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?
Reena S.April 23, 2025.I had a 30-minute consultation call with Samantha, and I’m so glad I reached out. We’re looking to purchase a property in Toronto with the goal of generating income and long-term appreciation, and Samantha really understood the financial and strategic sides of that equation. She’s incredibly honest, knowledgeable, and clearly experienced when it comes to working with investors. I walked away with valuable insights that will definitely shape our next steps. Highly recommend!L F-HApril 21, 2025.Phil helped me with both a sale and a purchase and he was great with both! I was particularly impressed with his knowledge of the market, his good rapport with other agents (as well as potential buyers/sellers), and with his friendliness and accessibility to me during the whole process.Carlos GoulartApril 21, 2025.Dave was really helpful. He took his time to show me the property wich now my family and I call home. Really attentive during the showing and also with all the requests for be able to rent the unit. Will recommend Dave anytime!! 👌Effie BruntonApril 21, 2025.Working with Laryssa from Elevate was an incredible experience from start to finish. As first-time investment property buyers, we had a lot of questions—and Laryssa was there every step of the way with answers, guidance, and genuine support. She really listened to our needs and respected our budget, while helping us stay focused on our goals. Laryssa’s knowledge of the area was spot-on, and because she’s also an investor herself, she gave us real, practical advice that made a huge difference. She helped us understand what to look for in a solid income property, walked us through renovation budgets, and shared so much of her own experience to make sure we were making smart decisions. One thing we especially appreciated was that she was always available to answer any questions we had—no matter how silly we thought they were. She never made us feel anything but supported and informed, which gave us a lot of confidence as we navigated this new process. We’re so grateful to have had her in our corner and can confidently say we wouldn’t have found this property without her. If you’re looking for someone who truly cares, is incredibly knowledgeable, and brings a personal touch to the process, Laryssa and the Elevate team are who you want by your side. Highly recommend!DGustavo SanzApril 16, 2025.I appreciate the pretty good attention and all the support that Karina and Kate offered to me. thank you so much.Shing LeungApril 7, 2025.Spiro from Elevate helped me purchase my first rental property and the experience has been seamless and highly educational. He and the rest of the Elevate team do a fantastic job of demystifying the whole process and making it accessible to new investors. As an agent, Spiro is very professional and generous--never hesitating in sharing his time, real estate know-how, and his valuable network of contacts. The fact that he and the whole Elevate team are investors add a ton of credibility to their offerings. In a space that's normally driven by sensationalism and hype, Spiro's measured and practical approach is a breath of fresh air.
