Introduction
The City of Toronto continues to evolve its housing strategy, with the latest focus on integrating retail and services into residential neighbourhoods. This shift could dramatically change the face of Toronto’s communities, but what does it mean for real estate investors?
Let’s dive into the details and explore the potential impacts.
The Proposed Changes
Where and What?
The new zoning considerations are specifically targeted at R, RD, RS, RT, and RM zones in Toronto. The changes could include:
- Increased commercial space on major streets
- Larger unit sizes and a broader range of permitted uses
- Corner lots near parks and schools potentially zoned for small retail units and cafes
- Home businesses allowed to operate in garages and sheds
- Outdoor patios and product displays
Timeline
Public consultations took place in June 2024, with final recommendations expected by year-end. Based on previous Expanding Housing Options in Neighbourhoods (EHON) approvals, implementation could begin as early as late spring 2025.
Potential Impact on Investors
While these changes aim to create vibrant, mixed-use neighbourhoods, they present both opportunities and challenges for real estate investors.
Leverage and Down Payments
Mixed-use properties typically require larger down payments, often around 35%, which reduces your return on investment potential. This can be reduced to 20% if the commercial portion is less than 20% of the property.
Property Taxes
One significant drawback is the potential for substantially higher property taxes on commercial properties. Mixed-use properties could face tax rates around three times higher than comparable residential properties.
Vacancy Rates
Commercial units often experience longer vacancy periods compared to residential units, which can affect overall returns.
Case Study: Mixed-Use vs. Residential
To illustrate the potential differences, let’s compare two Toronto listings.
Despite similar rental incomes, the mixed-use property faces higher operating expenses due to higher property tax and lower net operating income, even before considering higher vacancy rates and potentially lower appreciation for commercial units.
Weighing the Options
While the idea of mixed-use properties sounds promising, our analysis leans towards pure residential properties for maximizing returns.
However, mixed-use properties could be a viable option for those looking to diversify their portfolio and reduce overall investment risk. The key is finding an exceptional deal or optimizing the layout for positive cash flow.
How We Can Help
As these zoning changes are still in development, we’ll continue to monitor and provide updates. Whether you’re interested in ready-to-go multiplexes or converting single-family homes, it’s crucial to make informed decisions in this evolving real estate landscape.
If you’re thinking about investing in a multiplex in Toronto, we’re here to make it easy for you. Our real estate sales brokerage specializes in multifamily properties, whether you’re looking for a ready-to-go multiplex or want to convert a single-family home.
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: 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 support you through the whole process.
- 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!
