? I’m Costas, Costas Kivelos, Founder of First Access Condos and mentor to over 5,300 realtors at my brokerage which happens to be the largest independently owned and run brokerage in Canada. So, what am I going to talk to you about this Sunday and every Sunday? I’m going to bring to you insider knowledge that I use for myself and my clients in the world of pre-construction condo investing. I’m going to give you the ins and the outs, the insider secrets, what we real estate agents use to invest our own money and create some of the greatest returns in real estate across the globe.
Now, before we start, let’s talk about why we invest our money. Now, there’s only so much work these two little hands can do. You can work from morning tonight and you can even not sleep but what happens when you can’t keep working? Then your money is fixed, it doesn’t grow. So, as long as you’re working, you’re making money but what if we could find a way to make money when we were not working? When we were spending time with our family, our significant other or doing the things that we enjoy. That’s why we invest money; to take the money we’ve made when working hard and let it grow and make money when we’re no longer working. That is the key to every investment. Now, I’ve been in real estate for over 10 years, over a decade now and halfway through my career, I realized that the way to make money in real estate, the future of real estate in the GTA was pre-construction condos and I will explain to you why.
Now, why pre-con and why not other investments? Commercial investments, residential that are already built, what we call resale investments. The reason I like to invest in pre-con is because I want to have an investment where I put the least amount of effort and get the greatest amount of return. Now, isn’t that the goal to work the least and make the most? That’s where pre-construction comes in. Pre-construction condos allows you to make money while the project is being built. Imagine that. You’re making the greatest portion of your appreciation when you’re not actually doing anything. Now, if you bought a commercial property or a resale property, you have to be a landlord and growing up in a landlord family, my parents had some modest investments. I saw what it was like being a landlord. It is the least glamorous job that you can have and taxed in one of the highest brackets.
So, let me kind of rephrase that and think about it, absorb it for a second. It’s not glamorous and it’s taxed excessively. Why would anyone want to do that? I don’t know. The reason they want to do it, I guess, is the capital appreciation because God’s not building any more real estate but the reality is, if we could find a way to get that appreciation without having to be a landlord, we would be in real estate Nirvana and that’s what pre-construction is. Now, what happens when we buy resale? We have to find tenants, manage our tenants, sometimes chase our tenants, we also have to pay for a mortgage, we have to pay for property taxes, insurance, carrying costs such as water, hydro sometimes, all these other expenses from day one. We also have to put 20% down to buy an investment property in Canada because CMHC doesn’t insure them. So, we have a 20% down investment off the bat and we also have all these carrying costs from the start.
Now, what happens if our tenant leaves? This was experienced by a lot of landlords over the past 12 months with the introduction of COVID into our marketplace. With a pre-construction investment, you put 20% down but it’s spread out over a year and a half and now, with some great extended deposit structures, it might only be 5% a year. So, you have a three, four year timeline to put the money down. So, this allows you to keep your money in other revenue making streams and be making double the money. So, essentially, you’re double-dipping on your investing. That’s fantastic. Now, this sounds great but what are all the real numbers? The real numbers. Well, the real numbers for the ultimate investment in real estate which allows you to put the least amount of effort and get the greatest return are quite amazing. They’re so amazing that when I tell people about these returns who have not invested with me and are skeptical, they don’t believe me and they think I’m making it up or stretching the truth and some even think I’m lying. Do I look like a liar to you?
Regardless, numbers don’t lie and the reality of the matter is that I have generated for myself, my family and more importantly, my own clients that follow my investment strategy, I have generated north of 300% returns over the course of a five-year build. That’s from the time they sign to the time the building registers, five years they’ve generated over 300% returns. Now, these returns are gross and they net around 250 to 280%. These are fantastic numbers and pose an annualized return per annum, that’s year after year of close to 55 to 60%. That means if you put an initial down payment, you’re getting a 55 to 60% return and with these extended deposit structures, it’s not a return on the money you put down but a return on the overall total deposit. So, that is why pre-construction condos are a phenomenal way to make money. Now, over the past five years, when I’ve been selling condos exclusively, I have met a lot of different people in our great city.
