Condo Life Magazine-A condo in your portfolio?
September 28, 2024
Condo Life Magazine November 2001
Investment
A condo in your portfolio?
Condominium owners can benefit from the rental lifestyle mentality
By Gerry DiLeo
It is commonly understood that there have been very few rental apartment buildings constructed in Toronto since the end of the non-profit housing projects in the early 1990’s. However, what is less well known is the amount of condominium apartments that have been constructed which are currently utilized for rental purposes, and how that separate market component is performing today.
According to the most recent statistics available from CMHC, in July 2000, the number of condominium apartments available for rent in the Toronto CMA dropped down to 35,503 units from 35,850 units in 1999. Rental apartment condominiums formed 24.6 per cent of the condominium universe in 2000, down from 26.5 per cent in 1999. The rental apartments were 27.6 per cent in 1998 and 30.2 per cent in 1997.
It is believed that the drop in condominium apartments available for rent is due to the strong resale market which has allowed existing investors to sell their units. We anticipate that if the new and resale markets start to slow down, then there will likely be an increase in rental condominium apartments.
Further support for more rental condominiums in the future is the very low vacancy rate. Again, we know that the non-condominium rental market in Toronto is at a historically low vacancy rate today. This component of the market showed a decline in the vacancy rate from 0.9 per cent in 1999 to 0.6 per cent in 2000 in the Toronto CMA. Yet what is surprising is that the vacancy rate for apartment condominium rentals is at even lower levels. CMHC indicate that the vacancy rate in the Toronto CMA was 0.5 per cent in 2000. It is surprising since the rental condominium market is essentially based on market rental rates whereas the non-condominium rental market rental reflects a combination of market rates and below market rental rates due to rent controls that have existed. Nonetheless, the evidence is that rental condominium apartments are not easing the overall rental supply shortage in Toronto today.
It is predicted that condominium apartments will continue to grow in popularity as baby boomers age and choose this form of housing. We are also of the view that investing in condominiums and then renting them out will also increase in the future as part of an investment diversification strategy for many individuals. The investment returns will be a combination of rental income and expected capital appreciation. Regarding expected capital appreciation, it is interesting to note today that condominium apartments are increasing in price at a greater rate than single detached houses. Based on information from the Toronto Real Estate Board, single detached houses in the Toronto CMA increased in price in June, 2001 by 4.9 per cent to an average $337,236 while condominium apartments increased by 6 per cent to $186,046. The average resale price of a condominium apartment in 1998 was $148,847. Therefore, since that time, condominium apartments have increased in price by 25 per cent.
Consequently, in assessing how the rental condominium market component in Toronto is performing today, I have reached the following conclusions:
1. based on the very low vacancy rate, there is not a sufficient supply of rental condominiums;
2. demand for rental condominiums will likely increase given economic conditions in Toronto; and,
3. given the supply/demand imbalance, rental rates will likely continue to increase.
When considering the condominium rental approach, your objectives will include maximizing revenues while protecting your investment. It is imperative to have a comprehensive lease document in place that reflects the obligations you as the owner have with the condominium corporation. Tenant screening and selection, proper insurance, timely revenue collection, guideline rent increases and operating expense payments are but some of the caretaking elements of leasing your unit. Revenue and value enhancement techniques such as providing furnished suites to the market, can also be considered. A cost/benefit analysis which will include researching competition and absorption in your geographic area should be done prior to this additional investment.
Gerry DiLeo is Vice President of The Rental Lifestyle Group Inc., which specializes in Leasing, Management and Maintenance of quality residential suites on behalf of owner/investors. For information call 416-340-9676 or e-mail gerry@rentallifestyle.com