With investors returning to Real Estate many have chosen Durham Region as the best place to invest in. There are many reasons for Durham being their first choice and I felt it would be best to share why so many investors look east of Toronto when considering purchasing a rental.
Let’s begin with rents. When you compare the average monthly rental rate to the purchase price, buying a rental in Durham makes perfect sense. The average for a 1-bedroom rental in Toronto is $2,511/mth whereas in Oshawa a 1-bedroom unit averages $1,836/mth. Quite the difference, however when many investors look to Toronto, they are looking at 1-bedroom condos to rent and for example in Oshawa, investors are looking more for single family dwellings, many of which have 2 or more bedrooms. The average 2-bedroom rental in Oshawa is currently $2,160/month. Another reason investors choose Durham is that it is easy to find bungalows with legal basement apartments. Here is a comparison of a condo purchase in Toronto and a bungalow with a legal basement apartment in Oshawa purchased as a rental.
Toronto: 942 Yonge St. Sale price: $630,000. 1 bedroom condo. Estimated monthly rental $2,600/mth.
Oshawa: 3-bedroom bungalow with legal 2-bedroom basement apartment. Sale price $740,000. Estimated monthly rental $4,500/mth.
When you break down the carrying costs, this is why investors prefer Durham Region. (Based on a 5-year mortgage at 5.29%.)
Toronto Condo: Downpayment $126,000. Land transfer tax $18,150. Mortgage, taxes and maintenance fee $3,805/mth
Oshawa Bungalow: Downpayment $148,000. Land transfer tax is $11,275. Mortgage and taxes are $3,900.
The investment in Oshawa has a positive cash flow of $600/month whereas the Toronto condo is operating at a monthly loss of $1,200. Over a 5-year period the Oshawa investor would receive $36,000 over and above their carrying costs and the Toronto investor would have a loss of $73,000. Buying the Toronto condo is a little less outlay of cash, with a smaller downpayment necessary. The condo would require $22,000 less however, the land transfer tax in Toronto is double what it is in Durham requiring the investor to pay $7,000 more to the province for land tax than here east of Toronto.
There are considerable costs to consider when you are purchasing an investment property and a lot of numbers to taken into account. Here is the outlay of cash and the return after 5 years simplified.
Toronto Condo: Total cost to purchase, $144,000. Monthly loss of rent over 60 months, $73,200.
Oshawa Bungalow. Total cost to purchase, $159,275. Rental income over 60 months, $36,000. Return on downpayment investment, 24%.
Investors look for stability, cash flow and a large rental pool when they look at a community to invest in. Clearly it is easy to determine why Durham is such a hot spot for investors.
If we look at another profit center the investment offers, we know from above that the rental income is $36,000 over five years, however, to complete the exercise and determine exactly what the investor would estimate their return would be we would need to add in the amount of principal paid off on the mortgage over the period. That would add up to $66,000. Adding this to the rental income the investor would generate $102,000 as a total for their investment.
The last point to be considered is the value of the property increasing. If we use a 4% increase in value yearly, at the end of the 5-year period, the home would have increased by $160,000, increasing the investment to a total of $262,000. It is easy to see why investors have such an appetite for rental properties.
If you are considering the purchase of an investment property, I can be reached at lindsay@buyselllove.ca or 905-743-5555.
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