Once in a while I get the urge to buy a condo in Toronto to rent out. Everyone seems to be doing it, right? So it must be a money maker? Right? Wrong! Let’s look at the numbers.
The following is an approximation that leaves out a few minor details for simplicity’s sake. Please feel free to point out things you’d change or add in the comments below.
Today I’m looking at a 1 bedroom plus den at the luxury condo called “Sky Tower at Eau Du Soleil”, located at 30 Shore Breeze Drive & 2183 Lake Shore Blvd W, Etobicoke.
This is a gorgeous location with AMAZING amenities, including a indoor salt-water pool, hot tub, fitness centre, rooftop deck, media room, meeting room, yoga studio, squash court, rec room, outdoor patio, tennis court, visitor lounge and more. You get the picture. This is luxury living.
Currently, several units are for sale. A 643 square foot 1+1 including parking is listed at $749,000 with a $449 monthly maintenance fee. A couple others are also listed at a similar price.
With a 20% deposit ($149,800) and 25yr mortgage at 2.79%, this property could be yours for $3,221 per month all-in.
So Would this Make a Good Investment Property?
A similar sized condo on the same floor rents for $2,200 per month. That’s an instant monthly loss of $1,021 per month, or $12,252 per year. Not only that, you’ve suddenly tied up $149,800 in liquid assets and are now $599,200 in debt. Sounds like a shitty place to be. Especially considering you could have been EARNING $7,490 a year from the $149,800 deposit (assuming a reasonable 5% annual return).
But instead of sitting back and watching your portfolio grow, you’re chasing people for rent and fixing toilets at 3am. And basically paying $1,021 a month for the privilege. But some of that monthly all-in payment is going towards building equity in the house, right? Well, because of the monthly negative cash flow you’d only accumulate $27,954 in equity over five years. Alternatively, you’d have earned $37,450 on the investment portfolio.
To make up the gap you’d have to depend on the condo price to appreciate . Unfortunately, Toronto real estate is in the midst of a massive bubble and it could burst any time. I’d say it’s pretty ballsy to bet your future on the forecast that prices will keep rising.
And that – ladies and gentlemen – is how I eliminate the urge to buy a condo in Toronto to rent out.