Introduction
With rates being so high, should you be paying down your home’s mortgage or investing in the current market.
And perhaps because rates are so high, it gives more of a reason for the traditional mindset to say that racking up debt is a bad idea. And you know what? It is if you’re not careful. Typically, it happens when people use borrowed money for things that eventually become useless.
But let’s talk investments. When you invest, you’re aiming to turn your money into more money—a solid strategy for building wealth.
Now, hold on – there’s actually one extra twist when you combine both paying down your home’s mortgage and investing in Toronto real estate.
Stick around till the end because this twist is a real game-changer, and you won’t want to miss it!
Comparison of Investment Returns With Stocks
Alright, so let’s break it down with an example.
Say you’ve got $50,000. If you use that to pay down your home’s mortgage at 5% interest, you’re saving $2,500 annually in interest.
Now, the alternative—investing that $50,000 in a stock index with a 10% annual return. Crunching the numbers on the back of a napkin, you’re looking at potentially making $5,000 a year.
I know you might be thinking, “what about taxes?” I’ll touch on this but a quick reminder that we’re not accountants and you should always consult your accountant before taking up any tax strategies.
But let’s do some rough tax math. Say your income tax rate is 50%, and in Canada, only half of your capital gains are taxed. After taxes, you still have $3,750, which is better than paying down your home’s mortgage.

Comparison Of Returns With Toronto Real Estate Investing
Now, let’s take it up a notch. If you’re sitting on $250,000, then investing in Toronto real estate might be a better option.
What you can do is use that $250,000 for a downpayment and closing costs, then get an $800,000 mortgage to invest in a $1 million house to rent out.
Here are very achievable 2 unit numbers in Toronto with $5,300 in monthly rents. Crunch the numbers, and that’s $13,000 in taxable income a year after paying expenses and your mortgage. Let’s just assume that income is taxed (FYI there’s ways to reduce this – ask your accountant), which would leave you with a net gain of $5,500.

Now let’s add in appreciation. Even though Toronto’s seen an average of 7% appreciation over the past two decades, we’re going to play it safe and go with a lower 3% annual appreciation, in line with the long-term inflation rate. And even with that, you’d get an extra $30,000 in equity each year, untaxed until you sell.
Factor in capital gains tax with rough math, and that translates to total returns of around $29,000 a year.
Let’s compare that to using $250,000 to pay down your mortgage which ends up saving you you $12,500 in interest payments each year.
Yes that’s a big difference and that’s because we’re borrowing money to invest. This does get riskier but compared to borrowing money to invest in stocks, real estate is a much safer choice because you get rents which helps you pay for the cost of borrowing.
After factoring that in, you’d still break even each month, so you end up reducing your investment risk while being able to improve your returns.

Smith Maneuver for Toronto Real Estate Investing

Now in the beginning, I mentioned a hybrid option and here it is.
Imagine using that $250,000 to pay down your home’s mortgage. But don’t stop there. After that, you refinance it again to pull it out as a loan to invest with.
This strategy is called the Smith Maneuver in the real estate investing world and again, I’d advise you to check with your accountant before you do this. If you do this right, the interest you were paying on your home which wasn’t tax deductible before now becomes tax deductible because you’re using it for investing, and this ends up improving your returns a bit more.
Check this out. On the rental income side, your investment property is paid with all borrowed money. You mortgage payments go up here. Cash flows drop here on the investment side but you’re saving on the home side.
At the end of the day, you end up with close to no rental income and minimal income taxes. If you add all of this up, rough math gives us total returns of $36,500 a year – which might be the option with the best returns.

Why Invest In Toronto Multiplexes?
Alright, let’s talk about why Toronto multiplexes are a go-to for many Toronto real estate investors.
On top of tax perks and rents to help pay for borrowing costs, Toronto multiplexes have much better rent yields compared to condos and comparable rent yields to other multiplexes outside of Toronto.
Toronto has its fair share old houses so if you have the extra time and money, you can get pretty good value-add too if you decide to take on renovations.
And once you factor in more stable appreciation potential, it’s a pretty good choice for those who can afford this market which requires at least $250,000 of capital to get started.
How We Can Help

What Toronto Real Estate Investment Is Right For You?
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Nicole ColozzaFebruary 4, 2025.Kate was wonderful to work with! She was very prompt in her communication, incredibly helpful with any questions we had and the application process, and so sweet. Would absolutely work with her again in the future, but she did find our dream home, so maybe not...
aj jeevaJanuary 31, 2025.Working with Spiro was an absolute pleasure! His experience and dedication made the entire selling and buying process incredibly smooth and stress-free. He was always available to answer questions, kept everything on track, and negotiated a fantastic deal for us. His hard work and expertise truly set him apart. If you’re looking for a top-notch realtor who goes above and beyond, I highly recommend Spiro!
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