Why the trend for owning a rental property is growing
Derek Petridis, a 39-year-old chief financial officer at Shikatani Lacroix Design Inc. in Toronto, has loaded up on seven condominium rental properties over the past decade.
It may seem like he’s got an extreme bet on the housing sector, but a new survey shows he is far from alone, with about one in 20 Canadian households owning some type of rental property.
The study from Altus Group, which relies on research from the Financial Industry Research Monitor, considered highly accurate on a national basis, shows that among households earning more than $100,000, the rate on rental property ownership is about 10%.
Rental property ownership tends to be higher for households with residents under age 50, which the study’s authors think may be driven by basement apartments and flats that homeowners are using to pay down their mortgages.
Home ownership rates in Canada are among the highest in the world with the 2011 census from Statistics Canada showing the trend to own continuing to climb and reaching 69%.
The other strength of the market has been people like Mr. Petridis, who have seen the benefit of owning investment properties. A Canada Mortgage and Housing report? last year of the Toronto and Vancouver markets found about 17% of condominium owners were investors.
“I fretted over the first purchase for weeks, but then I just started going from there. Once you are over the first one you fall in love with the cash flow, the model,” said Mr. Petridis, who has cooled his heels on the sector a bit and not purchased a new unit since 2011.
Peter Norman, chief economist with Altus Group, said the quarterly FIRM survey didn’t break down rental property ownership versus people simply renting out a piece of their principal residence, but there is some older data from Statistics Canada that addresses both aspects.
Renting out secondary suites or basement apartments seem to grow in tough times, as people use them as a way to cover their home ownership costs. “When times are tough, more renters choose that [way to live] because it’s cheaper and more homeowners find they need to supplement their income,” Mr. Norman said. “It does come and go and acts like a pressure valve in the housing market.”
Lately the valve has been left open as the number of secondary suites grows slightly. The census found there were 330,000 in 1996, 310,000 in 2001, 370,000 in 2006 and 390,000 in 2011. Builders have even been constructing new homes with roughed-in apartment suites with separate entrances and kitchens, Mr. Norman said.
Don Campbell, a real estate expert and author, said he started by renting out a basement apartment so he could buy a larger home than he might have otherwise been able to afford, and eventually moved on to larger real estate investments that didn’t involve his principal residence.
“Once they figure they can get a yield on their investment, they do,” said Mr. Campbell, adding Canadians are looking to get better income than they might achieve elsewhere like the stock market.
He thinks the basement suites are probably a large driver of the trend toward owning rental property. “That just might be the only way some people can afford to live in the neighborhood they want to,” said Mr. Campbell.
Source: Garry Marr, Financial Post
