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The worst condo investment ever.
- or how to lose your shirt in a weekend -

Disclaimer: none of the articles published here are intended as investment advice. This is a personal blog and intended for entertainment only. We highly recommend you always get legal and financial advise and use a Realtor when transacting in real-estate. Call Yossi: 416.441.2888 x 678.

This is the scariest article I have yet to publish. Read at own risk!

We all remember the crazy lineups to 1 Bloor, College Park and Aura.

What was it about these buildings that made people line up for a week? Lots of talk, but so far not a single intellectual journalist neither any of my 30,000 colleagues in the GTA truly explained the it to us - and I’m talking about the down side here.

Well you know it, I’m going to give it a crack. Oh yes, and this posting is called: The worst condo investment ever - are you scared yet? a couple of clients I was speaking with this week could not believe their ears. So here it is:

While everyone from the Sun to the last blogger got so excited from the lineups, they seem to always forget to ask one important question: why?

• Why did these buildings managed to get such high PSFs?
• Why did people stood in line for them?
• Why did the developer of 1 Bloor raised his prices by $200,000 overnight?
• Why did the people stayed in the line, knowing the price just went up?

Here is why:

• Tribalism. Entire groups are lining up because they believe they found the Holy Grail.
• Herd Mentality. Similar mentality with cross-cultural effects: many tribes are lining up.
• Belief in quick and guaranteed appreciation
• Belief that Builder will significantly raise prices after the opening
• Belief that the location is worth its position in pure gold
• Assignment clauses and low downpayments until closing.

Yossi, what about marketing? isn’t marketing the root of all evil?

I’d accredit to actual active marketing no more then 25% to the effect. I really believe we’re looking at a social phenomenon here first, and very little knowledge of investing on behalf of buyers.

Now this is how a typical market crash may unfold:

Take a deep breath. Ready? imagine this scenario: a builder allows a 20% down with 10% on purchase and 10% on closing. The builder gives everyone an assignment clause (so you can sell your contract before occupancy). The purchasers line up and buy 500 condos over one weekend, all 10% down with 10% promised later. They bring a letter of pre-qualification which the builder accepts.

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