“Is your client able to provide twelve full months of rent upfront?”
That’s the question I was asked by a listing agent the other day, representing her landlord-client, after I submitted an offer on behalf of my client looking to secure a rental.
This is the new reality of the downtown Toronto rental market, and while it’s welcome news for my investor clients, it’s a nightmare for my tenant clients.
Imagine you’re a young woman who just finished four years of business school at Queen’s University and you’ve secured yourself an unbelievable job in banking at First Canadian Place, making $135,000 per year, with the potential for a bonus, and you want to secure a ‘simple’ one-bedroom condo in the downtown core for $2,400 per month. Easy, right?
Not so much! In reality, with three, four, five, or a dozen offers submitted on some downtown condos in the busy summer months, even a well-qualified, so-called “triple-A” tenant can have trouble.
And what about the two young guys who want to pool their resources and rent a 2-bed, 2-bath for $2,800 per month – a paltry $1,400 each? They’d better have credit scores over 800, salaries in the six figures, and social media profiles that make them look like Saints.
I can’t tell you what it’s like to invite a hopeful client to Toronto for the day to check out eight condos for lease, only to receive emails while I’m picking up my morning coffee that says two were leased last night, then an email to say that three were leased – as I’m picking up my client, then get two more emails with ‘leased’ notifications as we’re looking for parking outside the building. Then you finally get in to see one condo, and you rush back to the office to put together the requisite paperwork to submit an offer, only to find there are six other candidates being considered.
This is a true story, and I’ve experienced this several times already this year! Not every tenant can afford to write a cheque for $26,000 and provide twelve month’s rent upfront, but it seems like every time you submit an offer on behalf of a client, you’re up against somebody with a wad of cash, ready to be thrown the landlord’s way.
Here’s another story, as true as the sky is blue: I attended a lease open house in August. What in the world is a lease open house? Well, it’s exactly what it sounds like! I went to show a condo – for clients via FaceTime, and the owner/agent was in the condo, doing an open house, since there were 80 showings booked in the space of two days, and angry agents were calling the broker of record complaining that they couldn’t get access! Was the condo special? Nope! Just a 1-bed-plus-den in Liberty Village, for which the $2,800 list price generated offers in the range of $3,500!
This past summer, tenants were leasing condos sight unseen. “Desperate times call for desperate measures,” and when young people moving to Toronto for jobs that begin in September are not having any luck securing places to live, they start to get creative – and often desperate.
A lot has changed since we were younger, pounding the pavement in the student ghettos in hot summer months, looking to rent or sub-let, and using personal cheques to tie up our room rentals!
So what’s going through the mind of young downtown dwellers now as they see “offer dates” for rental properties? Yes, offer dates! Just as we see in red-hot resale markets when a property is listed on Tuesday and MLS reads, “Offers Graciously Reviewed At 7:00 pm, Wednesday, September 21st,” we’re now seeing rental properties listed with accompanying offer dates. But before you label this “greed” on behalf of the owner-landlord, consider that it does make the process fairer for would-be tenants who can’t drop everything and see the property an hour after it hits MLS.
That’s a course of action that many wishful tenants grew accustomed to this summer. I can’t tell you how many standing lunch dates I had with tenants whom I picked up on Bay Street, or Wellington Street, or on King, every day at 12:00 pm, to go tour 3-4 condos that came onto MLS at 10:30 am. “Strike while the iron’s hot,” they say, except in the Toronto rental market, the iron never goes cold.
For my investor clients, there’s truly never been a better time to be a landlord. I had one such client who was presented with nine offers on his 1-bedroom condo, three of which were accompanied by all twelve months of rent upfront.
One of my clients leased his King East condo in the summer of 2021 for $1,995/month, saw the tenant give notice for a vacancy in July, and then secure a new tenant for $2,400/month this past summer. That’s a 20% increase in a single year!
I think back to the spring when I had two units listed in a multi-unit dwelling that we couldn’t give away, only to see the rental market turn into what some long-time agents refer to as “the hottest rental market in the history of Toronto.” That’s what one agent, with thirty years in the business, told me at a rental open house in August. Ah, yes, the rental open house! Great place to talk shop with your colleagues!
In the month of July, the absorption rate in the downtown Toronto condo market was 114%. That means that more units were leased than were listed.
Imagine a place, called Anytown, where there are 10 units listed for lease in the month of September. Now, imagine that 12 units are leased in September. How is that possible? Well, it means that some units listed in August, that did not lease, were subsequently leased in September, in addition to all of the units listed in September.
Ah, now you follow!
This is the story of the Toronto rental market in the summer months, where there’s not enough inventory to satisfy the demand from tenants. For every one unit that’s leased, there are often offers from multiple tenants, and that means potentially dozens of prospective tenants visited or expressed interest in that unit.
The result is skyrocketing rental prices, and my clients who have purchased investment condos in the past two years are loving this, but my tenant clients are made miserable!
With all this said, I still don’t expect anything to change. We’re seeing 400,000 new immigrants in this country every year, most are ending up in Toronto, and most don’t have the money to buy.
Now is a great time to get into the investment game, I can tell you first-hand. I have never had a client with a single day of an unplanned vacancy, and with a recent dip in condo prices, it’s all the more reason to pick up an investment condo this fall!
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