It’s Good to be a Landlord Right Now

[Renters are lining up to pay $2700/month for a view like this.]

Landlords and would-be landlords take note: the sky is not falling and it is not a bad time to be a landlord in this city. I’ve been watching the rental market more closely than ever these past few months and I’ve noticed some very surprising trends. Rents are going up, and going up much faster than anyone in the mainstream media (those who are trumpeting an impending market crash) would like to admit.

Here are two recent case studies that illustrate the current rental market environment:

1. Some clients of mine who are currently living and working in the U.K. but want to move back to Toronto in a year bought a 2 bedroom semi in Cabbagetown for around $600K. Their plan is to keep their foot in the Toronto real estate market and when they move back, renovate and move into the property. When they took possession of the property, they inherited the tenants who were paying $1900/month. The tenants are set to move out next month. They advertised the property for rent and after the first two showings they had two offers to rent from highly qualified and professional tenants. They ended up taking slightly less than they could have in order to get the tenants they wanted. The property will be rented at $2450/month with the tenant paying the gas and hydro bills. That’s an increase of 28% in rent from the previous tenant! The owners are enjoying break even cash flow with just 20% down.
2. New condo buildings are especially interesting. They are commanding rents never imagined just a year ago. For example, at M5V (375 King), you can get a great example of how rents have been creeping up significantly over just the last few months! If you take the example of a 852 sq ft 2 bedroom unit with parking, they were renting out for $2500 in October, $2600 in November, and $2700 in December! An astonishing increase of 8% in less than 3 months. $2700/month works out to $3.16 per square foot. The $3PSF barrier was until recently usually reserved for Yorkville properties and a few other select buildings downtown only. A studio just rented out at M5V for $1500/month and it was only on the market for 2 days! Prime downtown studios were fetching a max of about $1300/month just a year ago.

The point of this post is to illustrate anecdotally that rents are going up and going up fast for downtown properties, especially condos in brand new buildings on high floors. This is food for thought to the crowd that says the prices like $650-$700 per square foot for pre-construction condos are completely unsustainable because they will never carry themselves with 20-25% down. Three or four years from now do you think rents will be higher or lower than they are today?

If you are ready to take the plunge and become a landlord, or if you are a landlord but would like to learn about how you can maximize your returns in the current market, please contact me.