While real estate markets shift over time, we’re firm believers in the idea that owning real estate is a foundation of wealth if you do it right.  That may mean making sure your own home is a good investment, but it also definitely includes income properties.

Here on the Refined team, we love income properties.  Love ‘em!

• We love seeing a mortgage go down each month, paid for by tenants.
• We love seeing the property appreciate over time.
• We even love overseeing renovations that add value and allow us to charge higher rents and attract better tenants.

It’s because we love income properties that we get excited when we start working with a client looking at buying one.  If you’ve been considering buying an income property, we thought we’d share a quick way of assessing different income properties.  It’s called the capitalization rate, or cap rate for short.

Nice cap.

The cap rate for a property gives you a number (expressed as a percentage) that tells you how long it will take for the rental income from a property to pay off the purchase price.

The higher the number, the quicker the purchase price is paid off.

For example, a 5% cap rate means that every year, the rental income (less operating expenses) pays off 5% of the purchase price.  That means that in 20 years, the cashflows from the property have paid for it completely.

Let’s attach some dollars to the example.

Consider a property located in a smaller city outside the GTA that’s for sale for $600,000.  The property is triplex with three one bedroom units in it, which bring in $3,250 per month in rental income.  We have property tax, some basic building insurance, a property manager to handle the calls about problems (at 5% of gross rent) and then some funds for keeping the place up.  That totals $9K a year, which leaves us with net rental income of $30K.

On a purchase price of $600K, that $30K net rental income gives us a cap rate of 5%.

Note that the cap rate is calculated without taking into account the cost of borrowing.  This is done because every investor will have different options for borrowing.  Some may have the money to buy it outright, some may have a connection that will invest for 2% interest a year, others may need to borrow from banks or other lenders at hefty interest rates.

The cap rate allows income properties to be compared on an apples to apples basis.

Investors can look at a $300K single family home in Port Severn or a $1.6M multiplex in Toronto and be able to see what the cap rate will be for each property.

Now that we’re clear on how cap rates work, let’s get into the three rules to follow to make sure you choose a great income property.

Rule #1 – Multi-units Almost Always Beat Single-Family

Properties with multiple rental units in them (whether a bungalow with a basement apartment or a multi-plex with 4 purpose built apartments) almost always beat single tenant properties.  While it can be very easy to rent out a lovely home to a lovely family, the rental rates are not typically high enough to provide the same return as multiple unit properties.

In addition to the higher rental income, multi-unit properties also avoid the all or nothing problem that single family homes have for investors.  When you have a property with three or four units in it, it is quite rare for you to have more than one or two vacancies at a time.  Given you have to pay property taxes, utilities and likely a mortgage payment each month, having some level of income coming in to offset those costs is a very good thing.

While you could own multiple single-family homes to spread the risk of vacancies over your income property pool, you also then have multiple properties where costs can be incurred for issues.  Rather than one roof, one HVAC unit, one front porch, you have one for each of your properties and that means increased risk of higher maintenance costs.

Rule # 2 – The Greater Toronto Area means Greater Cap Rates

While properties in Toronto are certainly in demand with renters, the cost of buying the property means that your cap rate will likely be lower.  An income property in Ajax can literally be half the cost of a nearly identical property in Toronto.  While rents may be lower in Ajax, they aren’t half the rent of Toronto.  As long as you are careful to buy in a good location where you don’t have lots of vacancy, the lower rent can be easily made up for by the lower purchase price, which means a much better cap rate.

While you may not live close to an area that has the combination of lower prices and reasonably high rental rates, the math can be favourable enough to allow you to hire a property manager to properly oversee a place you purchase there.  Yes, you’ve got higher operating costs with a property manager, but the lower purchase price can make up for that.  If you ask us, removing the work of managing a property yourself at no effective cost makes a ton of sense.

Looking even further afield can result in even lower purchase prices, but be cautious you’re not buying in an area where rental rates are too low – or vacancies too high – to make up for the lower cost to buy.  After all, owning an income property with little to no income is not the goal!

Rule # 3 – Focus on the Negatives to get the Positive Returns

Some of the best income properties are properties that we would never advise a client to buy as their own family home.  Stigmatized properties – such as those backing onto power lines, fronting onto a busy street, or located beside commercial elements – can make fantastic income properties.

