2023 Forecast: the 5 Best Ontario Cities to Buy a Rental Property
Ever since The Wealthy Barber told us to buy two houses - one to live in and one to rent out - it’s become the Canadian retirement dream. Nothing has grown quite like real estate in the last few years, especially for people who “got in early”, so you may be asking yourself – how do I take advantage of the market increases? If you already own a principal residence, another way to take advantage of the (generally) rising real estate values is to buy a rental property.
Being a landlord is not for the faint of heart, but if you are considering buying a rental property, here are our picks for the best places in Ontario to do so. Before you buy, you may want to ask yourself some of these questions in order to set yourself up for success.
Building Equity or Flipping?
Are you buying for the long-term to build equity or hoping to flip it soon? The trend is that housing values generally increase over time, even notwithstanding these pandemic-fueled increases and inflation-fueled decreases. If you want to build equity, then you need to plan for the long term. In that case, you want to ensure that you can afford some future increases to the interest rate on your mortgage payments. Then you can ride out most of the ups and downs of the market, plan to pay down the mortgage over time, as well as accrue equity from the increased value of the property.
If you are hoping to buy now and sell in the short term, you will need to pay close attention to interest rates, but also price trends so that you don’t buy high and sell low. The market volatility will affect your outcome in the short term.
Managing the Property
Finding tenants, collecting rent (and setting the rental rate), regular building maintenance, big-ticket building maintenance, unexpected repairs – these are some of the things that go into managing a rental property, whether big or small. An early question to decide is whether you will manage the property yourself or if you will outsource it to a property management company. In both cases, you’ll want to figure out what the cost is compared to the return on your investment. If you’re a first-time landlord, it may be simplest to invest in a condo as a rental unit, because there is already a property management company involved and much of the maintenance is taken care of.
Cities each have a unique rental market; some are steady, some are seasonal, some are boom/bust/boom. Generally speaking, there is a housing shortage, and where properties are in demand, rent prices increase. Where there is a surplus of housing (like, in, um... nowhere?) prices decline, making rentals more attractive for buyers and renters, but a lack of demand may drive rental prices down further. Make sure there is a demand for rental property in the location that you choose, or you may find yourself with an empty unit and no revenue.
Rental Cost and Price
In order to set a market-rate rental price, you’ll need to know your market, and you’ll need to be clear and accurate about all the costs for your rental property to ensure you are able to cover them with; costs associated with purchase, annual property taxes, utilities (included in rent or will tenants pay directly?), any interior and exterior maintenance requirements.
With all that being said, here are our top 5 picks for where to buy rental properties in 2023.
London, Ontario fosters both big business and cozy neighbourhoods. It is the fifth largest city in Ontario, and the 11th largest in Canada, with hundreds of parks and natural landscapes, many of them bordering the Thames River. In fact, it has so much greenspace it is often referred to as “Forest City”.
It has a diverse economy featuring manufacturing, agri-food, digital media and technology, healthcare, education, and professional services. Its unemployment rate of 6.3% in September 2022, was 5.8% below its pandemic peak in June 2020, thanks to strong job growth in the interim.
London has a great student rental market, with Western University, Fanshaw College and College Boreal, as well as numerous private colleges. With the lowest purchase price of our five picks, and one of the lowest vacancy rates (tied with Niagara), you can see why it is our top pick for rental properties in 2023.
With just over 100,000 people, Brantford is a small community with a real urban feel, built around the winding Grand River. Brantford is surrounded by an astonishing number of golf courses and is host to more sports tournaments than anywhere in Ontario.
With Wilfred Laurier University, Six Nations Polytechnic, Nipissing University, and Conestoga College, Brantford has strong demand for student housing. It has a diversified economy and low unemployment rate (4.1%), having gained 1,200 additional full-time jobs between August 2022 and September 2022 alone. It gained 8,500 jobs since its pandemic low in April 2020.
With a vacancy rate of just 1.9% and a benchmark condo price $429,200 in September 2022, Brantford is in our sights for real estate investment.
Tourism is a major industry for the Niagara region. With Niagara Falls and all of its natural (and un-natural) attractions, wine country, the Shaw Theatre Festival and Niagara-on-the-Lake, there are numerous draws for short-term rentals. There is also a need for rental housing and seasonal housing for those who work in the agriculture, tourism and entertainment industries. One caveat is to check with local municipalities about licensing and bylaws that may impact your business plan, such as the short-term rental licensing in Niagara-on-the-Lake.
Being one of Ontario’s tech capitals, Kitchener-Waterloo has an unemployment rate of just 5.7%. Major employers include Sun Life Financial, Universities, Manulife Financial, BlackBerry, and Sandvine.
The Tri-City area has many post-secondary institutions that create a strong student rental demand, including the University of Waterloo, Conestoga College, Wilfrid Laurier University, Trios College, Anderson College and more. Waterloo does require licensing for rental units, and interestingly, in Kitchener, zoning allows for tiny houses, laneway suites, and backyard homes. Combine that with a vacancy rate of only 2% and an average rent of over $1,300 - now that’s opportunity!
Despite the rapid growth of the real estate market in Hamilton, it is still a diamond in the rough. Living in Hamilton offers so much natural beauty with the escarpment, the Royal Botanical Gardens, and the beaches and trails at Bayfront and Confederation Park.
The City of Hamilton’s Economic Development Department declares that it is “open for business”. With an unemployment rate of only 4.6% in September 2022 (7.3% below its pandemic peak in June 2020), Hamilton strives to be “shovel-ready”. It is connected to the GTA by GO Transit and is implementing light rail transit on its principal east-west corridor.
Student rental markets include McMaster University, Mohawk College, Columbia International College, and Brock University, making Hamilton a continued good bet for real estate investment.
Are you ready to purchase a rental property? FairSquare Group Realty can help.
FairSquare Group Realty supports Canadians by providing real estate experiences with incredible rewards: sellers save thousands in commission and buyers receive $2.000 cash back* when they purchase a home with one of our REALTORS®. Call 1-855-999-9740 to learn more.
αBased on October 2021 data from the Canadian Mortgage and Housing Corporation. Current rental rates and vacancy rates may differ.