03 Jan Toronto Trump Tower Mortgages
The Trump Tower is one of the new 5 star hotels that have opened recently in Toronto. Some of the rooms in the hotel were sold as condo units that could also be rented to hotel clients when the units was not being used by the owner. The income from renting could offset the cost of owning the condo and make the condo a good investment.
Many investors from across Canada and the rest of the world liked the idea of owing a condo in a 5 star hotel and bought units in the hotel. The condo units had a fairly high price range starting around $700,000.00 and going up to the millions of dollars. Purchasers only had to put down 50% of the purchase price at the time of the initial purchase. The remaining 50% would be due when the hotel was given it’s occupancy permit. Investors put faith in the marketing materials that indicated a positive cash flow and capital appreciation on each condo unit.
In 2013 the hotel condo units had a negative cash flow and the estimated market value of each condo was well below what the purchasers had paid. This meant that each investor had to pay money every month for condo maintenance fees that they thought would be paid from rental income.
The next blow to investors came when they tried to get mortgages for their condo units. Banks and private lenders would not lend based on the purchase price, in fact most lenders refused to provide any mortgage funds for these condos. Some purchasers could not pay the final 50% due upon completion of the building and went into default.
Many purchasers sued the management group for misleading statements and promotional material. The lawsuits are still before the courts and will take some time before they are settled. Some condo investors will lose their entire investment while the hotel/condo management group makes money.
There are some lessons to be learned here only invest what you can afford to lose, invest in products that you understand and do not count on real estate appreciation to always happen. Mortgagebrokerstore.com has been approached by many condo owners in this hotel/condo project, one owner with 11 units. Low appraisal values, high mortgages, high monthly fees and lawsuits have prevented us from lending on these units. We advise all of our clients to look at all aspects of a real estate transaction before signing any papers and consult with us if you need free and independent advice.