With the novel Coronavirus putting everything on hold, Toronto investors were left scrambling to find tenants. The city’s rental inventory skyrocketed as students no longer attended classes in person, immigration came to a halt, employees began working from home, and short-term rental operators, like Airbnb, were hampered by travel restrictions.
“With tenants struggling to make rent payments, and the restrictions regarding Airbnb and short-term rentals, landlords have struggled to collect consistent rent,” said Erica Smith, broker of record and co-founder of Stomp Realty Inc. Brokerage. “Many landlords have seen their rental units stop collecting rent, hence why there is a flood of inventory on the market.”
COVID-19 has affected landlords all over the country, but particularly in Toronto’s downtown core. The average rental price in downtown Toronto in August was $2,185 a month, the ninth month in a row where decline was evident. On average, rental prices have decreased by $200-$400 compared to this time last year.
“I would say, generally, buildings in the core of Toronto are struggling the most. We are seeing inventory still be rented out more in the suburbs as people are leaving the city. I do see this trend definitely continuing into 2021,” said Smith.
There is still light at the end of the tunnel for investors. Even as the rental market declines in Toronto’s bustling core, there are still great opportunities in its suburbs, where people can work from home, and where landlords are offering renters incentives. It’s helped students, young couples and single workers find great deals on living spaces that are perfect for their needs.
Smith said that an incentive her team has seen quite a bit is applying last month’s rent to the current month, so rather than the typical deposit that landlords collect right away, the money can be put towards a month when the renter is struggling to make ends meet.
“Another incentive is to reduce rent to a point that is covering the landlord’s costs. There was a period when rental rates were so high that there was a huge profit. Some landlords have adjusted to just cover their costs, which also helps the tenant,” said Smith.
Brendan Powell, broker of record, president and owner of the BREL Team, said landlords are definitely struggling right now and offering incentives to entice renters, including gift certificates and free months’ rent. It’s no surprise that rental listings have risen and that “everything is upside down” compared to five to 10 years ago.
“The majority of landlords own condos in the downtown core and people are not as excited about living in a condo right now,” said Powell. “With health and safety protocols, it’s harder to show properties, especially with tenants at home, being in an elevator, or even just shopping around. But, yeah absolutely, landlords are offering incentives. Tenants are losing their jobs, they’re nervous, and just dealing with tenants at all can be tough.”
Powell doesn’t know if this will continue into 2021, but he won’t be surprised if it does. Moreover, rent has become negotiable for tenants who have lost their jobs. While landlords are grappling with COVID-19’s impact on their cash flows, and were used to tenants offering more money in the past due to stiff competition, times have changed and negotiation is acceptable.
“Absolutely, there is negotiation in a way we’ve never seen before,” said Powell. “It’s tough all around. Logistics have gotten more difficult, finances have gotten squeezed. But landlords have done really well for many, many years.”
Rent premiums, as Powell noted, have pretty much evaporated in downtown Toronto for the time being. If a landlord loses their tenant right now, “you’re going to be renting it out for a chunk of change less than you would have 10 years ago.”
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Written by Canadian Real Estate Wealth.
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Canadian Real Estate Wealth