The Green Lights Investors Look For in Today’s Market

I read Matthew McConaughey’s Greenlights earlier this year, and an idea has stayed with me. You don’t need a clear road to keep moving, you just need enough evidence to take the next step.

I speak with a handful of new investors each month and stay in regular contact with our existing investors. My role is to explain our business model, answer questions and help accredited investors determine whether Modcity’s investment thesis aligns with their investment objectives.^*

A year ago, most conversations started with the return. Now, as the missing-middle niche matures, the questions are more practical. In this article, I will tackle the three most important questions investors ask:

1. How will it rent and will the rents hold up over time?
2. Will the building have positive cash flow?
3. What are the key risks of the project?

These questions are central to evaluating an investment. I address each below.

1. Rental Income and Debt Service Coverage

Start with what units actually rent for. In September 2026, Toronto’s three-bedroom apartment and condo asking rents were up 1.8% from a year earlier, while the overall apartment and condo average was down 1.4%, according to Rentals.ca and Urbanation.¹

This is central to Modcity’s investment thesis. We focus on spacious three-bedroom homes near transit, where families can access the space they need without giving up convenient connections to work, schools and everyday amenities. We believe that focus supports longer tenancies and a more resilient rental portfolio through market cycles. CMHC’s published average rents for Toronto (Central) rose nearly 30% for three-bedroom-or-larger apartments between 2019 and 2025, compared with 18.7% for one-bedroom and 15.3% for two-bedroom apartments.²

The longer-term growth in three-bedroom rents supports our focus on family-sized homes. When underwritten conservatively, rental income can cover the building’s financing obligations and operating costs, including taxes, insurance and maintenance, with an allowance for vacancy. That gives investors a clearer basis for assessing the product and our investment thesis.

2. Projected Cash Flow and Holding Flexibility

“Are we selling?” comes up on almost every call. Investors want to understand the exit strategy and potential for liquidity. We advise that current market conditions are not ideal for a sale and that a longer-term rent-and-hold approach is more appropriate. When market conditions improve, we can explore a disposition.

During the hold period, a leased building with CMHC MLI Select financing provides flexibility and greater control over when to sell, helping reduce the risk of a forced sale in unfavourable market conditions.

The property’s income services the debt and covers operating expenses. We don’t rely on future appreciation to make today’s numbers work, but we see potential for substantial upside over a five- to ten-year horizon.

3. Managing Project Risks

The key development risks centre on the operator, financing and construction. At Modcity, we address each through experienced management, disciplined underwriting and clear contractual commitments.

Operator Experience

Modcity has an established track record in Toronto’s multiplex market, with nearly two dozen completed buildings that have been refinanced and leased. Our dedicated team manages projects from acquisition through delivery and ongoing operations. That experience helps us identify issues early and respond effectively when challenges arise. Our company metrics provide further context on the scale and growth of our portfolio.

Financing

Our financing strategy centres on CMHC-insured loans through the MLI Select program, with a focus on qualifying through its energy-efficiency criteria. The program provides financing incentives for projects that meet specified affordability, accessibility or energy-efficiency commitments. Our experience completing these applications informs our underwriting and assessment of approval conditions. Established lender and broker relationships support execution, with final terms subject to CMHC and lender approval.³

Construction

Construction is a core risk in any development. Modcity has eight dedicated team members managing and coordinating its construction sites, led by Crane Liu, Director of Construction. Our delivery experience and standardized approach support fixed-price, fixed-timeline construction contracts at competitive rates. These contracts define our responsibilities for cost overruns, contingencies and delays, providing investors with greater cost and schedule certainty within the agreed scope and terms.

Learn More

If you’d like to learn more about Modcity’s investment approach and current opportunities, get in touch with me. I’d be happy to discuss how they may align with your investment objectives.