Real Estate Investing 101

Even as Ottawa’s new condo market slows, fat and heavy from a glut of new units, I am still solicited for advice and opinion from those looking at condos as an investment.

As a licensed professional I can only provide direct advice to clients, but my general thinking on real estate as an investment is best summed up by the time tested strategy of Warren Buffett, investor extraordinaire:

“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

In fact, although Buffett is a value investor, I believe that most of his philosophy can be applied equally to real estate:

“The investor of today does not profit from yesterday’s growth.”

“Investors making purchased in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company [or condo] to catch up with the price they paid.”

“Most people get interested in stocks [or real estate] when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

Home sweet home?

You can change your friends but not your neighbours, a fact that is often driven home (no pun intended) in a condo building.

For this reason research and questions about the building’s residents, demographics and Board of Directors should be a key component of a serious condo search. While it may seem like endless pages of legal jargon, a savvy buyer is one who takes the time to read through the minutes of a condo’s board meeting.

And yes, the dismal notice pictured at right was actually posted in a condo I visited recently…

Condo Profile: 200 Bay Street

I’ve long been a fan of this building and am always happy when a client decides to purchase here. Just minutes from Parliament Hill, 200 Bay St is one of downtown Ottawa’s little known condo secrets, and continues to offer excellent value for money, something that’s becoming rarer downtown.

Built in 1984-85, this is an intimate project with only 4 well laid out units per floor (63 in total) and of a reasonable size for the Buyer looking for one bedroom, or an affordable two bedroom with a home office, or space for the occasional guest.

There is not much in the way of amenities other than an exercise room, but this helps keep the condo fees down; the previously dark hallways have been updated with new lighting, new carpeting and new wallpaper. This is a functional and unassuming building from the outside, but ideal for those who prefer to take a pass on “new” and “trendy” in favour of location and value.

That said, those looking for something chic and exclusive would be more than impressed by the penthouse at 200 Bay, truly one of Ottawa's showpiece condos offering a full panorama of the city from every window. I attended an agent open house here a few years ago and the pièce de résistance was the rooftop terrace—every agent I saw was left speechless.
 
While many owners have renovated their units, even in their original condition the layout and space of the floorplans at 200 Bay provide excellent value for money. At ~875sqft these two-bedrooms may only feature one bathroom, but come with large laundry/utility room off the kitchen as well as a walk-in closet in the master bedroom. At just over 600sqft, however, the one bedrooms are the real gems of this building, featuring 25' x 12' of combined living/dining space, a kitchen with a view, and balconies over 15ft in length.

Those living in older condo units should take note of the simple but worthwhile renovations that only enhances the value of these vintage units: removing walls between kitchen and living room; ceramic tiles and hardwood flooring; and perhaps most importantly, the floor to ceiling renovation of an older bathroom.

Those lazy, hazy, crazy days of summer...

Patios, Bluesfest, bbqs, Sandbanks and summer’s heat... judging from the way in which condo sales have slowed to a trickle this past month, it would seem I'm not the only one who has been taking time out to enjoy those lazy, hazy, crazy days of summer.

That said, the few buyers I've been working with have picked up some real gems at very good prices over the past month, one of the advantages of being in the market while everyone else is up at the cottage. Without a doubt "value for money" remains top of mind for many buyers, and sellers have been forced to acknowledge this as they reduce their prices accordingly.

Condo or co-op?

A handsome red-brick heritage building in the Golden Triangle, 320 Waverley St pictured below is in fact one of the very few buildings in Ottawa owned as a ‘co-operative’:

More common to larger cities such as Toronto and New York, a ‘co-op’ is a private corporation that has full ownership of a building, its units and common areas. Whereas a condo is governed by the statutes and legislation of the Condominium Act, a co-op is created by articles of incorporation and runs on its own by-laws, rules and regulations, as well as the private contractual agreements that exist between the corporation and its shareholders, otherwise known as members.

