4 ways to win as a Toronto real estate investor

4 ways to win as a Toronto real estate investor

Investing in real estate is on a lot of people's minds these days. With Toronto property values going up 20% year over year, it’s no surprise a lot of people are jumping on the real estate investment bandwagon: investors now make up over 25% of Ontario homebuyers. Here’s what you need to know if you’re trying to decide if it’s right for you.

What are the benefits of using real estate as a wealth-building tool?

The biggest one is this: you're using other people's money to build your wealth. Plus, it's a pretty safe investment, as long as you look at it with a long-term lens. Toronto and the GTA offer a lot of opportunities for investors: immigration and students are driving property values, rents and demand for rentals higher and higher.

Also, once you’ve built up some equity in one property, it's relatively easy to tap into it to buy another one. Then, every 3-5 years, you can refinance and pull out the equity you’ve built to buy something else, creating a “ladder” that gets you closer and closer to your financial goals.

When it comes to real estate investment, there are four ways to win:

Win #1: Passive appreciation

Property values increase over time. Even though we often see peaks and valleys month-to-month and even year-to-year, those variations average out over time, showing consistent appreciation. Over the last 10 years, properties in the 416 have steadily gone up in value, with an average annual appreciation of 8.3%.

If you go back even further and look at the last 40 years, appreciation has held steady at around 7%. So as long as you're not looking to flip a property in the short-term (that can work too, it's just much higher risk), real estate is an investment that offers strong, predictable returns.

Toronto investors have unique opportunities to maximize passive appreciation by purchasing in not-yet-gentrified neighbourhoods or focusing on areas near development projects like new transit lines: as soon as those areas start to get more appealing to buyers and the subways/LRTs/GO lines are built, values inevitably jump up...significantly.

With passive appreciation, you essentially build wealth by doing almost nothing (apart from maintenance and finding tenants, of course). Doing your research can help you figure out the neighbourhoods poised for the biggest price jumps. If you need some expert insight, I can help you determine where those opportunities may be.

Win #2: Principal recapture

This win comes from having a tenant whose rent is paying down your expenses. So even if the values don't go up, your mortgage keeps decreasing.

Win #3: Active appreciation

When you make improvements that increase the value of your investment property, like putting in a new kitchen or installing hardwood, you boost resale value, increase the amount of rent you can charge, and improve the quality of the tenant pool you can attract.

In Toronto and the GTA, there’s a ton of opportunity to get into older buildings and renovate to boost value. Plus, older buildings tend to have bigger layouts, and at a time when people are craving homes with more space, they’re a great investment.

Win #4: Cash flow

Positive cash flow is when the rent you charge exceeds your costs, allowing you to win again. In Toronto, where property values are particularly high, this particular win is a little harder to come by. Most investors hope to just cover their costs with rent, but even that isn't always possible, especially with the record-breaking prices we’ve been seeing.

But a negative cash flow situation isn’t necessarily the worst thing. After all, you're still paying down your mortgage and building equity, even if you’re doing it partly with your own money.

A lot of young investors are only looking at this number and are really concerned about rent not covering their costs. But even if you're adding out of pocket every month, remember: you're still putting it towards your own wealth. The property is still appreciating in value AND you can write off that negative cash flow as a business expense!

Are you an investor in the making?

I’d be happy to help you figure out which areas, buildings and unit types could offer you the best return. Get in touch with me today.

About Sean Miller

Sean is one of the top realtors at Property.ca. He has the drive and expertise to guide you through one of the most important financial decisions you’ll ever make. Whether you're a first-time buyer, a seasoned seller, are new to the Toronto market or are looking for a great investment, he makes the experience as stress-free as possible, quickly assessing your needs and offering a full range of options that fit with your lifestyle and budget. Navigating the GTA market is his specialty, and stellar customer service and deep market expertise are his calling cards. He is always ready to go the distance to help clients make the right choice, at the right time and the right price.

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