Ontario rules Top 10 Canadian cities for investing

If you’re like many Canadians, you may be thinking of investing in real estate. It’s been a top performing asset class for a number of years now, and a proven place to make your money work for you. We’ve put together a list of 10 top Canadian cities for investing in real estate, and one thing is clear – Ontario rules.

First, let’s be clear about what type of real estate investment we’re talking about – a technique known as “buy, hold and rent.”

This method involves buying a property, holding onto it and renting it out over a period of five to seven years.

You benefit in three ways:

  • Positive cash flow, meaning investors rent it out for an amount that exceeds expenses (mortgage, taxes and other costs)
  • Tenants pay down your mortgage
  • The property value, hopefully, appreciates over time

There are other investment strategies, including:

  • Fix and flip – popular as a TV show, but rife with risk in real life
  • Buy, reno and hold – similar to buy, hold and rent, but involves renovating the property to command a higher rental rate
  • Pre-construction condos – where you buy a condo before it’s built, and either sell your “assignment” before it’s completed, or renting out the unit to a tenant

Buy, hold and rent, many experts agree, is well suited to first-time investors.

Among of the key things to learn about, as an investor-landlord, are vacancy rates. Canada Mortgage and Housing Corp. (CMHC) summarizes these, along with average rents, in twice-annual rental market reports.

A vacancy rate between two and three per cent is considered a balanced market, so anything below that is ideal. An increasing rate means rental supply is growing, and renters have more units from which to choose. Declining vacancy rates mean supply is tightening and your property may be in higher demand.

As an investor, you’re looking to select areas where:

  • The vacancy rate is low and ideally tightening further
  • The economic fundamentals are strong
  • The area is desirable for renters and the building type is suitable for the local tenant profile
  • Tenants in the area will pay what you have to charge for rent

The key things to look for are a solid and growing local economy, stable employment conditions and minimal new apartment construction. These combine to produce a tight rental environment, which is what you want.

You may think only large Canadian markets offer opportunities to buy investment property. But as you can see from our lost below, that’s not necessarily the case. You’ll also notice that towns or cities in Ontario dominate the top 10 for Canada.

Indeed, the Ontario economy is to pick up steam in the coming quarters, according to The Conference Board of Canada’s Provincial Outlook: Spring 2015. Overall, real gross domestic product (GDP) is forecast to expand by 2.6 per cent in 2015 and 2.3 per cent in 2016.

Here are 10 Canadian real estate markets to consider investing in, based on the latest Rental Market Reports from CMHC, for two-bedroom units.

Source: CMHC Rental Market Survey, June 2015. Chart by Victoria Cigan

Source: CMHC Rental Market Survey, June 2015. Chart by Victoria Cigan

 

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