Toronto Income Property Newsletter: April 2016

As we head into the Toronto spring market I’d like to take this opportunity to thank all of our clients and friends who have supported Plex Realty over these past few years. The real estate space has gotten really crowded, as many more people are getting their real estate license, lured in by hopes of making a little extra money from this hot market. The number of agents has almost doubled over the past ten years. Think about it. How many realtors do you know?

We would not be able to survive if we didn’t have the continued support of many of our past clients. We rely on you to help spread the word about our services. I have been diligently writing this newsletter every month for over a decade and I really appreciate all the feedback and kind words that I regularly receive. It is greatly appreciated.

Go Raptors (50 wins and counting). Go Blue Jays (new season starts this weekend). Go Leafs? Well, 2 out of 3 isn’t bad.

– P.A.

Are Rents Finally Starting to Go Up?

Over these past few years we have seen a sharp increase in the price of investment real estate in downtown Toronto. When the prices go up but the rents basically stay the same, then the returns start to diminish. The rents for one and two bedroom apartments have not increased proportionately with the high sale price increases that we have been experiencing. But is this finally starting to change?

Rental rates for one and two bedroom apartments have by and large been consistent over the last few years. A one bedroom apartment in a house or duplex would likely fall in the $1200 to $1400 range – perhaps a bit more for a relatively recent built condo. I’ve noticed a slight bump in those numbers as properties become harder and harder to buy. It used to be difficult to get over $1000 for a basement apartment, but now $1200+ basement apartments are commonplace. It is hard to put an exact percentage on the increase, but for sure rents are starting to increase.

Over the past few years, purchasing a property with a 4% cap rate has been normal. Now with rents starting to trend upward, we should see those cap rates rise in line with the increases in rental income. We might not get back to the five plus days, but at least things are heading in the right direction for investors.

A landlord may only raise an existing tenant’s rent each year by the allowable amount set by the Ontario government. On new rentals though, the landlord can set the rent at whatever the market will bear. Even though there are a lot of condos that are available for rent, it still appears that overall rental rates are higher than what they were a few years ago.

Do Income Properties Still Make Sense?

The prices of investment properties have gone up quite a bit in the last couple of years. It is getting difficult to buy turn-key duplexes and triplexes downtown for under a million dollars. Given these high prices does it still makes fiscal sense to buy an income property?

If you intend to live in it, the answer is a resounding yes. It might more sense, now than ever, to help defray your living costs. If you intend to buy a building as an investment it still may make sense. You just have to evaluate the real estate against other viable investment alternatives.

There is the opportunity for capital appreciation over the long term. It is hard to say how much your property will increase in value, but we have all seen how kind this city has been to property owners over the past few years.

An income property also allows you to have a consistent, reliable cash flow. Many landlords enjoy the steady rental stream that an income property provides. Unlike many other investments where the returns fluctuate, you can plan and budget yourself accordingly with a rental property.

This is Not an April Fools Joke

Starting today it will now cost an additional $75 + HST to buy a house in Toronto. There is now a handling fee to administer the municipal land transfer tax – the only one of its kind in Canada. This $75 used to be paid by the city to the land titles office but now it is being passed on to the consumer. I suppose the prices of real estate in Toronto weren’t quite high enough, with the market being the way it is, and the extra land transfer tax and all, the city had to do something.