“Financially adulting” means to build a financial road map and build wealth so you can reach greater destinations. It’s also about plotting out the path to your best self. For the many of you whom have asked, here are straight-forward answers to the who, what, when, where, why and how of Toronto real estate investing.
“Ninety percent of all millionaires become so through owning real estate.” – Andrew Carneige (creator of the first billion-dollar corporation)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
**If you like this content, check out its accompanying podcast recording, led by Karyn Filiatrault
CLICK HERE
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
WHO
YOU (yes, you, can be a real estate investor). Real estate investors are as diverse as the city of Toronto is multicultural. While you might picture a “real estate investor” as a tall, suit-wearing business man who trades stocks by day, the typical investor looks more like the people you’ll be having drinks with this weekend. They’re single professionals (more often that not, women), young families, parent & adult child duos, empty nesters and pre-retirees. Many individuals who become investors have been fortunate to have purchased property before and either sold and made a handsome profit, or have built up equity in their current home to elevate to a second property. Others are simply gifted money or earned it in one of the countless ways that one grows their net worth. The simple and best way to start Toronto real estate investing, is to begin with the purchase of your personal residence, stay patient while it grows equity and appreciation, and then grow from there.
WHAT
There are many types of real estate investments you can make (your personal residence, a duplex or multiplex, a house flip or pre-construction) but for the most straight forward and easy to manage investment in 2019 in Toronto, it’s the re-sale condominium.
WHERE
Downtown Toronto (re-sale condominiums) specifically in C01 and C08.
WHEN
Toronto’s downtown condominium growth rate over the past five years has averaged 11%** a year. There’s a saying that the best time to buy real estate was yesterday (because the longer you wait, the less your money can buy and the more expensive the options). To put this into prospective, your $500,000 condo purchase five years ago is now worth $775,000.
View the latest year over year market appreciation per neighbourhood and sector **carefully eye C01 and C08 condos on page 3.
Furthermore, rents for condos continue to rise with a current vacancy rate sitting in Toronto at 0.7%** . As of July, 2019, the average 1 bedroom in C01 was $2,279/month**, 2 bedroom was $3,357/month** and 3 bedroom was $5,080/month**.
**Source: TREB
WHY
You need to have money in order to invest in real estate, which is why many favour the stock market. And you need to be willing to leave it there for more than a couple years. But if we’re talking about the same large sum of money, say $60,000 if it’s your first purchase or $150,000 if it’s to rent out, with the choice of (1) leaving it in a savings account, (2) putting it into the stock market, or (3) putting it down on a property, there are overwhelming reasons to choose the latter.
I like property investment in downtown Toronto because:
- it exists in a brick and beam, walk-into-and-tangibly-feel kind of form
- 20 years of data show an uphill pattern of appreciation growth
- 5 years of more recent data undeniably have shown huge gains by investors and home-owners
- Toronto has transitioned into a world class city, and as expensive as you think it is right now, we have a far ways still to go as we grow larger and command more of the world attention
- Money has never been cheaper to borrow than it is right now
- Investing in real estate is significantly less volatile than the stock market
Additional reading: “Is Toronto The Next New York City.”
Additional reading: “Real Estate Vs Stock Investments”
How
You Make Money As A Real Estate Investor in three different way: (1) cash flow, (2) appreciation, and (3) mortgage pay down
- Cash Flow is the difference between what you collect in rent, less your expenses (maintenance fees, mortgage, property tax). If you’ve ever read the book, “Rich Dad Poor Dad” you’ll know how awesome it is to have money flowing monthly in your direction. In Toronto it’s not very common to be cash flow positive unless you put down a downpayment larger than 25%, but it is possible to break even.
- Appreciation is the amount more your property is worth when you sell it, vs when you bought it. Toronto has historically had some very favourable appreciation, especially on condos over the past 5 years, which is what really attracts investors. At an average rate of 11% appreciation, your initial purchase of a $750,000 condo is appreciating at a rate of $82,500 every year. If the market stays around that number, you could see gains of over $400,000 in appreciation alone. And ok, I understand, let’s be conservative and estimate a growth of 5% year over year. That’s still $187,000 gained.
- Equity is the difference between your initial mortgage and the one you have when you eventually sell one day. Your tenant, who is paying your mortgage, is putting money back into your equitable pocket from day 1.
The first step to taking a step into real estate investing is a conversation with your Realtor in accompaniment with a mortgage professional. You may have questions about how much money you need to put down. Or how cash flow positive or cash flow even you can be with a 20% downpayment. You may be wondering whether it’s a 1, 2 or 3 bedroom purchase that makes the most investment sense. Or your questions may be about tenants: how much work it is to deal with them, how you find tenants, how can you prevent “nightmare” tenants, and/or questions re: the Ontario Tenancies Act. For all of your questions, Karyn can help answer them. You can contact her HERE.