Investing in Toronto Real Estate
March 1 2021
Updated August 2022

The Toronto real estate market is ripe for investment. Whether you want to own rental properties or prefer to upgrade and flip investment properties, you are sure to find ample opportunities.

Real Estate Investment Opportunities in Toronto

Real estate investors will find that the Greater Toronto Area is unique. Investing in Toronto real estate can offer financial freedom, excellent returns and passive income streams. You just need to know where to look for the best deals. A knowledgeable real estate agent can help point you in the right direction.

Why Invest in Toronto Real Estate?

There are several reasons to invest in Toronto’s real estate market. Whether you are looking for regular cash flow every month or sizable cash infusions from flipping properties, the Toronto real estate market has plenty to offer. Landlords will see sizable returns on their investments, and equity gains make holding property a wise decision. Additionally, Canada’s stringent lending practices make it difficult for just anyone to buy property.

Increasing Demand for Rentals

If you’re looking for an income property, you will find a few markets that are better than Toronto. Rental units in the Toronto area are in limited supply, which means investors see returns on their real estate investment quickly. Toronto continues to attract large amounts of immigrants, which is one reason the demand for rental units is so strong here. Additionally, construction in the area slowed in 2020, which means rental prices should rebound by late 2021.

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Equity Gains

Although the Toronto real estate market has seen some hiccups due to the recession caused by the COVID-19 pandemic, it still makes sense to own investment property here. Properties in Toronto appreciate in value over time, so a long-term real estate investment presents plenty of opportunities for home equity appreciation.

Canada Has Stringent Lending Practices

The Canadian government introduced more stringent lending practices in 2018. The rules require Canadian banks to use extra stress test methodologies when screening new mortgage applicants.

Banks must assess borrowers’ ability to make mortgage payments based on their income levels using their contractual rate plus 2% in interest or the trailing five-year benchmark rate set by the Bank of Canada, whichever is higher. The point of the new rule was to ensure that borrowers would be able to handle potential a potential cost increases in their mortgage if interest rates rise.

These lending practices mean more opportunities for real estate investors in the rentals market. Fewer people can afford to buy a primary residence, so they end up renting instead.

Things About Investing in Toronto Real Estate

Some might consider the Toronto market to be in a real estate bubble, but given how limited housing is here, that couldn’t be further from the truth. Nonetheless, investors should keep several things in mind when it comes to investing in Toronto real estate.

Don’t Let Emotions Get in the Way

One of the most important lessons to learn with real estate investing is not to let your emotions get in the way. An investment property is just that, which means you shouldn’t get too attached to it. Real estate investments are only wise if they are profitable, so you should never let yourself get in so deep that you are losing money on a property.

Most Lenders Will Consider 80% of the Rental Income

When it comes to taking out a mortgage on a rental property, lenders generally consider 80% of what you will make on rent per month as income to see whether you can afford the purchase price of the property.

Likely Need 20% Down Payment

In most cases, you will need 20% of the purchase price as a down payment on a property.

Most Investors Reach the Break-Even Point With a 20% Down Payment

If you can afford to put more than 20% of the price down, you’ll be in an even better position with your investment property. However, if you can’t afford more than 20%, the good news is that you will probably at least break even on your real estate investments. To really make a difference in your bottom line, you must have money coming in every month if it’s a rental property. Thus, you should always calculate carefully to ensure that you’ll be turning a profit instead of just barely breaking even.

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Qualify for a 30-year Amortization

A 30-year mortgage is not the standard in Canada as it is in other parts of North America, specifically, the U.S. In Canada, the standard is a 5-year mortgage amortized over 25 years, which means the interest rate is recalculated every five years. Some lenders don’t offer 30-year amortizations, so you will have to shop around.

Qualification for Government Buyer Programs is Limited

There are a number of government buyer programs in Canada, but qualification for them is limited. You shouldn’t count on these programs to help with your investments. They are designed for homeowners rather than an investor.

3 Kinds of Taxes to Consider When Buying an Investment Property

Aside from property taxes, you also must consider three other types of taxes:

Capital Gains Taxes

You pay this tax when you update and flip a property. The tax applies to half of the capital gain amount and is based on your tax bracket.

Rental Income Taxes

You’ll have to pay an income tax on any rental income you receive. You can reduce your taxable income by deducting certain expenses, like costs associated with getting the property ready to rent. The amount of this tax is based on your income tax bracket if you are the sole owner or part of a partnership.

