Toronto vs Waterloo Investment Properties: Which City Has the Better Investment Returns?

Toronto vs Waterloo Investment Properties: Which City Has the Better Investment Returns?

In this video, let’s compare the performance of a freehold investment property in Toronto with another one in Waterloo. Hopefully, you’ll be able to see more clearly why Toronto is the more superior investment compared to the suburbs right now.


If you ask me what make a good real estate investment, the number one thing I’d say is to choose a market that generates the best returns, with a good balance of market appreciation and rental income. But that’s not everything. Instead of just looking at market rents stacked against your property value, you should also factor in tenants and vacancy rates which might affect your actual take home rental income.

It’s because all these factors matter and that’s why we focus on investing in Toronto. Toronto is the hub for finance, tech, government, and the national headquarters for many big companies so there’s no shortage of good quality tenants and the lowest long term vacant rates. But because of these same reasons, real estate prices in Toronto have been at a premium. And so in the past, if you couldn’t afford Toronto real estate, you may end up investing in the GTA or even outside the GTA.

Now in a normal market, I’d agree that is a good idea to into the best market you can afford. Even returns might not be as good as Toronto, investment returns in the GTA or even beyond can still decent and the most important thing is that you get access to the best investment leverage, which makes real estate a superior investment compared to other opportunities. But right now, things are far from normal. The suburbs are now priced at a huge premium and in fact, urban centres like Toronto are actually priced at a slight discount, so choosing the right market will make a huge difference in the short to medium term.

I feel that it’s probably easier to understand what I’m trying to convey if we walk through an example. So in this video, let’s compare the performance of a freehold investment property in Toronto with another one in Waterloo. Hopefully, you’ll be able to see more clearly why Toronto is the more superior investment compared to the suburbs right now.


The City Of Waterloo is dubbed Silicon Valley North for good reason. It’s Canada’s tech hub and so there’s no shortage of good quality tenants and good stable appreciation. Besides working professionals, there’s also good universities too, which means the overall tenant profile is similar to Toronto and vacancies are also similar and low. Once you add in significantly lower prices pre-pandemic, the impact was two fold. First, Waterloo properties saw better rent yields and second, it was a lower barrier of entry which means more people can invest in the market.

If you look at the average prices of semis in February 2020, Waterloo semis were at a much lower $500,000 compared to Toronto semis priced at $800,000. Toronto had a 60% premium and so Waterloo was much easier to get into. But what you might not realize is that this price gap has narrowed over the pandemic. Right now of October 2021, you’ll find that a Waterloo semi is around $725,000 and a Toronto semi is currently at approximately $930,000. When twenty percent of that is actually your own capital, we’re looking at a much smaller difference in investment dollars.

Since budget doesn’t steer the decision as much nowadays, choosing the best performing investment should be your biggest decision factor when choosing where to invest. Changing conditions also mean real estate investment performance isn’t the same as what they were when someone else bought two or three years ago, so should take time to understand the markets before you just blindly follow in their successful footsteps.

Historical Appreciation

In Toronto, average appreciation between 2009 to 2019 was 7.6%. Because Toronto is pretty big, you can find pockets in Toronto that appreciate slower and pockets that appreciate quicker. This also means that If you are able to identify pockets that have higher growth, there’s the potential to get much better appreciation than the average.

In the Toronto pockets that we’re investing in, we like to focus in higher growth areas and so, you’d find that appreciation is better. For your information, detached home prices in these pockets back in 2009 were only $315,000. Ten years later in 2019, the same homes went up to $910,000, which means the 10 year annual appreciation rate was at 11.5% per year, much higher than 7.6%. For Waterloo’s detached market, prices were at $334,000 in 2009 and these properties soared to $660,000 in 2019, so that’s an average annual appreciation of 7% per year. This is still very good and just slightly lower than Toronto‘s average.

But if you were able to invest in the high growth areas in Toronto, then you’d actually see much better long term appreciation compared to Waterloo. Another way to look at it is to look at starting prices in 2009. Starter detached homes weren’t actually that far off in both markets. But because the high growth areas in Toronto appreciated much quicker than Waterloo, the pockets in Toronto ended up sitting higher 10 years later.

If you’re wondering why I looked at 10 year data up till 2019 instead of 2021, this is because things have substantially changed after that in the suburbs. In the same gentrifying pockets in Toronto, prices went up 3.1% from October 2019 to October 2020, and then a bigger 14.2% from October 2020 to October 2021. In other words, the two year annual average was 8.6%, still lower than the 10 year average at 11.5%. Right now, these detached high growth detached homes in Toronto are priced closed to $1M.

Let’s go to Waterloo and the first thing to remember is that the 10 year average detached appreciation was 7% per year. But with COVID throwing things off, Waterloo prices grew 12.5% from October 2019 to October 2020 and then our last year between October 2020 to October 2021, Waterloo detached prices went up a crazy 34.4% and prices are now sitting at $1.07M.

