There are two ways to make money with an investment condo in the Toronto real estate market.
- Capital appreciation – which refers to a rise in the value of your condo based on market price. This occurs when the condo you invested in sells at a higher price than what you paid for it.
- Cash flow – this refers to the income you receive from renting your condo out.
With the current trend in the Toronto condo market, here are 8 important things to consider when investing in a Toronto Condo:
The cost of an average condo in Toronto is rising. According to the latest condo report from the Toronto Real Estate Board, the average condo in Toronto now sells at close to $560,000, which is up 28% from 2017.
20% rule? More like 30%. If positive cash flow is your goal then putting down a 20% deposit may not accomplish it. You may need to put down up to 30% in today’s marketplace in order to break even or gain positive cash flow on a monthly basis. Here’s a real-life example:
Condo Fees. Every condo you purchase as an investment has fees that you should be aware of. The two major ones are obviously the down payment and mortgage, but then there are extra costs like insurance, property taxes, and property management. Added together, these condo fees can definitely eat into your bottom line so you should always consider them.
Think like an investor and play it cool. Emotions can get the best of us during the condo buying process. If you are purchasing strictly for investment purposes, then perhaps it might be a good idea to keep your personal preferences in check. For instance, insisting on a pure gold toilet because it’s what you have in your own home will definitely add dollars to your condo price, but it might not equate to getting a renter to pay a higher rental rate to cover that cost.
The importance of thinking about resale. One day you will decide that you would like to sell your investment condo. Whether or not your condo realizes a capital appreciation will be based ultimately on one question. Would anyone want to live there? Don’t just buy a condo because it’s the most affordable thing available. Consider things like location, amenities, and transit. No matter how tempting that condo located beside a landfill and overlooking a major highway is, you can probably do better.
Location, location, location. As I touched on in my last point, the single most important factor in making money in condo investing is location. The best thing you could do is invest in big cities that offer higher paying employment and lower unemployment rates. Big cities also don’t collapse if one large employer leaves. Look for condos in neighborhoods that are near transportation, good schools and plenty of things to do, which is exactly what renters look for and are willing to pay a premium in rent to obtain.
Rental Vacancy Rate. According to the Canada Mortgage and Housing Corporation, the overall vacancy rate is now 1.1% for all rentals in Toronto and only 0.7% for condos! The average rental rate for a one-bedroom unit is hovering around $2,160 per month. With such a low vacancy rate, it’s not uncommon to receive multiple rental applications for a property you own.
Taxes. The bad news is, the income you earn from rental revenues is taxable income. The good news is, you are able to write off most of your operating expenses. Things like mortgage interest and insurance, utilities, repairs, etc. The biggest difference between buying a condo that you will live in vs. an investment condo is that you will pay a capital gains tax based on the increase in value, which is determined by the sales price minus your original purchase price (talk to your accountant for the full breakdown).
Do you have any questions about investing in a condo? Call, text, or email me anytime!
