Investing in real estate can be a compelling opportunity, and the vibrant city of Toronto, Canada, presents itself as an attractive destination for real estate investment. Toronto, the capital of Ontario and one of the most populous cities in Canada, offers a thriving real estate market with numerous advantages for investors. From a robust economy and steady population growth to diverse property options and a solid rental market, Toronto provides a favourable environment for those seeking to invest in real estate.
Although many people think real estate investors must be tycoons to get into the real estate market, even average homeowners have their place in the real estate game. Whether residential properties, commercial spaces, or rental properties, investing in real estate in Toronto can yield substantial returns and long-term wealth accumulation. Here we explain the different options for investing in Toronto real estate and why real estate can be a good investment, especially in the long term.
Investing in a Toronto Home
This is, by far, the easiest way to get into the real estate market. You have access to funds to invest in your property via a mortgage, which means that if you can come up with a down payment, have good credit and have a steady income, you can probably find a property to purchase, even if it is on the outskirts of the city.
The benefits include:
- You live in the home, so you don’t have additional living costs for rent.
- Owning your primary residence is the best form of “forced savings.”
- Your mortgage payments are smaller incremental investments that build significant home equity.
- It provides a tax shelter as your profits are not taxed when you sell your home.
- Your home equity can provide capital to put toward other investments.
Buying a home is the most basic form of buying and holding an investment. Buy it, hold onto it, and watch your equity grow.
Buying and Holding
You can apply the buy-and-hold strategy to more than one property. Unless you have millions of dollars sitting around allowing you to carry several mortgages, investing in rental properties is the easiest way to do this. This is an excellent way to build a real estate portfolio, as you can purchase one or more rental properties and have tenants who generate rental income to pay your mortgage. In this scenario, it’s almost as if your property is mortgage-free.
The trick in Toronto, of course, is buying a rental property you can afford and that also provides you with enough rent to cover your mortgage. The only problem with rental properties is that they require management and maintenance, so ask yourself, “Do I really want to be a landlord?” You can pay property management fees for someone else to do the work, but that eats into your profits.
However, by holding onto a property for an extended period, you may benefit from the property’s value increasing over time. This is especially beneficial, with inflation skyrocketing in recent years. By holding onto a property, and potentially renting it out, you can benefit from an asset and income that will keep up with and even exceed the inflation rate.
Condos and Rental Properties
If you buy the property for a fair price, have a property that will attract tenants (near transit, affordable compared to other rentals in the area, safe area, near amenities, etc.) and can keep tenants, you can build a respectable portfolio. The only caveat is that you will, of course, need the 20-per-cent down payment for each property and get a mortgage.
Toronto condos are a popular choice, as they have a more affordable purchase price, especially when purchased pre-construction. They also have tenant demand as a rental property, and the condo market is seeing excellent gains in value. The downside is that your rent must be high enough to cover your mortgage and condo fees.
Flipping Real Estate
Flipping is buying an undervalued fixer-upper, renovating it and then selling it at a profit. This has long been a real estate investment choice for people not interested in being a landlord. However, financing is trickier because you need money to manage renovations. Renovation can pose many challenges unless you are a true handy person or know someone who is.
Competition to purchase fixer-uppers can be fierce, as it is not just investors but homeowners searching for undervalued properties. Also, finding a home priced significantly below market value can be challenging. There is more risk because you have to know:
- How much to pay for the home
- How much to invest to be able to sell at a profit
- How to price the home so it isn’t too high to find a buyer
Financing your costs can be tricky, and finding a lender can be challenging. If you run into issues selling, you can try to rent the property to cover your mortgage. However, with today’s low housing inventory, selling shouldn’t be a problem and might even drive up prices due to bidding wars.
Joint Ventures in Real Estate
If you want to invest in Toronto real estate but either have bad credit or not enough money for a down payment, you can opt for a partnership with someone you trust and go into the purchase together. You share the burden of financing the property and split the profits when you sell. You can do this using the buy-and-hold strategy, renting properties to tenants, flipping, or even owning and living together. The trick is to have all the terms clearly plotted out, such as:
- For flips, how the repairs will be done, paid for and managed
- How much you are willing to spend on upgrades to still see a profit
- Finding tenants and managing the property if renting it out
- Your selling strategy and goals
- Buying out a partner
Caution is greatly advised when choosing a partner. Some have a history of overextending themselves financially, and chances are they could do it again. Consult a lawyer for advice on how best to proceed.
Real Estate Investment Funds, or REITs, are publicly traded organizations that invest in income-producing real estate assets. They are purchased like stocks and come in different types with varying degrees of risk. They usually consist of diverse holdings such as industrial buildings, residential apartment towers, office buildings, malls, etc., and can be local or international properties.
You can own units easily as they start as low as $10 compared to the minimum you need for a down payment for a Toronto property. In the past ten years, REITs’ dollar value grew 215 per cent, making them rather lucrative. This comes with all the benefits of owning rental property without any of the headaches.
REITs allow investors to diversify their portfolios by gaining exposure to a wide range of real estate assets. By investing in a REIT, you can spread your investment across multiple properties and locations, reducing the risk of owning a single property.
Benefits of Investing in Rental Properties
Rental property opportunities are a good Toronto real estate investment strategy. Toronto’s population is growing, and so is the demand for rental units. In fact, Toronto is the fastest-growing metropolis in North America, with 159,679 new residents arriving between July 2021 and July 2022. Average rent should be able to cover your mortgage and, in some cases, even get your down payment back quickly. The only problem is that properties in the Greater Toronto Area today average $1,556,566, so you’ll need almost $78,000 upfront for your down payment.
Investing in rental properties provides several benefits, including the following:
- Rental properties generate regular rental income, providing steady cash flow. This income can help cover the property expenses, such as mortgage payments, maintenance costs, and property taxes, while potentially leaving you with additional profit.
- Real estate has the potential to appreciate over time, meaning the property’s value may increase.
- As you make mortgage payments on your rental property, you build equity. Over time, the property’s value may increase, and the mortgage balance decreases, resulting in greater equity.
- Rental property owners can enjoy various tax benefits. For instance, you can deduct expenses related to the property, such as property taxes, mortgage interest, insurance, repairs, and maintenance.
- As inflation rises, rental income can increase, potentially providing a reliable income stream that keeps pace with or surpasses inflation.
With careful consideration and strategic planning, investing in real estate in Toronto can be a rewarding venture with the potential for significant financial benefits. The city’s strong economy, steady population growth, diverse property options, and robust rental market make it an attractive destination for investors. Whether you’re interested in residential properties, commercial spaces, or rental properties, Toronto’s real estate market provides the potential for appreciation, rental income, and long-term wealth accumulation. If you want to speak to a real estate agent about Toronto real estate investments, contact a RE/MAX Agent today.