Real estate investing can be a worthwhile achievement if you’re looking to grow your portfolio. For some investors, it can be easy to find the right property, whether it be commercial spaces, retail lots, or even residential dwellings.
With the right investment goal and real estate strategy, you can determine your potential returns and the potential capital growth of the property asset over time.
Understanding the property market, and studying current real estate trends will offer you better insight into how you can adjust your investment goals so that they can line up with your strategy.
Basic for Real Estate Investors in Toronto
Before one can jump onto the real estate market as a property investor, there are some basics one needs to cover first. Whether you’re starting from the bottom as a first-time buyer, or perhaps in the process of purchasing your second or even third property investment, this is a great way to get into the real estate market and grow your portfolio.
Without the right credit, or financial stability it can be a tricky road to follow, as real estate purchasing, whether it be in the city, or perhaps on the outskirts does come with its own set of risks and rewards.
Depending on what you may have envisioned for the property you’ll be purchasing, consider some of the following principles before taking on a Toronto real estate investments challenge.
Financing your next purchase is one of the biggest challenges any property investor faces.
For starters, you will need to provide sufficient information that you have substantial credit to make the purchase, especially if this is your first Toronto real estate purchase. According to the latest findings, you will need to demonstrate that you have a credit score of at least 680 and higher to be accepted for a mortgage loan.
Additionally, you can make use of personal savings, and any built-up interest to purchase the real estate, but this might come with some more added risk. Furthermore, you need to also demonstrate that you have a substantial and steady income stream, have proof of down payment, and show at least 1.5% of the property value for closing costs.
Some investors make use of HELOC or Home Equity Line Of Credit, as a way to prove that they have enough savings or an emergency fund available to cover any additional costs and transfer duty fees during the buying process.
Demonstrating that you’re in the financial position to make such a large purchase is one of the hardest parts, and it’s where a lot of first-time buyers and investors may default.
Purchasing real estate in Canada does come with a line of tax regulations that are set out by the local administration.
For starters, there is a transfer tax of roughly 1% on the first CAD 200,000, and 2% on the balance. Additionally, you will need to calculate property taxes based on the property value, which is levied by the local government of each province, and municipal taxes.
Any type of real estate purchase, more so residential dwellings are subject to GST or Goods and Services Taxes, but this does not apply to resale homes.
Finally, all property that is bought to be rented, or used as an investment is subject to Canadian Income Tax, which requires at least 25% of the gross property rental income annually.
Timing is one of the simple factors a lot of first-time buyers don’t calculate for. Buying real estate as an investment can take up a lot of your time, right from the start it can be a time-consuming activity.
You need to ask whether or not you have the time available to manage your new property, or if you’re looking to employ a property manager who can charge anything between 8% and 10% of the collected rent.
Even if you own just one property, consider the time it will take you to ensure property maintenance is conducted, interviewing potential renters, and also conducting general upkeep now and again. Additionally, you will need to ensure that property taxes are up to date, utilities and insurance are paid on time.
Then there’s also the time of year, or when you look to purchase. Purchasing during a time when interest rates are relatively low is the best option. Secondly, you need to see if there will be any potential rate hikes, or how healthy the property market currently is.
In some cases, when there is a high demand, property prices are extremely high, whereas when demand decreases, prices also drop more. So getting this just right plays a vital role in the overall success of your property purchase.
What are you trying to achieve with your investment property? Grow your wealth, or perhaps grow your portfolio? Interested in purchasing a property that you want to flip, and resell again on the market?
You can have various goals, and depending on the property type, and your desires, each property purchase should have a clear investment goal, helping you better understand where and how you will grow your wealth and become more financially free.
You will need to consider both the good and bad of purchasing an investment property, additionally you will need to calculate your return on investment, and how long it will take before you start turning a profit.
Build up investment and long-term strategy which can help you evaluate the risks, and determine how you can achieve your investment goals a lot easier.
Buying an Investment Property in Toronto
Toronto is one of the best places to purchase an investment property, with a fast-growing population of young professionals moving to the city. More so, the city has experienced a property boom in recent months, as property buyers had incurred a lot of savings over the extended lockdown periods.
Thousands of new residents move to Toronto each year, and while this may offer a great opportunity to purchase investment real estate, growing demand from current residents has also seen property become a hot commodity.
With high demand, and short supply, buying in one of the biggest and fastest-growing cities in Canada seems like a no-brainer? While this may be the case, the average condo or apartment in the Greater Toronto Area averages more than CAD 830,000, which would require you to have around CAD 60,000 upfront to cover the down payment.
Additionally, you will need to consider whether the rent will cover your mortgage, property taxes, municipal taxes, utilities, and insurance. Property located both inside and outside the Greater Toronto Area is in high demand, and first-time investors will surely be able to find a suitable property that they can purchase as an investment.
