Is a Toronto condo investment worth it?

Last Updated on October 24, 2023 by Corben Grant

For most Canadians, buying real estate is more than just owning a place to live. It is an investment and for many, the biggest they will ever make in their lives. This means that when you buy a property, you need to consider it as an investment that should ideally grow in value over time.

Condos are a very popular market in Toronto real estate right now and a condo investment can be a major earner. As prices in the Toronto real estate market continue to rise and the supply of houses remains tight, the condo market will likely see more interested buyers. But, how sound is an investment in a condo in Toronto?

Overall, the Toronto real estate market is very healthy and if you can find property in the city, buying a condo will likely be a good investment and addition to your investment portfolio. That being said, there are a number of factors at play that can affect your condo investment plan.

In this article, we will look at some of the pros and cons of choosing a condo as an investment property and how you can expect your investment to perform.

The current condition of the Toronto condo market

In 2020 with more people working from home, attention moved away from city centers as many condo dwellers moved out of the city to surrounding areas. A buying frenzy in 2020 caused sales of houses in the Toronto housing market to reach record-breaking levels, while condo sales remained lower.

Now, however, more people are returning to work and downtown is once again coming alive with business. This is reflected in current market trends which have seen Toronto condo investments growing nicely since last year. Barring any surprising major developments, we can anticipate stable performance for the Toronto condo market.

Condo prices

Average Toronto condo prices have risen over 40% in the last couple of years. Thanks to a growing population and industry growth, including interest from high profile tech companies, Toronto has gained a reputation as an evolving world-class city. Now, more real estate investors than ever before are looking at Toronto real estate.

Based on the historical average, 10 years ago you could hope for a condo to appreciate in value by about 4 – 5% yearly. This has exploded greatly in the last year, with some areas seeing average condo prices grow 15% in value.

While this is great news for those who already owned condos, what does it mean for those looking to start investing in Toronto?

While the pandemic naturally caused some anomalous statistics in real estate, the growth trend for condos has been continuous long before recent shakeups. Toronto is set to remain one of the strongest markets in the country and condos are one of the strongest segments in the city. According to Toronto Regional Real Estate Board (TRREB) sales activity data, since last year Toronto has seen a rise in condo prices (10.8%), condo listings (64.6%), and condo sales (155%), indicating a very healthy market.

Here are some of the benefits of investing in Toronto real estate and condos specifically:

High equity gains

With value rising every year, an investor in Toronto can make high equity gains over the course of ownership. That means even as your own private residence, investing in Toronto real estate is a smart move.

Many returning to the city

There is a high demand for rental inventory in Toronto. With the pandemic winding down, more people will be returning and looking for Toronto condos for rent. This is set to remain a major boon for investors looking to rent. Factors such as the returning workers, university and college students returning, and immigration expected to resume seem set to drive the demand for years to come.

Record high rent

Thanks to consistently high rents and rental demand in the city of Toronto, property owners who choose to rent out their units should find it easy to pay down their mortgage. Despite Toronto remaining one of the least affordable cities in the country, rental demand is steady.

Stringent lending practices

Toronto’s low delinquency rate of 0.56% means even though mortgages are more expensive than ever, mortgage owners are well suited to carry the burden. Even if you plan on always making your payments on time, a reliable community of borrowers shelters the market from instability caused by investors dumping assets they can’t afford.

Another factor that helps is the government’s stringent stress testing. This test was already strict, but it was recently updated to be even more so. This test will make it harder for many to buy property, but it also means those who do are well-vetted and set up for success.

Accessible market

It is no secret that Canadian real estate is growing even more inaccessible every year. That being said, if you want to get into the real estate market, condos are the most affordable and accessible option. Not only do they cost less on average than other forms of real estate, but they are also available in much higher numbers than any other property type. Condos are also distributed across the whole city, giving you a lot of options in terms of location. You won’t find many detached homes in the heart of downtown Toronto, but you will find plenty of condos.

Is real estate the best investment for my money?

These days there are more avenues than ever to invest your money and many are simpler than ever to get into. In fact, real estate investment might be one of the hardest fields to get into. Not only do you need a large amount of starting cash, but you may also struggle to find exactly what you want.

