Rents are plunging in the world’s richest cities!
From New York to London to Sydney to Singapore… Landlords are all facing rent declines.
With downtown Toronto being the home to the second largest financial centre in North America just behind New York, we’re no exception.
On the supply side, a record 7,776 new condo units were completed in the 3rd quarter of 2020.
Typically, one-third of the units are investors owned.
And indeed, these new units produced 2,366 rental listings.
That’s 3 times higher than a year ago and representing close to 15% of the overall supply growth.
Furnished rental listings also grew 67% year-over-year to 2,534 units.
With all the travel restrictions, there’s no need for short term rentals like Airbnb, so all those units are now joining the competition in the long term market.
On the demand side of things, no immigrants, no international students, no travellers and no need to work downtown.
So you would expect the rental activities in downtown Toronto to be pretty dead, right?
Surprisingly, a record number of 13,140 leases were signed by condo renters across Toronto in the 3rd quarter of 2020.
That’s a huge 39% increase from the same quarter last year.
Yes, a 39% increase.
Imagine what the rental market would be like when we get all the immigrants and international students back.
So here’s the thing.
We’re seeing an encouraging number of increase in rental activities, but supply is increasing at a faster rate, so we still end up in a tenant’s market right now.
There are still a lot of good quality renters looking for a place to rent, but only a certain number of landlords would be able to catch them.
The key question is…
If you are a landlord with a vacant unit, what do you need to do in order to catch that high quality tenant?
If you make the right decision, you can get your unit rented in a week or two.
But if you make the wrong decision, your unit can sit in the market for months.
You’ll have to be very decisive.
Let me share my strategy with you.
Love me, hate me, there’s no money in the middle.
#1 Love Me
How can you attract more people to love your unit?
Remember I shared my waterfront condo a few weeks ago?
It has that amazing lake view in prime downtown, just by the sugar beach.
I said I was going to list it for rent at $2,800 per month, right?
Last Friday, I lowered the price to $2,600.
By Sunday, I already had 3 offers on hand for me to choose from.
I was ok to accept any one of the 3.
And I ended up choosing the one with a nurse and an engineer at $2,550 per month.
Yes, that’s $250 less than I originally thought. It works out to $3,000 a year.
Given the fact that landlords around the world are all suffering from this global pandemic, $3,000 a year is really not much on the grand scheme of things.
It is way better than months of vacancy.
You see, getting $250 less a month is not really that big of a deal, but not getting that $2,550 rent each month is significant.
Even in the current pandemic market, there are still lots of good quality tenants moving around, but they are looking for good deals.
The unit with the most competitive pricing in the building can attract multiple offers, but the same unit with just $50 more would sit there with 0 showing.
So yes, it’s really down to the price. If you want to rent your unit out fast, you need to set it at the most competitive price.
Unprecedented times require unprecedented measures.
#2 Hate Me
As you may know, the Ontario Government has passed the rent freeze legislation for 2021.
That means you won’t be able to increase your rent next year, doesn’t matter whether your unit is under rent control or not.
So you may prefer to lock in a tenant at a higher rent and avoid the current price war.
You believe that the vaccine is coming in a few months and the rental market should recover quickly once our border reopens.
So you just set your rent at close to the pre-pandemic level and wait.
There’s nothing wrong with that decision at all as long as you’re prepared for 3 to 4 months of vacancy because renters are going to hate your unit right now.
#3 The Middle
Most people are in this scenario and this can be very dangerous.
You set your price somewhere between the lowest and the highest.
And you think that once the cheaper units are gone, then it would be your turn.
That’s a normal assumption under normal market conditions.
But the thing is, the market is not normal right now.
There is an abnormal number of landlords in the “Love Me” pool because it makes sense that most landlords’ top priority is to minimize vacancy.
So if you’re in the middle and there are always people joining the “Love Me” pool, then you might be stuck in the middle for much longer than you thought.
Again, there’s nothing wrong with being in the middle if you are psychologically and financially prepared for a few months of vacancy.
But the problem is, most people are in the middle because they’re trying to catch the best of both worlds, high rent and low vacancy, that’s not going to work in the current rental market.
It’s the same thing with people who want to invest into the market right now, they want the good deals, but they fear the market uncertainties.
You see, no fear, no deal.
That’s what I meant by love me, hate me, there’s no money in the middle.
If you want to be a successful investor, pick your side, be very decisive and go for it.
Don’t be stuck in the middle.