75 Portland – An investment analysis
Update – I’ve since sold this property. After an 8 year hold, we listed and sold the property for $575,000 (inclusive of the parking space that was purchased separately from another owner in the building). This sale price of $1210psf, which was approximately 3 times the initial price per square foot. More importantly, our initial downpayment was 20% of $210K (inclusive of the parking space purchased) for a total of $42,000. Net profits, after fees (before capital gains taxes) were approximately $348,000. Not a bad return on a $42,000 investment.
Original post below from 2016…
In this week’s post, I’ll be doing an analysis of my investment property at 75 Portland Street.
I stumbled into a condo purchase at 75 Portland Street by accident. I was responsible for overseeing the sales of the building for the developer (Freed Developments) when the project launched, and after the ‘madness’ settled (there were literally people screaming out for units at the launch event), we had over 60% of the building sold. Needless to say, there wasn’t much interest to buy as an investment from my perspective at that point. Not to imply there still weren’t great units for sale, but watching prices increase by $10,000 – $30,000 overnight makes purchasing a unit a more challenging feat (nothing stings like a price hike of $10,000+ overnight and having to stomach that increased purchase price). In hindsight, I should have bought 10 units as everything was a relative bargain to what things are trading for today. 🙂 It just so happened that someone bought a unit and held it for about 3 weeks. The gentleman decided not to proceed with his purchase and informed me of his decision to rescind. I quickly called my partner and she agreed with my belief it was a good investment. We scooped it up quickly and that was that.
Just in case you don’t remember my last ‘investment blog’ post, my criteria for investment properties involved an analysis of the following categories for a property:
– Location (access, transit, etc)
– Developer (reputation, history of projects, etc)
– The Building (analysis of suites, layouts, number of units, maintenance fees)
– The Neighbourhood (resale analysis, gentrification analysis)
– Exit Strategy (when I planned on selling and trends until then)
Looking at the fundamentals, the project made ‘sense’.
The location was becoming more desirable by the day (If you recall, 10 years ago, King West was very different than it is today). It was the trendy spot to hit on a Thursday or Saturday night (no Torontonian would dare venture out on a Friday night – at least not to a club/lounge). Transit accessibility was very good with the King Streetcar within a few minute walk to most buildings in the area. You could walk to the Financial District or Queen West. The Island Airport wasn’t what it is today, but it too was walking distance from the building. There were a lot of new restaurants popping up and the Thompson Hotel and Residences was selling with the promise of a trendy hotel coming to the area, increasing the ‘cool-factor’ in the pocket.
The developer had a great reputation at the time for completing projects ‘on time’ and investing heavily into the architecture and design. Freed’s previous projects were well received by the occupants and this project had an international developer (Philippe Starck) who had been involved in high-profile projects around the world but not in Canada.
Philippe Starck added an international twist to the building. I recall getting phone calls from people around the world who were interested in Starck’s Canadian project. I liked this because it increased the possibility of future exposure of the building. You weren’t just another building in Toronto. International buyers who appreciated design were going to be aware of the project because of Starck’s involvement. I was of the belief that the more people we could appeal to, the better, for future resale values.
The building was minimalistic in every way, including the number of amenities. There was an opulent lobby clad with marble and Philippe Starck designed pieces of furniture and a part-time concierge. The communal marble table was very ‘European’, encouraging residents to gather and socialize rather than hide in our units, as many Torontonians do. Perhaps Mr. Starck didn’t realize that it’s brutally cold in Toronto about 6 months of the year, making hanging out in an open concept courtyard, freezing your butt off while chatting with your neighbour not a pleasurable experience. Other than this courtyard and part-time concierge, there weren’t any other amenities. This helped ensure that the maintenance fees wouldn’t increase substantially.
