So, you have an investment property—a condo—and you’re noticing that the Toronto condo market is pretty sluggish. Meanwhile, investing in a house today seems to offer better cash flow and value-add opportunities.
But does it make sense to sell your condo now? Let’s break it down in this video!
Toronto House vs. Toronto Condo: Comparing Cash Flows
Let’s compare the cash flows between a house split into three units in Toronto and a typical Toronto condo.
When you split a house into three rental units, you get much better rent yields compared to a single condo unit. After covering your mortgage and operating expenses, you still have the potential to cash flow positively, especially if you snag a great deal on a project. So from an income standpoint, investing in houses makes a lot of sense.
Timing the Market: Sell Your Toronto Condo?
You might be thinking it’s not a great time to sell your condo—that’s true. But remember, you’re also buying at the same time. Since houses generally cost more than condos, you’re in a net buy position.
We’re currently in a softer market, which means more choices and a better chance to get a deal.
Real estate prices generally move inversely with interest rates, and even though we don’t expect rates to drop like a rocket and home prices to skyrocket anytime soon, the risk of prices falling drastically is much lower today compared to a couple of years ago. This is another positive signal.
Adding Value: The Fixer-Upper Advantage
There’s often a big price difference between houses that are all fixed up and those that need some work. This difference can be more than the cost of doing the renovations, meaning you can make extra money by fixing up the house.
I’m not saying this isn’t possible with condos, but they tend to be newer and typically have less potential for significant value-add appreciation.
So, from both a returns and market standpoint, repositioning your investment from a condo to a house in Toronto does make a lot of sense. You get better cash flow, value-add opportunities, and we’re in a good market to make this shift.
The Costs of Switching: Fees and Taxes
When you sell, you’ll need to pay selling fees like agent commissions, capital gains tax, and legal fees. When you buy, the big one is the Land Transfer Tax.
So, yes, you’ll take a hit here. Even if you don’t have much in capital gains, you’re still looking at around 8-10% in fees.
Market Dynamics: Toronto House vs. Toronto Condo
Not all types of properties in Toronto are moving in the same direction.
- Lately, condo growth has been slower compared to houses because more precons are being finished, adding more units to the market.
- On the other hand, the supply of new houses in Toronto is limited because there’s not much new land available for building.
- Then, there are government policies aimed at supporting the “missing middle” in housing that have attracted more investors to the house market, making houses more competitive.
And we don’t expect this trend to change.
Future Predictions: Market Outlook
It’s still tough to predict exactly how condo and house prices will change in the future:
- What we do know is that demand should increase as interest rates go down.
- Also, because there hasn’t been much construction recently due to high interest rates, the supply of both condos and houses will likely tighten. This means competition could heat up in both markets over the next months.
Getting Into a Toronto House Rental: The Numbers
Starting prices for houses in the City of Toronto are around $900,000 right now.
The actual capital required depends on your downpayment (typically 20%) and whether you take on renovation work. If you buy a fixer-upper, the price will be lower, but you’ll need extra money for renovations. This means putting more money upfront, but you should benefit from the value-add lift if done right and potentially free up cash if you refinance the project at the end.
Choosing a more expensive multiplex that’s ready to rent out may actually need less upfront capital and be less stressful because you skip the renovation part. Just keep in mind this will typically mean lower rent yields and cash flows, and you lose the chance to get value-add lift.
How We Can Help
If you’re not sure which investment is best for you, just reach out to our Toronto real estate brokerage!
We’re all about buying and selling investment properties in Toronto, mostly houses, and we love to help you make more fact-based investment decisions. Whether you’re eyeing a ready-to-go multiplex or need coaching to convert single-family homes into multiplexes, we’re here to help.
Here’s how we can help:
- We’ll learn about your situation and teach you everything you need to know to make smarter real estate investments in Toronto.
- Then, we’ll search the market to find you the perfect property for your real estate goals.
- If your new property needs renovations, we have reliable contractors ready to assist, and we’ll coach you through the process.
- Plus, our leasing and property management team can handle renting out and managing your property, too—if you need it.
