While nearly half of Toronto’s condo investors were in the red last year, the city’s condominiums remain among the best real estate investments in the country.
“With real estate, including condos, you make money in three different ways: Your net cash flow each month, but more importantly, each month, roughly half your mortgage payment goes towards your principal, so you are building wealth by paying down the principal in your mortgage, and that happens every month you make a mortgage payment; and then there’s appreciation,” said CanWise Financial’s President and Broker of Record James Laird.
“No one knows what appreciation is going to be, but the average has been good and some years it’s been amazing. Even if your cash flow month-to-month might be slightly in the red, the overall investment is still increasing your wealth each year.”
A joint study between CIBC and Urbanation revealed 44% of Toronto’s condo investors were in the red—of which 45% were short by less than $500, and 20% between $500 and $1,000. The reintroduction of rent control has proven another spanner in the works for landlords.
However, according to Laird, Toronto’s market fundamentals are so strong that condos will continue surging in value. In the last year, they appreciated more than any other housing type, and on top of robust economic conditions, skilled immigrants continue choosing to live in Canada—and Toronto in particular.
“The rental market in Toronto is really strong,” said Laird. “The average rent has climbed dramatically in the last few years and the vacancy is low. It’s a good time to be a landlord in Toronto, and if you’re occupying it yourself, you should do well on your investment. The funny thing about rent control is that it has dissuaded many new condominiums from being built, so the supply is going to continue to be pinched in future years. At the end of the day, it will be supply and demand which determines the average rent in Toronto, and the growth and demand looks like it should be strong here. It doesn’t look like the supply side will keep up, and those are good ingredients to own that kind of asset.”
According to Tribe Financial Managing Partner Frances Hinojosa, investors can avoid certain pitfalls with firm financing conditions because bully offers are commonplace throughout the condo market right now, and that could, in tandem with condo fees, render the investment flawed.
“I can’t stress the importance of still doing a condition of financing to ensure you’re not overpaying and to make sure that property is marketable to the lender,” she said. “Some condos in Toronto are having issues with their status certificates, so there should be a condition of not only financing but review of the status certificate.”
Due diligence done, unflagging demand for condos ensure they’re sound investments.
“We’re at a 16-year low for vacancies right now and rentals are still in high demand in Toronto because of population,” said Hinojosa. “It will continue to grow, and the simple question is where are all these people going to live? Is it a long-term viable option? Yes, because you can’t create more land and the population is not going to stop growing.”