I highly encourage all my real estate investor clients, or any investors for that matter, to base their investment decisions based on the facts rather than any public perceptions or relying on bad advice from so-called market gurus or professionals, especially those looking after their own best interests rather than their clients.
One very common perception that most of my new clients who reside in the GTA have is that the quality of tenants or their ability to pay rent in most of my targeted hot investment markets, outside but within commuting distance of the GTA, is somehow worse than the GTA market.
I frequently have to educate my clients that this is not the case at all.
The reality is that each and every municipality, whether it is Toronto or Hamilton, Barrie, St. Catharines or any other municipality for that matter all have their good, bad and ugly areas of town and all of these have implications on tenant’s dynamics based on their incomes and budgets and consequently their ability to pay rent on time.
Ultimately, regardless of which municipality you wish to invest in, it is the landlords responsibility to ensure that they consistently do thorough due diligence and screening as part of their tenant selection process for their rental units, regardless of where their investment properties are located, which should include, reviewing tenant applicants credit reports, proper income verification, etc. just to name a few.
The reality is that even in cities like Toronto there are good, bad and ugly areas of town and each of these comes with their own type of tenant demographics and socioeconomic realties who you as an investor can expect to attract.
Indeed you may be surprised to learn that, based on 2016 census figures average per capita family incomes in Toronto were actually lower than those who resided in cities like Barrie, Hamilton, KWC and St. Catharines.
The main reason for this is that the vast majority of new jobs that have been created in the GTA since the 2007/8 financial crises have mainly been in the hospitality and service sectors.
These include such jobs as restaurant waiters and cooks, your local Starbucks baristas, hotel, sporting and event centre jobs, ect. Yes, the very same segment of the employment market that have been the hardest hit during the pandemic.
Is it now any wonder why average rental rates are now lower, vacancy rates are now higher (over 5% vs. less than 1% a year ago) and tenant rent payment default rates are now higher (11% now) in Toronto, whereas all these metrics are substantially better in many of these outlying, more affordable municipalities where average family incomes are actually higher than the GTA?
“Despite more apartment options, with the financial hardships that the pandemic brought on and the notoriously expensive nature of the city, more people in Toronto had trouble paying their rents in 2020 than tenants of any other metropolitan area, says the housing agency, with around 11 per cent of units — 34,858 total — in arrears.”
Even then, given the mainly sky high rental rates, even with the recent corrections in rental rates and higher vacancies in Toronto, the reality is that many prospective tenants, even those with great credit and above average good paying jobs are still finding it excessively difficult to find affordable housing options in the GTA.
This is why many of these great tenants choose, more so out of necessity than what they want or prefer, to move further out of the GTA in search of more affordable housing options that also meet their needs. As an example, a family of 4 with a rent budget of only $1450-2000 would find it difficult to afford even a 2 bedroom apartment or condo in Toronto today (the minimum they would require for a family of this size).
Whereas for that budget they can still find great 2, 3 and even 4 bedroom units, and even possibly entire townhouses, semi-detached and even fully detached homes, within their rental budget and housing needs requirements in many of our targeted investment markets. For such tenants, it is not where they want to live.
It is more where they can move within their budget while still being able to commute to work on a daily basis, or better still find a job locally in their new municipality of choice that may actually pay the same or even more than what they were making working for their GTA employer.
That is simply their reality and only acts to further entice such tenants to make the move out of the GTA. After all, these outlying municipalities no only offer more affordable housing options that they need, but also a better quality of life (or indeed having a life altogether) without breaking their bank or being house poor (both as a buyer or renter alike).
This is only one of the reasons why I have personally been investing, and introducing my investor clients, to my very own targeted rental property investment hot spots outside of the GTA.
These markets offer a much wider range of affordable housing options to tenants across the socioeconomic spectrum than the GTA and as a result, it is not only the local tenants who are attracted to our rental units but those who may continue to work, but have not choice but to find affordable housing options well outside of the GTA.
What this means, and what is likely to be shocking to some current and would be GTA investors, is that while Toronto’s vacancy rate has jumped to nearly a 50 year high to over 5% (fyi it was less than 1% only 1 year ago, pre-pandemic), rental vacancies in my targeted investment hotspots continue to remain at or near all time lows, while rental rates have continued to move even higher over the same period.
Indeed the shift to more affordable housing options outside of the GTA, for those tenants and home buyers who can no longer find affordable housing options in cities like Toronto, has been happening for about a decade now.
The only thing that has changed during the pandemic is a massive acceleration of this trend for both tenants and first time buyers alike.
All this has resulted in higher rental rates and substantially higher real estate values in our targeted markets which is a now a stark contrast to the Toronto market.
Furthermore, given the highly frothy and speculative GTA real estate prices, the GTA market is also more prone to deeper price corrections during a real estate market correction.
This last one may also be surprising to real estate investors in the GTA. Indeed, during the GTA low rise market correction in 2017 as a result of Ontario’s Fair Housing Plan (which in retrospect was anything but fair to tenants or landlords alike), property values plummeted 35%+ is some areas of the GTA. Whereas property price corrections in these outlying areas like Hamilton, Barrie and Niagara Regions were substantially lower than the GTA market.
Moreover, real estate prices in all of these outlying areas reached all time highs again sooner than the GTA. Indeed, many segments of the GTA market have still not recovered to their all time highs seen in early 2017, whereas prices of properties in these outlying municipalities recovered to all time highs 2-3 years ago and yet still continue to represent better opportunities for property appreciation than properties located in the GTA.
And once the gates to immigration are reopened post pandemic, I truly believe this trend to continue as rental and vacancy rates in Toronto recover back to all time highs, further constraining affordable housing options for tenants and first time buyers alike, thereby necessitating them to look further outside the GTA for their housing needs that are more aligned with their income levels and budgetary limits.
Now that you have the facts, do you still choose to believe that real estate investment in Toronto represent lower or higher risk to investors who choose to continue to invest in the GTA than many of these outlying municipalities within commuting distance of the GTA?