With summer being underway and temperatures warming up, many use this as an excuse to get out and shop for a new investment property. Let’s look at the current economic and political climate and determine if this is the right time for you to begin your journey in real estate investment.
First, let’s look at the average sale prices for typical rental properties: townhomes, semi-detached, and condos under 1,500 sq.ft in the city of Guelph. From the beginning of 2018 to the beginning of 2019, there was little to no growth in this segment. The average sale price hovered around $370,000 for that year. However, since February, we have seen significant growth, with the average sale price in June jumping to $390,000 in this market segment. This can be interpreted both negatively and positively. For those looking to enter the market, this can be seen as a barrier to entry. For those already owning investment properties, asset appreciation is always a positive. Trusting historic trends, the recent spike in the market is not expected to continue. Typically, we see a positive trend in the spring before a plateau through the summer and fall. This means the market prices you see now, will likely stick around for the next few months.
Given the expected market plateau, you may think there is no urgency to undertake a role as a landlord. That is until Doug Ford’s provincial PC’s made an announcement regarding rent control in late June. Beginning in 2020, the maximum annual rent increase allowable without approval from the Landlord and Tennant board will be 2.2%, a 0.4% increase from the current limit of 1.8%. For example, a tenant who is currently paying $2,000 per month could be legally increased to $2,044 beginning in January. This is the highest increase since 2013 and was greeted with relief from landlords across Ontario, who have been patiently waiting for this announcement.
Let’s look at a real property currently on the market in Guelph and break down the numbers to determine the feasibility of such an investment. A small 3 bedroom apartment with newer finishes in the south end of Guelph currently fetches about $2,000 per month in rent. That same unit is valued at approximately $390,000 on the resale market. Assuming the purchaser finances it at current rates over 25 years with 20% down, this property will break even in the first year. This is including condo fees, insurance, taxes, and maintenance costs. Over time, this unit will be free to own and appreciate in value, all while gaining equity from the rental income.
Although this is a best-case-scenario, in reality it is it is difficult to find a property that will be cashflow positive given the relatively high market prices and strict rent controls. That being said, the projected plateau in prices combined with loosening rent controls, the rental market is beginning to favour landlords and buyers for the first time in several years. Talk to your realtor or one of our sales representatives at Planet Realty to determine if now is the right time for you to begin your real estate investment endeavor!
Market stats taken from https://ortis.stats.showingtime.com/stats/market
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