Real estate investments offer the chance to build assets that will increase in value and build wealth. Although many people think real estate investors have to be tycoons to get into the real estate market, even average homeowners have their share in the real estate game. Here we explain the different options for investing in Toronto real estate and the reasons real estate can be a good investment, especially in the long-term.
Investing in a 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 as long as you can come up with a down payment, have good credit and 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 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 big 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
- Mortgage interest rates are low now
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, the easiest way to do this is to invest in rental properties. 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 they require management and maintenance, so you have to 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.
Condos and Rental Properties
As long as 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 your rent will have to 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. Unless you are a true handy person or know someone who is, renovations can pose many challenges.
Competition to purchase fixer-uppers can be fierce, as it is not just investors but homeowners who are in search of undervalued properties. Also, it can be hard to find a home that is priced significantly below market value. 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 prove a challenge. 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, rental properties to tenants, flipping or even own and live in the property 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 would need for a down payment for a Toronto property. In the past 10 years, REITs dollar value grew 215 per cent, making them rather lucrative. This comes with all the benefits of owning property, without any of the headaches.
Benefits of Renting
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 77,435 new residents arriving between July 2017 and July 2018. Average rent should be able to cover your mortgage and in some cases even get your down payment back quickly. The only problem is, properties in the Greater Toronto Area today average $839,363, so you’ll need almost $60,000 upfront for your down payment.
If you would like to speak to a real estate agent about Toronto real estate investments, reach out to a RE/MAX agent today.