Where Are The Best Condo Real Estate Investment Opportunities Right Now In Toronto?
Even though we are big proponents for Toronto freeholds with the best cash flows and long term returns, condos do have a lower entry price and may have some short term benefits as condo prices rebound from COVID.
Now even if you are looking to invest in condos in Toronto, there’s still a lot of options out there. Of course there’s condos downtown, but there’s also condos in North York, condos in Etobicoke and condos all the way to Scarborough. If you are looking to invest in condos in Toronto, listen up. In this video, let’s take a deeper look at how condo investments do in these four areas. After our analysis, we will reveal where the best real estate investing opportunities might be from this point on.
When it comes to real estate investing, the best investment is the one that offers the highest combined returns from rental income and appreciation. Now even though it is most important to look at long term returns – in today’s condo market, short term returns might make a big difference too because COVID created some pretty big price drops in Toronto condos. And so you might be able to capture a good short term bump in prices when you choose the right condos, which is especially important if have a shorter investment horizon or if you’re looking to refinance your property to grow your portfolio quickly.
Let’s start our Toronto condo analysis by comparing rental income first. When you are look at rents, you’ll see that even though rents are cheaper the further you are away from the core, in reality, rents don’t vary all that much across the city compared to property prices. In Q1 of 2020 (ie. before COVID), average one bedroom rents were cheapest in Scarborough just shy of $2000 (an 8% discount) and one bedroom rents were most expensive downtown at $2300 (a 7% premium).
Now during the same period, Scarborough condo prices were 22% less than average Toronto condos and downtown condos costed 20% more than average. Where I am getting at here is to arrive at rent yields which is the most objective way to compare rental income, where you stack rents against property prices. Based on rent yields, you’ll find that the long term better performers are further from downtown, and here is what gross rent yields looked like right before COVID:
- Downtown 3.4%
- North York 3.6%
- Etobicoke 4.1%
- Scarborough 4.4%
Now enter COVID. With COVID creating more confusion in the rental market, condo rents closest to downtown continued to get crushed because office renters and university students left and as of the end of Q2 of 2021, downtown rents have dropped the most compared to the rest of the city.
COVID Condo Rents Q2 2021 vs. Q1 2020
- Downtown -17%
- North York -14%
- Etobicoke -8%
- Scarborough -10%
The positive note here is that even though downtown rents are still down, we see that they have already bottomed out and on the way up and it’s still very likely that you will get a bigger bump in rental income in the short term because there’s still lots of recovery room. Having said that you have to keep in mind as well that you will get the lowest rent yields downtown in the long run.
Let’s not stop here because rent yields don’t give us the full picture. The reality is that appreciation gives the bigger impact in terms of returns, and that might influence how things look like as a whole.
Now out of the four areas from 2010 to 2020 pre-COVID, Etobicoke saw the lowest annual appreciation at 5.2% per year. In Etobicoke, there is the Kipling subway station and Go Train stations, but it’s generally more suburban compared to downtown or even North York – basically, you still need a car to really get around quickly. And besides condos being built up, there’s not many other major developments, so these things are reflected in its lower 10 year appreciation.
Next in the ranks of appreciation is North York, which had a higher bump in annual appreciation of 7.5%. North York is considerably more mature, more central and more accessible compared to Etobicoke – you can more easily get around via the subway – with the Yonge subway line going all the way up to Finch station and the Sheppard line cutting across a big part of North York.
One step higher in appreciation is downtown Toronto, where annual appreciation was at 7.7% per year. Of course, downtown Toronto has the most mature and stable real estate market and the best walk and transit scores. It’s the heart of our city and you can definitely count on seeing new private and public developments happening all the time.
But the best performer in the past 10 years wasn’t downtown. Instead, it was Scarborough seeing 7.9% annual appreciation. Just like Etobicoke, you probably need a car to get around Scarborough, but having said that, in 2010 its prices where at a 30% discount in compared to average condo prices in Toronto. And if you compare this to Etobicoke condos were which was a 9% premium, more people started thinking that the discount was worth it.
This much lower entry price in Scarborough is also what attracted a lot more renewed interest in developing the area, like the LRT East plans that stretch to U of T Scarborough and Malvern Town Centre, and then builders and investors followed. Now the LRT East plans have been postponed and much of the Scarborough growth has already been priced in going from a 30% discount to now just a 18% discount, so I wouldn’t count on Scarborough seeing the same high rates of appreciation moving forward.
If Scarborough slows back down to similar rates of appreciation that Etobicoke has been seeing, then downtown Toronto will likely be the highest long term appreciation performer.
If you want to take your search one step further, focus on downtown pockets with upcoming private and public developments. Think new masterplan communities or public transit growth plans close to the south relief line or the proposed waterfront transit line – these parts will give you the highest growth potential and appreciation in the medium term.
Where Are The Best Condo Total Returns?
Now it’s time to put everything together. When you combine rent yields with appreciation projections, North York and downtown do have the highest long term total returns. Once you factor in the short term advantages when things rebound more downtown, downtown Toronto condos will become the clear winner.
How We Can Help
As we speak we’re seeing slower real estate activity with people taking advantage of summer, but expect the real estate sales momentum to kick back in for a much busier fall season. So if you are thinking of entering the condo market, remember to get your mortgage preapprovals done and get in touch with our Elevate sales team now.
We can help you start getting everything organized, learn more about your requirements so we’ll be able to help you buy the best real estate investment that fits your needs. Our team also provides leasing and property management if you need it, so just connect with us if you want to learn more about our services!
Do You Want Help With Real Estate Investing In Toronto?
We’d be happy to learn more about your situation and help you find the best investment opportunities for you.