Our city is the multicultural Mecca of the planet and we have people from every culture, every backroom, every walk of life and it’s great for me to meet different people from different backgrounds and see how they view our condo market and no matter what your background is, there’s always going to be a group of people in every ethnicity and every group that question what I’m talking about and what I commonly hear is that there’s too many condos, that the market’s going to crash, that we’re in a bubble. Now, let me address these things. For a bubble to occur, that means that our market is based on speculation. Now, every investment is some type of speculating and by speculating, I mean, you buy X thinking it’s going to increase in value by a given time, okay? So, that’s investing in a nutshell. So, if we’re speculative, to an extent, every investment is but when it comes to a real estate market, we have fundamental roots that are very, very strong and what that is, is we are based on supply and demand.
Toronto has been the fastest growing metropolitan area in North America for the past few years. Toronto itself has been seen pre COVID because COVID is a curve ball and it’s also temporary but pre COVID, we were getting a 100,000 people a year coming to Toronto proper. That’s first in North America. We were also seeing close to 140,000 immigrants coming to the GTA. That’s 140,000 new people to our city every year. Now, let me add some other numbers that you probably are not aware of. Let’s talk about international students. UOFT alone has over 24,000 international students. When you take Ryerson and the other colleges in the city, we have over 40,000 international students coming to the city every year and they need to live somewhere. So, they become part of our rental pool. So, technically year over year, we’ve been seen 180,000 people coming to the city every year.
Now, these people need a place to be housed and that’s a real estate market and why… what does this tell us? This tells us that we have a supply and demand based market. We have a shortage on supply because we have a great demand, a demand that’s fuelled by immigration and foreign students amounting to close to 180,000 people a year. Now, to put it in perspective, one condo tower is about 500 units and that’s a skyscraper. So, how many towers would it take to service 180,000 people? Let’s do the math. 180,000 people divided by 500 units, works out to 360 towers. We do not have 360 towers. Hence, the housing shortage. Hence, the fundamental economic principle of supply and demand. That is why our condo market is the safest and the strongest in the world and the envy of the planet when it comes to real estate investment. So, when you hear people tell you that there are too many condos, the reality of the matter is there is not enough condos.
We can’t build them fast enough and Toronto, I like to compare Toronto to a city that’s still a teenager, a city that not grown up. I don’t know if I coined this term or if I’m the only person that came up with this analogy but I like to say the Toronto in comparison to cities like New York, Hong Kong, London, they’re adults and Toronto is a teenager, growing up these last few years from an adolescent and that is where real estate prices are rising. We have a long way to reach these other cities but those cities are expensive because of two reasons. One, the population density and we are reaching them. We’re the fourth largest city by population in north America. Two, a lot of those cities are either on islands or bordered by water and mountains and they’re landlocked. Toronto is bordered by the lake to the south, around the periphery, we are bordered by Greenbelt. Greenbelt, where the government has made it clear no one will ever be build. Essentially, we have a shortage of supply and what we will see is as 180,000 people a year keep coming to the city and our population increases by a million every five years, we’re going to see the current infrastructure that we have was never built to sustain this. We can’t build transit fast enough. The subway along Eglinton is way past its scheduled due date. What we’re going to see is that traffic congestion will become so bad that everybody will want to live close to their work and that’s when you’re going to see the downtown core become very expensive, similar to what you see prices in Manhattan, downtown London, downtown Hong Kong. That is what you’re going to see in the next two years and we, in our golden opportunity of investing while Toronto is still its youth and not an adult and that is why the best time to always invest is now and never later. Now, we’re going to go for a short break and I’ll be right back. I know that was a lot of information. Take a deep breath and absorb it and again, if you miss something, go to our YouTube channel First Access Condos and watch this at your leisure.
Welcome back everyone. Again, I’m Costas Kivelos, Founder First Access Condos and mentor to over 5,300 realtors at Canada’s largest, independently run and owned brokerage. Now, what differentiates me from the average realtor? One, not every realtor can get into pre construction. Now, a lot of people don’t know that. What they think is they can call their family realtor who bought their home and they can get them into pre-con. By the time that realtor gets you into a project, price might have increased three to four times. Now, you as a buyer, won’t know that until you go to sell but when you go to put your unit on the market after completion and someone who bought a unit with me is selling for $50,000 less but making a greater profit, you’re going to be unpleasantly surprised and you don’t want that to happen but we’re going to have a whole episode where we talk about who platinum realtors like myself are but what I really do that differentiates myself from the average realtor, besides my access and it’s all about access in this industry, is the fact that 75% of my clients are investors.
