Spotlight on London
Konfidis is pleased to share its research and assessment of the most compelling Ontario markets for single-family rental investment. In this regard we have identified our "Tier 1" rental markets herein. We focused our search and research on secondary Ontario markets around the Greater Toronto Area with a strong employment base, outsized population growth, and a minimum population threshold. Our assessment was primary focus on observed and available rental yields (i.e. market rental income as a percentage of comparable property resale prices). Our comprehensive analysis highlighted the following markets which we identify as "Tier 1": London, Kingston, the Peterborough area, and the Niagara Region. We are also keeping our eyes on larger markets which are more direct beneficiaries of Ontario immigration such as the Greater Toronto Area, Barrie, and the Kitchener-Waterloo & Cambridge areas, as examples. These markets have compelling capital appreciation profiles but annual rental yields dynamics that are approximately 100 bps lower (200 bps lower in the case of the Greater Toronto Area) that the Tier 1 secondary markets. Further, single-family rental investment properties with higher purchase prices and lower rental yields typically represent more challenging mortgage servicing and cash flow dynamics. Within the Tier 1 markets, we are focused on identifying lower-priced properties which provide stronger rental yields and provide a compelling risk/return dynamic as entry-level homes, at valuations well below replacement cost.
Spotlight on London, Ontario Amongst the current "Tier 1" rental markets identified, we provide an initial focus on London. Of important note, Konfidis’ data driven approach removes the emotion from residential real estate investing and follows the unbiased numbers. Our assessment of top markets will change as market dynamics change. As background, London is the sixth-largest city in Ontario (Canada’s 10th largest city) and serves as a regional hub for surrounding communities. London attracts many families with its low crime rates and excellent education and health care facilities. London benefits from a foundation of stable major public employers such as the London Health Sciences Centre, St. Joseph’s Health Care, Western University, and Fanshawe College as well as strong corporate employers including Canada’s largest banks and insurance companies. London has benefited from 1.80% population growth over the last five years on average compared to Toronto and all CMAs across Canada broadly of 1.42% and 1.37% respectively (according to StatsCan). London also provides compelling relative single-family home rental affordability with Konfidis’ surveyed benchmark rental rate of $2,500 per month (compared to Toronto at over $3,500 per month). Further, as detailed in a recent London Free Press article, while London’s economy is much hotter than it was six years ago, its home ownership rate remains dead last among major Ontario cities and has even slid a bit since the numbers were last crunched in 2016. This trend supports a strong and active rental market in London as an alternative to home ownership. As detailed in the table below, after Ontario detached home prices have been steadily and swiftly declining since earlier this year, we are seeing a stabilization and reversal of pricing trends since August in London (similar to certain other markets, but not all).
Source: Konfidis.com from actual resale MLS listings sold transactions. For detached homes only, on a 30-day trailing basis. MLS Benchmark and Average for London St. Thomas Association of Realtors (LSTAR).
The chart above also highlights the opportunistic pricing of 22 Bond Street with a $410,000 Assignment Asking price (estimated 7% rental yield as is or increased to 11% rental yield including development of second unit) compared to the trailing 30-day average 3-bedroom and 2-bedroom detached home in London of approximately $623,000 and $470,000 respectively. At the same time that the market has experienced declining home prices, rents have increased sharply (see the table below). The trending relationship of these two factors have significantly improved the cash flow yield profile and opportunity for single-family home investment in London. While detached home prices in London have declined 23-28% peak to trough this year, rents for four-bedroom homes, for example, have increased 9% over that same period (or 16% annualized). As a result, rental yields have increased over 150 bps since the beginning of the year.
Source: Konfidis.com from actual resale MLS listings sold transactions. For detached homes only, on a 30-day trailing basis. MLS Benchmark and Average for London St. Thomas Association of Realtors (LSTAR). Konfidis.com Rental Survey from Whole-home rentals on a smoothed 60-day trailing basis.
The current market disconnect, evidenced by the above, allows Konfidis to secure strong investment properties at compelling prices in this attractive buyers market.
Konfidis Assignment Opportunities in London, Ontario Konfidis’ exclusive assignment offerings of 22 Bond Street, London, Ontario
($410,000 Assignment Asking price at an estimated 7% rental yield as is or increased to 11% rental yield including development of secondary rental unit)
22 Bond Street in London, Ontario
Listing History and Pricing:
Original listing at $489,000 on August 9, repriced to $439,000 on September 8
Executed APS on September 9
Suggested Assignment Price of $410,000
Agreement of Purchase and Sale Terms
APS closing date: October 31, 2022
Assignment available on a first come first serve basis; seeking sufficient time between assignment and closing
Deposit: seeking a total deposit of $35,000
The property
2+1-bed 1-bath bungalow in South London (close proximity to Victoria Hospital) on a 38’ x 121’ lot
Estimated monthly rent of $2,400 (rented as is) which equates to a 6.9% gross rental yield based on the Suggested Assignment Price (significant renal upside for improved home)
Pro forma cap rate (as is) of ~5.5% (assuming self-managed)
Only minor initial work suggested including the removal of an old shed
Development Opportunity (Click here)
Zoned R2-2 allows for secondary rental unit for the property
Estimated total monthly rent of $3,800 (inclusive of second rentable unit) which equates to 11% gross rental yield based on Suggested Assignment Price plus estimates development costs.
Pro forma cap rate (inclusive of second rentable unit) is 8.43% (assuming self-managed)
To enquire about our research or 22 Bond, London, Ontario can be directed to hello@konfidis.com