If growing your financial wealth is one of your goals for the upcoming year, real estate investing is one of the most reliable vehicles to achieve it. In Toronto, the market for rental units is at an all-time high. With immigration targets set to increase over the next few years, that demand will likely grow even more. No matter what level of investor you are, the local landscape offers up nearly unlimited opportunities to grow. As with any investment, you typically want to start as early as possible to take full advantage of the market appreciation. However, your first order of business is to determine where you are compared to where you aim to be.
What Is the Property Ladder?
Owning real estate is often compared to rungs on a ladder. If you currently don’t own a house or condo and are renting instead, you are not yet on the ladder. Buying a residential home puts you on the first rung.
The more properties you own, the higher you climb and the more equity and income you stand to earn. Your understanding of the property ladder marks the beginning of your investment journey. Your next step is to understand why you want to become an investor.
What Type of Person Invests in Real Estate?
When you think of real estate investors, you may imagine high-powered executives or corporations buying up land and building massive skyscrapers. However, most investors in Toronto are regular people who work hard and choose their ventures only after careful analysis and consideration. Types of investors range from total beginners who are mildly curious to seasoned professionals holding multiple properties.
Fluctuating real estate market or not, Toronto still has many fantastic opportunities! Read more from our investment series below:
- What You Never Knew About Secondary Suites
- What Successful Toronto Real Estate Investors Have in Common
- Buying an Investment Property With Olea Real Estate Group
Is Investing in the Current Market a Good Idea?
Investing in real estate offers numerous financial benefits.
- It is one of the safest vehicles you can choose. Even if a volatile market, a house will never lose 100% of its value. Prices rise and fall, but the long-term trend is usually up. Even in the worst-case scenario, you can cash out of your investment and get back most, if not all, of your initial funds and then some.
- Owning and holding a property is a fantastic way to grow your equity over time, with an average annual return of 8-13% per year.
- You can generate passive income every month by renting out your property. Finding the right tenant is the beginning of a long and mutually beneficial relationship.
What Are Your Goals and Resources?
There is no question that real estate is the perfect opportunity for the right person. However, it is definitely not for everyone. Though generally safe, every investment involves some risk. The current market makes it challenging to turn a short-term profit. To be successful, you must have the financial resources and aptitude to hold onto your property long enough for it to rise in value. How do you know where to start? Your answers to the following questions will guide you:
- Do you wish to create passive income?
- Do you want to take advantage of equity growth in the long term?
- Are you hoping to sell quickly at a profit?
- Do you want the security of owning a second home?
- Is your goal to create long-term wealth for the future?
- What do you want as a legacy for your family?
- How involved do you want to be in your investment?
- How much startup capital do you have access to?
- What is your risk tolerance?
- Are you ready to be a landlord?
- Do you have access to an emergency fund if your investment takes a short-term loss?
Where are some of the best places to invest in Toronto? Schools, parks, and other amenities are sure signs of a desirable area. A few of our community guides are a great place to begin your research:
- What You Need to Know About Buying and Selling on the Waterfront
- Our Favourite Toronto Off-Leash Dog Parks
- How to Find the Best Schools in Toronto
What Type of Investor Are You?
If you’re currently renting and have yet to purchase your first property, the idea of becoming a successful investor one day may seem far-fetched. However, everyone starts somewhere, and the equity you gain from your first purchase can empower your next steps.
Step One: From Renter to Homeowner
The good news is that prices have recently dropped in the GTA, making it easier to come up with the down payment for your first property. From now on, every monthly payment whittles away at the principal of your mortgage, and your equity starts to grow. For many people, breaking into the real estate market is the most challenging step. Achieving this milestone calls for a celebration! From here, a multitude of options can unfold.
Step Two: From Homeowner to Landlord
The leap from homeowner to investor can be as simple as renting out a single bedroom in your home to a university or college student. The income will help cover your monthly payments, allowing you to build your savings or pay down your mortgage faster. Constructing a secondary suite in the basement or attic can also expand your earning potential and grow your equity by increasing the value of your house.
Alternatively, your first purchase can be a duplex or other multi-unit residence, allowing you to earn rental income from day one. Many lenders will allow you to project these earnings, which can make it easier to qualify for financing.
Step Three: Owning and Managing Multiple Properties
Once you have built enough equity in your first home, you can borrow against it to fund your second purchase. This moves you quickly up the property ladder, increasing your purchasing power through your rental income and rising net worth as both homes appreciate in value. Reaching this level is an enviable achievement that opens even more possibilities for your future.
At any point, you can cash out of your investment and enjoy the proceeds. Or you can repeat the process and add even more properties to your portfolio.
Step Four: Becoming a Hands-Off Investor
Everyone may love the idea of owning multiple properties and receiving passive income each month. That said, being a landlord is a massive responsibility, and not everyone is suited for the task. However, you can reduce your workload and stress by teaming up with a property management company. They will handle the tenant screening process, resolve disputes, and arrange for any repairs and maintenance the property requires. This frees you to enjoy the benefits your investments provide while searching for the next addition to your portfolio.
Do you want to talk more about the benefits and responsibilities of investing in Toronto real estate? We work with landlords and investors at every stage of the property ladder, and are happy to guide you through the process. Book a free meeting with no obligation below.
