If you get the opportunity, investing in Toronto’s real estate market the right way has the potential to provide an excellent return on your investment.
It may be easier said than done in a competitive market like Toronto, but if you have the capital and work with experienced real estate professionals like real estate agents and real estate law firms in downtown Toronto, you can use your local knowledge to your advantage and create a successful business investing one of North America’s most popular markets. Here are just a few ways to do so.
Income Investment (Rental) Properties
Investment properties can provide you with a consistent source of income while increasing your returns by leveraging a mortgage. The goal is to buy in a neighbourhood where homes are still appreciating in value, have nearby amenities like good schools, community centres, etc., and that has a solid local economy and job market.
Next, do your research to ensure there’s good demand for rental units in the area by checking out the local vacancy rates. You’ll also need to calculate all the expenses, such as your mortgage payment, property taxes, utilities and regular maintenance. With the area’s current rental rates, you can then subtract the monthly expenses to calculate the potential operating income and see if it generates a positive cash flow.
House Flipping
There are several areas of Toronto where market values remain high despite the age of the houses. This provides homeflippers with plenty of opportunities to find homes that require major upgrades to get them up to code and make a profit in the process.
House flipping, however, is not for the faint of heart. It has the potential to make you a lot of money in a short amount of time, but it’s also risky. There’s a high potential for unexpected costs, and if you don’t sell the home quickly and at the right price, you could be stuck having to take a loss just to get your investment capital out to put into another investment.
House flipping is generally done by investors who are good at both real estate valuations and renovations and have knowledge of the local market. It also requires a lot of capital to pay upfront for the necessary upgrades and repairs.
Investing in Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) allow you to invest in real estate without actually owning property. A REIT is an organization that collects money from multiple investors and purchases several real estate properties, often commercial properties. Investors earn money through dividends paid out by the REIT when they collect lease and rental payments. You can collect the dividends as income or reinvest them.
You can also purchase positions in a REIT similar to the way you buy shares in stocks or mutual funds, allowing you to invest in real estate and collect dividends with less investment capital than it takes to buy property. Like stocks, however, REITs fluctuate with the market.
Rent out a Part of Your Home
If you’ve recently bought your first home or are considering buying a home in Toronto, one of the simplest ways to dip your toes in real estate investing is to section off a portion of your home and rent it out – boarding room style.
It’s a good way to generate a monthly income cost-effectively, and the income generated from the rental unit(s) can help offset the cost of your mortgage while increasing your cash flow. The income you generate can be used to buy your first investment property.
The obvious downside to this strategy is that, while it might be fairly straightforward to do, it can be far from easy sharing your home with a stranger if you don’t screen your tenants well.
