In Toronto, the property market has been doing so well. Lots of investors have been lured into the city, not just by the prospect of making great returns but also by the attractive business and working environment it offers.
However, just like any business venture, property investments have their good and dark sides. Before you pour your money into it, you will want to, first of all, know what you are getting yourself into.
The advantages and disadvantages of property investment in this city are a bit different from what you will come across in other markets, majorly because of Toronto’s business environment, legal structures, and culture.
So, in this article, you will not just be learning about the pros and cons but also the ins and outs of the market itself. To begin with, let’s look at the advantages.
Benefits Of Investment Property
1. Diversified Income Sources
Property investment takes many forms. You can buy and sell, flip, or rent your property. Each of these investment options has a massive potential to bring you excellent returns.
In Toronto, rent and housing prices have been rising year after year. Therefore, you have a chance to make decent rental income and also equity and capital gains.
On top of that, you have full control over the kind of investment property to buy and even how to finance it.
2. Tax Benefits
Toronto sets the pace when it comes to tax benefits. Residents and non-residents who own and rent out a property in this city have an obligation to pay taxes to the Canada Revenue Agency. This must be done through an arrangement with your withholding agent.
However, you have the option to file your taxes with the revenue agency and have your tax debt cut down by deductible expenses such as management, insurance, advertising, utilities, repair and maintenance, and so on.
Also, if your rental income is less than your operating expenses, you may be able to deduct the difference from your other sources of income for tax purposes.
3. Availability Of Professional Help For Starters
Not many business ventures match up to real estate when it comes to the availability of expert help. Canada’s real estate market is no different. In Toronto, for instance, you have easy access to accountants, investment consultants, real estate agents, and property management companies, all of which could guide you in making the right decisions as you go about your real estate investment journey.
4. Easy Access To Financing Options
Admittedly, obtaining a mortgage for an investment property isn’t as easy as borrowing for a primary residence. However, cities like Toronto have dozens of lenders and brokers ready to help you get a mortgage. Your only challenge will be sifting through the many available options to find one that is reliable and matches your needs.
5. Fewer Risks
Compared to other investment options such as stocks, property investment tends to have fewer risks, especially when you are doing it long-term. In most healthy real estate markets, home prices go up every year, and equity gains also go up with time. So, the longer you retain your property, the higher the returns, meaning the risk is definitely lower if you opt for this strategy.
6. Immune To Inflation
With investment properties, you have a hedge against inflation. When the rate is high, property values and rent also have to keep pace. This means that a rise in the cost of living will work to your advantage.
That aside, inflation doesn’t influence mortgage payments, which means their value goes down with inflation.
Disadvantages Of Investment Property
Property investment has its fair share of downsides, and as much as they may sound relatively small, not paying thorough attention to them could be the beginning of your misfortunes.
1. Tenant Risk
A downside of investing in income property is tenants, even those you presume to be the best, could easily fail you. Non-paying tenants are every landlord’s nightmare. That explains why income from this stream is never guaranteed. Nonetheless, there are still great tenants out there who will always pay their rent on time. You can minimize the risk of landing bad tenants by always screening potential clients.
2. Disposing Of The Property Might Be Difficult And Expensive
Unfortunately, real estate is not a liquid investment, meaning it might take time to dispose of the property, depending on the existing market conditions. It could be a lot more challenging if your investment is short-term. You may incur realtor fees affiliated with the selling of property. Not to mention the land transfer tax. All these expenses will sadly reduce your ROI.
3. Property Management
Your property will definitely need to be taken good care of. Plus, there will be a few other tasks like accounting, administrative work, tenant screening and rent collection, insurance processing, and so on.
Many landlords find these tasks so involving and tiring, and, for that reason, they would rather hire a Toronto property management company to handle the work.
4. Mortgage Financing Can Be Expensive
If you can afford to pay cash, consider yourself lucky. But if you can’t and are in need of mortgage financing, the cost might be relatively high.
In Toronto, non-residents seeking mortgages need to have a down payment that is at least 35% of the property’s buying price. For those seeking a commercial mortgage, the rate shoots to 50%. Your best hope is that the investment property will be profitable enough to deliver positive cash flow.
Here are five strategies for adding real estate exposure to your investments
- Real Estate Investment Trusts (REITs)
- Crowdfunding Real Estate Platforms
- Invest in Your Own Home
- Invest in Rental Properties
- Invest in Real Estate by Flipping Properties
So, there you have it: the top advantages and disadvantages of property investment. Overall, if you have enough information about the real estate industry, you have very little to worry about. The majority of the drawbacks can clearly be handled and managed.
Curious to learn more about Toronto’s market? If yes, our team has a lot in store for you. Take that step to make your journey a success now.