Three quarters of Toronto condo investors are cash flow negative
Aug 6, 2024
That’s the main takeaway from an eye-opening report from CIBC and data firm Urbanation, which found that 77 per cent of mortgaged investors of newly built condos in the city are upside down on a monthly basis as of the end of last year. That’s up from a little over half two years ago, when mortgage rates started to rise — and if anything it’s gotten worse in 2024, rising to 81 per cent as of the end of June.
Being cash flow negative means the income from rent isn’t enough to cover the expenses of owning such as the mortgage, condo fees and other ancillary costs. The average monthly gap has risen to $597 a month, with is almost triple the $220 clocked a year earlier. Much like a business, an investment can survive being cash flow negative at least temporarily, but in the case of a condo, an investor is banking on the gains when selling to be enough to offset the mounting losses.
The signs aren’t pointing in that direction right now, with resale prices down 12 per cent from their pandemic peak and new units down 5 per cent. The situation has prompted a flood of new listings, with the surge in supply exacerbating those forces.
Sales of new units have fallen to their lowest level in 27 years, Urbanation said in a separate report last week. Interest rates have started falling at least, which in the aggregate is bound to help on the demand side, but time will tell by how much. Definitely a situation worth watching in Canada’s largest housing market.
