The Toronto Rental Market Loses Heat But there’s Still a Way to Make a Great Condo Investment

While other areas of the real sector boom beyond belief, Toronto’s condo market isn’t exactly blazin’ hot like it was a few years ago. Having said that, the slower pace and higher vacancy rates are concentrated in a specific part of the market: 1-bedrooms, 1+1s, and small 2-bedrooms. For this reason, many investors are hesitant to purchase downtown.  

Is the Toronto Condo market really so bad?

No.

The truth is, Toronto’s condo market has been extremely strong over the last 5-10 years and now we’re seeing a bit of a correction. This market adjustment is a direct result of the changing, volatile world around us. Travel? No one is going anywhere. Immigration? It’s been halted. Kids and young adults in school? It’s all online. Restaurant-going, nightlife, trendy shopping? Everything is closed. Needless to say, the downtown core is not nearly as attractive as it once was. 

People are restricted to their homes, and so, all of a sudden that hip, studio condo in the city isn’t big enough or exciting enough. Those who once rented so they could be close to their jobs are now fleeing Toronto because they’ve either been laid off or told to work from home, which means they need more space.

But there is life after COVID. This phase won’t last.

Think it might be a good time to invest in Toronto’s condo market?

I’d say you’re absolutely right. But you must do it intelligently.

1. Purchase Occupied. 

Given the fact that the condo rental market in the city is particularly poor at the moment, side-step that potential complication entirely by purchasing a condo that already has a paying tenant residing there who has no intentions of leaving.

1. Pre-construction.

Even though there hasn’t been a significant drop in price, the pre-construction condo market is still a sound investment for the following reasons: low initial capital outlay requirements stretched timelines for deposits, and an opportunity to let the construction take place over the next few years (while hopefully the market simultaneously rebounds).

Relatively speaking, there is no question that the resale condo market offers less expensive pricing than the pre construction market. But the latter requires less from you at the present time. In the end, it all comes down to your personal investment preferences.

Putting your best foot forward

My professional advice at this specific point in time? 

Buy resale with a tenant in place.

If you choose to go this route, here are some best practices to abide by:

1. Review a copy of the existing lease agreement to make sure there’s nothing unusual in the lease. 
2. Do your due diligence on the tenant (i.e. request a copy of the current tenant’s credentials including job info, income, credit history, references, etc.)
3. Sometimes tenants prepay their rent – in this situation, ensure all deposits and prepayments are transferred to you as the new owner.
4. Finally, I suggest going the extra mile. Send a friendly memo to the tenant introducing yourself or your investment company as the new owner so you begin the new relationship in a candid manner. (Sometimes tenants feel uneasy when there are ownership changes.)

The Toronto condo market isn’t in a horribly awful situation – you just need to know the best ways to invest in light of the facts. 

Good luck!