“Second week of February,” said the sales person from Rezen when I asked for the ninety-fourth day in a row when the building would be registered.
“If we’re not registered by then….cut my throat…..my word to God’s ears!”
That was the single strangest prayer I had ever heard…
Initial estimates on the registration date for Rezen Condominium was pegged as “late December, 2008,” but as Christmas and New Years came and went, and I continued to pay my occupancy fee, I began to make as much noise as possible.
I visited the sales centre in the base of 205 Frederick Street, which belonged to the developer, Times Group Corporation, and hounded them every single day. I didn’t think that my incessant visits would help speed up the process, but it made me feel a little better about myself – like I wasn’t taking any crap and I was being active about the situation!
The months went on, and rumors finally began to surface about a March registration date which would mean SEVEN full months would have passed between the occupancy date and the final closing.
As luck would have it, I heard about the final closing from my lawyer since nobody at the developer’s lawyer’s office thought it prudent to actually tell ME, the buyer/owner, when the registration would take place!
The building was registered on March 15th, 2009, and final closing would take place within 90 days – meaning I had to carry the property for yet another month!
But there was a much larger, much more expensive problem at hand. The developer was insisting that he charge me GST on the purchase of the unit, since he claimed it wasn’t my primary residence and thus the property was subject to GST.
As we all know, this clearly wasn’t my primary residence! But there are thousands upon thousands of investors across Toronto who have properties mortgaged as if they are primary residences, and they surely didn’t pay GST upon the purchase!
Every developer in the city uses a different, 200-page, Agreement of Purchase & Sale document, but some get rather sneaky and insert this clause:
“If the Vendor believes, for whatever reason, that the Purchaser does not qualify for the Rebate, regardless of any documentation provided by or on behalf of the Purchaser (including any statutory declaration sworn by the Purchaser) to the contrary, and the Vendor’s belief or position on this matter is communicated to the Purchaser or the Purchaser’s solicitor on or before closing…”
I wrote a whole blog post on this subject here.
In most cases, the developer seeks the GST rebate from the government, but in this case the developer was charging the buyer(s) GST upon final closing and putting the emphasis on them to collect the rebate on their own behalf!
This is why I should have used my 10-day rescission period and had my lawyer read through the Agreement! I read it myself, but I sure didn’t read those three words, “for whatever reason!”
I tried my hardest to prove to the developer that this unit at Rezen was, in fact, my primary residence. I had a friend of mine sign a (fraudulent) lease on my current condo showing that I was leasing it out, and along with this lease I provided the developer with a copy of my mortgage statement showing that the Rezen unit would be my primary residence.
But it was a lost cause.
I tried to make as much noise as possible; I had my lawyer send countless letters and faxes to the developer’s lawyer, but they didn’t care. I was one unit owner out of 138, and I was completely insignificant.
I bit the bullet and closed the deal, paying $3,783.14 in GST.
The calculation is complicated, but basically the $216,900 sale price is re-calculated at $210,174.42 to “include” $10,508.72 in GST.
I was then eligible for a $3,783.14 exemption according to the following formula:
“Where the Sale Price is less than or equal to $350,000, then the Rebate is calculated as 36% of the GST to a maximum of $6,300,” pursuant to section 254 of The Excise Tax Act.
Since the builder deemed that I didn’t qualify for the rebate, I was charged the $3,783.14 upon closing.
Factor in the Land Transfer Tax, which was $1,835.24 for the municipal tax and $1,835.24 for the provincial tax, and I’m looking at an all-in price of:
It’s not the same $216,900 that I tell everybody I bought the unit for, but welcome to the wonderful world of “Closing Costs!”
However, consider that I received a sales commission of $6,507 for effectively selling the unit to myself, and I consider my “All-In Cost” to be:
Yes, I’m aware that I pay taxes on the income I make, but let’s just move on…
I closed the deal on April 15th, 2009, aka “Final Closing Date,” and I was now officially the proud owner of a 549 square foot, 1-bedroom, 1-bathroom unit with no parking and no locker at 205 Frederick Street.
So what was next for me?
I wanted to join the Board of Directors.
Call me crazy, but I wanted to devote countless hours to the new condominium corporation – TSCC 2005, so that I could oversee my investment to the fullest.
I wanted to be involved with every single decision made at this condominium, and I wanted to gain the experience that comes with guiding a new condominium through it’s first full year.
I won’t bore you with the details of what a new condominium goes through in the first year, but let’s just say that it’s more work than years 2-5 combined!
The Turnover Meeting was held in April, and of 138 unit-owners at Rezen, only about 25 people showed up. There were about 35-40 votes by proxy from investors affiliated with the developer and the developer-owned units themselves, and we elected a five-member Board of Directors that now meets once every three weeks to oversee the running of TSCC 2005, aka “Rezen Condominium.”
I was elected as Vice-President of the board, and I assumed that I would probably run for the board again once my term was up.
I assumed that I would keep this condo for quite some time, since my investment was cash-flow positive and I was pocketing some excellent money each month.
My assumptions would prove to be incorrect.
Here is the breakdown of my monthly income and expenses:
$749.63 – Mortgage Payment @ 3.85%
$242.11 – Maintenance Fees
$158.14 – Property Taxes (estimated – not yet paid)
I was bringing in $1,450 per month in rental income, meaning this property put $300.12 in my pocket every single month.
Consider my $43,380 downpayment and this works out to a return on investment of 8.30% per year.
However, I also factor in the principal portion of my mortgage.
Of the $749.63 I pay each month, around $201.00 is principal, which comes back to me in the form of equity.
My return on investment including principal repayment balloons to 13.86% per year.
Now THAT, I like!
I think this is an excellent return for a 1-bedroom condo in the Toronto market. In fact, I know it to be an absolutely amazing return, as very few properties in the city are cash-flow-positive. It’s impossible to find a resale condominium that works out to be cash-flow-positive, and in my opinion, the only cash-flow-positive properties are multi-unit dwellings and condos purchased in pre-construction.
But something else happened between the time I took occupancy of my unit in August of 2008 and the time of final closing in April of 2009: the market went down, and then went back up again.
If you had asked me what I thought my condo was worth in January of 2009, I’d have told you, “Maybe a little more than I paid for it.”
But as April approached the market strengthened a little bit and we began to regain some of the ground we had lost.
In May of this year, once the building was registered, a client of mine listed his property for sale at $545,000 and didn’t receive a sniff of an offer. He and I both knew that it was overpriced, but he wanted to “get greedy” as he explained. The problem was – we weren’t in the right market to try and get greedy!
Every agent I called for feedback balked at the price, and I had estimates of value around “the high $400’s.” I only ever received interest from one agent and she said, “I think I could get my clients to put $475,000 down on paper!” Suffice it to say, my seller suspended the listing.
We cruised through the summer months, and all of a sudden we found ourself in a red-hot Fall market.
I received a phone call one day from an agent who had shown my $545,000 listing in May and asked me if it was still available. I told him to bring me an offer, and he did – conditional on seeing the unit! The buyer took one look at the unit, and we reached an agreement at $525,000, which ended up representing the highest price per square foot EVER achieved for a 2-bedroom unit at Rezen.
I began to wonder what my unit might be worth! But of course, I had no thoughts of actually selling it!
I was pocketing $300 in cash per month for as long as I held this property (at the 3.85% rate), and my return on investment was almost 14%, not including the massive appreciation I expected on my unit.
But just how massive that appreciation was, I would soon find out.
Something crazy happened in September that forced me to sell my condo.
You better believe I was ready to take the money and run…