Toronto Real Estate Deals CREATED, Not Found! But Choose Wisely & Weight Your Investment RISK

Toronto Real Estate Deals CREATED, Not Found! But Choose Wisely & Weight Your Investment RISK


Recently, we’ve started to notice an interesting trend happening in the real estate investing community. There’s been a lack of listings, which is causing end-users to bid up the price of homes, and so this environment, combined with high interest rates, is giving less investment opportunities for real estate investors. 

Investors are still looking to buy, but because of this, they’re trying new ways to create their own deals, which we think is a great idea. However, the latest trend we’re seeing where investors are thinking of buying multiplexes with low rents isn’t something that we love.

So in this video, we’l talk more about this and what we would do instead of this.

Multiplex Turnover

In theory, the multiplex opportunity could make sense. You take over a multiplex with low rents. For example, if a building has rents that are 20% below market, you might be able to get a 20% discount on the price.

So if you manage to refresh the building to market rents, then it’s possible to get a pretty 20% bump in market value. On a $2 million initial purchase, that’s a big $400,000 gain.

But the problem is that it’s not that easy to tackle something like this, which is probably precisely the reason existing landlords are selling them. There are a lot of uncontrollable factors: how long it takes, how much it will cost, and ultimately, not many people are suited to do stuff like this.

Don’t get us wrong – getting creative isn’t a bad idea. High return potential is also great, but here’s the thing: it’s very important to look at the risk involved too, and an opportunity like that has risks that are extremely hard to quality which means it hard to justify taking on an investment like that. 

Unrenovated / Renovated Property Spread

If you’re looking for better growth and bigger returns, we’d argue that there’s a safer way to do so especially in today’s market and what’s going to be changing very soon in Toronto.

The first thing you should understand is that those who are bidding up prices are primarily end users, and they generally have a preference for houses that are fully renovated.

Because of this, we’re actually seeing a growing price gap between unrenovated and renovated properties and so this would be the first opportunity.

Here’s an example: An unrenovated property might have a $300,000 discount against a renovated one. So if you can put down $150,000 to renovate it yourself, then you end up making the difference.

Just be mindful that the market price could swing during the renovation period, so the $150K gain isn’t guaranteed, but to us, it’s still a much lower risk compared to buying the multiplex with low rents.

Adding Rentable Space

And just like turning over tenants, if you’re able to bump up the rents in an existing property, you can substantially add more value to your property too.

A more reliable, safer way to do so is to add in extra bedrooms, extra units in the existing home, or even more livable square footage like a laneway or garden suite.

Here are more examples.

  • If you convert a single-family home into two units and get $1,000 more in rent because of this, and that could mean a $240,000 property value bump based on a 5% cap rate.
  • If you make it into 3 units, you might get a $2,000 bump in rents, and that could mean an even better value add bump.
  • And if you add a 3-bedroom laneway suite, that could mean a $3,500 bump in NOI, which is close to an $840,000 bump in property value based on a 5% cap rate or still a $700,000 bump in property value based on a 6% cap rate.

So as you can see, there are still many opportunities to generate higher returns in our current market with less risk, and these types of opportunities make a much more secure investment option from our point of view.

Additional Development Opportunities In The Pipeline

What’s more is that things are changing for the better too. Right now, not many builds allow for 3 units, but the city is actively working on allowing up to 4 units and scrapping development charges for multiplex conversions.

Once that’s changed, this can open up a lot more growth potential for investors who are up to take on development projects to add housing supply.

How We Can Help

We would be happy to have a chat with you if you’re interested in exploring these types of opportunities. Simply get in touch with us!

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