The Airbnb era may be ending as an increasing number of cities start enacting policies to limit or crack down on short-term rentals – the latest being New York City which just introduced a law prohibiting rentals of under 30 days. Lack of supply is largely cited as the main driving factor for these laws, with policymakers hoping that these new rules bring more homes back onto the market
Several Canadian cities already have similar limitations in place for short-term rentals such as Halifax, Montreal, and Toronto. As of September 1, short-term rentals in Halifax have restrictions on how units can be rented in residential zones and also require basement apartments or backyard suites to be rented for more than 28 days. In the City of Toronto, short-term rental properties are not permitted to rent for more than 180 days per calendar year and the BC government has also indicated that it’s preparing to draft its own laws on short-term rentals. So with all of these restrictions in place or forthcoming, are investment properties still worth it?
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Despite short-term rentals facing increasing operative challenges, investment properties in several cities are still profitable. This means condo investors may want to consider pivoting to long-term rentals instead.
Zoocasa analyzed data for 21 cities across Canada and compared monthly rental prices and monthly mortgage payments for the average condo in each. Additional costs for each were not considered, such as utilities or property taxes. Rental price numbers were sourced from Rentals.ca and Zumper.com, while the monthly mortgage payments were calculated by assuming a 20% down payment at a mortgage rate of 5.24% amortized over 30 years on the average-priced condo.
Condos Still a Profitable Investment in Majority of Markets
According to Rentals.ca, rent increased annually by 8.9% in August and the average asking rent in Canada reached a record high of $2,078. The average price of a condo in most cities has not grown at the same pace as rent, meaning condo investors can still make a profit in those cities.
Of the 12 cities with average condo mortgage payments lower than rent, Calgary has the largest difference in payments. The average rental payment is $1,920 while the average monthly mortgage payment on a condo is $1,355, meaning a condo investor could potentially earn $565 a month.
Other Albertan cities like Lethbridge and Edmonton also have mortgage payments lower than the average rent with $800 and $918 differences in payment respectively.
Besides the Prairies, Quebec and the Maritimes also offer condo investors profitable conditions. The average rent in Halifax is $2,061, while the monthly mortgage payments for the average condo would amount to just $1,956. In Quebec City, the monthly mortgage payment on a condo is $1,009 – $401 cheaper than the average rent in the city.
Amid High Interest Rates Condo Investors May Need to Look Outside of Ontario
Besides Windsor and Ottawa, where monthly mortgage payments for the average condo were actually lower than rent, all Ontarian cities analyzed had monthly mortgage payments higher than rent.
Toronto has the second-highest average monthly rent on our list at $2,981, while the average monthly mortgage payment on a condo in the city amounts to $3,451 – a difference of $470. Guelph is the next most expensive city in Ontario for both monthly rent and mortgage payments, followed by Barrie, Hamilton, and St. Catharines.
Zoocasa’s Broker of Record & Industry Relations Officer Lauren Haw noted in our fall market predictions report that though demand for investment properties is high, rising interest rates are putting investors in a difficult situation. “Condo investors continue to have a hard time covering carrying costs and they’re not making a profit, which is leading many to sell their investment properties,” said Haw.
Still, according to the Bank of Canada, investors accounted for 30% of home purchases in the first quarter of 2023, confirming that interest in investment properties is still strong. With the Bank of Canada’s recent announcement to pause interest rate hikes, keeping the overnight lending rate at 5%, demand for investment properties may grow.
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Mackenzie Scibetta is a seasoned Content Marketing Specialist at Zoocasa, where she brings her expertise to the world of real estate. As a dedicated real estate writer, Mackenzie's primary goal is to equip home buyers and sellers with the most up-to-date market insights, enabling them to navigate their real estate ventures with confidence.
Mackenzie's writing is characterized by its depth and breadth, covering a wide range of topics related to the real estate industry. From exploring the intricacies of mortgages to meticulously tracking and analyzing trends in local markets across Canada and the U.S., Mackenzie is known for her comprehensive and data-driven reports. Her commitment to providing valuable information is evident in the consistent quality of her work.
Mackenzie's research and insights have earned her recognition from prominent media outlets. Her expertise has been featured in BNN Bloomberg, CTV News, the National Post, The Globe and Mail, and even The New York Times. These accolades underscore her position as a trusted authority in the field of real estate.