Invest in Real Estate- Investors Guide

 

Reasons Why You Should Invest In Real Estate in Toronto 

Toronto Continues to be the Fastest Growing City in North America

By Yaseen Hemeda July 31, 2020  Share

 

 

It may not come as a surprise, but Toronto is officially the fastest growing metropolitan area in North America.

The City of Toronto is experiencing a new surge in the real estate market. The latest report from Ryerson University’s Centre for Urban Research and Land Development announced that Toronto has taken the number one spot from former runner Dallas–Fort Worth–Arlington.

The data showed that Toronto grew by 127,575 people in 2019, compared to 117,380 people in the same time period in Dallas-Fort Worth-Arlington. Meanwhile, The city of Toronto still held the top spot as the fastest growing central city.

This growth now gives Toronto the proper recognition as the fastest growing metropolitan area in the U.S. and Canada.

According to the report’s Top 20 Metropolitan Areas by Population Growth chart, Montreal was ranked as the sixth fastest growing area with a population increase of 65,205 people.

As a whole, this data is significant considering only 5 Canadian cities made it in the list of top ranking metropolitan areas by population growth.

However, when comparing population growth in the top 20 central cities in North America, Canadian cities were actually in the majority with 11 out of 20 ranking as the fastest growing central cities in the U.S. and Canada.

READ: Global Talent Stream Aims to Boost Canada’s High-Tech Sector That Will Need 216,000 Workers by 2021

 

Immigration Boosting Toronto’s Population Growth

Toronto has always been known as a global economic powerhouse and this latest report only brings affirmation to the growth potential within this region.

The fact remains that Toronto is a hotspot for real estate investment largely because of the influx of immigration.

As a comparison, when looking at a major city such as New York, Toronto’s population growth was almost three times higher as a result of immigration in 2019.

Additionally, the City of Toronto and Montreal were the two leading cities in population growth between the United States and Canada. Toronto’s population grew up to 45,745 persons and Montreal 31,565 persons between July 2018 to 2019. The City of Toronto’s population is well-ahead of major cities in the United States such as New York, Chicago and Los Angeles. In fact, the population in New York had the largest population decrease by far in that twelve month period.
 

 

THE BENEFITS OF INVESTING IN REAL ESTATE

• The simplest way to think about a real estate investment is simply whether or not the value of the property is higher than when you first bought it. However, there are several additional factors that make investments in condos (as well as other types of residential real estate) one of the best ways to help you prosper:
• A real estate investment is a way to ensure that your savings and hard-earned salary are utilized to the maximum possible extent. While the market is cyclical, buying a condo or a home as an investment property is one of the best ways to grow your savings-and build your wealth.
• The Ontario Growth Plan has radically altered the Greater Toronto Area’s growth trajectory, with a higher emphasis on sustainability. This has led to more condominiums being constructed, and while these are smaller than single-family homes they also offer the opportunity to live a lifestyle that is not centered around driving. As a result, condos are one of the strongest investments that can be made in the GTA.
• Renting out your new investment property is the most common way to recoup the purchase price. Thus, when choosing a location for use as a rental property, several major factors should be considered first:
• Rental prices-the existing rental market in a neighborhood is a good indicator of its investment potential.
• Jobs-Investments are most optimal when they are close to major employment centres, or other locations with high concentrations of jobs. This is due in large part to increased emphasis on walkability and transit usage.
• Future growth-If the neighborhood is poised for high levels of future development, this makes it a prime location for investment-and for a lower price than later investors would be paying!

 

A Guide for Real Estate Investors

 

Financing

Mortgage approval on your 2nd property is a far trickier process than approval for your primary residence. Procuring your elusive 2nd mortgage means a down payment of 20%. Plus, instead of the usual 80%, you’ll only be able to utilize a smaller portion of the income you’ll acquire from rent. You’ll probably need a 50% down payment if you’re seeking mortgage approval for a commercial property.

 

 

Taxation

Any funds you received through rent is classified as income in Canada. As such, this amount is commonly taxed. If your investment property rises in value – from the point of purchase to the point of sale – you’ll be faced with capital gains taxes. When looking to purchase an investment property you should consult with an accountant to fully grasp the tax rules.

 

 

 

 

Timing

When you invest in real estate, you should do so with long-term goals. Profits aren’t instant—if you expect to see a return on your investment quickly, you’ll be thrown for a loop by the turbulence of the real estate market.

 

 

How to Make or Break Investments in Toronto Real Estate

 

Maintaining Cash Flow

By subtracting your expenses by how much you’re collecting for rent, the difference is your cash flow. Properties with positive cash flow in Toronto purchased with a 20% down payment are a rarity. However, breaking even occurs on a regular (often monthly) basis. Matters that aren’t within the bounds of the real estate marker affect cash flow such as down payments and mortgage terms.

Investment Appreciation

Profiting on your investment, or more specifically, selling your property at a higher price than you paid is called appreciation. If you purchased a property at $7 million and sell for $10 million, the $3 million difference is the investment’s appreciated value. Generally, Toronto investments appreciate exquisitely.