Rather than purchasing actual real estate, a co-op Buyer is purchasing one or more shares in the corporation that owns the building. The Buyer now becomes a member of the co-op and has voting rights, along with an occupancy agreement granting them long-term exclusive possession of a specific unit.

A co-op usually has one mortgage for the building itself; an agreement will set out a member's obligation to cover their proportionate share of the mortgage, the operating expenses and the building's annual tax bill. Many older co-ops have no mortgage at all and the Buyer must pay cash, or make a sizeable downpayment (25% or more) and have the remainder financed by the co-op. It is important to note that most banks will not finance the purchase of a co-op apartment—a lender cannot foreclose without a deed and a mortgage.

Also of note is that both ownership and responsibility is joint; should one member default on payment of the mortgage or taxes, all other members must pay out of pocket to make up the shortfall, or possibly risk losing their equity in the corporation. As a result of such risks assumed by a potential Buyer—and the difficulty in financing these purchases—co-op units are often priced well below market value.

The importance of getting along with your neighbours—in this instance fellow shareholders—can not be overstated. Those who follow the tabloids may remember that Madonna sued the members of her co-op board in NYC for blocking her purchase of an additional unit in her Central Park West building.

Retaining the services of a good real estate lawyer is a must when buying into a co-op. She will be the one reviewing the corporation's documents, financial statements and terms of the co-tenancy agreement. Any offer to purchase a co-op must also be drafted on forms specific to co-op purchases. Lastly, note that any offer made by a Buyer is subject to approval by the Board of Directors of the corporation (aka other residents). A review of the applicant's suitability, financial and otherwise, will be undertaken and form the basis of their approval.

Small is the new Big? Get Real.

Real estate media of late has been extolling the joys of living in small spaces, convenient given that the bulk of its advertisers are builders fitting buyers into smaller and smaller spaces. However I respectfully disagree: size does matter.

You see, space equals luxury, not granite counters or stainless steel appliances. While 500sqft can be a perfectly liveable abode, notice how the truly rich and famous opt to live in large, expansive spaces, the more the better, even in cities like New York and Tokyo.

For those of us who don't have that option, urban living can still be comfortable, even in a small space, but serious consideration should be given to at least the following:


1. Useable space: never mind square footage, good design trumps numbers when evaluating small spaces. 635sqft may seem reasonable on paper, but not when 80sqft is taken up by a long, narrow corridor—

And beware some builders’ penchant for including the balcony as part of overall square footage. This may work in a sales centre, but for resale purposes your condo is only as big as your indoor space.)

Obviously, the definition of useable space depends on one’s lifestyle; if your idea of entertainment is making beef bourguignon for 3 friends then a decent sized kitchen and space to seat 4 will be a priority. Those of you who define cooking as making espresso can make do with a breakfast bar or kitchen island.

2. Storage space: Carrie Bradshaw isn’t the only one in need of decent closet space, particularly in the foyer (and let's not forget the foyer as some builders have been doing.) The vacuum, cleaning products, linens, extra towels, extra pillows, winter clothing, hiking boots and tennis rackets all need a place in your home. Yes, most condos offer a storage locker, but wandering around the bowels of your building is probably not going to inspire you to book a game of doubles.

3. The Bedroom: The dimensions in most newer construction are laughable if the idea is to fit a queen bed, dresser and 2 night tables so measure this area carefully. Irregular jogs in the layout (usually due to HVAC pipes) and insufficient clearance below the window may find you with the head of your bed up against a window, an awkward proposition for many—

4. The Den: What started out as a windowless room spacious enough to be a guest room or home office is becoming smaller with every new condo project. For those of you who use a laptop and have a flat screen TV, the den may just be an awkward waste of space that does nothing but inflate the overall square footage of your condo. If you can’t immediately think of 3 good uses for your den then take a pass, or see if it can’t be converted into additonal closet space, something you can't get enough of in most newer condos...

