Looking to invest in Toronto’s real estate market? You are not alone. Returns have been very good in the real estate market in Toronto. This guide will outline the various options for investing in Toronto’s real estate market.

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The Basics of Investing in Real Estate
Financing
Getting a mortgage for a second property is not as easy as borrowing for a primary residence – you will need at least 20% of the purchase price for a down payment, and only a portion of the income you get from rent will be considered in qualifying you for a mortgage (usually 80%). For commercial properties, you will likely need a down payment of 50%.

Taxation
In Canada, money collected from rent is considered income and thus subject to regular taxation. Increases in the value of your investment property (from the time it becomes an investment property to the time you sell it) will be subject to capital gains tax. If you are thinking of buying an investment property, make sure to talk to your accountant to fully understand the tax implications.

Timing
Most real estate investments should have longer-term objectives. Because of the unpredictability of the real estate market, expecting to profit in a short period of time is risky.

Goals
What are your investment goals? 
1.   Cash flow (cash return) – Cash flow is the difference between your rental income and your expenses. In Toronto, cash flow positive properties (purchased with 20% downpayment) are hard to come by, though it is fairly common for investors to break-even on a monthly basis (meaning rental income will cover the property's expenses). Cash flow is affected by factors outside of the real estate market, for example, your downpayment and mortgage terms.

2.   Appreciation – Toronto properties have historically appreciated favourably for investors.

3.   Equity (mortgage paydown) – Rental income pays down your mortgage, building your rental income.

Return on Investment (ROI)
Investors use different calculations and tools to calculate the returns on their real estate investments:

Cash flow is the net amount of cash moving in and out of an investment
Calculation: Income – operating expenses – financing costs

Capitalization Rate (cap rate) is the rate of return on a real estate investment property based on the income that the property is expected to generate.  Calculation: Operating Income / Purchase Price

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment. It is calculated by adding the cash return, mortgage pay down and appreciation.
There are many tools out there to help you predict the ROI of investment properties.

Option 1: Investment Condos
Ever wonder who is buying all the condos you see changing Toronto’s landscape? Investors. Here is why:

The Pros The Cons Option 2: Income Properties
Income properties–houses that have self-contained apartments for rent –are HOT commodities in Toronto.

The Pros The Cons Option 3: Flipping
While it is not as popular as it was a few years ago, flipping houses (in other words, buying a house, renovating it and selling it in a short period of time) happens every day in Toronto. It can be risky but also very profitable.
The Pros The Cons If you are considering buying a home to flip, make sure you are working with a real estate agent who knows this space and can advice on the location and property to purchase, the amount of money to invest in the renovation and the key areas of the property to improve, and assist you in selling it at the right time.

Option 4: Mixed Use Properties
Many investors turn to Toronto’s mixed-use properties, that is properties that have both a residential and a commercial component. If purchased in up-and-coming neighbourhoods, these can be an excellent investment. The financing and buying process is very different than the standard resale residential market so make sure you hire a real estate agent experienced in selling these types of properties.

Option 5: New Construction (pre-construction)
This used to be the number one way investors made money in Toronto’s real estate market: buying during the pre-construction phase and selling when built (often up to 5 years later).

The Pros The Cons Ready to Invest in the Toronto Real Estate Market?
As an investor in Toronto’s real estate market, there’s a lot to consider. If you want to partner with a team that knows how to evaluate investment options and maximize your ROI, text, call or send us an email.