We’ve all seen the latest reports showing Toronto’s low-rise housing market outperforming with record growth. But, a new report shows that the condo segment has its own story to tell.
A recent joint CIBC Economics and Urbanation report provide a closer look into the world of condo investors by looking at thousands of recent transactions.
Data shows that while there were months of declines during the pandemic, there is a lot of growth and profit for new condo investors across the GTA.
The message from the report is clear. While detached homes continue to see price acceleration, the condo market in Toronto is now seen as more affordable and profitable for investors.
The report showed that while the majority of condo rental supply growth came from new developments, investors who purchased pre-sale condos ready for possession in 2020 saw more than 40% market appreciation in their units.
Furthermore, about one-third of all newly registered pre-sale condo purchases were rented out last year through MLS, which is in addition to the 10% of resale purchases who purchased units as rental investments.
The fairly low pre-sale prices that were secured many years ago, along with record-low interest rates, resulted in the average investor of new condo units realizing positive cash flow on their investments.
In fact, the majority of condo investors (63%) were actually cash flow positive in 2020, which is higher than the share of investors back in 2017, where there were only 56% of investors who were cash flow positive.
One of the takeaways from this report is that investing in pre-construction condos has proven to be a profitable long term investment.
When you compare this to resale condo units that were rented out last year, the findings show that the pre-sale investors had much better cash flow positions than those resale investors who had a majority share (80%) that were cash-flow negative.
For those positive cash-flow investors, the average monthly net income was close to $400 a month, which is higher than in 2017 when investors averaged just over $360 a month in positive cash flow.
For those investors who were cash-flow negative, the plus side is that while they experienced a $5,900 annual net loss in year one, this could be offset by just a 1% increase in market prices.
Interestingly, for those investors who were cash-flow negative, many of those investors were using private mortgages that had much higher interest rates.
The lesson from this report for all seasoned and new condo investors is that if you’re planning on building a strategic investment portfolio within the condo real estate market, then it is best to do so with pre-sale units.
In addition, it is also important to have a long term vision for growth to capitalize on larger appreciation rates that can work well towards your real estate investment goals.