Real Estate Investments Options
Here are some of the most popular real estate investment options that you can consider as a first-time buyer.
- New construction on condo properties will add 8,000 units to the GTA.
- Toronto currently has more than 17,000 units available on the market.
- Toronto condos prices are quite lower than larger houses, making the interest repayment a bit less.
- Overall maintenance and upkeep are also minimal for the condo market.
- Condos are in high demand and will keep growing over the coming year.
- Condo prices are set to increase by more than 10% in the next year.
- High demand and strong competition make it difficult to outbid competitors.
- Property management fees.
- Appreciation can decrease.
- Building maintenance and surrounding maintenance are not controlled by you, which can lower the value of your condo and the rent.
- Property appreciation can increase over time, which helps to increase your return on investment.
- Monthly rent, after taxes and expenses, is directly yours.
- Rental properties can be used as a tax write-off.
- Establishes better credit for future potential purchases.
- Property depreciation over time can cause the property to lose value.
- You’re in control of upkeep and maintenance.
- Finding suitable renters and the screening process can take a lot of time.
- Additional mortgage payments, taxes, and municipal fees should be covered by you.
- Higher risks in a slow market, where no suitable renters are available.
- It’s easier to purchase cheaper real estate.
- It’s a way to turn an easy profit.
- It can be used as a personal project.
- Getting the right building and construction permits can be time-consuming.
- Some projects might incur higher costs and exceed budget limitations.
- Increased property taxes and capital gains taxes after completion and resale of the property.
- Holding costs for the time the property is not vacant or being used to turn a profit.
- New construction real estate can be a lot easier to maintain and upkeep over time.
- You won’t need to make any improvements to the property.
- In some cases, new construction properties are located in prime locations, close to the city and other amenities.
- You might be able to customize the layout and design of the property.
- New construction property isn’t always the most affordable option on the market.
- Can take time before completed, and there might be unforeseen delays.
- A Sudden decrease in demand could lead to financial risks.
- Rental prices may be higher, which could see fewer interested renters.
- Stricter HOA regulations and higher fees.
Managing Your Investment Property
After you’ve purchased an investment property, it’s now time to consider how you will be managing it. Most small-time or part-time investors will act as the landlord, and owner, overseeing most of the maintenance and upkeep, and improvements.
Additionally, they might also be in charge of the screening process for new potential renters, which allows them to be more selective over the renters they’re looking for.
Consider some of the following that you as a landlord will need to oversee:
- Understand how the process of renting a property works, and what the necessary local guidelines and requirements may be.
- Conducting credit checks on new tenants, and verifying all their references.
- Ensure that all taxes, fees, and insurance payments are made each month.
- Collect rent, and handle the eviction process if needed.
- Do emergency repair work, or arrange someone to do it for you.
- Update annual rental agreements, and other by-laws that might change.
Managing the property yourself might be a bit tedious, as it will take a lot of time out of your schedule, and perhaps your finances. Additionally, hiring a property manager comes with more costs, as they can collect anywhere between 8% and 10% of the rent to oversee certain duties.
Property management is no easy caveat and it should be included in the long-term goals and the property investment strategy.
Is Townhouse a Good Investment?
While townhouses may offer a good investment opportunity, and decent rental income, over time the value can depreciate a lot faster than other real estate types. Upkeep can also be a lot more expensive, and time-consuming.
Is Investing in Real Estate Worth It?
Buying any property is a major purchase, and you need to calculate all the factors before making a final decision. Buying property can be a worthwhile investment, but it can also incur a lot of additional financial costs. In a booming property market, with high demand, property investment can be worth it.
When the market is slow, you might need to calculate running and holding costs for the periods when you don’t have any tenants.
Is Real Estate Profitable in Toronto?
Most investors have found that real estate investment in Toronto is relatively profitable, with high demand, and an increasing population.
Is Toronto a Buyers or Sellers Market?
The Toronto property market is currently considered a buyer market, with lower interest rates, and booming real estate prices.
Is Toronto Real Estate Going to Crash?
The market won’t necessarily crash, but there is a high chance that the property demand may cool off within the coming year, seeing prices dip again, as interest rates increase over time.
The bottom line is, purchasing any property, more so that an investment opportunity offers a great deal of financial and portfolio growth. It can also be said that investment property can help you establish a healthy credit score and relationship with your financial provider.
There are high risks involved, and first-time investment buyers should calculate all risk factors before making a final decision. Investment property has both pros and cons, and with your investment strategy and goals, you will be able to better understand how much risk you’re allowed to take, the time you can spend on the property itself, and how much value you’ll be able to get out of your rental income.