Semi or Detached Investment Properties In Toronto: Which One Should You Choose?
You’ve watched a few of our videos, crunched some numbers yourself, and realize now that you want to invest in a house in Toronto. But now you’re faced with another choice to make … should you buy a semi or a detached house in Toronto?
Everyone is different and some of our clients are love semis and other clients are adamant about buying detached properties. In this video, let’s dive in and figure out when a semi is better, and situations where you might find a detached investment property better for you.
Ease Of Entry
Realistic, the biggest decider for most people comes down to price. Semis tend to be on a smaller plot of land, and you share a wall with a neighbour so they tend to be cheaper in price as well. So if you’re limited by either the capital side or the mortgage side, price might simply steer you one way or the other. Right now, Semis in Toronto are around $900K whereas detached properties are now closer to $1M.
What’s also important is that the $1M mark is actually a very important hard stop for many end user buyers out there because they can only qualify for CMHC insured mortgages under $1M. So there’s a much bigger demand pool for semis, which make them a hotter choice compared to detached properties in the same area.
I like to use the sales to new listings ratio (total sales / total new listings) to look at how hot a market is – a higher number indicates a hotter market. Now look at this – I took a snapshot of June of every year from 2012 to this year, and over the past 10 years, you can see that the average sales to listings ratio for semis around at 70% whereas the ratio for detached properties is at 57%. On top of this, the ratio for semis has stayed consistently higher than detached properties every single year.
Appreciation
And because semis are a hotter market getting more demand, it’s appreciation over the past 10 years has also been slightly better. Between 2012 to 2021, semis grew 87.3% whereas detached properties grew 84.9% … lower but not far behind.
Cash Flows
Besides appreciation, let’s look at cash flows. Semis have a smaller piece of land, but you can still find pretty massive houses on the tiny piece of land. This means that a lot of times, you’re able to generate similar rents on both types of properties. Given that you have a lower purchase price on a semi, you’ll looking at better rent yields and better cash flows on a semi as well.
Value Add Potential
So if you’re just looking at passive income returns, it looks like semis can be a better choice but some investors like detached properties because of its higher value add potential. When you have a detached property and you’re up for the challenge, yes, you can knock down the century old house and rebuild a new one and bump up its property price significantly. There’s also less constraints when you’re doing major renovations. For example, if you need to underpin a basement, you might require your neighbours approval with a semi – which might make the process more difficult.
Other Considerations
Some investors also worry noise issues and yes it’s a bigger issue when you have a semi simply because you are sharing a wall with the neighbour. Repairs are a truce – rare issues from your semi neighbour might trickle down to your property such as rodents or flooding. On the other hand, if you have a good semi neighbour, you might be able to share the repair work and reap the savings. For example, you can take turns cutting the grass, or when you need to replace the roof, you might strike a better deal if you do it together.
How We Can Help
If you want to learn more about the pros and cons of different types of Toronto investment properties, how returns break down, and figure out what’s really right for you, our Elevate team can help! We’re an end to end real estate investing brokerage in Toronto, and we’ll help you get started, buy the property, renovate it, lease it, and manage it if you need help with that too. Just reach out to us!
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