Investing in Toronto’s real estate – the different kinds of investments to be made

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In a city like Toronto, investment in real estate is like investing in a gold mine. The city today now has more expensive homes than Vancouver. Condos are an affordable investment because suburban homes near the inner-city core are the most expensive.

Real estate is a long-term investment. Before people even start investing in it, they need to be sure that they understand what their objectives are and why are they making such an investment move. Real estate investments in the city come in different shapes and sizes. There are also a lot of things worth considering before Torontonians start the investment game.

In Toronto, where can investments be made in real estate?

Here are some kinds of properties where real estate investments can be made.

Buying a resale condo

Resale Toronto condos are residential condo units sold by the incumbent owner. Those who are looking to purchase a resale condo, they should understand that it is just like purchasing a new house. They are also able to determine if they like the unit when fully furnished as well as the building’s condition and amenities nearby.

Those who invest in resale properties often get the keys within a month or two. Once they get the keys, they can hand it over to tenants immediately, provided they will rent it out. In comparison, it takes a few years to get the keys to newly constructed condos.

In renting out a purchased resale condo, the investment starts paying off immediately. It also provides investors with increased financial certainty because those who acquired it on a mortgage get their mortgage pre-approved quickly. This is based on the current interest rate and it determines the buyer’s carrying costs to the exact amount.

Buyers are also able to get a better deal for a property with owners of resale units, as compared to property developers. Owners of resale properties can be motivated to sell due to any circumstance they face.

It is important to purchase a resale condo in a building that appreciates. Since there will be a day when a buyer of a resale condo wishes to sell it to get a better offer on a better home, they would surely love to make the best possible equity in their finances.

Income properties

They are homes having self-contained apartments that are often rented out. Duplexes and triplexes are common examples of such. Investors buying these do so from the perspective of earning a good additional income.

Investors use the capitalization rate (cap rate) as the main calculation mechanism. It is the rate of return on a real estate investment property which is based on the income the property can make expectedly. The cap rate can be calculated by determining the operating income over the property’s purchase price.

The higher the cap rate, the more lucrative the property is for the investor to buy.

Usually, in this kind of investment, the properties purchased are quite old and often need a lot of maintenance repairs. With multiple tenants’ present, owners will be dealing with them frequently.

Investing in run-down homes

This process is commonly referred to as flipping houses. Here a run-down or an obsolete (outdated) property is purchased and is renovated extensively to be sold for profit after some time.

This mode is a really difficult one because Home Improvement is a Herculean task (Tim Allen made it look easy but in reality, it isn’t). Investors should take into account all the associated costs and work needed. A realtor with experience and a good track record should be consulted to go through this risky process.

The main advantage of flipping a home is that investors usually see their returns in a year. However, this method is the riskiest of all real estate investments ever made by a human being. Here, the prospect of losing more money than gaining it is a high probability.

Most experts in real estate advocate for a long-term investment when investors try flipping a home. Doing so in a short time raises their exposure to risks and unexpected costs which investors may not be aware of. These unexpected occurrences can eat up a large part of the profit they expect.

Those who wish to flip a home should do so with the help of an experienced real estate agent and contractor. They can accurately calculate and predict the initial and final costs associated with it.

Investing in mixed-use developments

Mixed-use developments are the hallmark of modern urban development. They combine commercial, residential and industrial space into one property. They are designed to provide affordability for homes, reducing walking distance and barriers between housing and workplaces, and to create stronger neighborhoods.

Some buildings in this development are used for a residential living while some are used for commercial development.

The benefits of investing in mixed-use development are as under:

  • Additional income streams for investors.
  • Diversity in tenants.
  • Higher demand for rent.
  • Proximity and walkability to workplaces and community amenities.

An interesting point; mixed-use developments and properties have been appreciated within the last decade. They have also proved themselves to be the best long-term investment in Toronto’s lucrative real estate market.

Due to the price point, an investor characteristically needs a considerable amount of money as a down payment. Additionally, these developments require a higher percentage for the down payment (around 25% or 35%) in comparison to the usual rate of 20% down on any other kind of investment.

Since commercial taxes are usually higher than residential taxes, it means that the carrying costs of investors are high on mixed-use properties.

Buying a pre-construction condo

For investors, the demand for pre-construction condos is quite high especially for those looking to allocate money expecting a profit in the future. Investing here is buying a condo unit in a building that hasn’t been constructed yet.

The advantage investors face here is that they are putting in a less amount of money over a long time. Usually, the deposit structure with a pre-construction condo is 5% with gradual increments each year (or after a year and a half). Back end expenses are only paid once the building’s development is complete.

This allows investors more leverage on the investment as they don’t need to invest a lot of money immediately. Additionally, they are also buying a unit in a brand-new building which will eventually be having a good price upon completion, in comparison to other buildings.

Pre-construction condos are much preferred to rent out because tenants prefer moving in a newly constructed building. Since this kind of property experiences delays in construction, investors looking for a way to get out of it will take longer. Also, there are more closing expenses here as compared to resale condos.

Conclusion

Whenever a person makes an investment move in real estate, they need to consider certain factors that contribute to greater returns. Hence, working with an experienced & well-versed real estate agent is worth it.

The market value of Toronto’s real estate always rises, and real estate firms scramble often to keep track of the market and adjust strategies accordingly to give clientele the best possible returns.

 

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