When you live in Toronto, the subject of real estate often comes up. Property values and housing scarcity regularly make the news, so it’s not surprising that they’re also top of mind for many people.
For longtime homeowners or those with access to capital, that conversation can turn to investing. The ability to create passive income has always been intriguing, and owning an income property can provide impressive returns, especially in the West End where rental units are often in high demand.
As appealing as the idea may be, there are a few nuances to be aware of if you want to do it right. Since success begins with knowledge, let’s talk about five things you need to know before investing in West Toronto real estate.
Do you want insider access to our latest Toronto listings? Sign up for early alerts right here.
1) Flipping Is More Work Than You Think
Flipping is far from the only opportunity, but it’s often the first thing that comes to mind when talking about real estate investing. This involves buying an undervalued property and performing an extensive overhaul before reselling at a profit. Flipping is not as popular as it once was, but some people still make a healthy return if they find an opportunity to buy low and sell high.
Extensive market expertise, a sizable budget, high tolerance to risk, relationships with reputable contractors, and impeccable project-management abilities are the key. Even so, flipping homes is still not easy, regardless of how reality shows portray it. That’s not to say that it isn’t still doable. It’s just that high real estate values, new government regulations, and smaller pools of qualified buyers have made it a little more challenging in the current market.
A recent change to the tax laws has caused many short-term investors to pull out of the market. Under the new guidelines, any profits you earn are fully taxable as business income if you sell a home after owning it for less than 12 months.
Though flipping can still be lucrative for the right type of person, you should never think of it as a quick or easy way to make money. When you consider the capital required and the risks involved, you might decide that you are better off buying for the long term to generate rental income and equity growth.
We haven’t even begun to scratch the surface about the opportunities in West Toronto Real Estate! Get even more ideas in the posts below:
- Exploring Alternative Paths to Passive Income in Toronto: Beyond Landlordship
- Should You Turn Your House into an Income Property?
- Is Real Estate Investing with Friends a Good Idea?
2) Location Matters…A Lot
Location, location, location! It’s a well-known saying for a reason. Choosing the right area is especially important when you’re purchasing an income property. You want to ensure that the place you pick will allow you enough of a return on investment to justify the outlay of cash.
You also need a place that has plenty of appeal to people who are searching for an ideal rental unit. Your profit potential will decrease the longer the unit sits vacant. However, with the increasing population and housing shortage, the number of tenants is less of a problem than in years past. The trick now is finding a home at a low enough cost where you can generate enough cash flow to cover all (or most) of your costs. Focusing your attention to some of the West End’s up-and-coming neighbourhoods can give you a much-needed advantage.
Next, it’s time to think about your most-likely renters. Whether it’s a three-bedroom house on a tree-lined street or a modern condo in a lively district, consider who will be interested in your property—and tailor your marketing accordingly.
Knowing the local market is essential to your success as an investor. The resources below will help you make an informed decision:
- Is West Toronto Real Estate Still Valuable?
- What Buyers and Sellers Should Know About Bank Appraisals
- Variable Versus Fixed Mortgages: What to Know When Rates Change
3) Crunching Numbers Is Critical
Before you commit to investing in a property, you’ll want to make sure it can help you meet your financial goals. Each month, will the income you derive from it be higher than the associated expenses? If so, it’s considered to be a cash-flow positive property.
To determine whether a house or unit fits that criteria, you’ll need to get a sense of the rent you can reasonably charge. Look at the rents for comparable properties nearby, and talk to local landlords if possible.
Once you know how much your unit might earn, you can compare it with your estimated monthly costs. Keep in mind you need at least a 20% down payment for an investment property unless the home will also be your primary residence. In addition, there are closing costs and you’ll want to ensure you have some funds left over for a rainy day.
It’s worth noting that cash-flow negative properties aren’t always bad investments. It might hurt to feel like you’re losing money each month, but the equity gains as housing values rise might make it well worth your while. That said, you’ll want to make sure you can comfortably carry the property long enough to see a return. The right financial expert can help you understand your options.
Do you have an investment property in mind? You can get an estimate of how much you will need to invest with our mortgage calculator right here.
4) Know Your Limits – and Your Risks
In spite of the fluctuating market, real estate can still be one of the safest and surest investments around, and it’s a great way to expand your existing portfolio. Still, you want to be careful about overextending your budget or your credit limit. Plus, you should be aware of any risks involved.
Think of what would happen in a worst-case scenario. Maybe it will take longer than you thought to find the right tenant and you will have to continue paying for your home in the meantime. Or you may underestimate how much you can charge in the current market. If you have a support network and a financial cushion, you’re one step closer to real estate investing.
Now you have to decide whether you are ready to be a landlord. Do you have the time, energy, and expertise to negotiate with and manage tenants? Are you financially-equipped to take on the risk?
To reap the benefits of your new role, you’ll want to treat it like a business. That means assessing the tasks you’ll be responsible for—and your finances. It means budgeting carefully, and knowing whether you’ll need help with your day-to-day.
In addition to making sure you have the necessary funds, you may want to consider working with a property manager if need be. A professional can provide peace of mind by ensuring everything gets done. They can also research and vet all of your tenants carefully so you make the right choice.
Why is the West End so popular for tenants and home buyers? The posts below will shed some light on the matter:
- Top Hiking Trails In The West End
- Five Best Skating Rinks in the West End
- Our Top Activities for Retirees in the West End
5) Your Best Resource Is a Local Agent
Investing in real estate may seem complicated, but finding the right property shouldn’t be. Whether you’re scouring the local market or securing the ideal unit for a great price, a true professional can ensure that the process is as seamless and low-hassle as possible.
A full-time team will go even further than that. For example, our team continues to support you even after your transaction closes by helping you prepare and market your new home for your ideal tenant.
If you’re interested in finding a property that matches your budget and goals, getting in touch with one of our experts is the first step!
Looking for an investment property in West Toronto? We know the area inside and out, and we’d love to help! Get in touch at info@sidorovainwood.com or call 416-769-3437 to see what’s available.
