What is the minimum down payment for the monthly rent to break even on all carrying costs?

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Here's a question that almost every investor asks when purchasing an investment property: what is the minimum down payment amount for the monthly rent to break even on all carrying costs?

Investors often want the monthly rent to break even on all the carrying costs for that month and in order to have that, there is a minimum down payment amount that is required when purchasing the property.

Check out the video for the answer. Thank you for watching!

Below are the clickable TIMESTAMP links for the video

00:08 - what investors usually want when buying a condominium

00:12 - a question that most investors ask when buying a condominium

00:23 - how much the average condo in Toronto costs

00:30 - the example condo we will use for calculations

00:38 - figuring out the market value rent

00:55 - what are your carrying costs? The three parts

1:23 - the mortgage calculator app that I use

1:47 - the down payment amount, as a percentage, that is usually required for the monthly rent to break even on monthly carrying costs

1:59 - the down payment amount, in dollars, that's required for the average Toronto condo in order for the rent to break even on monthly carrying costs

2:11 - remember to add this fee on top of your down payment amount when purchasing real estate

2:17 - the closing costs for a typical condo in Toronto

2:49 - topic for next upcoming video

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Full Video Transcript:

Hey guys, it's Karen from Toronto here.

Now today's video is geared towards investors who are looking to purchase a condominium.

Now, investors usually want the monthly rent to cover all of their monthly carrying costs. So the question that's often asked is, how much minimum down payment is required for the monthly rent to break, even on all the expenses?

So let's take a look at the numbers together.

The average condo in Toronto costs $672,465. For our calculations let's use this condo as an example, since it recently sold for $672,700.

Our next step is figuring out how much the market value rent is.

By taking a look at the units that recently leased in the building, we can see that the average rent for a unit

like this is $2,400 a month.

Now, let's calculate the total monthly carrying costs.

Your carrying costs are broken down into three parts.

First, it's your condo maintenance fees. Secondly are your property taxes. And third are your mortgage payments. Using our example, the monthly condo fees are $456.38 a month, while the property taxes are $199.16 a month.

We're going to put these numbers into a mortgage calculator and I use the Canadian mortgage app.

If we use the current average of 2.6% for a mortgage interest rate, and we amortize that mortgage over 25 years with bi-weekly mortgage payments, we're looking at putting down $289,261 for our rent to break even with our carrying costs. This down payment amount is approximately 43% of the purchase price.

And as a rule of thumb here in Toronto, I do find that most investors have to put down approximately 40 to 45% down payment for the rent to break even on their carrying costs.

So there you have it. For the average condo in Toronto, the down payment amount that's required for the rent to break even on the carrying costs is about $289,000.

And don't forget, when you purchase a property, in addition to the down payment, you'll also want to budget for the closing costs. For a $672,000 condo in Toronto, you'll want to budget about $23,000 for closing costs. 

Now some of you who are watching this video, you might be thinking that saving up about $300,000 is a lot of money. Perhaps you're interested in purchasing the condo to live in there yourself, or maybe you don't mind being slightly negative on cash flow for an investment property. In that case, you can certainly put down a lower down payment amount and all that means is that your carrying costs per month would be higher.

If you're curious to know what the minimum down payment would be for a typical condo in Toronto and what those monthly carrying costs would add up to, go ahead and click that "like" and "subscribe" button now, because in an upcoming video, I'll review those numbers with you.

In the meantime, if you have any real estate questions or needs, give us a call.