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January 22, 2016

THE ADVANTAGE OF BEING A LONG-TERM REAL ESTATE INVESTOR

A wise statement reads: Don’t wait to buy real estate, buy real estate and wait. The Greater Toronto Area (GTA) residential housing market has experienced a tremendous bull run from the late 1990s until today – folks that have been sitting on the sidelines waiting for a market correction have missed out on significant house price appreciation. A new single-detached house sold for $286,000 on average in the Toronto Area in 1998, the average price during the month of October 2015 was $1.03 million, an increase of 261% in 17 years or about 15% a year!

Investing in single-detached housing to rent out is difficult given the hefty deposit required, the high rents required to ensure positive cash flow, and a smaller population of potential tenants that can afford that hefty price. However, the high level of appreciation in the single-detached housing market, has forced many buyers and renters to look for more affordable housing options, the most common being townhouses and condominium apartments.

Demand for townhouses and condominiums in the GTA has never been stronger, especially new units, which feature the latest modern interior finishes, desirable common amenities, and come with a warranty. There were 722 new townhouses sold in GTA in October (per RealNet Canada Inc), a 6% annual increase and 3,185 condominium apartments, a 45% year-over-year increase! Many of these units are being purchased by investors to rent out. The GTA continues to set record for the number of condominiums leased nearly every quarter, while rental rates and resale rates have continued to appreciate. Investors continue to view GTA real estate as a place to invest going forward.

When looking at the location of your next investment purchase, look for at least two of these attributes:

  • Mass transit – the project should be close to public transit (a subway or Go Train preferred) or a major highway. Shorter and easier commutes are very popular with tenants.
  • Access to jobs – the development should be close to major employment, with a specific focus on brand new buildings with younger employees that have a higher propensity to rent, ie a new office or hospital. Great access to potential tenants reduces your chance at a having occupancies and increases the chance of tenant competition, which drives up rental rates.
  • Undersupplied markets – it is much easier to find tenants when you don’t have a lot of competition. Look for underserved areas in potentially high-demand areas. Young tenants want to be close to friends and family and desire cool modern residences in established neighourhoods.

Once you’ve decided on a location, there are a lot of other metrics to consider. Here is a partial check list:

  • What is the price and down payment required?
  • When is occupancy, and what are the expected closing costs?
  • Calculate your monthly carrying cost, don’t forget the monthly maintenance, taxes and utilities.
  • What rental rates should I expect?

It is extremely important to surround yourself with capable and knowledgeable people to help you with your purchase, talk to a mortgage broker, a real estate agent that specializes in new home communities, and consider getting your unit professionally managed. Compare the above metrics across projects, and ask a lot of questions.

Lastly, it is extremely important to take a long-term perspective when investing in real estate, don’t take the additional risks associated with being a ‘flipper’. Make sure you can afford the down payment, ensure that you can survive a month or two of vacancy and the occasional maintenance and upgrades on your investment property, and ask for references when considering tenants.

Thousands of Canadians are choosing to diversity their investment portfolio within GTA real estate, given the stability and lack of volatility over the past 15 years. It is definitely worth a closer look.

Good luck.

Ben has 15 years of real estate research experience in Canada and the United States. He typically focuses on micro and macro level residential market and demand studies. He assesses site specific deals from a revenue perspective on behalf of Fortress Real Developments, where he is the Senior Vice President of Market Research and Analysis. Ben is an in demand speaker and panelist, appearing at events hosted by BILD, OHBA, ULI & CityAge.

Thank you Ben Myers for your insightful and educational blog post. We are so honoured to have you as our first guest blogger!

Keep an eye out for more guest blogs coming up in the near future.

In the meantime, don`t forget to check out Stationwest, Nautique and Link to find the perfect Adi community for you and your family.

We have a lot on the go and even more coming up…stay tuned.

– Adi Development Group