Attention First Time Condo Buyers…

John Peart is a partner with Nelligan O’Brien Payne LLP and a past president of the Canadian Condominium Institute. Below is an excerpt from an article he wrote with some excellent advice for those buying a condo for the first time. Among his suggestions:

• “When buying a used unit, try to work with a real estate agent who understands condominiums and make your agreement of purchase and sale conditional on your review and approval of the condominium Status Certificate.”


• “Understand the costs relating to buying a condominium. Try to work with a lawyer who understands condominiums and who can explain the condominium documentation and financial statements.”


• “If pets, accessibility or quiet are important to you, make sure you understand whether your condominium allows/does not allow pets; is accessible; has bylaws or rules to regulate noise and enforces these bylaws and rules.”


• “Understand the condominium’s rules relating to such items as use of elevators on moving day, the right of a unit owner to rewire or re-plumb their own unit without consent from the board of directors and the installation of satellite dishes.”

Condo Profile: Ambassador Court

Think heritage condos and Ottawa’s distinguished Mayfair Apartments on Metcalfe Street is what likely comes to mind. In the same vein (and in a rare move), in 2009 the city approved the conversion of the prestigious Ambassador Court building at 612 Bank Street from rental apartments to condominium units.

Local architectural buffs will already know this Ottawa landmark as the work of W.E. Noffke, one of Ottawa’s most profilific architects in the first half of the 20th century. A student of Frank Lloyd Wright, Noffke is best known for his work along the Sparks Street Mall including the Central Post Office at the corner of Elgin St. His career success led to handsome commissions building historically significant homes for Ottawa’s elite, and he is equally known for his gracious residential designs which remain hallmarks in The Glebe to this day.

Built in 1928, Ambassador Court was designed to overlook Central Park to the west of Bank St, back when The Glebe was a “streetcar suburb”. Noffke was clearly enamoured of this enclave, designing a number of noteworthy homes that surround Central Park, including his own, and influencing the development of this beautifully landscaped oasis which has now been proposed as a heritage conservation district. Writers, artists and professors have all called Ambassador Court home over the years, easily drawn by both the choice location as well as the choice views.



A total of 31 units are housed in this 4-storey building, complete with an ornate, two level entryway, central marble staircase, stone embellishments, elegant balconies, 9ft ceilings, original hardwood floors and original crafted faux fireplaces. Heritage fans will pleased to note that most of the building has been left intact with just a bit of “refreshment” here and there, most notably in the kitchens and bathrooms, along with an update of all wiring, plumbing and new windows.

The drawbacks? Limited underground parking, which is reserved for the larger units, and shared laundry facilities, a frequent objection of those considering older condominiums (which isn’t to say that some owners haven’t installed their own washer/dryer when no one is looking). Nevertheless with the recent rejuvenation of Bank Street out of the way, Ambassador Court is that rare urban haven for those who appreciate the heritage and history of Ottawa’s most distinguished burgh.

Stable and steady as she goes...

A slowdown in the market or business as usual? The Ottawa Real Estate Board (OREB) released sales figures for September along with a dose of reassurance for both buyers and sellers. To summarize:

• 993 = number of properties sold in September 2012 through MLS (versus a near record high of 1201 in September 2011)

• $351,585 = average sales price in September 2012 (versus $335,623 in September 2011)

• 11,329 to 14,783 = range of number of properties sold annually through MLS from 1999 to 2011

• ~11,700 = number of properties sold from January to September of 2012

• “Since 1956 the average price in the Ottawa area has decreased only five times year over year and has increased by 15 per cent or more only five times as well. The Ottawa market can be characterized as stable and steady although there are pockets of our market area where we see larger increases in price.” 

September condo deals

Smart buyers took advantage of a slow month and reduced prices to sign on the dotted line, some of whom were handsomely rewarded:

A condo with a view in a renovated, well managed building: 1 bedroom with parking in Beechwood Village for just $208K

$270K for a nearly new 1-bedroom with stainless steel, hardwood floors and parking between the Market and U of O

2 bedrooms with parking in the East Market Lofts for $350K

Only $380K for a 2-bed/2-bath condo with parking
in a Charlesfort building!

