Opportunities for investment just never seem to end in this city. And real estate is on the front line. Average home prices have been rising year after year. Toronto’s population is growing too, thus creating even more opportunities.
Speculations about bubble bursts have been there too, but that has not stopped investors from scooping up residential properties here. The benefits are almost irresistible: from having a decent passive income and capital gains to building equity, you have lots of reasons to take the risk.
Now, if you are among those who have their eyes set on investing in rental property in Toronto, then you must know a couple of things about this market. Let me get you started right away.
Evaluate Your Financing Options
Not unless you plan to pay cash for a property, you’ll have to explore the mortgage options in Toronto. Obtaining one is relatively easy when you are borrowing to acquire your primary residence. But for investment properties, things get a bit difficult.
For example, for the down payment, you’ll have to raise an amount that’s at least 20% of the buying price. Then, only a tiny share of your rental income will be taken into consideration in assessing your qualification for the mortgage, which is usually 80% of the purchasing price. The down payment rises to about 50% when the mortgage is for a commercial property.
Right now, this city has a huge line up of lenders and brokers ready to help you secure a mortgage.
Peruse through each of them thoroughly until you find one that seems right for you. You will only obtain a mortgage pre-approval if you come fully prepared. That means having your credit scores ready and being fully cognizant of your financial situation.
Familiarize Yourself With Taxation Matters
Canada considers any money you collect from renting your properties as income and then subjects it to tax. Now, tax implications for residents and non-residents are different. As a non-resident, you’ll be subjected to the following taxes:
Non-Resident Speculation Tax (NRST)
Type XIII Taxes
Capital gains tax
Land transfer tax
Disposition of property levies
Real property tax
There may be other charges and fees you’ll be forced to part with as well. So, before you make that move to purchase property, it would be great if you sat down with an expert who knows and fully understands the tax implications associated with such a choice.
Come Up With A Real Estate Strategy
Timing matters a lot in this space. You should never overlook it. Think of it this way, would you like a short or long-term investment?
In real estate, short-term strategies tend to attract higher risks and so you should exercise caution. You can purchase a property, hold it for a while, then sell it later or opt to flip run-down houses for quick profits.
There’s also the question of whether you’d love to go in solo or as a group, making it a joint venture. Note that this kind of move attracts its own special tax implications.
Promising properties can easily lure you into making snap decisions that could cost you dearly. It’s, therefore, best to first develop a sound investment plan depending on your financials, timing, tax implications, investment goals, and so on.
Real Estate Investment Analysis
Investment analysis is the point where you pick a pen, spreadsheets, and a calculator. Do your math and indulge in critical thinking until you have results that seem impressive.
At this stage, there are usually three options at your disposal. As a real estate investor, you should be aware of each as they’ll guide you in deciding which property to buy. They include:
Cash flow/Cash Returns – Cash flow is what you are left with after the expenses have been deducted from your rental income.
Appreciation – Appreciation is when the value of your property (at the time of selling it) is higher than the amount you purchased it with.
Equity – When you have a mortgage being serviced through rental income, you are building equity. When you finally sell that property, your equity will be whatever that’s left after deducting the down payment (your original investment).
The next thing you will want to know is the calculations and evaluation tools that smart real estate investors depend on to estimate the returns on potential property investments. They include: