2020 Forecast: The 5 Best Ontario Cities to Buy a Rental Property
January 14, 2020
Today, having a “side hustle” is almost mandatory to get an edge up on retirement savings and to gain financial freedom sooner. Amongst the Etsy businesses, Instagram influencers, and Avon salespeople, one of the oldest side hustles has stood the test of time and proven to be lucrative long-term – being a landlord.
In Medieval Europe, individuals who owned land were considered lords. These lords allowed peasants to live on their land in exchange for labour. Today, the modern landlord rents out a non-principal residence home in exchange for money.
Although much has changed since Medieval Europe, the business of being a landlord is prevalent all the way across the pond in Canada. In 2018, approximately 15% of residential property owners in Ontario and British Columbia owned a second residence, while 3% owned three or more properties1. Somewhat of a surprise is that 22% of property owners in Nova Scotia owned more than one residence while almost 7% owned three or more properties. It is important to note that in this CHSP study, a secondary residence can also be a vacation home, and not necessarily an income-producing rental property.
Owning a rental property is a goal for many Canadians who see the long-term benefit in residential property value growth, in addition to income generation via rent charged. So, if you’re in the position to take on a second (or third or fourth) home under your wing, one of the biggest questions is where to purchase.
Important Factors to Consider
If you are going to perform all the property duties yourself, you will likely want to live near your rental. This of course limits the areas you can purchase in, but it will save you money doing it yourself rather than paying a property management company. Property management companies can charge 6-12% of rent value, with some companies offering a monthly cap rate. Do your research and determine if doing the heavy lifting yourself is worth the time commitment.
Another important factor to consider is current vacancy rates. A healthy vacancy rate is 3%, which means a rate lower than that likely indicates a shortage of rental properties. This tends to drive rent rates up as demand outpaces supply. Selecting a location with a healthy to low vacancy rate is a good strategy.
Money talks and you as the landlord need to know what rental rates are going to get you the most return on your investment. Borrowing money for a mortgage is not location specific, which means you are charged the same rate whether the home is in Toronto or in a little rural town like Oro-Medonte. You will of course fetch a higher monthly rent in a large city but will pay more for the property itself. Figuring out the balance of the amount of mortgage (aka debt) you want to carry versus the rental rate is crucial for success.
The current and future overall culture of a city is also important, even if you’re not choosing to live there. Owning a rental property should be a long-term commitment that allows you to pay off the mortgage and collect a healthy paycheck from renters during your retirement or allows you to sell the property 10-20 years later while enjoying the appreciated value.
Our Favourite Ontario Cities for Rental Investments in 2020
Hamilton is a port city in the Greater Horseshoe Area and is Canada’s 10th largest municipality. As of 2018, the vacancy rate in Hamilton is 3.1%, which is considered the minimum for a healthy rental market.
In 2019, Hamilton rental rates increased a staggering 24%3, the highest in all of Canada. What else makes Hamilton an attractive city to own rental property in? It is home to several post-secondary educational institutions, including McMaster University and Mohawk College, where many students rent housing. The city's proximity to both the QEW and 403 make it an excellent location for commuters who may be priced out of renting in the GTA. The GO Transit expansion into Hamilton will further increase desirability.
There are many diverse neighbourhoods in Hamilton that result in varying home prices and rental rates. The Realtor® Association of Hamilton and Burlington November 2019 market report4 notes that in the Hamilton Centre, the average home price is $402,147, where as in Hamilton West, the average home price is $546,438. Hamilton East and the Hamilton Mountain fall in between those figures. The average rental rate is $2,132 for a 3-bedroom home, but your rental rate will depend on location and what other landlords are charging for similar dwellings in the same neighbourhood. Do your research on what neighbourhood you want to invest in for your budget.
Canada’s capital city is home to affordable housing and is the nation’s fourth largest city. As of 2018, the vacancy rate in Ottawa is a low 1.5%, meaning there is a shortage of rentals for the current demand. Most owners live in detached homes5 throughout the city, whereas renters, who mostly live in apartments, are more concentrated in the city centre.
Known as Canada’s “most educated” city6, Ottawa is home to an educated population with low unemployment rates7. This combination will likely yield reliable renters with a stable income.
The City of Ottawa5 reports that “the rental market has grown in supply (number of rental units) by approximately 1% between 2016 and 2018, while over the same period, the population living in rental accommodation has grown by a faster rate of 2.9%.” Considering this data and the low vacancy rate, now is a great time for investors to purchase residential homes and rent them to Ottawa residents.
A big draw of owning a rental property in Ottawa is it is home to several post-secondary institutions, including the University of Ottawa, Carleton University, and Algonquin College. Students are often good renters since they usually rent for several years and have parental financial support, or a rent guarantor. Ottawa was also ranked as the third best place to live in Canada8, which makes it a draw for both homeowners and renters. At pres ent, rental rates in Ottawa are forecasted to raise 41% between 2018 and 2031 – that’s great news for investors!
Windsor is probably best known for being the “automotive city” that’s close to Detroit. And although that is true being Canada’s most southernmost city, Windsor is also known for being culturally diverse with affordable housing prices and a strong rental market.
