In recent years, there has been an abundance of options to invest in Toronto real estate. You will most likely be spoilt for choice, which is an issue I’ve observed lots of investors deal with.
You may be wondering, “What’s the right investment option for me?” “Is a condo a good investment in Toronto?”
There’s really no simple answer that’s enough for these questions. I’ll leave the first case for another day. Today, let’s talk about condos.
To answer your question simply, yes. Condos remain a good investment in this city. But that will depend on a number of things; basically, the factors you will want to bear in mind before going ahead to pour your cash into this investment.
I’ll be letting you in on each shortly. For now, let’s see why condos are a treasured investment in Toronto.
In Toronto, each year sees another rise in condo prices. The historical average condo appreciation rate has been 4-5% per year. Large gains have been made by those who’ve tapped into this potential. And if you look keenly at the local data, you’ll notice that some areas have recorded better performance than others.
Data shared by the Canada Mortgage and Housing Corporation (CMHC) shows that vacancy rates have also been low in Toronto. More recent data indicates that rent prices have been rising steadily, and competition for great property(s) by home buyers has been a healthy one. All these reasons are part of why investors have been buying condo units in Toronto as rental properties.
That aside, Toronto is on its way to joining the likes of San Francisco, London, Paris, New York, and other bigger cities. At the moment, property values here are still way below that seen in these other cities, but looking at the consistency in the market’s growth rate, each coming year is most likely going to record higher prices than what you see now.
Downtown Toronto has recorded some of the best growth rates. Upwards of 19% in a span of two years is no longer uncommon in this area.
That means the best time to secure that condo was yesterday because tomorrow, you may pay more and lose a chance to make a return.
Now, let’s go back to the factors you will want to pay attention to before going ahead with this investment.
Do The Math
Go ahead and assess each potential condo property individually. Focus on the cash flow, which is the amount you’ll generate after deducting all the operating expenses. If the income is more than the expenses, that means your cash flow is positive.
If the value is negative, that doesn’t directly translate to bad property. Assess other aspects of it, like the potential of the property’s value to increase enough to cover the expenses. Some people increase the rent or perform other improvements to raise the value of the property.
Don’t forget to look at the capitalization rate as well as the return on investment. Cap rate is what most investors use to compare the profitability of different properties. Generally, a higher cap rate means the property can generate more returns and vice versa.
Here’s how to calculate it:
Cap rate = Net operating income/Initial capital investment X 100%
Both of these metrics will help you properly answer the question, “Is buying a condo a good investment in Toronto?”
Understand the Different Condo Choices
Toronto condos comprise not just high-rise buildings but also townhouses, detached houses, and even duplexes. Regardless of the type of building, you have three options to choose from:
- New condo – purchased directly from a developer
- Resale condo – Purchased from an existing owner
- Conversion condo – Renovated for residential use
Each definitely has its own special attributes and will attract a different price. For example, some investors prefer to purchase the condo while it’s in the pre-construction phase so that they get the best choice of available units at the best price.
I would suggest that you speak to an investment consultant to fully understand the ins and outs of each option.
What’s Your Target Market?
The ideal buyer you have in mind should guide you in choosing a property that’s more likely to be attractive to them. For example, if you want to target luxury buyers, look for a property that is made with superior building materials and completed with high-end finishes.
Young professionals would be attracted to a one-bedroom unit in downtown Toronto complete with convenient amenities such as yoga or exercise space. If you are targeting people with families, then multiple-bedroom condos with enough storage space and near decent schools would be an attraction to them.
The Location Matters
Is a condo a good investment in Toronto? The answer to this question partly depends on the location. To be on the safer side, it would be better to buy your condo unit in a neighbourhood that people want to live in and have room for the property value to grow. Areas that are without restaurants, cafes, schools, businesses, shopping districts, TTC services, and other conveniences are more likely to not perform well.
Earlier on, I said yes to the question, “Is a condo a good investment in Toronto?” You clearly see why. Whether you are an existing homeowner, first-time buyer, retiree, or investor, you can never go wrong with a condo. Generally, they are a hot commodity in Toronto’s real estate market. Statistics and predictions all suggest that condos in Toronto are destined to be profitable assets in the near future.
Your only challenge is making sure that you have narrowed it down to one that has more potential to turn out to be a great investment. With the help of an experienced property management company, you can make this happen.