Toronto condo investors facing negative cash flows

Rental returns have slipped during the pandemic meaning some investors are losing $600 a month according to a new report

Toronto condo investors facing negative cash flows
Steve Randall

Investing in condos for the rental market in the Greater Toronto Area (GTA) is proving costly for some investors, at least in the short term.

With the Canadian housing market under pressure from the coronavirus pandemic, a report from and Bullpen Research & Consulting shows that a decline in rents sparked by the pandemic means that some newly-completed condos have resulted in negative cash flows of between $200 and $600.

Using data from local listings from the rentals site, along with BuzzBuzzHome information on new condo prices, the analysis of the questions whether investors will be cautious about the GTA rental market in the months ahead.

“This pandemic could have a real impact on the supply of new housing in the GTA in the long term, as missed payments by tenants and lower rents could have many investors rethinking future pre-construction condo purchases,” said Ben Myers, president of Bullpen Research & Consulting.

If investors do pull back from the GTA rental market it would likely impact the supply of condos as investor-buyers are key to developers reaching their pre-construction sales targets.

The data reveals that investors who bought GTA rental condos between seven and ten years ago were not facing a risk of negative cash flows currently. These investors have seen positive cash flows of between $400 and $600 based on the analysis of rents in over 24 buildings from January 2019 to April 2020.

Rents across the buildings analyzed declined by less than $40 on average to $2,539 with the average cost to investors of $2,489, resulting in $50 of positive cash flow, with variations from around $600 positive to $600 negative.

What’s ahead?
In the report, Myers suggests that many renters whose leases were ending during the lockdown period may have extended short-term but there is no way of knowing if their plans have changed. This could be due to lost jobs or income for example. There are also questions as to how much (or little) pent-up demand there may be in the GTA rental market.