The vacancy rate in Windsor in 2008 was nearly 14%. In 2018, it was at 2.5%9. This is a testament to the growing demand for rentals across Canada, with national vacancy rates in metropolitan areas standing below the healthy 3% benchmark at 2.2%.
Windsor rental rates have been on the rise with a 15.5% increase10 from June 2018 to June 2019. The increase in monthly rates does not reflect the housing prices, which makes this city attractive for real estate investors. The average home price is $335,898 which is well below the national average of $529,00011 reported by the Canadian Real Estate Association (CREA). This national average is heavily skewed by the GVA and GTA, but even with these markets excluded, the national average would still be higher than Windsor at $404,000.
The Gordie Howe International Bridge is a much talked about upcoming draw for Windsor. The public bridge will connect Detroit and Windsor over the Detroit River; completion is expected for 2024. This southwestern Ontario city is on the rise and now is an opportune time for investors to take advantage of affordable housing prices with growing rental rates.
Known as “The Royal City”, Guelph is a manufacturing city with the lowest unemployment rate12 in all of Canada. The city’s strong economy makes it a leader in national growth, outpacing the provincial and national averages. And to boot, Guelph is home to the University of Guelph with over 21,000 students13 enrolled. These factors should be appealing to investors, since renters are likely employed or students with a financial guarantor.
Like many popular Ontario cities, Guelph rental rates are on the rise14 as people are priced out of the GTA. Guelph’s vacancy rate is almost half the already low national average, making it a city with urgent demand for rental properties for both residents and students.
Guelph is a great city to invest in because it is a desirable place to live. Investors will likely be able to find credible tenants with stable incomes, as well as reap large benefits on the resale value of the home purchased when the time comes. Situated 60 minutes from Toronto and 45 minutes from Hamilton, we suspect Ontarians will be heading to Guelph over the next several years as the GTA and GHA become further inflated by the imbalance of supply and demand.
St. Catharines is the largest city in the Niagara Region, with a population of 133,113 as of the 2016 census. Situated squarely between Buffalo, New York and Hamilton, it’s a city with lots of value for residents who like to visit the USA while living near Lake Ontario and major highways. Known as the “Garden City,” it is home to 1,000 acres of parks, trails and gardens, in addition to being home to world-class wineries.
When looking at housing in Ontario, it is known that home prices get more affordable as you move westward along Lake Ontario from Toronto, and St. Catharines reflects that. The average home price is $403,300, well over $125,000 difference from the not-so-far away Hamilton region’s average home price. And with the upcoming GO Transit expansion including a stop in St. Catharines, it isn’t likely this city will remain “affordable” for long. Commuters to the GTA will likely see St. Catharines as a cost-effective location for homeownership, since many buyers - especially first time buyers - are priced out of the GTA and GHA.
Affordability coupled with a solid rental market makes St. Catharines an excellent place for investors. The vacancy rate of 2.2% showcases the demand for rental housing. Like many of the other cities we are recommending to investors, St. Catharines is a “university town." It is home to Brock University, which has a student enrollment of over 19,000 students15, but only enough on-campus housing for 2,400 students. In July 2019, Brock University put out a call to landlords16 to offer rentals in St. Catharines, with the school’s Director of Student Life and Community Experience Brad Clarke encouraging landlords to contact the school directly with vacancies that can be filled by students. Looking at the demand for rentals from students and residents alike, St. Catharines is a great city for landlords in 2020.
Beyond our top five choices, there are many desirable cities in Ontario to invest in, including Brantford, Kitchener/Waterloo, and Barrie. There is a demand for rental properties in most major Ontario cities, so 2020 is a great time for investors to get some skin in the game.
Are you ready to purchase an investment property? Purplebricks can help.
With Purplebricks, purchase a home and get $2,000* in cash back! We pair you up with a Home Buying REALTOR® in your neighbourhood whose only job is to find the perfect investment property for you. If you’re ready to take the next step and find a REALTOR® to help you look, visit Purplebricks.ca today, or give us a call at 1-855-348-1820 and we’ll get you started.
1 Canadian Housing Statistics Program, 2018 (Statistics Canada)
2 Hamilton ranks among Canada’s top 10 largest cities (Hamilton News)
3 Hamilton rental prices spike at 24 per cent year over year, study says (Global News)
4 RAHB REALTORS® Release November 2019 Statistics
5 City of Ottawa Rental Market Analysis (City of Ottawa)
6 Is Ottawa Canada's smartest city? Capital edges Toronto, Calgary in university-educated population (National Post)
7 Ottawa-Gatineau unemployment rate drops to 4.4% in September (Ottawa Business Journal)
8 Ontario wins big in ranking of best place to live in Canada (CBC)
9 Canada Mortgage and Housing Corporation, vacancy rates, apartment structures of six units and over, privately initiated in census metropolitan areas (Government of Canada)
10 Windsor-area rents rising faster than anywhere in Canada (Windsor Star)
11 National Housing Statistics (CREA)
12 Guelph's unemployment rate hits 18-year low (Guelph Mercury Tribune)
13 Guelph’s economy fastest growing among mid-sized cities in 2018 (City of Guelph)
14 Guelph rental prices keep rising as more people get priced out of Toronto: Rentals.ca (Guelph Today)
15 Brock Facts (Brock University)
16 With students arriving soon, Brock says landlords are needed (The Standard)