As rising interest rates and reduced home prices lead us into a more balanced real estate market, those who own rental properties might be feeling some apprehension about their investment. However, current conditions are indicating that landlords are actually in a great position to benefit. With increased demand for rental units and record high rental costs, those who own rental units will have no trouble filling their homes and recouping their investment.
Did you know? At AllinRealty, we’re experts at helping our clients rent out their condo units or resell them. Turning over tenants is easy with us – we’re All-In with you throughout your real estate investment journey!
When borrowing costs rise, so does rental demand
Although rising interest rates may seem to indicate trouble for the real estate market, the rental side of the market may actually experience some benefits. Rental property owners are likely to see an increased demand for their properties, since many would-be homebuyers may be dissuaded by higher interest rates or unable to qualify for a mortgage.
Rental rates are on the rise
After a major plunge in rental prices during the pandemic, Toronto and the surrounding area is now experiencing record highs in average rent prices. The Toronto Real Estate Board has released data showing a rise of 15 to 25% since the same month last year, while in nearby London, Ontario, Rentals.ca has reported an average increase of nearly 30% for the same time frame. These increases actually translate to higher rental income for landlords.
In addition to an increased number of people seeking out rental properties, renters are more likely to hold onto their units for longer, creating more stability for landlords. This also puts strain on the rental market since there are less units available to rent, opening the door for investors to put properties on the rental market and command current market rates.
Breaking into the market may be more difficult
For potential buyers looking to break into the real estate market, rising interest rates may prove to be a barrier they are unable to cross at the moment. Young families looking to buy their first home, residents that are new to the country, and professionals who have put off buying a home may struggle with the increased interest rates, despite lower housing prices. These hopeful homeowners will then be pushed towards the rental market while they wait for the market to further balance itself.
People are driven back to city centers
With the pandemic reaching its conclusion, people are being pushed back into city centers, forcing them to again look for rental units in central locations. Investors looking to fill their properties quickly should consider both location and amenities when looking for units to purchase. These two factors will be the driving force for many potential renters.
Rising immigration rates are also increasing the demand for rental units in populated and easily accessed areas in the GTA. When families move to the country for the first time, they often choose to settle in larger cities like Toronto, thanks to the easy access to all the amenities they’ll need to start a new life. Rental units conveniently located near public transit will be a draw for these new renters.
Investment properties are always a good move
Even with rising interest rates changing the market, the decision to purchase a rental property is sure to be a good investment. Lower purchase pricing and an increased demand for rental units means that you’ll be able to cover your costs and begin to recoup your investment almost immediately, even with the higher interest rates. Higher rental prices will help compensate for the increased interest, allowing real estate investing to remain a solid strategy.
The GTA is (still) a hot market
After 2 years of people moving out of the GTA and towards a more relaxed lifestyle, the drive to move back into the city has been renewed. Neighbourhoods like Burlington, Oakville, and Hamilton are all close enough to the city to be convenient, but still far enough out to avoid the bustle of city life.
With families looking for all kinds of units including condos, townhouses, and single-family homes, the opportunities for a real estate investor are plenty. Amenities like good schools, abundant shopping, beautiful green spaces, and easily accessible public transit and 400-series highways to get into the city will all play a role in enticing renters to the suburbs.
