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With stock markets predictably unpredictable, many people are turning to Toronto’s real estate market – not just as an investment to live in, but as an investment to rent out.

There are two ways you can make money with a investment condo:

1 – Cash flow from rental income

2 – Captal appreciation on the property between the time you buy and the time you sell.

Here’s what you need to know:

  • The 20% rule You won’t be able to get a mortgage on a second investment property without 20% down. That’s OK actually, because you’ll likely need that much equity in your property to break even on a monthly basis. If you can’t break even on your investment condo with 20% down, keep looking.
  • Location, location, location  Yes, it’s the cardinal rule of real estate, but it’s even more important when you’re looking for tenants. Good locations near transportation, schools and stuff to do, get more rent.
  • Don’t get emotionally involved  So maybe you’ve always wanted a granite counter or a building with a pool or to live in a funky loft with wood beams. When it comes to investing in a condo, remember that those features come at a price and may not necessarily command a higher rent.
  • Don’t forget resale  It may be tempting to buy that 400 sqft condo overlooking the Gardiner – yes, it probably will be affordable and you probably will be able to rent it out. But one day, you will want to sell it – will someone else want to live there? Buy in a building that will appreciate in value.
  • Money, money, money  There’s more to owning an investment condo then just the downpayment and mortgage. These extra costs (maintenance and property management fees, insurance, property taxes, etc.) will affect your ROI.  Beware of high condo fees – they can make the difference between losing money and breaking even.
  • Cash flow – Most rental properties allow investors with 20% equity to break even or make a few dollars a month. If you’re looking for cash flow, you’ll likely need to put down a bigger downpayment.
  • The Tax Man  Don’t forget that revenue from your rental unit is taxable income – but you’ll be able to write off your operating expenses: utilities and maintenance fees, repairs,  insurance and interest on your mortgage. A investment condominium will trigger capital gains tax on the increase in value during the time you rent it out – so it’s not free money. Talk to your accountant.
  • The Rental market  Rental vacancies in Toronto are at an all-time low (around 1%) so there is clear demand for rental properties. We see bidding wars for rentals all the time.
  • Being a landlord isn’t all fun and games  You may have a bad tenant. You may get a call in the middle of the night about a broken doorknob. Make sure you understand the laws (which in Ontario, generally favour the Tenant). There are great property management companies out there – but those costs will eat into your profit.

If you’re looking at buying an investment condo in Toronto, we’d love to help.

Comments

  1. An investment property should generate adequate rental income with minimal expenses and provide consistent positive cash flow. The biggest mistake investors make is they look for property in markets and locations where prices have been increasing in the recent years rather than looking for property that has intrinsic value, better cash flow and in already excellent condition with roof, plumbing, heating and cooling components that are less than ten years old with enough life span left to minimize major expenditures in next five years.

    When deciding on a property, investors should use four important professionals.

    First very important professional is an experienced real estate agent to find the right property.

    The second important professional is an expert building inspector who can provide a comprehensive property condition assessment.

    The third important professional is a smart mortgage broker to find the best suitable financing.

    The fourth important professional is a very caring lawyer to look after the legal aspects.

    Investors also need a competent accountant to manage the accounting and provide with proper tax advice and a reasonable building contractor to perform the routine maintenance and renovations.

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