A recent study predicts that commercial rents in Toronto could soar as much as 50% in the next three years. Unlike the hot residential market, Toronto’s commercial properties are priced reasonably right now due to a reasonable supply, even though Toronto currently boasts the lowest commercial vacancy rate in North America. While we are at the peak of the Toronto housing market, the commercial market isn’t nearly as hot and the time is right to snap up property before it does heat up. With rents going up so much, it will do so sooner rather than later.
Does this mean that the time is right to make the switch to being a commercial property owner? Our answer is absolutely, but keep your residential property to shield you against a potential long vacancy on your commercial property.
The benefits of commercial property investment
Being a commercial landlord does not come with the legal burdens of being a residential landlord, especially with the recent changes to Ontario’s Residential Tenancies Act which make being a residential landlord more difficult. If a commercial tenant doesn’t pay rent, you can evict them and change the locks in two weeks. If a residential tenant doesn’t pay rent, you have to take it to the Landlord and Tenant Board to get an order of eviction issued and you can’t change the locks – the sheriff has to do it.
You will have less of a “parental” role with a commercial tenant and more of a business arrangement. Yes, you will be expected to fix problems when they occur, but you won’t be called with the kinds of complaints you should expect regularly from some residential tenants.
The problems with commercial property investment
With all of the benefits, commercial property ownership seems like a no-brainer, but not so fast – commercial tenants may stay longer and present less hassle than a residential tenant, but when they move out, you may not find a replacement tenant for months – even up to a year depending on the location you choose. This is why it is important to have a residential property in play to make up the shortfall while you are losing money on a vacant commercial property; it is also important to have a good location.
Additionally, the value of a commercial property is based on its income generation potential, not on its value – which is part of the reason it is so inexpensive compared to residential housing in Toronto right now. However, it will appreciate if rents go up as predicted.
Highgate can help you with location selection and more
Location is key to finding the right tenant. Right now, franchises and other companies are eying rentals in the suburbs as millennials flee the core to purchase more affordable housing. If you are just buying your first property, you can easily split your budget between a bachelor condo downtown and a building in the suburbs and have your bets hedged as recommended above.
Highgate can help you find the right properties for the right price, and we do both residential and commercial property management after you buy your property to help you jump the hurdles of being a residential landlord, and to find you the best tenants for your commercial property. We also offer renovation and property maintenance services – just one phone call can get everything going for you.
But don’t wait too long – once the commercial rents start to rise, so will the prices on commercial property. And as with any investment, you want to buy as low as you can in order to make a profit.