Is it Time to Sell Your Investment Condo? 2023 Edition

If you’re a condo investor in Toronto, you’ve likely watched the real estate market in the past year and wondered: Should I sell my investment property in 2023? 

As with most real estate decisions, there isn’t a one-size-fits-all answer. Here’s what you need to consider: 

Interest Rates Are Higher – and So Is Your Mortgage Payment

Real estate investors are feeling the pinch of the TEN – yes ten! – interest rate hikes of the past 16 months. For variable mortgage holders, it’s meant higher monthly payments, while investors with fixed-rate mortgages have seen their amortization periods extended. And when that mortgage comes up for renewal? Well let’s just say, it’s not fun.

Make sure you know how interest rates are impacting your mortgage and explore your renewal options early, so that you can plan accordingly. Re-evaluate your goals:

• Does your investment still make sense if your $ 2,000-a-month mortgage payment increases to $3,000 a month on renewal? 
• If more of your mortgage payment is going towards interest instead of paying off the mortgage principle, how is your goal of building equity impacted?  

How’s Your Cash Flow?

Experts estimate that more than 50% of GTA condo investors are losing money each month. In fact, a recent report by Urbanation and CIBC Capital Markets showed that 14% of investors were losing $1,000 or more a month, and 33% were down at least $400 a month. Condo owners have been impacted by higher interest rates and mortgage costs and increases in property tax, utility and maintenance costs. 

If you’re a seasoned investor, you know that cash flow isn’t the only way to make money on an investment property – especially in Toronto. Over time, your tenant helps you build equity by paying off your mortgage and hopefully, your property is increasing in value too. But it’s still important to understand your net cash flow and risk tolerance.

• How much of a higher mortgage payment can you absorb? If you have a variable-rate mortgage, you’ve likely already seen your payment increase substantially. How much is too much?
• Can you afford the new payments if your fixed-rate mortgage is coming up for renewal? 
• What happens if you lose your job or the income that is helping you counter the negative cash flow? How will you afford the payments?
• Do you have a Plan B if your tenant doesn’t pay rent next month?

Can You Increase The Rent?

One way to counter higher costs is to increase the amount of rent your tenant pays.

In Ontario, landlords can increase rent once per year, provided 90 days written notice is provided to the tenant. If the rental unit was first occupied before November 15, 2018, the maximum amount it can be increased in 2023 is 2.5%. 

If however, your investment property was first occupied on or after November 15, 2018, there are no limits as to how much you can increase the rent each year.

If you haven’t increased the rent in the last 12 months, you should strongly consider it. 

The Good News: Rents are Higher Than They’ve Ever Been

We’re still dealing with a huge undersupply of homes for rent in the GTA and that’s resulted in big increases to the amount of rent landlords can charge. The average one-bedroom apartment in Toronto is now fetching almost $2,600 per month, while the average 2-bedroom apartment is being rented for more than $3,300 per month.

This is good news for investors IF your current tenant decides to leave and you can re-rent your property at the new market rents. But if your tenant has been with you for a long time and has no intention of leaving, those 2.5% annual rent increases won’t do much to help you absorb the increased costs. 

Average Condo Prices Have Been Increasing

If you’ve been holding off selling your investment property because of the 2022 price dip, you’ll be pleased to know that most of the dip has been reversed. In June 2023, the average price of a condo in the City of Toronto was $739,395 – up from January’s average of $711,171.

We Have an Inventory Problem

Investment in dedicated rental apartment buildings has been lacking for decades and Toronto has long relied on mom-and-pop condo investors to fill the need for rental housing. A report by the Building Industry and Land Development Association predicts that the Toronto region will have a need for about 300,000 additional rental units in the next 10 years – and is only scheduled to build 125,000. That’s terrible news for renters who will face even higher prices – but it is good news for condo investors. 

If you decide to sell your investment condo in 2023, remember:

1. You’ll have to pay capital gains tax on the difference between how much you paid for it, and how much you sell it for. We wrote a blog about taxes here.
2. You’ll have to decide what to do with the money you get from the sale. Will you invest it in stocks or bonds? Buy another property? What are the risks and rewards of what you can alternatively do with your money? 
3. Selling a tenanted property is very different than selling the home you live in and you may be surprised to find out that you can’t just ‘give your tenant notice to leave’, because you’re selling the property. Read our blog: What You Need to Know About Selling Your Tenanted Property. 
4. Make sure to budget for selling costs: real estate commissions, lawyer fees and mortgage penalties. Click here to read about the costs of selling. 
5. Hire the right REALTOR who understands how to maximize the value of your investment condo in this market. Read online reviews, talk to friends and check out how the BREL team helps sellers!