Real Estate Investment In Toronto: Is It Profitable In 2023?

Are real estate investments in Toronto in 2023 profitable?

When it comes to real estate investment in Toronto, people are either for it or against it. Just check some of the Toronto real estate Reddit threads – you will get an idea.

There are the skeptics that like to hang onto the headlines that prophesy Toronto’s housing market bubble is sure to burst – and we might be heading towards a large correction in prices. On the other side, you have the real estate investors and everyday Toronto homeowners that have made unbelievable equity gains simply from choosing to buy property or properties when they did.

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Toronto is an evolving world-class city, joining the likes of NYC, San Francisco, and London. It may seem too good to be true but the Toronto real estate market is destined to keep its momentum.

So if you’ve been asking yourself, is a real estate investment in Toronto worth it in 2023? The answer is yes. Real estate investing can be highly profitable and provided you have the means, you should look to build your real estate portfolio as soon as possible.

We’re here to give you an overview of real estate investment in Toronto, a few reasons why you should invest in Toronto’s housing market, and most importantly – how to invest in real estate in Toronto!

Profitability Of Real Estate Investment In Toronto

 

Is Real Estate Investment In Toronto Profitable?

If you like it short and sweet – the answer is yes. There are 4 main reasons that make real estate investment in Toronto profitable:

High Equity Gains When You Buy Investment Property in Toronto

If you’re asking yourself, “Is real estate profitable in Toronto?” you’re in the right place. Investing in Toronto real estate, when done wisely, can be very fruitful. Since 2017, condo prices in the 416 (Toronto Proper) have risen 32% or 6% a year. To put that in perspective, if you had purchased a condo in 2017 for $550,000, you would have made over $180,000 (or $36,000 per year) just by living there. The high equity gains seen in real estate in Toronto is one of the reasons why Toronto is one of the best places in Canada to have real estate investments.

And that’s just the average price of real estate investments in Toronto. With a proper condo investment strategy, you can make better returns, faster. Some of my clients with real estate investments in Toronto have already earned between 9% and 24% on their 2020 investments. Have a look at some of my client’s returns here.

Stable & Increasing Demand for Rental Property

Investing in Toronto real estate is still very profitable and with Toronto’s growing population, the demand for rental properties remains stable. Covid may have had its time and lowered rental demand but that was temporary and we’re already on the up-and-up. In fact, with the recent market correction rent prices are actually up 25% over 2021. With college students returning to school and immigration expected to reach record-breaking levels, we anticipate stable but high demand for rental inventory.

Both immigration and educational opportunities are bringing a growing population of qualified residents to the city. In 2019, the Huffington Post published that Toronto is the fastest-growing city in the U.S and Canada with an increase of 77,435 new residents between July 2017 and July 2018. In 2021 Canada aimed to welcome 401,000 new immigrants, has already landed over 70,000 in the first quarter alone, and plans to tie record immigration levels set in 1913.

With major developments like East Harbour and our growing tech industry, and several high-profile tech companies choosing to set up shop in Toronto (Google, Sentry, Uber, Pinterest, and Microsoft to name a few), the demand for available rentals will continue to climb.

Pair that with Toronto’s record high rental rates — condos currently rent on average about $2,463 per month — and it’s easy to see how your tenant can help pay down your mortgage.

It’s also worth noting that the Ford government has lifted rent control on new units, including pre-construction condos, which are being leased for the first time. You can read more about the rent control amendment here.

New Transit Plans On The Horizon

We love projects near existing transit stations or future transit stations. Property values tend to favor them as both owners and renters alike do. Toronto has a lot of great transit plans on the horizon, if you’re investing be sure to check out these neighbourhoods. 

Canada’s Stringent Lending Practices Keep You Protected

Buying investment property in Canada is a safe long-term investment because of the many guidelines they’ve introduced, including the Stress Test at the beginning of 2018 which was actually raised to a higher Stress Test threshold in June of 2021. We’re also VERY WELL-FUNDED. Believe it or not, Canada has an extremely low delinquency rate. As of 2021, it was 0.25% — the lowest level reported in 5 years. Canadians may be mortgaged to the hilt, but Canada’s loan default rate remains tiny. Canadians will do anything to ensure they don’t miss those payments.

 Best Place To Buy Investment Property In Canada

Is A Condo A Good Real Estate Investment In Toronto In 2023?

When it comes to real estate investment in Toronto, the condo market is where the biggest gains are. The average price of a condo in Toronto has gone up 32% since 2017. And when you pay attention to the local data and study the different neighbourhoods, you’ll quickly realize that different areas perform better than others. Investing in a condo in Toronto in 2023 means you’ll get in at yesterday’s rates, something that was once unbelievable.

Toronto’s international profile is joining the likes of major cities like New York City and San Francisco but with property values still far below their markets. While we may think our condo prices or Toronto real estate listings are high, they’ve still got a long way to climb before they reach the prices of these other major cities.

