Those who are looking to invest in rental properties often have a lot of questions. Of course, this is for a good reason because you definitely do want to make sure that you are fully comfortable before you commit to a purchase as big as a rental property. There are a few recurring questions that I have been getting from many investors; they are as follows:
- Do we have too much supply?
- What happens if I buy in a project and there are not enough people in the rental market to fill my unit?
- What if I have to reduce my rental rate to to get a tenant and how would this impact my investment returns?
Summing Up Supply – When it comes to supply, we 100% do not have enough housing for the amount of immigration that is coming into the GTA. I’ve said this countless times in many different ways and outlets, and I completely stand by it. Despite what people think when they see construction and cranes, the development process has been slowed down by the significant increase in government red tape since 2017. It has effectively doubled the time that it takes to complete a condo construction project from the ground up. So despite the construction that you may see during your daily commute which may form your opinion on our supply, we are actually at an all-time low for construction in a city that is expected to double its population by 2040.
Case Studies Deep Dive – To show you what I mean, I have provided two case studies of this rental shortage below. The data below is the leasing information from two condo projects, Noir by Menkes (87 Peter St, Entertainment District) and Grid by CentreCourt (181 Dundas St E, East Core).
The data that I’ve used is hosted here if you want to have a look.
Case Study #1 – Noir by Menkes – Let’s look at 87 Peter Street first. Below, you’ll find some relevant information about the building
- Floors: 49
- Units: 550
- Square Footage: 454 – 996 SQFT
As a building is slowly completed, there is a period called occupancy where the owner of the unit has the ability to move in or lease out the property before getting a mortgage on it. The occupancy date is often different for each unit, and as the building becomes more and more complete, a greater number of units become available for lease and to move in. So you can imagine, within a few months, 550 units become available for lease or move in. Lots of supply… right?
Unfortunately, that is actually not the case.
Not all of the leasing and move in activity is tracked because some owners will rent it out on their own via Kijiji or they purchased the unit for personal use. However, by the time the building has become available (from the first occupancy date), 225 units have been listed for lease on MLS. Guess how many were leased out? 194 of them!! That’s 86%. Tale a look at the chart below.
Of the 225 units available that were listed, only 5 are still on the market right now. The leased numbers are slightly lower than they should be because there are quite a few units that fall under the “Terminated” category; terminated means that the owner tried to lease it too early and the builder asked them to take it off of MLS. These 22 units were very likely leased out afterwards.
Of the 194 units leased, this was the breakdown:
You can see that the average days on the market for a lease listing is 2 weeks! PLUS, they were all basically leased for 100% of the asking price. Too much supply or not enough? This case study certainly makes that clear!
These numbers basically tell us that if the entire building came online, all 550 units could be leased out in 2 to 3 weeks for full asking price. That’s 550 units!
Case Study #2 – Grid by CentreCourt – Here is the other example. Let’s look at 181 Dundas St E. I picked this building for the second case study because CentreCourt did not have an occupancy period. This means that all 528 units became available for lease or move in on the same day. Think about that, literally 528 units becoming available, all at the same time.
Here is some info about 181 Dundas St. East (Grid):
- Floors: 47
- Units: 528
- Square Footage: 441 – 640 SQFT
For Grid, a total of 364 units were listed on MLS. Of the 364 units, 261, or 72%, of the listings were leased.
Here is an interesting fact: Centrecourt did not allow Realtors to post the units that were available for lease until the entire building was registered. This is why about 20% of the listings were terminated – many Realtors don’t know what they’re doing and listed it prematurely! Case in point, get a good Realtor who knows what they are doing.
Regardless, if you look at the spread on the leased units, the numbers are not as strong as Noir, with your average days on market at a little over 3 weeks and leased around 99% instead of 100% of the list price. Grid was not as strong as Noir, but still very strong leased numbers nevertheless, considering the fact that all 528 units became available at the same time. This case study literally tells you that over 500 units in the same building can be leased out in a little over 3 weeks! What are your views on the rental demand now after going through these 2 case studies?
The Wrap – So if you are wondering whether there is too much supply in the GTA right now, rest assured because the answer is that we do not have enough. When you’re investing in pre-construction condos, you need to understand the fundamentals of the area that you are investing in. The two case studies that we just covered in this week’s Insight Article post were condos with high demand as they are near many employers and universities. Remember, not every pre-construction project is worth investing in. To find out which ones are worth your time and money, please do not hesitate to reach out to me – Zhen 416-436-9436 or subscribe to my weekly VIP newsletter by clicking here: SIGN ME UP!
Until Next time, Happy Real Estate-ing
Zhen
