The Top 4 Investment Strategies for Toronto Real Estate
House prices in Toronto have been on the rise for many years and even with the prices adjusting after the 2017 housing plan was introduced, you still need a lot of money to purchase property. Lately, I have had many clients looking to invest their money in real estate and taking advantage of the more balanced market. There are several options that one can invest in, each offering varying complexity, risk level and ease of entry. Here are a few strategies that are most common.
1. Purchase and Hold
This strategy is simple: buy a property to rent out and hold onto it for the long term. The goal is that the tenants gradually pay off the mortgage and you gain equity in the home. In the current Toronto real estate market, unless you have a huge down payment it is unlikely the rental income will cover the mortgage in its entirety, but it is still a solid investment strategy if you can afford it. It is a very straight forward calculation and often easier to get financing. Keep in mind that a minimum of 20% down payment is required.
2. The Flip
Everyone has seen the abundance of real estate TV shows where a home that is in disrepair is purchased and the savvy real estate agent and designer renovate it, stage it and sell the home for a profit. Fun! It does look really easy but in reality it can take quite some time to find the right house for this and if you aren’t a builder yourself, it can become quite costly carrying a mortgage while doing the renovations. It can be a huge financial success if done in the right market, and with the right partners. On the financing side, it is a little trickier to get a mortgage since you won’t be able to show an income from it until it is sold. In a very hot and rising real estate market flipping houses can be very profitable.
3. Buy, Renovate & Hold
This strategy is similar to the first one, buy and hold for the long term gain. The primary difference is sometimes you can buy a property for a better value, renovate it and then rent it for a higher rent before ultimately selling when the market is more favourable. This is a great option for those who have contractor connections, designers or of course contractors often choose this investment option. This is another scenario where you may have to get creative on your financing sources unless you have a lot of money down and saved for your renovation, banks are conservative around giving out mortgages. It’s important to calculate all your expected costs and potential profit so ensure your investment goals are achieved.
Lots of people prefer to share in the risk of purchasing an investment property, or don’t want to tie up all their funds buying on their own. Investment purchases with a team is a great way to get a foot in the market but also requires the right partner with the same vision and goals. In a partnership it is critical to have absolutely everything in writing before any money changes hands. You should outline not only the initial financial expectations of each party but also the details like who will manage repairs? how will you select tenants / who will manage the process?, when do you want to sell the house and on what criteria?
Get in touch, I’m happy to speak with you about your investment goals and what option may be best for you.