Small landlords face tough new competitors

Investors in Toronto and Vancouver are seeing increased competition from developers who are setting their sights on building rental units, and one expert is warning that investors will need to pay more attention to where and what they're buying.

“Change is coming and investors can’t overpay and expect to rent condo units for whatever they want, which is what they’ve been doing for years,” Paul, D’Abruzzo, a Toronto-area real estate agent and investor known as The CashFlow Engineer, told CREW.

According to information from condo research firm Urbanation, there are eight rental buildings currently under construction and 37 more proposed in the Toronto area alone, containing a total of more than 11,000 units. That’s a nearly 75 per cent increase over what has been developed over the past decade. In Vancouver, more than 1,000 dedicated rental units have been constructed each year over the past few years, according to data from the city.

D’Abruzzo says he was discussing this very topic recently at the Toronto Investor Forum.

“I said that research from 2014 showed a huge spike – about 50 per cent – in purpose-built rentals and that it was a brand new trend. From the 1970s until recently there had been next to nothing in purpose-built rentals.”

According to D’Abruzzo, the demand for rental housing was always there, but that “without even knowing it, condo developers had been filling rental demand.”

But now, he says, with prices being so high, the market has turned to where rental prices have gone high enough that it makes sense for developers not to sell the units, but keep them and the resulting cash flow.

“For the first time in decades, developers in some markets are going to make more money renting than they are selling,” says D’Abruzzo.

For investors it means more competition because developers are going to build quality rentals for people to rent long-term, “for people that cannot afford and will never be able to afford to buy in downtown Toronto.”

There will still be a market to rent condos, he says, but investors can’t “blindly buy any kind of condo and rent it for whatever they want anymore. They’re going to have to be more strategic if they’re going to continue to play in that market.”

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COMMENTS

  • by Samir Sa'd 2015-10-17 9:12:55 PM

    For investors who purchased condos to rent in the last 3-5 years are not going to get the rent they need to cover their expenses they are not going to get it. More likely they are going to subsidize it. with these new rental units coming onto the market it it go to get more difficult fot those investors. If you are counting on appreciation, I doubt this too. Condo prices are not going to appreciate in value like homes with maintenave fees keep going up more than the inflation rate as these condo building get older.

  • by Al 2016-01-07 9:37:44 PM

    Might want to proof-read your article for spelling and grammar before you post!

  • by Hans 2016-01-12 9:50:37 AM

    Rentals and real estate is a very location sensative enterprise and any comments should identify the area referred to. In my area just north of Belleville ont the appreciation on properties in the last two years is almost zero.but the rental rates for 2 and 3 bedroom homes has increased by about 10 percent . My cap rate is around 7 for these single detached 3 bedroom homes. There are a few new built rentals around with 25percent higher rents but after a short time they are trying to sell them because of frequent vacancies. I also have rentals in cape breton Nova Scotia ,3bedroom detached homes which are a lot less expensive to buy but are easy to rent out once they are completely updated and decorated. There is no noticeable appreciation but the cash flow is very good in comparison to the purchase price and rehab cost of older homes in this area.

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