The real estate market in Canada has continued to increase over the last seven years, and with Toronto being one of the faster-growing cities, you might be thinking about investing. While the idea of passive income from an investment property sounds great there are several things that you need to consider before diving in:
What type of property do you want?
There are many ways that you can invest in real estate in Toronto. One of your first steps to investing is to consider what type of property you want to invest in. Here are a few of the more popular options:
- Commercial real estate – Office and retail buildings
- Income properties – A residence that includes income potential from apartment space (ie: finished basement) that could be rented out.
- Residential – This could include anything from a single family home to investment condos.
- New construction
Your Investment Strategy
There are two strategies to consider when investing in real estate: are you looking for short-term or long-term investment? Some investors like the short-term approach, and choose to flip properties. They find run down properties to purchase, renovate them as quickly as possible, and then sell for what will hopefully be a fast profit. Other investors prefer the long-term approach. They purchase the property, rent the space, and use the monthly rent to pay down on the mortgage. If they sell, it is after a longer period of time and the property has appreciated to turn a profit, while also realizing increased equity via paying down the principal of the mortgage through their rental income.
Seek the Advice of Professionals
You need to enlist the help of qualified professionals for your Toronto real estate investment. There are several different people that you are going to want to talk to:
- Real Estate Agent – When investing in the real estate market you don’t want to use just any real estate agent, you want to find one that knows the Toronto real estate market well. If possible, use a realtor that is familiar with investment properties. They will be able to help you see the advantages and disadvantages to each potential property and to find one that meets your needs. At MortgageMeister.com, we work with many realtors specializing in different areas, and would be more than happy to refer one to you for your specific needs.
- Mortgage Broker – The world of investment properties is vastly different from just purchasing your primary residence. While you are able to walk right into a bank to seek a mortgage for a property, many investors find it beneficial to deal with a mortgage broker when purchasing investment properties. The requirements for purchasing your property will vary depending on your situation. For example, whether you are going to live in part of your investment property or not will change the amount of down payment that will be required to purchase. When you use a broker that is experienced with Toronto (GTA) investment properties, they will be able to assist you every step of the way.
- Contractor – When you have invested in a piece of real estate, you are going to need to know a good contractor that you can trust. As repairs and maintenance issues come up large or small, you want to know that you have someone that can take care of the problem quickly, efficiently, and correctly.
- Property Manager – If you don’t want the daily headache that can come with investment properties, then you should consider hiring a qualified property manager. A good property manager will not only assist you in finding renters for your property, but they will handle any maintenance requests as they arise and rent as it is paid.
- Home Inspector – You don’t want any negative surprises after you purchase your investment property, so work with an experienced home inspector prior to purchasing. They are trained in finding all of those problem areas that you want to know about before the piece of real estate is yours to worry about.
- Accountant and Lawyer – There are many legal aspects to consider when purchasing an investment property, and unless you have worked your way through law school it is best to hire a professional. Find a lawyer that is experienced in working with real estate transactions. Your accountant and your lawyer can assist you in deciding how to handle your finances and help you consider if it is in your best interests to form an entity to invest in the property instead of purchasing under your personal name. There are advantages and disadvantages to each option and they change depending on your personal situation, which is why it’s recommended you seek the advice of professionals.
Look for Properties with Positive Cash Flow
While this might sound like common sense, it can be harder than you think. You want to find a piece of real estate that will rent for enough to cover all of your expenses and a little extra. You want to make sure the rent you receive will pay your mortgage, insurance, and utility expenses, but you also want to plan for those maintenance issues that are sure to popup. Many experts recommend setting aside at least 10% of the rent you receive for when those instances ultimately arise.
While it can be tough to find positive cash flow properties in Toronto, you want to make sure you are at least breaking even with your property each month. The Toronto real estate market has a great reputation of being profitable in the long run with properties that appreciate in value over time. With the steady growth of the city, many great Toronto real estate investment opportunities exist, and with the proper team around you, you’re sure to find one that will cash flow positively for the life of your mortgage.
Contact MortgageMeister.com today and learn more about the options available to you when it comes to financing an investment property.