Where Is The Best Place In Canada To Invest In Real Estate?
Introduction
In this post, we dive into the risks, appreciation, and rental income between four major cities in Canada: Toronto, Calgary, Vancouver, and Ottawa. Find out how their returns compare and which is the best place in Canada to invest in real estate!
Real Estate Price Risk
In Toronto right now, condos are around $600,000 and houses start around $900,000. If that’s something you’re comfortable with investing in, let’s see how risk and returns differ between Toronto and other cities in Canada.
Take a look at this chart where I compare price movements between various cities in Canada taken from CREA’s housing market data. The movements and swings aren’t all that same. If prices swing more, then the actual returns at any given time might be pretty different from average expected returns, and so that could be a better metric of price risk. And it turns out Toronto actually has lower fluctuations compared to Vancouver and Calgary, and only Ottawa ends up seeing lower real estate price fluctuations.
Real Estate Rental Income Risk
We have price risk, but we also have real estate rental income risk, and Toronto also shines here. Toronto is the economic engine of Canada with a very diverse economy, and so it’s much easier to find a job and stay employed. This means tenants in Toronto tend to be in a better financial position which ends up lowering its rental risk.
We can also look rental risk from the perspective of vacancies. What you see is that Toronto also has one of the lowest vacancy rates in the country. In practical terms, we hardly see vacancies in rental units in Toronto even when tenants turnover, so lower price fluctuations, a better tenant profile, and very lower vacancies, we’d argue that Toronto has the lowest real estate investment risk overall.
Real Estate Historical Price Growth
But it’s not just about risk. Let’s go back to CREA’s numbers, which point us to Toronto real estate if you’re looking for the best price growth. Higher risk gives higher returns so perhaps we can better compare apple to apple if we look at risk-adjusted real estate price growth. And when we do that, you’ll see that Toronto ends up having the best risk-adjusted price growth in Canada, too.
Real Estate Rental Income
The part where Toronto isn’t as strong would be the real estate rental income side. Typically, cities that are more affordable tend to have better rent yields simply because rents don’t drop as much as property prices. And this is obvious based on Colliers Canada cap rate report for Q2 2022.
But I wanted to add one thing here, and that is that we expect Toronto rent yields on houses to improve more quickly in the near future. With the persisting housing crisis in Toronto, Toronto is prioritizing increasing residential density and in the near future, we might be able to create up to four units in all single family homes in Toronto. If this happens only in Toronto, then you can see a substantial rent yield bump in Toronto.
Canada Real Estate Investments: Total Returns
Now even if we use Colliers’ cap rate numbers and add that to average annual appreciation, guess which city has the best returns in Canada? It turns out that if we compare individual opportunities, you will see the lowest risk and highest returns in Toronto.
This is why we think Toronto is the best place in Canada to invest in real estate. While starting smaller outside of Toronto might seem like a safer first step, the best way to prevent that worst-case risk that you might be scared of is to educate yourself so you can tell a good deal from a bad one, and get help from experts to minimize expensive mistakes if you need it.
How We Can Help
We’re a real estate sales brokerage that focuses on real estate investing in Toronto, and this is what we invest in ourselves too. When you work with us, we’ll take the time to learn more about you, teach you all about real estate opportunities in Toronto, and eventually match you up with the one that best fits you.
After we help you buy it, our team also provides renovation 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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