Toronto Income Property Newsletter: Fall 2023

Uncertainty. That’s what we are faced with heading into the Toronto real estate market this fall. By and large the number of sales has slowed up since July, but is that because of the traditional summertime slowdown? Or, have these many interest rate increases finally put a halt to people spending indiscriminately on Toronto houses?  It seemed earlier this year that the market was poised to withstand these higher costs, but it looks like we now might be hitting a wall.  It feels like we may be heading towards a situation where buyers are finally no longer at the mercy of Toronto sellers.

The largest problem is monthly affordability.  With income properties, going from around a 2% to 6% interest rate over the past year is forcing people with mortgages to pay a whole lot more each month.  Cap rates are taking a back seat to monthly affordability which is becoming a big issue for buyers. It doesn’t matter how much rental offset there is if the buyer must top off his monthly payment every month. If you live in a duplex or triplex and you have to pay way more than the market rent for the suite that you will occupy, then that is a problem.  Sellers of these properties will have to readjust their expectations. It is not 2019 anymore and it is not going to be like that again for some time to come.

There are a lot of financial considerations to buying an investment property and most real estate agents have been trained to get their clients to pay whatever, just to be able to get into the market.  They are going to have to get a little savvier with their financial analyses now, so that they can properly educate their clients as to what is really going on. Sellers will need to get back into the real world with their price expectations, or they will end up sitting on the market for quite some time. Oh, and gone are the days where you list a property for sale with the expectation that you’ll see hundreds of thousands more.

I have over twenty years of experience selling income properties in Toronto, so I’m happy to talk to anyone about the financial implications of buying investment real estate in Toronto. The time is reverting to where you need to actually know something about income property math to properly represent your clients. This has been sorely lacking in our business over the past decade, but I’m glad we are finally getting back to a more even situation for buyers and sellers in the marketplace.

– P.A.

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