Buyers looking for their own home are often not too interested in such properties, which keeps the purchase price lower.  Tenants typically take shorter-term views than buyers and are often more interested in the utility of a rental (transit proximity, amount of space inside) than the long-term prospects for the property.

Make sure you don’t ignore issues with a property or neighbourhood that a tenant will care about just as much as an owner.  Homes in areas with bad schools are avoided by parents regardless of whether they own or rent, and health or safety issues with a property are legally required to be addressed by a landlord.  We work to find our clients the right mix of an appealing rental property with some aspects that make home owners shy away.

We really do love working with clients to find them income properties and we’d love to work with you to find a great investment property.  If that sounds appealing, then get in touch with us to discuss next steps!

The Toronto Regional Real Estate Board (TRREB) commissioned a report in November 2024 called “Breaking the Backlog – Restoring Fairness and Justice to Ontario’s Landlord and Tenant Board” and boy, is it a doozy.

We’re glad that TRREB is taking an active interest in this as the LTB is essential for maintaining balance and fairness in Ontario’s rental housing market, ensuring that both landlords and tenants can enforce their rights and obligations under the law.  You have likely seen headlines and articles about horror stories on both the landlord and tenant side of the equation and we’ve worked with clients on both sides who have been treated unfairly.  It all comes down to a system that isn’t working as intended, allowing bad faith players on both side to take advantage.

Let’s get into the situation and how to fix it.

First off, what exactly is this LTB you keep talking about?

The Landlord and Tenant Board (LTB) is a tribunal in Ontario, that resolves disputes between residential landlords and tenants. It operates under the Residential Tenancies Act, 2006 (RTA) and plays a critical role in administering rental housing laws in the province. The LTB’s primary functions include:

• Dispute Resolution: Handling applications from landlords and tenants regarding issues such as rent arrears, eviction, property maintenance, and lease disagreements.
• Mediation and Hearings: Offering mediation services to help parties resolve disputes and conducting formal hearings when necessary.
• Orders and Decisions: Issuing binding rulings and orders based on the evidence and arguments presented during hearings.

The LTB is part of the Social Justice Tribunals Ontario (SJTO), which oversees several tribunals focused on social justice matters. It employs adjudicators, who are independent decision-makers, and support staff to process and resolve cases.

What’s the problem?

The LTB has faced significant challenges in recent years, including extensive backlogs due to lengthy delays.  If you’re wondering how bad it actually could be, get ready.

As of February, 2024, the LTB had more than 53,000 unresolved cases.  While the specific of the cases vary, remember that the whole focus of the LTB is issues like rent arrears, eviction, property maintenance and lease disagreements.

Think about that – over 53,000 cases where there is a tenant who stopped paying rent, or a landlord who evicted a tenant illegally, or mould in the bathroom or broken locks, or even simply some other type of disagreement between landlord and tenant.

If you ever read a case of a bad tenant or landlord and wondered how that could happen and then said there must be laws against that sort of thing, you’d be right. There are laws and rules and right now there are over 53,000 people waiting for their case to be heard.

Speaking of waiting, with 53,000 unresolved cases, it is taking a while to get a hearing.  There is a pecking order of sorts when it comes to which cases get resolved the quickest, but “quick” is a relative term.

For example, the LTB says that urgent matters such as illegal lockouts and other high-priority requests get the fastest level of service, with about 5-6 weeks on average to have it scheduled.  Even better news is that most decisions (which are called Order) are issued with 30 days or less.  So, if you’re a tenant who has been illegally locked out of your rental unit, just sit tight for two to three months and you should be sorted.

Up until quite recently, the wait time for non-payment of rent issues was five months, plus of course the month or so before the Order would be issued.  The website for the LTB now says that takes approximately three months, and if that’s true, it still means four months of a landlord not being paid rent before they receive an Order.  Keep in mind that many landlords don’t go to the LTB to evict for non-payment of rent until the issue has become quite extreme.  It is not uncommon for landlords to be owed at least two months rent before they start the process, so in many cases, it actually means that a landlord is owed 8 months of rent by the time the tenant is evicted.

Less urgent matters than illegal lockouts or non-payment of rent are now being scheduled with 5-7 months, plus of course the month to receive the Order from the LTB.  No hot water in your unit?  File an application to the LTB and two seasons later, it may be addressed.  Lots of extra people living in the rental unit you own?  File an application to the LTB, and within six months, you should get an answer.  I’m sure the extra people won’t cause much wear and tear or complaints from the neighbours.

