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How to Invest in Commercial Real Estate: Guide for Toronto

Has the thought of investing in commercial real estate crossed your mind or are you busy trying to figure out how this side of real estate works?

Assuming your answer is a huge “yes”, we’ve got you covered. To start you off, understand that there’s a lot to learn on your journey to successful commercial property investment in Toronto.

Not everything you may have picked up or experienced while dealing with the residential side is applicable to this commercial side. The two sides actually differ on many fronts, from the market factors and financing requirements to potential risks, the leasing arrangement, property management options, among other aspects.

That aside, one of the greatest things about this side of real estate is that it gives you the opportunity to meet a new set of clients and elevate your business as an investor.

What we are about to look at is essentially what you should be aware of as you plan to get your feet wet in commercial real estate in Toronto.

Finding the Best Property Investment Opportunities

The first thing to note is that unlike residential investing, this type of investing takes far more time. For example, the sales cycles are longer, a situation that calls for patience from the investor. Carrying out due diligence can take months. Landing an ideal tenant won’t be as quick as you’d expect, considering that the process often requires the help of a commercial property management company specialized in tenant screening.

Generally, without patience, you’ll be exposing yourself to mistakes that could lead to failure. That said, here’s where you should begin in your pursuit of the best commercial real estate investing opportunities.

Understand Toronto’s Real Estate Market

Before proceeding with any decision on where to buy your real estate property, spare some time to learn and understand the market you plan to invest in. Familiarize yourself with:

Interest rates

In mid-2017, the Bank of Canada raised its interest rate, a first in seven years. Such a move usually has an influence on the cost of borrowing on variable rate mortgages and other loans. The reason you should watch out for any increase (or decrease) is that an increase affects the growth of companies and consumer spending, which in turn affects demand for commercial and residential properties.

Area Demographics

Demographics and things like population growth count as predictive tools that can help you as an investor figure out market dynamics. Think of it this way. Different segments of the population may be motivated to move to one place or the other or purchase a home in a specific neighborhood due to life events like starting a family, getting married, receiving a promotion or raise, the need for a retirement home, and so on.

As they move and settle in these places, new opportunities will arise. For instance, there will be a demand for things like childcare facilities, places to shop, eat, or hang out. A place with a high concentration of boomers will definitely create demand for healthcare services.

Chances are many of the people in these demographics will seek these services in places that are close to their homes, a situation that can fuel demand for office or commercial space for those looking to meet the needs of these people.

Similarly, locations with a strong population growth may require additional services due to the rising consumer demand. More cafés, grocery stores, support services, specialty shops, etc. will be needed. This translates to a demand for more commercial space.

Other factors that are just as important to familiarize yourself with include:

  • Tax matters (both at the federal and provincial levels)

  • Property ownership – Learn about the requirements and rights related to ownership of property as a Canadian citizen, permanent resident, and non-resident.

  • Competition

  • Environmental Issues

  • Investment options available – Apartments, income properties, mixed-use properties, flipping, new construction, etc. Learn about the advantages, disadvantages, and risks of these.

  • Supply of skilled labor

Some of the aforementioned aspects, like tax and purchase laws, financing, and property ownership undergo changes more often. Therefore, you’ll have to keep yourself up to date just so that you don’t end up making costly decisions.

Once you’ve understood Toronto’s real estate market, the next thing you’ll want to focus on is how one can find a list of commercial real estate properties that tick all the boxes in relation to their needs.

How One Can Find a List of Commercial Real Estate Properties:

I. Real Estate Listings – Toronto has several platforms where you can find, list, or market your property. Examples of where to find commercial listings in Toronto include diffTheDirt.co, TheRedPin.com, Realtor.ca, homebuyers.com, zoocasa.com, just to name