I recently discussed with an investor class a question: “Where should I invest in a condominium?”. The question of freehold versus condo has already been answered because the investors were interested in a low hassle investment, read other blog titled “How Can Condo Investing Work with High Maintenance Fees“.I asked, if you bought a 1 bedroom plus den downtown Toronto versus Pickering, which would be a better investment? One student said, “Well, I would buy downtown! That is where all of the growth has been!” For example, at Yonge and Bloor are 800 sq. ft. condos for approximately $440,000. He estimated the rent to be about $2,000 per month and the price did not include a parking spot.
The other student said, “I would buy low in a region like Pickering where there is strong consistent growth and low vacancy.” For example, San Francisco on the Bay is selling 2 bedroom condos at 730 sqft with parking for $239,000. This can rent for $1,400 per month.
So they asked me which one is a better deal?
Fundamentally, I said it is dangerous to buy high and sell higher.
Downtown Toronto is close to $550 per sqft. Although there are ready renters and very little vacancy, I believe there is a very competitive supply of condos for rent and there are plenty more being completed quarterly. Pickering is available at $315 per sqft (taking out $10,000 for the parking spot). I believe this is very close to cost of construction in this market and that there represents much more growth potential compared to downtown. There are few brand new high rise construction close to the highway, GO Transit and shopping. I also have personal experience with rental in Durham region and confirmed with CMHC that Durham was the ONLY region surrounding and including the GTA that did not increase vacancy in Q4 2010. There is a hungry supply of renters that will rent in Pickering.
Here are the ratios: Downtown Toronto: $2,000 over $440,000 is 0.4%. Pickering: $1,400 over $229,000 is 0.6% so the rent to price ratio is much stronger in Pickering for a rental property.
So where would you buy? Can you easily qualify for an investment mortgage over $400,000? Are you able to invest in a faster pace market where vacancy can change every quarter because of brand new supply being built? Are you more eager for capital gain growth and capable of timing the market on a monthly basis? If you said yes to these, then downtown Toronto has a strong fit to your investment objectives.
Mine are strong cashflow using the Rent to Price ratio while holding an asset that appreciates at a moderate pace while holding long term tenants that require little to no active management. I choose Pickering.