How To Invest In Real Estate In Toronto
When we talk about real estate investments in Toronto, we usually mean income properties because it’s our recommended way! But it’s actually not the only way to make money with real estate in Toronto.
When you decide how to invest in real estate in Toronto, it all comes down to your risk tolerance. If you are able to take on higher risk, you have the potential to make more money with real estate. Let’s dive into 6 ways to invest in real estate so help you understand more about your options.
6 Ways To Invest In Real Estate In Toronto
Minimum Capital Required
One major constraint when choosing real estate investments in Toronto is your budget. If you want exposure to real estate but don’t have enough capital, buying a publicly listed REIT is a good alternative but you do get lower returns. Wholesaling doesn’t involve money upfront but requires a lot of effort and higher risk.
As a long term real estate investor in Toronto, you are less concerned about cycles in the market since you are able to ride it out. It’s important to note that capital gains for short term investments can be taxed as income by the CRA, whereas only half of the capital gains are taxed on long term real estate investments.
Toronto real estate is more stable due to strong fundamentals but still comes with high costs like land transfer taxes, transactional costs, and legal fees. These costs are not as significant relative to total returns on a long term basis. Short term real estate investments are higher risk since its harder to make money through forced appreciation, major discounts in purchase price, or unusual upward thrusts in the market especially with high costs.
If you buy a condo or a turnkey house in Toronto, you probably won’t need renovations. If you want to get better discounts on houses in Toronto, you will likely need to renovate it. Costs of renovations do vary based on what do you do, the type of finishes you pick, and who you choose. Cosmetic renovations for investment properties in Toronto are around $40,000 and go up when you add higher-end finishes, structural, plumbing and electrical work.
Income properties generate cash flows from rental income. You can typically get better cash flows from houses compared to condos in Toronto because of higher rents and lower expenses. Cash flows from REITs are passed onto shareholders through dividends or distributions.
Over the 10 years, the Toronto’s average market appreciation has been over 8% per year and may be higher for areas undergoing gentrification. Different types of properties also behave differently in Toronto – condos have slightly lower appreciation with higher fluctuations compared to houses. Similar to cash flows, short term investments don’t benefit as much from market appreciation and the returns from REITs are reduced.
If you renovate a house in Toronto, the upgrades bring up a property’s value and have the most impact right after renovations. The more value add work you put in, the better forced appreciation potential.
Other Things To Consider
Variations To Buying Real Estate
Instead of investing on your own, you can buy with a partner to split costs, roles, and profits.
There is added partnership risk, with issues arising if a partner does not perform or needs to exit sooner than agreed upon.
Actions can be slower with multiple decision makers, which can be a disadvantage for capturing the best deals on the market.
In the past, investors made higher returns operating entirely as an Airbnb home. This is not possible with new short term rental bylaws so investors need to convert properties back to long term rentals.
Airbnbs are still possible for primary residences if you are looking for additional side income with restrictions on size and time periods, which is a variation of house hacking.
Vendor take back is variation to a mortgage where the seller extends a loan back to the buyer during a property sale.
This happens less frequently for properties in Toronto since the housing demand is strong.
We see this in rare cases for larger properties in Toronto, usually multiplexes or mixed use properties, that are harder to sell.
How Can We Help
We believe buying and holding real estate in Toronto is the most stable way to build wealth in Toronto. If you are willing to take on higher risks, can have the potential for higher returns by taking on wholesaling or house flips.
Income properties offer the highest risk-adjusted returns, with balanced returns from cash flows, market appreciation, and forced appreciation. As your equity increases, you can further reinvest and grow your wealth more effectively.
If you are looking to buy investment properties in Toronto, we are here to help. We’re happy to look at your requirements and preferences, and recommend the best real estate investment route for you!
Do You Want To Invest In Real Estate In Toronto?
We’re happy to kickstart your real estate investing journey in Toronto.