We like to say that the best time to buy real estate is yesterday because the longer you wait, the less your money is actually worth. This is all a result of the Toronto condo market’s success.

Example: Let’s say both you and a friend had $100,000 to invest.

You decide to invest in a $500,000 condo while your friend decided to wait a year in hopes of a market drop. Instead, the market goes up 10%, earning you $50,000 while your friends $100,000 is now only worth $90,000. All of which is to say, prices in the next year will either be higher than today, or interest rates will be higher than they are today. Homes will never be more affordable than they are today. Investing in a Toronto condo this year means your money can start working for you today.

Are Pre-Construction Condos Good Real Estate Investment In Toronto?

Most don’t like this answer but that’s the reality of it: it depends. It really depends on what you’re buying, where you are buying, and most importantly, what price are you paying.

Not all pre-construction projects are equal. Just because you buy something on a “Platinum Launch” doesn’t mean it’s the best deal — or even a good deal at that. When you are buying real estate investment in Toronto, whether you’re trying to invest in real estate with little money or a large down payment, there is one thing that matters above all else, your return on investment.

We wrote an entire article on the topic of re-sale condos vs. pre-construction condos. Depending on your financial situation and goals you might find one more attractive than the other.

Is Buying A House A Good Real Estate Investment In Toronto?

With the cost of Toronto houses in 2022, it’s hard to invest in a house as a rental property (not impossible, just cash intensive). If you’re thinking about buying a house in Toronto and whether it’s a good investment long-term as you live there, it absolutely is.

Why Real Estate Investments In Toronto Yield Higher Returns Than The Stock Market?

When it comes to investing your hard-earned money, is investing in Toronto real estate better than investing in the stock market? The short answer is yes — if you can afford it.

The real estate market in Toronto has proven time and time again to produce far more steady growth and be more stable than the stock market. Ask yourself, how much have your traditional investments made you over the past decade compared to your home? When you buy an investment property in Toronto you are investing in real estate — a tangible asset, not the shares of a company that could take a nose dive due to a bad PR crisis. It’s also a long-term investment; so even if the market takes a minor drop, it will continue to climb over the long term.

When you get into the numbers of it all, real estate investment in Toronto has the potential to earn you ten times the amount of traditional stocks and bonds because when you invest in real estate, you’re leveraging your money into a much larger asset. Real estate vs stocks is often a big debate among investors.

For example, if you buy $30,000 in stocks and the market goes up 10%, you’ve made $3,000.

However, if you put $30,000 down on a property that’s worth $300,000 and the market goes up 10%, you’ve made $30,000.

Investing in real estate is a low-risk, high-return investment. Since your gains are made on the full value of the asset, your dollar goes much further. 

For a more comprehensive breakdown read Pierre’s Take on Stock VS Real Estate

Real Estate Investment Options For All Types Of Real Estate Investors

 

What Are The Two Types Of Real Estate Investors?

Real estate investors in Toronto can be divided into two types: first-time buyers and existing homeowners.

The New Real Estate Investor or First-Time Buyer

When starting out, you should build your investment portfolio at a pace that is conducive to your own means. Not everyone will be able to purchase one or more $600,000 properties right off the bat, however, the goal remains the same: setting up a channel that will help you build equity and amass wealth.

Even if buying a modest studio condo for $400,000 is what your budget will allow, it’s a great way to get your money to start working for you and will set you on the path to being able to afford larger investments in the future.

If you’re a first-time buyer you will want to read this article on why buying with 5% down today makes more sense than waiting until you have 20%.

Just remember that investing in Toronto real estate is a long-term investment plan. With strong equity gains and a tenant paying down your mortgage, it won’t be long before your investment is generating equity.

Related: Your Real Estate Investment Toronto Strategy Dos and Don’ts

The Home Owner

If you already own a home or an investment property in Canada you have the opportunity to make your money work for you. You have two options, you can sell and reinvest those funds into a higher-performing asset or you can leverage the equity from your existing property.

How Does Leverage Work

Real estate is one of the few purchases that you can make without having to pay the full purchase price. Typically, purchasing a property requires 20% down, meaning when you have $100,000 to spend you can purchase a property worth $500,000. The equity growth is based on the full value of the asset.

One of the reasons why so many people are able to build wealth through real estate is the magical power of leverage. When you own a home, you’re able to borrow up to 80% of your home’s equity for a low-interest rate, known as a Home Equity Line of Credit or HELOC.

If you can leverage a portion of your home equity into a second condo investment, you’ll begin to build your own real estate portfolio, now providing you with two properties generating equity in the market.

Learn the specifics of using the equity in your home to invest in real estate.

What Are The Different Types Of Real Estate Investments In Toronto?

