This is for educational purposes only; it does not guarantee future performance or serve as financial or tax advice.
When it comes to real estate investing, there’s always a debate: should you invest in REITs or buy actual properties? Let’s get straight to the point.
REITs (Real Estate Investment Trusts) are great for those who want exposure to real estate without the effort of managing properties. You buy shares, hold onto them, and collect dividends. It’s passive, it’s easy, and if you need to cash out, you can sell your shares quickly.
But … how do they actually compare to buying actual homes in Toronto?
What Are REITs, and How Do They Work?
Publicly traded Canadian REITs own and manage real estate, and you can invest in them by buying shares.
The barrier to entry is low—you don’t need a ton of capital, a high income, or the headache of managing tenants. REITs pay out rental income and profits as dividends, and ideally, your shares grow in value over time, giving you capital gains.
REITs also offer diversification. With limited funds, you can spread your investment across different real estate markets or asset classes like retail, industrial, or residential properties. But there’s a catch:
- REIT returns are often lower because they operate with lower commercial loan ratios, higher borrowing rates, and hefty management fees.
- Dividends are taxed as regular income, which eats into your returns.
Over the past 10 years, Canadian REITs have delivered average annual returns of 5-10%.
Why Invest in Toronto Real Estate?
When you own Toronto real estate, you have control—you decide on renovations, tenants, and rental prices. Here’s what you get:
- Steady rental income to offset your costs.
- Long-term appreciation in Toronto’s residential market.
- Tax benefits like writing off mortgage interest, expenses, and even deferring rental income using depreciation.
Of course, buying property requires significant capital, and if your rent doesn’t cover costs, you’re on the hook. Plus, managing tenants and properties can be time-consuming, and selling isn’t as simple as liquidating a REIT—it takes time and comes with fees.
Let’s Compare the Returns
REIT Example:
Imagine you invest $50,000 in a Canadian residential REIT. Based on historical data, you might get a 3-4% dividend return, taxed as income. Add capital gains for an annual return of 5-10%.
Toronto Condo Example:
Now, let’s say you invest $100,000 to buy a $450,000 condo in Toronto. You’ll likely need an income of $100,000 to qualify for a mortgage. With a conservative annual appreciation rate of 2% (in line with inflation) over five years, here’s what happens. From a combination of rental income and appreciation, your first-year ROI could hit 16%. Plus, depreciation allows you to defer rental income tax, keeping more money in your pocket.
Toronto Multiplex Example:
Let’s take it up a notch with a multiplex property. While it requires more capital for purchase and renovations, but better rent yields drive better returns – your first year ROI can be higher at 18%. Renovations can potentially add a value-add bump too.
The Bottom Line
REITs are safe, simple, and great for passive investors.
But if you want bigger returns and are willing to put in more effort, owning property in Toronto can improve your returns drastically. That said, it’s not for everyone—real estate investing takes time, money, and arguably more risk.
It’s your money, your choice, but make sure you understand the trade-offs before diving in.
How We Can Help
At Elevate Realty, we don’t just help you buy properties—we’re investors ourselves. Whether you’re looking for a turnkey rental or a property you can convert into multiple units, we’ve got you covered.
We’re not just a real estate brokerage—we’re investors who have done this ourselves, and we specialize in Toronto multiplexes.
Here’s what it’s like to start as a client with us:
- Initial Consultation: We’ll talk with you to understand your needs and teach you how to invest wisely in Toronto real estate.
Market Search & Purchase: We’ll search the market to find the perfect property for you.
Renovation Support: If the property needs renovations, our trusted contractors are ready to help, and we’ll coach you as you manage the project.
Leasing and Management: If you need help renting out and managing your property, our leasing and management team is here for you.
Ready to get started? Click on the link below, and let’s start working together!
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!
