Investing in a Toronto Condo
January 27, 2017
Toronto’s real estate market continues to set new records. As of the end of 2016, the average price was up by over 17%. Of course, naysayers think this level of growth is unsustainable and we’ll likely see a cooling off, but I believe that for the most part, home and condo prices in Toronto will continue to rise.
You may remember several years ago reading the dire predictions that the condo bubble was going to burst – hundreds upon hundreds of units were nearing completion and where were all those people going to come from?
It never happened. One of the reasons is that many of the new condos had been purchased by investors to rent out. And not only that – there still aren’t enough condos to satisfy the demand in the rental market.
It turns out that the new bidding wars are on condo rentals. The rental market is so tight that people are paying above asking. I recently listed my own unit at Radio City for what I thought was a reasonable rate and it went for $50 over asking.
That being said, an investment unit doesn’t provide a guaranteed income stream. A quick search on the MLS shows hundreds of rentals on the market, but the prime units tend to go very quickly.
What makes for a good rental unit?
People are looking for something sleek and sexy, so units in newer buildings tend to rent more quickly. Although a one bedroom condo can be leased for about $1800, if you’re considering an investment I would buy into the two bedroom market. It’s one of the fastest growing markets because priced between $700K and $900K, it’s attracting couples and small families who can’t afford a home and so are settling for two bedroom units or two bedrooms plus a den.
As well, couples who own a one bedroom but can’t afford to “move up” and buy a larger unit or house, are looking to rent. A true two-bedroom (not a one-plus den) commands a better price. Your rental income should definitely cover the mortgage since at today’s rates, a $500K mortgage will carry for approximately $2500 and a 2 bedroom suite with parking will lease for more.
Another reason I would suggest buying a two-bedroom unit is that market isn’t going anywhere. People will always need more space and many condos being built today are too small. The average condo being built today in Toronto is just over 700 square feet, which sounds large enough for a one-bedroom unit, but not nearly big enough for a family needing 2 bedrooms or more.
When it comes to location, it’s really hard to go wrong in Toronto. As long as the building is near good services and transportation it won’t be a challenge to rent the unit out. One thing to keep in mind is that rental rates are similar no matter where you’re located so buying in fringe areas allows for similar rental income and allows for further equity growth as the neighbourhood gentrifies.
Best Time to Purchase
If you’re buying a new unit, the best time to make the purchase is when the units are first offered for sale although you will be buying at today’s prices… there’s no price incentive for buying before a building is built other than you’ll “get in” before there is further market price growth. Another advantage is also you’ll have to put less money down initially… and by the time the condo is ready for occupancy, you will already have some equity; or at least that’s the hope.
Having a good Realtor on your side is important. We can help you find the most reliable developer, show you how to read a floor plan and help protect you from unexpected costs between closing (you really have to read the fine print in a contract!).
If you have any questions about investing in real estate or navigating Toronto’s real estate market, please get in touch with me!