*Sidenote – the fees haven’t increased much in the past 6 years, due in large part to an agreement with the developer and the visitor parking and a great team of condo corporation volunteers who run things incredibly efficiently. Shout out to them for the excellent work they do!*
The analysis of the resale market was interesting. The building was expensive, at the time. You may laugh, but pricing back in 2008 at $400-$425 per square foot was on the higher side, given what other units were trading for. Those of us that bought in early were able to secure units around $375-$400psf (on the average). However you examine things, it was expensive but the fundamentals remained strong, despite this analysis.
The presence of new restaurants, cafes, lounges and commercial space were a reminder that more people were hanging out and accepting this pocket as a core neighbourhood of the city. Venturing past Spadina could be ‘risky’ for out-of-towners, but those of us in the city new that as long as you kept yourself east of Bathurst, you were ‘good’. I liked the emergence of this new scene in King West and knew it was going to continue. Yet another checkbox was ticked off on my analysis spreadsheet.
With most projects, I encourage people to be able to hold the property for 7-10 years. If you buy in at a great price and can flip the project after 2-3 years for a great profit, go for it. If the market had taken a turn for the worst, you could stick to your original game plan of holding the unit for 2, 3 or 7 years until the values were high enough you could sell and take some profit out of the purchase.
My strategy was to buy and hold for 5 years. Likely an 8-8.5 year minimum hold before I evaluated my options. About a year ago my 5 year mortgage came due for renewal and I’ve continued to hold this property as a part of my portfolio. I like what is happening in the area, and as much as some people speak disparagingly about the King West pocket, I’m pleased with what I perceive to be a ‘second phase’ of development that appears to be underway. The new commercial and retail space that is under construction coupled with the increase in residential buildings reinforces my initial belief in the area and my continued opinion that good projects in interesting buildings with great layouts will continue to see appreciation in this pocket.
475 sq. ft., one bedroom. No parking, no locker. Upgraded gas line to balcony.
My original purchase price – $172,900
Deposits – 20% = $34,580
Costs and Rent:
Monthly Rent – $1475/mth (Tenant pays hydro – *Please also note that current market rents for this unit are approximately $1600+/mth). I have yet to increase the rent on my current tenant.
Vacancy over the past 6 years = 8 weeks in total
Monthly mortgage payment = $683.25/mth (approximately)
Monthly maintenance fees = $284.89/mth
Monthly property taxes = $188.00/mth
Monthly insurance = $10.00/mth
Positive cash flow per month = $308.86/mth
Annual cash flow = $3706.32
Annual depreciation of my mortgage (payments of my mortgage, by my tenant) = $4500/year
Annual Appreciation (assume about 3% *of original purchase price for the purpose of this analysis*, which is quite conservative in comparison to the 5-8% statistical increase per year over the past handful of years) = $5200/year (approximately).
Current Market Value = approximately $750-$775psf for a small one bedroom in the building without parking. I’d likely price around $350,000 – $360,000 (unit has more than doubled in value).
Total ‘value add’ per year = $13,400
Initial investment = $34,580
As mentioned in my previous investment analysis post, we can pick this analysis apart. Investment analysts, accountants and investment bankers may want to highlight the tax implications (which I’m aware of), cost of commissions when I sell, capital depreciation and more. The bottom line is that this was a great investment and I challenge a mutual fund advisor or other investment expert to argue otherwise.
Not every property runs at these rates of return and I do believe in SELECT opportunities in Toronto and want to stress that NOT EVERYTHING is a good buy. Don’t always believe the hype. Don’t always believe what Realtors have to say. Work with someone you trust and have open and honest communication about what additional costs are involved. Be prepared for these figures, and buy property with the ability to ‘hold’ it if the market were to cool in the future. Please note that I don’t foresee a slowing of the Toronto real estate market in the short/mid term but real estate is CYCLICAL and we cannot continue at 10-15% annual appreciation forever. Rental properties are a great way to complement your retirement or investment portfolio and should you find it to be a fruitful or successful endeavour, perhaps owning more properties is something you may enjoy.