Much has been said about the vacancy rate in the Toronto condo market. Currently, on MLS, there are 600 properties for rent (condos freehold) in the entire central area of Toronto (bordered by south of the 401, DVP, Dufferin, and the lake).
This is a vast area with a vacancy rate less than 1%. I have heard from various self-proclaimed real estate investment experts, like Don Campbell, that believe the future is dire for Toronto condo landlords. According to him and a few others, we are saturating Toronto with condos and we will oversupply the market by late 2012, early 2013. Who is this guy? I think he is the same guy advocating buying in Hamilton, but he is no expert in Toronto condos. Be very careful who, and what, you believe.
Here is what I believe:
- The facts are indisputable. The vacancy rate in Central Toronto is less that 1% for condominiums.
- 1% is considered too low, or unbalanced, which bodes well for landlords.
- Central Toronto condos carry for rent – example below.
450 SF Junior 1 Bedroom
- Purchased at $550 per square foot: $247,500
- With 25% down: $61,875 (equity)
- With 75% borrowed: $185,625 (mortgage)
- Mortgage Costs: $928 per month (3.5% 25 yr amortization)
- Condo fees: $225 per month
- Taxes: $200 per month
- TOTAL MONTHLY COST: $1350
- Market rent: $1350-1395 per month
This is based on buying a new condo today, downtown, and closing in 3 years. Rents are based on today’s rent; it is likely that rents will rise 2-3% per year. You will pay off over $2500 in principle in your first year of ownership. The return on investment from rent 5%. Toronto is one of the few large western cities where you can do this.
- Growing cities need new rental apartment housing. Toronto (GTA) needs 10-15,000 rental units of free market rentals just to keep pace with the demand. Rental apartment construction in virtually non-existent in Central Toronto.
- The condo market has replaced the rental apartment market and over half of the 15,000-20,000 condos delivered in 2010, 2011, and next year will essentially be owned by apartment investors renting to tenants. This is a necessary development for any modern growing city.
- The existing rental apartment stock is horrible. It is dated, falling apart, and needs to be upgraded. Apartment tenants love moving into condo rentals. Everything is new. The typical apartment rental is 40 years old.
This year, I personally bought and closed on 32 condo units and I rented every last unit for an average of 99% of my asking rent. Each unit was leased within 30 days of receiving the keys; most were rented in less than a week. Keep in mind that when a new building is complete, dozens of vacant units are for lease.
There is no evidence that we will have a rental problem in the condo market. If anything, more young people will take themselves out of the buying market because of affordability issues. They will have to enter the rental market instead.
The limiting factor will not be demand for rentals, it will be our inability to build all the units in a timely basis. While 37,000 apartments may be under construction, it takes 2 full years to complete them, which means 16,500 units will be delivered in 2012. Big deal.