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…”
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:
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.