Condo Investors in Mississauga
Who makes up for Mississauga Condo Investors?
Mississauga Condo Investors comprise of three broad categories:
- Local Investors from Mississauga & the rest of GTA
- Downsizers
- Overseas Investors
Profile of Mississauga Condo Investors
Recently, Urbanation and CIBC launched a report on the GTA condo market by Shaun Hildebrand and Benjamin Tal. While this report covers the entire GTA market, it is relevant & pertinent to Mississauga since Mississauga is the next big condo market in the GTA after Toronto. Here are some highlights of this report:
- Most condo investors are local immigrants aged 40 to 60. Only about 10 per cent of condo investors are international buyers.
- Many are purchasing condos as a retirement investment or a way to help their children get a foothold on the property ladder.
- Most investors put 20% down payment on pre-construction condos. The price of the condo appreciates over the next 3-4 years that it takes for delivery of the condo. At this time, investors put their unit on rent, which pays for the mortgage of the unit from there on. Some investors put larger down payments to achieve neutral cash flow, while some others use losses to limit their overall tax burden.
- Based on 2017 data on new condo closings, rental investors accounted for no less than 48% of the GTA’s newly completed units
- Expanded rent controls & rising interest rates pose a challenge to condo investment.
- Condos accounted for 80% of new home sales in the GTA in 2017 even though the number of new apartments ready for occupancy were at a five-year low.
- This resulted in 26% raise in resale prices & 9% increase in rents.
Another key highlight is the continued optimism in GTA and Mississauga condo investment, as agents in the focus groups feel that there is an overall confidence among investors that interest rates will remain relatively low and rents and prices will continue to appreciate.
A Window Into the World of Condo Investors
Condo Buying – Challenging time for First Time Buyers
With the new mortgage qualification rules, not only the investors but also users (first time buyers) are finding it harder to qualify for a mortgage. As a general rule of thumb, lending institutions approve 4 times buyers’ gross income (this can be different based on individual situation, credit history, other debts etc.) as opposed to 5 or 5.5 times before the new rules came in.
In other words, a person earning a gross income of $80,000 is approved for a $320,000 loan. When you add the down payment amount to this figure, one can arrive at the total property value that one can buy. So if a buyer has saved $30,000, and is approved for $320,000, then he can purchase a property worth $350,000. Of course there are other limitations that a lender would put in e.g.; cap on monthly condo fee amount, property taxes, utility costs etc.
How can one buy in this market?
- As a couple, buying becomes easier when using combined income.
- Most Gen Y buyers are getting help from their parents these days.
- Even friends or siblings can buy together and save on renting. This is known as co-ownership or joint ownership of property.
We are seeing the latter two trends more and more lately in Mississauga condo market. Read more about first time buying options in 2018.
Does Rent Control Help Tenants?
Well the short answer is, yes.
But seriously does Renting Make Sense?
Someone with no down payment, or other personal financial commitments, someone who’s a newcomer, someone who is on a work permit who plans not to stay longer in the country, or people who are not able to buy a property because their income does not qualify them to buy are some people where renting make sense.
Then there are tenants who are not sure if they would buy even if they have money to make a down payment. We have seen many tenants who have opted to rent for many years and have been procrastinating about home buying. Some of these tenants are expecting a big scale market crash. Well, it doesn’t seem like this will happen anytime soon.
They save by continuing to rent and as per the new rent control laws, they end up paying some 2% year over year. But if you look at these renters (one’s who can afford to buy but are waiting to see a market correction), they are hurting themselves financially in the long run. Condo prices are going up, making it harder to be afford to buy in the future as well. Contrary to popular notion, people on work permit can still buy a property in Mississauga & the GTA. So end of the day, we strongly feel – why rent when you can buy?
Does rent control really hurt Landlords?
The short answer is no! If the existing tenant continues to stay at the rented property, landlord saves on real estate commission which he pays to the real estate brokerages, each time a new tenant comes in.
In our experience in the Mississauga Square One market, most tenants end up buying in two or three years. Some tenants would stay more than five years in a condo, others move out in two years or so. And when a tenant moves out, Landlord is allowed to put his property at the current market rent. This rent has increased around 9% in a year’s time (2017 to 2018), or in other words a 1 BR condo that used to lease for $1600 per month is now renting for $1750 per month. In general, landlord pays 1 month tenant finding fee to real estate brokerages (or some $145 per month based on above example). So landlords will not gain anything if a tenant moves out every year.
Yes, renting to new tenants does make sense if tenants change every two or three years’ time since the landlord is allowed to ask for market rent when finding new tenants.
Note: A landlord cannot not ask his tenant to move out after end of the lease term (lease becomes month to month), because he wants the market rent; this is not allowed and only under certain circumstances a landlord can ask his tenant to move out. Read more about Ontario Rental Rules.
Does buying rental condos in a new Mississauga development make sense?
Buying condos in both resale and pre-construction condo projects in Mississauga makes sense. There is no better form of investment than investing in real estate. Even if there is a small negative cash flow most of the rental income is used to service the mortgage, property taxes and condo fees. Can you name one safe investment product where you can afford to service so much debt, and build wealth substantially faster using leverage. We speak to many financial advisors, some of whom are our clients, and they vouch for the returns on rental investment properties.
Removing fear of renting and managing tenants
Investors don’t often have the time to find tenants and manage their investment properties. That’s where we come in! As a team, we lease more than a few dozen properties every year for our investor clients in Mississauga. To top it all, the Square One condo market generates A Plus tenants.