When it comes to real estate investing in Toronto, investors have a lot of different options to choose from. An overview of seven different real estate investment options in Toronto are:

  1. Investing in a house or condo; as a primary means of residence while gradually building home equity over the long term

  2. Buying or holding a condo for rental income; a great option as rental prices are at an all-time high and vacancy rates are extremely low in Toronto

  3. Subletting or renting out properties with self-contained apartments; helps your mortgage payments offering a quicker route to breakeven

  4. Flipping a condo or house for profit depends on purchasing the right real estate property, in the right neighbourhood, remodeling it, and then selling it for a profit.

  5. Investing in pre-construction properties was once all the hype. The process is simple: you identify a good investment opportunity precisely in the neighbourhood that you believe will appreciate over time. Once the unit is built in roughly 5 years’ time or more, you sell it for a profit!

  6. Investing in mixed properties to get the best of both worlds: residential and commercial. Mixed properties have a reputation for earning a high ROI but the process to purchase them is very different.

  7. Investing in Real Estate Investment Funds (REITs). REITs are like mutual funds for the real estate market. Investors earn dividends from real estate investments without having to actually get their hands too messy.

That’s the gist of it. Now let’s get comprehensive and really understand your real estate investment options in Canada: 

Resale Condos

Resale condos are units sold by the current owner. When you are looking to purchase a resale condo, the process is just like buying a new house. You are able to determine if you like the unit itself as it is fully finished, as well as if you like the condition of the building and surrounding amenities. Investors of resale properties often get the keys within 30-60 days and you are able to hand keys over to your tenants immediately instead of having to wait a few years for the completion of a new build. This means that your investment starts to pay off after day one. There is increased financial certainty because you are able to get your mortgage pre-approved immediately based on the current rate which will determine your exact carrying costs. You are also able to negotiate a better deal with another owner rather than a developer as owners of resale properties may be more motivated to sell due to life circumstances. It is important to buy in a building that will appreciate in value. Keep in mind, one day you will want to sell the property and you will want to ensure you make the most equity possible.

RELATED: PRE-CONSTRUCTION VS. RESALE TORONTO CONDOS 

Income Properties

Income properties are houses that have self-contained apartments that are rented out such as a duplex or triplex. Investors are looking for a property that will generate income with this type of investment. The calculation used here by investors is the capitalization rate (cap rate). The cap rate is the rate of return on a real estate investment property based on the income that the property is expected to make. The cap rate is calculated by determining the operating income over the purchase price. The higher the cap rate, the more lucrative it is for the investor to purchase. Generally, with this type of investment, properties are older and require more maintenance repairs. You will also have multiple tenants which means you will be dealing with your tenants more frequently.

Flipping

Flipping houses is a term used for buying a run-down our outdated house with the intention of renovating and reselling typically within the year for profit. Flipping a house is not an easy task so make sure you consider all costs associated and work with a Real Estate who can help guide you through this very risky process. The main advantage of flipping a house is that generally, the investor will see their return within a year, however, the strategy is the riskiest real estate investment anyone can take part in. In this type of investment, the opportunity to lose money is far greater than any other investment. We advocate for Real Estate being a long-term investment and when you try to flip a property in a short period of time you are increasing your exposure to risk. With a flip there are unexpected cost that a property may uncover that an investor may not be aware of and these unexpected issues could take up all of the expected profit which is one of the reasons why it is so risky. Make sure that you have an experienced agent and contractor who can accurately predict the upfront and exit costs associated with the project.

Mixed-use development

Mixed use properties combine commercial, residential and industrial spaces into one property. Mixed use developments are designed to provide home affordability, walkability between housing and workplaces, and stronger neighbourhoods. Some buildings are used for residential living and some are used commercially. Some benefits of investing in mixed-use development is that there will be multiple streams of income for the investor, a wide variety of tenants and higher rental demand because of the walkability and close proximity to community amenities. In downtown Toronto mixed-use properties have appreciated immensely over the last decade and have proven to be excellent long-term investments. However, because of the price point, an investor typically requires a substantial amount of money down. In addition, mixed-use development typically requires a higher down payment percentage – usually 25-35% down vs. just 20% down on any other type of investment. Commercial taxes are higher than residential taxes which means that your carrying costs are also higher on a mix-use property.

Pre-construction Condos

The demand for pre-construction condos is extremely high for investors looking to allocate money with the future expectation of a profit. Investing in a pre-construction condo means that you are buying a condo unit in a building that has not been developed yet. The main advantage of buying pre-construction is that investors are putting less money down over a longer period of time. Typically, the deposit structure with pre-construction is 5% increments over the course of 1 to 1 and a half years with back end expenses not needing to be payed until 4 years later when the development is finished. This allows the investor to have more leverage on the investment as they are not forced to put as much money down right away. In addition to this, with pre-construction, you are buying a brand-new building which will likely command the highest price when it is complete vs. everything else that is currently available. Pre-construction condos are desirable to rent because tenants like moving into a brand-new property. With pre-construction there are often several delays so your exit off of the investment is typically longer and there are more closing expenses in comparison to resale condos. Take a look at our preferred pre-construction projects here.

