Selling REZEN By The Pound IV

In August of 2008, one year since I had taken occupancy of my unit at Rezen and a mere four months since final closing, a unit sold across the hall for $265,000.

The unit was larger than mine, but it still got me asking myself, “I wonder what I could get for my unit…”

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In yesterday’s post, I broke down the numbers of exactly how much I paid for my condo at Rezen.

It cost me $216,900, but I had to pay GST and Land Transfer Tax.

However, I received a sales commission on the unit, so it really almost netted out, and I call it an even $218,000.

Sales at Rezen had been sluggish since final closing, and even more so since occupancy.  The developer had about 7-8 units leftover and he wasn’t budging on pricing.  When the Toronto real estate market was in the toilet in January & February of 2008, he took it upon himself to actually raise prices on his unsold inventory!  This meant that the units sat on MLS for months, and it made the building look bad.

Units began to trade as soon as the building was registered in April, and the building gained some momentum as we moved into the Fall market – in line with what was happening throughout the downtown core.  The “recession” was apparently over after only three months, and prices were steadily rising.

In August of 2008, a unit on my floor sold for $265,000, which was amazing considering it had a tenant until April 1st, 2010.   It’s near impossible to sell a unit with a tenant attached, and you surely won’t get top dollar for it if you do.

This unit was larger than mine, but it made me wonder what my unit was worth.

How much could I get for a small, 1-bedroom of 549 square feet that has very little natural light and stares right at the wall of a building next door?

Is it worth $250,000?

Could I get $250,000 for this unit that I paid $218,000 for just four months earlier?

Sure, I contracted to purchase it in February of 2008, but I didn’t hand over my full downpayment and take out a mortgage until April 2008.  The money seemed too good to be true, and I began to give the idea some serious thought.

I asked myself, “What if things got crazy?  Would I sell it for $255,000?  Would I sell it for $260,000?”

I think the answer would be a resounding “oh, good lord, yes!”

But what would be involved in the transaction?

I’d have to list the property on MLS and notify my tenant, meaning that agents could only show the property with 24 hours notice.  And how would the unit look to prospective buyers with my tenant living there?  Could I count on her to be neat and orderly?

Should I give my tenant notice, and then stage my empty condo to maximize it’s potential?  Could I afford to carry the property empty for two months in order to stage it?  That would cost me over $2,000!

I didn’t give the idea a whole lot of “serious” thought until something happened that shaped the future of my investment and pretty much determined the outcome for me.

On September 17th, the unit directly below mine came onto the open market for a whopping $269,000.

It’s the exact same unit – exact same layout as mine.

I couldn’t believe the price – $269,000.

That’s more than I would have ever expected for my condo, AND….they were holding back on offers!  I think it’s fair to say that I would sell in a heartbeat for $269,000.  That’s more than I thought I could get for mine, and more than I really thought it could be worth.

I severely underestimated the market!

A colleague of mine had a buyer who happened upon the open house for this condo and called her immediately to say, “I want to buy this condo!”  He was prepared to pay $275,000 in the event that there were mutiple offers, and I told my colleague, “Hey – if you don’t win out in multiples on Thursday night, tell your client I’ll sell him mine for $275.”

I was serious.

The idea of not having to list my property on the open market really appealed to me!  Imagine simply piggy-backing the sale of the unit below me?

And his condo looked great!  He moved out, spent a few thousand dollars staging it, and it showed like a model suite.

I had made up my mind – I was going to sell.  If I could get $275,000 for a condo that I paid $218,000 for only five months earlier, why wouldn’t I?

On offer night, there were nine offers, and my colleague lost.

What did the condo sell for?  How about $295,000?!?!

That was just stupid-money for this condo – $537 per square foot when nothing had ever sold in this building for more than $470.

I told my colleague that I had to chase the bigger money, and she understood.  There were undoubtedly a few offers higher than her $275,000 offer, so she took the names of the other agents and I began calling them that night.

She said there were at least two agents that she knew of who had offers around $285,000, and she gave me their names nad phone numbers.

