Here we will discuss the follow:
- Best Neighbourhoods to Live in, based on your lifestyles.
- Which neighbourhoods to consider investing in. (Including data points to consider).
- Rental trends for cash-flow suites.
- Areas of Growth.
- Pre-Construction vs: Resale Condos.
- Where would I personally invest my money in.
1 // BEST NEIGHBOURHOODS
The average buyer or renter typically will have the following goals when shopping for a condo: live in a peaceful neighbourhood that has good access to amenities and things to do. You can refer to the attached map of Downtown Toronto and the surrounding areas anytime.
- Based on availability of restaurants, bistros, nightlife and patios, there is nowhere in the city better than the Central Core. You could very easily go to a new restaurant or patio everyday for the next 3 years and still have new places to explore even then.
- In terms of charm, backdrop, nature, access to trails, bike paths, dog parks, nothing comes close to Humber Bay.
- As far as the neighbourhood feeling goes, the East Core is the least pleasant in the group, and although has ample amenities, it is quite old and derelict in several neighbourhoods and still has a while before it reaches the point of gentrification where one would be comfortable living.
- The East Waterfront is in its infant stage of development and has very little infrastructure at the time. Based on the demographic that is currently buying condos in the neighbourhood as well as the large downsizing market that seems to be migrating there, there is a lot of infrastructure planned for this segment of the city. I personally have been going to the Plenary Committee sessions with the city to get a better feel for city infrastructure initiatives that are in the works, and there is still a ways to go before the neighbourhood will be comfortable to live in. The plans are nothing short of incredible though. A great resource for some of the initiatives and planning that is currently in the works can be found at: https://sidewalktoronto.ca/
- The Central Waterfront is a great neighbourhood, and has a very similar vibe to Humber Bay, however has far more transit access and more overall infrastructure. The major difference between the two is that the buildings in this neighbourhood are older as they are part of the original fleet of buildings in the Downtown Core, and typically have higher maintenance fees, and dated design elements. If you are looking for something fresh and new, Humber Bay is the superior option.
2 // AREAS FOR CONSIDERATION
As we distill this factor down to 2 specific data points. # 1 is average growth rates year over year along with trends. # 2 is potential upside or potential for growth of your equity.
Here are the average growth rates per annum for the different neighbourhoods. The following data takes into account the weighted average growth rates based on the average sale prices for since 2015. The compiled data is a 4-year analysis using average sale prices in each neighbourhood.
King West = 16.16%
Queens West = 16.83%
Entertainment District = 16.12%
Blended Growth Rate = +16.37% per annum
CityPlace = 18.08%
Waterfront District = 15.93%
Fort York = 16.82%
Blended Growth Rate = +16.94% per annum
Bay Street Corridor = 14.86%
Church Village = 15.47%
Blended Growth Rate = +15.17% per annum
St. Lawrence Market = 14.24%
Distillery District = 16.77%
Blended Growth Rate = +15.50% per annum
Blended Growth Rate = +16.87% per annum
So as you can see in the above compiled data, virtually all neighbourhoods in the Downtown Core and Humber Bay have the same growth rates within a 2% standard deviation. The takeaway is that there are no poor options in the downtown core.
CURRENT PRICE PER SQUARE FOOT IN EACH NEIGHBOURHOOD - BLENDED PPSF
CENTRAL CORE = $1,101.33/sqf
CENTRAL WATERFRONT = $978/sqf
EAST CORE = $1,013/sqf
EAST WATERFRONT = $982/sqf
HUMBER BAY = $840/sqf
Using the above data, it is clear to see that the Central Core is the most expensive neighbourhood and Humber Bay is substantially lower than all the neighbourhoods up in consideration. As segments/neighbourhoods in the Toronto Condo Market reach exceptionally high price per square foot levels, buyers will flow into more viable options. Humber Bay positions itself as the most viable option as it is a 12 minute drive into the Central Core, and as transit options and infrastructure improves in the neighbourhood, you will find the market will draw in more attention and eventually prices will converge or narrow the price gap between Humber Bay prices and Central Core prices. For this fact alone, I see Humber Bay as the neighbourhood with the most potential for growth. Also as discussed it has the highest potential upside.
3) RENTAL TRENDS FOR CASH FLOW
Now we will inspect the average rental rates for each neighbourhood as they stand, and attempt to have a better picture of what sort of cash-flow each neighbourhood could yield. The following average rental rates are an amalgamation of 1-Bedroom/2-Bedroom/3-Bedroom/Studio suites all in one. Of course the studios may rent for $1,850/month, and 3-Bedroom suites may rent for $4,225/month, but for simplicity of information and trend analysis we only consider the blended neighbourhood rates. Once we decide on the neighbourhood and unit style (1-bedroom vs 2-bedroom) we will dive deeper into average 1-Bedroom rental rates versus 2-Bedroom rental rates. Here is the data.
CENTRAL CORE -Average Rental Rate
King West = $2,936/month
Queens West = $2,675/month
Entertainment District = $3,840/month
Blended Rental Rate = $3,150/month
CityPlace = $2,928/month
Waterfront District = $3,020/month
Fort York = $2,733/month
Blended Rental Rate = $2,893/month
Bay Street Corridor = $3,006/month
Church Village = $2,349/month
Blended Rental Rate = $2,677/month
St. Lawrence Market = $2,819/month
Distillery District = $2,559/month
Blended Rental Rate = $2,689/month
Blended Rental Rate = $3,003/month
Some interesting takeaways from the above data.
- The Central Core as a whole will always yield the highest rental rates because of proximity to commerce and big business.
