16 Sep Why are landlords charging such high rents?
Do you think that rents are too high in Okotoks?
The rental market is very tight right now and rates may seem exceedingly high. Based on some of the rental prices I have seen online, I have no doubt that there are some landlords that are taking advantage of the current high demand, low inventory situation!
Over the last couple of years, many accidental landlords have chosen to get out of landlord business. (I call them accidental landlords because they had never planned on being an investor/ landlord; their circumstances made renting their home out, their only option. They rented their properties out to cover their costs and perhaps even took a loss on a monthly basis. ) With these accidental landlords gone, the rental pool of properties is much smaller than it once was!
Now, there are new investors entering the market. With increasing interest rates, these investors are not wanting to subsidize their investment every month.
These investors are usually putting 20% down so let’s look at what those costs would be:
Property # 1 On a 300K apartment style condo (2 bedrooms, 2 bathrooms) with monthly condo fees of $475 and property tax of $125.
With 20% down, $240 000 amortized over 25 years at 5.49% interest, the monthly mortgage cost would be $1463.55 per month. Add in condo fees and property taxes and the total cost would be over $2060 per month. A unit like this is advertised on rentfaster.ca at $2000 per month.
Property #2.On a 475K house (1400sf, 2 St detached) with property taxes of $200 per month and insurance about $150 per month.
Assuming 20% down, $380 000 amortized over 25 years at 5.49% interest, the monthly mortgage cost would be $2317.28 and total cost would be over $2700 per month. A house like this is renting for about $2500 per month.
The investor is covering their costs and that’s it. Even when you look at covering the interest on the loan portion of the investment only, the condo owners’ cost is around $1700 per month. They’re only putting $300 per month against principal and that doesn’t even take into account repairs and maintenance.
The investor is hoping that the rental income slowly pays off their mortgage . The actual money is made when the property is sold in the future at a higher value.
So next time you look at a rental rate and think that it is too high, consider the costs , and then decide whether you would invest your money in a rental property knowing your monthly costs were barely covered.
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