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The Complete Toronto Real Estate Investments Guide - Baypress - 05-05-2021 Looking to make money in Toronto’s real estate market? You aren’t alone. Historically, investors have richly profited from buying, renting, flipping and selling properties in Toronto. This guide will outline the various options to make money in Toronto’s real estate market.
Toronto real estate investments come in all shapes and sizes and there’s a lot to consider. Note: Some things have changed (temporarily, we hope) during the pandemic. For the latest on what to expect when buying during COVID-19, click here. Contents
Financing Getting a mortgage for an investment property isn’t as easy as borrowing for your primary residence – you’ll need at least 20% of the purchase price for a down payment, and only a portion of the income you get from rent will be considered in qualifying you for a mortgage (usually 80%). For commercial property investments, you’ll likely need a down payment of 50%. Pro Tip: If you’re looking for a mortgage broker who understands real estate investments, contact Mortgage Jake. Taxation In Canada, any money collected from rent is considered income, and thus subject to income tax. Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains taxes. If you’re thinking of buying an investment property, make sure to talk to your accountant to fully understand the tax implications. Related: All About Taxes in Real Estate Timing Most real estate investments should have longer-term objectives. Because of the unpredictability of the real estate market, expecting to profit in a short period of time is risky. Goals What are your investment goals? There are three ways to make (or lose) money by investing in Toronto real estate:
Real estate investors use different calculations and tools to calculate the returns on their property investments: Cash flow is the net amount of cash moving in and out of an investment Calculation: Income – operating expenses – financing costs Capitalization Rate (cap rate) is the rate of return on a real estate investment property based on the income that the property is expected to generate. Calculation: Operating Income / Purchase Price Return on Investment (ROI) – a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments Calculated by adding the cash return + mortgage pay down + capital appreciation. There are many tools out there to help you predict the ROI of investment properties (and of course, the BREL team has a proprietary Income Analysis tool for our clients). Real Estate Investments Option 1: Investment Condos Ever wonder who’s buying all the condos you see changing Toronto’s landscape? Investors. In fact, a study found that 40% of Toronto condos are owned by investors. Here’s why: The Pros
Quote:Make sure to read our blog with all our tips about Investing in Toronto Condos.Investment Option 2: Income Properties Income properties–houses that have self-contained apartments that are rented out–are HOT, HOT commodities in Toronto. The Pros
Real Estate Investments Option 3: Flipping While it isn’t as popular as it was a few years ago, flipping houses (in other words, buying a rundown house and renovating it for profit in under a year) happens every day in Toronto. It isn’t for the faint of heart – but it can be hugely profitable. The Pros
Related: So You Want to Flip a House? Investment Option 4: Mixed-Use Properties Many investors turn to Toronto’s mixed-use properties for their ROI. Mixed-use properties have both a residential and a commercial component and if purchased in up-and-coming neighbourhoods, can be an excellent real estate investment. Note: the financing and buying process are very different than the standard resale residential market so make sure you hire a REALTOR experienced in selling these types of commercial properties. Real Estate Investments Option 5: New Construction This used to be the number one real estate investment in Toronto–  buying condominiums during the pre-construction phase and selling them when they were built (often up to 5 years later). The Pros
Quote:Make sure to read our article comparing Buying New vs. Resale Condos.Managing Your Investment Property There’s a lot to know about being a landlord – you can read our Guide to Being a Landlord here. If you’d rather outsource the management of your property, there are plenty of options in Toronto. In Toronto, you can expect to pay about 6% of the monthly rent in property management fees for a condo, and 10% for a house. |