Toronto's Current Real Estate Investment Secrets: Find Out What Toronto Investors Are Buying Today!

Introduction

Interest rates have been rising, bond yields are reaching 15 year highs, and even the US credit rating got downgraded. All of this just means that the interest rate uncertainty is still around, and it’s hard to know for sure when interest rates will stabilize again.

Rising rates impact both home owners and renters. But perhaps in the short term, it’s slightly better for existing rents if they have rent controls in place. And also because of this, if investors can’t track market rents, the reality is that the higher interest rate risk these days makes it less worth it to get into real estate in the short term and that’s why more investors are still interested in real estate but aren’t jumping into the market as quickly as before.

But the truth is, our investors are still buying today because there are much better deals because there’s less competition out there and they’re likely looking for opportunities that can track market rents.

So what’s the most popular investment strategy in Toronto today? Well, you’re in the right place! Let’s dive in!

Why are investors still choosing to invest in Toronto?

In May of this year, Toronto approved more lenient new housing rules. Now, almost every house in the city can have up to four units, plus a laneway or garden suite – that’s a total for five units per property. This really makes Toronto stand out from an investment standpoint since other municipalities might only allow for three units.

For starters, you’ll get way higher rent yields with more units in a home. Rents in Toronto have also been going up much quicker as more people are returning to the city and new people preferring to move to the core. Both of these make Toronto able to handle higher interest rates better.

But perhaps just as important is that by creating new units, these units won’t be subject to rent controls anymore. What this means is that the investment will be able to track market rents better in the long run too, and that’s ultimately the big factor that will reduce your interest rate risk as a real estate investor.

And if you’re looking for the best bargains in today’s market, you’ll find them in the typically higher-priced markets. Lower-priced properties will always have more buying competition since more people qualify for them and lately, most are capped under the $1.3M.

What this means is that if you can qualify for more than that which would typically mean rental areas closer to downtown Toronto, it’s a lot more likely to get better deals in this space.

An example of a good investment purchase in recent days

Here’s an example of a recent purchase that was bought last month.

It’s currently a single family downtown house and it was sitting on the market because not many people could qualify for a $1.5M purchase – which realistically is market price. It need up being sold for $1.4M so right off the bat, you got a $100,00 discount off market price.

You’d also have to put in an extra $200,000 to convert it into a fourplex, so this is why the buyer pool is so thin.

But you end up getting monthly rents at over $11,000 per a month. So after operating expenses and assuming you borrow 80% of the money to buy at 6%, then you’d still be cash flowing positive over $3,200 a month.

Just for reference, the fourplex conversion gives a giant rent bump. If you were to rent this home out as a single family home, where you’d probably get $6,500 in rents for the whole house, so that’s close to half of what you’d get with a fourplex.

Comparison to investment numbers before rate hikes

We can also take a look at how the numbers looked like for a similar deal if you bought it in January of 2022. Market prices were at least 10% higher so you’re looking to a purchase price close to $1.65M. According to Zumper, rents were also 30% lower.

So even though borrowing rates were substantially lower at 1.75% then, the combination for cheaper prices now and much higher market rents end up being able to balance out the interest rate risk and buying today gives even better returns, as long as you can continue to track market rents, which is now possible with the new units.

What you need to invest in Toronto real estate opportunities today

So here’s the thing. Making real estate investment decisions with good risk-adjusted returns is totally doable today, and here’s what you’d want to look for:

First of all, you’ll need to be able to qualify for a freehold purchase in Toronto. Unfortunately, the only way for numbers to make sense with higher rates is if you have a multi-unit house. And the higher the price, the better the deals these days because of the tougher mortgage qualifications.
Secondly, you’ll want to create new units in the house. This way, you’ll get better rent yields and be able to track market rents in the long run too.
Third of all, you’ll need to the know-how to spot what makes a good conversion, whether it’s a great deal, and get through a multiplex conversion on time and on budget.

How We Can Help

Now the first two is on you to check off, but once you get to number three, we’ve got your back when it comes to the know-how.

We’re not your average real estate sales brokerage; we’re all about helping investors kickstart and expand their portfolios through freehold real estate investing in Toronto.

We’re also real estate investors ourselves, and we’ve more than likely been through the projects you want to take on and that’s how we can truly help you navigate through all of this.

So if you want to learn more about these opportunities, just reach out to our team by booking a zoom discovery call with us!

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