Toronto Income Property Newsletter: August 2009

Wow. Has it ever been busy out there! When the June numbers came out we all breathed a collective sigh of relief. Up 18%, the market seems to clearly have rebounded from where we were a year ago. The reason: interest rates. When the buyers realized that prices in fact were not falling from the sky, low borrowing costs make purchasing real estate a sure bet. And with income properties, doubly so. Lock in for five years at three point something, get a longer amortization and let your tenants do the rest. Cap rates in the 5 to 6 range continue to be the norm and as such, most of the quality duplex and triplexes are being snapped up very quickly. I suspect that this will continue into September and we will have a robust fall market.

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The low vacancy rate in our city has been one of the main reasons why duplexes and triplexes continue to be in high demand. Landlords with three or four unit buildings continue to take advantage of the strong rental market. In the many years that I have been buying and selling these properties, the attractive rental rate has always been the main rationale.

In Toronto, condominium rentals are at the lowest vacancy rate in seven years, according to the Canada Mortgage and Housing Corporation. Meanwhile, new condo units are continuing completion, but the tightening market has pushed the average condo rental rate up 1.8 percent for a 2-bedroom unit.

Even with dropping housing prices, first-time buyers now make up only about 40 percent of the marketplace, according to CMHC, a drop from 47 percent in 2007. “A number of factors contributed to the lower rental vacancy rate, including more moderate home ownership demand, steady in-migration, changing demographic trends and a dip in full-time jobs for young people,” states the group’s latest Rental Market Report.

While renters wait for prices to drop further, the cost of renting has still increased below the rate of growth for inflation and incomes. “The gap between the average principal and interest payment for a condominium apartment and the average rent for an apartment likely widened more for larger unit sizes,” the report says.

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One question that I often get from my clients is whether they should offer furniture in their rental suite. Generally a furnished apartment will rent for around 10 to 20% more than an unfurnished one. Most tenants have their own furniture but there are times where renters may prefer their apartment to be fully furnished. People from out of town or who are new to the city often prefer this.

Furnished rentals tend to be for shorter terms. Some renters may only need accommodation for a shorter period, so having a bed and couches and chairs is beneficial.

Executive rentals tend to come furnished as well. Some companies may only need your suite for a few weeks, so furnishing it allows you to complete with hotels and other short-term accommodation providers

How much money should you spend on furniture for your rental suite if you decide to go that route? I would say that make sure that you buy pieces of high enough quality that it compliments the suite and is appropriate for the rent that you are charging.

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