By renting out their Toronto Condos, this couple has someone else paying their mortgage If you are prepared to go long term, it can be profitable.
Susan and Greg Swiatek never set out to invest in Toronto real estate. It happened by chance after they bought a waterfront condo for themselves three years ago. The couple own and operate a fishing lodge in northern Ontario and wanted a refuge from the harsh winters. They bought a unit at WaterParkCity Condos, with the intent of spending their winters in Toronto and summers at the Grey Owl Camps in Biscotasing, three hours northwest of Sudbury. The plan was to let the condo sit vacant in the summer. But then Susan chanced upon a newspaper article about the condo rental market and learned it was possible to let their unit out for half a year at a time. "We didn't know anything about the rental market. We were just planning to keep the condo empty when we were up north and pay the mortgage on it," she explains. Now the couple have tenants paying their mortgage, and then some. They're collecting $1,700 a month in rent for the one-bedroom-plus-den waterfront unit. "The rent from the tenants more than covers our expenses and makes a bit of extra for us. To us, it's astounding," says Susan, noting that the couple's only reference point for rentals was nearby Chapleau, where apartments go for $400 a month. Investing in a Toronto condominium is wise financial planning, says Jeanhy Shim, president and editor of Urbanation, a publication that tracks the Greater Toronto Area condo market. "Long term, someone pays off the mortgage for you," she says. "If you buy good product, in a good location, inevitably the value will be there. It's part of the retirement package," she adds. With the citys population expected to grow by 1 million people by 2031, demand for real estate will only increase. "You have to look at a 10-, 15-, 20-year horizon. Toronto is going to continue to grow," Shim says. Those looking at a shorter-term time horizon in Condos face more risks, she notes. "Inevitably you have your cycles," Shim says. The Swiateks are in the market for the long haul. They purchased a second, bigger unit in March 2002 because they felt there wasn't enough space to accommodate guests in their first one. But rather than sell off the first one, they decided to keep it as an investment property, renting it out year-round. In three years, the first condo has jumped in value by $65,000 from $170,000. "We didn't realize it at the time, but it was the best investment we ever made. The same floor plan now sells for $235,000. Compared to our mutual funds that are only now recovering the losses we sustained from previous years, real estate is a much better investment," Susan says. "By a complete fluke, we end up making a smart investment in a condo," she adds. Even their parking spot has jumped in value to $20,000 from $16,000. There are almost 37,000 rental condo units in the Greater Toronto Area, representing 20 per cent of the entire condo market, according to the Canada Mortgage and Housing Corp. In the late '80s, investors held 40 per cent of all condos. That was a time when they were flipping them quickly for short-term profit. The Toronto Real Estate Board, which publicizes condos for rent through its Multiple Listing Service, says the condominium lease market is up 6 per cent compared to the first four months of 2004. So far in 2005, 2,155 condominium apartment and townhouse transactions were reported through the board's MLS system. While non-condominium apartment buildings are experiencing a rising vacancy rate, that's not the case with condo rentals, according to the CMHC's condominium report for the GTA. In fact, the vacancy rate for rental condominium apartments in the GTA dropped from 1.6 per cent to 0.9 per cent in 2004. "The sharpest vacancy drop was registered in the City of Toronto. This bucks the broader rental market trend of rising vacancies. A combination of both supply and demand factors were at work here," states the report. While the condominium market is up, rental price trends have been mixed, according to TREB's rental market report, released last week. Rent for two-bedroom condominium apartments has fallen 1 per cent to $1,725 per month compared with the same time period last year. But rent for two-bedroom townhouses has risen 4 per cent over the first part of 2004, to $1,694 per month. Meanwhile, Shim says she's seeing an increase in the number of regular folk investing in condominiums. "We think there are two different types of investors out there. In the '80s, we saw a lot of what we call hard-core investors. These are the people who sit there and crunch the numbers and look at the rate of return. Certainly you still have some of them today," she explains. "What we're seeing more and more of what we call non-typical investors," she says, describing individuals like the Swiateks. Shim herself has invested in a condominium, as has her mother. "My mother had a little bit of extra money. She didn't ask, `What do you think about the price of Nortel stock?', she invested in a condominium," she says. "A lot of people like it because it's concrete, it's tangible. You can touch it, you can feel it, you can see it," she adds. Shim only has anecdotal evidence to back up her belief that non-typical investors are buying more condos. She believes it has to do with the influx of new Canadians into the city. "The immigrant influence has a lot to do with it. They bring a very positive attitude about owning real estate," she says. Shim observes that many new Canadians who buy investment condos are from China, India, Pakistan and Southeast Asia. "In these countries, people have not grown up in a culture where they invest in the stock market and in mutual funds and talk about the bond rate," she says. Housing economist Will Dunning expects to see the investment condo market take a bit of a hit in the near future as more condominium projects are completed. "During the second half of this year, it will be increasingly difficult to market investment condominiums in downtown Toronto, Scarborough and Mississauga due to the impending flood of completions, combined with the need to refill units that first became available in late 2004," he writes in his newsletter, The Condo Investor. Ted Tsiakopoulos, a regional economist with the CMHC, says 15,000 new condominium units are expected to be completed in the GTA this year. That will drive up the vacancy rate, he says. "It will be a bit of a bumpy ride for the next 12 to 24 months," he warns. "Beyond that, I think the market will settle down and hold up," Tsiakopoulos says. Gerry DiLeo, co-owner of the property management firm The Rental Lifestyle Group, says there are always tenants looking to rent new condominiums. "There's a very, very buoyant rental market for new condominiums," he says. Tenants seek out new condos because they like the "freshness" and open layouts of new buildings, he says. They're willing to pay higher rents for high-end features, including granite countertops, engineered hardwood floors and lots of glass and windows, he notes. "What really draws the people are the amenities," he says, citing features such as health clubs, 24-hour concierge service and media rooms. Through companies like his, investors don't have to worry about being landlords. Property management firms can do everything from find tenants, prepare leases, fix leaky toilets and collect rent. "We have no problems sub-letting the suite because we are dealing with a reputable property managers, so they do the screening for us," she says. "I felt I should be rewarded for all my hard work here in the middle of nowhere, scrubbing, cleaning and putting up with drunk fishermen." Susan says that with the help of a property management firm owning investment, real estate is a no-brainer. With the success of their first two condos, the Swiateks are now thinking about adding more real estate to their financial portfolio — an investment strategy they'd highly recommend. "Would I recommend investing in Toronto Condos? Let's just say that we'll be looking into the purchase of Toronto Condos for rent, number three." Article from Theresa Boyle, Real Estate Reporter, Toronto Star
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