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What drives Condo Rental Income up and down in different buildings of Toronto

What should be mostly taking into account in Condo Investment decision making

Are you thinking about buying a Rental Property in Toronto?

There is a wide choice of Condo buildings seem to be very attractive as a passive rental income and as a great future re-sale opportunity because of a steady Condo rental and purchase demand and price growth year by year.

It is usual buyer’s practice to make a decision based on:

  • realtor’s advice on a current and a future re-sale price and opportunity to rent it out

  • emotional feelings that is one of the strongest indicator we rely on.

Some experienced buyers might analyze the Status certificate to find out if there is a healthy Reserve Fund, if there is any litigation etc.

I was a potential buyer of a Condo as a rental investment 7 years ago, I guessed that Toronto Downtown Condos have approximately the same rental income opportunities if they have approximately the same set of amenities, age and conditions. However, a financial professional, I wanted to find some financial information such as a maintenance fee, property tax, property insurance to compare a few Condo buildings to make a right choice based on real numbers rather than on gut feelings. I was able to collect some information from different sources and make some calculations on the napkin. And eventually, the final decision has been made based on "Wow" emotions connected with a great location, view and a good rental price advice of our realtor we trust. We made a very good decision and never regret of it. But it was a time when it was possible to make any stupid decision and get a good rental income and a capital gain during a few years just because of a favourable market situation.

Facing those problems with collection of financial information for rental investment decision-making inspired me to organize such information in one place that might facilitate such kind of decision-making process with historical numbers to save people's time and help potential buyers to decrease risks and to make a right choice of Condo that will bring them higher return.

Condo-benchmarking team created a handy tool for a potential Condo buyer, realtor or a Condo owner that must be very helpful to understand how much rental income a potential buyer could make buying a Condo in a particular building, which property price growth might be expected and make more informed decision. The analytics based on publicly available information published on Realtor.ca, condos.ca, strata.ca websites that supposed to be reliable based on reputation of those media resources and professional expertise.

The rental price and property market price of that analytics are updating once a quarter.

And considering rental income it is not possible not to stress out a big difference in rental income between Condo buildings selection. What are the reasons of such difference?

There are just a few Ingredients affected to that income – Property Rental Price, Property Market Value, Property Taxes, Insurance and maintenance fee. There are some extra Utility cost for the building that do not include Utility in the bill (~$0.7/SF/year) that was neglected in analytics. But such parameters as property rental price, property market value, property taxes, insurance are not under Condo owner’s control but maintenance fee might be controllable by owners.

Past researches confirmed that the most influencing factors driving maintenance fee up and down are building age, amenities set and inclusions, location and possible litigations. It is reasonable but it is not reasonable when location becomes one of the most influencing factors for Maintenance Fee in Ontario. Based on Canada Mortgage and Housing Corporation (CMHC) research as of March 6, 2017 referring to CMHC Data 2011 year “In 2011, condominium fees varied substantially across provinces within each structural type of dwelling. Ontarians paid the highest condominium fees in 2011 when compared to residents of other Canadian provinces, whereas fee payers residing in Quebec generally paid the lowest; this was the case for all dwelling types except row houses.

Average monthly condominium fees, by province and structural type of dwelling, 2011

Condo-benchmarking team is trying to clarify the situation of 2019 -2020 years in the course of our current researches to understand the reason of such big difference in maintenance fee of condominiums located in Ontario and Toronto particularly comparing with other big cities such as Vancouver and Montreal. Certainly, there is a different level of salary between Quebec and Ontario. Salary is the biggest part of Condo service price. But based on Canadian government statistics, it is about 10 % difference in levels of salary between Ontario and Quebec but according to the Chart above, Ontario maintenance fee in high-rise buildings in 2011 was about 77 % higher than in Quebec

  • about $530 in Ontario and

  • $300 – in Quebec.

What would be a main influencing factor for Condo maintenance fee in Ontario?

The graphs below might clarify some general tendencies.

Graph 1 show that rental income depends on maintenance fee dramatically. It is obviously, the lover maintenance fee the higher rental Income.

The Graph 2 expresses maintenance fee tendency growth proportionally with a market price of the property. It might be related with quantity of services and luxurious quality of services in some buildings. But also, it might be connected with other factors as a deficit of time of owners living in expensive buildings to participate in a condo management and management companies management practices. However, some extra-ordinary Condominiums fall out of trend showing a very high market price and a modest maintenance fee. Such buildings as the Berczy ($1458 /SF has maintenance fee just $0.56/SF, Burano on Bay ($1,183/SF and $0.56/SF), Pears on Avenue Rd ($1,122 and $0.67) and Minto 775 ($982 and $0.41/SF). The Table 1 (sample of high demanded buildings with high rental and sale price and a great choice of amenities) shows that Condos having similar set of amenities and a high quality of services have very different maintenance fee that might change opportunity for Rental Income dramatically. Also, the table confirms that the most maintenance fee influencing factor is the highest professionalism and efficient work of management company and a great job of the Board Directors. So, a potential condo buyer should not neglect those factors making a choice of a Condo for living or for rental income.