Toronto is indeed an expensive city to live in, especially when it’s real estate prices have hit the ceiling. With the additional stress of the credit stress test making it hard to secure a mortgage, the city may start haemorrhaging residents quite soon.
Yet, there are financially stable buyers who are looking to invest in the city’s real estate market. Everyone knows that investments in real estate is a proven way for anyone to grow their wealth and diversify their investment portfolio.
The stock market is also a good place to invest, but it has rapid ups and downs. This could destabilize the return on investment. Real estate is something different because it appreciates over time. It could only crash if there is a serious financial or real estate crisis.
Investing in real estate is the safest pathway towards raising the net-worth of an individual. Those who purchased a property with an intention to rent it out, collecting rent from tenants adds more to the benefit.
Those who are thinking about purchasing an investment property in Toronto, they are in luck. Here are some things investors should keep in mind before they get started.
Thinking about the kind of property needed for investment
Before anyone interested in investing in real estate readies their finances, they should first decide upon the kind of property they wish to invest in (i.e. whether it’s a townhouse, a condo from a list of Toronto condos, a mansion, a vacation hut, a loft or an apartment). This means that risks and benefits of investing in each kind of residential property should be understood properly.
For instance, purchasing a condo is surely appealing as most of the building’s maintenance and paint service is covered by condo fees, especially if the buyer is a first-time investor. But a duplex or a multi-unit building might reap a lot more rewards since the investor will have more tenants and thus more rental income.
If investors desire charging a higher rent, then a house is best for them. But there is one catch; bigger homes come with bigger expenses, like property taxes. The tax rate depends on the suburb and the province the house is in.
Always keeping the location in consideration
Once prospective buyers have a good idea about the property they desire investing in, they should think about the location as well. It may however differ from one city to the other. Yet the best places to find investment properties are those close to amenities such as schools, public transportation, shopping centres, hospitals, parks or transit hubs.
Renters will always take into consideration proximity to these amenities whenever they are seeking a rental property. Not only is the value of properties near these amenities is lucrative but also adds to the factor of convenience for tenants.
Should the payment be made in cash or via financing?
This depends on the situation the investor is in because both cash and financing have their own advantages and disadvantages. If they have the capital to pay for an investment property in cold hard cash, then their rental income will represent a positive cash flow. This means that investors will be safe in case there is an extended vacancy.
But financing can be of an advantage in some cases. When investors put in a low amount for the initial investment, the percentage on the return of investment (ROI) per annum will be a bit higher in comparison to when they put in the full price of the property.
But as it was mentioned earlier, investing in real estate is a long term investment and the choices of investors depend on numerous factors, like the available capital they have at hand.
Understanding the costs
Investing in real estate is a solid investment anyone can make. When a person invests in a stock market, they just buy the stocks and watch them rise or fall, and it’s a one-and-done transaction. Real estate investment is different as property owners have a full time job of being landlords. In fact, here are the costs landlords need to take into consideration:
- Mortgage payments (if applicable).
- Utilities (landlords have the option to get them added to the rental price).
- Property taxes.
- Emergency costs.
- Maintenance fees.
- Administrative expenses.
- Landlord’s insurance.
Should investors hire a property manager?
Unless and until investors have an objective to become a full-time landlord, there are chances that they won’t be on the receiving end of those late night calls when either the furnace breaks down or a pipe bursts. A lot of landlords hence choose to work with a property manager for these daily relations between tenants and their landlords.
Although there is an expense involved in working with a property management firm, investors must consider that their time is of value as well. They probably do not wish to spend time chasing down tenants for rental payments, handling repairs, or ensuring the terms of the lease are followed.
Finding a good tenant
For numerous landlords, finding a good tenant is not just hard but also impossible, especially when it comes to putting their investment property on rent. To carry out this process, they’ll need to use some marketing tactics and listen to their own instincts. In short, they should consider the ideal tenant for their property and place an advertisement in the target group.
There are some other ways for landlords to find suitable tenants for their properties and they are as under:
- Developing a process to screen potential tenants or using the services of a third-party property management company.
- Conducting a credit check.
- Asking for references.
- Listening to instincts when something does not seem right.
How to leverage real estate investments?
Once investors have their investment property in running shape, they can start future planning and can influence their investment in numerous ways. For instance, they can improve or renovate the property to raise the value of investment, leading to higher rents and possibly a very lucrative selling price.
Additionally, as investors pay down their mortgage (provided that the investment property is taken on a mortgage), they build equity that can be then borrowed against to fund other investment projects. This hence grows investor portfolios and their wealth in exponential terms.