Owning a rental condo can be really beneficial in the Toronto real estate market. If you are exploring this type of real estate investment, make sure that you are aware of the ups and downs associated. The housing market might fluctuate at any time. Moreover, supply and demand can also vary. There are several aspects that you need to keep in mind before making a decision.
Before we go into the details and discuss the pros and cons, here is a tip. If you want your rental property to be profitable, you should reap returns that are greater than what you can earn in conservative investments.
Advantages of Renting Your Condo
The pros of having a rental condo might be few, but they are powerful. So, if your steps are well measured, you can make a lot of fortune by renting your condo.
#1 Income from the renters
One of the biggest and most obvious benefits of renting your condo is that you will have a direct and regular income stream. All the monthly rents will go into your bank account. In fact, you can easily use the amount for all the basic expenses that you will have in the month.
The income from the renters can be significant, and it can help you carry on when you are going through a financial crisis. The rent will be constant, and you will have a source that will allow you all the basic expenses.
#2 Sweat equity
The sweat equity will add value to your property as you maintain and keep enhancing it. Whenever you repair the house or repaint or refinish it, you will add value to the condo without any significant financial expense. In fact, by regularly making enhancements in your condo, you will also increase the value of the property in case you plan to sell it anytime. You will obviously have the right to ask the tenants to pay more if you get the condo refinished or enhanced.
#3 Income through property value growth
Since you own a condo, you will get the gains from an increase in the value of the property over time. Even if you do not make any changes in the condo, there will still be an increase in the property value due to the demand around the region.
Even though this factor majorly depends on the location of the condo, as in some areas, the value might increase significantly. While in other regions, it may remain flat. Generally, property value growth increases with inflation. So, if you happen to have a condo in a popular area, you will get a great and rapid value of property growth. However, a really stagnant area might make you wait for a few years.
#4 Seasonal rentals
In case you rent out your condo seasonally, you will have the unit to yourself for a few days of the year. You will be able to deduct all the expenses and still enjoy a new and different lifestyle. For small families and individuals, this can be a great advantage in terms of expenses.
Risks in Renting Your Condo
There are various cons to renting out your condo unit as well. Even though they individually look small, if you add them up, they can lead to significant issues.
#1 Concentration of assets
This is one of the most common risks and drawbacks of having a rental condo. For most people in Toronto, owning a rental condo can take a significant portion out of their income. Moreover, the main issue with concentration is that it is not diversified.
The entire investment and concentration will be in a particular neighbourhood and a specific city. So, if the value of real estate properties goes down in that neighbourhood, there will be significant consequences. You can end up losing a lot of money. Therefore, you will be tying yourself to the local real estate market for that area for a few years.
The concentration of assets is certainly not a solid investment strategy, but if you have wealth to spend, this becomes a less important factor. In such cases, owning a condo becomes a tool for diversification.
#2 Taxes and insurance
Irrespective of whether people live in your condo or not, there will be property taxes that you will have to pay. You will also have to bear the cost of insurance, the cost of homeowner’s association fees, if any, and various other expenses. Even though you will know these costs in advance, it is an expense that will cut down your profits.
It will be a really painful expense if there are no tenants for your condo unit. These costs will have to come directly out of your pocket in such situations. However, these expenses are not so significant.
#3 Tenant risks
There is no guarantee with the tenants that they will be paying their rent on time. The revenue stream will not be guaranteed, and you might be without rent for a few months. Also, the time that you spend to deal with their eviction and non-payment can be a major headache.
There are tenants that will cause more damage to your condo than others. Even though you will have their security deposit, it is still a risk. Moreover, there is the risk of not having any tenants at all. These periods can lead to significant issues as the condo will not have any rental income.
There are various things that condo owners consider before buying a unit. Especially if you have plans of renting out the suite, you should go through these benefits and risks thoroughly to make sure that it will be a great investment.
So, make sure that you consider the location, expenses that you will have to bear, and how long the unit will be occupied by tenants. When you purchase a condo for rental purposes or plan to rent out your condo, you should ensure that all your expenses will be met, and your investment won’t go down the drain.
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