Some Toronto landlords are experiencing a bit of a challenge during this market. The supply of Toronto condo rentals have increased drastically as a result of the COVID-19 pandemic.
You’ve probably heard of how the pandemic affected the Air BNB business. Some landlords using this as their business model have offloaded their condo investments in an attempt to cash out as their revenues have dropped.
Landlords renting out to international students have also seen a drop in demand as students return home and no longer require a place to stay.
This has resulted in a swell in supply while a drop in demand for Toronto condo rentals have caused rents to drop.
How does a landlord successfully traverse this challenging rental market?
The answer is simple, albeit eye opening.
You need to have money accessible to keep your rental investment property afloat.
The current rental market situation will pass eventually as immigration returns, students come back, confidence in employment increases and as businesses slowly return to normal.
It will take a while, and it is unrealistic to think that demand in the rental market will turn back on like a light switch.
A week ago I wrote about how a limited supply of homes for sale combined with an increased demand from homebuyers led to double digit price growth for June.
The rental market is a totally different dynamic.
There are just so many condo units listed for rent in the Toronto market right now that landlords are competing on rental rates — and this much supply in the market is causing those rates to drop.
Investors who started accumulating properties just recently and bought at a higher price may see their cash flow (if even existent to begin with) eroding as rents drop.
If you’re a newbie landlord and just picked up your first investment property, only to see the COVID-19 pandemic affect your employment income and force you to avail of the CERB, you’re going to experience a difficult challenge… without a doubt.
If you’re in this situation — you need cash reserves to keep your investment afloat. Part of planning as an investor is to calculate for vacancies and times where you will experience negative cash flow. This is one of those moments. But it too will eventually pass.
Landlords who have been accumulating properties for years, and have bought at least a decade or so ago, will likely be seeing positive cash flow and may even be sitting on investment properties that have been fully paid off.
The sheer supply of rentals in an otherwise high demand market will affect your cashflow as an investor for the time being.
And we don’t know exactly when the affects of the pandemic will subside.
Careful planning is needed now especially as some landlords choose to sell their units and cash out of the market resulting in an increase supply of Toronto condos as well.
In the long run, the Toronto market will return to the levels we’ve become accustomed to.
It’s just a matter of time.
Photo by Christopher Lin on Unsplash
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