Asking yourself how to “cash out” during the present boom? The Globe and Mail profiles a seller asking the same to Paul Johnston.
In 2004, David Green was one of a horde of people jostling for the chance to buy part of a decommissioned industrial building in a seedy part of Toronto. “People were fighting in the sales office,” says Mr. Green, who felt caught up in the fracas as red “sold” stickers began appearing on the floor plans. The pace, he recalls, had rival buyers thinking, “they’re all going to be gone in a second if I don’t grab a salesperson and hand them a cheque.” Five years later, Mr. Green is living in the transformed Garment Factory Lofts and the neighbourhood surrounding him is known as über-cool Leslieville. His real estate investment has soared in value. “I got lucky. Because when I bought, I was terrified,” he says. Like many homeowners who have seen the value of their property swell since 2004, Mr. Green is wondering how he can pocket that gain. And whether he can repeat that success with another property. And those quandaries lead him to the question all prospective sellers are facing right now: How long will the high-octane Toronto real estate market keep running? For Mr. Green makes his living as a television actor, but his sideline is investing in stocks and real estate. That’s where his Master of Business Administration degree comes in. As he tries to figure out his next move, he is talking to real estate agents and visiting presentation centres in such developing neighbourhoods as Corktown, Leslieville and Queen St. West. On a recent morning, he strolled the short distance from his loft on Carlaw to a Queen St. East coffee shop, where he met with Paul Johnston of Right at Home Realty. Mr. Green has been keeping an eye on the Toronto real estate market and, all of a sudden, prices have risen “inexplicably”, he says. Lofts in his building have sold for more than $400,000. If he could sell for an amount approaching that number, he could realize a nice gain on the $220,000 or so he paid in 2004 when the lofts were just a neglected factory and a plan on paper. “You made that great move when you bought,” says Mr. Johnston. “Replicating that great move is very challenging.” The two go through the numbers: Based on price per square foot, which is the way most lofts and condos are sold, Mr. Green could expect to sell for about $550 per square foot in the current market. Mr. Green believes that buying into a project long before construction gets under way could be the way to prosper because units typically rise in value when they are ready for occupancy. If all goes well, he could end up with a larger unit for the same amount invested. But while his neighbourhood has flourished, it’s not easy to spot the next weed-choked wasteland that will begin to attract development. The discussion prompts Mr. Johnston to reminisce about his past career as a disc jockey. He had to drive a rented smoke machine back to Queen and Carlaw after his gigs. “Returning them at 10 o’clock on a Thursday night – it was pretty sketchy,” he recalls. The area has come a long way since. “But where is the next Leslieville?” The pair run through the list of contenders: Roncesvalles Village has already soared into the stratosphere, while the Junction a little to the north is quickly gentrifying but doesn’t offer a lot of “product” in real estate parlance. Liberty Village seems aimed exclusively at trendy young singletons, in Mr. Green’s opinion. The area around Queen and Gladstone may, arguably, be nearing a peak, Mr. Johnston posits. He pulls out a feature sheet for a planned development on King Street East. Mr. Green recoils – the building doesn’t suit him. The marketing brochures are too slick, Mr. Green says, as if they’re trying too hard to be cool. “Too flash?” asks Mr. Johnston. “Too flash,” Mr. Green agrees. “Who comes up with these names anyway?” Then there’s the question of where Mr. Green will live during his long wait for a new loft. In Mr. Johnston’s opinion, the Garment Factory benchmark of $400,000 for “a really livable character building with parking” is reasonable. It will be hard for Mr. Green to find a unit in a comparable building at that price. His carrying costs are reasonable and, if the actor has to rent while he waits two or three years for his new unit to be completed, his standard of living will likely slide. “You really have to be prepared to suffer for a while.” Mr. Green acknowledges that he’ll be homeless if he sells. “I’ve been homeless before but now I kind of like having a roof over my head.” The actor also has a variable rate mortgage, which currently sits at a record low. “That mortgage is a big deal breaker for me”, says Mr. Green. “If I sell, I’m not getting back into that.” Along the way, Mr. Green has also learned something about presentation centres: Buyers should be wary of believing that the unit they end up with will be as luxe as the model suite, in his experience. When his long-delayed occupancy date rolled around, there was a huge duct in the living room and the bathroom sink had been stolen. He didn’t move in for another three months. “It’s a good thing that model suite is a distant memory or I’d be down there strangling somebody.”He believes that he is a more savvy investor now that he knows what to expect. “You’re buying what’s in the document, not what’s in the showroom,” agrees Mr. Johnston. But the real estate agent cautions that the same dynamics that would allow Mr. Green to sell his unit for a hefty amount could also make it difficult to buy another. At the same time, he wonders if Mr. Green is confident that the current climb will continue. Mr. Green doesn’t expect prices to fall – at least not to below the level that he would pay now for a unit before it is built. He also figures he has a pretty high risk tolerance. “I’ve lost money and it’s not a good feeling but it doesn’t destroy me like it does some people,” he says. As they finish the last of their lattes and the lunchtime crowd starts to surge, the two arrive at a tentative strategy. As long has he is confident of a rising market, Mr. Johnston advises, Mr. Green would likely be better off to stay put. If he can afford the down payment, he suggests, the actor can always buy another unit on his own and sell his loft when the new building is finished. “The last thing you want to do is sell an investment that you think will continue to appreciate.” Mr. Green says he’ll keep looking around. Purchasing a new unit would take a large leap of faith. “You’re just buying a piece of paper and a dream.”