Okay, we understand that we may have a bias, as real estate brokers… the following are our thoughts on why condos make a strong investment. You can make your own mind up:
We’ve always said that investing in Toronto real estate overall is a great choice. Toronto is the financial hub of Canada, and Canada has a well-regulated banking sector that is set up to avoid the mistakes that resulted in what happened with the United States housing market.
The Toronto condo market is particularly a great place to invest, because the appeal of condos to students, down-sizers and young professionals coupled with an extremely low vacancy rental rate (as we write this, it’s 1.4% which is ‘bidding war’ low) throughout the city has created a high demand for condo apartments.
The fact is, affordable single-family homes are sometimes out of reach for many due to their distance from the city. This makes condos extremely desirable for people who are looking for a specific standard of living in the city but aren’t ready to buy a home.
Money to be made
There is definitely money to be made by investing in condos. A typical investor can buy between four and six condos and retire with a few million dollars once the mortgages are paid off. For example, if you own five condos and rented them for about $1,600 per month, that’s $20,000 per unit, per year – totaling $100,000 annually.
Investing in real estate is uniquely attractive, because it allows you to leverage someone else’s money – the bank’s – and not only enjoy the capital appreciation on the property over the years, but also gain an income through rent paid. This is why we’d always choose to invest in real estate over stocks. Real Estate is a tangible asset that pays significant dividends (rental income). A stock price may fluctuate and even the demand for real estate will always ebb and flow, but at the end of the day, everyone needs a roof over their head… And especially in a dense and desirable city like Toronto, this is certainly not changing in the foreseeable future.
Jumping into the condo market
When investing in the condo market, there are several things to consider:
The government of Canada recently introduced several new mortgage rules, and one that affects investors is that 20 per cent must be put down for a property bought for investment purposes, as opposed to the previous five per cent. However, there is a silver lining to this new regulation. 20% down means that you have a “conventional mortgage”, rather than a “high ratio (or risky) mortgage”. What that means is that not only do you pay much less in interest to the bank, you also avoid paying mortgage insurance that you would have to pay with less than 20% down. Your cash flow is also much better with 20% down.
The real estate market across Canada and in the GTA has weathered down markets quite well, but the location you choose also helps minimize your risk. Investors who are comfortable with higher risk investments (and greater return) should consider more of Toronto’s “up and coming” areas that are being revitalized. The only risk here is that the areas do not increase in value, but I find that to be unlikely. Some examples include Leslieville and Corktown.
In addition, areas of the city that appeal to a broader demographic such as Bay Street, which is popular with a large number of occupations and more secure jobs such as bankers, lawyers, legislators, hospital workers and university staffers are better to invest in because they can better handle an economic downturn. Areas popular with blue-collar workers are more likely to suffer during an economic downturn, because those workers themselves tend to suffer the most.
If you’re hesitant, we can help you navigate these sometimes rough waters. Finding the right location, the best buildings and avoiding poor condo developments or builders are all extremely important, as this is where people can get into trouble. If you’re looking for a strong condo investment, Toronto is a great place to start.
Condo construction in the GTA is booming while the construction of single family homes is actually down – with almost half the number being built today compared to 10 years ago. Condo units sell fast, and the majority of any development is usually sold by occupancy time. The GTA also absorbs 100,000 new people into its population each year, bringing in even more competition for condos for rent and for purchase. Another important note is that condos are now, for the most part, absorbing the Toronto rental market. Development of apartment buildings is almost non-existent now and demand to live in a condo versus an older apartment building is very high.
- Paul Stavro-Beauchamp &Robert Van Rhijn