So, in reality, I’m a real estate investment consultant and when you’re looking to make an investment, you want to go to somebody who specializes in investments and that’s what I am. I invest money for clients looking to buy in real estate market. So, what my specialty is, is I find the best projects, get you in first when the price is the lowest and that generate the greatest return. Now, back to the topic at hand. Before we left, we were talking about how you hear people comment on our real estate market, especially the condo market. That’s the bone of contention for a lot of people that are ignorant on the matter and want to think it’s low-lying fruit and easy to take on but the reality of the matter is, we’ve sold the most condos across the globe in the past two years for one reason, we have the safest market. I talked about how our market is based on supply and demand and not on speculation.
Now, you might say that’s just me talking, let’s hear some numbers. Well then, here are some numbers for you from some two very large institutions that are well-respected. In 2019, CMHC came out with a study saying that we were short, close to 32,000 units a year in comparison to the immigration that was flowing into our city. Think about that. 32,000 units a year. RBC, one of the big five banks in the country, they came out with a study in 2019 saying that we were short 24,000 units. So, we have a number in the middle between the CMHC reading and the RBC reading of 28,000. Now, 28,000 divided by the average tower size of 500 units, the average skyscraper condo tower, is 56 towers. Now, we are short 56 towers a year according to these two major institutions and when I do my research, I like to listen to the people that have deep pockets and they can hire the best to do that research and RBC is one of the wealthiest institutions in Canada. CMHC has massive portfolios. These two institutions don’t make mistakes because they can afford to hire the best.
So, now that we’ve established that our market is based on supply and demand, let’s talk about a couple other things that are little known in the industry and my introduction to pre-con investing. This is essential. Now, another thing you're going to hear about from a lot of people and a lot of the naysayers is that purchase prices are so excessive, so out of touch with reality in the city of Toronto, that you won’t be able to cover your monthly carrying costs with the rents that you’re going to get. Now, remember how I told you Toronto was still growing up? Well, because of that, we’re pretty much in the last year or two of breaking even. That is the truth but let me explain to you something, a concept which is difficult to grasp at first. I’m going to tell you why you can lose a little money every month and still be happy about it. Yes, this is mind-blowing. Enter sound effect. You’ll be okay with losing money every month and why is that? Because rental return and gaining money from rent monthly is meaningless. I said that. Don’t ever sit there and say, “Oh, I lost a couple dollars in this month.” because the main focus of investment is capital appreciation and that’s why we buy real estate.
We buy real estate to make money when we sell it in comparison to when we bought it and that’s where the pre-construction condo comes. Now, even if we are short a couple hundred dollars a month, chances are more often than not and I’m not an accountant but go to your accountant and ask them about this because I know that for most of my clients, if they can afford to buy one of these condos, they might actually benefit from a small loss in this investment and this is a small loss in comparison to the whole scheme of their investment or income portfolio. So, the reality of the matter is, our focus is not what we’re making monthly over rent. Our focus is that we make money when we sell it. In places like Manhattan, it is quite common to be over $1,000 a month out of pocket on your rental properties but if you ever go to sell it, you’ll be laughing all the way to the bank and when I talked about those 300 plus percent gross returns, that’s what I was talking about.
So, if you lose say $100 a month, $1,200 a year over the course of three years while you’re holding onto this property, that might be about $3600 loss but if you’ve gained $300, $350,000 in profit, in equity, then that’s a small price to play. So, the money that you are out of pocket every month is not a loss, it’s an investment and you’re investing money back into your property and yourself and there is no one better to invest in than yourself because when you invest in yourself, that’s when you make money. Now, there’s one thing that I’m going to talk about and we don’t have a lot of time and I’m going to talk the beauty about the pre-construction condo. This is the jewel in the crown. Your property, from the time you signed to the time it’s built, has increased in value and gained equity substantially so that when it’s built, after one year when you’re allowed to finance for its true market value, you have the ability to pull out equity and purchase another condo.
