Abstract

In early $2018,$ Diana Mulhall was undertaking a career change that would eliminate the need for

frequent business trips to Toronto. As a result, she wondered whether she should sell her condo

in the heart of the Canadian city or keep it as a rental property to generate income for herself.

The housing market in Toronto was booming, so Mulhall believed that the condo would fetch top

dollar as a sale. She also thought it would be easy to attract tenants if she kept it as a rental.

She had invested in rental property before but never outside of her hometown of Chicago, so

Mulhall needed to identify the key risks associated with being a landlord in Toronto.

Case

In early $2018,$ Diana Mulhall faced a financial decision that she hadn$$t anticipated. She had just decided to

leave the consulting firm where she had spent the better part of her career to start her own risk assessment

advisory business in her hometown of Chicago. For the past $12$ years, she had climbed the ranks at

management consultancy Accent, finally becoming a partner in the firm$$s risk management division three

years ago. Her major client was the Canadian Imperial Bank of Commerce $($CIBC$).$ She eventually grew tired

of spending four nights a week in a Toronto hotel, so in $2013$ she purchased a small, one$-$bedroom condo in

Toronto$$s financial district that was within walking distance of the bank. Being able to return in the evenings

to a condo decorated to her own tastes improved her mood during her stays in Toronto. Now that her career

move would put her regular Toronto commute to an end, Mulhall$$s first instinct was to sell the condo, which

had soared in value in Toronto$$s booming housing market. Perhaps, though, that was a hasty decision, and

she should consider keeping the property as an investment, renting it out to capitalize on its prime location in a

booming city. As part of her portfolio of assets, Mulhall already owned a number of investment properties, but

all of those were located in Chicago. Perhaps the Toronto condo would add useful geographic diversification?

It had certainly been a great investment up to this point. But what about the risks? Fortunately, risk was her

business during all of her years at Accent. She knew all about the quantification of risk. It was time to apply

her skills for her personal benefit.

The Property

The Toronto condominium was located in the $35-$story boutique condo building at $21$ Nelson St$.$ in downtown

Toronto $($Exhibit $1).$ It was only about a kilometer from CIBC headquarters in Commerce Court and around

the corner from the Shangri$-$La Hotel, at which Mulhall had spent over $300$ nights in her years commuting to

the city. The building offered luxury, loft$-$style condo living, with $24-$hour concierge service, exercise facilities,

a rooftop bar, outdoor barbecue, and even its own yoga studio. Mulhall$$s junior one$-$bedroom unit was located

on the $11$th floor and offered a view of the CN Tower. The living room, kitchen, and powder room were on the

entry level, and then a staircase led to the sleeping area and full bathroom upstairs In total, the

unit was $606$ square feet, and Mulhall had purchased the unit in July $2013$ for $$374,000.1$

The Neighborhood

The city of Toronto is divided into $140$ neighborhoods. Mulhall$$s condominium was in neighborhood $77,$ the

the area had increased $52\%$ between $2011$ and $2016$ with $68\%$ of its pCurrent value

Implied entry ca

Cap rate change $($holdin