So perhaps you understand the concept of income-producing property.  And perhaps you’re interested in getting involved in what amounts to an incredible investment.  But how do you run the numbers on a potential opportunity?  Here is a quick guide on how to ‘do the math’.

The formula is simple: you want to analyze income versus expenses. A property with high income and low expenses is the ideal, which should be fairly obvious.  What may not be obvious immediately is the scope of line items you’ll want to account for when looking at a potential property. 

Income

Rents – The main source of income will likely come from your tenants’ rents.  In general, more units are better, because it mitigates your risk of income loss from vacancy (lack of tenants) and because it spreads fixed expenses out over more income streams.  In Toronto it is becoming somewhat hard to find properties that ‘carry’ themselves (cover all expenses with internal revenue) with only one rentable unit.  Though it is still possible, I would generally recommend looking at properties with more than one separate unit to rent.

Parking – You may be able to make a separate monthly income from any parking spaces you own – especially in the downtown area near desirable and high-traffic areas.

Laundry – Laundry and other coin-operated devices will serve as an additional source of income.  Be sure to make a realistic calculation of what these may add to your bottom line.

Other – If your tenants pay utilities, for example, you could count that as income – as it will negate the utilities expense on your cash flow statement.  Keep an eye out for rental agreements that include the tenant paying for some or all utilities.

Expenses

Debt Service – Also known as a mortgage, your monthly debt service will commonly be your largest expense on an income property.  Be sure to know your carrying costs in this category before you commit to a property.  Also watch for the direction lending rates are moving if you are going to select a variable mortgage product.

Taxes – You can’t avoid them, unfortunately, and they are never likely to go away - even when your debts are paid entirely.  Along with maintenance and insurance, be sure to factor these into your calculations for permanent ongoing costs.

Maintenance – No matter how new and fabulous a property appears, there are going to be ongoing maintenance costs.  Be realistic.

Insurance – You will have to have insurance on the property if you are financing the deal.  Banks require it so that you don’t burn their investment collateral to the ground – literally.  Ask your insurance professional for an estimate as rates vary greatly depending on the property.

Utililties – Make sure to account for utilities costs unless you’re absolutely certain you can get your tenants to pay for them.  They’ll fall back on you if you can’t.

The rest is fairly simple.  To get a rough idea of your cash flow (profit/loss) just simply add up your sources of income and take a small percentage off for vacancy and credit loss (tenants not paying their rent – it happens) and then subtract your expenses.  I would use 5% as a reasonable number for my vacancy loss when calculating.

Is the result a positive number?  Great!  If your numbers were accurate, then you stand to make money!  This may be a property to consider if all other factors look sound.

The reasons for buying a condominium suite in Toronto are many and varied, and I continually find it interesting that so many sales are to international purchasers. I’ve been asked whether these buyers are different from Canadians in how they arrive at their purchase decisions. The major difference I notice is that international purchasers are more understanding of the condominium concept, because building vertically in major cities is something they’ve grown up with. It?s still a relatively new phenomenon in Canada, so we have more educating to do with our Canadian buyers. All purchasers obviously have faith in Toronto as a city worthy of their financial and lifestyle investment. Canada is one of the few countries that offers economic and political stability, which attracts a sizeable immigrant population. Many are first-time mature buyers/residents who see the possibility of fulfilling the dream of home ownership; others see the value of investing here. Toronto has been named the top major city in the world for quality of life, and thus, is more than often the preferred choice in Canada. Some buyers own properties in several places around the globe and choose to buy a condominium in Toronto to use part-time when they are here for business or pleasure. These people look for consistency of product and reputability of the builder and the management company, as they will most likely not be active in the condominium corporation. As for the types of condominiums they choose, it’s all relative. For one person, a pied-à-terre might be a compact one-bedroom suite, For another, it may be a sprawling penthouse. It depends on the buyer?s income bracket, whether it’s their sole home or a multiple property, etc. With Toronto earning a reputation as one of the world’s most coveted cities, we’ve also seen a huge demand for luxury condominiums. People who choose to move from a large home, whether it’s in Forest Hill or Dubai, want the conveniences of condominium living in grand surroundings. Another trend with international buyers is the demand for energy-efficient building characteristics because of the energy crises they see happening in their countries of origin. Take The Residences at The Ritz-Carlton, Toronto for example. The fact that the building will use a deep water cooling system through Enwave Energy Corporation to substantially lower energy costs has been a powerful selling feature. Toronto is more cosmopolitan than it was years ago. The attraction of international condominium purchasers adds an element of maturity to our beautiful city.

Here are the latest numbers reflecting the Toronto residential market’s activity:

Sales:  Again we are seeing close to double the number of sales year-over-year with 7,291 properties changing hands last month, versus only 4,120 the year previous, still reflecting the low-volume trough we experienced in early 2009.  That 77% positive change is powering the growth in asset value we are seeing in the market.  If you bought at this time in 2009, good for you.  This sellers’ market won’t last though, so get in now if you’re hoping to liquidate this spring.

New Listings: February also saw 12,726 new listings hit the market, up 24% from the number listed in 2009.  Considering the low volume of sales we were experiencing last year at this time due to the depressed market, this 24% change is still not nearly indicative of a market balance, and should be viewed as evidence of a sellers’ market.

I think that for vendors in 2010: definitely get your property listed in the early spring market.  You are in the perfect storm for selling and ‘trading-up’ in Toronto property because of aggressive mortgage rates, low inventory and the impending HST.

Active Listings:  Active listings (total single family homes currently on the market) are still down a whopping -32% year-over-year, with 14,514 properties on the market last month, meaning that the wave of sellers has not balanced the market yet.  I expect this trend will change in the early spring, which will make for an extremely active market.  I expect we also may see record sales volume before June if these market forces remain consistent.  Keep an eye out for that in coming months.

Days on the Market:  The trend is continuing toward much faster sales as well, generally benefiting sellers, with properties taking on average 51% less time on the market to sell, down from 45 days to only 22 days (!) this year, down significantly from last month.  You are encouraged to remember that this number represents the time until deals are firm and reported, and often includes a conditional sold period of up to 2 weeks.  Consequently, these properties are effectively off the market much sooner.  This is an unbelieveably short time for properties to sell in, on average.  Buyers will need to be very quick to snatch great properties.

Price:  Finally, sellers can rejoice once again -  the median price of homes in the GTA in February was $366,300, up from $312,900 in the same month of 2009, with detached homes trading at a premium, priced at $453,000 last month median value.

Growth in market volume will definitely continue this spring, and the next two months will likely see huge transaction numbers, with buyers getting involved before the HST deadline and with mortgage rates holding at their low levels.  Sellers should be considering looking at this market as a great opportunity to get value out of their current home through a refinance or by trading up into a larger property, thereby taking advantage of amazing power of positive leverage.

Now that the 2010 Olympics are only 5 days away, it got me thinking . . .do cities that win experience a boom or bust in the real estate prices? After reading various articles and studies apparently it definetely will have an impact on the market.

According to a well-known Vancouver Realtor responsible for the sales and marketing of the Olympic Village, Vancouver properties should rise by 4 to 4,5 per cent in 2010.

The 2010 Winter Olympics will contribute to increased sales for Vancouver Real Estate as people from all over the world will want to know more about Vancouver and even consider buying there.

I would not be surprised if other parts of Canada will get positive exposure as well. When these same International passengers connect through Toronto and see what this city has to offer, we should expect some Real Estate clients that appreciate even more what a great City Toronto is and what our Toronto Real Estate and Condo Market has to offer.

Bring it on