Short To Medium Term Price Forecast

So besides just saying that the entry prices are very similar now, the more serious thing to note is that the suburbs like Waterloo are actually selling at a very high premium right now, whereas the high growth pockets in Toronto is selling at a slight discount compared to their average.

To put it more directly, I do not think Waterloo’s 47% appreciation over the past 2 years is sustainable. So if normal is 14% over two years, this means Waterloo prices overshot by 33%. So, here are a few scenarios and their implications for Waterloo:

  • In the worst case, when prices adjust back to normal, we might see a steep correction over the next 1-2 years.
  • Perhaps a more typical case might see the correction happen over 5 years, but that still means there’d be practically no appreciation during this period.
  • In a better case scenario, this might be absorbed more gradually over say 10 years. And if this is the case, then instead of 7% annual appreciation, Waterloo’s appreciation over the next 10 years might end up being closer to 4% per year.

Going back to Toronto, the average annual appreciation over the past 2 years was 8.6% in our typical investment pockets, which isn’t outstanding compared to the average of 11.5%. When you look at this, it’s possible to see even more room for price recovery. In the more likely case, we expect the pockets to see more stable appreciation, following relatively close to its average historical rates. And so, we expect Toronto to outperform compare to any of the suburbs, including Waterloo.

Rent Yields

Toronto appreciation looks better, but what about rental income? For this part, you’ll also want to understand more about how things were like before the pandemic. The truth is, rents were great all around, but Waterloo did see better rent yields.

In February 2020, total rents from two units in a semi in Waterloo were close to $3400, and so the net rent yields, basically cap rates if you’re familiar with the term, were very good sitting at 6.5% and is is equivalent to a thousand dollars in positive cash flows on a $500,000 property. Toronto cap rates weren’t as high but weren’t shabby either. A starter semi at $800,000 can generate $4,200 in rents and so cap rates were at 5.1% and you’ll also looking at close to one thousand dollars in positive cash flows here too.

That’s before, and let’s see where we are now. If I were to summarize it into one sentence, it’s that cap rates have compressed everywhere. Waterloo rents didn’t drop much but prices came up by a lot, and so this had an even bigger effect on compressing cap rates. The end result is that Waterloo cap rates went from 6.5% to 4.3%, or a squeeze of 2.2%. Toronto rent yields dropped because of dropping rents, and that also caused cap rates to compress, but less than Waterloo, from 5.1% to 4%.

Total Returns

The thing why Waterloo investments made sense before was because even though appreciation wasn’t as good as Toronto, better cap rates balanced things out better, so the entire investment still brought pretty good returns at 13.5% per year before leverage. That’s better than average Toronto returns with 7.6% appreciation and 5.1% cap rates, totalling 12.7% per year. Of course, if you invested in the higher growth pockets of Toronto, you’d see the best returns close to 16.5% before leverage.

But now that prices in Waterloo have skyrocketed upwards, rent yields are more similar, combined upcoming appreciation prospects not looking so good, I’d say Waterloo is no longer a comparable investment. Even if you assume that Waterloo’s correction will be spread over a longer period of 10 years, our better case scenario, we’re still expecting a much lower 3.7% annual appreciation during that period in Waterloo, compared to average Toronto appreciation at 7.6%, and Toronto growth pockets at 11.5%. Once factor leverage and a longer investment period, this difference in appreciation amounts to a huge difference in returns.

Other Insights

In more normal markets, I would say go where you can afford and real estate outside the GTA can still be decent even if it’s slightly lower than Toronto. But real estate markets have been thrown out of whack over the pandemic, and now the suburbs are priced at big premium and future appreciation might be compromised on the downside to bring prices back to normal, and so investing in the suburbs are actually much higher risk compared to before.

The second thing to note is that short term performance isn’t reflective of future performance. So, how well someone else’s investment did over the past two years might not last. If you want to make data-driven decisions, look further back, say the past 10 years of data before the pandemic to see how longer term trends are really like.

The third misconception from new investors is the best cash flowing investments are the best investments and this is false. Many times, you’ll see markets with low appreciation being rewarded with high rental income. So instead of looking at current cash flows, it’s always better to look at long term appreciation plus long term rent yields to get the better picture. And when you see a bigger compression in cash flows and not much change in rents, that’s a good indicator that you might be buying at the market’s peak prices.

How We Can Help

Moving forward, we believe Toronto has the best prospects so if you also feel the same way and want to learn more about these opportunities in Toronto, let’s chat. We can look at your requirements and preferences and then match you up with the best investment property that fits your needs. After we help you buy it, our team also provides renovations guidance, leasing and property management if you need it. Just connect with us if you want to learn more about our services!

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