Don’t Put All Your Bricks in One Basket

Canadian real estate prices took off during the last two decades alongside ultra low interest rates. Many people sought to buy a second property in a real estate market that once seemed invincible. Lately, however, many regret that decision as prices have come back down to earth amid higher borrowing costs.

As a portfolio manager in Toronto, I frequently meet people who are considering using their surplus capital to buy a second property—usually as an investment. It seems safe, but it’s a much riskier bet than many believe.

Given how sharply real estate prices have declined and how much the carrying costs have risen, investing in publicly traded stocks is, in many cases, the better long-term choice.

Real Estate Prices have Fallen since the 2022 Rate Hikes Began

Since the Bank of Canada began its rate-hiking cycle, Toronto’s real estate market has corrected significantly. The MLS Home Price Index for Toronto peaked at around $1.365 million in March 2022 but has since fallen to $985,400 as of April 2025—a staggering 27.8% decline. Condos have dropped 7.3% year-over-year to about $593,000. Townhouses are down 5% year-over-year to $758,000. And as prices have fallen, costs have risen.

Costs, Costs, Costs

Property taxes in Toronto jumped 9.5% in 2024 and another 6.9% in 2025. That’s over 16% in two years, with more hikes likely. The 2025 residential rate is about 0.75% of your assessed value, still based on outdated 2016 figures. And that’s just one of many rising costs tied to property ownership.

With higher interest rates, mortgage payments on a second property can quickly overwhelm the rental income. Based on a report by CIBC and Urbanation from July 2024, 82% of investors in newly completed Toronto condos who have a mortgage were cash-flow negative in the first half of 2024. This is a substantial increase from previous years (77% in 2023, and 40% in 2020).

Add in maintenance expenses (usually 1–3% of property value per year), insurance, vacancy risks, the hassle of managing tenants or repairs, and suddenly the math doesn’t work as well as it once did.

Stocks have Climbed since the 2022 Rate Hikes Began

Even if you’re buying without a mortgage, your opportunity cost has become greater. Instead of grinding your teeth over those repairs, property taxes, and sagging prices, your capital could have been earning almost a 7% compounded return in a well-diversified investment portfolio.

By contrast, a diversified portfolio offers many advantages:

• Liquidity: You can rebalance or liquidate any time without waiting months for a buyer.
• Lower costs: No property taxes, no ongoing maintenance, and no insurance.
• Diversification: You can own companies from around the world, across sectors and asset classes.

Your primary residence is still an important asset, and in addition to the real estate securities we own today, we’ll likely add a couple of homebuilder stocks if rates start to fall much further below today’s levels. But for most people with additional capital, the better move right now is to build a diversified portfolio—not double down on an increasingly unpredictable housing market.

Before locking in another mortgage, consider a portfolio that can work just as hard—without the weight of bricks. Reach out to us at info@schneiderpollock.com

-written by Jeff Pollock