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Toronto’s rental vacancy rate sank to 1.3 per cent in 2015, and looks like it will remain low this year and into the foreseeable future as well. As demand for rental housing continues to come up against low supply, many developers and investors—small and big—are betting on the rental market as a relatively secure and profitable investment. From late 2014 to late 2015, many more condos have been rented out rather than resold, which is a marked change from 2011, when rentals and resales were almost equal. But how and why is this trend so reliable? And how can potential property investors make the most of it?
“Millennials have much less of an attraction to owning a single-family home and a car. They’ve got much more of an attraction to a lifestyle and a job,” says James McKellar, director of the Real Estate and Infrastructure program at York University’s Schulich School of Business. Being able to walk or bike to work and other amenities, living close to mass public transit lines, saving on the costs of owning and maintaining a single-family home (mortgage, taxes, repairs), and being part of a dense and lively urban community are just a few reasons why the younger generation is opting to rent rather than buy. And with 1.5 million millennials (roughly defined as people aged 15 to 34) in the GTA region alone, their decisions carry great influence over the direction of the real estate market in the city. But perhaps the most reliable indicator that renters are on the rise is the fact that buying a home in Toronto is simply out of reach for most millennials. A combination of high student debt, low incomes, and a precarious job market means that millennials simply can’t afford to buy in Toronto’s red-hot market, where the average price for a new detached home is now $1.05 million. Moreover, incomes have not risen on par with the increase in housing prices, making ownership less and less likely for the younger generation. As mortgage rates remain historically low, it’s a good time for would-be investors to think about buying an investment condo and covering ownership costs by renting the unit to tenants. Not only is the younger generation turning more and more to renting over buying, but they’re also staying in rental units for longer periods of time, thereby decreasing turnover and eliminating the costs to landlords/owners associated with finding new tenants. Moreover, as rental vacancy rates remain low and demand grows, rental prices are also increasing. According to the Toronto Real Estate Board, the average prices as of December 2015 for rental apartments and condos in the GTA are:
And rents are steadily increasing. According to Urbanation, a data and analysis organization focused on the Toronto condominium and rental apartment markets, the average rental price for a condo in the first three months of 2016 in the Greater Toronto Area was up almost 7 per cent when compared to the same time frame last year. Landlords and owners are more likely to turn a profit by renting out their units, as opposed to merely breaking even on ownership costs. Interested in buying an investment condo with the purpose of renting to tenants, but not sure where to start? Check out our DOs and DON’Ts of investing in a rental property, so you’ll know exactly what you’re getting into. And for more information, take a look at Ontario’s Residential Tenancies Act, which outlines the rights and responsibilities of both landlords and tenants. Here’s a handy guide to the Act so you can get an accurate idea of what goes in to managing a rental property.