When it comes to the condo market, do you know that real estate investors in the GTA consider it “good news” just to break even?!?!?!?
According to a new study by CIBC Capital Markets and Urbanation, about half of the GTA condos completed last year were bought by rental investors. Of those investors, nearly half — 44% — were cash flow negative.
Of that number, half were short by less than $500 per month. Another 20% were short between $500 and $1,000 per month, and perhaps even more shocking is that a whopping 34.5% were in the hole for more than $1,000 per month!!!!!!
Investors also paid higher rates on their mortgages, with about half of those studied paying between 6-9%.
If that’s not enough to make you reconsider the GTA condo market as an investment opportunity, the CIBC study estimates that to cover carrying costs of units pre-sold this year, investors with a 20% down payment would need to raise the rent by 17% over the next 4 years if there were no change in mortgage rates. If mortgage rates increase by 100 basis points, rents would need to increase by 28% over the period and by 39% if rates increase by 200 basis points.
As stated by a local real estate broker, in Toronto ”you aren't going to become rich on monthly rental cash flow.”
So, in Toronto, if you’ve played your cards right, the rental income will hopefully cover your mortgage payment, your taxes and your condo fees.
Well played? We don’t think so.
One of our recent investors could not agree more.
She went from being cash flow neutral for more than 7 years on her $650,000 investment condo (4 years pre-construction and 3 years from completion to sale) to earning $2,100 USD in rental income per month within 30-60 days of closing.
How? She took $160,000 - the same amount she used to invest in the condo - to buy two single family homes in Detroit. Based on the rental income, this investor is projected to net an aggregate of $50,400 CAD over the next 24 months.
Because our investor is 2 years away from retirement, she is putting aside the rental income to purchase a third rental property out of cash flow. This will bring her monthly net rental income closer to $3,000 CAD by the time she retires. With OAS and CPP, she will have over $4,000 per month at retirement based on these numbers.
Detroit real estate not only provides cash flow but appreciation as well. Unlike the bad news stories in the GTA, Detroit was just identified by Redfin as having the third highest growth in the US at 20.6% year-over-year appreciation. For April 2018, prices continue to rise, with average sales price for single family homes up 8.7% from March 2017.
We love Detroit!