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Condominium law restricting rents may affect investors

There is a great deal of news surrounding the rising cost of rent in Canadian cities. However, many condominium owners who seek to earn rental income from Ontario real estate investments are actually in the negative due to the cost of purchasing and maintaining a property. Proposed changes to condominium law and rental law may require these landlords to restrict the rents they charge while costs related to condo ownership continue to rise.

For example, the average rental rate in Toronto is currently $2.99 per square foot. That adds up to $2,219 for a 734-square foot condominium. Despite this 10.3 percent jump in price over the last year, a recent report shows that many landlords are still producing no income. An incoming condominium law is expected to expand rent control to prevent such sharp increases in rates. Currently, buildings constructed after 1991 are exempt from the law, which requires landlords to limit rent increases to the rate of inflation.

Experts say that the high cost of housing in Toronto along with rising condo fees are responsible for the cash flow negative position of many local landlords. A typical mortgage on the average condo purchased in the third quarter of 2017 would cost $1,985 per month. When average condo fees for $570 per month are added to this price, the monthly carrying costs are $646 over the average rent on such a property. Some investors avoid this by purchasing new construction instead of existing units, but those who purchase new real estate may end up in a cash flow negative situation in the current climate. 

Although new condominium laws will restrict rent increases from owners who lease their properties, Ontario still has "vacancy decontrol" in place. This allows landlords to reset rents to whatever price they wish once a tenant moves out. It is worthwhile for condo owners with questions about how they may rent out their property under the provincial and municipal law to contact a lawyer.

Source: Financial Post, "GTA condo rents keep rising, so why can't landlords produce any income from them", Garry Marr, Oct. 12, 2017

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