Opportunities for investment just never seem to end in this city. And real estate is on the front line. Average home prices have been rising year after year. Toronto’s population is growing too, thus creating even more opportunities.
Speculations about bubble bursts have been there too, but that has not stopped investors from scooping up residential properties here. The benefits are almost irresistible: from having a decent passive income and capital gains to building equity, you have lots of reasons to take the risk.
Now, if you are among those who have their eyes set on investing in rental property in Toronto, then you must know a couple of things about this market. Let me get you started right away.
Evaluate Your Financing Options
Not unless you plan to pay cash for a property, you’ll have to explore the mortgage options in Toronto. Obtaining one is relatively easy when you are borrowing to acquire your primary residence. But for investment properties, things get a bit difficult.
For example, for the down payment, you’ll have to raise an amount that’s at least 20% of the buying price. Then, only a tiny share of your rental income will be taken into consideration in assessing your qualification for the mortgage, which is usually 80% of the purchasing price. The down payment rises to about 50% when the mortgage is for a commercial property.
Right now, this city has a huge lineup of lenders and brokers ready to help you secure a mortgage.
Peruse through each of them thoroughly until you find one that seems right for you. You will only obtain a mortgage pre-approval if you come fully prepared. That means having your credit scores ready and being fully cognizant of your financial situation.
Familiarize Yourself With Taxation Matters
Canada considers any money you collect from renting your properties as income and then subjects it to tax. Now, tax implications for residents and non-residents are different. As a non-resident, you’ll be subjected to the following taxes:
- Non-Resident Speculation Tax (NRST)
- Type XIII Taxes
- Capital gains tax
- Land transfer tax
- Disposition of property levies
- Real property tax
There may be other charges and fees you’ll be forced to part with as well. So, before you make that move to purchase property, it would be great if you sat down with an expert who knows and fully understands the tax implications associated with such a choice.
Come Up With A Real Estate Strategy
Timing matters a lot in this space. You should never overlook it. Think of it this way, would you like a short or long-term investment?
In real estate, short-term strategies tend to attract higher risks, and so you should exercise caution. You can purchase a property, hold it for a while, then sell it later or opt to flip run-down houses for quick profits.
There’s also the question of whether you’d love to go in solo or as a group, making it a joint venture. Note that this kind of move attracts its own special tax implications.
Promising properties can easily lure you into making snap decisions that could cost you dearly. It’s, therefore, best to first develop a sound investment plan depending on your financials, timing, tax implications, investment goals, and so on.
Real Estate Investment Analysis
Investment analysis is the point where you pick a pen, spreadsheets, and a calculator. Do your math and indulge in critical thinking until you have results that seem impressive.
At this stage, there are usually three options at your disposal. As a real estate investor, you should be aware of each as they’ll guide you in deciding which property to buy. They include:
- Cash flow/Cash Returns – Cash flow is what you are left with after the expenses have been deducted from your rental income.
- Appreciation – Appreciation is when the value of your property (at the time of selling it) is higher than the amount you purchased it with.
- Equity – When you have a mortgage being serviced through rental income, you are building equity. When you finally sell that property, your equity will be whatever that’s left after deducting the down payment (your original investment).
The next thing you will want to know is the calculations and evaluation tools that smart real estate investors depend on to estimate the returns on potential property investments. They include:
- Cash flow rate – Your rental income less all the operating expenses and financing costs.
- Capitalization rate (cap rate) – It’s the property’s rate of return, usually arrived at by dividing the operating income by the purchase price.
- Return on investment (ROI) – A performance measure that assesses the soundness of an investment or compares its efficiency against other competing options. It’s calculated by summing up the cash returns together with the mortgage down payments and capital appreciation.
Available Investment Options in Toronto’s Real Estate Market
Many of us know about investment condos, most probably because they take a larger pie of the properties owned by investors in Toronto. Part of what makes them an attraction is that they do break even, are more likely to appreciate in value and generate positive cash, and boast of less repair work. However, this one only works well as a long-term investment.
Other solid investment options include:
- Income properties
- Mixed-use properties
- New constructions
Each of these properties has its good sides and drawbacks. If you’d like to learn more about which properties perform well over time, you can schedule a consultation with our award-winning broker.
Professional Help Matters A lot in Real Estate
Real estate as a field is quite diverse. Part of is handled by financial advisors, and another portion by legal experts.
There’s also the point where you’ll need solid investment advice. Basically, you’ll need to surround yourself with experts who will share the knowledge that you’ll find vital in proper decision-making.
This is where Toronto property management companies come in. They will connect your needs and goals to potential opportunities and ensure you go about this entire process right.
Just about every statistic coming up lately continues to reinforce the fact that you will hardly go wrong in investing in rental property in Toronto. And like every other real estate market, it has its own rules and intricacies. Thankfully, I’ve just ushered you into the core part of it. Now, what’s left is for you to build on this foundation and find your way to success.
Your journey will be a lot easier and better with help from our seasoned industry professionals. Take this chance to grow and make decisions that will lead to a happy future for you as an investor.