I’m sure you’ve heard all of the success stories of people making money in real estate and are wondering how you can get in on the action. As Toronto’s popularity continues to rise, so too have real estate prices. While this is great news for those who are already owning a rental property, it can prove more challenging for those who have yet to get into the market.
If you have funds to invest and want to know how to make money on a rental property, here are seven tips for your rental property investment strategy.
1. Consider Increasing Your Down Payment
One thing to know when it comes to buying an investment property is that you will need a 20% down payment. However, if you’re looking to make money with investment properties, the more you can put down the better.
If you have the means to do so, consider increasing your down payment. If you put 25% down instead of 20%, while you’re paying more up upfront, you’ll easily make that 5% back (if not more) in equity gains over that first year. What a bigger down payment will do is lower your monthly mortgage payments and reduce your margins.
2. Look to the Resale Market for an Investment Property
Once upon a time investing in pre-construction condos was the best way to make money with investment properties. Today, pre-construction condo prices are now comparable, if not more expensive, to their resale counterparts. So it’s important to be open to the resale condo market when looking to buy an investment property.
The majority of new condo projects are charging far more than what the current market is trading for in any neighbourhood. To maximize your investment, look for condos with a good price per square foot and use your rental property income to start paying down your mortgage right away.
3. Look to Up-and-Coming Neighbourhoods
One of the best ways to make money on a rental property is to pay attention to the areas that are showing signs of gentrification. If you can buy a rental property in an area that may be slightly less desirable but has prices that are far lower than other areas, you can maximize your profit as gentrification occurs.
How to Make Money on a Rental Property Pro-Tip: In Toronto, there are lots of underdeveloped areas along the subway eastbound that are likely to see tremendous price growth over the next several years. Linx Condominiums is one of the more recent condo projects for the area, and we expect to see many more like it. Sign up as an Insider to get all of the best investment opportunities sent right to your inbox.
4. Buy an Unoccupied Property
When it comes to buying an investment property, if the owner is selling a tenanted property, you will have to assume the existing tenants and honour their lease. To ensure you’re able to rent out your investment for a competitive price, try to avoid buying a property that has an existing lease agreement in place.
5. Buy a Condo Assignment
While we always advice our investors not to buy a pre-construction condo with the intention of selling it on assignment, for the very reasons we tell them not to sell are the reasons why you may be inclined to buy a Toronto condo on assignment.
An assignment is when the purchaser of a pre-construction condo chooses to sell their agreement with the builder to a new buyer before they officially take possession of the condo.
If you’re looking to make money on a rental property, buying an assignment means you have leverage with your purchase price because the building’s amenities and common spaces are not completely finished. This means you are able to buy a new condo for less than fair market value and have some potential equity built in as well. It’s also worth noting that brand new condos are exempt from rent control.
Your realtor will be your best advocate in sourcing good assignment deals. Trust their guidance.
6. Plan to Hold on to Your Investment
Gone are the days of finding a cash-flow positive rental property in Toronto. if you’re wondering how to make money on a rental property, your investment strategy should be focused on the long-term gains, not the quick wins.
In Toronto, the equity gains are what’s paramount. The longer you hold your investment, the more equity you build. Condo prices in Toronto proper rose 15% year-over-year in January 2020 and 8.8% y-o-y in January 2019. The equity gains are exceptional, and the rental property income you’re earning is a nice bonus. Hold that investment property for five to six years and you should see an incredible return on investment.
7. Buy a Multi-Residential Rental Property
If you want to know how to make money as a landlord, consider buying a multi-residential building. While this type of investment will most certainly have a higher price tag and require more up front, if it’s within your means to do so, these types of properties can make excellent long-term investments.
In order to take advantage of the gains and cash flow that multi-residential investments provide, you will need more cash up front. In addition to the higher down payment (20-35%) you may want to put aside some additional cash for renovations. Modernizing the property can often increase your rent roll.
How to Make Money on a Rental Property Pro-Tip: Properties that exist on main streets will often be valued lower than those on side streets. However, when investing in multi-residential properties you are looking for opportunities to generate revenue. If you can purchase on a main street for less than you would on a side street, you’ll reduce your carrying costs and could possibly generate a higher return.
Ultimately, the best way to make money on a rental property is to work with a real estate agent who not only understands how to invest in real estate but who is a seasoned investor themselves. Pierre’s 14+ years experience as a Toronto real estate agent and investor allows him to guide his clients towards investment properties that will yield high returns.
Book a call with us to get started on your investment journey today!
Pierre Carapetian Group Realty makes no warranty, express or implied, nor assumes any legal liability or responsibility for the accuracy, correctness, completeness or use of the information provided. Opinions are based on our own calculations and fair market value is as determined by us.