$399K for a 1460sqft loft in Wellington Village, complete with parking and designer finishes... why buy new???

New Mortgage Rules

The federal government has introduced new mortgage rules that come into effect Monday with talk of curbing the overheating condo market being witnessed in cities such as Vancouver and Toronto

To summarize:

• Maximum amortization period has been reduced from 30 to 25 years
• Maximum refinancing has been reduced from 85% to 80% of the loan-to-value ratio
• CMHC mortgages will only be available on properties purchased for less than $1 million
• The gross debt service ratio is 39% (percentage of your total annual income needed to cover your housing costs)
• The total debt service ratio is 44% (percentage of your total annual income needed to cover all your debts)

Those thinking of investing in the condo market will be most affected by the limit on amortization period. Capping mortgages at 25 years means that in many cases the investment math on rental condos will only work with a larger down payment... which is a good investment strategy to begin with.

The Dog Days of Summer

The dog days of summer are here and without a doubt, there are fewer sales. But as always, well maintained condos that offer space, location and value continue to sell quickly:

99 Holland Avenue
1000sqft = 2 bedroom, 2 bath, 1 parking
Sold in 2 days

429 Somerset St W
800sqft = 1 bedroom + den, 1 bath, 0 parking
Sold in 4 days

374 Cooper St
1200sqft = 2 bed, 1 bath, 1 parking
Sold in 6 days

May: hot or not?

With May being the traditionally "hot" month of the real estate market, the following numbers are interesting to note:

175 = downtown condos listed for sale in May
31 = condos that managed to sell
19 = condos who have reduced their price
115 = condos still trying to sell

2012 Condo Market Update

I attended a CMHC Market Update last week to hear their analysis and forecasts regarding Ottawa's condo market. Some points that caught my attention:

• Ottawa's population growth is due first and foremost to immigration—an incredible 50% of Ottawa's immigrants are classified as 'economic immigrants' who arrive with language skills, professional experience, financial savings and thus are able to settle quickly into both employment and homes within 4 years of arriving into town.
• Investors are currently purchasing a full third of new condo projects—20% of these investors are practicing a long term 'buy and hold' strategy, while the remainder plan to 'flip' their units upon the building's completion.
• Long-term investor interest in the condo market is fueled by Ottawa's low vacancy rates and high rents.
• Lastly, according to CMHC forecasts, Ottawa can expect a 'balanced market' for 2012, although sellers may regain the upper hand for the traditionally 'hot' spring market of April and May. Otherwise CMHC forecasts a slight decrease in prices, although this doesn't come as news to those of us who have been tracking downtown condo prices over the past 6 months.

Modernization of 151 Bay almost done

After having residents cough up ~$10K per unit, the "modernization" of Park Square at 151 Bay St is almost done, including a complete overhaul of the underground parking garage. Although expensive, this is a welcome facelift for one of the grand old dames of Ottawa's condo community, built in 1978.

One of the city's original luxury addresses, this building still holds its own with comfortable, spacious units, good security, wide, inviting hallways and an excellent location in "the good part of downtown" as residents are keen to point out. A number of units have been upgraded with new kitchens, new bathrooms and hardwood flooring, and these are definitely worth checking out when they come up for sale.

And condo fees here remain surprisingly reasonable given the age, space and amenities, currently clocking in at 52—58 cents per sqft including hydro, heat and parking. (As a point of comparison, condo fees at Claridge Plaza I —built 30 years later in 2008— are anywhere from 42—50 cents per sqft, and don't include hydro.)

For sure, the shared laundry facilities on each floor are old school enough to deter many buyers, but with the average time on market 12 days for these units, clearly there are those who will take the space and quality over granite counters and stainless steel appliances.