- Never buy investment properties in Church Village because they simply do not yield attractive rental rates and the buildings are old with high condo fees.
- Humber Bay in-spite of not being in the Central Core of commerce and big business still has comparable lease rates. (One factor could be the larger suite sizes in Humber Bay typically fetch higher lease rates. Larger suites at lower price point plays into the value equation here).
The big takeaway is that nothing will ever compare with the rental rates you can get in the Central Core Downtown. However it is always more important to look at this data point as a function of your carrying costs. Because the price points in the Central Core are an average of $261.33 higher per square foot, the carrying costs will be substantially higher than the carry costs in Humber Bay. This ultimately is our main concern as investors that are looking for positive cash flow.
From a Cash Flow perspective, it would appear that the 3 best options would be:
- Entertainment District
- Bay Street Corridor
- Humber Bay
4 // AREAS OF GROWTH
As far as major areas of growth, the following neighbourhoods would appear to be the areas where the largest density of development and upside appear to be.
- Regent Park - Daniels Corporation one of the 2 Top Developers in Canada is currently developing and revitalizing the neighbourhood. Many of already experience 300%+ equity gains on their suites since the early development stages. There is still a lot of room for growth here as the ppsf is currently hovering around $916/ppsf.
- Queens Quay East (Bayside Redevelopment) - This pocket of the city is in a rapid growth stage and is the neighbourhood I mentioned to you has been routinely launching New Developments at $1,300+/square foot including the new benchmark of $1,500/sqf at Aqualuna, launched by Tridel. This pocket of the city ties into the 500 acre Lower Don Lands Redevelopment (20 year development project), and Google Future City (10 year development project). With Google Future City anchoring the development effort, and the Top 5 developers all owning plots of land in this region, we see huge upside for the neighbourhood long term. The key word here is "long-term."
- Distillery and Canary District - Located in the East Core near the Waterfront, this neighbourhood will benefit greatly from the rising tide in the neighbourhood as the Queens Quay East Developments continue to launch at higher prices per square foot. Analyzing charts, we have identified the Distillery as having the best singular growth rate in the area. Definitely an area to consider, and an area that seems dramatically undervalued at the moment.
- Humber Bay - With a great community vibe, and the best natural setting - the neighbourhood lends itself well to both investors and end-users. A relatively low ppsf and relatively high rental rate offers some of the best margins for investors at the moment, and as infrastructure continues to roll out in the neighbourhood, the neighbourhood would appear to be the most sound investment within the neighbourhoods up for consideration. Also, with the relatively low ppsf one would be locking in a price that has a lot more room for growth than a condo at $1,200/sqf. The case study for Humber Bay would be what happened in King West. Once a transient neighbourhood for artists and hippies, eventually with addition of infrastructure and commercial investment in the neighbourhood, area values skyrocket, and King West is now the most exciting neighbourhood in the city. We see Humber Bay mimicking some of the development that occurred in King West.
5 // PRE-CONSTRUCTION VS: RESALE CONDOS
There seems to have been a convergence between resale condos and pre-construction condos in the past 2-years. Where pre-construction used to be considered a deal years ago, it now is charging on average $114/sqf more for a condo that is not even built nor habitable.
Translation = Poor Value.
Charging Future Values for purchases today, and then locking in your deposits for 2-4 years without any immediate cash flow or return, seems to be a poor investment to me. Not all projects launch at these steep premiums, but with my experience in both resale and pre-construction condos, I can safely say that 95%+ of new developments represent poor value, and the consumer would inevitably be locking in a negative equity state the moment they signed paperwork with the developer. I repeat, 95 out of every 100 pre construction developments represent poor investment value to an investor. There are the 5% of new developments which buck the trend, but as a rule of thumb pre construction condos in Toronto only present value to end users that are willing to pay a 15%-20% premium for a specific floor plan that they can close on in about 3-4 years. Overall, as an investment, resale condos in Toronto would be a far superior option to the astute investor.
Essentially, if one could purchase a 600 square foot unit in the resale market for $600,000 in the Core, and the same unit launches in pre-construction 3-years out from a key delivery date at $675,000, I would always opt for the unit that costs me $75k less. The secondary benefits of this would be your buy in price at $600,000 has more potential to increase in value to $700,000 than your buy in price on the pre-construction condo increasing in value to $775,000. Also, the resale unit would allow you to rent out immediately to a great tenant that starts producing positive cash flow immediately, pays down your mortgage sooner, and your down payment is not locked up for 3-4 years without return until the keys are delivered. It would almost make more sense to put that down payment in a low yield GIC that returns 1.5% per annum. At least you would be receiving a cash flow in the interim.
6 // WHERE WOULD I INVEST MY MONEY?
Ultimately if I was on the market at the time for an investment property, my focus would remain in:
- areas of high growth
- areas with highest lease rates
- areas with highest year over year appreciation
- areas that are currently undervalued and have the most upside
- areas where not only my target renter would want to live in, but also where I would personally want to live
Based on the above 5 factors, I would have to say the area that I would be investing in would be Humber Bay. Of course your timeline plays a factor in your decision making. If you are willing to tie up funds in a pre-construction development for 2-3 years, in a neighbourhood that will have exceptional long term growth (20 year plan), then the East Waterfront would be the place to invest in. If the main goal is to create immediate cash flow and start building equity in your investment immediately, I would consider resale condos in The Distillery, Humber Bay, and Central Core. Again, these would be my own preferences, and everyone will have their own preference of neighbourhood and investment vehicle.
I really hope this was a helpful data based investment piece that opens your eyes to Humber Bay condos for sale as a great investment option within your real estate portfolio.
Have an amazing week ahead 😃