Over 4 In 5 Greater Toronto Leveraged Condo Investors Are Losing Money

Over 4 In 5 Greater Toronto Leveraged Condo Investors Are Losing Money

The Greater Toronto condo market has been dominated by investors for years. That’s changing really fast, according to a new analysis from CIBC Economics. Over 4 in 5 investors with a condo apartment rental completed in 2024 are losing money, collecting less rent than they’re paying out. It’s a problem that’s long existed, but may finally be reaching its peak. On the upside, that’s provided significant inventory for end users. As prices fall, they might even be able to afford them one day. 


Toronto Condo Investors May Have Found The “Greatest Fool” 


Negative cash flow condos are ones where a leveraged investor tops up the carrying costs. Leveraged investors are those who use a mortgage for their units. Carrying costs are the mortgage payment, condo fees, and property taxes. Bluntly put, a cash flow negative condo rental is one where the owner tops up the rent paid to make the mortgage payment.  


Cash flow negative investments are often an intentionally made decision. It’s so common there’s a term in finance—a negative carry trade. These are used to speculate on the trade value of a price, ignoring the actual revenue of the asset. They’re taking a gamble strictly on being able to sell the asset to someone for a higher price in the future. This method of investing is better known as Greater Fool theory, since there’s usually a fool that will pay more. The speculators just hope they aren’t the greater fool—the final in the chain that’s stuck with a losing asset. 


81% of Toronto’s Leveraged Speculators Lose On New Condo Rentals


The vast majority of new condos owned by leveraged investors as rentals are cash flow negative. Over 4 in 5 (81%) of new condos completed in the first half of 2024 were negative cash flow. That’s up significantly from 77% last year.


Most of Toronto’s Leveraged Investors Are Losing Money On Condo Rentals 


The share of newly completed Greater Toronto condo apartments with a mortgage that is cash flow negative. By year of completion. 




Source: Urbanation; CIBC.


Higher financing costs aren’t helping, but they’re far from the only driver of the issue. The first year most completions were negative cash flow was back in 2022 (52%), when mortgage rates were at a record low or just above. It’s also worth noting that most newly completed condo units are purchased years prior, when prices were much lower at pre-sale. It’s also not a new issue—almost half (44%) of investors were in this position back in 2017.  


Toronto Condo Investors Pull Back From The Market As Costs Rise


Low rates helped home prices soar and investors dominate the condo market. CIBC notes, investors buy a whopping 70% of condo pre-construction. Much of this supply is flipped to end-users, but a lot are used as rentals. Rising rates are increasing carrying costs and prices are no longer moving higher, killing the share of investors willing to take on a negative carry investment. 


The share of newly completed condos used by rentals has dropped sharply this year. Investor use of condos as rental units recently peaked at 34% of completions in 2023. As rates climbed, just 25% of the units completed in 2024 are known to have gone to the market, with much of the supply being resold.  


Fewer Investors Are Buying Toronto Condos As Rentals 


The share of Greater Toronto condo apartments used as rental units, by segment and year of completion (new) or purchase (resale).




Source: Urbanation; CIBC.


Condo resales have similarly seen investors flee the market as well. The share of units that investors scooped for rentals made a recent peak at 14% of units in 2023. That’s since fallen to just 5% of units in the first half of 2024. While the bank only provided data for 2019 through 2024, they did also mention the 10% observed in 2023 was a 10-year low, so this year is on track for at least that. Potentially a record low. 


That’s a lot of investors becoming landlords, but it understates how much of the market they represent. Investors owned a whopping 56.4% of recently completed condos, according to a recent Statistics Canada study. Recently completed in this case goes as far back as 2016. If these aren’t rentals but still owned and carried, what they’re used for is a bit of a mystery. It’s hard to believe that 1 in 5 new units are used as second homes, but that’s a problem to discuss another day.