Mid-week Mixed Bag

Some of the Google searches that have brought visitors to this blog since Labour Day:

"cathedral hill"

Mark your calendar, Windmill Developments' second Ottawa condo launches this evening at the Christ Church Cathedral Hall at 5pm. More details here.

"is soho better or tribeca?"

SOHO is, as of yet, an unproven quantity in the Ottawa condo market and near, but not quite in, Hintonburg/Wellington Village/The Arts District/whatever. That said the optics so far look good, very good in fact, perhaps not so much in terms of location, but very much so with regards to the quality of the construction and interior finishes.

By contrast, Tribeca is Claridge's latest magnum opus located in the heart of downtown. As Ottawa's most prolific condo developer, Claridge is either a sure bet or the devil you know, depending on who you talk to, and about which project.

"ecocite ottawa financial"

It hurts to even guess at this project's financial state of affairs. And with the dog's breakfast that has become Bank Street, I'd hazard to guess that things will be getting worse before they get better. My two cents, and your mileage may vary.

Central Phase III... come "Hideaway" with me!

I'm invited to a fair number of project launches, but this is the first time I've seen a developer advertise the pick of the crop exclusively for brokers:

Intriguing to say the least, particularly as a project's development team is usually the first to cherry pick through the units. A tempting invite nonetheless, if only to see exactly which "prime units" have been reserved.

Wellington @ Island Park occupancy delayed

Progress continues on The Wellington at Island Park: although this month's original occupancy schedule has been pushed back to March 2012, purchasers have been receiving appointments to pick out interior finishes (along with the usual sticker shock that comes with any requests for upgrades or changes).

As expected, buyers have been taking an increased interest as construction proceeds, and delayed occupancy has already seen some units re-assigned from the original purchasers, as well as the sale of a unit the developer had held back for rental. I imagine a good number will further come up for sale in the spring.

Lastly, there is the question of the two remaining penthouse units, equaling 2790sqft in unsold space. Logic would dictate that the builder rework these floorplans into smaller units: what actually happens remains to be seen, but one would hope that Theberge avoids the penthouse fiasco up the road at 150 Caroline.

Big Green Eat Little Green

After an anemic start and a relaunch with new floorplans and new pricing, Domicile's One Three One project in Wellington Village is finally more than 50% sold.

Groundbreaking took place last week, and the irony isn't lost on some of us in the neighbourhood that the home of a local florist and the former site of The Healthiest Home (purveyors of sustainable building supplies) have been razed to make way for eco-friendly condos.

But my real concern with this project is Domicile's intention to include a no-smoking provision in the condo declaration that extends to the individual units. According to Domicile, sitting on the condo boards of their other projects has brought to their attention secondhand smoking complaints, and they feel that non-smoking buyers will appreciate this initiative.

While I myself applaud Domicile for addressing the concerns of secondhand smoke, even as a non-smoker I nonetheless find the scope of such a by-law just too intrusive for my own comfort, and wonder why this issue isn't being addressed through the building's mechanical and physical infrastructure. Will spicy cooking be targeted next?

My legal counsel agrees, but warns that after 30 plus years of practicing real estate law he is seeing this issue crop up more frequently and contends that the current mood of the courts would be to uphold such a declaration as being "reasonable".

Keeping in mind that such a regulation will not only apply to those buying into the project new, but those looking to buy a unit on the resale market, two words apply here: buyer beware.

Spring Market Update

While sellers are out in droves to take advantage of the spring market—traditionally the busiest time of the real estate year—I notice that buyers are definitely moving at a more leisurely pace.

Yet sales continue to be brisk for well priced condos that offer the elusive X-factor: that would usually be space, but can also be an amazing view, impeccable upgrades, or a rarely available loft.

The numbers tell the story: the past 2 weeks have seen 85 condos come up for sale from Westboro to Beechwood, compared to 37 buyers saying "I do" and signing on the dotted line.