Land Transfer Taxes

The land transfer tax is due upon closing and based on the price of the property. In Ontario, the first $55,000 is taxed at 0.5%. Between $55,000.01 and $250,000, the tax rate is 1%. Between $250,000.01 and $400,000, the tax rate is 1.5%. Between $400,000.01 and $2 million, the tax rate is 2%, and over $2 million, the tax rate is 2.5%. If you’re buying in Toronto rather than the surrounding cities, an additional land transfer tax will be applicable.

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Attractive Investment Properties to Make Money

There are many investment options in Toronto and its surrounding cities. Property values are usually going up, so investments can be made anytime. Here are some of the ways you can extract value from the houses, condos or commercial property you invest in.

Appreciation

Since prices are almost always going up in Toronto and its surrounding cities, appreciation is the most basic way to see the value of your properties increase. Over the last decade, Toronto properties have appreciated 8.3% on average per year.

Monthly Cash Flow

The Toronto rental market is vibrant and filled with opportunities in houses, condos and condo developments. You may see a better return on your investment than you would see in the stock market. Having a monthly income is a great way to see your net worth increase with very little labour from you.

Improvements

Many properties in Toronto and the surrounding cities like Mississauga will see their prices increase if you improve them. Many Toronto residents are looking for homes with certain features, so you will find opportunities to improve houses or condominiums and flip them for a profit.

Equity Build-up

As time goes by and you pay off the mortgage on your investment property, you’ll build up equity. The more equity you have, the larger the impact of rental payments on your bottom line.

Finding the Best Condo Deals in Toronto

You’ll find lots of deals on Toronto condos. The condo market in Toronto is healthy and growing. A knowledgeable real estate agent can help you find attractive investment properties in and around Toronto.

FAQs

Is real estate a good investment in Canada?

Even though the property and rental prices took a hit due to the pandemic, the market is expected to bounce back in 2021. Whether it’s condominiums, homes, pre-construction properties or a basement apartment, you can turn a profit on real estate in Canada if you factor in all your costs and property management fees and plan carefully.

Is real estate a wise investment in Ontario?

The Ontario real estate market is healthy and growing, so you will find plenty of attractive opportunities here. Because prices in most parts of Ontario are usually on the rise, you should be able to turn a profit if you plan and budget carefully.

Is real estate a good investment in Toronto?

The Toronto market is especially attractive due to its strong appreciation. The condo market offers ample opportunities for discerning investors. You just need to look at the numbers carefully, and don’t forget to include property management fees and condo fees in your calculations.

Why is real estate so expensive in Toronto?

The price per square foot is quite high in Toronto, which is why the market is so attractive to investors. Demand for housing is strong here, which is one reason the market is so expensive. Toronto’s population is growing rapidly, and competition for properties is high due to low inventories.

Final Thoughts

Whether you’re looking at condos, houses or apartments in Toronto or surrounding areas like Mississauga, there is plenty to like about the region and lots of profits to be made. The Toronto real estate market is healthy with lots of pre-construction and already-built houses and condos. If you’ve got the capital to put down and you’ve done your calculations correctly, you’re sure to see a nice return on your investment.

Before you take any steps into real estate, you should make sure it will meet your goals for investing. If you’re unsure what your goals are, you might want to speak with a financial advisor to see if the real estate will fit into your portfolio nicely.

Sabine Ghali

Sabine Ghali

Helping real estate investors build wealth over time

 

(905) 268-1000

 

[email protected]

 

Anyone can sell you the “perfect” house, but I strive to find you the perfect home. Perfect for you, perfect for your family and perfect for your budget. From helping my parents downsize to a condo, to helping my closest friends through life changing moments, even the not so great ones, all while creating a wide portfolio of investment worthy properties and moving my kids into a family friendly neighborhood. I have personal anecdotal experience, knowledge, compassion and empathy that aides me in helping my clients with whatever changes they have going on.

My job does not just start and stop with the house, but with you. When you sign with me you are taking on a partner. A partner that will help, guide and counsel you through the new chapter in your life. Call me and let’s take the next step together.

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Sabine El Ghali | Sales Representative | iPro Realty Ltd. | 905-268-1000 | 55 City Centre Dr. unit 503, Mississauga, ON L5B 1M3