Over 4 In 5 Greater Toronto Leveraged Condo Investors Are Losing Money

The Greater Toronto condo market has been dominated by investors for years. That’s changing really fast, according to a new analysis from CIBC Economics. Over 4 in 5 investors with a condo apartment rental completed in 2024 are losing money, collecting less rent than they’re paying out. It’s a problem that’s long existed, but may finally be reaching its peak. On the upside, that’s provided significant inventory for end users. As prices fall, they might even be able to afford them one day. 

Toronto Condo Investors May Have Found The “Greatest Fool” 

Negative cash flow condos are ones where a leveraged investor tops up the carrying costs. Leveraged investors are those who use a mortgage for their units. Carrying costs are the mortgage payment, condo fees, and property taxes. Bluntly put, a cash flow negative condo rental is one where the owner tops up the rent paid to make the mortgage payment.  

Cash flow negative investments are often an intentionally made decision. It’s so common there’s a term in finance—a negative carry trade. These are used to speculate on the trade value of a price, ignoring the actual revenue of the asset. They’re taking a gamble strictly on being able to sell the asset to someone for a higher price in the future. This method of investing is better known as Greater Fool theory, since there’s usually a fool that will pay more. The speculators just hope they aren’t the greater fool—the final in the chain that’s stuck with a losing asset. 

81% of Toronto’s Leveraged Speculators Lose On New Condo Rentals

The vast majority of new condos owned by leveraged investors as rentals are cash flow negative. Over 4 in 5 (81%) of new condos completed in the first half of 2024 were negative cash flow. That’s up significantly from 77% last year.

Most of Toronto’s Leveraged Investors Are Losing Money On Condo Rentals 

The share of newly completed Greater Toronto condo apartments with a mortgage that is cash flow negative. By year of completion. 

Source: Urbanation; CIBC.

Higher financing costs aren’t helping, but they’re far from the only driver of the issue. The first year most completions were negative cash flow was back in 2022 (52%), when mortgage rates were at a record low or just above. It’s also worth noting that most newly completed condo units are purchased years prior, when prices were much lower at pre-sale. It’s also not a new issue—almost half (44%) of investors were in this position back in 2017.  

Toronto Condo Investors Pull Back From The Market As Costs Rise

Low rates helped home prices soar and investors dominate the condo market. CIBC notes, investors buy a whopping 70% of condo pre-construction. Much of this supply is flipped to end-users, but a lot are used as rentals. Rising rates are increasing carrying costs and prices are no longer moving higher, killing the share of investors willing to take on a negative carry investment. 

The share of newly completed condos used by rentals has dropped sharply this year. Investor use of condos as rental units recently peaked at 34% of completions in 2023. As rates climbed, just 25% of the units completed in 2024 are known to have gone to the market, with much of the supply being resold.  

Fewer Investors Are Buying Toronto Condos As Rentals 

The share of Greater Toronto condo apartments used as rental units, by segment and year of completion (new) or purchase (resale).

Source: Urbanation; CIBC.

Condo resales have similarly seen investors flee the market as well. The share of units that investors scooped for rentals made a recent peak at 14% of units in 2023. That’s since fallen to just 5% of units in the first half of 2024. While the bank only provided data for 2019 through 2024, they did also mention the 10% observed in 2023 was a 10-year low, so this year is on track for at least that. Potentially a record low. 

That’s a lot of investors becoming landlords, but it understates how much of the market they represent. Investors owned a whopping 56.4% of recently completed condos, according to a recent Statistics Canada study. Recently completed in this case goes as far back as 2016. If these aren’t rentals but still owned and carried, what they’re used for is a bit of a mystery. It’s hard to believe that 1 in 5 new units are used as second homes, but that’s a problem to discuss another day.  

19 Comments

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  • Trader Jim 6 months ago

    And non-leverage investors taking possession are immediately selling their units, because the cap rate is like 2% vs a guaranteed GIC of 4+ or higher.

    • Julia 6 months ago

      Oh I thought it was the foreign buyers’ fault but since they are banned, whose fault is it now ? Lol. That’s so funny….All those lies and bad politics in Canada. Do people know what they are doing ???

  • Ron Bruce 6 months ago

    Leveraged investors own the vast majority of new condos, as rentals are cash flow negative. Over 4 in 5 (81%) of new condos completed in the first half of 2024 were negative cash flow. That’s up significantly from 77% last year.

    Let’s hope for higher interest rates to squeeze out these monopoly players (aka leveraged investors). Toronto is beginning to look like the Vancouver real estate business model, where no one knows where the money comes from to buy property – onshore or offshore.

    • Ethan Wu 6 months ago

      Unfortunately tenants are often young people that don’t vote, so investors get the fuel for the fire.

      Tragic setup that has long term consequences since just letting it correct would have fewer long term consequences than investors taking a minor loss.

  • Smira 6 months ago

    We need an article on all of the developers that are offering to delay your pre-sale closing for $100k+ so the investors that overpaid don’t fail when trying to close because no lender will lend them the insane amount of cash they agreed to pay.

