Riding the Rate Waves: Condo Investors Navigate Selling Amidst Mortgage Hikes

Riding the Rate Waves: Condo Investors Navigate Selling Amidst Mortgage Hikes

Ever since this article came out in the Star, I’ve been thinking about my clients who are investors.

In a nutshell, the article explains that more and more real estate investors are leaving Toronto’s market due to rising interest rates resulting in an increase of new listings. Investors who purchased properties from 2020 to 2022 at low variable interest rates are now selling due to tripled mortgage rates. Even those who bought with fixed rates and are renewing their mortgages may be considering getting out of the market. This trend is expected to continue over the next year as interest rates remain high, leading to more investor exits from the market and impacting rental stock and property availability.

It’s true that there are more condos coming onto the market, but I for one am certainly NOT concerned that the market is going to get flooded in the very near future. Many recent investors will have opted for a fixed-rate mortgage, which means their payments won’t be affected until their mortgage comes up for renewal any time between 2025 and 2027, and who knows where interest rates will be then?

But for those who opted for a variable-rate mortgage, how do you deal with the increased payments?

It depends on the situation. Sometimes you have to accept short term pain for long term gain, and in some cases it may be worth losing money each month knowing that the value of the unit will continue to increase. While there are no guarantees that the market is going to grow in the future, history has always shown that it does.

I ask questions of clients considering selling to make sure they’re not panicking.

  • What plans do they have for the money that they’re going to be getting from the sale? Do they need that money or is the decision solely based on monthly output?
  • Have they spoken with their accountant to discuss the capital gains implications?
  • Its important to consider what they paid for the unit and give them an estimate of what it would sell for. It’s important to also discuss if they can imagine feeling regret over selling it. Sometimes selling is the right decision if it would just alleviate an immense amount of stress…. if the stress is short term and there are other options to make up for the shortfall then maybe it’s not the right decision to sell.
  • And finally, I ask about who’s living there now and whether they have considered the risks associated with selling a tenanted property.

The last question is key – a landlord can legally terminate a tenancy if they, or a family member, are moving into the unit, or they are selling the unit and the buyer will be moving in, but there are risks involved with this scenario.

If you are selling a unit with a tenancy in place and you ask the tenant to leave because the new buyer warrants they will be moving in and in fact the new buyer doesn’t move in, but signs on a new tenant, your current tenant can lodge a complaint. If this happens, you as the landlord can be fined by the government for up to $25,000.

The sale of a tenanted property can get complicated if a tenant refuses to leave, because the agreement of purchase and sale states that the unit will be vacant upon possession. Check out what happened to this couple.

The proper procedure, once an agreement of purchase and sale has been signed, is for the owner to file an N12, giving them 60 days notice from he end of a pay period to leave. One must follow the protocols to provide notice to the tenant exactly as stipulated by the Landlord Tenant Board (LTB).

Most tenants will leave willingly, but not all. If a tenant doesn’t leave, they have to be evicted and this can take months because of the backlog at the Landlord and Tenant Board.

Most lawyers would say, if you’ve got a tenant, pay them what they want to get them out before the property is put up for sale. That’s the lowest risk. You may be eating a couple of months’ rent, but the property will sell faster because you’ve eliminated the complications. If an investor is buying it, they’ll be happy to bring in their own tenant at market rent. One important caveat: if the place you’re selling was completed after November 15, 2018, rent control rules don’t apply.

If it was completed before that date, you can only raise the rent according to the government. But after, the landlord has a right to raise the rent as much as they want.

If you have any questions about investment properties, or anything else real estate related, please get in touch!