I remember calling this agent named “Bryan” from the baseball diamond in Leaside where I was coaching in our semi-final game.  I’m about the most focused, over-aggressive coach you’ll ever see, so the kids knew something was up when I kept sneaking out of the dugout to make phone calls.

I told Bryan that I understood he lost in multiples tonight at Rezen, but that I was his white knight – I owned the identical unit one floor below, and I’d sell it to whoever could give me an offer of $285,000 first.

I wasn’t chasing the $295,000 that the other unit received.  That unit came with a storage locker, valued at about $3,500 – $4,000, and he had slightly better upgrades than I did; maybe about $1,500 – $3,000 worth.  But I suspect he also spent around $3,000 to stage the condo since clearly none of that furniture was his.   The $285,000 was more than fair (for me!), and I knew I could never get that kind of money on the open market because of my tenant.

The next day, Bryan brought me an offer of $285,000, which was great since I found out that the $295,000 that the other unit sold for was actually only $290,500!  So in the end – I came out better than the other guy did!  That was just icing on the cake!

Bryan’s client took one look at my unit, which was cluttered with women’s clothing and looked a far cry from the unit one floor below, but his client said, “Yep….this is it….this is the exact same unit as the other one.  DEAL.”

The three of us signed the offer right then and there, and I went home and celebrated by doing absolutely nothing other than my usual routine.

The next day, I started to work out the numbers, and it went something like this…

I’ll save you the calculation, but I made $67,126 on the sale of this condo after factoring in the GST, Land Transfer Tax, commission received, commission payable to the cooperating agent, the rental income versus the carrying costs, and the small principal repayments I had made for seven months.

My downpayment was $43,380, however I paid $5,000 on February 10th, 2008, $5,845 on March 20th, $10,845 on May 10th, and $21,690 on April 21st, 2009.

I worked out a weighted-average factoring in the four different payment dates, and came up with an annualized return of:

141.42%

Not bad.

In fact, I was very pleased!

Who wouldn’t be pleased with a 141.42% annualized return?

In my mind, there was no way this condo was “worth” $285,000, and if I had a client who wanted to pay $285,000 for a 549 square foot, 1-bedroom with no parking and no locker that stared at another building and had no natural light, I’d say “You’re absolutely crazy.”

I took the money and ran, laughing all the way to the bank.

And for those of you wondering about tax ramifications, I’m not going to pay a capital gain on this money.  After all, this is my “principal residence,” and I’ve had two different accountants tell me, “Uhhhhh…..well……I guess you could get away with it.”

That’s all I need to hear!

So what did this transaction actually entail?

What work went into this $67,126 bounty?

Well, I suppose I have the knowledge of a Realtor who has been in the business for six years and who has obsessively memorized every single condominium and pre-construction project in the downtown core.  That was my foundation for knowing what to buy and when…

I wrote a few cheques totaling $21,690 by May of 2009.

I spent a few days searching for a tenant and deal with the headaches that comes with being a landlord.

I joined the Board of Directors at Rezen Condominium and dedicated maybe ten hours per month to the cause.

I wrote another cheque for $21,690 plus closing costs in April of 2009.

And to be perfectly honest – that’s about it.

I wouldn’t play this off like it was “easy,” but I was fortunate enough to have everything come out my way.

Who knew that the market would turn around from the real estate apocolypse in December/January?

What are the odds that the unit below mine comes onto the market, staged like a model suite, and gets nine offers?

How was I to know that I could sell my condo without ever listing it on the open market?

Yeah, I’d say that “luck” played a factor, but my financial gain was not without risk.

Things looked pretty dire there in January when I wondered if my condo was worth even what I paid for it.  I had countless battles with the developer, and my tenant was not the most financially stable individual.

But what investment isn’t a risk/reward proposition?

You’ve got to be willing to lose in order to win, and I’m sure during the course of my life, I’m going to lose a couple of times.

My experience at Rezen Condominiums has been nothing short of fantastic, and I’m going to remain on the Board of Directors until the end of my term in April, 2010 even though my condo deal is closing next month.