  • Jason Chau 6 months ago

    The other 20 points of investor condos are people taking money under the table as rent. Probably in those units where there’s 5 different tenants renting 4 bedrooms.

  • April 6 months ago

    Every property in BC and Ontario are overpriced by 40%.

    • Ethan Wu 6 months ago

      Probably, but as long as the CMHC exists to ensure that sticks—it’s best to just assume a 10% correction will be the most that ever materializes before they start using young people as kindling.

      • STEVE STRUTHERS 6 months ago

        If they ‘start using the young as kindling’, things will not end well for them. They ought to be really careful how they handle this unacceptable situation.

      • dave frazer 6 months ago

        10 % fall not likely. I would expect at least 20 % down by the end of this year
        50 % or 60 % eventually is not out of the question, particularly in the condo market. Once people start to see real falls,the panic will set in and the bottom could be a long way down.

  • Alan S 6 months ago

    I cant believe condo fees, on top of taxes, down payments and mortgage its a pretty poor investment. The money to be made in flipping has gone.

    Ive been buying Apartment REIT’s lately, many of these older building have priceless locations and modest renovations so they can jack up rent…

    • Yusef 6 months ago

      Yup. The Reno-evictions have been wild. Is the one in Toronto still holding onto two vacant towers with hundreds of units until they get a deal?

      REITs also have tax advantages that a regular investor won’t, and the gov is pumping tax dollars into ensuring they have cheap, non-market financing for their building, acquisitions, and rentals.

      Gotta love how the gov is raising the cost of borrowing for everyone to give a few of their friends more money based on junk collateral.

  • STEVE STRUTHERS 6 months ago

    Good. Serves the greedy devils right. Maybe now house and condo prices will return to the realm of affordability and rents will follow. Greed, government inaction and negligence are major drivers of the housing crisis. Investors should never have been
    allowed to gobble up all the housing and drive prices up to the point where no one can afford to live in this country anymore.

    There is no good reason why, in a wealthy, technologically advanced country like Canada with the vast amounts of land and natural resources it has, that there should even be a housing crisis.

  • [email protected] 6 months ago

    WHAT A BUNCH OF MORONS. THEY COULD HAVE BOUGHT OLDER USA HOUSS FOR 50K OR LESS. NEW HOUSES FOR 400K OR LESS.

  • Mike 6 months ago

    As usual, Better Dwelling’s analysis is marginal at best.
    Negative cashflow is not the same thing as “losing money”. It can be, but not necessarily – and adding the use of a carry trade analogy doesn’t help. (Only proves they don’t really understand how most carry trades work – as they usually involve swaps and futures if done properly but I digress).
    Regarding negative cash flow from a rental property.
    Let say I rent an apartment in Toronto for $2,250 per month and mortgage payments, insurance, taxes, and mtce fees amount to $2,300 per month. I am negative $50 of cash flow per month or $600 per year. However, every mortgage payment pays down $200 in equity. Lets assume the price of the condo stays flat – i will have $2,400 in additional equity at the end of the year and this will grow each year as the amortization increases the principal portion. So should the owner sell the property because he/she “losses” $600 a year? It is tied in equity, and is not cash, but it’s only an issue if you really can’t afford any cash outlay – most investors can. It would be an issue if the cash outlay exceeds the increase in equity (even assuming flat prices) Look at it this way, if someone said, you pay me $50 a month and i’ll put $200 a month in a trust with you as the beneficiary, but you may not be able to access it for five years, would you say no, i don’t like losing $50 a month?

    • Slick Rick 6 months ago

      You are absolutely losing money if your condo is negative cashflow and prices are pulling back.

      Developers are offering to delay projects of pre-sale buyers for a fee, if they don’t want to close because they won’t qualify for financing.

    • Anonymous 6 months ago

      This is wrong on multiple counts but I’ll only explore the most fundamental one: If the market remains flat, as in your assumption, then you have a net loss. The equity you build comes at the cost of interest. If you sell the property at the same price you bought it you lost money that you paid for interest. The only way under such an assumption to make money is to have a positive rent income.

      For a super simplified example, you bought for $500,000, you sold for $500,000. You paid principal for equity so you’re net 0 but then you add interest. You lost money. You lost extra money on rent.

      Beyond that, you’re playing games with numbers that shouldn’t be played. Any small change in your assumptions results in very different futures. Then there’s the fact that equity is an unrealized gain. Then you ignore the cost of opportunity, repercussions of negative cash flow in large companies that rent out properties and can’t cover operational costs, overlooking downside risk, assuming liquidity needs and full flexibility, unexpected property maintenance costs, tax implications, inflation etc.

      You made a very oversimplified and misleading analysis.

  • Jaspreet 6 months ago

    Trudeau needs to cover their losses so that Canada remains strong and good

  • [email protected] 6 months ago

    NOBODY CARES ABOUT THESE LOSERS
    BUY IN USA DITCH CANADA
    https://www.instagram.com/allstateusahomesfarmsland/

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