Should You Live Or Invest In Your First Toronto Real Estate Purchase?

When it comes to owning a home, that used to just mean buying their own place.

But nowadays, things are different, especially in Toronto. More people are exploring other options like investing in an investment property and renting their own place, or buying a multi-unit home and living in just one unit, which could be easier on cash flows.

But how do these options actually stack up financially? Let’s dive into it in this video.

Renting Compared to Buying Your Own Home

Alright, let’s start with 3 bedroom rental unit that you want to live in. According to Zumper, average rents are $4150 a month in Toronto – or $50,000 annually.

Now, compare this to owning your own home. In Toronto, you’re looking at shelling out around 1% of the home’s value on operating expenses a year and 4% on mortgage interest payments. 

On the plus side, real estate goes up in value over time – let’s say 3% a year in line with long term inflation. Capital gains tax doesn’t apply to your own home.

So, when you add it all up, you’re sitting at 2% net each year – that’s $20,000 annually assuming a Toronto home value of $1,000,000, so you’re coming out on top with home ownership. 

But because you don’t realize the gains from appreciation until you sell, monthly outgoing cash flows, which is different from returns, would be more than if you rent.

Source: Zumper.

Investing In Real Estate First

Next, let’s look at the next scenario: buying a property that’s a pure rental property while you rent your own place to live. 

This obviously has benefits – you can possibly afford to rent a nicer place than what you can afford to buy. And if you’re collecting more rent than you pay out yourself, it has benefits from a returns standpoint. 

And if your rental property has some positive cashflows after paying for all of the outgoing payments each month, then that also helps pay for part of your own rent. 

You’re gaining from long term appreciation and equity gain each time you make mortgage payments. So far, this looks like the best of the three.

The Hybrid: Renting Out Part Of Your Own Homoe

This option is getting more popular for young families: they’d live in the main and upper unit while renting out their basement to help with house payments each month. 

Cash flow wise, this is similar to the last case but the big benefit here is that you save on the tax side, mainly because you save on capital gains tax. So if you don’t mind living with tenants, this could be the best option for starter families looking to buy their own home.

Now, if you’re looking to really maximize your returns in this hybrid approach, you can crank up the amount of space you rent out. 

It will mean sacrificing your own personal space, but for some, like young professionals who aren’t home all the time or people who travel a lot, this is something that is being done. 

When you do this, you get a place to store your stuff and live in Toronto when you’re around but it’s not going to cost you much each month. 

And because of this, you get rental income, you get your own place to live in, you benefit from long term appreciation, and you get some capital gains tax savings so this ends up being the best from a cash flow and returns standpoint, as long as it fits your situation.

How We Can Help

As you can see, what makes sense financially might not be the best option because we’re talking about qualitative aspects, too. But to help you sort out the quantitative side, hopefully we did our part in helping you understand how the various options stack up better from a numbers standpoint. 

Now, if you’re looking to buy real estate in Toronto and trying to weigh your options, you can reach out to our Toronto real estate sales brokerage. 

We’re all about helping you make more informed real estate investing decisions with numbers that align with your personal priorities – just head over to this link below to schedule a chat with us!

What Toronto Real Estate Investment Is Right For You?​

Check out our complete Toronto real estate investment guide for all the details and real-life examples. If you’re ready to dive in, just book a call with us!