Real Estate Investing
Growing rental vacancies have Greater Toronto Area real estate investors looking outside big cities for profits. Vacancies reached 5.7% in downtown Toronto in early spring 2021, with rents dropping by 10% (14% for condos). That 50-year high brings opportunities for astute property investors, new or seasoned.
Pros of Real Estate Investing
Real estate investing has its pros;
- steady income streams
- quicker mortgage payouts
- higher mortgages, better credit scores
- self-employment for motivated landlords
- income tax write-offs
Keys to Successful Real Estate Investing
First-time buyers often ask how to start with real estate investing. Real property prices go up over time, making rental properties good investments for mortgage lenders and borrowers. Buyers need only be in the right place at the right time and pay the right price.
Twenty to 30 per cent down payments and higher interest rates scare some small investors away unnecessarily. They benefit from:
historic market trend projections
professionally managed rental properties, eliminating hands-on involvement
proximity to high demand areas like colleges, universities or urban transit corridors
buy and hold strategies for steady, long-term returns.
Common Mistakes Investors Make
- Offered over appraised value, lenders won't finance.
- Bought a poor investment because they loved it.
- Waived inspection, can't afford unforeseen problems.
- Did repairs or renos without professional help. Took too long, cost too much.
- Hired an unqualified contractor or fraudster. Overpaid for shoddy construction that leaked, cracked or was unwarrantied.
- Neighbourhood not the best, property values dropped while crime rates soared.
- Bought too early in a gentrified area, before home values increased.
- Landlord horror stories -- you've heard them.
- Overestimated profits, overlooked upkeep and expenses.
- Made renoviction plans but didn't understand tenant rights.
- Bought undervalued "flip" property or live-in home to renovate and resell without secure interim financing and renovation expertise.
- Thought distressed properties or foreclosures were good value, failed to hire a qualified home inspector for a clear grasp on purchase-to-profit ratios. It's straight economics.
- Picked a joint venture partner who lacked financing or in-kind contributions like reno skills. Before organizing showings, assess if business partners have realistic shared goals or refer them to a trusted mortgage lender for pre-approval.
- Maxed out their capital gains allowance buying and selling property.
Commercial vs Residential and What's Hot
Commercial vs residential -- who's buying what and why?
Short of zoning changes or neighborhood decline, ICI properties (industrial, commercial, institutional) are reliable long-term commodities. For inexperienced real estate buyers who get over involved personally with buying rental homes, commercial investing allows a balanced real estate portfolio.
Here's what's moving in commercial and residential property investing:
- Commercial real estate investments dropped 23% in fall 2020, but that's still a 30% recovery over Q2, according to data marketer Altus Group. Opportunities abound for aggressive Toronto area investors who can swoop in with cash or solid financing already in place.
- Residential land investing led the way, followed by purchasing industrial land and land assembly for apartment sites. Apartments outperformed other income asset classes despite COVID-19 restrictions, Altus reports.
- Investor discounts dominated land pricing. Vendors held onto land longer to avoid selling at discounted rates, inflating a supply crunch.
- Warehouse and industrial sales remained strong due to online selling pressures for storage and packaging space.
- Office leases, hotel sales and retail space vacancies were all affected by stay-at-home orders from employers and public health officials. That will likely see an uptick with widespread vaccinations and lifting of travel restrictions. But single asset investments remain problematic, experienced commercial brokers Mortgage Alliance Commercial advises.
- Social distancing didn't stop Greater Toronto Area home buyers. TRREB predicts average home prices of $1 million by year end 2021, with investment opportunities in low rise new build apartments for middle-market renters.
Advising on Financing Investment Property
Realtor clients for investment property mortgages need good credit histories, down payments of 20% or more for under four units and positive rental income projections or market rent opinions. Non-rental income must be sufficient to meet mortgage obligations.
Private mortgage lenders are good options for buyers turned away by banks or credit unions or wanting high-ratio mortgages. Borrowers can get up to 80% of a home's loan-to-value ratio, whether they live in the home or not, by paying higher interest rates.
CMHC insured mortgages for small rental loans come with premiums of 1.45% for loan-to-value ratios of up to 65%, maxing out at 2.9% with the minimum 20% down payments. The agency uses 50% of gross rental income to calculate if borrower's qualify. Non-owner occupied properties with two to four units valued at up to $1 million are eligible.
Married spouses or common law couples can borrow up to $70,000 in RRSP savings, and singles $35,000, for homes that are also principal residences.
Investing Outside Toronto
Attractive small cities like Niagara-on-the-Lake, Brampton, Thornhill or Oakville are hot property for ICI or rental home investors. Buyers get more for their money in cities with low vacancy rates, high student populations, fewer municipal taxes and good highway or transit access to major urban centres like:
- Sault St.-Marie
- Thunder Bay
- St. Catherines
- North Bay
- and Oshawa.
All have universities and many smaller communities have technical, trade or private academies that create ongoing demand for rental apartments. A thriving population means employment and that brings opportunities to buy or lease retail, hospital and manufacturing space.
Big city pressures on small communities can make buying homes unaffordable. For investors small and large alike, lower housing affordability equates to profitable markets for buying and holding rental housing. It's a buyer's (and seller's) market for the taking.
Professional Ontario Real Estate Lawyers
Axess Law's flat fee legal services offer good value for Ontario real estate investors. Buyers pay just $999.99 and up for licensed legal services and sellers $799.99 and up. Book appointments online in minutes. Or direct buyers and sellers to our 1-877-402-4277 or 1-647-479-0118 lawyer lines in Greater Toronto Area for free quotes. We have open law offices nearby with long, flexible hours and can see clients day or evening by appointment.