Investing in Real Estate is one of the biggest decisions that anyone can make and purchasing a home is by far one of the BIGGEST financial investments that we make. Most would agree that it's a sound investment because we all need a place to live and there is great appeal in owning our dwellings, but what about the prospect of investing in real estate for the purpose of investing in it rather than living in it? Perhaps you are one who has considered getting into the real estate investment market here in Toronto, but you're just not sure how to go about it and the potential risks involved have kept you from jumping in. Well, we'd like to offer some guidelines that may help to ease your mind a bit and show how you can invest wisely in Toronto's real estate market.
Determine your goals
What are the reasons you are considering investing in real estate? Do you need some extra income? Is this something you've always wanted to do and now you have the extra cash to invest? If you are needing some extra income and you have extra space in your current residence, you may want to consider converting that extra space into a rental property in order to generate that extra income. If investing in real estate is something you've always wanted to do, then you will need to determine if you want to invest more long-term or if you want to purchase something, upgrade it and then sell it for a quick profit. Whatever your goals may be, write them down and stay focused until you see those goals come to fruition.
Secure your financing
Once you have determined your goals, you will need to secure your financing. A home improvement loan that will go toward building a rental property is likely going to be fairly easy particularly if you have good credit. On the other hand, getting financing to borrow for a second mortgage can be difficult. Down payment requirements on investment properties have fluctuated over the last several years ranging from as low as 5% of purchase price to has high as 25% of the purchase price. Other factors affecting down-payment requirements are the number of units in the property as well as whether or not the property will be owner occupied. Buildings with five or more units to rent will be zoned as commercial and the required down payment will be significantly more than if there are fewer than five units. If, as the owner, you will be living in one of the units, therefore making it owner occupied, you can expect to get a break on the percentage required for the down payment. When searching for a loan source, consider working with a Mortgage Broker. They will likely make you aware of all current programs available to investors while a bank may be more limited in what they offer.
Understand the tax structure
In Canada, net revenue collected from a rental property is considered income and will be taxed. Additionally, rental properties in Toronto have historically appreciated in value, so as your rental property value increases, you will be subject to paying capital gains taxes if and when you sell. Working with a good tax accountant can help you understand the tax code and ensure you are paying all necessary taxes on your property.
Move forward with the right agent
Once you've set your goals and secured your financing, enlist the help of a knowledgeable agent who knows the Toronto Real Estate Market. A good real estate agent can help you find the perfect investment property and connect you with a property management company, such as Real Property Management, who can help you manage and maintain your new investment.
Although this isn't an exhaustive list of guidelines, we see these as very foundational to the entire process and while we've really just touched on each guideline in this writing, we'll be taking a more in-depth look at each one going forward.