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Want to be a Toronto property tycoon? If you’ve decided against Buying an Investment Condo but are still looking to invest in real estate in Toronto, then a duplex or triplex might be right for you. Here’s what you need to know:
- Hot Property Houses with more than one apartment are a hot commodity in Toronto. Buyers love the idea of living in one apartment while renting out the other (a.k.a. mortgage helper apartments) and are prepared to pay for that benefit. At today’s interest rates, an $850 a month apartment can help cover at least $150,000 of mortgage. If you’re looking for a renovated duplex, be prepared for a bidding war.
- Houses have historically appreciated faster than condos If you’re looking to make money on the appreciation of the property (how much more it’s worth when it comes time to sell), then investing in a duplex may be a more attractive option to you than investing in a condo.
- The 20% rule You’ll need 20% down if you’re investing in a second property – and that equity should help you to break even after you’ve paid all your expenses.
- The 50% rule If you need the second apartment to be able to afford your mortgage, you should know that banks will only consider 50% of the rental income that you’re actually getting. And if the apartment is illegal (as most are in Toronto), they may not consider that rental income at all when determining how much you can afford.
- Selling headaches – When it comes time to sell your property, be forewarned that it isn’t always easy to sell a tenanted property: tenants are messier and less flexible with showings. And they have rights.
- Tenant rights – Tenants have a right to stay in the property they are renting unless a new owner is planning on moving into the space themselves. If they have a lease, then they have the right to stay there until the end of the lease (even if you want to move into it). A good Realtor will help you navigate the potential tenant pitfalls.
- Raise the rent by the allowable amount every year. It’s great if the extra $30 a month in rent won’t mean anything to you, but when it comes time to sell, potential Buyers will look at the math – and if below market rental rates are being charged, it may be hard to sell. Even a 1-2% increase can add up over time and make your property seem more attractive to potential purchasers.
- Maintenance issues – Old Toronto houses come with old Toronto problems. Be prepared for the time and expense that comes with maintaining a home you don’t live in.
- Taxes – Don’t forget that rental income is taxable – and that capital gains taxes are applied to the increase in value between the time you buy and sell. If you live in more than 50% of the property, you may be exempt of capital gains tax. Talk to your accountant.
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HI there – I love reading your blog. We have a triplex and ready for a second triplex or duplex investment. Just wondering how much downpayment? Is it 20% down?
Thx in advance.
Melanie Piche says:
Thanks! Generally most lenders will require a 20% downpayment for a property that isn’t your primary residence, though there are always exceptions and different financing arrangements available. Triplexes are in hot demand right now…
Hi I bought a duplex last year and have since renovated the basement and created a triplex. I need to obtain a legal status triplex on this property to obtain a HELOC…would you know how to go about doing this? Is there a company out there that will do it for me?
Melanie Piche says:
It depends on what kind of legal status they are looking for. You may require a zoning change from the city (not generally easy to get) or they might just require that you are compliance with fire and electrical building codes (you can google fire inspectors and have them come in and give you the OK – but if you aren’t compliant, that can get expensive fast). Good luck!