While it is landlord and tenant relationships at odds in these cases going before the LTB, 84% of applications to the LTB are from landlords, so the backlog and delays are dramatically impacting existing landlords as well as strongly discouraging investors from purchasing rental units in Ontario.

What’s causing this mess?

The TRREB “Breaking the Backlog” report identifies several key factors causing the backlog and delays at the LTB, so let’s review.

Understaffing:  The LTB has just 70 full-time adjudicators, far below what is needed to handle the volume of cases effectively.  Many of those adjudicators are new in their roles since 2023, so these aren’t seasoned experts who quickly and efficiently deal with complex cases.  Put bluntly, inadequate staffing levels directly limit the number of cases that can be processed daily, causing, you guessed it, a backlog.

Increased Case Volume:  A 23% increase in case filings over the past five years has overwhelmed the LTB’s capacity to keep up.  Things weren’t great a number of years ago, but the combination of more cases and staffing that isn’t keeping pace has meant it got much worse, quickly.

Outdated Technology and Systems:  The reliance on outdated, inefficient administrative processes and technologies creates bottlenecks in case management and resolution.  For example, applications can be done via an online portal but also can be submitted via email, or mail or in person.  Applications done via the online portal were entered into the system immediately, but emails, mailed in or in person submissions could take three months until they even enter the system!  While online hearings may seem like a great way to address delays and increase efficiencies, it has amplified accessibility issues amongst vulnerable groups.  Anyone living in poverty and lacking sufficient Wi-Fi or a private place have great challenges with online hearings.

To sum up, the current process for scheduling hearings, issuing decisions, and communicating with landlords and tenants is slow and lacks the flexibility to adapt to demand surges.  These issues collectively exacerbate delays, creating extended wait times for hearings and decisions.  The end result?  The mess we’re in right now.

How on earth do we fix the LTB?

While the problems are significant, there are steps that can and should be done to fix the LTB.  Some have already started but with the significant backlog and delays, we need it to be better, sooner.

The full report from TRREB goes into detail on recommendations, but here are the key steps.

Increase Staffing Levels: The LTB needs more adjudicators and support staff to process applications efficiently. Current understaffing significantly contributes to the backlog and delays in resolving disputes.

Modernize Systems and Processes: Upgrading outdated systems, implementing online services, and streamlining administrative procedures can reduce inefficiencies and enhance user experience.

Set Clear Timelines: Introducing mandatory timelines for hearing cases and issuing decisions would help reduce the unpredictability of wait times for landlords and tenants.

Provide Adequate Funding: Increased funding is necessary to support staffing, technological improvements, and other enhancements to ensure the LTB can meet demand.

Improve Accountability and Transparency: Ensuring that the LTB operates with greater oversight and regular public reporting on performance metrics can build trust and ensure ongoing improvements.

Doing the above things would be a great way to address the significant backlog of cases at the LTB while improving fairness and efficiency in Ontario’s rental housing sector​.

While an article about the Landlord and Tenant Board may seem like a strange focus for a team of real estate agents, we care deeply about housing in Ontario.  Within our team we represent both landlords and tenants and we’ve seen first-hand the challenges that the LTB is causing to both sides.  We believe the majority of landlords and tenants are looking for a fair agreement on rental housing and it’s time that the LTB became the solution to problems in the rental market.

If you’re a landlord looking to rent out a property, or a tenant trying to find a home of your own, don’t hesitate to get in touch with us.

When short-term rental platforms like Airbnb and VRBO first arrived in Ontario in 2009, they offered a new option to home owners or investors who were interested in making money off properties.  By competing against hotels and offering short-term rentals, property owners could realize significantly higher rental income than they could by renting out the home or unit to a long-term tenant.

During the initial heyday of these platforms, most municipalities didn’t have restrictions on short-term rentals.  It took a while for the platforms to grow in popularity and for municipalities to begin to see some problems as a result of the change.

In Toronto, it wasn’t until early 2018 that City Council approved the regulation of short-term rentals in Toronto.  Up until that point, short-term rentals existed in a bit of a gray zone and we saw pure income properties being rented short-term as well as some principal residences.

