Cash flow is great. my homes used to cash flow until i refinanced them. But the total return is not captured that way since you need to factor in price appreciation. Have I made money through the BRRR strategy? Yes. Have I completely missed out on the condo appreciation because I've always looked for cash flow? Yes. The supply is tight still regardless of what anyone says due to net migration into the city. Price-to-affordability is a different issue, but regardless the supply is tight.
The Toronto rental market is hot with all the institutional capital going into building apartment buildings. The rental growth rate from some of the institutional grade market research firms are putting out numbers as high as 7%/yr growth. As long as the rent control stays away, that aspect of the market will do well. This is the space my professional career is in - institutional capital, residential development (condos/houses), buying value-add apartment buildings in scale. Institutional capital is buying assets at 3% cap in the city of Toronto. Does that make sense? I'm not sure. But I know for a fact that they're impossible to buy because of that price point.
To both your comments Huong Luu and Hai Loc: as I'm going about this from a top-down approach, how would you evaluate all the individual listings out there and understand whether the market has undervalued units or not? Forget just one particular area. Outside the city the LTT is half of inside the city. That impacts the total return over time (which includes cash flow, mortgage repayment, price appreciation) quite a bit. Essentially we're talking 24% cash (20% down + 4% LTT) for Toronto and 22% outside the City of Toronto boundaries. And on top of that, the condo price to rent rate ratio would have to be different in every area. Oakville-Mississauga-Etobicoke-Downtown Toronto-North York-Vaughan (VMC areas)-East York-Beaches-Markham-Richmond Hill, every single one of those areas the price-to-rent ratios will be different.
The Vaughan Metropolitan Centre has a direct subway access to downtown. The condos are much cheaper there and you also avoid the City of Toronto LTT of 2%. If rents in downtown continue escalate (which I believe they will), will that spill over to areas like VMC with direct subway access? Potentially. Arguably, this area could make a lot of sense from buying resale condo and renting it out. Mississauga with Square One now being developed by Oxford - you also avoid the 2% LTT there. Would that make sense? I don't know, yet.
So while I appreciate the particular cases around DVP-Eglinton and other anecdotal evidence that none of these will be cash flow positive (which could be true), I'm not entirely convinced that I couldn't make money big-ly through this investment thesis, looking at the right areas. This is too theoretical so that's why my initial post included listings from Vaughan (2% LTT), Regent Park (recently built, gentrification upside? after looking at my numbers again after Ming's comment I think my revenue assumption was too aggressive) and King West (probably representative of a typical downtown condo in Fin district and Entertainment district) for comparison purposes, and those numbers came out to around mid/low-teens on a compounded basis over a 5 year period with 3% appreciation applied, 20% down, LTTs /closing costs captured, 30 yr amort and 2.74% interest rate, 3% rent growth and 2% cost growth. That's a really good level of return, on a risk-adjusted basis given my perceived-risk level of the rental market, and I maybe spent 10 minutes looking these up, not even looking for a good deal. Imagine what the total returns would be at 6% price appreciation, the 21-year historical compounded growth rate for Toronto since 1999. That Vaughan condo I posted would generate a low-20s% compounded annual return. That's a Warren Buffet level compounded growth rate!