Building Equity

Say you purchase an investment property for $400 thousand with an $80 thousand down payment. The apply 25-years-worth of rent towards the down payment and you’ll then be without a mortgage. If you sell for $450 thousand, it would mean you’ve acquired $370 thousand worth of equity plus the return of your $80 thousand investment.

Procuring a Return on Your Investment (ROI)

There are numerous calculations and tools investors apply to figure out their real estate ROIs.

Income – operating expenses – financing costs is the equation for cash flow, or the net cash travelling in and out of an investment property.

Operating/Purchase Price is the equation for capitalization rate (cap rate) or the return rate on an investment property pertaining to the expected generated income from the property.

Cash Return + mortgage pay down + appreciation calculates the ROI, which is a means to assess the efficiency of your investment. You can also compare numerous investments with the ROI calculations.

 

 

 

 

Investing in Condos

Here is some basic information about investing in condos in Toronto.

• Breaking even or ending up cash positive on a 20% down payment is the sign of a good investment condo.
• Quality tenants are more available than usual since the rental market is at an all-time low for vacancies.
• Condos require less maintenance and repair work than a house.
• When a condo is in an ideal location and has unique architecture they’ve appreciated better than the stock market.
• Given the Residential Tenancies Act, there are plenty of obligations along with minimal flexibility.
• These investments are better suited as long-term strategies.

 

 

 

Investing in Income Properties

Below are the basics for investing in income properties—houses with rented out self-contained apartments in Toronto.

• Renting out basement apartments can mean huge profits. Even enough for your dream home—charging $1000 in rent can mean affording over a $200,000 mortgage.
• Houses appreciate at a more accelerated rate than condos meaning a more guaranteed profit-inducing investment.
• You should break even or be cash positive with a 20% down payment.
• Sharing a space with renters means having to adjust to noises and smells.
• As a landlord, you’ll have to navigate repairs, renovations, and tenants who miss rent.
• It could be harder to sell your property if you have tenants on a lease.

 

 

Investing by Buying and Selling 

Flipping homes might not be the fad it once was but purchasing and renovating a rundown home, then selling for a profit within a year still happens commonly in Toronto. It’s stressful but it has massive profit potential.

• A flip done correctly in an ideal neighbourhood means there will be high demand.
• It’s not unheard of to make upwards of $250-$300 thousand on a flip.
• When flipping, you’ll be faced with longer than anticipated turnaround times coupled with higher than expected costs. If you’re paying a mortgage during a flip, each month adds up a lot.
• Flipping takes a tremendous amount of time, dedication, and risk if you aren’t an expert tradesman or contractor.
• As many flips end up with a profit margin, there are just many that generate a moderate loss.

 

 

 

Investing in Mixed Use Properties

Mixed-use properties offer Toronto investors a chance for a high ROI. They offer both residential and commercial options when acquired in thriving or up-and-coming neighbourhoods. They can be truly remarkable investments.

 

 

 

Investing in New Construction

During another time, investing in new construction was the main method to make money in Toronto real estate which entails purchasing a condominium in the pre-construction phase and selling once they’ve been built. The building process is usually completed in half a decade.

• New construction provides optimal locations and units since investors aren’t at the beckoning call of the market.
• In today’s climate, it’s actually more inexpensive to purchase a resale condominium.
• Projects can be nixed by builders which can tie up a down payment for years.

Buying a preconstruction property in Toronto can be a daunting task-but the rewards can be extremely lucrative. 

 

 

STRATEGY TIPS

 

Seek Out Up-And-Coming Neighborhoods

The first key investment strategy tip involves neighborhoods where prices are currently low is often a shrewd financial decision-in a city like Toronto, those prices will not stay low for long. Be on the lookout for neighborhoods that are primed for transit upgrades, community improvements (such as public realm upgrades) and locations in close proximity to high-priced districts. Click here for info on the city’s diverse list of neighborhoods.

 

Be Wary Of Your Financial Limits

This may seem like an obvious rule of thumb, but with such high stakes surrounding your investment it cannot be stated enough. At the beginning of the process, you should have a clear idea regarding how much you can spend on your down payment, which will determine whether resale or preconstruction is best suited to your needs. For example, preconstruction condos normally require 15% down in the first year while resale can range from as low as 5% up to 20%.

Closing costs must also be taken into consideration. For preconstruction, this includes taxes, legal fees and development charges. If you don’t plan on making your property your primary residence, then you will also need to pay HST (which is capped at $24,000). Making sure your finances are in order will make both this and the down payment go much more smoothly.

 

The Longer-Term Your Thinking Is, The Better

Housing prices in Toronto continue to experience high rates of year-over-year growth, which has ensured maximum equity gains for homeowners. The longer you have ownership of your property, the greater these gains will be. Equity can then be leveraged into other investments via HELOC loans, more info about which can be found here.

 

 

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