Toronto Real Estate Market – Too High?
Toronto’s Real Estate Market is climbing up rapidly. Out of the 3 categories (Re-Sale, Pre-Con, Assignments) there is one category that is charging the highest prices, sometimes 40% to 50% more of a comparable Toronto condo in another category.
That category is…. drum roll…:
Pre-Construction Condos!
Pre-Construction condos are now coming out at $1200-$1800PSF. Many right in the middle, $1500. What does this mean?
- 500 sqft = $750,000
- 800 sqft = $1.2mil
- 1200 sqft = $1.8mil
- 2000 sqft = $3mil
We could only dream of these prices even a year or two ago! Nonetheless, developers are asking and receiving these kinds of PSF values.
Does this make any sense?
Lets look at the carrying costs of a 500sqft unit selling for $750,000:
- Maintenance (Condo Fees) 80cents/ft = $400/mo.
- Taxes 1% of Purchase Price = $7,500/yr or $625/mo.
- Mortgage (3% on 80% of Price) = $2,840/mo.
Total Monthly Carrying Costs:
- 400+625+2840= $3,865/mo.
- A 500 Sq ft Unit purchased at $750,000 would require
- $3865/mo. required to cover owners costs.
That does not include the following:
- Closing Costs
- Land Transfer Tax
- Legal Fees
- Vacancies
- Anything Else
The above would be paid out-of-pocket and would not be included in the mortgage amount.
So – do you think you could get $3,865/mo. for a 500-sq ft unit anywhere in Toronto?
Clearly, the current average rents we are seeing in Toronto is about Four ($4) Dollars Per Square Foot ($4.00/PSF)
So the average 500-sqft unit would rent for 500 x $4.60 = $2,000/mo.
That’s $1,865 LESS than what we need to break even!
So is this possible? Let’s look at Yorkville, commanding on of the highest rents in Toronto. The Average rent in Yorkville is $4.23/PSF.
Our 500sqft unit would get: 500 x $4.23 = $2,115
That is $1,750/mo. below break-even.
So here is what we need to focus on:
How to Create Positive Cash Flow in This Market?
There are several ways you could maintain break-even of even positive cashflow in this market:
- Invest in lower PSF higher ROI units
- Increase your deposits
- Maximize Rents
How to Find Better ROI Units?
Here are the links to each of the categories where you could look in real-time for Toronto condo listings:
Pre-Construction: https://urbanrealtytoronto.com/pre-construction
Assignments: https://urbanrealtytoronto.com/condo-assignments-for-sale
Re-Sale: https://urbanrealtytoronto.com/toronto-condos-for-sale
Reduced: https://urbanrealtytoronto.com/reduced
Conclusion
Toronto Real Estate Market keeps going up and likely will. There are many factors involved, and , imo, it will take a major global shoft (not local) to slow down or revrse the pricing trend.
Investors – make sure you look at all the options and ensure you can afford the properties that they are buying.
As always, reach out to me with any questions, buying, selling, investing or assigning!
Good luck to all,
Yossi