The initial regulations in Toronto were appealed to the Local Planning Appeal Tribunal (LPAT) and as such did not go into force.  The hearing for the appeal took place in August, 2019, and the City eventually received a positive decision at the LPAT, so it wasn’t until November, 2019 that the short-term rental regulations came into effect.

Over time, the rules, fees and taxes that apply to short-term rentals have increased, and we’ve also recently seen the CRA crack down on the sale of such properties, with significant tax impacts.  It’s time for a review of what it costs to register and operate an Airbnb, and what happens when you sell such a property, to see if it is still a good option.  Here we go!

The Good Old Days

When Airbnb and other short-term rental platforms arrived in Ontario back in 2009, there were no licensing, fees or specific regulations in place for this type of rental.  Cities had largely left the regulation of rentals to the province, with bodies such as the Landlord and Tenant Board and legislation such as the Residential Tenancies Act.  Short-term stays were done by hotels and those businesses were established and run by corporations, rather than individuals who had a home they didn’t stay in all year round.

The Times, They Are A Changing

By late 2019, rules for short-term rentals were in place in Toronto, but even now (late 2024) a number of municipalities in the GTA don’t have things set in stone.  Whitby, Pickering, Aurora and Newmarket are still working on the regulations, and as such it hosts are really only concerned about following local zoning, property standards, and tax requirements.

The initial rules in Toronto had a Municipal Accommodation Tax (MAT) that was set at 4%. This tax applies to short-term rentals and supports city tourism and infrastructure. Registration fees for owners were a very reasonable $55.

In 2023, Toronto raised the MAT to 6%, ensuring short-term rental operators remit this amount quarterly. To simplify compliance, Airbnb and similar platforms began to offer a remittance option on behalf of hosts.

Beginning in 2025, registration fees are set to increase drastically from around $55 to $375, highlighting a stricter stance against non-compliant operators.

No Investors Allowed

As municipalities created the regulations for short-term rentals, most decided that such rentals would only be permitted in a homeowner’s primary residence.  If you were an investor and didn’t live in a home, you could rent it out long-term (more than 28 consecutive days) but short-term rentals were no longer permitted.

This was done due to concerns about housing shortages, as the proliferation of short-term rentals in residential units had begun impacting the long-term rental market.

As of November, 2024, this is the case in Toronto, Mississauga, Oshawa, Oakville and Burlington.  Basically, if the municipality has developed regulations, the rule is short-term rentals are only allowed if it is your primary residence.

Wait, what’s that about HST?

In addition to the registration fee and the Municipal Accommodation tax, owners of short-term rentals also need to be aware of HST obligations.

Airbnb rental income becomes subject to the HST if the rentals are for less than 30 consecutive days (one month) and the rent charged is more than $20 a day.  Given the cost of stays in Ontario, almost all Airbnb properties charge more than $20 a day, so if you a host is doing significant levels of bookings, HST is charged on the stay, and due to the government.  This is in contrast to long-term residential rentals, which are exempt from HST.

While charging and remitting HST can be either neutral or slightly beneficial (as you can claim input tax credits on costs incurred in renting the unit), a much bigger problem exists when the owner of an Airbnb property decides to sell.

In October, 2024, the Tax Court of Canada ruled on a case and held that the sale of a used residential property rented out on Airbnb is subject to HST on the entire sale price.  A reminder that resale residential properties (i.e. not a new build where you’re the first buyer) in Ontario don’t have any HST charged on the sale.  This is the case even if the property was an income property and rented out on long-term basis – but not if it is being used for short-term rentals.

In the ruling that came down, the judge ruled that at the time the owners sold the property, it was not a tax-exempt residential complex, since for tax purposes it was similar to a hotel, motel, inn, boarding house or lodging house. All of the condominium leases for the 14 months before the sale were for periods of continuous possession of less than 60 days, i.e, short-term rentals.

As a result of the “commercial rental operation” during that time, the entire sale price of the condominium was not exempt from HST.  This means that if you own and operate a property as a short-term rental, you can expect that the CRA will treat the sale of that property as one that should charge and remit HST.  The exact amount of HST owing would require a tax specialist to determine, but it is obviously significant dollars given the 13% HST rate.

