Toronto Real Estate Investment Guide 2021
With so many properties on the market, it’s hard to find the right Toronto real estate investment for you if you don’t know the differences. Learn about your options in our Toronto Investment Property Guide 2021 so you can make better decisions!
A Beginner's Toolkit To Real Estate Investing In Toronto
We broke down the key differences between the three major types of investment properties in Toronto: condos, houses, and commercial properties.
We compare them based on price, capital requirements, mortgage requirements, active management, cash flows, market appreciation, and value add appreciation.
Let’s get started!
Starting Purchase Price
Even though Toronto condos have the highest price per square foot, they have the least square footage which makes the starting price most affordable.
Note that the price of properties can range significantly depending on their condition and features. Lower priced houses will require more renovations, whereas turnkey houses may cost 15-20% more than these starting prices.
Minimum Capital Required
The downpayment is calculated as a percentage of the property’s price, so Toronto condos generally require the least capital. Besides downpayment, other upfront capital costs include initial renovations and closing costs like land transfer taxes and legal fees.
Note that the downpayment for Toronto pre-construct condos is spread over a longer time until closing which can be 1-3 years away. This means you have the benefit of more time to save up for the total downpayment. Finally, if you qualify for insured mortgages, you can be able to obtain a lower downpayment percentage between 5-15% which can reduce your capital requirements.
Minimum Mortgage Required
Commercial mortgages require a higher downpayment of 35% and have higher interest rates compared to personal mortgages which can be achieved with a 20% downpayment and lower rates.
Besides renovations, owning Toronto real estate investments require leasing and property management and this can vary depending on the type of property you invest in.
Total returns come from a combination or cash flows, equity gained and appreciation. Here’s how cash flows compare between different types of investment properties in Toronto. Condos have higher costs compared to other types of properties primarily due to condo fees.
Historically, Toronto commercial properties and houses have better long term appreciation compared to condos. Land is limited which constrains the supply a lot more compared to condos. Moreover, when you’re purchasing in an area that hasn’t been redeveloped yet, there is a higher chance of a one-time bump in market appreciation from gentrification.
Because of a lower barrier to entry, there are more speculators in the Toronto condo market which creates more price fluctuations. This added volatility in condos can mean higher returns if you enter and exit at the right times, but also means added investment risk.
Value Add Appreciation
Value add appreciation occurs when you renovate a property to increase the property’s price. By doing the work yourself, you unlock value and increase investment returns. The more work a property needs, the more value add appreciation you can unlock.
Even though you can get higher value add appreciation with more work, not everyone can do it successfully. Because of this, we recommend starting with easier projects to understand how it works before taking on bigger projects for a higher chance of success.
Are You Ready To Start Investing In Toronto Real Estate?
No matter if you’re looking for a house, condo or commercial property, we’re here to help you invest in Toronto real estate successfully.