RELATED: SHOULD I BUY A PRE-CONSTRUCTION CONDO NOW OR WAIT?

Understanding Return On Investment (ROI) In Real Estate

It’s always a good practice in investing to be able to determine your return on it. Understanding the ROI of real estate investments in Toronto will help you make better decisions in the long run, allowing you to compare different properties using other financial metrics too – in addition to ROI.

How Is ROI Calculated For Real Estate Investments?

Return on investment (ROI) in real estate is the profit that’s left after subtracting all the costs that go into the purchase of a property from the final selling price. Expenses involved in the purchase of a property include everything from the final purchase price to any remodeling expenses.

  • ROI for resale properties: (Final Selling Price – Investment Cost) / Investment Cost

  • ROI for rental properties: (Operating Expenses taken yearly such as tax, insurance, maintenance costs etc. – Annual Rental Income) / Outstanding Mortgage Amount

    All these amounts are calculated on an annual basis – except the outstanding mortgage.

What Is A Good ROI For Real Estate Investment In Toronto?

When we look at real estate investments in Toronto we need to think locally – According to Sarnen Steinbarth, founder of TurboTenant, a good ROI for a rental property is upwards of 10%. But the Toronto real estate market is much different. I wrote a post on the topic of cash flow properties and how they are nearly impossible to find in Toronto unless you choose to put down more money >30%, or you go bigger into multi-plex units.

Does this mean that a Toronto real estate investment is not profitable, no! We have the client returns to prove that it can be VERY lucrative, check them out here.

Instead, we guide our clients to consider equity gains and mortgage pay downs (the portion of the mortgage that was paid by the tenant) as well as how they finance the property purchase. Leveraging the equity from an existing property, as mentioned above, is a surefire way to create exponential returns.

How To Invest In Real Estate In Toronto? Step-By-Step Process

 

Develop A Sound Real Estate Investment Strategy

Not sure how to start real estate investment in Toronto? Well first things first – you need to get a good real estate investment strategy in place. You need to speak to the right professionals, a real estate agent, a mortgage agent and your accountant.

Investing in Toronto real estate isn’t a one size fits all strategy. Having an experienced realtor who understands the investment process is a great way to ensure you’re making smart investment decisions. They’ll be able to give you guidance on how to maximize your return and equity beyond the expected market growth.

Their advice and guidance in building your portfolio will depend on what you have at your disposal and will largely depend on trends in the market. They should actively be looking for margins and opportunities in the market that match your individual needs and ability. It’s not about buying one thing, it’s about buying the right thing.

Work with an Agent Who’s also an Investor

Real estate investment in Toronto is best done with a real estate broker who is also an investor. Pierre became a real estate agent because of the amount of money he had made from his first condo. Recognizing the value in real estate, he taught himself everything he knows about the Toronto market so that he could duplicate the same success for his own clients.

See some of Pierre’s client returns here. 

Finding the Best Condo Deals

If you’re looking at real estate investment in Toronto, it’s important to buy strategically. Don’t be misguided by developments that seem juicy because they’re along the waterfront. You’re looking for condos with the best margins and they can be found both in the resale condo market as well as the pre-construction market.

Read: The Best Pre-Construction Condos Launching This Year

Spotting the best condo deal in Toronto can be approached in several different ways:

  • Look for condos that are priced below what other properties in the area are trading for.

  • Look to gentrifying neighbourhoods where prices are low but are on the rise.

  • Look for future developments or transit infrastructure that will add value in the years to come.

  • Look to resale condos that are known to perform well in the market.

These are just some of the ways you can find a good condo investment. The real value is with the real estate agent you work with. When it comes to the resale market, having an agent who knows which buildings and floor plans yield the better ROI can prove to be immensely valuable.

With regards to pre-construction, you need an agent who has Platinum Access to projects throughout the city. This gives you preferential access to the best floor plans and the lowest pricing available. When Toronto buildings launch sales the best inventory is always snatched up during the Platinum phases by seasoned real estate agents and their clients. The best inventory typically never hits the open market.

Best Pre-Construction Condos To Buy In Toronto

Advice pertaining to purchasing the best pre-construction condo to buy in Toronto is relative, as our answer will always vary based on your goals, budget, and unique situation. Therefore we’ve written a detailed article covering the different types of pre-construction condos you might want to purchase.

Related: Best Pre-Construction Condos in Toronto Launching This Year

However, if you’re looking for the best real estate investment in Toronto of the year, we should talk. Book a call with us to get started on creating an investment plan that works for you. Building wealth through real estate is what we do.

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