Are carrying costs in Toronto condos too high to make high ROIs?

The cost of investing in Toronto is rising and some investors are beginning to look elsewhere, but are ROIs in Canada’s largest city really that paltry?

Brad Lamb, owner of Brad J. Lamb Realty Inc. and Lamb Development Corp., says Toronto condo investments proffer diminishing returns.

“It’s getting harder and harder in places like Toronto and Vancouver to buy a home, like a condo, and rent it and have it make any sense as an investment because you’re paying $1,000 per square foot,” he said. “You’re paying $500,000 for a one-bedroom condo apartment that’s 500 square feet and you’re going to rent it for $2,000 a month, but when you add up your mortgage, your condo fees and taxes, it doesn’t cover it.”

Lamb says Hamilton is becoming increasingly attractive to investors.

“Toronto’s real estate unaffordability shines a nice light on Hamilton, so investors are looking at alternate places to invest and prospective homeowners are looking for other places to live, where they can have a decent life in a nice home,” said Lamb.

However, Akshay Dev, a sales agent with REMAX Realty One disagrees with that assessment. Not only do Toronto condominiums appreciate faster than Hamilton’s, they can still be had on the cheap when compared to other international cities.

“You have to look at the appreciation of what you’re getting in Toronto,” said Dev. “You don’t get as much appreciation in Montreal or Hamilton. Toronto’s appreciation is far higher; it’s a bigger city and the population and demand are higher. From an investment point of view, when somebody buys a condo, they’re not putting 100% down, they’re putting 20%, which is one-fifth of the condo’s value, but they’re enjoying 100% of the condo’s appreciation.”

Dev also says condominium investment in downtown Toronto, mid-town, the Yonge and Bloor area, and around the University of Toronto yield high ROIs.
However, he personally refrains from investing in condos east of Church St.

While the most obvious reason for a high return on a downtown condo investment is amenity access, Dev says that purchasing units higher up in a building—which are more expensive—make investors more money in the long run.

“A lot of people try to keep their price in check, so they want to go for lower floors, but I believe in the opposite,” he said. “Take a higher floor and pay the premium. The reason I say that is the occupation fee.”

Units on lower levels are move-in ready the earliest, but because a building cannot be registered until it’s complete, which is also when mortgages kick in, the builder charges an occupancy fee. Dev likens the fee to paying the builder rent.

“As time goes by, your chance of possession on higher floors will be a lot later and closer to final occupancy,” he said. “It’s better to pay the premium—which is the better view and better resale value—and have the value of not paying an occupancy fee added to the condo for when you want to sell it. You’ll make more money.”

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