by Paul Ambler
on Tuesday, December 17th, 2019 at 1:00pm.
With so many new developments popping up every year in the GTA it can be overwhelming knowing where to begin with real estate investment, especially if you haven't invested in real estate before. Becoming a landlord can also be challenging but it can also be rewarding! Whether your investing in a cash flow rental type property or for a long term equity appreciation type investment, knowing where to begin, where to look and what to expect are the most important challenges to consider in any investment.
Identify & Understand Your Goals
One of the first steps to investing wisely is to understand and define your goals. Whether you are investing for long term equity appreciation or positive cash flow returns, the importance of understanding and defining clear goals remain the same. 1. You must identify your investment goal. 2. Where do you intend to focus your strategy? Condos? Residential? Duplex? Triplex? Commercial? The strategy will be different for each one so make sure your focus is tailored to that real estate investment strategy.
Toronto’s condo market has become expensive. Combined with rising interest rates which have raised carrying costs, If is more difficult than ever to find Positive cash flow investments. There are however, strategic ways to improve your margins, like a higher down payment or purchasing the right property in the right location where lease rates are still high enough to generate positive cash flow. We can help identify some of these areas.
Pre-construction condos in Toronto have generally been a great long term equity gain investment. However, with price increases in pre construction & resale condos over the last few years finding the right property in the right area at the right price can be tricky. Builders have begun pricing many new developments understanding what the price will likely be by the time occupancy has begun. There is also a desire to curb the amount of “flipping” of assignment sales on many developments by the municipalities which has driven up pre construction assignment sales costs.
Closing costs are one of the most important costs associated with any property purchase in Ontario. As a buyer is you have not accrued for these costs up front if can put a strain on the entire investment right from the start.
Land Transfer tax is calculated twice if you are purchasing a home in the the municipality of Toronto. Outside of Toronto you pay Ontario Land Transfer Tax only. If you are purchasing a home in Toronto you must pay Ontario Land Transfer Tax + Municipal Land Transfer tax.
This Land Transfer Tax Calculator can help estimate your Land Transfer Taxes. First-time buyers are also eligible for a partial Land Transfer Tax rebate.
When investing in a pre-construction condo, you’ll need to pay HST on the registration date (approximately three-four years after purchase) to a maximum of $24,000. If you are able to have a minimum 1 year lease arranged up front (at the time of occupancy), this amount is fully refundable if you apply for an HST rebate.
Know The Price Per SqFt!
Its important to understand what each unit within a condo building sells for based on its price/sqft. Searching for properties that have a low price per square foot compared to a comparable unit listed in that same neighbourhood is the key to finding a great deal. Once you understand this, it is much easier to prepare an offer that makes sense for that building. It also helps you identify potential “good deals” within a given neighborhood. This will also help you determine whether or not pre-construction or resale is the best route to go. If the average resale 1 bedroom condo is selling for $850/sqft and the pre construction is selling for $1000 +/sqft. You will probably do better purchasing the resale unit.
This concept is also important when considering commercial property, less so for residential detached homes.
What Makes A Good Investment?
Location, Location, Location
What does the floor plan look like?
Future neighbourhood infrastructure plans?
Will parking be a factor in this neighbourhood?
What are the maintenance fees?
What type of amenities are included in the building? (this can impact Maintenance fees significantly)
Rental prices in condos along major transit/subway lines generally see higher rental rates. You can also typically charge about the same rent for a two-bed, two-bath, 750-square-foot condo as you would a two-bed, two-bath 800-square-foot condo if they are in the same building. That 750-square-foot condo, however, will cost less to purchase, so you actually will improve your margins and lower your carrying costs.
Focus On Up & Coming Neighborhoods
If you want to make long term equity gains in your investment try to find areas where prices are low, you’ll reap the benefits in years to come as the area becomes more desirable. Leslieville is a great example of how gentrification impacts property values. Condo prices there have increased 50 percent since 2014. Investment opportunities in up-and-coming neighbourhoods where rental inventory is low will also allow you to charge a premium in rent.
Be In It For The Long Game!
The longer you hold your investment, the more equity you amass. As your investment’s market value goes up and your mortgage goes down, you’re able to leverage that equity into other investment condos.
Understand the tax implications
Knowing how your investment will affect your taxes — and the amount you owe — can make all the difference when purchasing property.
When you sell your investment property, you are required to pay Capital Gains Tax. This means that 50 percent of your net profit will become taxable income. You are entitled to deduct expenses incurred during the investment from these gains (like interest on a loan and cash-flow losses).
As mentioned above, when investing in a pre-construction condo you’ll need to pay HST to a maximum of $24,000 when the building registers with the city (typically four years after your initial purchase). Your lawyer can file for a full HST rebate, refunded approximately four to six weeks later, provided you have a one year lease in place. If you do not rent out your property for the minimum one year, you are not eligible for the HST rebate.
If you are considering expanding your investment portfolio to include real estate, I can help with the leg work! Finding neighbohoods that net high rental yields can be challenging. So to can finding a property that is both profitable & affordable. As a licensed Realtor, I have access to all GTA sales and rental data and Year over Year market trends and can help narrow the search for both pre-construction or resale condominiums.