If the seller doesn’t realize that HST should be charged, and doesn’t include wording in their Agreement of Purchase and Sale related to the sale price being plus HST (rather than inclusive of HST), they will be out of pocket for the HST that should have been charged.  Even if the seller knows this may happen, they face a situation where their property becomes extremely unappealing to buyers who will have to pay HST on the purchase, compared to another property they could buy that wasn’t used for short-term rentals and therefore doesn’t have HST charged on the sale.

In short, the disposition of properties that were used for short-term rentals may result in a significant loss of equity in the home due simply to the HST component that has to be made up for – either by the seller directly to the government, or by the buyer who would demand a reduction in the purchase price.

When an Airbnb host has to pay a registration fee, charge a municipal accommodation tax and charge HST, it is no wonder that the days when Airbnb was a cheaper option than hotels are gone.  As prices rise for guests, it seems logical that occupancy levels would be lower and that owners will make less revenue on the unit.

Add in the significant tax hit at the sale of the property and there is a very real question as to whether Airbnbs or other short-term rental options are still financially viable.  Long-term rentals may bring in less revenue on the surface, but with significantly lower costs to manage and operate and no HST issues upon selling, the equation has shifted considerably.

If you are considering how to best benefit from a property that you own that you don’t live in full-time, then we’d love to walk you though the options.  Get in touch with us and we’ll start the ball rolling!

If you’ve ever had a conversation with friends about their experiences with real estate agents, you’ve likely heard some horror stories about uninformed, unmotivated, and unprofessional agents.  When you delve into the specifics, the key failing is often a lack of specific knowledge that would have helped make the process go better for the client.

When it comes to real estate investment, the situation is similar, and is arguably even more pronounced.  Take a look at some of the key results of a survey of real estate investors by the Real Estate Council of Ontario.

• 21 per cent of investors wished they had looked at more properties.
• 26 per cent of investors wished they had a better grasp of the buying process.
• 32 per cent of first-time investors said they were not prepared or knowledgeable about the home buying process.
• 43 per cent of investors said there were sections of the real estate contract that they did not fully understand.

As we read the list above, one thing became abundantly clear – most investors are poorly served by their real estate agents.  Let’s reframe the points above from the perspective of how agents failed their clients.

• About 1 in 5 agents pressured their investor clients to buy a property early in the process rather than showing them more investment options.
• More than a quarter of agents couldn’t adequately explain the process of buying an income property.
• Almost 1 in 3 agents working with first-time investors didn’t prepare or educate those clients.
• Almost half of the agents involved in helping investors buy income properties had clients who didn’t fully understand the contract they signed.

The simple fact of the matter is that while all licensed real estate agents can help investors buy an income property, a lot of them shouldn’t be doing it.

The process, the terms, the calculations to determine which option is the best investment – these are all aspects of buying an investment property that can be confusing and intimidating.  Add in changes to government rules and regulations, financing qualifications and shifting markets and you have a challenging situation to handle properly.

The good news is that picking a real estate agent for your income property purchase isn’t rocket science.  It’s all about making sure that the person you’re trusting to help you navigate you through the process actually understands the process.  Without further adieu, here’s our three rules for picking an agent to buying an income property.

Rule #1 – The agent has to be an investor as well.

If the agent is not a real estate investor as well, don’t hire them to be your agent.  They don’t need to own a slew of properties, but if they haven’t bought and sold investment properties of their own, and if they haven’t owned and managed an investment property, don’t hire them.  An agent who is also an investor is able to bring that knowledge and perspective to the search for your investment property.  They’ve spent the time in the past to figure out how to do it properly, because they’ve actually put their own money on the line.

Within the Refined team, we have years and years of experience owning investment properties.  We’ve bought and sold our own investment properties, renovated to increase rents, found and on a few occasions evicted tenants and overseen property managers, contractors, and tradespeople.  Does that help when we work with investors?  Absolutely.

Rule # 2 – The agent has to be able to do the math.

If the agent can’t calculate cap rates, fill in all the pieces of the ROI formula and generally provide you with the information you need to compare properties and decide, then they aren’t doing their full job.  If you are the one struggling to gather this information and assess what it means, you will miss out on fast moving opportunities and won’t have the time to see as many options.  You don’t need your agent to be a tax accountant but they have to be very comfortable with the math.  It’s an investment of your funds and needs to be treated as such.

Within the Refined team, we have agents who have taken courses in statistics, financial statement analysis, macro economics, accounting, Canadian taxation, international taxation and intergalactic taxation.  Well, the last one we made up, but the rest is true.  We’re very comfortable with numbers and analyzing them and we have used that knowledge to create spreadsheets to analyze real estate investments quickly and thoroughly. 

