Happy New Year everyone. I’d like to wish you and your family and friends a very safe and prosperous 2019. As we head into this new year, purchasing property in the downtown Toronto real estate market and income properties will continue to be challenging. Last year saw many sale prices that offered only negligible returns. It seems just successfully acquiring these buildings (sometimes at any cost), was the goal in and of itself. It would also appear that cap rates and ROI have taken a backseat to just owning an income property in a prime location.
I have always advocated that there should be some sort of perceptible return if you are buying an investment property. Some buyers are putting 40 or 50% down so that the rents cover all the expenses. The yearly cap rate may be low but over the long term a lot of future equity is paid for by the tenants. If you have the cash just sitting, then yes this would be a very prudent move to have your money work better for you. There is also the very real potential for capital appreciation down the road. I like to see positive cash flow with a 20% deposit, but I understand that the market is just too active to keep this expectation alive. If you can put a large enough deposit down so that you don’t have to feed the property cash each month, then this is how we justify moving forward in this marketplace.
This Month’s Featured Article
2018 Residential Income Property Sales Wrap-up
Prices up, Sales down of income properties in the GTA for 2018.
Sales of duplexes, triplexes and multiplexes dropped last year. Overall sales in the Toronto region fell 16 per cent to 77,426 transactions in 2018 while the average price fell 4.3 per cent to $787,300, according to the Toronto Real Estate Board.
“Higher borrowing costs coupled with the new mortgage stress test certainly prompted some households to temporarily move to the sidelines to reassess their housing options,” stated Garry Bhaura, president of the Toronto Real Estate Board. The year got off to a slower start and over the course of the next twelve months, we saw the lowest numbers since 2008.
Here’s some income property (3+ kitchens) statistics taken from TREB MLS from last year:
Number of sales: 47
Average Sale Price: $1,831,479
Average Days on Market: 28
High Park/ Bloor West Village (W01, W02)
Number of sales: 48
Average Sale Price: $1,473,927
Average Days on Market: 30
East (Riverdale, Leslieville, Beaches) (E01, E02, E03)
Number of sales: 39
Average Sale Price: $1,506,003
Average Days on Market: 30
Midtown (C03, C04, C10)
Number of sales: 23
Average Sale Price: $1,601,839
Average Days on Market: 24
Just based on the average of these sales in this section of the GTA, the average sale price for an income property is now over $1.6M. While rents have increased, they still do not support these price levels based on net returns. That’s why many buyers are putting down larger deposits and considering future debt reduction as the investment value.