Does Toronto Real Estate Investing Make Sense In 2024?

Is Toronto real estate investing a good idea in 2024? 

Last year, real estate wasn’t the go-to investment because of heightened uncertainty and high interest rates, but we’re hopeful for a comeback this year. Economic shifts, market trends, and new opportunities suggest a renewed interest in real estate.

As things stabilize and new chances arise, Toronto real estate investing is expected to become attractive again. Let’s dive in!

Real Estate Has Lower Risk, Better Returns On Its Own

Real estate shines when seeking lower risk and superior returns without relying on borrowed funds.

While government bonds performed well in 2023 with low risk and attractive returns, the potential decrease in interest rates in 2024 positions real estate to start to regain its attraction.

Throughout history, real estate has demonstrated its value by maintaining its worth as a tangible asset (land). This is achieved through returns from appreciation and rental income, effectively minimizing concentration risk.

Consequently, it provides a lower-risk, higher-return option when not leveraged, surpassing the advantages of other investments, except for government bonds.

Historical Returns: Consistency in Toronto Real Estate

Looking back at how Toronto real estate has performed over the years, it consistently proves itself as a reliable investment.

In 2023, it boasted a 6% cap rate, and over the past two decades, it has shown an average appreciation rate of 7.4%. When you add these numbers together, the total annual returns for Toronto real estate reach an impressive 13.4%, outperforming the S&P 500 index, which stands at 10.13%.

This track record underscores the stability and profitability that investing in Toronto real estate can offer compared to other widely recognized investment options.

Good Potential in Toronto Real Estate For 2024

Looking ahead, Toronto’s real estate market seems like a strong choice compared to other options in Canada. With limited space for new buildings and high immigration goals, there’s steady demand for Toronto real estate. Plus, the evolving rules for multi-family development make Toronto stand out. Even if there’s a recession in 2024, the recent job data suggests that Toronto’s diverse economy is expected to hold up better than regions in Canada relying on just one source of income.

Maximize Returns With Leverage in Toronto Real Estate

Toronto real estate investing presents an opportunity for enhanced returns through leverage.

Due to its lower risk as a tangible asset, banks are willing to lend up to 80% for rental properties and up to 95% on principal residences under a $1M value, surpassing the limit in stock trading.

This increased borrowing capacity, coupled with the potential for improved returns, even after factoring in borrowing costs, makes leveraging a significant advantage in Toronto’s real estate market.

While leveraging in Toronto real estate can offer increased returns, it’s crucial to acknowledge associated risks. Using borrowed funds amplifies potential losses, and in the event of market fluctuations, it can lead to a more significant negative impact on your investment. 

So it’s essential to carefully consider the risks and ensure you have a solid financial strategy in place before using leverage in real estate investing.

Consider Value-Add Returns

Investors in Toronto real estate often discover a significant boost in value through strategic renovations, whether it be cosmetic enhancements or the addition of extra units. 

Renovations not only enhance the aesthetic appeal of a property but can also lead to increased rental income and overall appreciation. 

Cosmetic upgrades, such as modernizing interiors or improving curb appeal, attract tenants and elevate the property’s market value. Similarly, expanding the number of units within a property can provide a substantial income boost and amplify its overall worth. 

This value-add gain from renovations underscores the potential for investors to optimize returns and create a more lucrative and appealing real estate investment in the vibrant Toronto market.

Why Investing in Toronto Real Estate Is Not For Everyone

Thinking about diving into real estate investments? It’s a promising opportunity, but it’s not a one-size-fits-all deal. Before you jump in, consider these key factors:

  • Large Capital Requirements: Venturing into Toronto real estate demands a substantial initial investment, typically around 25% of the property’s purchase price, which is higher than average Canadian real estate prices. This upfront financial commitment can be a significant barrier for potential investors.

  • Qualification for a Mortgage: Qualifying for a mortgage, especially in a market with high-interest rates, adds an additional layer of complexity. The stringent requirements and financial scrutiny can pose challenges for those looking to enter the Toronto real estate market.

  • Potential Renovations: The possibility of needing renovations for better deals can be a deterrent. Renovations require additional cash investment, and obtaining funds from a Home Equity Line of Credit (HELOC) might be less feasible in certain scenarios.

  • Long Holding Period: Toronto real estate is a long-term commitment due to short-term volatilities and high costs associated with buying and selling (approximately 10% of the purchase price). This extended holding period might not align with the preferences of some investors.

  • Active Landlord vs. Passive Stocks: Real estate investment is more active compared to the passive nature of stocks. However, when accounting for property management fees (approximately 0.5-1% of the property value), delegating the management to others can make Toronto real estate more appealing despite its active nature.

  • Fear of The Unknown: The fear factor plays a significant role, especially for those who haven’t experienced real estate investing before. The perceived high learning curve, renovation challenges, and tenant management concerns contribute to apprehensions.

How We Can Help

In a nutshell, if the idea of entering Toronto’s real estate market feels overwhelming, our skilled team is here to make it simple for you.

  • We offer expert advice to kick off your investment journey and guide you through setting up your property.
  • Once you’ve made your purchase, we can provide valuable guidance on renovations to maximize your property’s value and returns.
  • If you’re short on time, our team can handle the management work for you.
  • As your real estate portfolio grows, we’ll support you in overcoming financial challenges.

Let’s unlock the potential of Toronto real estate together in 2024.

Learn More About Real Estate Investing In Toronto!

Normally exclusively available to our clients, you can get our Toronto Investment Property Guide FREE for a limited time.

  • Real Estate Investing Basics
  • How Much Capital You Need
  • Cash Flow & Investment Return Projections
  • Learn What’s Best For You!

Ready To Get Started With Real Estate Investing In Toronto?

We’d be happy to schedule a 30-minute discovery call so we get to learn more about each other and help you get started.