How condo flippers are making a killing in Toronto's hot housing market
Inside the Toronto condo building where quick sales are earning investors up to $2,900 a day
To understand just how lucrative the housing market is for speculators, The Globe and Mail analyzed hundreds of real-estate transactions within a single Toronto condo building: X2
X2 is a 49-storey tower on Charles Street near Yonge and Bloor in downtown Toronto. Completed in 2014, it contains 558 units, ranging from 400-square-foot bachelor apartments to a small number of 1,500-square-foot multi-level apartments.
The project’s launch in 2009 was met by strong demand
Before the development was even finished, speculators sold at least a dozen preconstruction units to new owners on assignment. Known as “paper flipping,” the transactions yielded, on average, $69,191 in gross profits.
Most buyers took possession of their suites shortly after the building was registered in early 2015. Dollar amount of the transactions: $220 million.
Some owners sold almost immediately. Within two years, 120 of X2’s units had been “flipped.” The average gross profit was $126,398. That's $478 a day.
The most flips
On these floors, six suites were flipped within two years of X2’s opening. On the 38th floor, more than half the units were flipped.
No flips at all
By contrast, there were no flips on floors 20, 22 and 45.
This was the only unit that was flipped twice in two years. Its first sale closed in March 2015 for $308,363. It was sold 23 days later for $340,000. In April 2016, it sold again for $385,000.
This 1,430-square-foot two-bedroom suite had the largest resale price of any unit, $945,000. The top five resales all occurred on the 8th floor, which features a handful of unique, larger units that occupy two floors.
Its owner held the property for a mere 37 days, and earned a gross profit of more than $107,000. That’s $2,900 per day.
Its original owner earned the highest recorded profit in the building. Bought in April 2015 for $487,000, it sold a little more than a year later for $760,000, for a gross profit of nearly $273,000. A total of 11 units earned gross profits above $200,000.
Not everyone made out well. This unit earned the lowest profit, at just under $9,900. After transaction costs, the owner likely lost money.
Property records reveal that only 20 owners had interests in two units—everyone else owned just a single unit. The developers say they “discouraged the sale of multiple units to individual purchasers.”
Leases are a powerful indicator of investment activity. According to the property manager, nearly 60 per cent of the units were leased in the last year.
This small bachelor attracted the highest monthly rent per square foot, about $4.30. The building average is about $3.
Echoing a citywide trend, rents in X2 are rising rapidly. The average monthly rents rose nearly 11 per cent in the last two years.
For X2 investors, financial incentives weigh heavily in favor of selling. We analyzed leases on floors 10 through 19, and assumed owners took out mortgages and made 30% downpayments. After costs, the estimated average net income from rental units was just $7,735 a year.
The number of individuals who own multiple properties in and around Toronto has steadily increased since the turn of the century.
This isn't the first time the city has seen a rise in speculation. Teranet’s data shows flipping rates were even higher prior to the 2008-09 financial crisis.
Why speculation matters
“Cities don’t run off high-net-worth individuals,” Beata Caranci, chief economist at TD, says. “People who work in hotels, retail and restaurants, they need an affordable place to live…it felt, as we saw these rapid price increases and the sense that this flipping activity was happening more and more, that [Toronto] was becoming a city for investors as opposed to those who need to work and live here.”
Echoes of a distant time
Toronto has heard this conversation before. In his 1990 book The New Landlords, author Donald Gutstein noted that the high vacancy rate after the global financial crash was due to an oversupply of condos purchased by speculators. Surveying the aftermath, Gutstein predicted: “Condo-mania could end up claiming many victims.”
A sizable portion of Toronto's housing stock is again being controlled by investors seeking profits, not accommodations.
What happens when the market shifts?
CREDITS: Art direction MATTHEW FRENCH, Interactive development JEREMY AGIUS, Graphics MURAT YUKSELIR, Reporting and data analysis MATTHEW MCCLEARN, JILL MAHONEY and TAMSIN MCMAHON, Editing NICOLE MACINTYRE, Photo editing MOE DOIRON and PATRICK DELL, Photography MELISSA TAIT