When we think about stable rental income, it’s clear that not all areas are the same and going one step beyond that, the risks by area is also not the same.
What got us really interested in digging more is when we noticed big differences Canada and Ontario’s employment numbers. As of the latest numbers, it turns out Ontario is more diverse than Canada as a whole.
Now, diversity is important, but it might also help to choose rental areas with more “recession resistant” jobs and this won’t be clear if we just look at Ontario or even Toronto as a whole.
Toronto is still a mix of a lot of different areas, but, if we zoom in on specific neighbourhoods, we’ll see a clearer picture of which areas might be better to focus on and that’s what we’ll be revealing in this video today.
Vacancy Rate & Non-Payment Risk
When it comes to comparing rental income, investors like to look at something called the cap rate, which is a fancy way of comparing the annual net operating income (NOI) divided by the property’s market value.
Different investors calculate this in different ways, which may or may not include vacancy rate and will most probably not include tenant non-payment risk.
In Toronto, the vacancy rate is usually around 1%. This means that rental units are rarely empty and so excluding vacancy rate has generally been okay – with some exceptions.
During the pandemic, residents left the core and vacancies did come up, especially in Toronto condos. And now, if we hit a recession, more job layoffs might also bump up vacancy rates.
And then there’s the risk of non-payment, and there’s a higher chance of this if a tenant’s income is slashed so if you want to reduce this risk, choosing jobs that are more stable in tough times will definitely help to lower this risk.
Jobs That Lower These Risks
So, what might these jobs be? Well, healthcare jobs (like nurses) and government-funded jobs (think public administration or education) are always going to be most stable.
Construction-related jobs in Toronto, with our focus on building more homes fast, have also become less risky in recent years. Then jobs that are always needed, like cleaning or admin jobs, also fall into a more stable category if we see a recession.
On the flip side, jobs in finance, retail, sales, and tourism become riskier during economic downturns with more business cutbacks, layoffs, and reduced spending in a recession. To play it safe, you might want to choose areas with a lower concentration of these types of jobs.
Rankings By Area
Lucky for you, the hard part is done with compiling all of this data and here’s how different neighbourhoods in Toronto rank based on highest to lowest rental stability.
At the bottom of this list, Downtown Toronto is probably at the highest risk due to its heavy renter concentration in finance, culture, and retail sectors. This kind of surprised us with many part of Scarborough being high risk as well and that’s because of it’s higher-than-average concentration fo sales and service jobs.
In the middle of the list, popular middle class end-user areas like Etobicoke, North York, or the beaches, look stronger because there’ more job diversity overall, which makes them lower risk during a recession – but realistically, these aren’t typical rental hot posts.
And so it turns out, at the top of this list, midtown rentals end up probably the best choice if you’re looking for more stable rental income during a recession. There’s a good higher concentration of healthcare and government workers in these areas and there’s also a good diversity of jobs too.
Adding to that, rents are typically at least a touch lower than downtown, which makes for better rent to income ratios too – so if you’re looking to cut down on rental risks, you might want to place your focus here.
How We Can Help
When it comes down to it, stable rental income is important, but it’s also important not to forget about things like rent growth potential, appreciation potential and development possibilities too.
Having an expert to guide you through all of this will get you better results faster … that’s what our team is here for!