That being said, real estate has long been considered one of the best investment opportunities and the Toronto condo market is strong enough to keep your investment condo profitable for a long time. In short, if you can afford it, investing in Toronto is a wise choice.

One reason real estate is such a sound long-term investment is that it is a physical asset, as opposed to something like the stock market which trades in abstract shares. If the market tanks tomorrow, you still have an actual property that you can make use of.

Consider this advice from the famous Mark Twain: “Buy land, they aren’t making it anymore”. People have been living on and using land in Toronto for hundreds of years now and as a major hub city, they will certainly continue doing so. This means that condo investments will hold value for a long time.

Another factor is the large returns available in real estate. Though you need a large amount of starting cash, you also earn interest on the total value of your property, allowing you to earn big much sooner.

The question of the best condos to buy is a complicated one that will depend on your unique situation. But, what you choose is going to decide whether you make a good investment or a bad one, so there are some important factors to consider. Here are some things to keep in mind when selecting your investment property:

How much should I ?

The price you pay is going to depend highly on other factors such as the location of the unit, the size and features of the unit. You should always start with a budget you are able to afford and aim for units with a purchase price in that range.

Be sure to account for closing costs such as Land Transfer Tax, which could push you beyond what you actually budgeted for.

Look for:

• price reflects market price for similar units
• price reflects average price per square foot
• within your budget – even AFTER hidden fees
• real estate agent with a proven track record
   

What should I buy?

There are numerous different condo developments in Toronto today and there are many opportunities for condo investing in both the pre-construction market and resale market. A pre-construction condo is a unit that is sold out to investors before the building has been completed. Usually, you are sold based on floor plans or a show unit. Pre-construction means you get the newest units, while resale often means you can use the unit sooner.

If you plan to rent out your unit then you need to ask yourself who you plan to rent to. One-bedroom condos will fetch comparative higher rents, but for a higher price. Different floor plans yield different opportunities for renting, so they must be considered.

It is also very important to consider the state of your apartment. If you are getting into a pre-construction condo investment, you’re likely to have the least amount of maintenance. There can be issues with pre-construction condos that result from shoddy workmanship, but the buyer is often insured from these costs.

For the resale condo market, consider what sort of repairs and renovations you may need to do that could eat into the returns on your investment. If the property is in a building that looks set to fall down any day now, why would you invest your money into it?

Look for:

• pre-construction condos
• resale condos in good condition
• be aware of hidden maintenance costs
• units that offer the best options for renting
   

Avoid:

• units with significant repair issues
• units in disrepair offered for a deal
   

Where should I buy?

is a very important consideration when choosing an investment property. Remember: once you’ve chosen a spot, you can’t move your property. You are stuck with whatever location you decided on.

One of the big factors affecting location can be your budget. Buying a condo in the downtown Toronto condo market will be far more expensive, whereas the condo prices in other areas will have more favourable property values.

It’s also important to consider that people live in neighbourhoods, not homes. A great surrounding neighbourhood can make or break a tenant’s experience. Are necessities nearby, such as groceries and banking? Are there outdoor spaces such as parks? Is it close to a noisy road, train tracks, or airport? Though these may seem like small factors on their own, they can add up to an uncomfortable living situation.

Look for:

• proximity public services and daily necessities
• proximity to transit infrastructure and parking
   

When should I buy?

With prices on the rise for the foreseeable future, and mortgage rates low, there is no better time to get into the Toronto condo market than now. Obviously don’t rush in and make an unwise purchase, but if you feel you can afford it and have done your due diligence in finding the right unit, you will be making a good investment. Remember, the biggest factor in return on your investment comes down to you remain in the market. Simply: the longer you have to accrue equity, the higher the return.

How to buy?

Don’t expect to just walk into a building and walk out with the title to a unit. Buying a condo is a complicated process and you will need professional help to make sure everything goes smoothly. Not only does a real estate agent or real estate broker understand the market better than anyone, but many of them are also investors themselves.

Even more important is the fact that many properties sell before even hitting the open market. You won’t even have access to these exclusive deals without the help of the right agent. Try to find someone who has a good track record, and is knowledgeable about the type of unit you want to buy. The right agent can make all the difference in shaping your condo investment strategy.