My next project, the infamous West Side Lofts, will be ready for occupancy in June of 2010, and I am currently in the 10-day rescission period for a pre-construction condo that I tied up about a week ago.  I’m not sure if I’m going to follow through with this one, however…

I hope that this four part series, “Selling REZEN By The Pound” has helped to outline exactly what is involved in pre-construction investing, from start to finish, but consider also that I had a bit of a “head start” since I bought into Rezen when it was already under construction.  The biggest risk in pre-construction is the delays, and I would have no qualms about jumping into another project tomorrow if the building was already under construction, and course, if the price was right.

If I left anything uncovered, or if you have any further questions, please don’t hesitate to post or email.

Happy investing!

10 Comments

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  1. Subhra says:

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  2. Anon says:

    David why don’t you ask this “Joe” character to put his name, email, photo, and occupation up on the site for all of us to see much like you have done! It must be nice for him to challenge and slander you all while remaining anonymous!

  3. Aguduser says:

    Hi David,

    Congrats on the nice profit!!! Did you laugh all the way to the bank? 🙂

    I guess you are going to be very happy with your Westside Lofts unit as well! They just launched Phase II two weeks ago, and the pricing has gone up to around $475 per sqft without parking (or $516 per sqft with parking). Parking has gone up from $28,000 to $31,000 as well. Most importantly, the ceiling height of Phase II units is just 8 feet, compare to 9 feet of Phase I. And the Phase II’s layouts are pretty bad!

    As I recalled, you got your Westside unit for just a little above $400 per sqft? I think you got a great deal there! Your unit’s value must have increased about $65,000. Nice appreciation, I think.

  4. David Fleming says:

    @ Joe

    My personal and professional business are mutually exclusive.

    I am not a moral authority in life.

    If you are looking to me to be your ethical guideline for everything in this world, then keep looking.

    I strive to adhere to the rules and regulations within the real estate industry, and I hold my colleagues accountable when they don’t.

    But what I do in my own time, in my own business, in my own life is a completely different story.

    If I run an orange light or make an illegal turn in my car – does this also mean I’m a hypocrite for calling out my collegues in the real estate industry when they create fake listings?

    How about the pre-marital sex I’ve had, or perhaps some pot I smoked in university? Does this also knock me off my “moral podium?”

    Don’t be such a hater.

    Smile, and loosen your tie…

  5. JD says:

    hahaha this Joe guy is really on your ass! is he a realtor you fought with at some point? sounds personal!

  6. Joe says:

    David,

    I find it interesting that you clearly outline in this series how you’ve committed or are planning on committing various acts of tax fraud and fraudulently executing statutory declarations.

    You state that “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!” as an excuse for your actions. Yet you frequently rant against your fellow Realtors and all their perceived frequent acts of unprofessionalism.

    How can a Realtor admit to fraud, but act as if he’s on some sort of moral podium otherwise, because he doesn’t engage in the ” underhanded tactics or … lack of honest dealings within the industry.”

    You can’t really pick and choose. How do you feel RECO or the Canada Revenue Agency would respond to your postings?

    Joe

  7. dogbiskit says:

    Great story. Congrats on your windfall!!! I agree, anybody paying $285K-$295K for that size unit is being willfully dense but it’s obviously awesome for the sellers. I had a great experience selling my condo this past summer and I laughed all the way to the bank. I wonder how these two rezen buyers will feel when (or IF, but I doubt it’s iffy) rates go up, market turns and values plunge. Sounds like you haven’t lost yet in pre-sale real estate . It would be interesting to hear some of those fail stories to give further perspective. Please post if you have any.

  8. BobbyV says:

    congrats on your flip….. however, 549sq ft in the east side is NOT worth anything more than $250 without parking or locker. The buyer was a sucker if there ever was one but of course we all know you gotta be lucky to find the suckers.

  9. dave says:

    Congratulations David. Well done. (…and at the risk of sounding like a broken record once again, I’ll encourage you to diversify rather than putting that cash back into real estate…:-).

    Congrats once again!

  10. earth mother says:

    Congrats to you on this profitable venture!! don’t underestimate your own sweat-equity… real estate experience, hours spent with lawyers & developer’s reps, number crunching, as well as being a purchaser, landlord & condo board member… you certainly earned that nice profit! Good luck on your next ventures… which hopefully you’ll share with us!!

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