So, listen to this, absorb this and wrap your head around this. One, pre-construction purchase five years later, when you refinance it five to six years, you can pull out equity and buy another condo. So, one down payment has made two condos. So, therefore, what I like to tell people is let me know how many children you have and make one condo purchase for each child and every five to six years, that one condo will become two condos and depending on the age of the kids, if you start when they’re young, another five or six years, your children will have three condos. So, imagine setting up a real estate portfolio for your children or for your retirement for those of us that don’t have kids with one initial down payment, that is the beauty of pre- construction investing; that you can take an initial down payment, invested wisely in the right project at the right time, that’s where I come in and my guidance and expertise will assist you and then that one investment over the course of every five, six years increases into another property and another property and that’s when you contact me, we can meet over zoom because of the sign of the times or we can have a phone call and I can explain how this is more in depth but if there’s one thing I want you guys to take from today is the concept of leveraging.
Leveraging is using the equity in your property, pulling it out by financing it and having it buy another property for you. So, remember, this is how the everyday average investor can build a real estate portfolio set up for retirement, set up for their children’s future and set up for your family’s better life with pre-construction investing. Thank you and now we’re going to go and I’m going to show you the numbers, real numbers, where you can see our capital appreciation and our carrying costs and these are real numbers from properties where I’ve invested over 10 to 15 clients and myself. Why do we invest our money, especially in real estate? For one thing; capital appreciation and when we talk about capital appreciation or any type of real estate investment, you’re going to hear the term ROI. What does that stand for? Return On Investment and that’s what we are looking for. I’m going to use a real-life example of one of my investments that 15 of my clients followed me into and we’re going to tell you how they made money and how much. If you bought a unit back in November 2015 at 150 Redpath in the Yonge and Eglington area of Toronto, a 600 square foot, 1+den was selling for $372,000, that's $620 a square foot. The initial 20% down payment worked out to $74,400. Current resale today in the Yonge and Eglinton area for new condos is at $1,050 a square foot. Now, your 600 square foot, 1+den at Redpath has a current market value of $630,000 compared to the initial purchase of $372. When we subtract the new number from the old one, that works out to $258,000 in gross profit. Now, when you talk percentages because that's how we measure return, that's a 347% gross return on your initial investment of $74,400. Now, I ask anyone to try to beat that number across the globe and I’ll tell you they won’t be able to do it.
Now, when you talk about buying a pre-construction condo, you’re going to hear the naysayers
tell you that your condo will cost you money every month and it won’t be able to carry itself with
the rent that you’re going to accumulate from your tenant. Now, the answer to that is, as I’ve touched on earlier, is that it’s not that important to be positive cashflow monthly. Capital appreciation is what we’re aiming for but let’s run over the rental numbers. Currently, if you were to buy a one bedroom in the city of Toronto at $600,000 with a down payment of $120,000, you would have to service a mortgage of around $480,000. Now, forecasting that rates are going to go up, that would be around $1,900 a month given increase in rates not by today’s standards. If you have maintenance fees at 65 cents an interior square foot, that works out to $390 a month. Property taxes at about 1%, which is excessive but let’s you just say that because we know the cities going to need money after COVID, that would be around $500 a month. Insurance $50 a month, water $20 a month, total expenses of approximately $2,860 a month.
In four years, with a 7% rental increase which is extremely conservative because we know that
immigration is going to explode to the area, your rent would increase to $2,900 a month with
expenses at $2,860. That’s cashflow positive monthly of $40 that works up to just under $500 a
year. Now, we all know no one’s going to become rich from being a landlord with rent but it will
cover your carrying costs and if mortgage rates stay low, that number will jump significantly. Thank you everybody. Thank you for taking the time to watch and listen to me. Hopefully you found it entertaining and very educational. Again, I’m Costas Kivelos, Founder of First Access Condos. Please feel free to contact me anytime and check us out on our YouTube channel First Access Condos. Email: [email protected] and again, our website www.firstaccesscondos.com and if you’re old fashioned the way I am, 416-662-5701, call me anytime. I’m always available. Thank you and see you next week.