Buying an Investment Property: 5 of Canada’s Top Cities for Rentals
September 30, 2020
When it comes to investing for the average Canadian (as wide-ranging as the “average” Canadian is), real estate is always a popular choice because it’s seen as relatively safe. The real estate market is less volatile than other types of investments like stocks and bonds, and even if the market value of your property drops, you can hold onto it – and keep building equity – until prices go back up.
Real estate investing also holds mass appeal because it doesn’t have to be a full-time job (think lucrative side-hustle), and since you don’t need a vast amount of specialized knowledge to be successful at it, it’s fairly accessible from a learning perspective.
Before making this type of investment, it’s important to study the local rental market. Like residential real estate, each city or region has a rental market which can be measured with key metrics – here are a few of the major ones:
- Average home price: This price is important to landlords because it's an indication of how much you're likely to invest up front and what your mortgage payments could be.
- Average rent: This figure will give you a sense of how much your competitors are charging for similar rental types, as well as how much you may be able to collect each month.
- Average vacancy rate: This rate indicates the availability of residential rental spaces. 3% is considered a healthy vacancy rate, which means anything lower is considered something of a shortage (good news for landlords, since a shortage can mean rental rate increases and no lack of tenants).
Of course, these metrics can impact one another and can be influenced by other, less-measurable factors like future plans for the area (for example, if the city were expecting a new rail line or new factory), so it’s important to keep your ear to the ground!
Taking these factors into consideration, we’re looking at five of Canada’s best cities to buy rental property.
1. Windsor, ON
At a Glance
Average Detached Home Price: $397,7661
Average Overall Vacancy Rate: 2.9%2
Average Rent: $8703
Windsor is a top city for real estate investing!
With an average home price roughly 15% lower than the August 2020 national average of $464,000 (excluding the much-higher averages in Greater Vancouver and the GTA)4, Windsor is currently one of the country’s most affordable cities to buy real estate.
As of the latest report from the Canadian Mortgage and Housing Corporation (CMHC), Windsor’s average rent is also on the rise, increasing 7.5% between 2018 and 20195. However, the CMHC attributes much of that growth to non-permanent students attending the University of Windsor, and given that the university saw 80% fewer students moving into residence in early September6, we may see less dramatic increases in the CMHC’s report on 2020.
2. Guelph, ON
At a Glance
Average Detached Home Price: $684,0867
Average Overall Vacancy Rate: 1.4%8
Average Rent: $1,1099
Guelph’s rental market has been strong with consistently low vacancy rates.
Despite the region’s average home price being considerably above the national average of $464,00010, low vacancy rates for the last eight years have increased the average rent. In fact, the CMHC reports that vacant apartments are renting at 14% more than occupied units11, meaning that new renters will pay upwards of $100 more per month than current tenants.
Rising home prices could be to blame for shortage of rental units, the CMHC suggests, since year-over-year increases in rental demand have coincided with year-over-year price hikes. With the draw of Guelph University, a strong job market, and being only about an hour’s drive from Toronto, it’s no wonder Guelph homeowners are being encouraged by local news outlets to convert spaces within their homes to income-generating apartments12.
3. Ottawa, ON
At a glance
Average Detached Home Price: $566,29113
Average Overall Vacancy Rate: 1.8%14
Average Rent: $1,28115
Ottawa real estate investors have been enjoying steady demand and climbing rates!
Despite an average home price well above the national average, Ottawa is often touted as being one of the most affordable places to live in Canada. The recent spike in residential home prices – which grew 22% year over year from August 201916– could continue to put upward pressure on rental rates as homeownership becomes more difficult to achieve.
In fact, the average rent grew 8.4% between October 2018 and October 2019, with vacant 2-bedroom unit rates jumping 18.4% higher than the rates of occupied units17. Dramatic rate increases are good news for investors, but they do tend to slow turnover rates.
4. Winnipeg, MB
At a Glance
Average Detached Home Price: $349,24718
Average Overall Vacancy Rate: 3.1%19
Average Rent: $1,07020
Winnipeg is a picture of good balance for real estate investors.
With some of Canada’s lowest average home prices, a low cost of living, and a low provincial unemployment rate of 8.1% in August (the national unemployment rate was 10.2%21 for the same month), Winnipeg’s rental market is stable and healthy.
As of 2019, the lowest vacancy rates are in the 2-bedroom apartment category, decreasing from 3.1 to 2.6% year over year; the CMHC suggests this is due, in part, to rising mortgage rates and stricter loan qualification rules22. The current shortage of inventory in the real estate market – with the highest buyer demand in the $300-349,000 and $250-299,000 price ranges23 – could also be forcing would-be homeowners into the rental market. This unit type could be a smart investment.
5. Brantford, ON
At a glance
Average Detached Home Price: $504,12224
Average Overall Vacancy Rate: $2.4%25
Average Rent: $1,04626
Brantford has seen years of low vacancy rates pushing rental rates up, which is good news for real estate investors!
Rental demand in Brantford has been heightened in recent years by immigration, student renters, and a large number of households being formed by young adults with full-time jobs27 – all of which have been affected by COVID-19. Nevertheless, the region has seen full-time job gains occurring in the essential service sectors including agriculture, trade services, transportation and warehousing, and education28, bringing the region’s unemployment rate to 9.8% at the end of August – below the national rate of 10.2%. A stronger employment rate, of course, means landlords are more likely to fill rental units and less likely to see tenants missing payments.
As the real estate market continues to see staggering shortages in inventory – with nearly 50% fewer active listings on the market at the end of August that were seen a year ago29 – the rental market is likely to absorb the spillover of would-be buyers squeezed out of home ownership by rising home prices.
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1. Year to date. Windsor-Essex County Association of REALTORS® August 2020 Report
2. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Windsor CMA
3. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Windsor CMA
4. CREA National Statistics August 2020 Market Report
5. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Windsor CMA
6. CTV News, September 6, 2020
7. Year to date. CREA Housing Market Stats: Guelph & District Association of REALTORS® August 2020 Report
8. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Guelph CMA
9. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Guelph CMA
10. CREA National Statistics August 2020 Market Report
11. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Guelph CMA
12. Guelphtoday.com: Dismal Rental Market in Guelph Creating New Income Opportunities for Homeowners. 2019.
13. Year to date. OREB August 2020 Market Report
14. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Ottawa-Gatineau CMA
15. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Ottawa-Gatineau CMA
16. Year to date. OREB August 2020 Market Report
17. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Ottawa-Gatineau CMA
18. August average price. WinnipegREALTORS® August 2020 Report
19. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Winnipeg
20. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Winnipeg
21. Statistics Canada: Labour force characteristics, monthly, seasonally adjusted and trend-cycle, last 5 months.
22. Canada Mortgage and Housing Corporation. 2020 Rental Market Report: Winnipeg
23. WinnipegREALTORS® August 2020 Report
24. Year to date. CREA Housing Market Stats: Brantford Regional Real Estate Association August 2020 Report
25. Canada Mortgage and Housing Corporation. 2020 Primary Rental Market: Brantford
26. Canada Mortgage and Housing Corporation. 2020 Primary Rental Market: Brantford
27. Canada Mortgage and Housing Corporation. 2018 Rental Market: Brantford
28. CREA Housing Market Stats: Brantford Regional Real Estate Association® August 2020 Employment Trends
29. Year to date. CREA Housing Market Stats: Brantford Regional Real Estate Association August 2020 Report