Rule #3 – The agent has to see the big picture.

In any real estate purchase, an understanding of the overall market as well as specific neighbourhoods or streets is crucial.  For investment properties, the agent needs to be able to also consider macro economics of the region.  The strength or weakness of the area’s economy impacts rental rates and vacancy rates, which in turn impacts housing appreciation or depreciation.   When the provincial or federal government announces funding for a major project that creates thousands of jobs, those new jobholders need places to live and rental properties in that area are in demand.  When a major employer in a town closes down or lays off hundreds of people, those jobseekers move elsewhere and rental properties that used to rely on them are now vacant.  The agent you hire needs to be able to place the different real estate investment options in a bigger context than just the land and building.

Within the Refined team, we have access to detailed demographics and economic data for the various neighbourhoods, communities, and regions within the GTA.  When we combine that information with specific market conditions, rental rates, vacancy rates and purchase prices, we give our investor clients confidence in their decision to buy or pass on a given investment. 

As the survey we discussed shows, there are a lot of investors out there who, in a weak moment, choose a weak agent.  By following the above rules, you can make sure that doesn’t happen to you.  If you like the sound of that, then get in touch with us.  We’d love to make sure your next income property is a star in your portfolio!

We work with investor clients all the time and the journey to finding and buying a great income property often starts with the same question these days.

“Are there really still good income properties out there?”

The answer to that is yes, but not that many and it very much depends on the parameters of your search.

Let’s review what qualifies a real estate investment property as a “good one”, what’s changed over the years and how we help our investor clients find their next purchase.

Gimme the good stuff.

A “good” income property can be defined in many different ways, depending on what’s important to the investor.

• Some investors want a passive investment that requires very little management, so a “good” income property for them is one that they can largely ignore for years and let the market appreciate over time.
• Some investors are after the best possible exit result and look for real estate that appreciates the highest during their planned length of ownership, regardless of what the cashflows look like during ownership.
• Some investors can’t stand the idea of having to put money into an income property on a monthly basis and consider anything that generates positive cash-flow to be a good income property.

While different investors place different emphasis on the above options, the holy grail is of course a combination of all three.  When we talk with an investor client about a “good” income property we’re talking about a place where:

• There are quality tenants who pay the rent, don’t trash the place and who stay for quite a while.
• The property itself shows great appreciation over time so that you’re building significant equity in the property based on market changes during ownership.
• The purchase cost relative to the down-payment, the cost of financing and the rental rates all combine to give you a positive cash-flow each month.

Before we get into where such properties are located, let’s review a couple of key points.

Put enough money down and anything is cash-flow positive.

Years ago, one of our agents was showing a condo unit and as he was waiting for his client, a fellow in the lobby asked him if he was a real estate agent.  The man proceeded to tell our agent how he owned a dozen investment units in the city, including four in the building and how all of them were cash-flow positive.  Our agent congratulated the investor and asked how he managed to do that despite real estate price growth exceeding rental rate growth and the man proudly told him he put down at least 50% on each property.

We still reference that story as it illustrates a very important point when it comes to investment properties.  It is easy to have a cash-flow positive property if you put down enough money.  If you paid cash for a condo unit and received one dollar above your maintenance fees and property tax obligations, you technically own a cash-flow positive property.

We’ve previously written about capitalization rates and how calculating cap rates for various investment property options is a great way to compare apples to apples by stripping out the down-payment or financing costs.

When we identify a “good” income property, it isn’t one we’ve made look good by requiring our clients to put down lots more money than other properties.  We most often start by asking our clients how much of a down-payment they have available and then look to see where that down-payment is best invested.

That has become more challenging in recent years due to one simple reason.

Rents are up but so are all your costs.

We’ve seen a marked increase in the rental rates that can be charged in most markets in the GTA in the past number of years, but at the same time, we’ve also seen costs increase in many different areas.

The most impactful increase in costs for some investors has been the cost of financing.  Variable mortgage rates are based on the bank prime rate, which in turn is based on the Bank of Canada overnight rate.  Back in March, 2020, the rate was lowered to 0.25% as a result of COVID and concerns about the economy.  We had two years at that rate and then in March, 2022, it started going up, and up, and up.  From March 2, 2022 to July 13, 2023, it went from 0.25% to 5% and that made any variable rate mortgages go up with it.

