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Condo cap rates fall below 4%

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Guest | 05 Nov 2012, 04:25 PM Agree 0

An analyst with Veritas Investment Research in Toronto arrived at the figure after comparing 84 condos for sale in the GTA and Vancouver with their rental-unit equivalents. That 4-per-cent cap rate represents what buyers looking to rent their properties can win in terms of annual returns on their investments, said Ohad Lederer.
That kind of return is about half of the 7 per cent to 8 per cent many investors look for in a condo investment. It also challenges conventional thinking about the profitability of Canada’s most buoyant condo market, which relies on a robust rental demand that outweighs supply.
The fear is a value correction in condos could further challenge profitability for that segment of property investment, say analysts, pointing to as much as a 15 per cent drop in condo prices over the next 24 months.
Condo investor have already started to pull back from a two-year buying frenzy, with sales by property investors falling between 30 per cent to 40 per cent this year, according to another industry report.
“Things have definitely slowed,” Ben Myers, executive VP of Urbanation, said last week. “I do anticipate that pricing is going to be fairly flat in both the new and resale condo market for six or seven months. After that, it becomes a little hard to predict what will happen.”
  • RC | 07 Nov 2012, 04:18 PM Agree 0
    The analyst should compare condos that have sold and not that are listed. Toronto has had cap rates around 4% for the past 10 years and they are creeping up 4-5% now if you know what to look for.
  • Aldo9226 | 11 Nov 2012, 04:47 AM Agree 0
    I you do a proper analysis using rental income, property taxes, insurance, management, CAM fees, repairs & maintenance, the CAP rate is actually 2% or less !
  • Will Lenssen | 28 Dec 2012, 07:11 AM Agree 0
    Guelph is strong and with a reduced amount of inventory for the required Buyers, we should remain that way even in the codo market. Condos and townhomes are going fast here.
  • OliverInvestments | 08 Jan 2013, 05:33 AM Agree 0
    Condos are GREAT INVESTMENTS when it comes to ease of property management since almost everything is taken care of by the Condo Board. In addition, it is very easy to find tenants as a lot of younger people with great jobs opt for the condominium lifestyle. In addition, the exit strategies for condos are a lot easier than most other niches in Real Estate.

    However, when it comes to Cashflow and total increase in price, there are better choices when it comes to deciding where to put your money in real estate.

    As a rule of thumb, for my portfolio for myself and my JV partners, every $320K-$350K will need to yield around $400 POSITIVE cashflow. It's not impossible and a bit tricky at times, but as long as you do your due diligence, you CAN make it work!




    Oliver Investments:

    Sell Your Home Quickly:
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