For investors who had bought properties with as little down as possible and who choose a variable rate mortgage, this created the perfect storm.  A high mortgage amount, with a rapidly increasing cost of financing.  While rental rates did go up during the same time, it was at nowhere near the same level of as the cost of financing so many “good” investments became bad investments.

In addition to the cost of financing, the level of inflation has risen sharply in the past couple of years as well, meaning that everything related to the property has also increased.  Whether it is a freehold or a condo property, the costs of owning and maintaining real estate has increased over the past few years.

With costs higher on a number of fronts, the key factors for what makes a “good” income property remain how much the property costs to buy (as that directly impacts how much it costs to finance it) and the rental rates that can be charged for the property.

Let’s discuss rental rates, shall we?

Oh wait, rental rates are mostly unknown.

One of the biggest challenges with general extrapolations of where the “good” income properties exist has to do with a major variable in the equation, namely rental rates.

This is because data around rental rates are disbursed among a number of different players and gathering any sort of accurate and timely data is quite difficult.

The Toronto Regional Real Estate Board regularly releases rental rate data, but it is focused on condo apartment rentals and doesn’t look much at freehold property rentals.  This is due to the majority of rentals on the MLS system being condo apartments of defined types – 1 bed, 1 washroom, 2 bed, 2 washroom, etc.

When you start to get into freehold rentals, there are so many variables that impact rental rates, any averages are inaccurate or flat wrong.  Ask us for how much a house rents on average and we’ll ask you how many bedrooms it has, whether it has a backyard, if there is a garage, if the basement is included and so forth.

In addition to the fact that the data held by organized real estate is quite variable, it is also only a portion of the rental data out there.  Unlike homes for sale, which almost exclusively sell via the MLS system, many rentals are done privately or via platforms that don’t receive or track rental rates.  For every property rented via MLS, who knows how many are rented by platforms like Kijiji or via signs on lawns or in apartment lobbies?

When we work with investor clients, we can determine likely rental rates for a specific property by looking at all the data sources we have available, but we can’t do an aggregate analysis to push our clients to one neighbourhood or area in particular.  The data just isn’t available, so we have to focus our search for “good” income properties on a key factor we can determine.

The cheaper the purchase price, the higher the chance it qualifies as a “good” investment.

While there are some exceptions to this statement, by and large, if you buy real estate as a lower price than other comparable properties in different areas, you stand a greater chance of it being a “good” income property.

While rental rates do vary depending on area, our experience has been that the variability of purchase price is much more than the rental rate spread.  While a home in Toronto may be able to charge more rent than a home in Ajax, the difference in rental rates is nowhere near the difference in purchase price.

Our starting point for conversations with investor clients is therefore a series of simple questions that lead to us identifying some good options that fit their criteria.

• What makes a “good” investment property in your mind?
• How much of a downpayment do you have?
• Are you willing to go to where the best return is? If not, where are you willing to invest?
• Will you invest in any type of residential real estate? If not, what types will you consider?

The above questions give us the ability to start focusing the search.

Consider an investor who has $150K for a downpayment, hates paying CMHC mortgage insurance fees, who wants to stay within a reasonable distance of their primary home in Markham, and who thinks condo apartments are terrible investments.  Such an investor has a budget of $750,000, is limited to York and Durham region and wants a freehold property.  Understanding these requirements means that we look to find a “good” income property within them – or, if that isn’t possible, showing the investor why their requirements don’t allow a purchase to take place and figuring out what we can adjust.

Once we have the parameters set, our focus becomes finding properties that fit those criteria, determining rental rates for those properties and analyzing the results.  In some cases, investor clients shift their preferences as they understand the potential returns and in others they choose to move forward with a property that makes them feel comfortable, with a rate of return they find acceptable.

Despite the run-up in real estate prices in the past couple of decades and the increased cost of financing in the last few years, we regularly work with investors who are buying income properties that suit their requirements.  We can find you “good” income properties that suit your comfort level, or we can help figure out what you’re willing to accept if the numbers work.

By helping clients understand the options based on their preferences, we are able to search for the needle in their particular haystack!  If that sounds like an approach you’d be comfortable with, then don’t hesitate to get in touch with us.